10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2016

Commission file number   0-7818

INDEPENDENT BANK CORPORATION

 (Exact name of registrant as specified in its charter)

Michigan	38-2032782
(State or jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

4200 East Beltline, Grand Rapids, Michigan  49525

(Address of principal executive offices)

(616) 527-5820

(Registrant’s telephone number, including area code)

NONE

Former name, address and fiscal year, if changed since last report.

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES☒          NO ☐ 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or smaller reporting company.

Large accelerated filer ☐ Accelerated filer  ☒ Non-accelerated filer ☐    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 ☒          

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, no par value	21,223,212
Class	Outstanding at August 3, 2016

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

INDEX

	Number(s)
PART I -	Financial Information
Item 1.	Condensed Consolidated Statements of Financial Condition June 30, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Operations Three- and Six-month periods ended June 30, 2016 and 2015	4
	Condensed Consolidated Statements of Comprehensive Income Three- and Six-month periods ended June 30, 2016 and 2015	5
	Condensed Consolidated Statements of Cash Flows Six-month periods ended June 30, 2016 and 2015	6
	Condensed Consolidated Statements of Shareholders’ Equity Six-month periods ended June 30, 2016 and 2015	7
	Notes to Interim Condensed Consolidated Financial Statements	8-59
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60-86
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	87
Item 4.	Controls and Procedures	87
PART II -	Other Information
Item 1A	Risk Factors	88
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 6.	Exhibits	89

1

FORWARD-LOOKING STATEMENTS

Statements in this report that are not statements of historical fact, including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions, are forward-looking statements. Forward-looking statements include, but are not limited to, descriptions of plans and objectives for future operations, products or services; projections of our future revenue, earnings or other measures of economic performance; forecasts of credit losses and other asset quality trends; statements about our business and growth strategies; and expectations about economic and market conditions and trends. These forward-looking statements express our current expectations, forecasts of future events, or long-term goals. They are based on assumptions, estimates, and forecasts that, although believed to be reasonable, may turn out to be incorrect. Actual results could differ materially from those discussed in the forward-looking statements for a variety of reasons, including:

• economic, market, operational, liquidity, credit, and interest rate risks associated with our business;

• economic conditions generally and in the financial services industry, particularly economic conditions within Michigan and the regional and local real estate markets in which our bank operates;

• the failure of assumptions underlying the establishment of, and provisions made to, our allowance for loan losses;

• the failure of assumptions underlying our estimate of probable incurred losses from vehicle service contract payment plan counterparty contingencies, including our assumptions regarding future cancellations of vehicle service contracts, the value to us of collateral that may be available to recover funds due from our counterparties, and our ability to enforce the contractual obligations of our counterparties to pay amounts owing to us;

• increased competition in the financial services industry, either nationally or regionally;

• our ability to achieve loan and deposit growth;

• volatility and direction of market interest rates;

• the continued services of our management team; and

• implementation of new legislation, which may have significant effects on us and the financial services industry.

This list provides examples of factors that could affect the results described by forward-looking statements contained in this report, but the list is not intended to be all-inclusive. The risk factors disclosed in Part I – Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, as updated by any new or modified risk factors disclosed in Part II – Item 1A of any subsequently filed Quarterly Report on Form 10-Q, include all known risks our management believes could materially affect the results described by forward-looking statements in this report. However, those risks may not be the only risks we face. Our results of operations, cash flows, financial position, and prospects could also be materially and adversely affected by additional factors that are not presently known to us that we currently consider to be immaterial, or that develop after the date of this report. We cannot assure you that our future results will meet expectations. While we believe the forward-looking statements in this report are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. We do not undertake, and expressly disclaim, any obligation to update or alter any statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

2

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

	June 30, 2016			December 31, 2015
	(unaudited)
	(In thousands, except share amounts)
Assets
Cash and due from banks	$	34,542		$	54,260
Interest bearing deposits		26,488			31,523
Cash and Cash Equivalents		61,030			85,783
Interest bearing deposits - time		8,560			11,866
Trading securities		212			148
Securities available for sale		599,755			585,484
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		15,229			15,471
Loans held for sale, carried at fair value		31,713			27,866
Loans
Commercial		792,000			748,398
Mortgage		506,021			500,454
Installment		252,712			231,599
Payment plan receivables		31,389			34,599
Total Loans		1,582,122			1,515,050
Allowance for loan losses		(22,712	)		(22,570	)
Net Loans		1,559,410			1,492,480
Other real estate and repossessed assets		5,572			7,150
Property and equipment, net		41,044			43,103
Bank-owned life insurance		54,990			54,402
Deferred tax assets, net		35,257			39,635
Capitalized mortgage loan servicing rights		10,331			12,436
Vehicle service contract counterparty receivables, net		3,036			7,229
Other intangibles		2,106			2,280
Accrued income and other assets		24,451			23,733
Total Assets	$	2,452,696		$	2,409,066
Liabilities and Shareholders’ Equity
Deposits
Non-interest bearing	$	678,489		$	659,793
Savings and interest-bearing checking		997,102			988,174
Reciprocal		49,355			50,207
Time		403,346			387,789
Total Deposits		2,128,292			2,085,963
Other borrowings		11,797			11,954
Subordinated debentures		35,569			35,569
Vehicle service contract counterparty payables		1,066			797
Accrued expenses and other liabilities		29,049			23,691
Total Liabilities		2,205,773			2,157,974
Shareholders’ Equity
Preferred stock, no par value, 200,000 shares authorized;  none  issued or outstanding		-			-
Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 21,315,881 shares at June 30, 2016 and  22,251,373 shares at December 31, 2015		324,268			339,462
Accumulated deficit		(74,062	)		(82,334	)
Accumulated other comprehensive loss		(3,283	)		(6,036	)
Total Shareholders’ Equity		246,923			251,092
Total Liabilities and Shareholders’ Equity	$	2,452,696		$	2,409,066

See notes to interim condensed consolidated financial statements (unaudited)

3

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(unaudited)						(unaudited)
	(In thousands, except per share amounts)
Interest Income
Interest and fees on loans	$	18,208		$	17,751		$	36,764		$	34,990
Interest on securities
Taxable		2,480			1,869			4,724			3,627
Tax-exempt		282			222			530			439
Other investments		297			289			603			627
Total Interest Income		21,267			20,131			42,621			39,683
Interest Expense
Deposits		1,152			967			2,266			1,974
Other borrowings		485			463			962			917
Total Interest Expense		1,637			1,430			3,228			2,891
Net Interest Income		19,630			18,701			39,393			36,792
Provision for loan losses		(734	)		(134	)		(1,264	)		(793	)
Net Interest Income After Provision for Loan Losses		20,364			18,835			40,657			37,585
Non-Interest Income
Service charges on deposit accounts		3,038			3,117			5,883			5,967
Interchange income		1,976			2,240			3,854			4,382
Net gains (losses) on assets
Mortgage loans		2,529			1,784			4,171			3,923
Securities		185			(33	)		347			52
Mortgage loan servicing, net		(334	)		1,452			(1,312	)		1,032
Title insurance fees		253			337			541			593
Other		1,933			2,090			3,905			4,000
Total Non-Interest Income		9,580			10,987			17,389			19,949
Non-Interest Expense
Compensation and employee benefits		12,000			11,791			23,881			23,576
Occupancy, net		1,856			2,040			4,063			4,459
Data processing		1,936			2,027			4,037			3,957
Furniture, fixtures and equipment		965			965			1,949			1,917
Communications		722			694			1,610			1,430
Loan and collection		571			967			1,396			2,122
Advertising		478			448			955			932
Legal and professional		345			453			758			833
FDIC deposit insurance		331			351			665			694
Interchange expense		267			289			533			580
Credit card and bank service fees		198			203			385			405
Vehicle service contract counterparty contingencies		(1	)		30			29			59
Provision for loss reimbursement on sold loans		-			45			(15	)		(24	)
Costs (recoveries) related to unfunded lending commitments		(80	)		4			(67	)		20
Net gains on other real estate and repossessed assets		(159	)		(139	)		(165	)		(178	)
Other		1,466			1,411			2,926			2,948
Total Non-Interest Expense		20,895			21,579			42,940			43,730
Income Before Income Tax		9,049			8,243			15,106			13,804
Income tax expense		2,611			2,624			4,568			4,404
Net Income	$	6,438		$	5,619		$	10,538		$	9,400
Net Income Per Common Share
Basic	$	0.30		$	0.25		$	0.49		$	0.41
Diluted	$	0.30		$	0.24		$	0.48		$	0.40
Dividends Per Common Share
Declared	$	0.08		$	0.06		$	0.16		$	0.12
Paid	$	0.08		$	0.06		$	0.16		$	0.12

See notes to interim condensed consolidated financial statements (unaudited)

4

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(unaudited)						(unaudited)
	(In thousands)						(In thousands)
Net income	$	6,438		$	5,619		$	10,538		$	9,400
Other comprehensive income (loss), before tax
Securities available for sale
Unrealized gains (losses) arising during period		2,334			(1,806	)		4,448			464
Change in unrealized gains (losses) for which a portion of other than temporary impairment has been recognized in earnings		107			(21	)		71			(10	)
Reclassification adjustments for gains included in earnings		(109	)		-			(283	)		(75	)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale		2,332			(1,827	)		4,236			379
Income tax expense (benefit)		816			(639	)		1,483			133
Unrealized gains (losses) recognized in other comprehensive income (loss) on available for sale securities, net of tax		1,516			(1,188	)		2,753			246
Other comprehensive income (loss)		1,516			(1,188	)		2,753			246
Comprehensive income	$	7,954		$	4,431		$	13,291		$	9,646

See notes to interim condensed consolidated financial statements (unaudited)

5

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

	Six months ended June 30,
	2016			2015
	(unaudited - In thousands)
Net Income	$	10,538		$	9,400
Adjustments to Reconcile Net Income to Net Cash From Operating Activities
Proceeds from sales of loans held for sale		129,838			154,938
Disbursements for loans held for sale		(129,514	)		(157,871	)
Provision for loan losses		(1,264	)		(793	)
Deferred federal income tax expense		5,625			4,475
Deferred loan fees		(987	)		(930	)
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities, loans and interest bearning deposits - time		2,507			2,228
Net gains on mortgage loans		(4,171	)		(3,923	)
Net gains on securities		(347	)		(52	)
Net gains on other real estate and repossessed assets		(165	)		(178	)
Vehicle service contract counterparty contingencies		29			59
Share based compensation		825			772
(Increase) decrease in accrued income and other assets		(1,051	)		551
Increase (decrease) in accrued expenses and other liabilities		2,639			(894	)
Total Adjustments		3,964			(1,618	)
Net Cash From Operating Activities		14,502			7,782
Cash Flow Used in Investing Activities
Proceeds from the sale of securities available for sale		55,362			11,786
Proceeds from the maturity of securities available for sale		21,413			16,047
Principal payments received on securities available for sale		74,212			58,587
Purchases of securities available for sale		(159,698	)		(111,908	)
Purchases of interest bearing deposits - time		-			(245	)
Proceeds from the maturity of interest bearing deposits - time		3,290			2,915
Purchase of Federal Reserve Bank stock		(129	)		(132	)
Redemption of Federal Reserve Bank stock		371			391
Redemption of Federal Home Loan Bank stock		-			4,514
Net increase in portfolio loans (loans originated, net of principal payments)		(64,236	)		(39,442	)
Proceeds from the collection of vehicle service contract counterparty receivables		4,458			15
Proceeds from the sale of other real estate and repossessed assets		3,018			4,515
Proceeds from life insurance		742			-
Proceeds from the sale of property and equipment		23			490
Capital expenditures		(990	)		(1,898	)
Net Cash Used in Investing Activities		(62,164	)		(54,365	)
Cash Flow From Financing Activities
Net increase in total deposits		42,329			37,115
Net decrease in other borrowings		(1	)		(1	)
Payments of Federal Home Loan Bank Advances		(156	)		(144	)
Net increase in vehicle service contract counterparty payables		269			328
Dividends paid		(3,451	)		(2,760	)
Proceeds from issuance of common stock		56			80
Repurchase of common stock		(15,510	)		(3,668	)
Share based compensation withholding obligation		(627	)		(66	)
Net Cash From Financing Activities		22,909			30,884
Net Decrease in Cash and Cash Equivalents		(24,753	)		(15,699	)
Cash and Cash Equivalents at Beginning of Period		85,783			74,016
Cash and Cash Equivalents at End of Period	$	61,030		$	58,317
Cash paid during the period for
Interest	$	3,158		$	2,878
Income taxes		360			91
Transfers to other real estate and repossessed assets		1,275			2,354
Transfer of payment plan receivables to vehicle service contract counterparty receivables		294			110
Purchase of securities available for sale not yet settled		2,342			-

See notes to interim condensed consolidated financial statements (unaudited)

6

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

	Six months ended June 30,
	2016			2015
	(unaudited)
	(In thousands)
Balance at beginning of period	$	251,092		$	250,371
Cumulative effect of change in accounting principle		1,247			-
Balance at beginning of period, as adjusted		252,339			250,371
Net income		10,538			9,400
Cash dividends declared		(3,451	)		(2,760	)
Issuance of common stock		56			80
Share based compensation		825			772
Share based compensation withholding obligation		(627	)		(66	)
Repurchase of common stock		(15,510	)		(3,668	)
Net change in accumulated other comprehensive loss, net of  related tax effect		2,753			246
Balance at end of period	$	246,923		$	254,375

See notes to interim condensed consolidated financial statements (unaudited)

7

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.   Preparation of Financial Statements

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading.  The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015 included in our Annual Report on Form 10-K.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary to present fairly our consolidated financial condition as of June 30, 2016 and December 31, 2015, and the results of operations for the three and six-month periods ended June 30, 2016 and 2015.  The results of operations for the three and six -month periods ended June 30, 2016, are not necessarily indicative of the results to be expected for the full year.  Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation.  Our critical accounting policies include the determination of the allowance for loan losses, the determination of vehicle service contract counterparty contingencies, the valuation of originated mortgage loan servicing rights and the valuation of deferred tax assets.  Refer to our 2015 Annual Report on Form 10-K for a disclosure of our accounting policies.

2.  New Accounting Standards

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12, “Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”.  This ASU amends existing guidance related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. These amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This amended guidance became effective for us on January 1, 2016, and did not have a material impact on our consolidated operating results or financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes and replaces nearly all existing revenuerecognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis fordeciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improvesdisclosures about revenue. In addition, this ASU specifies the accounting for some costs to obtain or fulfill a contract with a customer.  This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

8

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”.  This ASU amends existing guidance related to the accounting for certain financial assets and liabilities. These amendments, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”.  This ASU amends existing guidance related to the accounting for leases. These amendments, among other things, requires lessees to account for most leases on the balance sheet while recognizing expense on the income statement in a manner similar to existing guidance.  For lessors the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases. This amended guidance is effective for us on January 1, 2019, and is not expected to have a material impact on our consolidated operating results or financial condition.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting”.  This ASU amends existing guidance in an effort to simplify certain aspects of accounting for share-based payments. The areas for simplification in this ASU include income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  This amended guidance is effective for us on January 1, 2017, with early adoption permitted.  We adopted this amended guidance during the second quarter of 2016 using a modified retrospective approach.  The impact of this adoption was to adjust our January 1, 2016 Condensed Consolidated Statement of Financial Position to reflect cumulative effect adjustments as follows:

	January 1, 2016 Originally Presented			Cumulative Retrospective Adjustments		January 1, 2016 Adjusted
	(Dollars in thousands)
Deferred tax assets	$	39,635		$	1,247	$	40,882
Total assets	$	2,409,066		$	1,247	$	2,410,313
Common stock	$	339,462		$	62	$	339,524
Accumulated deficit	$	(82,334	)	$	1,185	$	(81,149	)
Total Shareholders’ Equity	$	251,092		$	1,247	$	252,339
Total Liabilities and Shareholders’ Equity	$	2,409,066		$	1,247	$	2,410,313

9

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The adjustments above reflect the recording of $1.23 million of unrealized excess benefits on share based compensation and $0.06 million (impact to equity of $0.02 million after consideration of deferred taxes)  for the impact of making an accounting policy election to account for forfeitures as they occur.  After January 1, 2016, excess tax benefits or deficiencies resulting from share-based payments will be recognized as tax benefit or expense when they occur. A tax benefit of $0.3 million was recorded during the three months ended June 30, 2016 as a result of share awards vesting during the period.  In addition, we have elected to apply the  amendments related to the presentation of excess tax benefits in the statement of cash flows on a prospective basis.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”.  This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income.  This ASU will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, allowances will be recorded rather than reducing the carrying amount as is done under the current other-than-temporary impairment model. This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. This amended guidance is effective for us on January 1, 2020.  We have not yet determined what the impact will be on our consolidated operating results or financial condition.

3.  Securities

Securities available for sale consist of the following:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
June 30, 2016
U.S. agency	$	31,165	$	552	$	38	$	31,679
U.S. agency residential mortgage-backed		180,415		1,783		135		182,063
U.S. agency commercial mortgage-backed		7,832		167		3		7,996
Private label mortgage-backed		26,202		343		299		26,246
Other asset backed		139,895		298		347		139,846
Obligations of states and political subdivisions		156,663		2,311		633		158,341
Corporate		49,150		521		144		49,527
Trust preferred		2,920		-		523		2,397
Foreign government		1,644		16		0		1,660
Total	$	595,886	$	5,991	$	2,122	$	599,755
December 31, 2015
U.S. agency	$	47,283	$	309	$	80	$	47,512
U.S. agency residential mortgage-backed		195,055		1,584		583		196,056
U.S. agency commercial mortgage-backed		34,017		94		83		34,028
Private label mortgage-backed		5,061		161		319		4,903
Other asset backed		117,431		54		581		116,904
Obligations of states and political subdivisions		145,193		941		1,150		144,984
Corporate		38,895		9		290		38,614
Trust preferred		2,916		-		433		2,483
Total	$	585,851	$	3,152	$	3,519	$	585,484

10

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position follows:

	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
June 30, 2016
U.S. agency	$	3,432	$	7	$	6,168	$	31	$	9,600	$	38
U.S. agency residential mortgage-backed		23,927		53		13,743		82		37,670		135
U.S. agency commercial mortgage-backed		548		2		199		1		747		3
Private label mortgage- backed		2,566		8		1,521		291		4,087		299
Other asset backed		42,783		161		12,079		186		54,862		347
Obligations of states and political subdivisions		12,316		227		10,176		406		22,492		633
Corporate		4,033		19		3,878		125		7,911		144
Trust preferred		-		-		2,397		523		2,397		523
Total	$	89,605	$	477	$	50,161	$	1,645	$	139,766	$	2,122
December 31, 2015
U.S. agency	$	12,164	$	47	$	6,746	$	33	$	18,910	$	80
U.S. agency residential mortgage-backed		57,538		316		23,340		267		80,878		583
U.S. agency commercial mortgage-backed		16,747		60		2,247		23		18,994		83
Private label mortgage- backed		-		-		3,393		319		3,393		319
Other asset backed		102,660		434		5,189		147		107,849		581
Obligations of states and political subdivisions		52,493		597		12,240		553		64,733		1,150
Corporate		30,550		290		-		-		30,550		290
Trust preferred		-		-		2,483		433		2,483		433
Total	$	272,152	$	1,744	$	55,638	$	1,775	$	327,790	$	3,519

Our portfolio of securities available-for-sale is reviewed quarterly for impairment in value. In performing this review management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or (loss).

11

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at June 30, 2016, we had 19 U.S. agency, 56 U.S. agency residential mortgage-backed and four U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to increases in interest rates since acquisition and widening spreads to Treasury bonds. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Private label mortgage backed securities — at June 30, 2016, we had nine of this type of security whose fair value is less than amortized cost.  The unrealized losses are primarily attributed to four securities purchased prior to 2016.  Two of these four securities have an impairment in excess of 10% and three of these holdings have been impaired for more than 12 months.  The unrealized losses are largely attributable to credit spread widening on these four securities since their acquisition.

These four securities are receiving principal and interest payments. Most of these transactions are pass-through structures, receiving pro rata principal and interest payments from a dedicated collateral pool. The nonreceipt of interest cash flows is not expected and thus not presently considered in our discounted cash flow methodology discussed below.

These four private label mortgage-backed securities are reviewed for other than temporary impairment (“OTTI”) utilizing a cash flow projection. The cash flow analysis forecasts cash flow from the underlying loans in each transaction and then applies these cash flows to the bonds in the securitization.  Our cash flow analysis forecasts complete recovery of our cost basis for all four of these securities whose fair value is less than amortized cost.

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no other declines discussed above are deemed to be other than temporary.

Other asset backed — at June 30, 2016, we had 88 other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and increases in interest rates since acquisition.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Obligations of states and political subdivisions — at June 30, 2016, we had 52 municipal securities whose fair value is less than amortized cost.  The unrealized losses are primarily due to increases in interest rates since acquisition.  One of these securities has an impairment in excess of 10%.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Corporate — at June 30, 2016, we had eight corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and increases in interest rates since acquisition.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

12

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Trust preferred securities — at June 30, 2016, we had three trust preferred securities whose fair value is less than amortized cost. All of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities has suffered from credit spread widening.

One of the three securities is rated by two major rating agencies as investment grade, while one (a Bank of America issuance) is rated below investment grade by two major rating agencies and the other one is non-rated. The non-rated issue is a relatively small bank and was never rated. The issuer of this non-rated trust preferred security, which had a total amortized cost of $1.0 million and total fair value of $0.7 million as of June 30, 2016, continues to have satisfactory credit metrics and make interest payments.

The following table breaks out our trust preferred securities in further detail as of June 30, 2016 and December 31, 2015:

	June 30, 2016					December 31, 2015
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,650	$	(270	)	$	1,690	$	(226	)
Unrated issues		747		(253	)		793		(207	)

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

We recorded no credit related OTTI charges in our Condensed Consolidated Statements of Operations related to securities available for sale during the three or six month periods ended June 30, 2016 and 2015, respectively.

At June 30, 2016, three private label mortgage-backed securities had credit related OTTI and are summarized as follows:

	Senior Security		Super Senior Security		Senior Support Security		Total
	(In thousands)
As of June 30, 2016
Fair value	$	1,469	$	1,194	$	76	$	2,739
Amortized cost		1,396		1,129		-		2,525
Non-credit unrealized loss		-		-		-		-
Unrealized gain		73		65		76		214
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Condensed
Consolidated Statements of Operations
For the three months ended June 30,
2016	$	-	$	-	$	-	$	-
2015		-		-		-		-
For the six months ended June 30,
2016		-		-		-		-
2015		-		-		-		-

13

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Each of these securities is receiving principal and interest payments similar to principal reductions in the underlying collateral.  All three of these securities have unrealized gains at June 30, 2016.  The original amortized cost for each of these securities has been permanently adjusted downward for previously recorded credit related OTTI.  The unrealized loss (based on original amortized cost) for these securities is now less than previously recorded credit related OTTI amounts.

A roll forward of credit losses recognized in earnings on securities available for sale for the three and six month periods ending June 30, follows:

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(In thousands)				(In thousands)
Balance at beginning of period	$	1,844	$	1,844	$	1,844	$	1,844
Additions to credit losses on securities for which no previous OTTI was recognized		-		-		-		-
Increases to credit losses on securities for which OTTI was previously recognized		-		-		-		-
Balance at end of period	$	1,844	$	1,844	$	1,844	$	1,844

The amortized cost and fair value of securities available for sale at June 30, 2016, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	27,502	$	27,533
Maturing after one year but within five years		79,845		80,614
Maturing after five years but within ten years		66,708		67,656
Maturing after ten years		67,487		67,801
		241,542		243,604
U.S. agency residential mortgage-backed		180,415		182,063
U.S. agency commercial mortgage-backed		7,832		7,996
Private label residential mortgage-backed		26,202		26,246
Other asset backed		139,895		139,846
Total	$	595,886	$	599,755

The actual maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Gains and losses realized on the sale of securities available for sale are determined using the specific identification method and are recognized on a trade-date basis.  A summary of proceeds from the sale of securities available for sale and gains and losses for the six month periods ending June 30, follows:

	Proceeds		Realized Gains		Losses
	(In thousands)
2016	$	55,362	$	336	$	53
2015		11,786		75		-

During 2016 and 2015, our trading securities consisted of various preferred stocks.  During the first six months of 2016 and 2015, we recognized gains (losses) on trading securities of $0.064 million and $(0.023) million, respectively, that are included in net gains on securities in the Condensed Consolidated Statements of Operations.  Both of these amounts relate to gains (losses) recognized on trading securities still held at each respective period end.

14

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4.  Loans

Our assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions and other pertinent factors.

An analysis of the allowance for loan losses by portfolio segment for the three months ended June 30, follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2016
Balance at beginning of period	$	5,622		$	10,296		$	1,161		$	53		$	5,363		$	22,495
Additions (deductions)
Provision for loan losses		(663	)		(359	)		126			(1	)		163			(734	)
Recoveries credited to allowance		1,114			294			351			-			-			1,759
Loans charged against the allowance		(34	)		(275	)		(499	)		-			-			(808	)
Balance at end of period	$	6,039		$	9,956		$	1,139		$	52		$	5,526		$	22,712
2015
Balance at beginning of period	$	5,916		$	12,081		$	1,564		$	62		$	5,056		$	24,679
Additions (deductions)
Provision for loan losses		177			(101	)		(45	)		3			(168	)		(134	)
Recoveries credited to allowance		652			319			284			-			-			1,255
Loans charged against the allowance		(38	)		(834	)		(342	)		-			-			(1,214	)
Balance at end of period	$	6,707		$	11,465		$	1,461		$	65		$	4,888		$	24,586

15

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

An analysis of the allowance for loan losses by portfolio segment for the six months ended June 30, follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2016
Balance at beginning of period	$	5,670		$	10,391		$	1,181		$	56		$	5,272		$	22,570
Additions (deductions)
Provision for loan losses		(1,067	)		(638	)		191			(4	)		254			(1,264	)
Recoveries credited to allowance		1,470			676			572			-			-			2,718
Loans charged against the allowance		(34	)		(473	)		(805	)		-			-			(1,312	)
Balance at end of period	$	6,039		$	9,956		$	1,139		$	52		$	5,526		$	22,712
2015
Balance at beginning of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
Additions (deductions)
Provision for loan losses		505			(834	)		(130	)		1			(335	)		(793	)
Recoveries credited to allowance		1,085			557			603			-			-			2,245
Loans charged against the allowance		(328	)		(1,702	)		(826	)		-			-			(2,856	)
Balance at end of period	$	6,707		$	11,465		$	1,461		$	65		$	4,888		$	24,586

16

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

	Commercial		Mortgage		Installment		Payment Plan Receivables		Subjective Allocation		Total
	(In thousands)
June 30, 2016
Allowance for loan losses
Individually evaluated for impairment	$	3,271	$	7,262	$	408	$	-	$	-	$	10,941
Collectively evaluated for impairment		2,768		2,694		731		52		5,526		11,771
Total ending allowance balance	$	6,039	$	9,956	$	1,139	$	52	$	5,526	$	22,712
Loans
Individually evaluated for impairment	$	17,802	$	63,430	$	5,427	$	-			$	86,659
Collectively evaluated for impairment		775,794		444,865		247,973		31,389				1,500,021
Total loans recorded investment		793,596		508,295		253,400		31,389				1,586,680
Accrued interest included in recorded investment		1,596		2,274		688		-				4,558
Total loans	$	792,000	$	506,021	$	252,712	$	31,389			$	1,582,122
December 31, 2015
Allowance for loan losses
Individually evaluated for impairment	$	2,708	$	7,818	$	457	$	-	$	-	$	10,983
Collectively evaluated for impairment		2,962		2,573		724		56		5,272		11,587
Total ending allowance balance	$	5,670	$	10,391	$	1,181	$	56	$	5,272	$	22,570
Loans
Individually evaluated for impairment	$	16,868	$	66,375	$	5,888	$	-			$	89,131
Collectively evaluated for impairment		733,399		436,349		226,409		34,599				1,430,756
Total loans recorded investment		750,267		502,724		232,297		34,599				1,519,887
Accrued interest included in recorded investment		1,869		2,270		698		-				4,837
Total loans	$	748,398	$	500,454	$	231,599	$	34,599			$	1,515,050

17

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) follow:

	90+ and Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
June 30, 2016
Commercial
Income producing - real estate	$	-	$	950	$	950
Land, land development and construction - real estate		-		133		133
Commercial and industrial		95		2,533		2,628
Mortgage
1-4 family		-		5,013		5,013
Resort lending		-		803		803
Home equity - 1st lien		-		180		180
Home equity - 2nd lien		-		262		262
Purchased loans		-		6		6
Installment
Home equity - 1st lien		-		181		181
Home equity - 2nd lien		-		327		327
Loans not secured by real estate		-		382		382
Other		-		15		15
Payment plan receivables
Full refund		-		2		2
Partial refund		-		13		13
Other		-		3		3
Total recorded investment	$	95	$	10,803	$	10,898
Accrued interest included in recorded investment	$	1	$	-	$	1
December 31, 2015
Commercial
Income producing - real estate	$	-	$	1,027	$	1,027
Land, land development and construction - real estate		49		401		450
Commercial and industrial		69		2,028		2,097
Mortgage
1-4 family		-		4,744		4,744
Resort lending		-		1,094		1,094
Home equity - 1st lien		-		187		187
Home equity - 2nd lien		-		147		147
Purchased loans		-		2		2
Installment
Home equity - 1st lien		-		106		106
Home equity - 2nd lien		-		443		443
Loans not secured by real estate		-		421		421
Other		-		2		2
Payment plan receivables
Full refund		-		2		2
Partial refund		-		2		2
Other		-		1		1
Total recorded investment	$	118	$	10,607	$	10,725
Accrued interest included in recorded investment	$	2	$	-	$	2

18

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

An aging analysis of loans by class follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
June 30, 2016
Commercial
Income producing - real estate	$	30	$	176	$	774	$	980	$	306,698	$	307,678
Land, land development and construction - real estate		9		114		133		256		48,189		48,445
Commercial and industrial		205		194		516		915		436,558		437,473
Mortgage
1-4 family		2,142		687		5,013		7,842		281,979		289,821
Resort lending		328		78		803		1,209		107,824		109,033
Home equity - 1st lien		228		35		180		443		26,988		27,431
Home equity - 2nd lien		494		152		262		908		51,461		52,369
Purchased loans		5		1		6		12		29,629		29,641
Installment
Home equity - 1st lien		268		37		181		486		14,430		14,916
Home equity - 2nd lien		210		121		327		658		16,612		17,270
Loans not secured by real estate		239		128		382		749		218,181		218,930
Other		13		-		15		28		2,256		2,284
Payment plan receivables
Full refund		377		137		2		516		12,683		13,199
Partial refund		397		116		13		526		10,572		11,098
Other		230		68		3		301		6,791		7,092
Total recorded investment	$	5,175	$	2,044	$	8,610	$	15,829	$	1,570,851	$	1,586,680
Accrued interest included in recorded investment	$	44	$	22	$	1	$	67	$	4,491	$	4,558
December 31, 2015
Commercial
Income producing - real estate	$	203	$	209	$	647	$	1,059	$	305,155	$	306,214
Land, land development and construction - real estate		-		-		252		252		44,231		44,483
Commercial and industrial		785		16		151		952		398,618		399,570
Mortgage
1-4 family		1,943		640		4,744		7,327		272,298		279,625
Resort lending		307		-		1,094		1,401		114,619		116,020
Home equity - 1st lien		50		-		187		237		22,327		22,564
Home equity - 2nd lien		439		54		147		640		50,618		51,258
Purchased loans		9		1		2		12		33,245		33,257
Installment
Home equity - 1st lien		315		107		106		528		16,707		17,235
Home equity - 2nd lien		231		149		443		823		19,727		20,550
Loans not secured by real estate		567		83		421		1,071		191,262		192,333
Other		15		3		2		20		2,159		2,179
Payment plan receivables
Full refund		492		62		2		556		21,294		21,850
Partial refund		415		228		2		645		5,834		6,479
Other		110		3		1		114		6,156		6,270
Total recorded investment	$	5,881	$	1,555	$	8,201	$	15,637	$	1,504,250	$	1,519,887
Accrued interest included in recorded investment	$	53	$	17	$	2	$	72	$	4,765	$	4,837

19

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Impaired loans are as follows :

	June 30, 2016		December 31, 2015
Impaired loans with no allocated allowance	(In thousands)
TDR	$	173	$	2,518
Non - TDR		542		203
Impaired loans with an allocated allowance
TDR - allowance based on collateral		5,036		4,810
TDR - allowance based on present value cash flow		80,205		81,002
Non - TDR - allowance based on collateral		398		260
Non - TDR - allowance based on present value cash flow		-		-
Total impaired loans	$	86,354	$	88,793
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,127	$	2,436
TDR - allowance based on present value cash flow		8,603		8,471
Non - TDR - allowance based on collateral		211		76
Non - TDR - allowance based on present value cash flow		-		-
Total amount of allowance for loan losses allocated	$	10,941	$	10,983

20

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Impaired loans by class  are as follows (1):

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	560	$	806	$	-	$	641	$	851	$	-
Land, land development & construction-real estate		133		709		-		818		1,393		-
Commercial and industrial		-		-		-		1,245		1,241		-
Mortgage
1-4 family		22		348		-		23		183		-
Resort lending		-		-		-		-		-		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		43		-		-		76		-
Home equity - 2nd lien		-		-		-		-		-		-
Loans not secured by real estate		-		-		-		-		-		-
Other		-		-		-		-		-		-
		715		1,906		-		2,727		3,744		-
With an allowance recorded:
Commercial
Income producing - real estate		8,186		8,935		663		8,377		9,232		516
Land, land development & construction-real estate		1,844		1,843		158		1,690		1,778		296
Commercial and industrial		7,079		7,359		2,450		4,097		4,439		1,896
Mortgage
1-4 family		45,474		47,259		4,700		47,792		49,808		5,132
Resort lending		17,449		17,484		2,529		18,148		18,319		2,662
Home equity - 1st lien		243		246		11		168		172		9
Home equity - 2nd lien		242		324		22		244		325		15
Installment
Home equity - 1st lien		2,172		2,315		130		2,364		2,492		143
Home equity - 2nd lien		2,709		2,725		245		2,929		2,951		271
Loans not secured by real estate		541		575		33		587		658		42
Other		5		5		-		8		8		1
		85,944		89,070		10,941		86,404		90,182		10,983
Total
Commercial
Income producing - real estate		8,746		9,741		663		9,018		10,083		516
Land, land development & construction-real estate		1,977		2,552		158		2,508		3,171		296
Commercial and industrial		7,079		7,359		2,450		5,342		5,680		1,896
Mortgage
1-4 family		45,496		47,607		4,700		47,815		49,991		5,132
Resort lending		17,449		17,484		2,529		18,148		18,319		2,662
Home equity - 1st lien		243		246		11		168		172		9
Home equity - 2nd lien		242		324		22		244		325		15
Installment
Home equity - 1st lien		2,172		2,358		130		2,364		2,568		143
Home equity - 2nd lien		2,709		2,725		245		2,929		2,951		271
Loans not secured by real estate		541		575		33		587		658		42
Other		5		5		-		8		8		1
Total	$	86,659	$	90,976	$	10,941	$	89,131	$	93,926	$	10,983
Accrued interest included in recorded investment	$	305					$	338

(1) There were no impaired payment plan receivables or purchased mortgage loans at June 30, 2016 or December 31, 2015.

21

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Average recorded investment in and interest income earned on impaired loans by class for the three month periods ending June 30, follows (1):

	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	673	$	-	$	5,658	$	50
Land, land development & construction-real estate		335		-		1,021		15
Commercial and industrial		609		-		2,855		37
Mortgage
1-4 family		11		5		25		2
Resort lending		-		-		7		-
Home equity - 1st lien		-		-		-		-
Home equity - 2nd lien		-		-		-		-
Installment
Home equity - 1st lien		1		-		-		1
Home equity - 2nd lien		7		-		-		-
Loans not secured by real estate		-		-		-		-
Other		-		-		-		-
		1,636		5		9,566		105
With an allowance recorded:
Commercial
Income producing - real estate		8,210		100		12,878		163
Land, land development & construction-real estate		1,664		13		1,943		13
Commercial and industrial		6,203		59		7,863		67
Mortgage
1-4 family		46,041		475		50,931		539
Resort lending		17,689		159		18,482		173
Home equity - 1st lien		243		2		160		2
Home equity - 2nd lien		181		4		185		4
Installment
Home equity - 1st lien		2,230		42		2,576		44
Home equity - 2nd lien		2,751		41		3,101		49
Loans not secured by real estate		555		10		668		9
Other		6		-		11		1
		85,773		905		98,798		1,064
Total
Commercial
Income producing - real estate		8,883		100		18,536		213
Land, land development & construction-real estate		1,999		13		2,964		28
Commercial and industrial		6,812		59		10,718		104
Mortgage
1-4 family		46,052		480		50,956		541
Resort lending		17,689		159		18,489		173
Home equity - 1st lien		243		2		160		2
Home equity - 2nd lien		181		4		185		4
Installment
Home equity - 1st lien		2,231		42		2,576		45
Home equity - 2nd lien		2,758		41		3,101		49
Loans not secured by real estate		555		10		668		9
Other		6		-		11		1
Total	$	87,409	$	910	$	108,364	$	1,169

(1) There were no impaired payment plan receivables or purchased mortgage loans during the three month periods ended June 30, 2016 and 2015, respectively.

22

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Average recorded investment in and interest income earned on impaired loans by class for the six month periods ending June 30, follows (1):

	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	662	$	2	$	5,728	$	103
Land, land development & construction-real estate		496		7		1,031		49
Commercial and industrial		821		21		2,798		74
Mortgage
1-4 family		15		6		17		2
Resort lending		-		-		20		-
Home equity line of credit - 1st lien		-		-		-		-
Home equity line of credit - 2nd lien		-		-		-		-
Installment
Home equity installment - 1st lien		-		1		-		1
Home equity installment - 2nd lien		5		-		-		-
Loans not secured by real estate		-		-		-		-
Other		-		-		-		-
		1,999		37		9,594		229
With an allowance recorded:
Commercial
Income producing - real estate		8,266		207		12,864		320
Land, land development & construction-real estate		1,673		26		2,447		27
Commercial and industrial		5,501		82		7,992		133
Mortgage
1-4 family		46,625		977		51,689		1,090
Resort lending		17,842		319		18,587		344
Home equity line of credit - 1st lien		218		4		160		4
Home equity line of credit - 2nd lien		202		5		165		6
Installment
Home equity installment - 1st lien		2,274		84		2,632		94
Home equity installment - 2nd lien		2,810		85		3,138		100
Loans not secured by real estate		566		19		682		19
Other		6		-		11		1
		85,983		1,808		100,367		2,138
Total
Commercial
Income producing - real estate		8,928		209		18,592		423
Land, land development & construction-real estate		2,169		33		3,478		76
Commercial and industrial		6,322		103		10,790		207
Mortgage
1-4 family		46,640		983		51,706		1,092
Resort lending		17,842		319		18,607		344
Home equity line of credit - 1st lien		218		4		160		4
Home equity line of credit - 2nd lien		202		5		165		6
Installment
Home equity installment - 1st lien		2,274		85		2,632		95
Home equity installment - 2nd lien		2,815		85		3,138		100
Loans not secured by real estate		566		19		682		19
Other		6		-		11		1
Total	$	87,982	$	1,845	$	109,961	$	2,367

(1) There were no impaired payment plan receivables or purchased mortgage loans during the six month periods ended June 30, 2016 and 2015, respectively.

23

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Our average investment in impaired loans was approximately $87.4 million and $108.4 million for the three-month periods ended June 30, 2016 and 2015, respectively and $88.0 million and $110.0 million for the six-month periods ended June 30, 2016 and 2015, respectively.  Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance.  Interest income recognized on impaired loans during the three months ending June 30, 2016 and 2015, was approximately $0.9 million and $1.2 million, respectively and was approximately $1.8 million and $2.4 million during the six months ending June 30, 2016 and 2015, respectively.

Troubled debt restructurings follow:

	June 30, 2016
	Commercial			Retail			Total
	(In thousands)
Performing TDRs		$	14,130	$	64,818		$	78,948
Non-performing TDRs(1)			2,678		3,788	(2)		6,466
Total		$	16,808	$	68,606		$	85,414

	December 31, 2015
	Commercial			Retail			Total
	(In thousands)
Performing TDRs		$	13,318	$	68,194		$	81,512
Non-performing TDRs(1)			3,041		3,777	(2)		6,818
Total		$	16,359	$	71,971		$	88,330

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

We allocated $10.7 million and $10.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2016 and December 31, 2015, respectively.

During the six months ended June 30, 2016 and 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans generally included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan have generally been for periods ranging from 9 months to 36 months but have extended to as much as 480 months in certain circumstances. Modifications involving an extension of the maturity date have generally been for periods ranging from 1 month to 60 months but have extended to as much as 230 months in certain circumstances.

24

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Loans that have been classified as troubled debt restructurings during the three-month periods endedJune 30 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-	$	-
Land, land development & construction-real estate		-		-		-
Commercial and industrial		-		-		-
Mortgage
1-4 family		1		109		110
Resort lending		-		-		-
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		3		29		29
Home equity - 2nd lien		2		71		73
Loans not secured by real estate		1		12		12
Other		-		-		-
Total		7	$	221	$	224
2015
Commercial
Income producing - real estate		1	$	73	$	73
Land, land development & construction-real estate		-		-		-
Commercial and industrial		1		17		17
Mortgage
1-4 family		1		25		40
Resort lending		1		313		309
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		1		23		24
Home equity - 2nd lien		3		58		58
Loans not secured by real estate		1		-		6
Other		-		-		-
Total		9	$	509	$	527

25

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Loans that have been classified as troubled debt restructurings during the six-month periods endedJune 30 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		2	$	110	$	110
Land, land development & construction-real estate		-		-		-
Commercial and industrial		4		1,758		1,758
Mortgage
1-4 family		3		192		263
Resort lending		1		116		117
Home equity - 1st lien		1		107		78
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		4		59		60
Home equity - 2nd lien		4		126		129
Loans not secured by real estate		1		12		12
Other		-		-		-
Total		20	$	2,480	$	2,527
2015
Commercial
Income producing - real estate		2	$	229	$	234
Land, land development & construction-real estate		-		-		-
Commercial and industrial		3		253		247
Mortgage
1-4 family		6		1,030		845
Resort lending		1		313		309
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		5		190		164
Home equity - 2nd lien		3		58		58
Loans not secured by real estate		1		-		6
Other		-		-		-
Total		21	$	2,073	$	1,863

The troubled debt restructurings described above for 2016 had no impact on the allowance for loan losses and resulted in zero charge offs during the three months ended June 30, 2016, and increased the allowance by $0.3 million and resulted in zero charge offs during the six months ended June 30, 2016.

The troubled debt restructurings described above for 2015 increased the allowance for loan losses by $0.1 million and resulted in zero charge offs during the three months ended June 30, 2015, and increased the allowance by $0.1 million and resulted in zero charge offs during the six months ended June 30, 2015.

26

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Loans that have been classified as troubled debt restructurings during the past twelve months and thathave subsequently defaulted during the three-month periods ended June 30 follow:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		-	$	-
2015
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		1		65
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		1		4
Other		-		-
		2	$	69

27

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Loans that have been classified as troubled debt restructurings during the past twelve months and thathave subsequently defaulted during the six-month periods ended June 30 follow:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		-	$	-
2015
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		2		157
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		1		4
Other		-		-
		3	$	161

A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

There were no troubled debt restructurings that subsequently defaulted during the three and six months ended June 30, 2016.

The troubled debt restructurings that subsequently defaulted described above for 2015 had no impact on the allowance for loan losses and resulted in zero charge offs during the three months ended June 30, 2015 and decreased the allowance for loan losses by $0.01 million and resulted in zero charge offs during the six months ended June 30, 2015.

28

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

In order to determine whether a borrower is experiencing financial difficulty, we perform an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

Credit Quality Indicators – As part of our on on-going monitoring of the credit quality of our loan portfolios, we track certain credit quality indicators including (a) weighted-average risk grade of commercial loans, (b) the level of classified commercial loans, (c) credit scores of mortgage and installment loan borrowers, (d) financial performance of certain counterparties for payment plan receivables and (e) delinquency history and non-performing loans.

For commercial loans, we use a loan rating system that is similar to those employed by state and federal banking regulators. Loans are graded on a scale of 1 to 12. A description of the general characteristics of the ratings follows:

Rating 1 through 6: These loans are generally referred to as our “non-watch” commercial credits that include very high or exceptional credit fundamentals through acceptable credit fundamentals.

Rating 7 and 8: These loans are generally referred to as our “watch” commercial credits. This rating includes loans to borrowers that exhibit potential credit weakness or downward trends. If not checked or cured these trends could weaken our asset or credit position. While potentially weak, no loss of principal or interest is envisioned with these ratings.

Rating 9: These loans are generally referred to as our “substandard accruing” commercial credits. This rating includes loans to borrowers that exhibit a well-defined weakness where payment default is probable and loss is possible if deficiencies are not corrected. Generally, loans with this rating are considered collectible as to both principal and interest primarily due to collateral coverage.

Rating 10 and 11: These loans are generally referred to as our “substandard - non-accrual” and “doubtful” commercial credits. This rating includes loans to borrowers with weaknesses that make collection of debt in full, on the basis of current facts, conditions and values at best questionable and at worst improbable. All of these loans are placed in non-accrual.

Rating 12: These loans are generally referred to as our “loss” commercial credits. This rating includes loans to borrowers that are deemed incapable of repayment and are charged-off.

29

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
		Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11	Total
					(In thousands)
June 30, 2016
Income producing - real estate	$	300,344	$	5,334	$	1,050	$	950	$	307,678
Land, land development and construction - real estate		46,529		1,669		114		133		48,445
Commercial and industrial		416,102		12,516		6,322		2,533		437,473
Total	$	762,975	$	19,519	$	7,486	$	3,616	$	793,596
Accrued interest included in total	$	1,509	$	62	$	25	$	-	$	1,596
December 31, 2015
Income producing - real estate	$	296,898	$	6,866	$	1,423	$	1,027	$	306,214
Land, land development and construction - real estate		40,844		2,995		243		401		44,483
Commercial and industrial		371,357		19,502		6,683		2,028		399,570
Total	$	709,099	$	29,363	$	8,349	$	3,456	$	750,267
Accrued interest included in total	$	1,729	$	108	$	32	$	-	$	1,869

For each of our mortgage and installment segment classes, we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated semi-annually.

30

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following tables summarize credit scores by loan class for our mortgage and installment loan segments:

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		Total
	(In thousands)
June 30, 2016
800 and above	$	31,459	$	12,187	$	6,000	$	8,476	$	2,287	$	60,409
750-799		83,455		39,058		9,279		18,317		19,259		169,368
700-749		59,358		31,410		4,840		10,455		7,601		113,664
650-699		52,187		13,815		3,646		8,249		-		77,897
600-649		28,791		6,525		1,347		3,375		-		40,038
550-599		15,745		2,485		743		1,573		-		20,546
500-549		8,594		882		581		1,280		-		11,337
Under 500		5,332		600		172		305		-		6,409
Unknown		4,900		2,071		823		339		494		8,627
Total	$	289,821	$	109,033	$	27,431	$	52,369	$	29,641	$	508,295
Accrued interest included in total	$	1,383	$	479	$	104	$	210	$	98	$	2,274
December 31, 2015
800 and above	$	28,760	$	13,943	$	4,374	$	7,696	$	2,310	$	57,083
750-799		78,802		40,888		7,137		17,405		23,283		167,515
700-749		56,519		31,980		4,341		11,022		6,940		110,802
650-699		51,813		17,433		3,203		7,691		-		80,140
600-649		27,966		4,991		1,467		3,684		-		38,108
550-599		16,714		3,070		1,027		1,918		-		22,729
500-549		10,610		1,051		572		1,295		-		13,528
Under 500		4,708		554		244		265		-		5,771
Unknown		3,733		2,110		199		282		724		7,048
Total	$	279,625	$	116,020	$	22,564	$	51,258	$	33,257	$	502,724
Accrued interest included in total	$	1,396	$	477	$	87	$	196	$	114	$	2,270

(1) Credit scores have been updated within the last twelve months.

31

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

	Installment(1)
	Home Equity 1st Lien		Home Equity 2nd Lien		Loans not Secured by Real Estate		Other		Total
	(In thousands)
June 30, 2016
800 and above	$	1,518	$	2,133	$	50,680	$	81	$	54,412
750-799		3,337		4,198		101,146		577		109,258
700-749		2,383		3,299		38,660		694		45,036
650-699		2,863		3,503		18,041		477		24,884
600-649		2,356		1,820		4,311		285		8,772
550-599		1,363		1,423		1,855		64		4,705
500-549		922		649		1,212		50		2,833
Under 500		141		240		345		25		751
Unknown		33		5		2,680		31		2,749
Total	$	14,916	$	17,270	$	218,930	$	2,284	$	253,400
Accrued interest included in total	$	57	$	64	$	551	$	16	$	688
December 31, 2015
800 and above	$	1,792	$	1,782	$	44,254	$	58	$	47,886
750-799		4,117		5,931		86,800		531		97,379
700-749		2,507		3,899		34,789		694		41,889
650-699		3,508		4,182		16,456		499		24,645
600-649		2,173		2,153		4,979		200		9,505
550-599		1,800		1,346		1,997		109		5,252
500-549		1,056		855		1,170		61		3,142
Under 500		223		370		385		23		1,001
Unknown		59		32		1,503		4		1,598
Total	$	17,235	$	20,550	$	192,333	$	2,179	$	232,297
Accrued interest included in total	$	78	$	83	$	520	$	17	$	698

(1) Credit scores have been updated within the last twelve months.

Mepco Finance Corporation (“Mepco”) is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See Note #14 for more information about Mepco’s business. As of June 30, 2016, approximately 42.0% of Mepco’s outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as “Full Refund” in the table below. Another approximately 35.4% of Mepco’s outstanding payment plan receivables as of June 30, 2016, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as “Partial Refund” in the table below. The balance of Mepco’s outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as “Other” in the table below. For each class of our payment plan receivables we monitor financial information on the counterparties as we evaluate the credit quality of this portfolio.

32

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable:

	Payment Plan Receivables
	Full Refund		Partial Refund		Other		Total
	(In thousands)
June 30, 2016
AM Best rating
A+	$	-	$	11	$	-	$	11
A		1,358		9,715		-		11,073
A-		1,644		1,333		3,374		6,351
B+		-		-		3,717		3,717
Not rated		10,197		39		1		10,237
Total	$	13,199	$	11,098	$	7,092	$	31,389
December 31, 2015
AM Best rating
A+	$	-	$	6	$	-	$	6
A		2,712		5,203		-		7,915
A-		3,418		1,177		6,265		10,860
Not rated		15,720		93		5		15,818
Total	$	21,850	$	6,479	$	6,270	$	34,599

Although Mepco has contractual recourse against various counterparties for refunds owing upon cancellation of vehicle service contracts, see Note #14 below regarding certain risks and difficulties associated with collecting these refunds.

Foreclosed residential real estate properties included in other real estate and repossessed assets on our Condensed Consolidated Statements of Financial Condition totaled $1.9 million and $2.8 million at June 30, 2016 and December 31, 2015, respectively.  Retail mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements totaled $1.1 million at both June 30, 2016 and December 31, 2015.

5.  Segments

Our reportable segments are based upon legal entities.  We currently have two reportable segments:  Independent Bank (“IB” or “Bank”) and Mepco.  These business segments are also differentiated based on the products and services provided.  We evaluate performance based principally on net income (loss) of the respective reportable segments.

In the normal course of business, our IB segment provides funding to our Mepco segment through an intercompany line of credit priced at the prime rate of interest as published in the Wall Street Journal. Our IB segment also provides certain administrative services to our Mepco segment which are reimbursed at an agreed upon rate. These intercompany transactions are eliminated upon consolidation. The only other material intersegment balances and transactions are investments in subsidiaries at the parent entities and cash balances on deposit at our IB segment.

33

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A summary of selected financial information for our reportable segments follows:

	IB			Mepco			Other(1)			Elimination(2)			Total
	(In thousands)
Total assets
June 30, 2016	$	2,391,120		$	50,178		$	282,570		$	(271,172	)	$	2,452,696
December 31, 2015		2,340,566			57,208			286,936			(275,644	)		2,409,066
For the three months ended June 30,
2016
Interest income	$	20,216		$	1,052		$	12		$	(13	)	$	21,267
Net interest income		18,989			915			(274	)		0			19,630
Provision for loan losses		(734	)		0			0			0			(734	)
Income (loss) before income tax		9,298			49			(274	)		(24	)		9,049
Net income (loss)		6,550			32			(129	)		(15	)		6,438
2015
Interest income	$	18,701		$	1,430		$	20		$	(20	)	$	20,131
Net interest income		17,717			1,218			(234	)		-			18,701
Provision for loan losses		(138	)		4			-			-			(134	)
Income (loss) before income tax		8,843			(221	)		(356	)		(23	)		8,243
Net income (loss)		5,935			(77	)		(225	)		(14	)		5,619
For the six months ended June 30,
2016
Interest income	$	40,459		$	2,162		$	17		$	(17	)	$	42,621
Net interest income		38,091			1,847			(545	)		-			39,393
Provision for loan losses		(1,260	)		(4	)		-			-			(1,264	)
Income (loss) before income tax		16,160			(310	)		(697	)		(47	)		15,106
Net income (loss)		11,169			(205	)		(396	)		(30	)		10,538
2015
Interest income	$	36,922		$	2,761		$	40		$	(40	)	$	39,683
Net interest income		34,900			2,353			(461	)		-			36,792
Provision for loan losses		(794	)		1			-			-			(793	)
Income (loss) before income tax		15,102			(512	)		(739	)		(47	)		13,804
Net income (loss)		10,168			(269	)		(469	)		(30	)		9,400

(1) Includes amounts relating to our parent company.

(2) Includes parent company’s investment in subsidiaries and cash balances maintained at subsidiary.

6.  Shareholders’ Equity and Earnings Per Common Share

On January 21, 2016, our Board of Directors authorized a share repurchase plan (the “Repurchase Plan”) to buy back up to 5% of our outstanding common stock through December 31, 2016.  On April 26, 2016 our Board of Directors authorized a $5.0 million expansion of the Repurchase Plan. We expect to accomplish the repurchases through open market transactions, though we could affect repurchases through other means, such as privately negotiated transactions.  The timing and amount of any share repurchases will depend on a variety of factors, including, among others, securities law restrictions, the trading price of our common stock, regulatory requirements, potential alternative uses for capital, and our financial performance. The Repurchase Plan does not obligate us to acquire any particular amount of common stock, and it may be modified or suspended at any time at our discretion. We expect to fund any repurchases from cash on hand.  During the six months ended June 30, 2016, we repurchased 1,059,865 shares of common stock for an aggregate purchase price of $15.5 million leaving 52,703 shares and $5.0 million to be repurchased under the Repurchase Plan.

34

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

On November 15, 2011, we entered into a Tax Benefits Preservation Plan (the “Preservation Plan”) with our stock transfer agent, American Stock Transfer & Trust Company. Our Board of Directors adopted the Preservation Plan in an effort to protect the value to our shareholders of our ability to use deferred tax assets such as net operating loss carry forwards to reduce potential future federal income tax obligations. Under federal tax rules, this value could be lost in the event we experienced an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The Preservation Plan attempts to protect this value by reducing the likelihood that we will experience such an ownership change by discouraging any person who is not already a 5% shareholder from becoming a 5% shareholder (with certain limited exceptions).

On November 15, 2011, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of our common stock under the terms of the Preservation Plan. The dividend is payable to the holders of common stock outstanding as of the close of business on November 15, 2011, or outstanding at any time thereafter but before the earlier of a “Distribution Date” and the date the Preservation Plan terminates. Each Right entitles the registered holder to purchase from us 1/1000 of a share of our Series C Junior Participating Preferred Stock, no par value per share (“Series C Preferred Stock”). Each 1/1000 of a share of Series C Preferred Stock has economic and voting terms similar to those of one whole share of common stock. The Rights are not exercisable and generally do not become exercisable until a person or group has acquired, subject to certain exceptions and conditions, beneficial ownership of 4.99% or more of the outstanding shares of common stock. At that time, each Right will generally entitle its holder to purchase securities of the Company at a discount of 50% to the current market price of the common stock. However, the Rights owned by the person acquiring beneficial ownership of 4.99% or more of the outstanding shares of common stock would automatically be void. The significant dilution that would result is expected to deter any person from acquiring beneficial ownership of 4.99% or more and thereby triggering the Rights.

To date, none of the Rights have been exercised or have become exercisable because no unpermitted 4.99% or more change in the beneficial ownership of the outstanding common stock has occurred. The Rights will generally expire on the earlier to occur of the close of business on November 15, 2016, and certain other events described in the Preservation Plan, including such date as our Board of Directors determines that the Preservation Plan is no longer necessary for its intended purposes.  At the present time, the Board of Directors does not intend to extend the Preservation Plan.

35

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A reconciliation of basic and diluted net income per common share follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(In thousands, except per share amounts)
Net income	$	6,438	$	5,619	$	10,538	$	9,400
Weighted average shares outstanding (1)		21,281		22,889		21,516		22,943
Stock units for deferred compensation plan for non-employee directors		114		111		114		111
Effect of stock options		148		120		150		120
Restricted stock units		55		310		70		310
Performance share units		41		-		37		-
Weighted average shares outstanding for calculation of diluted earnings per share		21,639		23,430		21,887		23,484
Net income per common share
Basic (1)	$	0.30	$	0.25	$	0.49	$	0.41
Diluted	$	0.30	$	0.24	$	0.48	$	0.40

⁽¹⁾ Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

Weighted average stock options outstanding that were not considered in computing diluted net income per share because they were anti-dilutive totaled 0.03 million for both three-month periods ended June 30, 2016 and 2015, respectively and totaled 0.03 million for both six-month periods ended June 30, 2016 and 2015, respectively.

7.  Derivative Financial Instruments

We are required to record derivatives on our Condensed Consolidated Statements of Financial Condition as assets and liabilities measured at their fair value.  The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

36

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Our derivative financial instruments according to the type of hedge in which they are designated follows:

	June 30, 2016
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	26,831		0.1	$	899
Mandatory commitments to sell mortgage loans		57,034		0.1		(377	)
Pay-fixed interest rate swap agreements		44,396		9.1		(2,205	)
Pay-variable interest rate swap agreements		44,396		9.1		2,205
Purchased options		3,119		5.0		203
Written options		3,119		5.0		(203	)
Total	$	178,895		4.7	$	522

	December 31, 2015
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	20,581		0.1	$	550
Mandatory commitments to sell mortgage loans		46,320		0.1		69
Pay-fixed interest rate swap agreements		27,587		8.0		(497	)
Pay-variable interest rate swap agreements		27,587		8.0		497
Purchased options		2,098		5.7		122
Written options		2,098		5.7		(122	)
Total	$	126,271		3.7	$	619

Certain financial derivative instruments have not been designated as hedges. The fair value of these derivative financial instruments has been recorded on our Condensed Consolidated Statements of Financial Condition and is adjusted on an ongoing basis to reflect their then current fair value. The changes in fair value of derivative financial instruments not designated as hedges are recognized in our Condensed Consolidated Statements of Operations.

In the ordinary course of business, we enter into rate-lock mortgage loan commitments with customers (“Rate-Lock Commitments”).  These commitments expose us to interest rate risk.  We also enter into mandatory commitments to sell mortgage loans (“Mandatory Commitments”) to reduce the impact of price fluctuations of mortgage loans held for sale and Rate-Lock Commitments.  Mandatory Commitments help protect our loan sale profit margin from fluctuations in interest rates. The changes in the fair value of Rate-Lock Commitments and Mandatory Commitments are recognized currently as part of net gains on mortgage loans.  We obtain market prices on Mandatory Commitments and Rate-Lock Commitments.  Net gains on mortgage loans, as well as net income may be more volatile as a result of these derivative instruments, which are not designated as hedges.

37

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

During 2015, we began offering to our deposit customers an equity linked time deposit product (“Altitude CD”).  The Altitude CD is a time deposit that provides the customer a guaranteed return of principal at maturity plus a potential equity return (a written option), while we receive a like stream of funds based on the equity return (a purchased option).  The written and purchased options will generally move in opposite directions resulting in little or no net impact on our Condensed Consolidated Statements of Operations.  All of the written and purchased options in the table above relate to this Altitude CD product.

We have a program that allows commercial loan customers to lock in a fixed rate for a longer period of time than we would normally offer for interest rate risk reasons.  We will enter into a variable rate commercial loan and an interest rate swap agreement with a customer and then enter into an offsetting interest rate swap agreement with an unrelated party.  The interest rate swap agreement fair values will generally move in opposite directions resulting in little or no net impact on our Condensed Consolidated Statements of Operations.  All of the interest rate swap agreements in the table above relate to this program.

The following tables illustrate the impact that the derivative financial instruments discussed above have on individual line items in the Condensed Consolidated Statements of Financial Condition for the periods presented:

Fair Values of Derivative Instruments

	Asset Derivatives						Liability Derivatives
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
	Balance Sheet Location	Fair Value		Balance  Sheet  Location	Fair Value		Balance  Sheet  Location	Fair Value		Balance  Sheet  Location	Fair Value
	(In thousands)
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets	$	899	Other assets	$	550	Other liabilities	$	-	Other liabilities	$	-
Mandatory commitments to sell mortgage loans	Other assets		-	Other assets		69	Other liabilities		377	Other liabilities		-
Pay-fixed interest rate swap agreements	Other assets		-	Other assets		-	Other liabilities		2,205	Other liabilities		497
Pay-variable interest rate swap agreements	Other assets		2,205	Other assets		497	Other liabilities		-	Other liabilities		-
Purchased options	Other assets		203	Other assets		122	Other liabilities		-	Other liabilities		-
Written options	Other assets		-	Other assets		-	Other liabilities		203	Other liabilities		122
Total derivatives		$	3,307		$	1,238		$	2,785		$	619

38

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The effect of derivative financial instruments on the Condensed Consolidated Statements of Operations follows:

		Gain (Loss) Recognized in Income
	Location of Gain (Loss)	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	Recognized in Income	2016			2015			2016			2015
		(In thousands)
No hedge designation
Rate-lock mortgage loan commitments	Net gains on mortgage loans	$	130		$	(283	)	$	349		$	105
Mandatory  commitments to sell mortgage loans	Net gains on mortgage loans		(240	)		559			(446	)		520
Pay-fixed interest rate  swap agreements	Interest income		(590	)		221			(1,708	)		(40	)
Pay-variable interest rate swap agreements	Interest income		590			(221	)		1,708			40
Purchased options	Interest expense		3			-			81			-
Written options	Interest expense		(3	)		-			(81	)		-
Total		$	(110	)	$	276		$	(97	)	$	625

8.  Intangible Assets

The following table summarizes intangible assets, net of amortization:

	June 30, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	4,012	$	6,118	$	3,838

Amortization of other intangibles has been estimated through 2021 and thereafter in the following table.

	(In thousands)
Six months ending December 31, 2016	$	173
2017		346
2018		346
2019		346
2020		346
2021 and thereafter		549
Total	$	2,106

39

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

9.  Share Based Compensation

We maintain share based payment plans that include a non-employee director stock purchase plan and a long-term incentive plan that permits the issuance of share based compensation, including stock options and non-vested share awards. The long-term incentive plan, which is shareholder approved, permits the grant of additional share based awards for up to 0.2 million shares of common stock as of June 30, 2016.  The non-employee director stock purchase plan permits the issuance of additional share based payments for up to 0.2 million shares of common stock as of June 30, 2016. Share based awards and payments are measured at fair value at the date of grant and are expensed over the requisite service period. Common shares issued upon exercise of stock options come from currently authorized but unissued shares.

During each first quarter period of 2016 and 2015, pursuant to our long-term incentive plan, we granted 0.07 million shares of restricted stock and 0.03 million performance stock units (“PSU”) to certain officers.  The shares of restricted stock and PSUs cliff vest after a period of three years.  The performance feature of the PSUs is based on a comparison of our total shareholder return over the three year period starting on the grant date to the total shareholder return over that period for a banking index of our peers.  No long term incentive grants were made during the second quarters of 2016 or 2015.

Our directors may elect to receive a portion of their quarterly cash retainer fees in the form of common stock (either on a current basis or on a deferred basis pursuant to the non-employee director stock purchase plan referenced above). Shares equal in value to that portion of each director’s fees that he or she has elected to receive in stock are issued each quarter and vest immediately.  We issued 0.004 million shares and 0.002 million shares to directors during the first six months of 2016 and 2015, respectively and expensed their value during those same periods.

Total compensation expense recognized for grants pursuant to our long-term incentive plan was $0.4 million and $0.8 million during the three and six month periods ended June 30, 2016, respectively, and was $0.4 million and $0.7 million during the same periods in 2015, respectively.  The corresponding tax benefit relating to this expense was $0.1 million and $0.3 million for the three and six month periods ended June 30, 2016, respectively and $0.1 million and $0.3 million for the same periods in 2015. Total expense recognized for non-employee director share based payments was $0.03 million and $0.06 million during the three and six month periods ended June 30, 2016, respectively, and was $0.02 million and $0.03 million during the same periods in 2015, respectively.  The corresponding tax benefit relating to this expense was $0.01 million and $0.02 million for the three and six month periods ended June 30, 2016, respectively and $0.01 million and $0.01 million during the same periods in 2015.

At June 30, 2016, the total expected compensation cost related to non-vested stock options, restricted stock, PSUs and restricted stock unit awards not yet recognized was $2.1 million.  The weighted-average period over which this amount will be recognized is 2.0 years.

40

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A summary of outstanding stock option grants and related transactions follows:

	Number of Shares			Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregated Intrinsic Value
								(In thousands)
Outstanding at January 1, 2016		235,596		$	4.94
Granted		-
Exercised		(16,014	)		3.69
Forfeited		(664	)		6.42
Expired		(400	)		4.25
Outstanding at June 30, 2016		218,518		$	5.02		5.54	$	2,109
Vested and expected to vest at June 30, 2016		218,518		$	5.02		5.54	$	2,109
Exercisable at June 30, 2016		218,518		$	5.02		5.54	$	2,109

A summary of outstanding non-vested restricted stock, restricted stock units and PSUs and related transactions follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2016		261,981		$	11.29
Granted		96,660			14.39
Vested		(107,795	)		7.92
Forfeited		(4,924	)		13.24
Outstanding at June 30, 2016		245,922		$	13.94

Certain information regarding options exercised during the periods follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Intrinsic value	$	60	$	187	$	177	$	243
Cash proceeds received	$	27	$	67	$	59	$	82
Tax benefit realized	$	21	$	65	$	62	$	85

41

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10.  Income Tax

Income tax expense was $2.6 million during both three month periods ended June 30, 2016 and 2015, respectively and $4.6 million and $4.4 million during the six months ended June 30, 2016 and 2015, respectively.   As described in note #2, we adopted ASU 2016-09, “Compensation – Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting” during the second quarter of 2016 which now requires us to recognize for book purposes either income tax expense or benefit relating to excess deficiencies/benefits relating to share-based compensation.  Included in income tax expense for both three and six month periods ended June 30, 2016 is a tax benefit of $0.3 million due to the vesting of certain share-based compensation grants during the second quarter of 2016.

We assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard.  The ultimate realization of this asset is primarily based on generating future income.  We concluded at both June 30, 2016 and 2015, that the realization of substantially all of our deferred tax assets continues to be more likely than not.

We did maintain a valuation allowance against our deferred tax assets of approximately $1.1 million at both June 30, 2016 and December 31, 2015. This valuation allowance on our deferred tax assets primarily relates to state income taxes at our Mepco segment.  In this instance, we determined that the future realization of these particular deferred tax assets was not more likely than not.  This conclusion was primarily based on the uncertainty of Mepco’s future earnings attributable to particular states (given the various apportionment criteria) and the significant reduction in the size of Mepco’s business.

At both June 30, 2016 and December 31, 2015, we had approximately $1.0 million, of gross unrecognized tax benefits.  We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the balance of 2016.

11.  Regulatory Matters

Capital guidelines adopted by federal and state regulatory agencies and restrictions imposed by law limit the amount of cash dividends our Bank can pay to us. Under these guidelines, the amount of dividends that may be paid in any calendar year is limited to the Bank’s current year net profits, combined with the retained net profits of the preceding two years. Further, the Bank cannot pay a dividend at any time that it has negative undivided profits.  As of June 30, 2016, the Bank had positive undivided profits of $2.1 million.  We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarters of 2016 and 2015, we requested regulatory approval for returns of capital from the Bank to the parent company of  $18.0 million and $18.5 million, respectively.  These return of capital requests were approved by our banking regulators on February 24, 2016 and February 13, 2015, respectively and the Bank returned these amounts to the parent company on February 25, 2016 and February 17, 2015, respectively.  It is not our intent to have dividends paid in amounts that would reduce the capital of our Bank to levels below those which we consider prudent and in accordance with guidelines of regulatory authorities.

42

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

We are also subject to various regulatory capital requirements. The prompt corrective action regulations establish quantitative measures to ensure capital adequacy and require minimum amounts and ratios of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can result in certain mandatory, and possibly discretionary, actions by regulators that could have a material effect on our consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital requirements that involve quantitative measures as well as qualitative judgments by the regulators. The most recent regulatory filings as of June 30, 2016 and December 31, 2015, categorized our Bank as well capitalized. Management is not aware of any conditions or events that would have changed the most recent Federal Deposit Insurance Corporation (“FDIC”) categorization.

On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework (the “New Capital Rules”). The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act.  In general, under the New Capital Rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the New Capital Rules include a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that applies to all supervised financial institutions.  The capital conservation buffer began to phase in on January 1, 2016 with 0.625% added to the minimum ratio for adequately capitalized institutions for 2016.  To avoid limits on capital distributions and certain discretionary bonus payments we must meet the minimum ratio for adequately capitalized institutions plus the phased in buffer.  The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.  As to the quality of capital, the New Capital Rules emphasize common equity Tier 1 capital, the most loss-absorbing form of capital, and implement strict eligibility criteria for regulatory capital instruments. The New Capital Rules also change the methodology for calculating risk-weighted assets to enhance risk sensitivity.  The New Capital Rules became effective for us on January 1, 2015.

43

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Our actual capital amounts and ratios follow:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
June 30, 2016
Total capital to risk-weighted assets
Consolidated	$	275,163		15.97	%	$	137,844		8.00	%	NA		NA
Independent Bank		260,344		15.12			137,712		8.00			172,140		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	253,484		14.71	%	$	103,383		6.00	%	NA		NA
Independent Bank		238,734		13.87			103,284		6.00			137,712		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	228,648		13.27	%	$	77,537		4.50	%	NA		NA
Independent Bank		238,734		13.87			77,463		4.50			111,891		6.50	%
Tier 1 capital to average assets
Consolidated	$	253,484		10.47	%	$	96,803		4.00	%	NA		NA
Independent Bank		238,734		9.87			96,737		4.00			120,921		5.00	%
December 31, 2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%

NA - Not applicable

44

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
	(In thousands)
Total shareholders’ equity	$	246,923		$	251,092		$	256,850		$	259,947
Add (deduct)
Accumulated other comprehensive (income) loss for regulatory purposes		(2,515	)		238			(2,514	)		238
Intangible assets		(1,264	)		(912	)		(1,264	)		(912	)
Disallowed deferred tax assets		(14,496	)		(11,147	)		(14,338	)		(18,406	)
Common equity tier 1 capital		228,648			239,271			238,734			240,867
Qualifying trust preferred securities		34,500			34,500			-			-
Disallowed deferred tax assets		(9,664	)		(16,721	)		-			-
Tier 1 capital		253,484			257,050			238,734			240,867
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,679			21,120			21,610			21,027
Total risk-based capital	$	275,163		$	278,170		$	260,344		$	261,894

12.  Fair Value Disclosures

FASB ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange, as well as U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.

Level 2:  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 instruments include securities traded in less active dealer or broker markets.

Level 3:  Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

45

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

We used the following methods and significant assumptions to estimate fair value:

Securities:  Where quoted market prices are available in an active market, securities (trading or available for sale) are classified as Level 1 of the valuation hierarchy.  Level 1 securities include certain preferred stocks included in our trading portfolio for which there are quoted prices in active markets.  If quoted market prices are not available for the specific security, then fair values are estimated by (1) using quoted market prices of securities with similar characteristics, (2) matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or (3) a discounted cash flow analysis whose significant fair value inputs can generally be verified and do not typically involve judgment by management. These securities are classified as Level 2 of the valuation hierarchy and primarily include agency securities, private label mortgage-backed securities, other asset backed securities, municipal securities, trust preferred securities and corporate securities.

Loans held for sale:  The fair value of mortgage loans held for sale is based on mortgage backed security pricing for comparable assets (recurring Level 2).

Impaired loans with specific loss allocations based on collateral value:  From time to time, certain loans are considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2016 and December 31, 2015, all of our impaired loans were evaluated based on either the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. When the fair value of the collateral is based on an appraised value or when an appraised value is not available we record the impaired loan as nonrecurring Level 3.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and thus will typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate:  At the time of acquisition, other real estate is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Subsequent write-downs to reflect declines in value since the time of acquisition may occur from time to time and are recorded in net (gains) losses on other real estate and repossessed assets in the Condensed Consolidated Statements of Operations. The fair value of the property used at and subsequent to the time of acquisition is typically determined by a third party appraisal of the property.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

46

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Appraisals for both collateral-dependent impaired loans and other real estate are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by us.  Once received, an independent third party (for commercial properties over $0.25 million) or a member of our Collateral Evaluation Department (for commercial properties under $0.25 million) or a member of our Special Assets Group (for retail properties) reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.   We compare the actual selling price of collateral that has been sold to the most recent appraised value of our properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value.  For commercial and retail properties we typically discount an appraisal to account for various factors that the appraisal excludes in its assumptions.  These additional discounts generally do not result in material adjustments to the appraised value.

Capitalized mortgage loan servicing rights:  The fair value of capitalized mortgage loan servicing rights is based on a valuation model used by an independent third party that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Certain model assumptions are generally unobservable and are based upon the best information available including data relating to our own servicing portfolio, reviews of mortgage servicing assumption and valuation surveys and input from various mortgage servicers and, therefore, are recorded as nonrecurring Level 3.  Management evaluates the third party valuation for reasonableness each quarter as part of our financial reporting control processes.

Derivatives:  The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets (recurring Level 2).  The fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management (recurring Level 2).  The fair value of purchased and written options is based on prices of financial instruments with similar characteristics and do not typically involve judgment by management (recurring Level 2).

47

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Assets and liabilities measured at fair value, including financial assets for which we have elected the fair value option, were as follows:

			Fair Value Measurements Using
	Fair Value Measure- ments		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
June 30, 2016:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	212	$	212	$	-	$	-
Securities available for sale
U.S. agency		31,679		-		31,679		-
U.S. agency residential mortgage-backed		182,063		-		182,063		-
U.S. agency commercial mortgage-backed		7,996		-		7,996		-
Private label mortgage-backed		26,246		-		26,246		-
Other asset backed		139,846		-		139,846		-
Obligations of states and political subdivisions		158,341		-		158,341		-
Corporate		49,527		-		49,527		-
Trust preferred		2,397		-		2,397		-
Foreign government		1,660		-		1,660		-
Loans held for sale		31,713		-		31,713		-
Derivatives (1)		3,307		-		3,307		-
Liabilities
Derivatives (2)		2,785		-		2,785		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		10,007		-		-		10,007
Impaired loans (4)
Commercial
Income producing - real estate		649		-		-		649
Land, land development & construction-real estate		158		-		-		158
Commercial and industrial		1,638		-		-		1,638
Mortgage
1-4 Family		651		-		-		651
Other real estate (5)
Commercial
Land, land development & construction-real estate		176		-		-		176
Mortgage
1-4 Family		48		-		-		48
Resort lending		92		-		-		92

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

48

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

			Fair Value Measurements Using
	Fair Value Measure- ments		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
December 31, 2015:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	148	$	148	$	-	$	-
Securities available for sale
U.S. agency		47,512		-		47,512		-
U.S. agency residential mortgage-backed		196,056		-		196,056		-
U.S. agency commercial mortgage-backed		34,028		-		34,028		-
Private label mortgage-backed		4,903		-		4,903		-
Other asset backed		116,904		-		116,904		-
Obligations of states and political subdivisions		144,984		-		144,984		-
Corporate		38,614		-		38,614		-
Trust preferred		2,483		-		2,483		-
Loans held for sale		27,866		-		27,866		-
Derivatives (1)		1,238		-		1,238		-
Liabilities
Derivatives (2)		619		-		619		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		8,481		-		-		8,481
Impaired loans (4)
Commercial
Income producing - real estate		711		-		-		711
Land, land development & construction-real estate		40		-		-		40
Commercial and industrial		1,257		-		-		1,257
Mortgage
1-4 Family		421		-		-		421
Resort lending		129		-		-		129
Other real estate (5)
Commercial
Land, land development & construction-real estate		639		-		-		639
Commercial and industrial		165		-		-		165
Mortgage
1-4 Family		26		-		-		26
Resort lending		107		-		-		107
Home equity - 1st lien		14		-		-		14
Installment
Home equity - 1st lien		36		-		-		36

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2016 and 2015.

49

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Changes in fair values for financial assets which we have elected the fair value option for the periods presented were as follows:

		Changes in Fair Values for the Six-Month Periods Ended June 30 for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
		2016						2015
		Net Gains (Losses) on Assets				Total Change in Fair Values Included in Current Period		Net Gains (Losses) on Assets						Total Change in Fair Values Included in Current Period
		Securities		Loans		Earnings		Securities			Loans			Earnings
	(In thousands)
Trading securities		$	64	$	-	$	64	$	(23	)	$	-		$	(23	)
Loans held for sale			-		478		478		-			(121	)		(121	)

For those items measured at fair value pursuant to our election of the fair value option, interest income is recorded within the Condensed Consolidated Statements of Operations based on the contractual amount of interest income earned on these financial assets and dividend income is recorded based on cash dividends received.

The following represent impairment charges recognized during the three and six month periods ended June 30, 2016 and 2015 relating to assets measured at fair value on a non-recurring basis:

· Capitalized mortgage loan servicing rights, whose individual strata are measured at fair value, had a carrying amount of $10.0 million which is net of a valuation allowance of $5.4 million at June 30, 2016 and had a carrying amount of $8.5 million which is net of a valuation allowance of $3.3 million at December 31, 2015.  A recovery (charge) of $(0.6) million and $(2.1) million was included in our results of operations for the three and six month periods ending June 30, 2016, respectively and $1.2 million and $0.5 million during the same periods in 2015.

· Loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a carrying amount of $5.4 million, with a valuation allowance of $2.3 million at June 30, 2016 and had a carrying amount of $5.1 million, with a valuation allowance of $2.5 million at December 31, 2015.  The provision for loan losses included in our results of operations relating to impaired loans was a net expense (recovery) of $(0.1) million and $0.5 million for the three month periods ending June 30, 2016 and 2015, respectively, and a net expense of $0.3 million and $1.0 million for the six month periods ending June 30, 2016 and 2015, respectively.

· Other real estate, which is measured using the fair value of the property, had a carrying amount of $0.3 million which is net of a valuation allowance of $1.1 million at June 30, 2016 and a carrying amount of $1.0 million which is net of a valuation allowance of $1.7 million at December 31, 2015.  An additional charge relating to other real estate measured at fair value of $0.04 million and $0.06 million was included in our results of operations during the three and six month periods ended June 30, 2016, respectively and $0.22 million and $0.37 million during the same periods in 2015.

We had no assets or liabilities measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) during the six months ended June 30, 2016 and 2015.

50

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis follows:

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
June 30, 2016
Capitalized mortgage loan servicing rights	$	10,007	Present value of net servicing revenue	Discount rate		10.05	%
				Cost to service	$	80
				Ancillary income		24
				Float rate		0.98	%
Impaired loans
Commercial (1)		2,240	Sales comparison approach	Adjustment for differences between comparable sales		(1.5	)%
Mortgage		651	Sales comparison approach	Adjustment for differences between comparable sales		4.2
Other real estate
Commercial		176	Sales comparison approach	Adjustment for differences between comparable sales		(22.5	)
Mortgage and installment		140	Sales comparison approach	Adjustment for differences between comparable sales		73.8
December 31, 2015
Capitalized mortgage loan servicing rights	$	8,481	Present value of net servicing revenue	Discount rate		10.04	%
				Cost to service	$	80
				Ancillary income		24
				Float rate		1.73	%
Impaired loans
Commercial (1)		1,605	Sales comparison approach	Adjustment for differences between comparable sales		(2.1	)%
			Income approach	Capitalization rate		9.3
Mortgage		550	Sales comparison approach	Adjustment for differences between comparable sales		0.7
Other real estate
Commercial		804	Sales comparison approach	Adjustment for differences between comparable sales		(3.9	)
Mortgage and installment		183	Sales comparison approach	Adjustment for differences between comparable sales		75.6

(1) In addition to the valuation techniques and unobservable inputs discussed above, at June 30, 2016 and December 31, 2015, we had an impaired collateral dependent commercial relationship that totaled $0.2 million and $0.4 million, respectively that was primarily secured by collateral other than real estate.  Collateral securing this relationship primarily included machinery and equipment and inventory at June 30, 2016 and December 31, 2015.  Valuation techniques at June 30, 2016 and December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type.  Discount rates used ranged from 0% to 100% of stated values.

51

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale for which the fair value option has been elected for the periods presented.

	Aggregate Fair Value		Difference		Contractual Principal
	(In thousands)
Loans held for sale
June 30, 2016	$	31,713	$	1,192	$	30,521
December 31, 2015		27,866		714		27,152

13.  Fair Values of Financial Instruments

Most of our assets and liabilities are considered financial instruments. Many of these financial instruments lack an available trading market and it is our general practice and intent to hold the majority of our financial instruments to maturity. Significant estimates and assumptions were used to determine the fair value of financial instruments. These estimates are subjective in nature, involving uncertainties and matters of judgment, and therefore, fair values may not be a precise estimate. Changes in assumptions could significantly affect the estimates.

Estimated fair values have been determined using available data and methodologies that are considered suitable for each category of financial instrument. For instruments with adjustable interest rates which reprice frequently and without significant credit risk, it is presumed that estimated fair values approximate the recorded book balances.

Cash and due from banks and interest bearing deposits:  The recorded book balance of cash and due from banks and interest bearing deposits approximate fair value and are classified as Level 1.

Interest bearing deposits - time:  Interest bearing deposits - time have been valued based on a model using a benchmark yield curve plus a base spread and are classified as Level 2.

Securities:  Financial instrument assets actively traded in a secondary market have been valued using quoted market prices.  Trading securities are classified as Level 1 while securities available for sale are classified as Level 2 as described in Note #12.

Federal Home Loan Bank and FederalReserve Bank Stock:  It is not practicable to determine the fair value of FHLB and FRB Stock due to restrictions placed on transferability.

Net loans and loans held for sale:  The fair value of loans is calculated by discounting estimated future cash flows using estimated market discount rates that reflect credit and interest-rate risk inherent in the loans and do not necessarily represent an exit price.  Loans are classified as Level 3.  Impaired loans are valued at the lower of cost or fair value as described in Note #12.  Loans held for sale are classified as Level 2 as described in Note #12.

Accrued interest receivable and payable:  The recorded book balance of accrued interest receivable and payable approximate fair value and are classified at the same Level as the asset and liability they are associated with.

52

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Derivative financial instruments:  The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets, the fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management and the fair value of purchased and written options is based on prices of financial instruments with similar characteristics and do not typically involve judgment by management. Each of these instruments has been classified as Level 2 as described in Note #12.

Deposits:  Deposits without a stated maturity, including demand deposits, savings, NOW and money market accounts, have a fair value equal to the amount payable on demand.  Each of these instruments is classified as Level 1.  Deposits with a stated maturity, such as certificates of deposit have generally been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Other borrowings:  Other borrowings have been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Subordinated debentures:  Subordinated debentures have generally been valued based on a quoted market price of similar instruments resulting in a Level 2 classification.

53

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The estimated recorded book balances and fair values follow:

					Fair Value Using
	Recorded Book Balance		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
June 30, 2016
Assets
Cash and due from banks	$	34,542	$	34,542	$	34,542	$	-	$	-
Interest bearing deposits		26,488		26,488		26,488		-		-
Interest bearing deposits - time		8,560		8,600		-		8,600		-
Trading securities		212		212		212		-		-
Securities available for sale		599,755		599,755		-		599,755		-
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,229		NA		NA		NA		NA
Net loans and loans held for sale		1,591,123		1,566,760		-		31,713		1,535,047
Accrued interest receivable		6,767		6,767		3		2,178		4,586
Derivative financial instruments		3,307		3,307		-		3,307		-
Liabilities
Deposits with no stated maturity (1)	$	1,687,965	$	1,687,965	$	1,687,965	$	-	$	-
Deposits with stated maturity (1)		440,327		439,916		-		439,916		-
Other borrowings		11,797		13,152		-		13,152		-
Subordinated debentures		35,569		22,445		-		22,445		-
Accrued interest payable		536		536		18		518		-
Derivative financial instruments		2,785		2,785		-		2,785		-
December 31, 2015
Assets
Cash and due from banks	$	54,260	$	54,260	$	54,260	$	-	$	-
Interest bearing deposits		31,523		31,523		31,523		-		-
Interest bearing deposits - time		11,866		11,858		-		11,858		-
Trading securities		148		148		148		-		-
Securities available for sale		585,484		585,484		-		585,484		-
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,471		NA		NA		NA		NA
Net loans and loans held for sale		1,520,346		1,472,613		-		27,866		1,444,747
Accrued interest receivable		6,565		6,565		5		1,969		4,591
Derivative financial instruments		1,238		1,238		-		1,238		-
Liabilities
Deposits with no stated maturity (1)	$	1,659,743	$	1,659,743	$	1,659,743	$	-	$	-
Deposits with stated maturity (1)		426,220		423,776		-		423,776		-
Other borrowings		11,954		13,448		-		13,448		-
Subordinated debentures		35,569		23,069		-		23,069		-
Accrued interest payable		466		466		21		445		-
Derivative financial instruments		619		619		-		619		-

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $12.4 million and $11.8 million at June 30, 2016 and December 31, 2015, respectively.  Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $37.0 million and $38.4 million at June 30, 2016 and December 31, 2015, respectively.

The fair values for commitments to extend credit and standby letters of credit are estimated to approximate their aggregate book balance, which is nominal and therefore are not disclosed.

54

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale the entire holdings of a particular financial instrument.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, the value of future earnings attributable to off-balance sheet activities and the value of assets and liabilities that are not considered financial instruments.

Fair value estimates for deposit accounts do not include the value of the core deposit intangible asset resulting from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

14.  Contingent Liabilities

We are involved in various litigation matters in the ordinary course of business. At the present time, we do not believe any of these matters will have a significant impact on our consolidated financial position or results of operations. The aggregate amount we have accrued for losses we consider probable as a result of these litigation matters is immaterial. However, because of the inherent uncertainty of outcomes from any litigation matter, we believe it is reasonably possible we may incur losses in addition to the amounts we have accrued. At this time, we estimate the maximum amount of additional losses that are reasonably possible is approximately $1.0 million. However, because of a number of factors, including the fact that certain of these litigation matters are still in their early stages, this maximum amount may change in the future.

The litigation matters described in the preceding paragraph primarily include claims that have been brought against us for damages, but do not include litigation matters where we seek to collect amounts owed to us by third parties (such as litigation initiated to collect delinquent loans or vehicle service contract counterparty receivables). These excluded, collection-related matters may involve claims or counterclaims by the opposing party or parties, but we have excluded such matters from the disclosure contained in the preceding paragraph in all cases where we believe the possibility of us paying damages to any opposing party is remote. Risks associated with the likelihood that we will not collect the full amount owed to us, net of reserves, are disclosed elsewhere in this report.

Our Mepco segment conducts its payment plan business activities across the United States. Mepco acquires the payment plans from companies (which we refer to as Mepco’s “counterparties”) at a discount from the face amount of the payment plan. Each payment plan (which are classified as payment plan receivables in our Condensed Consolidated Statements of Financial Condition) permits a consumer to purchase a vehicle service contract by making installment payments, generally for a term of 12 to 24 months, to the sellers of those contracts (one of the “counterparties”). Mepco thereafter collects the payments from consumers. In acquiring the payment plan, Mepco generally funds a portion of the cost to the seller of the service contract and a portion of the cost to the administrator of the service contract. The administrator, in turn, pays the necessary contractual liability insurance policy (“CLIP”) premium to the insurer or risk retention group.

55

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Consumers are allowed to voluntarily cancel the service contract at any time and are generally entitled to receive a refund from the administrator of the unearned portion of the service contract at the time of cancellation. As a result, while Mepco does not owe any refund to the consumer, it also does not have any recourse against the consumer for nonpayment of a payment plan and therefore does not evaluate the creditworthiness of the individual consumer. If a consumer stops making payments on a payment plan or exercises the right to voluntarily cancel the service contract, the service contract seller and administrator are each obligated to refund to Mepco the amount necessary to make Mepco whole as a result of its funding of the service contract. In addition, the insurer or risk retention group that issued the CLIP for the service contract often guarantees all or a portion of the refund to Mepco. See Note #4 above for a breakdown of Mepco’s payment plan receivables by the level of recourse Mepco has against various counterparties.

Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected. These amounts represent funds actually due to Mepco from its counterparties for cancelled service contracts. Mepco is currently in the process of working to recover these receivables, primarily through negotiated settlements with the counterparties.  In some cases, Mepco requires collateral or guaranties by the principals of the counterparties to secure these refund obligations; however, this is generally only the case when no insurance company is involved to guarantee the repayment obligation of the seller and administrator counterparties. In most cases, there is no collateral to secure the counterparties’ refund obligations to Mepco, but Mepco has the contractual right to offset unpaid refund obligations against amounts Mepco would otherwise be obligated to fund to the counterparties. In addition, even when collateral is involved, the refund obligations of these counterparties are not fully secured. Mepco incurs losses when it is unable to fully recover funds owing to it by counterparties upon cancellation of the underlying service contracts. The sudden failure of one of Mepco’s major counterparties (an insurance company, administrator, or seller/dealer) could expose us to significant losses.

When counterparties do not honor their contractual obligations to Mepco to repay funds, we recognize estimated losses. Mepco pursues collection (including commencing legal action if necessary) of funds due to it under its various contracts with counterparties.  Mepco has had to initiate litigation against certain counterparties, including third party insurers, to collect amounts owed to Mepco as a result of those parties’ dispute of their contractual obligations to Mepco.  During the first quarter of 2016, we settled our last significant remaining litigation matter with certain of Mepco’s counterparties.  This settlement resulted in our receipt of a cash payment of $4.0 million and reduced vehicle service contract counterparty receivables, net which totaled $3.0 million as of June 30, 2016 compared to $7.2 million as of December 31, 2015.  This settlement also resulted in our receipt of an interest-bearing promissory note from one of Mepco’s counterparties for $1.5 million with monthly payments scheduled over a five-year period beginning in May 2016.  Due to the lack of any payment history and limited financial information on this counterparty, we established a full reserve on this promissory note as of March 31, 2016.  A full reserve on the remaining balance ($1.45 million) on this note was maintained at June 30, 2016.   This counterparty has made the first three required monthly payments on the note.  As a longer-term payment history is developed on this note, we will continue to evaluate the need for all or any part of a reserve.  Expense/(credit) related to vehicle service contract counterparty contingencies included in non-interest expense totaled $(0.001) million and $0.030 million for the three month periods ended June 30, 2016 and 2015, respectively and totaled $0.029 million and $0.059 million for the six month periods ended June 30, 2016 and 2015, respectively.  These charges (recoveries) are being classified in non-interest expense because they are associated with a default or potential default of a contractual obligation under our counterparty contracts as opposed to loss on the administration of the payment plan itself.

56

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Our estimate of probable incurred losses from vehicle service contract counterparty contingencies requires a significant amount of judgment because a number of factors can influence the amount of loss that we may ultimately incur. These factors include our estimate of future cancellations of vehicle service contracts, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations.  We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses.

We believe our assumptions regarding the collection of vehicle service contract counterparty receivables are reasonable, and we based them on our good faith judgments using data currently available. We also believe the current amount of reserves we have established and the vehicle service contract counterparty contingencies expense that we have recorded are appropriate given our estimate of probable incurred losses at the applicable Condensed Consolidated Statement of Financial Condition date. However, because of the uncertainty surrounding the numerous and complex assumptions made, actual losses could exceed the charges we have taken to date.

The provision for loss reimbursement on sold loans represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae, Freddie Mac and Ginnie Mae). Since we sell mortgage loans without recourse, loss reimbursements only occur in those instances where we have breached a representation or warranty or other contractual requirement related to the loan sale.  The provision for loss reimbursement on sold loans was an expense of zero and $0.05 million for the three months ended June 30, 2016 and 2015, respectively and a credit of $0.02 million for both six month periods ended June 30, 2016 and 2015, respectively.  The credit provision for each six month period is due primarily to the settlement of certain loss reimbursement claims at slightly lower amounts than what had been specifically reserved for previously.  The reserve for loss reimbursements on sold mortgage loans totaled $0.5 million at both June 30, 2016 and December 31, 2015. This reserve is included in accrued expenses and other liabilities in our Condensed Consolidated Statements of Financial Condition. This reserve is based on an analysis of mortgage loans that we have sold which are further categorized by delinquency status, loan to value, and year of origination. The calculation includes factors such as probability of default, probability of loss reimbursement (breach of representation or warranty) and estimated loss severity. The reserve levels at June 30, 2016 and December 31, 2015 also reflect the resolution of the mortgage loan origination years of 2000 to 2008 with Fannie Mae and Freddie Mac.  We believe that the amounts that we have accrued for incurred losses on sold mortgage loans are appropriate given our analyses.  However, future losses could exceed our current estimate.

57

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

15.  Accumulated Other Comprehensive Loss (“AOCL”)

A summary of changes in AOCL follows:

	Unrealized Gains (Losses) on Securities Available for Sale			Dispropor- tionate Tax Effects from Securities Available for Sale			Total
For the three months ended June 30,
2016
Balances at beginning of period	$	999		$	(5,798	)	$	(4,799	)
Other comprehensive income before reclassifications		1,588			-			1,588
Amounts reclassified from AOCL		(72	)		-			(72	)
Net current period other comprehensive income		1,516			-			1,516
Balances at end of period	$	2,515		$	(5,798	)	$	(3,283	)
2015
Balances at beginning of period	$	1,596		$	(5,798	)	$	(4,202	)
Other comprehensive income (loss) before reclassifications		(1,188	)		-			(1,188	)
Amounts reclassified from AOCL		-			-			-
Net current period other comprehensive income (loss)		(1,188	)		-			(1,188	)
Balances at end of period	$	408		$	(5,798	)	$	(5,390	)
For the six months ended June 30,
2016
Balances at beginning of period	$	(238	)	$	(5,798	)	$	(6,036	)
Other comprehensive income before reclassifications		2,937			-			2,937
Amounts reclassified from AOCL		(184	)		-			(184	)
Net current period other comprehensive income		2,753			-			2,753
Balances at end of period	$	2,515		$	(5,798	)	$	(3,283	)
2015
Balances at beginning of period	$	162		$	(5,798	)	$	(5,636	)
Other comprehensive income before reclassifications		295			-			295
Amounts reclassified from AOCL		(49	)		-			(49	)
Net current period other comprehensive income		246			-			246
Balances at end of period	$	408		$	(5,798	)	$	(5,390	)

The disproportionate tax effects from securities available for sale arose due to tax effects of other comprehensive income (“OCI”) in the presence of a valuation allowance against our deferred tax assets and a pretax loss from operations.  Generally, the amount of income tax expense or benefit allocated to operations is determined without regard to the tax effects of other categories of income or loss, such as OCI. However, an exception to the general rule is provided when, in the presence of a valuation allowance against deferred tax assets, there is a pretax loss from operations and pretax income from other categories in the current period.  In such instances, income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in operations.

58

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A summary of reclassifications out of each component of AOCL for the three months ended June 30 follows:

AOCL Component	Amount Reclassified From AOCL		Affected Line Item in Condensed Consolidated Statements of Operations
	(In thousands)
2016
Unrealized gains on securities available for sale
	$	109	Net gains on securities
		-	Net impairment loss recognized in earnings
		109	Total reclassifications before tax
		37	Income tax expense
	$	72	Reclassifications, net of tax
2015
Unrealized gains on securities available for sale
	$	-	Net gains on securities
		-	Net impairment loss recognized in earnings
		-	Total reclassifications before tax
		-	Income tax expense
	$	-	Reclassifications, net of tax

A summary of reclassifications out of each component of AOCL for the six months ended June 30 follows:

AOCL Component	Amount Reclassified From AOCL		Affected Line Item in Condensed Consolidated Statements of Operations
	(In thousands)
2016
Unrealized gains on securities available for sale
	$	283	Net gains on securities
		-	Net impairment loss recognized in earnings
		283	Total reclassifications before tax
		99	Income tax expense
	$	184	Reclassifications, net of tax
2015
Unrealized gains on securities available for sale
	$	75	Net gains on securities
		-	Net impairment loss recognized in earnings
		75	Total reclassifications before tax
		26	Income tax expense
	$	49	Reclassifications, net of tax

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ITEM 2.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Introduction. The following section presents additional information to assess the financial condition and results of operations of Independent Bank Corporation, its wholly-owned bank, Independent Bank (the “Bank”), and their subsidiaries. This section should be read in conjunction with the Condensed Consolidated Financial Statements. We also encourage you to read our 2015 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”). That report includes a list of risk factors that you should consider in connection with any decision to buy or sell our securities.

Overview. We provide banking services to customers located primarily in Michigan’s Lower Peninsula.  As a result, our success depends to a great extent upon the economic conditions in Michigan’s Lower Peninsula. At times, we have experienced a difficult economy in Michigan. Economic conditions in Michigan began to show signs of improvement during 2010.  Generally, these improvements have continued into 2016, albeit at an uneven pace.  There has been an overall decline in the unemployment rate as well as generally improving housing prices and other related statistics (such as home sales and new building permits).  In addition, since early- to mid-2009, we have seen an improvement in our asset quality metrics. In particular, since early 2012, we have generally experienced a decline in non-performing assets, reduced levels of new loan defaults, and reduced levels of loan net charge-offs.

Regulation. On July 2, 2013, the Federal Reserve Board (the “FRB”) approved a final rule that establishes an integrated regulatory capital framework (the “New Capital Rules”). The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  In general, under the New Capital Rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the New Capital Rules include a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets that applies to all supervised financial institutions. The 2.5% capital conservation buffer is being phased in over a four-year period beginning in 2016 with 0.625% added to the minimum ratio for adequately capitalized institutions for 2016.  To avoid limits on capital distributions and certain discretionary bonus payments we must meet the minimum ratio for adequately capitalized institutions plus the phased in buffer.  The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations. As to the quality of capital, the New Capital Rules emphasize common equity tier 1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The New Capital Rules also change the methodology for calculating risk-weighted assets to enhance risk sensitivity.  Under the New Capital Rules our existing trust preferred securities are grandfathered as qualifying regulatory capital. We were subject to the New Capital Rules beginning on January 1, 2015, and as of June 30, 2016 and December 31, 2015 we exceeded all of the capital ratio requirements of the New Capital Rules.

It is against this backdrop that we discuss our results of operations and financial condition in the second quarter and first six months of 2016 as compared to 2015.

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Results of Operations

Summary.  We recorded net income of $6.4 million and $5.6 million, respectively, during the three months ended June 30, 2016 and 2015.  The increase in 2016 results as compared to 2015 primarily reflects an increase in net interest income and decreases in the provision for loan losses (a larger credit) and in non-interest expenses that were partially offset by a decrease in non-interest income.

We recorded net income of $10.5 million and $9.4 million, respectively, during the six months ended June 30, 2016 and 2015.  The increase in 2016 year-to-date results as compared to 2015 is generally comparable to the quarterly changes described above.

Key performance ratios

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Net income (annualized) to
Average assets		1.06	%		0.98	%		0.87	%		0.83	%
Average common shareholders’ equity		10.66			8.86			8.67			7.46
Net income per common share
Basic	$	0.30		$	0.25		$	0.49		$	0.41
Diluted		0.30			0.24			0.48			0.40

Net interest income.Net interest income is the most important source of our earnings and thus is critical in evaluating our results of operations. Changes in our net interest income are primarily influenced by our level of interest-earning assets and the income or yield that we earn on those assets and the manner and cost of funding our interest-earning assets. Certain macro-economic factors can also influence our net interest income such as the level and direction of interest rates, the difference between short-term and long-term interest rates (the steepness of the yield curve) and the general strength of the economies in which we are doing business. Finally, risk management plays an important role in our level of net interest income. The ineffective management of credit risk and interest-rate risk in particular can adversely impact our net interest income.

Our net interest income totaled $19.6 million during the second quarter of 2016, an increase of $0.9 million, or 5.0% from the year-ago period.  The increase in net interest income in 2016 compared to 2015 primarily reflects a $175.6 million increase in average interest-earning assets that was partially offset by a ten basis point decrease in our tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”)

For the first six months of 2016, net interest income totaled $39.4 million, an increase of $2.6 million, or 7.1% from 2015.  Our net interest margin for the first six months of 2016 declined to 3.57% compared to 3.60% in 2015.  The impact of the lower net interest margin was more than offset by a $163.0 million increase in average interest-earning assets.

61

Although the prolonged low interest rate environment has continued to pressure loan yields, this has been offset by growth in the amount of interest-earning assets, particularly loans.  Total average interest-earning assets were $2.26 billion and $2.23 billion in the second quarter and first six months of 2016, respectively, compared to $2.08 billion and $2.07 billion in the second quarter and first six months of 2015, respectively.

Interest rates have generally been at extremely low levels since 2008 due primarily to the Federal Reserve Bank’s (“FRB”) monetary policies and its efforts to stimulate the U.S. economy.  This very low interest rate environment has created challenges as we seek to grow our interest income and net interest income.   The FRB did move the target federal funds rate up by 0.25% in mid-December 2015.  Future changes in the target federal funds rate are uncertain, however, we anticipate that any upward movements in short-term interest rates will be very gradual.  Given the repricing characteristics of our interest-earning assets and interest-bearing liabilities (and our level of non-interest bearing demand deposits), we would expect that our net interest margin will generally benefit on a long-term basis from rising interest rates.

Our net interest income is also adversely impacted by our level of non-accrual loans.  In the second quarter and first six months of 2016 non-accrual loans averaged $10.6 million and $10.5 million, respectively compared to $13.2 million and $14.1 million, respectively for the same periods in 2015.  In addition, in the second quarter and first six months of 2016 we had net recoveries of $0.13 million and $0.68 million, respectively, of accrued and unpaid interest on loans placed on or taken off non-accrual during each period compared to net recoveries of $0.13 million and $0.18 million, respectively, during the same periods in 2015.

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Average Balances and Tax Equivalent Rates

	Three Months Ended June 30,
	2016							2015
	Average Balance		Interest		Rate (3)			Average Balance		Interest		Rate (3)
	(Dollars in thousands)
Assets (1)
Taxable loans	$	1,573,471	$	18,173		4.64	%	$	1,449,218	$	17,707		4.90	%
Tax-exempt loans (2)		3,555		55		6.22			4,198		67		6.40
Taxable securities		541,557		2,480		1.83			529,345		1,869		1.41
Tax-exempt securities (2)		50,091		432		3.45			31,397		341		4.34
Interest bearing cash		74,384		100		0.54			50,664		54		0.43
Other investments		15,478		197		5.12			18,145		235		5.19
Interest Earning Assets		2,258,536		21,437		3.81			2,082,967		20,273		3.90
Cash and due from banks		34,515							42,980
Other assets, net		154,859							167,499
Total Assets	$	2,447,910						$	2,293,446
Liabilities
Savings and interest- bearing checking	$	1,027,913		277		0.11		$	990,019		260		0.11
Time deposits		430,955		875		0.82			371,304		707		0.76
Other borrowings		47,467		485		4.11			47,986		463		3.87
Interest Bearing Liabilities		1,506,335		1,637		0.44			1,409,309		1,430		0.41
Non-interest bearing deposits		672,920							603,706
Other liabilities		25,855							25,948
Shareholders’ equity		242,800							254,483
Total liabilities and shareholders’ equity	$	2,447,910						$	2,293,446
Net Interest Income			$	19,800						$	18,843
Net Interest Income as a Percent of Average Interest Earning Assets						3.52	%						3.62	%

(1) All domestic.

(2) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 35%

(3) Annualized

63

Average Balances and Tax Equivalent Rates

	Six Months Ended June 30,
	2016							2015
	Average Balance		Interest		Rate (3)			Average Balance		Interest		Rate (3)
	(Dollars in thousands)
Assets (1)
Taxable loans	$	1,559,807	$	36,693		4.72	%	$	1,434,817	$	34,902		4.89	%
Tax-exempt loans (2)		3,601		110		6.14			4,279		135		6.36
Taxable securities		531,695		4,724		1.78			517,941		3,627		1.40
Tax-exempt securities (2)		46,036		813		3.53			32,630		674		4.13
Interest bearing cash		77,910		206		0.53			62,850		124		0.40
Other investments		15,512		397		5.15			19,063		503		5.32
Interest Earning Assets		2,234,561		42,943		3.86			2,071,580		39,965		3.88
Cash and due from banks		39,841							44,500
Other assets, net		159,979							169,678
Total Assets	$	2,434,381						$	2,285,758
Liabilities
Savings and interest- bearing checking	$	1,021,015		547		0.11		$	987,763		526		0.11
Time deposits		433,449		1,719		0.80			374,115		1,448		0.78
Other borrowings		47,495		962		4.07			48,012		917		3.85
Interest Bearing Liabilities		1,501,959		3,228		0.43			1,409,890		2,891		0.41
Non-interest bearing deposits		663,168							596,935
Other liabilities		24,811							24,951
Shareholders’ equity		244,443							253,982
Total liabilities and shareholders’ equity	$	2,434,381						$	2,285,758
Net Interest Income			$	39,715						$	37,074
Net Interest Income as a Percent of Average Interest Earning Assets						3.57	%						3.60	%

(1) All domestic.

(2) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 35%

(3) Annualized

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Provision for loan losses.  The provision for loan losses was a credit of $0.7 million and $0.1 million during the three months ended June 30, 2016 and 2015, respectively. During the six-month periods ended June 30, 2016 and 2015, the provision was a credit of $1.3 million and $0.8 million, respectively. The provision reflects our assessment of the allowance for loan losses taking into consideration factors such as loan mix, levels of non-performing and classified loans and loan net charge-offs.  While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors.  See “Portfolio Loans and asset quality” for a discussion of the various components of the allowance for loan losses and their impact on the provision for loan losses in the second quarter and first half of 2016.

Non-interest income.  Non-interest income is a significant element in assessing our results of operations. We regard net gains on mortgage loans as a recurring source of revenue but they are quite cyclical and thus can be volatile.

Non-interest income totaled $9.6 million during the second quarter of 2016 compared to $11.0 million in 2015.  For the first six months of 2016 non-interest income totaled $17.4 million compared to $19.9 million for the first six months of 2015.  The components of non-interest income are as follows:

Non-Interest Income

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
		(In thousands)
Service charges on deposit accounts	$	3,038		$	3,117		$	5,883		$	5,967
Interchange income		1,976			2,240			3,854			4,382
Net gains (losses) on assets:
Mortgage loans		2,529			1,784			4,171			3,923
Securities		185			(33	)		347			52
Mortgage loan servicing		(334	)		1,452			(1,312	)		1,032
Investment and insurance commissions		384			487			851			933
Bank owned life insurance		298			325			588			675
Title insurance fees		253			337			541			593
Other		1,251			1,278			2,466			2,392
Total non-interest income	$	9,580		$	10,987		$	17,389		$	19,949

Service charges on deposit accounts declined on both a comparative quarterly and year-to-date basis in 2016 as compared to 2015.  Over the last few years, such service charges have been decreasing, principally due to a decline in non-sufficient funds (“NSF”) occurrences and related NSF fees. We believe the long-term decline in NSF occurrences is due to our customers managing their finances more closely and having real-time access to deposit account information through electronic channels allowing them to reduce NSF activity and avoid the associated fees.

Interchange income decreased on both a comparative quarterly and year-to-date basis in 2016 as compared to 2015.  The decrease in interchange income in 2016 as compared to 2015 primarily results from lower incentives under our Debit Brand Agreement with MasterCard.  In addition, although transaction volume increased 3.6% year-over-year, interchange revenue per transaction declined by 7.7%, primarily due to a higher mix of debit (PIN-based) versus credit (signature-based) transactions.

65

Net gains on mortgage loans increased on both a quarterly and a year to date basis. Mortgage loan activity is summarized as follows:

Mortgage Loan Activity

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(Dollars in thousands)
Mortgage loans originated	$	91,966		$	101,306		$	165,468		$	181,096
Mortgage loans sold		70,479			82,167			126,145			150,894
Net gains on mortgage loans		2,529			1,784			4,171			3,923
Net gains as a percent of mortgage loans sold (“Loan Sales Margin”)		3.59	%		2.17	%		3.31	%		2.60	%
Fair value adjustments included in the Loan Sales Margin		0.34			(0.07	)		0.30			0.33

The decreases in mortgage loan originations and sales in 2016 as compared to 2015 is due primarily to a decrease in mortgage loan refinance volumes.  However, net gains on mortgage loans increased in 2016 due to an increase in the Loan Sales Margin.

The volume of loans sold is dependent upon our ability to originate mortgage loans as well as the demand for fixed-rate obligations and other loans that we choose to not put into portfolio because of our established interest-rate risk parameters. (See “Portfolio Loans and asset quality.”) Net gains on mortgage loans are also dependent upon economic and competitive factors as well as our ability to effectively manage exposure to changes in interest rates and thus can often be a volatile part of our overall revenues.

Our Loan Sales Margin is impacted by several factors including competition and the manner in which the loan is sold. Net gains on mortgage loans are also impacted by recording fair value accounting adjustments.  Excluding the aforementioned fair value accounting adjustments, the Loan Sales Margin would have been 3.25% and 2.24% in the second quarters of 2016 and 2015, respectively and 3.01% and 2.27% for the comparative 2016 and 2015 year-to-date periods, respectively.  The increase in the Loan Sales Margin (excluding fair value adjustments) in 2016 was generally due to a widening of primary-to-secondary market pricing spreads as well as a higher content of government (FHA and VA) mortgage loan sales, which generally have higher profit margins than conventional mortgage loan sales. The changes in the fair value accounting adjustments are primarily due to changes in the amount of commitments to originate mortgage loans for sale.

Net gains (losses) on securities totaled $0.18 million and $0.35 million during the three and six months ended June 30, 2016, respectively, and $(0.03) million and $0.05 million for the respective comparable periods in 2015.  The second quarter 2016 securities net gains were due to the sale of $13.0 million of investments as well as a $0.08 million increase in the fair value of trading securities. The year-to-date 2016 securities net gains were due primarily to the sale of $55.4 million of investments.  The second quarter 2015 securities net loss was due to a decline in the fair value of our trading securities.  The 2015 year-to-date securities net gains were due primarily to the sale of $11.8 million of investments. (See “Securities.”)

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We recorded no net impairment losses in either 2016 or 2015 for other than temporary impairment of securities available for sale.  (See “Securities.”)

Mortgage loan servicing generated a loss of $0.3 million and $1.3 million in the second quarter and first six months of 2016, respectively, compared to income of $1.5 million and $1.0 million in the corresponding periods of 2015, respectively. These variances are primarily due to changes in the valuation allowance on and the amortization of capitalized mortgage loan servicing rights. The period end valuation allowance is based on the valuation of the mortgage loan servicing portfolio.  Activity related to capitalized mortgage loan servicing rights is as follows:

Capitalized Mortgage Loan Servicing Rights

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(In thousands)
Balance at beginning of period	$	10,983		$	11,318		$	12,436		$	12,106
Originated servicing rights capitalized		703			787			1,257			1,450
Amortization		(709	)		(800	)		(1,266	)		(1,559	)
Change in valuation allowance		(646	)		1,230			(2,096	)		538
Balance at end of period	$	10,331		$	12,535		$	10,331		$	12,535
Valuation allowance at end of period	$	5,368		$	3,235		$	5,368		$	3,235

At June 30, 2016 we were servicing approximately $1.64 billion in mortgage loans for others on which servicing rights have been capitalized. This servicing portfolio had a weighted average coupon rate of 4.28% and a weighted average service fee of approximately 25.4 basis points. Remaining capitalized mortgage loan servicing rights at June 30, 2016 totaled $10.3 million, representing approximately 63 basis points on the related amount of mortgage loans serviced for others. The capitalized mortgage loan servicing had an estimated fair market value of $10.4 million at June 30, 2016.

Investment and insurance commissions represent revenues generated on the sale or management of investments and insurance for our customers.  These revenues declined on both a quarterly and year-to-date basis in 2016 as compared to 2015, due primarily to open sales representative positions that were not filled until during the second quarter of 2016.

Income from bank owned life insurance declined on both a comparative quarterly and year-to-date basis in 2016 compared to 2015 reflecting a somewhat lower crediting rate on our cash surrender value.Our separate account is primarily invested in agency mortgage-backed securities and managed by PIMCO. The crediting rate (on which the earnings are based) reflects the performance of the separate account.  The total cash surrender value of our bank owned life insurance was $55.0 million and $54.4 million at June 30, 2016 and December 31, 2015, respectively.

Title insurance fees were lower on both a comparative quarterly and year-to-date basis in 2016 as compared to 2015.  The amount of title insurance fees is primarily a function of the level of mortgage loans that we originated.

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Other non-interest income was relatively unchanged on both a comparative quarterly and year-to-date basis in 2016 compared to 2015.

Non-interest expense.Non-interest expense is an important component of our results of operations. We strive to efficiently manage our cost structure and management is focused on a number of initiatives to reduce and contain non-interest expenses.

Non-interest expense decreased by $0.7 million to $20.9 million and by $0.8 million to $42.9 million during the three- and six-month periods ended June 30, 2016, respectively, compared to the same periods in 2015.  The components of non-interest expense are as follows:

Non-Interest Expense
	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
		(in thousands)
Compensation	$	8,168		$	8,131		$	16,402		$	16,461
Performance-based compensation		1,679			1,744			3,200			3,032
Payroll taxes and employee benefits		2,153			1,916			4,279			4,083
Compensation and employee benefits		12,000			11,791			23,881			23,576
Occupancy, net		1,856			2,040			4,063			4,459
Data processing		1,936			2,027			4,037			3,957
Furniture, fixtures and equipment		965			965			1,949			1,917
Communications		722			694			1,610			1,430
Loan and collection		571			967			1,396			2,122
Advertising		478			448			955			932
Legal and professional		345			453			758			833
FDIC deposit insurance		331			351			665			694
Interchange expense		267			289			533			580
Credit card and bank service fees		198			203			385			405
Supplies		197			216			373			429
Amortization of intangible assets		87			87			174			174
Vehicle service contract counterparty contingencies		(1	)		30			29			59
Provision for loss reimbursement on sold loans		-			45			(15	)		(24	)
Costs (recoveries) related to unfunded lending commitments		(80	)		4			(67	)		20
Net gains on other real estate and repossessed assets		(159	)		(139	)		(165	)		(178	)
Other		1,182			1,108			2,379			2,345
Total non-interest expense	$	20,895		$	21,579		$	42,940		$	43,730

Compensation and employee benefits expenses, in total, increased $0.2 million, or 1.8%, on a quarterly comparative basis and increased $0.3 million, or 1.3%, for the first six months of 2016 compared to the same periods in 2015.

Compensation expense was relatively unchanged in the second quarter and first six months of 2016, respectively, compared to the same periods in 2015.  Average full-time equivalent employees (“FTEs”) were reduced by approximately 0.9% and  1.8% during the second quarter and first six months of 2016, respectively, compared to the year ago periods.  However, the impact of the FTE reductions was offset by merit raises granted in 2016.

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Performance-based compensation decreased by $0.1 million and increased by $0.2 million in the second quarter and first six months of 2016, respectively, versus the same periods in 2015, due primarily to relative comparative changes in the accrual for anticipated incentive compensation based on our estimated full-year performance as compared to goals.

Payroll taxes and employee benefits increased by $0.2 million for both the second quarter and first six months of 2016, respectively, compared to the same periods in 2015.  The 2016 quarterly increase was due primarily to increases in medical insurance and employee training costs.  The 2016 year-to-date increase was due primarily to increases in payroll taxes and employee training costs.

Occupancy, net, decreased by $0.2 million and $0.4 million in the second quarter and first six months of 2016, respectively, compared to the same periods in 2015.  These declines are primarily due to decreases in utility costs and real estate property taxes (which reflect fewer properties owned due to sales or other dispositions) and lower lease costs for our Mepco Finance Corporation (“Mepco”) Chicago office due to relocating to smaller space in the fourth quarter of 2015.

Data processing expenses decreased by $0.1 million and increased by $0.1 million in the second quarter and first six months of 2016, respectively, compared to the same periods in 2015. The 2016 quarterly decrease is primarily due to a decline in software amortization expense.  The 2016 year-to-date increase primarily reflects new services added with our core data processing vendor or other outside service providers.

Furniture, fixtures and equipment, advertising, FDIC deposit insurance and supplies expenses were all relatively unchanged in 2016 as compared to 2015.

Communications expenses were relatively unchanged and increased by $0.2 million in the second quarter and first six months of 2016, respectively, compared to the same periods in 2015.  The year-to-date increase in 2016 is due primarily to mailing costs to convert our debit card customers to a chip-enabled card and for distribution of materials related to a new checking account program.

Loan and collection expenses primarily reflect costs related to the management and collection of non-performing loans and other problem credits. These expenses have further declined in 2016, which primarily reflects the overall year-over-year decrease in non-performing assets and watch credits. (See “Portfolio Loans and asset quality.”)

Legal and professional fees decreased on both a comparative quarterly and year-to-date basis due primarily to a decline in legal fees at Mepco because of the resolution (in the first quarter of 2016) of counterparty litigation associated with collection matters.

Interchange expense primarily represents our third-party cost to process debit card transactions.  This cost has declined on both a comparative quarterly and year-to-date basis due primarily to the decline in debit card transaction revenue described above.

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Credit card and bank service fees decreased on both a comparative quarterly and year-to-date basis primarily due to a decline in the number of payment plans being serviced by Mepco in 2016 compared to 2015.

The amortization of intangible assets primarily relates to branch acquisitions and the amortization of the deposit customer relationship value, including core deposit value, which was acquired in connection with those acquisitions. We had remaining unamortized intangible assets of $2.1 million and $2.3 million at June 30, 2016 and December 31, 2015, respectively. See Note #8 to the Condensed Consolidated Financial Statements for a schedule of future amortization of intangible assets.

We record estimated incurred losses associated with Mepco’s vehicle service contract payment plan receivables in our provision for loan losses and establish a related allowance for loan losses. (See “Portfolio Loans and asset quality.”) We record estimated incurred losses associated with defaults by Mepco’s counterparties as “vehicle service contract counterparty contingencies expense,” which is included in non-interest expenses in our Condensed Consolidated Statements of Operations. Such expense/(credit) totaled $(0.001) million and $0.03 million for vehicle service contract payment plan counterparty contingencies in the second quarter and first six months of 2016, respectively, compared to $0.03 million and $0.06 million, respectively, for the same periods in 2015.

Our estimate of probable incurred losses from vehicle service contract counterparty contingencies requires a significant amount of judgment because a number of factors can influence the amount of loss that we may ultimately incur. These factors include our estimate of future cancellations of vehicle service contracts, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations. We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses.

In particular, as noted in our Risk Factors included in Part I - Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, Mepco has had to initiate litigation against certain counterparties, including third party insurers, to collect amounts owed to Mepcoas a result of those parties’ dispute of their contractual obligations to Mepco.  During the first quarter of 2016, we settled our last significant remaining litigation matter with certain of Mepco’s counterparties.  This settlement resulted in our receipt of a cash payment of $4.0 million on March 31, 2016.  This settlement also resulted in our receipt of an interest-bearing promissory note from one of Mepco’s counterparties for $1.5 million with monthly payments scheduled over a five-year period beginning in May 2016.  Due to the lack of any payment history and limited financial information on this counterparty, we established a full reserve on this promissory note as of March 31, 2016.  A full reserve on the remaining balance ($1.45 million) on this note was maintained at June 30, 2016.   This counterparty has made the first three required monthly payments on the note.  As a longer-term payment history is developed on this note, we will continue to evaluate the need for all or any part of a reserve.  Vehicle service contract counterparty receivables, net totaled $3.0 million as of June 30, 2016 compared to $7.2 million as of December 31, 2015.

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In addition, see Note #14 to the Condensed Consolidated Financial Statements included within this report for more information about Mepco’s business, certain risks and difficulties we currently face with respect to that business, and reserves we have established (through vehicle service contract counterparty contingencies expense) for losses related to the business.

The provision for loss reimbursement on sold loans was zero and a credit of $0.015 million in the second quarter and first six months of 2016, respectively, compared to an expense of $0.045 million and a credit of $0.024 million in the second quarter and first six months of 2015, respectively. This provision represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae, Freddie Mac and Ginnie Mae).  The small credit provisions in 2016 and for the first six months of 2015 are due primarily to the settlements of certain loss reimbursement claims at slightly lower amounts than what had been specifically reserved for at the end of the respective previous period.  Since we sell mortgage loans without recourse, loss reimbursements only occur in those instances where we have breached a representation or warranty or other contractual requirement related to the loan sale.  The reserve for loss reimbursements on sold mortgage loans totaled $0.5 million at both June 30, 2016 and December 31, 2015. This reserve is included in accrued expenses and other liabilities in our Condensed Consolidated Statements of Financial Condition. This reserve is based on an analysis of mortgage loans that we have sold which are further categorized by delinquency status, loan to value, and year of origination. The calculation includes factors such as probability of default, probability of loss reimbursement (breach of representation or warranty) and estimated loss severity. The reserve levels at June 30, 2016 and December 31, 2015 also reflect the resolution of the mortgage loan origination years of 2000 to 2008 with Fannie Mae and Freddie Mac.  We believe that the amounts that we have accrued for incurred losses on sold mortgage loans are appropriate given our analyses.  However, future losses could exceed our current estimate.

The changes in cost (recoveries) related to unfunded lending commitments are primarily impacted by changes in the amounts of such commitments to originate portfolio loans as well as (for commercial loan commitments) the grade (pursuant to our loan rating system) of such commitments.

Net gains on other real estate and repossessed assets primarily represent the gain or loss on the sale or additional write downs on these assets subsequent to the transfer of the asset from our loan portfolio. This transfer occurs at the time we acquire the collateral that secured the loan. At the time of acquisition, the other real estate or repossessed asset is valued at fair value, less estimated costs to sell, which becomes the new basis for the asset. Any write-downs at the time of acquisition are charged to the allowance for loan losses.  The net gains of $0.16 million and $0.17 million recorded in the second quarter and first six months of 2016, respectively (as compared to net gains of $0.14 million and $0.18 million, respectively, recorded in the same periods in 2015) primarily reflect greater stability in real estate prices during the last two years, with some markets even experiencing price increases.

Other non-interest expenses were relatively unchanged in the second quarter and first six months of 2016, respectively, compared to the same periods in 2015.

Income tax expense.  We recorded an income tax expense of $2.6 million and $4.6 million in the second quarter and the first six months of 2016, respectively. This compares to an income tax expense of $2.6 million and $4.4 million in the second quarter and the first six months of 2015, respectively.

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The second quarter of 2016 included a $0.3 million income tax benefit resulting from the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-09 “Compensation – Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). See Note #2 to the Condensed Consolidated Financial Statements

Our actual federal income tax expense is different than the amount computed by applying our statutory federal income tax rate to our pre-tax income primarily due to tax-exempt interest income and tax-exempt income from the increase in the cash surrender value on life insurance.

We assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard.  The ultimate realization of this asset is primarily based on generating future income.  We concluded at both June 30, 2016 and 2015, that the realization of substantially all of our deferred tax assets continues to be more likely than not.

We did maintain a valuation allowance against our deferred tax assets of approximately $1.1 million at both June 30, 2016 and December 31, 2015. This valuation allowance on our deferred tax assets primarily relates to state income taxes at our Mepco segment.  In this instance, we determined that the future realization of these particular deferred tax assets was not more likely than not.  This conclusion was primarily based on the uncertainty of Mepco’s future earnings attributable to particular states (given the various apportionment criteria) and the significant reduction in the size of Mepco’s business.

Because of our net operating loss and tax credit carryforwards, we are still subject to the rules of Section 382 of the Internal Revenue Code of 1986, as amended.  An ownership change, as defined by these rules, would negatively affect our ability to utilize our net operating loss carryforwards and other deferred tax assets in the future. If such an ownership change were to occur, we may suffer higher-than-anticipated tax expense, and consequently lower net income and cash flow, in those future years.  Although we cannot control market purchases or sales of our common stock, we have in place a Tax Benefits Preservation Plan to dissuade any movement in our stock that would trigger an ownership change to avoid triggering any Section 382 limitations.

Business Segments.  Our reportable segments are based upon legal entities.  We currently have two reportable segments:  Independent Bank and Mepco.  These business segments are also differentiated based on the products and services provided.  We evaluate performance based principally on net income (loss) of the respective reportable segments.

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The following table presents net income (loss) by business segment.

Business Segments

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
	(in thousands)
Independent Bank	$	6,550		$	5,935		$	11,169		$	10,168
Mepco		32			(77	)		(205	)		(269	)
Other(1)		(129	)		(225	)		(396	)		(469	)
Elimination		(15	)		(14	)		(30	)		(30	)
Net income	$	6,438		$	5,619		$	10,538		$	9,400

(1) Includes amounts relating to our parent company.

The increase in second quarter and year-to-date net income at Independent Bank in 2016 compared to 2015 is primarily due to an increase in net interest income and decreases in the provision for loan losses (a larger credit) and in non-interest expenses that were partially offset by a decrease in non-interest income.  (See “Net interest income,” “Provision for loan losses,” “Non-interest income,” “Non-interest expense,” and “Portfolio Loans and asset quality.”)

The improvement in Mepco’s results in 2016 compared to 2015 is primarily due to a decrease in non-interest expenses that was partially offset by a decrease in net interest income as a result of a decline in year-over-year average payment plan receivables.  All of Mepco’s funding is provided by Independent Bank through an intercompany loan (that is eliminated in consolidation).  The rate on this intercompany loan is based on the Prime Rate (currently 3.50%). Mepco might not be able to obtain such favorable funding costs on its own in the open market.

Financial Condition

Summary.  Our total assets increased by $43.6 million during the first six months of 2016 due primarily to increases in securities available for sale and loans.  Loans, excluding loans held for sale (“Portfolio Loans”), totaled $1.58 billion at June 30, 2016, an increase of $67.1 million, or 4.4%, from December 31, 2015.  The commercial loan total of $792.0 million at June 30, 2016, included $6.7 million of inadvertent commercial deposit customer overdrafts that were cleared on July 1, 2016.  (See “Portfolio Loans and asset quality.”)

Deposits totaled $2.13 billion at June 30, 2016, compared to $2.09 billion at December 31, 2015.  The $42.3 million increase in total deposits during the period is primarily due to growth in checking, savings and time deposit account balances.

Securities.  We maintain diversified securities portfolios, which include obligations of U.S. government-sponsored agencies, securities issued by states and political subdivisions, residential and commercial mortgage-backed securities, collateralized loan obligations, asset-backed securities, corporate securities and trust preferred securities. We regularly evaluate asset/liability management needs and attempt to maintain a portfolio structure that provides sufficient liquidity and cash flow. Except as discussed below, we believe that the unrealized losses on securities available for sale are temporary in nature and are expected to be recovered within a reasonable time period. We believe that we have the ability to hold securities with unrealized losses to maturity or until such time as the unrealized losses reverse. (See “Asset/liability management.”)

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Securities

			Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In thousands)
Securities available for sale
June 30, 2016	$	595,886	$	5,991	$	2,122	$	599,755
December 31, 2015		585,851		3,152		3,519		585,484

In the first quarter of 2016, we initiated the use of Pacific Investment Management Company LLC (“PIMCO”) to manage an approximately $150 million segment of our securities available for sale.  We anticipate achieving about $0.5 million of additional annual interest income, after management fees, on this portion of our securities available for sale.  Although this segment of our securities available for sale is expected to have a similar risk-weighting and duration as our remaining portfolio, the additional earnings are anticipated to be generated through rebalancing into other sectors and better trade execution.  These other sectors include certain structured securities (commercial and non-agency residential mortgage-backed securities and collateralized loan obligations) and non-U.S. government securities (but U.S. dollar denominated) as well as an increased allocation of corporate securities.

Securities available for sale increased by $14.3 million during the first six months of 2016 due primarily to increases in asset-backed securities, corporate securities and municipal securities. The securities were purchased to utilize a portion of the funds generated from the increase in total deposits. (See “Deposits” and “Liquidity and capital resources.”)

Our portfolio of available-for-sale securities is reviewed quarterly for impairment in value. In performing this review, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet these recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss.

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Sales of securities were as follows (See “Non-interest income.”):

	Six months ended June 30,
	2016			2015
	(In thousands)
Proceeds	$	55,362		$	11,786
Gross gains	$	336		$	75
Gross losses		(53	)		-
Net impairment charges		-			-
Fair value adjustments		64			(23	)
Net gains	$	347		$	52

Portfolio Loans and asset quality.  In addition to the communities served by our Bank branch network, our principal lending markets also include nearby communities and metropolitan areas. Subject to established underwriting criteria, we also may participate in commercial lending transactions with certain non-affiliated banks and make whole loan purchases from other financial institutions.  In December 2015, we purchased $32.6 million of single-family residential fixed rate jumbo mortgage loans from another Michigan-based financial institution.  These mortgage loans were all on properties located in Michigan, had a weighted average interest rate (after a 0.25% servicing fee) of 3.94% and a weighted average remaining contractual maturity of 344 months.  We did not have any single-family residential mortgage loan purchases during the first six months of 2016.  However, on June 30, 2016, we did execute a non-binding letter of intent to purchase approximately $15.5 million of fixed rate residential mortgage loans from another Michigan-based financial institution.  These mortgage loans were also all on properties located in Michigan.  We expect to close this transaction in August 2016.

The senior management and board of directors of our Bank retain authority and responsibility for credit decisions and we have adopted uniform underwriting standards. Our loan committee structure and the loan review process attempt to provide requisite controls and promote compliance with such established underwriting standards. However, there can be no assurance that our lending procedures and the use of uniform underwriting standards will prevent us from incurring significant credit losses in our lending activities.

We generally retain loans that may be profitably funded within established risk parameters. (See “Asset/liability management.”) As a result, we may hold adjustable-rate mortgage loans as Portfolio Loans, while 15- and 30-year, fixed-rate obligations are generally sold to mitigate exposure to changes in interest rates. (See “Non-interest income.”)

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Non-performing assets⁽¹⁾

	June 30, 2016			December 31, 2015
	(Dollars in thousands)
Non-accrual loans	$	10,803		$	10,607
Loans 90 days or more past due and still accruing interest		94			116
Total non-performing loans		10,897			10,723
Other real estate and repossessed assets		5,572			7,150
Total non-performing assets	$	16,469		$	17,873
As a percent of Portfolio Loans
Non-performing loans		0.69	%		0.71	%
Allowance for loan losses		1.44			1.49
Non-performing assets to total assets		0.67			0.74
Allowance for loan losses as a percent of non-performing loans		208.42			210.48

⁽¹⁾ Excludes loans classified as “troubled debt restructured” that are not past due and vehicle service contract counterparty receivables, net.

Non-performing loans increased by $0.2 million, or 1.6%, during the first six months of 2016 due principally to small increases in non-performing commercial and mortgage loans.  In general, improving economic conditions in our market areas, as well as our collection and resolution efforts, have resulted in a generally stable or downward trend in non-performing loans.  However, we are still experiencing some loan defaults, particularly related to commercial loans secured by income-producing property and mortgage loans secured by resort/vacation property.

Non-performing loans exclude performing loans that are classified as troubled debt restructurings (“TDRs”). Performing TDRs totaled $78.9 million, or 5.0% of total Portfolio Loans, and $81.5 million, or 5.4% of total Portfolio Loans, at June 30, 2016 and December 31, 2015, respectively. The decrease in the amount of performing TDRs in the first six months of 2016 reflects a decline in retail loan TDRs.

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Troubled debt restructurings (“TDR”)

	June 30, 2016
	Commercial		Retail			Total
	(In thousands)
Performing TDRs	$	14,130	$	64,818		$	78,948
Non-performing TDRs(1)		2,678		3,788	(2)		6,466
Total	$	16,808	$	68,606		$	85,414

	December 31, 2015
	Commercial		Retail			Total
	(In thousands)
Performing TDRs	$	13,318	$	68,194		$	81,512
Non-performing TDRs(1)		3,041		3,777	(2)		6,818
Total	$	16,359	$	71,971		$	88,330

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

Other real estate and repossessed assets totaled $5.6 million at June 30, 2016, compared to $7.2 million at December 31, 2015. This decrease is primarily the result of sales of other real estate being in excess of the migration of non-performing loans secured by real estate into other real estate as the foreclosure process is completed.

We will place a loan that is 90 days or more past due on non-accrual, unless we believe the loan is both well secured and in the process of collection. Accordingly, we have determined that the collection of the accrued and unpaid interest on any loans that are 90 days or more past due and still accruing interest is probable.

The ratio of loan net charge-offs to average Portfolio Loans was a negative 0.18% (as a result of net recoveries) on an annualized basis in the first six months of 2016 compared to 0.09% in the first six months of 2015.  The $2.0 million decline in loan net charge-offs is primarily due to declines in commercial loan, mortgage loan and consumer/installment loan net charge-offs.  The overall decrease in loan net charge-offs primarily reflects a year-over-year reduction in non-performing loans and improvement in collateral liquidation values.

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Allowance for loan losses

	Six months ended June 30,
	2016						2015
	Loans			Unfunded Commitments			Loans			Unfunded Commitments
	(Dollars in thousands)
Balance at beginning of period	$	22,570		$	652		$	25,990		$	539
Additions (deductions)
Provision for loan losses		(1,264	)		-			(793	)		-
Recoveries credited to allowance		2,718			-			2,245			-
Loans charged against the allowance		(1,312	)		-			(2,856	)		-
Additions (deductions) included in non-interest expense		-			(67	)		-			20
Balance at end of period	$	22,712		$	585		$	24,586		$	559
Net loans charged against the allowance to average Portfolio Loans (annualized)		(0.18	)%					0.09	%

Allocation of the Allowance for Loan Losses

	June 30, 2016		December 31, 2015
	(In thousands)
Specific allocations	$	10,941	$	10,983
Other adversely rated commercial loans		659		1,053
Historical loss allocations		5,586		5,262
Additional allocations based on subjective factors		5,526		5,272
Total	$	22,712	$	22,570

Some loans will not be repaid in full. Therefore, an allowance for loan losses (“AFLL”) is maintained at a level which represents our best estimate of losses incurred. In determining the AFLL and the related provision for loan losses, we consider four principal elements: (i) specific allocations based upon probable losses identified during the review of the loan portfolio, (ii) allocations established for other adversely rated commercial loans, (iii) allocations based principally on historical loan loss experience, and (iv) additional allowances based on subjective factors, including local and general economic business factors and trends, portfolio concentrations and changes in the size and/or the general terms of the loan portfolios.

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The first AFLL element (specific allocations) reflects our estimate of probable incurred losses based upon our systematic review of specific loans. These estimates are based upon a number of factors, such as payment history, financial condition of the borrower, discounted collateral exposure and discounted cash flow analysis. Impaired commercial, mortgage and installment loans are allocated allowance amounts using this first element. The second AFLL element (other adversely rated commercial loans) reflects the application of our commercial loan rating system. This rating system is similar to those employed by state and federal banking regulators. Commercial loans that are rated below a certain predetermined classification are assigned a loss allocation factor for each loan classification category that is based upon a historical analysis of both the probability of default and the expected loss rate (“loss given default”). The lower the rating assigned to a loan or category, the greater the allocation percentage that is applied. The third AFLL element (historical loss allocations) is determined by assigning allocations to higher rated (“non-watch credit”) commercial loans using a probability of default and loss given default similar to the second AFLL element and to homogenous mortgage and installment loan groups based upon borrower credit score and portfolio segment.  For homogenous mortgage and installment loans a probability of default for each homogenous pool is calculated by way of credit score migration.  Historical loss data for each homogenous pool coupled with the associated probability of default is utilized to calculate an expected loss allocation rate.  The fourth AFLL element (additional allocations based on subjective factors) is based on factors that cannot be associated with a specific credit or loan category and reflects our attempt to ensure that the overall allowance for loan losses appropriately reflects a margin for the imprecision necessarily inherent in the estimates of expected credit losses. We consider a number of subjective factors when determining this fourth element, including local and general economic business factors and trends, portfolio concentrations and changes in the size, mix and the general terms of the overall loan portfolio.

Increases in the AFLL are recorded by a provision for loan losses charged to expense. Although we periodically allocate portions of the AFLL to specific loans and loan portfolios, the entire AFLL is available for incurred losses. We generally charge-off commercial, homogenous residential mortgage and installment loans and payment plan receivables when they are deemed uncollectible or reach a predetermined number of days past due based on product, industry practice and other factors. Collection efforts may continue and recoveries may occur after a loan is charged against the AFLL.

While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors.

Mepco’s allowance for losses is determined in a similar manner as discussed above, and primarily takes into account historical loss experience and other subjective factors deemed relevant to Mepco’s payment plan business. Estimated incurred losses associated with Mepco’s outstanding vehicle service contract payment plans are included in the provision for loan losses. Mepco recorded a $0.004 million credit and a $0.001 million expense in the first six months of 2016 and 2015, respectively, for its provision for loan losses.  Mepco’s allowance for loan losses totaled $0.059 million and $0.063 million at June 30, 2016 and December 31, 2015, respectively. Mepco has established procedures for vehicle service contract payment plan servicing, administration and collections, including the timely cancellation of the vehicle service contract, in order to protect our position in the event of payment default or voluntary cancellation by the customer. Mepco has also established procedures to attempt to prevent and detect fraud since the payment plan origination activities and initial customer contacts are done entirely through unrelated third parties (vehicle service contract administrators and sellers or automobile dealerships). However, there can be no assurance that the aforementioned risk management policies and procedures will prevent us from the possibility of incurring significant credit or fraud related losses in this business segment. The estimated incurred losses described in this paragraph should be distinguished from the possible losses we may incur from counterparties failing to pay their obligations to Mepco.  See Note #14 to the Condensed Consolidated Financial Statements included within this report.

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The allowance for loan losses increased $0.1 million to $22.7 million at June 30, 2016 from $22.6 million at December 31, 2015 and was equal to 1.44% of total Portfolio Loans at June 30, 2016 compared to 1.49% at December 31, 2015. Two of the four components of the allowance for loan losses outlined above declined in the first six months of 2016. The allowance for loan losses related to specific loans decreased $0.04 million in 2016 due primarily to a decline in the balance of individually impaired loans as well as charge-offs. The allowance for loan losses related to other adversely rated commercial loans decreased $0.4 million in 2016 primarily due to a decrease in the balance of such loans included in this component to $16.4 million at June 30, 2016 from $27.8 million at December 31, 2015. The allowance for loan losses related to historical losses increased $0.3 million during 2016 due principally to commercial loan growth. The allowance for loan losses related to subjective factors increased $0.3 million during 2016 primarily due to overall growth of the loan portfolio.

Deposits and borrowings.  Historically, the loyalty of our customer base has allowed us to price deposits competitively, contributing to a net interest margin that compares favorably to our peers. However, we still face a significant amount of competition for deposits within many of the markets served by our branch network, which limits our ability to materially increase deposits without adversely impacting the weighted-average cost of core deposits.

To attract new core deposits, we have implemented various account acquisition strategies as well as branch staff sales training. Account acquisition initiatives have historically generated increases in customer relationships. Over the past several years, we have also expanded our treasury management products and services for commercial businesses and municipalities or other governmental units and have also increased our sales calling efforts in order to attract additional deposit relationships from these sectors. We view long-term core deposit growth as an important objective. Core deposits generally provide a more stable and lower cost source of funds than alternative sources such as short-term borrowings. (See “Liquidity and capital resources.”)

Deposits totaled $2.13 billion and $2.09 billion at June 30, 2016 and December 31, 2015, respectively.  The $42.3 million increase in deposits during the first six months of 2016 is due to growth in checking, savings and time deposit account balances.  Reciprocal deposits totaled $49.4 million and $50.2 million at June 30, 2016 and December 31, 2015, respectively.  These deposits represent demand, money market and time deposits from our customers that have been placed through Promontory Interfinancial Network’s Insured Cash Sweep^® service and Certificate of Deposit Account Registry Service^®.  These services allow our customers to access multi-million dollar FDIC deposit insurance on deposit balances greater than the standard FDIC insurance maximum.

We cannot be sure that we will be able to maintain our current level of core deposits. In particular, those deposits that are uninsured may be susceptible to outflow. At June 30, 2016, we had approximately $495.5 million of uninsured deposits. A reduction in core deposits would likely increase our need to rely on wholesale funding sources.

We have also implemented strategies that incorporate using federal funds purchased, other borrowings and Brokered CDs to fund a portion of our interest-earning assets. The use of such alternate sources of funds supplements our core deposits and is also an integral part of our asset/liability management efforts.

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Other borrowings, comprised almost entirely of advances from the Federal Home Loan Bank (the “FHLB”), totaled $11.8 million and $12.0 million at June 30, 2016 and December 31, 2015, respectively.

As described above, we utilize wholesale funding, including FHLB borrowings and Brokered CDs to augment our core deposits and fund a portion of our assets. At June 30, 2016, our use of such wholesale funding sources (including reciprocal deposits) amounted to approximately $61.2 million, or 2.9% of total funding (deposits and total borrowings, excluding subordinated debentures). Because wholesale funding sources are affected by general market conditions, the availability of such funding may be dependent on the confidence these sources have in our financial condition and operations. The continued availability to us of these funding sources is not certain. Our liquidity may be constrained if we are unable to renew our wholesale funding sources or if adequate financing is not available in the future at acceptable rates of interest or at all.  Our financial performance could also be affected if we are unable to maintain our access to funding sources or if we are required to rely more heavily on more expensive funding sources. In such case, our net interest income and results of operations could be adversely affected.

We historically employed derivative financial instruments to manage our exposure to changes in interest rates. We discontinued the active use of derivative financial instruments during 2008.  We began to again utilize interest-rate swaps in 2014, relating to our commercial lending activities.  During the first six months of 2016 and 2015, we entered into $18.0 million and $16.6 million (aggregate notional amounts), respectively, of interest rate swaps with commercial loan customers, which were offset with interest rate swaps that the Bank entered into with a broker-dealer. We recorded $0.3 million of fee income related to these transactions during each of the first six month periods of 2016 and 2015.

Liquidity and capital resources. Liquidity risk is the risk of being unable to timely meet obligations as they come due at a reasonable funding cost or without incurring unacceptable losses. Our liquidity management involves the measurement and monitoring of a variety of sources and uses of funds. Our Condensed Consolidated Statements of Cash Flows categorize these sources and uses into operating, investing and financing activities. We primarily focus our liquidity management on maintaining adequate levels of liquid assets (primarily funds on deposit with the FRB and certain securities available for sale) as well as developing access to a variety of borrowing sources to supplement our deposit gathering activities and provide funds for purchasing securities available for sale or originating Portfolio Loans as well as to be able to respond to unforeseen liquidity needs.

Our primary sources of funds include our deposit base, secured advances from the FHLB, a federal funds purchased borrowing facility with another commercial bank, and access to the capital markets (for Brokered CDs).

At June 30, 2016, we had $310.2 million of time deposits that mature in the next 12 months. Historically, a majority of these maturing time deposits are renewed by our customers. Additionally, $1.69 billion of our deposits at June 30, 2016, were in account types from which the customer could withdraw the funds on demand. Changes in the balances of deposits that can be withdrawn upon demand are usually predictable and the total balances of these accounts have generally grown or have been stable over time as a result of our marketing and promotional activities. However, there can be no assurance that historical patterns of renewing time deposits or overall growth or stability in deposits will continue in the future.

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We have developed contingency funding plans that stress test our liquidity needs that may arise from certain events such as an adverse change in our financial metrics (for example, credit quality or regulatory capital ratios). Our liquidity management also includes periodic monitoring that measures quick assets (defined generally as short-term assets with maturities less than 30 days and loans held for sale) to total assets, short-term liability dependence and basic surplus (defined as quick assets compared to short-term liabilities). Policy limits have been established for our various liquidity measurements and are monitored on a monthly basis. In addition, we also prepare cash flow forecasts that include a variety of different scenarios.

We believe that we currently have adequate liquidity at our Bank because of our cash and cash equivalents, our portfolio of securities available for sale, our access to secured advances from the FHLB, our ability to issue Brokered CDs and our improved financial metrics.

We also believe that the available cash on hand at the parent company (including time deposits) of approximately $14.4 million as of June 30, 2016 provides sufficient liquidity resources at the parent company to meet operating expenses, to make interest payments on the subordinated debentures and to pay a cash dividend on our common stock for the foreseeable future.

Effective management of capital resources is critical to our mission to create value for our shareholders. In addition to common stock, our capital structure also currently includes cumulative trust preferred securities.

Capitalization

	June 30, 2016			December 31, 2015
	(In thousands)
Subordinated debentures	$	35,569		$	35,569
Amount not qualifying as regulatory capital		(1,069	)		(1,069	)
Amount qualifying as regulatory capital		34,500			34,500
Shareholders’ equity
Common stock		324,268			339,462
Accumulated deficit		(74,062	)		(82,334	)
Accumulated other comprehensive loss		(3,283	)		(6,036	)
Total shareholders’ equity		246,923			251,092
Total capitalization	$	281,423		$	285,592

We currently have three special purpose entities with $34.5 million of outstanding cumulative trust preferred securities.  These special purpose entities issued common securities and provided cash to our parent company that in turn issued subordinated debentures to these special purpose entities equal to the trust preferred securities and common securities. The subordinated debentures represent the sole asset of the special purpose entities. The common securities and subordinated debentures are included in our Condensed Consolidated Statements of Financial Condition.

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The FRB has issued rules regarding trust preferred securities as a component of the Tier 1 capital of bank holding companies. The aggregate amount of trust preferred securities (and certain other capital elements) are limited to 25 percent of Tier 1 capital elements, net of goodwill (net of any associated deferred tax liability). The amount of trust preferred securities and certain other elements in excess of the limit can be included in Tier 2 capital, subject to restrictions. At the parent company, all of these securities qualified as Tier 1 capital at June 30, 2016 and December 31, 2015. Although the Dodd-Frank Act further limited Tier 1 treatment for trust preferred securities, those new limits did not apply to our outstanding trust preferred securities.  Further, the New Capital Rules grandfathered the treatment of our trust preferred securities as qualifying regulatory capital.

Common shareholders’ equity decreased to $246.9 million at June 30, 2016 from $251.1 million at December 31, 2015 due primarily to share repurchases and dividends paid that were partially offset by our net income in the first six months of 2016 and a decline in our accumulated other comprehensive loss.

We resumed a quarterly cash dividend on our common stock of six cents per share in May 2014 and continued to pay regular quarterly dividends at that amount through August 2015.  In October 2015, our Board of Directors increased the quarterly cash dividend on our common stock to eight cents per share.

For the past several years, the Bank had negative “undivided profits” (i.e. a retained deficit). Under Michigan banking regulations, the Bank was not permitted to pay a dividend when it had a retained deficit.  We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarter of 2016, we requested regulatory approval for an $18.0 million return of capital from the Bank to the parent company.  This return of capital request was approved by our banking regulators on February 24, 2016 and the Bank returned $18.0 million of capital to the parent company on February 25, 2016.  In the second quarter of 2016, the Bank returned to a positive retained earnings position.  At June 30, 2016, the Bank had retained earnings of $2.1 million.  This will permit the Bank to begin to pay dividends to the parent company in the second half of 2016.  Also see Note #11 to the Condensed Consolidated Financial Statements included within this report.

On January 21, 2016, our Board of Directors authorized a share repurchase plan.  Under the terms of the 2016 share repurchase plan, we are authorized to buy back up to 5% of our outstanding common stock.    The repurchase plan is authorized to last through December 31, 2016.  We intend and expect to accomplish the repurchases through open market transactions, though we could effect repurchases through other means, such as privately negotiated transactions.  The timing and amount of any share repurchases will depend on a variety of factors, including, among others, securities law restrictions, the trading price of our common stock, other regulatory requirements, potential alternative uses for capital, and our financial performance. The repurchase program does not obligate us to acquire any particular amount of common stock, and it may be modified or suspended at any time at our discretion.  On April 26, 2016 our Board of Directors authorized a $5.0 million expansion of this repurchase plan. Through July 31, 2016, we repurchased 1,153,136 shares of our common stock pursuant to this plan at an average price of $14.62 per share leaving $4.4 million remaining under this repurchase plan.

As of June 30, 2016 and December 31, 2015, our Bank (and holding company) continued to meet the requirements to be considered “well-capitalized” under federal regulatory standards (also see Note #11 to the Condensed Consolidated Financial Statements included within this report).

Asset/liability management.  Interest-rate risk is created by differences in the cash flow characteristics of our assets and liabilities. Options embedded in certain financial instruments, including caps on adjustable-rate loans as well as borrowers’ rights to prepay fixed-rate loans, also create interest-rate risk.

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Our asset/liability management efforts identify and evaluate opportunities to structure our statement of financial condition in a manner that is consistent with our mission to maintain profitable financial leverage within established risk parameters. We evaluate various opportunities and alternate asset/liability management strategies carefully and consider the likely impact on our risk profile as well as the anticipated contribution to earnings. The marginal cost of funds is a principal consideration in the implementation of our asset/liability management strategies, but such evaluations further consider interest-rate and liquidity risk as well as other pertinent factors. We have established parameters for interest-rate risk. We regularly monitor our interest-rate risk and report at least quarterly to our board of directors.

We employ simulation analyses to monitor our interest-rate risk profile and evaluate potential changes in our net interest income and market value of portfolio equity that result from changes in interest rates. The purpose of these simulations is to identify sources of interest-rate risk. The simulations do not anticipate any actions that we might initiate in response to changes in interest rates and, accordingly, the simulations do not provide a reliable forecast of anticipated results. The simulations are predicated on immediate, permanent and parallel shifts in interest rates and generally assume that current loan and deposit pricing relationships remain constant. The simulations further incorporate assumptions relating to changes in customer behavior, including changes in prepayment rates on certain assets and liabilities.

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Changes in Market Value of Portfolio Equity and Net Interest Income

Change in Interest Rates	Market Value Of Portfolio Equity(1)		Percent Change			Net Interest Income(2)		Percent Change
	(Dollars in thousands)
June 30, 2016
200 basis point rise	$	390,100		12.03	%	$	83,400		7.34	%
100 basis point rise		374,600		7.58			81,000		4.25
Base-rate scenario		348,200		-			77,700		-
100 basis point decline		315,900		(9.28	)		73,400		5.53
December 31, 2015
200 basis point rise	$	419,600		8.42	%	$	80,700		6.32	%
100 basis point rise		407,300		5.25			78,700		3.69
Base-rate scenario		387,000		-			75,900		-
100 basis point decline		356,500		(7.88	)		72,000		(5.14	)

(1) Simulation analyses calculate the change in the net present value of our assets and liabilities, including debt and related financial derivative instruments, under parallel shifts in interest rates by discounting the estimated future cash flows using a market-based discount rate. Cash flow estimates incorporate anticipated changes in prepayment speeds and other embedded options.

(2) Simulation analyses calculate the change in net interest income under immediate parallel shifts in interest rates over the next twelve months, based upon a static statement of financial condition, which includes debt and related financial derivative instruments, and do not consider loan fees.

Accounting standards update. See Note #2  to  the Condensed Consolidated Financial Statements included elsewhere in this report for details on recently issued accounting pronouncements and their impact on our financial statements.

Fair valuation of financial instruments.Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) topic 820 - “Fair Value Measurements and Disclosures” (“FASB ASC topic 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

We utilize fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. FASB ASC topic 820 differentiates between those assets and liabilities required to be carried at fair value at every reporting period (“recurring”) and those assets and liabilities that are only required to be adjusted to fair value under certain circumstances (“nonrecurring”). Trading securities, securities available-for-sale, loans held for sale, and derivatives are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other financial assets on a nonrecurring basis, such as loans held for investment, capitalized mortgage loan servicing rights and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

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See Note #12 to the Condensed Consolidated Financial Statements included within this report for a complete discussion on our use of fair valuation of financial instruments and the related measurement techniques.

 Litigation Matters

We are involved in various litigation matters in the ordinary course of business. At the present time, we do not believe any of these matters will have a significant impact on our consolidated financial position or results of operations. The aggregate amount we have accrued for losses we consider probable as a result of these litigation matters is immaterial. However, because of the inherent uncertainty of outcomes from any litigation matter, we believe it is reasonably possible we may incur losses in addition to the amounts we have accrued.  At this time, we estimate the maximum amount of additional losses that are reasonably possible is approximately $1.0 million.  However, because of a number of factors, including the fact that certain of these litigation matters are still in their early stages, this maximum amount may change in the future.

The litigation matters described in the preceding paragraph primarily include claims that have been brought against us for damages, but do not include litigation matters where we seek to collect amounts owed to us by third parties (such as litigation initiated to collect delinquent loans or vehicle service contract counterparty receivables). These excluded, collection-related matters may involve claims or counterclaims by the opposing party or parties, but we have excluded such matters from the disclosure contained in the preceding paragraph in all cases where we believe the possibility of us paying damages to any opposing party is remote. Risks associated with the likelihood that we will not collect the full amount owed to us, net of reserves, are disclosed elsewhere in this report.

 Critical Accounting Policies

Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Accounting and reporting policies for the allowance for loan losses, capitalized mortgage loan servicing rights, vehicle service contract payment plan counterparty contingencies, and income taxes are deemed critical since they involve the use of estimates and require significant management judgments. Application of assumptions different than those that we have used could result in material changes in our consolidated financial position or results of operations.  During the first quarter of 2016, we dropped the assessment of other than temporary impairment of securities available for sale as a critical accounting policy as we do not believe that this assessment will have a material impact on our consolidated financial position or results of operations.  There have been no other material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

See applicable disclosures set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 under the caption “Asset/liability management.”

Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) for the period ended June 30, 2016, have concluded that, as of such date, our disclosure controls and procedures were effective.

(b) Changes in Internal Controls.

During the quarter ended June 30, 2016, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2015.

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

The Company maintains a Deferred Compensation and Stock Purchase Plan for Non-Employee Directors (the “Plan”) pursuant to which non-employee directors can elect to receive shares of the Company’s common stock in lieu of fees otherwise payable to the director for his or her service as a director.  A director can elect to receive shares on a current basis or to defer receipt of the shares, in which case the shares are issued to a trust to be held for the account of the director and then generally distributed to the director after his or her retirement from the Board.  Pursuant to this Plan, during the second quarter of 2016, the Company issued 651 shares of common stock to non-employee directors on a current basis and 1,322 shares of common stock to the trust for distribution to directors on a deferred basis.  The shares were issued on April 1, 2016, at a price of $14.55 per share, representing aggregate fees of $0.03 million.   The price per share was the consolidated closing bid price per share of the Company’s common stock as of the date of issuance, as determined in accordance with NASDAQ Marketplace Rules.  The Company issued the shares pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933 due to the fact that the issuance of the shares was made on a private basis pursuant to the Plan.

The following table shows certain information relating to repurchases of common stock for the three-months ended June 30, 2016:

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan		Remaining Number of Shares Authorized for Purchase Under the Plan
April 2016		-	$	-		-		52,703	(2)
May 2016		37,367		14.99		-		52,703	(2)
June 2016		-		-		-		52,703	(2)
Total		37,367	$	14.99		-		52,703	(2)

(1) Represents shares withheld from the shares that would otherwise have been issued to certain officers in order to satisfy tax withholding obligations resulting from vesting of restricted stock units.

(2) Plus an additional $5.0 million.

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Item 6. Exhibits

(a) The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:

31.1 Certificate of the Chief Executive Officer of Independent Bank Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

31.2 Certificate of the Chief Financial Officer of Independent Bank Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.1 Certificate of the Chief Executive Officer of Independent Bank Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2 Certificate of the Chief Financial Officer of Independent Bank Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

101.INS Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

Date	August  4, 2016	By	/s/ Robert N. Shuster
			Robert N. Shuster, Principal Financial Officer
Date	August  4, 2016	By	/s/ James J. Twarozynski
			James J. Twarozynski, Principal Accounting Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, William B. Kessel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Independent Bank 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly 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;

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

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

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

	INDEPENDENT BANK CORPORATION
Date:  August 4, 2016	/s/ William B. Kessel
	William B. Kessel
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Robert N. Shuster, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Independent Bank 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly 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;

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

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

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

	INDEPENDENT BANK CORPORATION
Date:  August  4, 2016	/s/ Robert N. Shuster
	Robert N. Shuster
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATE OF THE

CHIEF EXECUTIVE OFFICER OF

INDEPENDENT BANK CORPORATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I, William B. Kessel, President and Chief Executive Officer of Independent Bank Corporation, certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:

(1)       The quarterly report on Form 10-Q for the quarterly period ended June 30, 2016, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

(2)        The information contained in this quarterly report on Form 10-Q for the quarterly period ended June 30, 2016, fairly presents, in all material respects, the financial condition and results of operations of Independent Bank Corporation.

	INDEPENDENT BANK CORPORATION
Date:  August 4, 2016	/s/ William B. Kessel
	William B. Kessel
	President and Chief Executive Officer

The signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Independent Bank Corporation and will be retained by Independent Bank Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATE OF THE

CHIEF FINANCIAL OFFICER OF

INDEPENDENT BANK CORPORATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I, Robert N. Shuster, Chief Financial Officer of Independent Bank Corporation, certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:

(1)          The quarterly report on Form 10-Q for the quarterly period ended June 30, 2016, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

(2)          The information contained in this quarterly report on Form 10-Q for the quarterly period ended June 30, 2016, fairly presents, in all material respects, the financial condition and results of operations of Independent Bank Corporation.

	INDEPENDENT BANK CORPORATION
Date:  August  4, 2016	/s/ Robert N. Shuster
	Robert N. Shuster
	Chief Financial Officer

The signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Independent Bank Corporation and will be retained by Independent Bank Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 03, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	INDEPENDENT BANK CORP /MI/
Entity Central Index Key	0000039311
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		21,223,212
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016

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Condensed Consolidated Statements of Financial Condition (unaudited) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 34,542	$ 54,260
Interest bearing deposits	26,488	31,523
Cash and Cash Equivalents	61,030	85,783
Interest bearing deposits - time	8,560	11,866
Trading securities	212	148
Securities available for sale	599,755	585,484
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	15,229	15,471
Loans held for sale, carried at fair value	31,713	27,866
Loans
Commercial	792,000	748,398
Mortgage	506,021	500,454
Installment	252,712	231,599
Payment plan receivables	31,389	34,599
Total Loans	1,582,122	1,515,050
Allowance for loan losses	(22,712)	(22,570)
Net Loans	1,559,410	1,492,480
Other real estate and repossessed assets	5,572	7,150
Property and equipment, net	41,044	43,103
Bank-owned life insurance	54,990	54,402
Deferred tax assets, net	35,257	39,635
Capitalized mortgage loan servicing rights	10,331	12,436
Vehicle service contract counterparty receivables, net	3,036	7,229
Other intangibles	2,106	2,280
Accrued income and other assets	24,451	23,733
Total Assets	2,452,696	2,409,066
Deposits
Non-interest bearing	678,489	659,793
Savings and interest-bearing checking	997,102	988,174
Reciprocal	49,355	50,207
Time	403,346	387,789
Total Deposits	2,128,292	2,085,963
Other borrowings	11,797	11,954
Subordinated debentures	35,569	35,569
Vehicle service contract counterparty payables	1,066	797
Accrued expenses and other liabilities	29,049	23,691
Total Liabilities	2,205,773	2,157,974
Shareholders' Equity
Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding	0	0
Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 21,315,881 shares at June 30, 2016 and 22,251,373 shares at December 31, 2015	324,268	339,462
Accumulated deficit	(74,062)	(82,334)
Accumulated other comprehensive loss	(3,283)	(6,036)
Total Shareholders' Equity	246,923	251,092
Total Liabilities and Shareholders' Equity	$ 2,452,696	$ 2,409,066

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Condensed Consolidated Statements of Financial Condition (unaudited) (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Shareholders' Equity
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	200,000	200,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	21,315,881	22,251,373
Common stock, shares outstanding (in shares)	21,315,881	22,251,373

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Condensed Consolidated Statements of Operations (unaudited) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Interest Income
Interest and fees on loans		$ 18,208	$ 17,751	$ 36,764	$ 34,990
Interest on securities
Taxable		2,480	1,869	4,724	3,627
Tax-exempt		282	222	530	439
Other investments		297	289	603	627
Total Interest Income		21,267	20,131	42,621	39,683
Interest Expense
Deposits		1,152	967	2,266	1,974
Other borrowings		485	463	962	917
Total Interest Expense		1,637	1,430	3,228	2,891
Net Interest Income		19,630	18,701	39,393	36,792
Provision for loan losses		(734)	(134)	(1,264)	(793)
Net Interest Income After Provision for Loan Losses		20,364	18,835	40,657	37,585
Non-Interest Income
Service charges on deposit accounts		3,038	3,117	5,883	5,967
Interchange income		1,976	2,240	3,854	4,382
Net gains (losses) on assets
Mortgage loans		2,529	1,784	4,171	3,923
Securities		185	(33)	347	52
Mortgage loan servicing, net		(334)	1,452	(1,312)	1,032
Title insurance fees		253	337	541	593
Other		1,933	2,090	3,905	4,000
Total Non-Interest Income		9,580	10,987	17,389	19,949
Non-Interest Expense
Compensation and employee benefits		12,000	11,791	23,881	23,576
Occupancy, net		1,856	2,040	4,063	4,459
Data processing		1,936	2,027	4,037	3,957
Furniture, fixtures and equipment		965	965	1,949	1,917
Communications		722	694	1,610	1,430
Loan and collection		571	967	1,396	2,122
Advertising		478	448	955	932
Legal and professional		345	453	758	833
FDIC deposit insurance		331	351	665	694
Interchange expense		267	289	533	580
Credit card and bank service fees		198	203	385	405
Vehicle service contract counterparty contingencies		(1)	30	29	59
Provision for loss reimbursement on sold loans		0	45	(15)	(24)
Costs (recoveries) related to unfunded lending commitments		(80)	4	(67)	20
Net gains on other real estate and repossessed assets		(159)	(139)	(165)	(178)
Other		1,466	1,411	2,926	2,948
Total Non-Interest Expense		20,895	21,579	42,940	43,730
Income Before Income Tax		9,049	8,243	15,106	13,804
Income tax expense		2,611	2,624	4,568	4,404
Net Income		$ 6,438	$ 5,619	$ 10,538	$ 9,400
Net Income Per Common Share
Basic (in dollars per share)	[1]	$ 0.30	$ 0.25	$ 0.49	$ 0.41
Diluted (in dollars per share)		0.30	0.24	0.48	0.40
Dividends Per Common Share
Declared (in dollars per share)		0.08	0.06	0.16	0.12
Paid (in dollars per share)		$ 0.08	$ 0.06	$ 0.16	$ 0.12

[1] Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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Condensed Consolidated Statements of Comprehensive Income (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Condensed Consolidated Statements of Comprehensive Income (unaudited) [Abstract]
Net income	$ 6,438	$ 5,619	$ 10,538	$ 9,400
Securities available for sale
Unrealized gains (losses) arising during period	2,334	(1,806)	4,448	464
Change in unrealized gains (losses) for which a portion of other than temporary impairment has been recognized in earnings	107	(21)	71	(10)
Reclassification adjustments for gains included in earnings	(109)	0	(283)	(75)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale	2,332	(1,827)	4,236	379
Income tax expense (benefit)	816	(639)	1,483	133
Unrealized gains (losses) recognized in other comprehensive income (loss) on available for sale securities, net of tax	1,516	(1,188)	2,753	246
Other comprehensive income (loss)	1,516	(1,188)	2,753	246
Comprehensive income	$ 7,954	$ 4,431	$ 13,291	$ 9,646

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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Condensed Consolidated Statements of Cash Flows (unaudited) [Abstract]
Net income	$ 10,538	$ 9,400
Adjustments to Reconcile Net Income to Net Cash From Operating Activities
Proceeds from sales of loans held for sale	129,838	154,938
Disbursements for loans held for sale	(129,514)	(157,871)
Provision for loan losses	(1,264)	(793)
Deferred federal income tax expense	5,625	4,475
Deferred loan fees	(987)	(930)
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities, loans and interest bearning deposits - time	2,507	2,228
Net gains on mortgage loans	(4,171)	(3,923)
Net gains on securities	(347)	(52)
Net gains on other real estate and repossessed assets	(165)	(178)
Vehicle service contract counterparty contingencies	29	59
Share based compensation	825	772
(Increase) decrease in accrued income and other assets	(1,051)	551
Increase (decrease) in accrued expenses and other liabilities	2,639	(894)
Total Adjustments	3,964	(1,618)
Net Cash From Operating Activities	14,502	7,782
Cash Flow Used in Investing Activities
Proceeds from the sale of securities available for sale	55,362	11,786
Proceeds from the maturity of securities available for sale	21,413	16,047
Principal payments received on securities available for sale	74,212	58,587
Purchases of securities available for sale	(159,698)	(111,908)
Purchases of interest bearing deposits - time	0	(245)
Proceeds from the maturity of interest bearing deposits - time	3,290	2,915
Purchase of Federal Reserve Bank stock	(129)	(132)
Redemption of Federal Reserve Bank stock	371	391
Redemption of Federal Home Loan Bank stock	0	4,514
Net increase in portfolio loans (loans originated, net of principal payments)	(64,236)	(39,442)
Proceeds from the collection of vehicle service contract counterparty receivables	4,458	15
Proceeds from the sale of other real estate and repossessed assets	3,018	4,515
Proceeds from life insurance	742	0
Proceeds from the sale of property and equipment	23	490
Capital expenditures	(990)	(1,898)
Net Cash Used in Investing Activities	(62,164)	(54,365)
Cash Flow From Financing Activities
Net increase in total deposits	42,329	37,115
Net decrease in other borrowings	(1)	(1)
Payments of Federal Home Loan Bank advances	(156)	(144)
Net increase in vehicle service contract counterparty payables	269	328
Dividends paid	(3,451)	(2,760)
Proceeds from issuance of common stock	56	80
Repurchase of common stock	(15,510)	(3,668)
Share based compensation withholding obligation	(627)	(66)
Net Cash From Financing Activities	22,909	30,884
Net Decrease in Cash and Cash Equivalents	(24,753)	(15,699)
Cash and Cash Equivalents at Beginning of Period	85,783	74,016
Cash and Cash Equivalents at End of Period	61,030	58,317
Cash paid during the period for
Interest	3,158	2,878
Income taxes	360	91
Transfers to other real estate and repossessed assets	1,275	2,354
Transfer of payment plan receivables to vehicle service contract counterparty receivables	294	110
Purchase of securities available for sale not yet settled	$ 2,342	$ 0

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Condensed Consolidated Statements of Shareholders' Equity (unaudited) $ in Thousands	USD ($)
Balance at beginning of period at Dec. 31, 2014	$ 250,371
Balance at beginning of period, as adjusted at Dec. 31, 2014	250,371
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	9,400
Cash dividends declared	(2,760)
Issuance of common stock	80
Share based compensation	772
Share based compensation withholding obligation	(66)
Repurchase of common stock	(3,668)
Net change in accumulated other comprehensive loss, net of related tax effect	246
Balance at end of period at Jun. 30, 2015	254,375
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	5,619
Net change in accumulated other comprehensive loss, net of related tax effect	(1,188)
Balance at end of period at Jun. 30, 2015	254,375
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of change in accounting principle	0
Balance at beginning of period at Dec. 31, 2015	251,092
Balance at beginning of period, as adjusted at Dec. 31, 2015	252,339
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	10,538
Cash dividends declared	(3,451)
Issuance of common stock	56
Share based compensation	825
Share based compensation withholding obligation	(627)
Repurchase of common stock	(15,510)
Net change in accumulated other comprehensive loss, net of related tax effect	2,753
Balance at end of period at Jun. 30, 2016	246,923
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	6,438
Net change in accumulated other comprehensive loss, net of related tax effect	1,516
Balance at end of period at Jun. 30, 2016	246,923
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of change in accounting principle	$ 1,247

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Preparation of Financial Statements

6 Months Ended

Jun. 30, 2016

Preparation of Financial Statements [Abstract]

Preparation of Financial Statements

1.   Preparation of Financial Statements

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading.  The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015 included in our Annual Report on Form 10-K.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary to present fairly our consolidated financial condition as of June 30, 2016 and December 31, 2015, and the results of operations for the three and six-month periods ended June 30, 2016 and 2015.  The results of operations for the three and six -month periods ended June 30, 2016, are not necessarily indicative of the results to be expected for the full year.  Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation.  Our critical accounting policies include the determination of the allowance for loan losses, the determination of vehicle service contract counterparty contingencies, the valuation of originated mortgage loan servicing rights and the valuation of deferred tax assets.  Refer to our 2015 Annual Report on Form 10-K for a disclosure of our accounting policies.

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New Accounting Standards

6 Months Ended

Jun. 30, 2016

New Accounting Standards [Abstract]

New Accounting Standards

2.  New Accounting Standards

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12, “Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”.  This ASU amends existing guidance related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. These amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This amended guidance became effective for us on January 1, 2016, and did not have a material impact on our consolidated operating results or financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes and replaces nearly all existing revenuerecognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis fordeciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improvesdisclosures about revenue. In addition, this ASU specifies the accounting for some costs to obtain or fulfill a contract with a customer.  This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”.  This ASU amends existing guidance related to the accounting for certain financial assets and liabilities. These amendments, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”.  This ASU amends existing guidance related to the accounting for leases. These amendments, among other things, requires lessees to account for most leases on the balance sheet while recognizing expense on the income statement in a manner similar to existing guidance.  For lessors the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases. This amended guidance is effective for us on January 1, 2019, and is not expected to have a material impact on our consolidated operating results or financial condition.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting”.  This ASU amends existing guidance in an effort to simplify certain aspects of accounting for share-based payments. The areas for simplification in this ASU include income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  This amended guidance is effective for us on January 1, 2017, with early adoption permitted.  We adopted this amended guidance during the second quarter of 2016 using a modified retrospective approach.  The impact of this adoption was to adjust our January 1, 2016 Condensed Consolidated Statement of Financial Position to reflect cumulative effect adjustments as follows:

	January 1, 2016 Originally Presented			Cumulative Retrospective Adjustments		January 1, 2016 Adjusted
	(Dollars in thousands)
Deferred tax assets	$	39,635		$	1,247	$	40,882
Total assets	$	2,409,066		$	1,247	$	2,410,313
Common stock	$	339,462		$	62	$	339,524
Accumulated deficit	$	(82,334	)	$	1,185	$	(81,149	)
Total Shareholders’ Equity	$	251,092		$	1,247	$	252,339
Total Liabilities and Shareholders’ Equity	$	2,409,066		$	1,247	$	2,410,313

The adjustments above reflect the recording of $1.23 million of unrealized excess benefits on share based compensation and $0.06 million (impact to equity of $0.02 million after consideration of deferred taxes)  for the impact of making an accounting policy election to account for forfeitures as they occur.  After January 1, 2016, excess tax benefits or deficiencies resulting from share-based payments will be recognized as tax benefit or expense when they occur. A tax benefit of $0.3 million was recorded during the three months ended June 30, 2016 as a result of share awards vesting during the period.  In addition, we have elected to apply the  amendments related to the presentation of excess tax benefits in the statement of cash flows on a prospective basis.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”.  This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income.  This ASU will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, allowances will be recorded rather than reducing the carrying amount as is done under the current other-than-temporary impairment model. This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. This amended guidance is effective for us on January 1, 2020.  We have not yet determined what the impact will be on our consolidated operating results or financial condition.

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Securities

6 Months Ended

Jun. 30, 2016

Securities [Abstract]

Securities

3.  Securities

Securities available for sale consist of the following:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
June 30, 2016
U.S. agency	$	31,165	$	552	$	38	$	31,679
U.S. agency residential mortgage-backed		180,415		1,783		135		182,063
U.S. agency commercial mortgage-backed		7,832		167		3		7,996
Private label mortgage-backed		26,202		343		299		26,246
Other asset backed		139,895		298		347		139,846
Obligations of states and political subdivisions		156,663		2,311		633		158,341
Corporate		49,150		521		144		49,527
Trust preferred		2,920		-		523		2,397
Foreign government		1,644		16		0		1,660
Total	$	595,886	$	5,991	$	2,122	$	599,755
December 31, 2015
U.S. agency	$	47,283	$	309	$	80	$	47,512
U.S. agency residential mortgage-backed		195,055		1,584		583		196,056
U.S. agency commercial mortgage-backed		34,017		94		83		34,028
Private label mortgage-backed		5,061		161		319		4,903
Other asset backed		117,431		54		581		116,904
Obligations of states and political subdivisions		145,193		941		1,150		144,984
Corporate		38,895		9		290		38,614
Trust preferred		2,916		-		433		2,483
Total	$	585,851	$	3,152	$	3,519	$	585,484

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position follows:

	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
June 30, 2016
U.S. agency	$	3,432	$	7	$	6,168	$	31	$	9,600	$	38
U.S. agency residential mortgage-backed		23,927		53		13,743		82		37,670		135
U.S. agency commercial mortgage-backed		548		2		199		1		747		3
Private label mortgage- backed		2,566		8		1,521		291		4,087		299
Other asset backed		42,783		161		12,079		186		54,862		347
Obligations of states and political subdivisions		12,316		227		10,176		406		22,492		633
Corporate		4,033		19		3,878		125		7,911		144
Trust preferred		-		-		2,397		523		2,397		523
Total	$	89,605	$	477	$	50,161	$	1,645	$	139,766	$	2,122
December 31, 2015
U.S. agency	$	12,164	$	47	$	6,746	$	33	$	18,910	$	80
U.S. agency residential mortgage-backed		57,538		316		23,340		267		80,878		583
U.S. agency commercial mortgage-backed		16,747		60		2,247		23		18,994		83
Private label mortgage- backed		-		-		3,393		319		3,393		319
Other asset backed		102,660		434		5,189		147		107,849		581
Obligations of states and political subdivisions		52,493		597		12,240		553		64,733		1,150
Corporate		30,550		290		-		-		30,550		290
Trust preferred		-		-		2,483		433		2,483		433
Total	$	272,152	$	1,744	$	55,638	$	1,775	$	327,790	$	3,519

Our portfolio of securities available-for-sale is reviewed quarterly for impairment in value. In performing this review management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or (loss).

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at June 30, 2016, we had 19 U.S. agency, 56 U.S. agency residential mortgage-backed and four U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to increases in interest rates since acquisition and widening spreads to Treasury bonds. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Private label mortgage backed securities — at June 30, 2016, we had nine of this type of security whose fair value is less than amortized cost.  The unrealized losses are primarily attributed to four securities purchased prior to 2016.  Two of these four securities have an impairment in excess of 10% and three of these holdings have been impaired for more than 12 months.  The unrealized losses are largely attributable to credit spread widening on these four securities since their acquisition.

These four securities are receiving principal and interest payments. Most of these transactions are pass-through structures, receiving pro rata principal and interest payments from a dedicated collateral pool. The nonreceipt of interest cash flows is not expected and thus not presently considered in our discounted cash flow methodology discussed below.

These four private label mortgage-backed securities are reviewed for other than temporary impairment (“OTTI”) utilizing a cash flow projection. The cash flow analysis forecasts cash flow from the underlying loans in each transaction and then applies these cash flows to the bonds in the securitization.  Our cash flow analysis forecasts complete recovery of our cost basis for all four of these securities whose fair value is less than amortized cost.

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no other declines discussed above are deemed to be other than temporary.

Other asset backed — at June 30, 2016, we had 88 other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and increases in interest rates since acquisition.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Obligations of states and political subdivisions — at June 30, 2016, we had 52 municipal securities whose fair value is less than amortized cost.  The unrealized losses are primarily due to increases in interest rates since acquisition.  One of these securities has an impairment in excess of 10%.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Corporate — at June 30, 2016, we had eight corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and increases in interest rates since acquisition.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Trust preferred securities — at June 30, 2016, we had three trust preferred securities whose fair value is less than amortized cost. All of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities has suffered from credit spread widening.

One of the three securities is rated by two major rating agencies as investment grade, while one (a Bank of America issuance) is rated below investment grade by two major rating agencies and the other one is non-rated. The non-rated issue is a relatively small bank and was never rated. The issuer of this non-rated trust preferred security, which had a total amortized cost of $1.0 million and total fair value of $0.7 million as of June 30, 2016, continues to have satisfactory credit metrics and make interest payments.

The following table breaks out our trust preferred securities in further detail as of June 30, 2016 and December 31, 2015:

	June 30, 2016					December 31, 2015
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,650	$	(270	)	$	1,690	$	(226	)
Unrated issues		747		(253	)		793		(207	)

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

We recorded no credit related OTTI charges in our Condensed Consolidated Statements of Operations related to securities available for sale during the three or six month periods ended June 30, 2016 and 2015, respectively.

At June 30, 2016, three private label mortgage-backed securities had credit related OTTI and are summarized as follows:

	Senior Security		Super Senior Security		Senior Support Security		Total
	(In thousands)
As of June 30, 2016
Fair value	$	1,469	$	1,194	$	76	$	2,739
Amortized cost		1,396		1,129		-		2,525
Non-credit unrealized loss		-		-		-		-
Unrealized gain		73		65		76		214
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Condensed
Consolidated Statements of Operations
For the three months ended June 30,
2016	$	-	$	-	$	-	$	-
2015		-		-		-		-
For the six months ended June 30,
2016		-		-		-		-
2015		-		-		-		-

Each of these securities is receiving principal and interest payments similar to principal reductions in the underlying collateral.  All three of these securities have unrealized gains at June 30, 2016.  The original amortized cost for each of these securities has been permanently adjusted downward for previously recorded credit related OTTI.  The unrealized loss (based on original amortized cost) for these securities is now less than previously recorded credit related OTTI amounts.

A roll forward of credit losses recognized in earnings on securities available for sale for the three and six month periods ending June 30, follows:

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(In thousands)				(In thousands)
Balance at beginning of period	$	1,844	$	1,844	$	1,844	$	1,844
Additions to credit losses on securities for which no previous OTTI was recognized		-		-		-		-
Increases to credit losses on securities for which OTTI was previously recognized		-		-		-		-
Balance at end of period	$	1,844	$	1,844	$	1,844	$	1,844

The amortized cost and fair value of securities available for sale at June 30, 2016, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	27,502	$	27,533
Maturing after one year but within five years		79,845		80,614
Maturing after five years but within ten years		66,708		67,656
Maturing after ten years		67,487		67,801
		241,542		243,604
U.S. agency residential mortgage-backed		180,415		182,063
U.S. agency commercial mortgage-backed		7,832		7,996
Private label residential mortgage-backed		26,202		26,246
Other asset backed		139,895		139,846
Total	$	595,886	$	599,755

The actual maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Gains and losses realized on the sale of securities available for sale are determined using the specific identification method and are recognized on a trade-date basis.  A summary of proceeds from the sale of securities available for sale and gains and losses for the six month periods ending June 30, follows:

	Proceeds		Realized Gains		Losses
	(In thousands)
2016	$	55,362	$	336	$	53
2015		11,786		75		-

During 2016 and 2015, our trading securities consisted of various preferred stocks.  During the first six months of 2016 and 2015, we recognized gains (losses) on trading securities of $0.064 million and $(0.023) million, respectively, that are included in net gains on securities in the Condensed Consolidated Statements of Operations.  Both of these amounts relate to gains (losses) recognized on trading securities still held at each respective period end.

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Loans

6 Months Ended

Jun. 30, 2016

Loans [Abstract]

Loans

.  Loans

Our assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions and other pertinent factors.

An analysis of the allowance for loan losses by portfolio segment for the three months ended June 30, follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2016
Balance at beginning of period	$	5,622		$	10,296		$	1,161		$	53		$	5,363		$	22,495
Additions (deductions)
Provision for loan losses		(663	)		(359	)		126			(1	)		163			(734	)
Recoveries credited to allowance		1,114			294			351			-			-			1,759
Loans charged against the allowance		(34	)		(275	)		(499	)		-			-			(808	)
Balance at end of period	$	6,039		$	9,956		$	1,139		$	52		$	5,526		$	22,712
2015
Balance at beginning of period	$	5,916		$	12,081		$	1,564		$	62		$	5,056		$	24,679
Additions (deductions)
Provision for loan losses		177			(101	)		(45	)		3			(168	)		(134	)
Recoveries credited to allowance		652			319			284			-			-			1,255
Loans charged against the allowance		(38	)		(834	)		(342	)		-			-			(1,214	)
Balance at end of period	$	6,707		$	11,465		$	1,461		$	65		$	4,888		$	24,586

An analysis of the allowance for loan losses by portfolio segment for the six months ended June 30, follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2016
Balance at beginning of period	$	5,670		$	10,391		$	1,181		$	56		$	5,272		$	22,570
Additions (deductions)
Provision for loan losses		(1,067	)		(638	)		191			(4	)		254			(1,264	)
Recoveries credited to allowance		1,470			676			572			-			-			2,718
Loans charged against the allowance		(34	)		(473	)		(805	)		-			-			(1,312	)
Balance at end of period	$	6,039		$	9,956		$	1,139		$	52		$	5,526		$	22,712
2015
Balance at beginning of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
Additions (deductions)
Provision for loan losses		505			(834	)		(130	)		1			(335	)		(793	)
Recoveries credited to allowance		1,085			557			603			-			-			2,245
Loans charged against the allowance		(328	)		(1,702	)		(826	)		-			-			(2,856	)
Balance at end of period	$	6,707		$	11,465		$	1,461		$	65		$	4,888		$	24,586

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

	Commercial		Mortgage		Installment		Payment Plan Receivables		Subjective Allocation		Total
	(In thousands)
June 30, 2016
Allowance for loan losses
Individually evaluated for impairment	$	3,271	$	7,262	$	408	$	-	$	-	$	10,941
Collectively evaluated for impairment		2,768		2,694		731		52		5,526		11,771
Total ending allowance balance	$	6,039	$	9,956	$	1,139	$	52	$	5,526	$	22,712
Loans
Individually evaluated for impairment	$	17,802	$	63,430	$	5,427	$	-			$	86,659
Collectively evaluated for impairment		775,794		444,865		247,973		31,389				1,500,021
Total loans recorded investment		793,596		508,295		253,400		31,389				1,586,680
Accrued interest included in recorded investment		1,596		2,274		688		-				4,558
Total loans	$	792,000	$	506,021	$	252,712	$	31,389			$	1,582,122
December 31, 2015
Allowance for loan losses
Individually evaluated for impairment	$	2,708	$	7,818	$	457	$	-	$	-	$	10,983
Collectively evaluated for impairment		2,962		2,573		724		56		5,272		11,587
Total ending allowance balance	$	5,670	$	10,391	$	1,181	$	56	$	5,272	$	22,570
Loans
Individually evaluated for impairment	$	16,868	$	66,375	$	5,888	$	-			$	89,131
Collectively evaluated for impairment		733,399		436,349		226,409		34,599				1,430,756
Total loans recorded investment		750,267		502,724		232,297		34,599				1,519,887
Accrued interest included in recorded investment		1,869		2,270		698		-				4,837
Total loans	$	748,398	$	500,454	$	231,599	$	34,599			$	1,515,050

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) follow:

	90+ and Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
June 30, 2016
Commercial
Income producing - real estate	$	-	$	950	$	950
Land, land development and construction - real estate		-		133		133
Commercial and industrial		95		2,533		2,628
Mortgage
1-4 family		-		5,013		5,013
Resort lending		-		803		803
Home equity - 1st lien		-		180		180
Home equity - 2nd lien		-		262		262
Purchased loans		-		6		6
Installment
Home equity - 1st lien		-		181		181
Home equity - 2nd lien		-		327		327
Loans not secured by real estate		-		382		382
Other		-		15		15
Payment plan receivables
Full refund		-		2		2
Partial refund		-		13		13
Other		-		3		3
Total recorded investment	$	95	$	10,803	$	10,898
Accrued interest included in recorded investment	$	1	$	-	$	1
December 31, 2015
Commercial
Income producing - real estate	$	-	$	1,027	$	1,027
Land, land development and construction - real estate		49		401		450
Commercial and industrial		69		2,028		2,097
Mortgage
1-4 family		-		4,744		4,744
Resort lending		-		1,094		1,094
Home equity - 1st lien		-		187		187
Home equity - 2nd lien		-		147		147
Purchased loans		-		2		2
Installment
Home equity - 1st lien		-		106		106
Home equity - 2nd lien		-		443		443
Loans not secured by real estate		-		421		421
Other		-		2		2
Payment plan receivables
Full refund		-		2		2
Partial refund		-		2		2
Other		-		1		1
Total recorded investment	$	118	$	10,607	$	10,725
Accrued interest included in recorded investment	$	2	$	-	$	2

An aging analysis of loans by class follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
June 30, 2016
Commercial
Income producing - real estate	$	30	$	176	$	774	$	980	$	306,698	$	307,678
Land, land development and construction - real estate		9		114		133		256		48,189		48,445
Commercial and industrial		205		194		516		915		436,558		437,473
Mortgage
1-4 family		2,142		687		5,013		7,842		281,979		289,821
Resort lending		328		78		803		1,209		107,824		109,033
Home equity - 1st lien		228		35		180		443		26,988		27,431
Home equity - 2nd lien		494		152		262		908		51,461		52,369
Purchased loans		5		1		6		12		29,629		29,641
Installment
Home equity - 1st lien		268		37		181		486		14,430		14,916
Home equity - 2nd lien		210		121		327		658		16,612		17,270
Loans not secured by real estate		239		128		382		749		218,181		218,930
Other		13		-		15		28		2,256		2,284
Payment plan receivables
Full refund		377		137		2		516		12,683		13,199
Partial refund		397		116		13		526		10,572		11,098
Other		230		68		3		301		6,791		7,092
Total recorded investment	$	5,175	$	2,044	$	8,610	$	15,829	$	1,570,851	$	1,586,680
Accrued interest included in recorded investment	$	44	$	22	$	1	$	67	$	4,491	$	4,558
December 31, 2015
Commercial
Income producing - real estate	$	203	$	209	$	647	$	1,059	$	305,155	$	306,214
Land, land development and construction - real estate		-		-		252		252		44,231		44,483
Commercial and industrial		785		16		151		952		398,618		399,570
Mortgage
1-4 family		1,943		640		4,744		7,327		272,298		279,625
Resort lending		307		-		1,094		1,401		114,619		116,020
Home equity - 1st lien		50		-		187		237		22,327		22,564
Home equity - 2nd lien		439		54		147		640		50,618		51,258
Purchased loans		9		1		2		12		33,245		33,257
Installment
Home equity - 1st lien		315		107		106		528		16,707		17,235
Home equity - 2nd lien		231		149		443		823		19,727		20,550
Loans not secured by real estate		567		83		421		1,071		191,262		192,333
Other		15		3		2		20		2,159		2,179
Payment plan receivables
Full refund		492		62		2		556		21,294		21,850
Partial refund		415		228		2		645		5,834		6,479
Other		110		3		1		114		6,156		6,270
Total recorded investment	$	5,881	$	1,555	$	8,201	$	15,637	$	1,504,250	$	1,519,887
Accrued interest included in recorded investment	$	53	$	17	$	2	$	72	$	4,765	$	4,837

Impaired loans are as follows :

	June 30, 2016		December 31, 2015
Impaired loans with no allocated allowance	(In thousands)
TDR	$	173	$	2,518
Non - TDR		542		203
Impaired loans with an allocated allowance
TDR - allowance based on collateral		5,036		4,810
TDR - allowance based on present value cash flow		80,205		81,002
Non - TDR - allowance based on collateral		398		260
Non - TDR - allowance based on present value cash flow		-		-
Total impaired loans	$	86,354	$	88,793
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,127	$	2,436
TDR - allowance based on present value cash flow		8,603		8,471
Non - TDR - allowance based on collateral		211		76
Non - TDR - allowance based on present value cash flow		-		-
Total amount of allowance for loan losses allocated	$	10,941	$	10,983

Impaired loans by class  are as follows (1):

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	560	$	806	$	-	$	641	$	851	$	-
Land, land development & construction-real estate		133		709		-		818		1,393		-
Commercial and industrial		-		-		-		1,245		1,241		-
Mortgage
1-4 family		22		348		-		23		183		-
Resort lending		-		-		-		-		-		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		43		-		-		76		-
Home equity - 2nd lien		-		-		-		-		-		-
Loans not secured by real estate		-		-		-		-		-		-
Other		-		-		-		-		-		-
		715		1,906		-		2,727		3,744		-
With an allowance recorded:
Commercial
Income producing - real estate		8,186		8,935		663		8,377		9,232		516
Land, land development & construction-real estate		1,844		1,843		158		1,690		1,778		296
Commercial and industrial		7,079		7,359		2,450		4,097		4,439		1,896
Mortgage
1-4 family		45,474		47,259		4,700		47,792		49,808		5,132
Resort lending		17,449		17,484		2,529		18,148		18,319		2,662
Home equity - 1st lien		243		246		11		168		172		9
Home equity - 2nd lien		242		324		22		244		325		15
Installment
Home equity - 1st lien		2,172		2,315		130		2,364		2,492		143
Home equity - 2nd lien		2,709		2,725		245		2,929		2,951		271
Loans not secured by real estate		541		575		33		587		658		42
Other		5		5		-		8		8		1
		85,944		89,070		10,941		86,404		90,182		10,983
Total
Commercial
Income producing - real estate		8,746		9,741		663		9,018		10,083		516
Land, land development & construction-real estate		1,977		2,552		158		2,508		3,171		296
Commercial and industrial		7,079		7,359		2,450		5,342		5,680		1,896
Mortgage
1-4 family		45,496		47,607		4,700		47,815		49,991		5,132
Resort lending		17,449		17,484		2,529		18,148		18,319		2,662
Home equity - 1st lien		243		246		11		168		172		9
Home equity - 2nd lien		242		324		22		244		325		15
Installment
Home equity - 1st lien		2,172		2,358		130		2,364		2,568		143
Home equity - 2nd lien		2,709		2,725		245		2,929		2,951		271
Loans not secured by real estate		541		575		33		587		658		42
Other		5		5		-		8		8		1
Total	$	86,659	$	90,976	$	10,941	$	89,131	$	93,926	$	10,983
Accrued interest included in recorded investment	$	305					$	338

(1) There were no impaired payment plan receivables or purchased mortgage loans at June 30, 2016 or December 31, 2015.

Average recorded investment in and interest income earned on impaired loans by class for the three month periods ending June 30, follows (1):

	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	673	$	-	$	5,658	$	50
Land, land development & construction-real estate		335		-		1,021		15
Commercial and industrial		609		-		2,855		37
Mortgage
1-4 family		11		5		25		2
Resort lending		-		-		7		-
Home equity - 1st lien		-		-		-		-
Home equity - 2nd lien		-		-		-		-
Installment
Home equity - 1st lien		1		-		-		1
Home equity - 2nd lien		7		-		-		-
Loans not secured by real estate		-		-		-		-
Other		-		-		-		-
		1,636		5		9,566		105
With an allowance recorded:
Commercial
Income producing - real estate		8,210		100		12,878		163
Land, land development & construction-real estate		1,664		13		1,943		13
Commercial and industrial		6,203		59		7,863		67
Mortgage
1-4 family		46,041		475		50,931		539
Resort lending		17,689		159		18,482		173
Home equity - 1st lien		243		2		160		2
Home equity - 2nd lien		181		4		185		4
Installment
Home equity - 1st lien		2,230		42		2,576		44
Home equity - 2nd lien		2,751		41		3,101		49
Loans not secured by real estate		555		10		668		9
Other		6		-		11		1
		85,773		905		98,798		1,064
Total
Commercial
Income producing - real estate		8,883		100		18,536		213
Land, land development & construction-real estate		1,999		13		2,964		28
Commercial and industrial		6,812		59		10,718		104
Mortgage
1-4 family		46,052		480		50,956		541
Resort lending		17,689		159		18,489		173
Home equity - 1st lien		243		2		160		2
Home equity - 2nd lien		181		4		185		4
Installment
Home equity - 1st lien		2,231		42		2,576		45
Home equity - 2nd lien		2,758		41		3,101		49
Loans not secured by real estate		555		10		668		9
Other		6		-		11		1
Total	$	87,409	$	910	$	108,364	$	1,169

(1) There were no impaired payment plan receivables or purchased mortgage loans during the three month periods ended June 30, 2016 and 2015, respectively.

Average recorded investment in and interest income earned on impaired loans by class for the six month periods ending June 30, follows (1):

	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	662	$	2	$	5,728	$	103
Land, land development & construction-real estate		496		7		1,031		49
Commercial and industrial		821		21		2,798		74
Mortgage
1-4 family		15		6		17		2
Resort lending		-		-		20		-
Home equity line of credit - 1st lien		-		-		-		-
Home equity line of credit - 2nd lien		-		-		-		-
Installment
Home equity installment - 1st lien		-		1		-		1
Home equity installment - 2nd lien		5		-		-		-
Loans not secured by real estate		-		-		-		-
Other		-		-		-		-
		1,999		37		9,594		229
With an allowance recorded:
Commercial
Income producing - real estate		8,266		207		12,864		320
Land, land development & construction-real estate		1,673		26		2,447		27
Commercial and industrial		5,501		82		7,992		133
Mortgage
1-4 family		46,625		977		51,689		1,090
Resort lending		17,842		319		18,587		344
Home equity line of credit - 1st lien		218		4		160		4
Home equity line of credit - 2nd lien		202		5		165		6
Installment
Home equity installment - 1st lien		2,274		84		2,632		94
Home equity installment - 2nd lien		2,810		85		3,138		100
Loans not secured by real estate		566		19		682		19
Other		6		-		11		1
		85,983		1,808		100,367		2,138
Total
Commercial
Income producing - real estate		8,928		209		18,592		423
Land, land development & construction-real estate		2,169		33		3,478		76
Commercial and industrial		6,322		103		10,790		207
Mortgage
1-4 family		46,640		983		51,706		1,092
Resort lending		17,842		319		18,607		344
Home equity line of credit - 1st lien		218		4		160		4
Home equity line of credit - 2nd lien		202		5		165		6
Installment
Home equity installment - 1st lien		2,274		85		2,632		95
Home equity installment - 2nd lien		2,815		85		3,138		100
Loans not secured by real estate		566		19		682		19
Other		6		-		11		1
Total	$	87,982	$	1,845	$	109,961	$	2,367

(1) There were no impaired payment plan receivables or purchased mortgage loans during the six month periods ended June 30, 2016 and 2015, respectively.

Our average investment in impaired loans was approximately $87.4 million and $108.4 million for the three-month periods ended June 30, 2016 and 2015, respectively and $88.0 million and $110.0 million for the six-month periods ended June 30, 2016 and 2015, respectively.  Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance.  Interest income recognized on impaired loans during the three months ending June 30, 2016 and 2015, was approximately $0.9 million and $1.2 million, respectively and was approximately $1.8 million and $2.4 million during the six months ending June 30, 2016 and 2015, respectively.

Troubled debt restructurings follow:

	June 30, 2016
	Commercial			Retail			Total
	(In thousands)
Performing TDRs		$	14,130	$	64,818		$	78,948
Non-performing TDRs(1)			2,678		3,788	(2)		6,466
Total		$	16,808	$	68,606		$	85,414

	December 31, 2015
	Commercial			Retail			Total
	(In thousands)
Performing TDRs		$	13,318	$	68,194		$	81,512
Non-performing TDRs(1)			3,041		3,777	(2)		6,818
Total		$	16,359	$	71,971		$	88,330

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

We allocated $10.7 million and $10.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2016 and December 31, 2015, respectively.

During the six months ended June 30, 2016 and 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans generally included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan have generally been for periods ranging from 9 months to 36 months but have extended to as much as 480 months in certain circumstances. Modifications involving an extension of the maturity date have generally been for periods ranging from 1 month to 60 months but have extended to as much as 230 months in certain circumstances.

Loans that have been classified as troubled debt restructurings during the three-month periods endedJune 30 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-	$	-
Land, land development & construction-real estate		-		-		-
Commercial and industrial		-		-		-
Mortgage
1-4 family		1		109		110
Resort lending		-		-		-
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		3		29		29
Home equity - 2nd lien		2		71		73
Loans not secured by real estate		1		12		12
Other		-		-		-
Total		7	$	221	$	224
2015
Commercial
Income producing - real estate		1	$	73	$	73
Land, land development & construction-real estate		-		-		-
Commercial and industrial		1		17		17
Mortgage
1-4 family		1		25		40
Resort lending		1		313		309
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		1		23		24
Home equity - 2nd lien		3		58		58
Loans not secured by real estate		1		-		6
Other		-		-		-
Total		9	$	509	$	527

Loans that have been classified as troubled debt restructurings during the six-month periods endedJune 30 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		2	$	110	$	110
Land, land development & construction-real estate		-		-		-
Commercial and industrial		4		1,758		1,758
Mortgage
1-4 family		3		192		263
Resort lending		1		116		117
Home equity - 1st lien		1		107		78
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		4		59		60
Home equity - 2nd lien		4		126		129
Loans not secured by real estate		1		12		12
Other		-		-		-
Total		20	$	2,480	$	2,527
2015
Commercial
Income producing - real estate		2	$	229	$	234
Land, land development & construction-real estate		-		-		-
Commercial and industrial		3		253		247
Mortgage
1-4 family		6		1,030		845
Resort lending		1		313		309
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		5		190		164
Home equity - 2nd lien		3		58		58
Loans not secured by real estate		1		-		6
Other		-		-		-
Total		21	$	2,073	$	1,863

The troubled debt restructurings described above for 2016 had no impact on the allowance for loan losses and resulted in zero charge offs during the three months ended June 30, 2016, and increased the allowance by $0.3 million and resulted in zero charge offs during the six months ended June 30, 2016.

The troubled debt restructurings described above for 2015 increased the allowance for loan losses by $0.1 million and resulted in zero charge offs during the three months ended June 30, 2015, and increased the allowance by $0.1 million and resulted in zero charge offs during the six months ended June 30, 2015.

Loans that have been classified as troubled debt restructurings during the past twelve months and thathave subsequently defaulted during the three-month periods ended June 30 follow:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		-	$	-
2015
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		1		65
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		1		4
Other		-		-
		2	$	69

Loans that have been classified as troubled debt restructurings during the past twelve months and thathave subsequently defaulted during the six-month periods ended June 30 follow:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		-	$	-
2015
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		2		157
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		1		4
Other		-		-
		3	$	161

A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

There were no troubled debt restructurings that subsequently defaulted during the three and six months ended June 30, 2016.

The troubled debt restructurings that subsequently defaulted described above for 2015 had no impact on the allowance for loan losses and resulted in zero charge offs during the three months ended June 30, 2015 and decreased the allowance for loan losses by $0.01 million and resulted in zero charge offs during the six months ended June 30, 2015.

In order to determine whether a borrower is experiencing financial difficulty, we perform an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

Credit Quality Indicators – As part of our on on-going monitoring of the credit quality of our loan portfolios, we track certain credit quality indicators including (a) weighted-average risk grade of commercial loans, (b) the level of classified commercial loans, (c) credit scores of mortgage and installment loan borrowers, (d) financial performance of certain counterparties for payment plan receivables and (e) delinquency history and non-performing loans.

For commercial loans, we use a loan rating system that is similar to those employed by state and federal banking regulators. Loans are graded on a scale of 1 to 12. A description of the general characteristics of the ratings follows:

Rating 1 through 6: These loans are generally referred to as our “non-watch” commercial credits that include very high or exceptional credit fundamentals through acceptable credit fundamentals.

Rating 7 and 8: These loans are generally referred to as our “watch” commercial credits. This rating includes loans to borrowers that exhibit potential credit weakness or downward trends. If not checked or cured these trends could weaken our asset or credit position. While potentially weak, no loss of principal or interest is envisioned with these ratings.

Rating 9: These loans are generally referred to as our “substandard accruing” commercial credits. This rating includes loans to borrowers that exhibit a well-defined weakness where payment default is probable and loss is possible if deficiencies are not corrected. Generally, loans with this rating are considered collectible as to both principal and interest primarily due to collateral coverage.

Rating 10 and 11: These loans are generally referred to as our “substandard - non-accrual” and “doubtful” commercial credits. This rating includes loans to borrowers with weaknesses that make collection of debt in full, on the basis of current facts, conditions and values at best questionable and at worst improbable. All of these loans are placed in non-accrual.

Rating 12: These loans are generally referred to as our “loss” commercial credits. This rating includes loans to borrowers that are deemed incapable of repayment and are charged-off.

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
		Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11	Total
					(In thousands)
June 30, 2016
Income producing - real estate	$	300,344	$	5,334	$	1,050	$	950	$	307,678
Land, land development and construction - real estate		46,529		1,669		114		133		48,445
Commercial and industrial		416,102		12,516		6,322		2,533		437,473
Total	$	762,975	$	19,519	$	7,486	$	3,616	$	793,596
Accrued interest included in total	$	1,509	$	62	$	25	$	-	$	1,596
December 31, 2015
Income producing - real estate	$	296,898	$	6,866	$	1,423	$	1,027	$	306,214
Land, land development and construction - real estate		40,844		2,995		243		401		44,483
Commercial and industrial		371,357		19,502		6,683		2,028		399,570
Total	$	709,099	$	29,363	$	8,349	$	3,456	$	750,267
Accrued interest included in total	$	1,729	$	108	$	32	$	-	$	1,869

For each of our mortgage and installment segment classes, we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated semi-annually.

The following tables summarize credit scores by loan class for our mortgage and installment loan segments:

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		Total
	(In thousands)
June 30, 2016
800 and above	$	31,459	$	12,187	$	6,000	$	8,476	$	2,287	$	60,409
750-799		83,455		39,058		9,279		18,317		19,259		169,368
700-749		59,358		31,410		4,840		10,455		7,601		113,664
650-699		52,187		13,815		3,646		8,249		-		77,897
600-649		28,791		6,525		1,347		3,375		-		40,038
550-599		15,745		2,485		743		1,573		-		20,546
500-549		8,594		882		581		1,280		-		11,337
Under 500		5,332		600		172		305		-		6,409
Unknown		4,900		2,071		823		339		494		8,627
Total	$	289,821	$	109,033	$	27,431	$	52,369	$	29,641	$	508,295
Accrued interest included in total	$	1,383	$	479	$	104	$	210	$	98	$	2,274
December 31, 2015
800 and above	$	28,760	$	13,943	$	4,374	$	7,696	$	2,310	$	57,083
750-799		78,802		40,888		7,137		17,405		23,283		167,515
700-749		56,519		31,980		4,341		11,022		6,940		110,802
650-699		51,813		17,433		3,203		7,691		-		80,140
600-649		27,966		4,991		1,467		3,684		-		38,108
550-599		16,714		3,070		1,027		1,918		-		22,729
500-549		10,610		1,051		572		1,295		-		13,528
Under 500		4,708		554		244		265		-		5,771
Unknown		3,733		2,110		199		282		724		7,048
Total	$	279,625	$	116,020	$	22,564	$	51,258	$	33,257	$	502,724
Accrued interest included in total	$	1,396	$	477	$	87	$	196	$	114	$	2,270

(1) Credit scores have been updated within the last twelve months.

	Installment(1)
	Home Equity 1st Lien		Home Equity 2nd Lien		Loans not Secured by Real Estate		Other		Total
	(In thousands)
June 30, 2016
800 and above	$	1,518	$	2,133	$	50,680	$	81	$	54,412
750-799		3,337		4,198		101,146		577		109,258
700-749		2,383		3,299		38,660		694		45,036
650-699		2,863		3,503		18,041		477		24,884
600-649		2,356		1,820		4,311		285		8,772
550-599		1,363		1,423		1,855		64		4,705
500-549		922		649		1,212		50		2,833
Under 500		141		240		345		25		751
Unknown		33		5		2,680		31		2,749
Total	$	14,916	$	17,270	$	218,930	$	2,284	$	253,400
Accrued interest included in total	$	57	$	64	$	551	$	16	$	688
December 31, 2015
800 and above	$	1,792	$	1,782	$	44,254	$	58	$	47,886
750-799		4,117		5,931		86,800		531		97,379
700-749		2,507		3,899		34,789		694		41,889
650-699		3,508		4,182		16,456		499		24,645
600-649		2,173		2,153		4,979		200		9,505
550-599		1,800		1,346		1,997		109		5,252
500-549		1,056		855		1,170		61		3,142
Under 500		223		370		385		23		1,001
Unknown		59		32		1,503		4		1,598
Total	$	17,235	$	20,550	$	192,333	$	2,179	$	232,297
Accrued interest included in total	$	78	$	83	$	520	$	17	$	698

(1) Credit scores have been updated within the last twelve months.

Mepco Finance Corporation (“Mepco”) is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See Note #14 for more information about Mepco’s business. As of June 30, 2016, approximately 42.0% of Mepco’s outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as “Full Refund” in the table below. Another approximately 35.4% of Mepco’s outstanding payment plan receivables as of June 30, 2016, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as “Partial Refund” in the table below. The balance of Mepco’s outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as “Other” in the table below. For each class of our payment plan receivables we monitor financial information on the counterparties as we evaluate the credit quality of this portfolio.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable:

	Payment Plan Receivables
	Full Refund		Partial Refund		Other		Total
	(In thousands)
June 30, 2016
AM Best rating
A+	$	-	$	11	$	-	$	11
A		1,358		9,715		-		11,073
A-		1,644		1,333		3,374		6,351
B+		-		-		3,717		3,717
Not rated		10,197		39		1		10,237
Total	$	13,199	$	11,098	$	7,092	$	31,389
December 31, 2015
AM Best rating
A+	$	-	$	6	$	-	$	6
A		2,712		5,203		-		7,915
A-		3,418		1,177		6,265		10,860
Not rated		15,720		93		5		15,818
Total	$	21,850	$	6,479	$	6,270	$	34,599

Although Mepco has contractual recourse against various counterparties for refunds owing upon cancellation of vehicle service contracts, see Note #14 below regarding certain risks and difficulties associated with collecting these refunds.

Foreclosed residential real estate properties included in other real estate and repossessed assets on our Condensed Consolidated Statements of Financial Condition totaled $1.9 million and $2.8 million at June 30, 2016 and December 31, 2015, respectively.  Retail mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements totaled $1.1 million at both June 30, 2016 and December 31, 2015.

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Segments

6 Months Ended

Jun. 30, 2016

Segments [Abstract]

Segments

5.  Segments

Our reportable segments are based upon legal entities.  We currently have two reportable segments:  Independent Bank (“IB” or “Bank”) and Mepco.  These business segments are also differentiated based on the products and services provided.  We evaluate performance based principally on net income (loss) of the respective reportable segments.

In the normal course of business, our IB segment provides funding to our Mepco segment through an intercompany line of credit priced at the prime rate of interest as published in the Wall Street Journal. Our IB segment also provides certain administrative services to our Mepco segment which are reimbursed at an agreed upon rate. These intercompany transactions are eliminated upon consolidation. The only other material intersegment balances and transactions are investments in subsidiaries at the parent entities and cash balances on deposit at our IB segment.

A summary of selected financial information for our reportable segments follows:

	IB			Mepco			Other(1)			Elimination(2)			Total
	(In thousands)
Total assets
June 30, 2016	$	2,391,120		$	50,178		$	282,570		$	(271,172	)	$	2,452,696
December 31, 2015		2,340,566			57,208			286,936			(275,644	)		2,409,066
For the three months ended June 30,
2016
Interest income	$	20,216		$	1,052		$	12		$	(13	)	$	21,267
Net interest income		18,989			915			(274	)		0			19,630
Provision for loan losses		(734	)		0			0			0			(734	)
Income (loss) before income tax		9,298			49			(274	)		(24	)		9,049
Net income (loss)		6,550			32			(129	)		(15	)		6,438
2015
Interest income	$	18,701		$	1,430		$	20		$	(20	)	$	20,131
Net interest income		17,717			1,218			(234	)		-			18,701
Provision for loan losses		(138	)		4			-			-			(134	)
Income (loss) before income tax		8,843			(221	)		(356	)		(23	)		8,243
Net income (loss)		5,935			(77	)		(225	)		(14	)		5,619
For the six months ended June 30,
2016
Interest income	$	40,459		$	2,162		$	17		$	(17	)	$	42,621
Net interest income		38,091			1,847			(545	)		-			39,393
Provision for loan losses		(1,260	)		(4	)		-			-			(1,264	)
Income (loss) before income tax		16,160			(310	)		(697	)		(47	)		15,106
Net income (loss)		11,169			(205	)		(396	)		(30	)		10,538
2015
Interest income	$	36,922		$	2,761		$	40		$	(40	)	$	39,683
Net interest income		34,900			2,353			(461	)		-			36,792
Provision for loan losses		(794	)		1			-			-			(793	)
Income (loss) before income tax		15,102			(512	)		(739	)		(47	)		13,804
Net income (loss)		10,168			(269	)		(469	)		(30	)		9,400

(1) Includes amounts relating to our parent company.

(2) Includes parent company’s investment in subsidiaries and cash balances maintained at subsidiary.

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Shareholders' Equity and Earnings Per Common Share

6 Months Ended

Jun. 30, 2016

Shareholders' Equity and Earnings Per Common Share [Abstract]

Shareholders' Equity and Earnings Per Common Share

6.  Shareholders’ Equity and Earnings Per Common Share

On January 21, 2016, our Board of Directors authorized a share repurchase plan (the “Repurchase Plan”) to buy back up to 5% of our outstanding common stock through December 31, 2016.  On April 26, 2016 our Board of Directors authorized a $5.0 million expansion of the Repurchase Plan. We expect to accomplish the repurchases through open market transactions, though we could affect repurchases through other means, such as privately negotiated transactions.  The timing and amount of any share repurchases will depend on a variety of factors, including, among others, securities law restrictions, the trading price of our common stock, regulatory requirements, potential alternative uses for capital, and our financial performance. The Repurchase Plan does not obligate us to acquire any particular amount of common stock, and it may be modified or suspended at any time at our discretion. We expect to fund any repurchases from cash on hand.  During the six months ended June 30, 2016, we repurchased 1,059,865 shares of common stock for an aggregate purchase price of $15.5 million leaving 52,703 shares and $5.0 million to be repurchased under the Repurchase Plan.

On November 15, 2011, we entered into a Tax Benefits Preservation Plan (the “Preservation Plan”) with our stock transfer agent, American Stock Transfer & Trust Company. Our Board of Directors adopted the Preservation Plan in an effort to protect the value to our shareholders of our ability to use deferred tax assets such as net operating loss carry forwards to reduce potential future federal income tax obligations. Under federal tax rules, this value could be lost in the event we experienced an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The Preservation Plan attempts to protect this value by reducing the likelihood that we will experience such an ownership change by discouraging any person who is not already a 5% shareholder from becoming a 5% shareholder (with certain limited exceptions).

On November 15, 2011, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of our common stock under the terms of the Preservation Plan. The dividend is payable to the holders of common stock outstanding as of the close of business on November 15, 2011, or outstanding at any time thereafter but before the earlier of a “Distribution Date” and the date the Preservation Plan terminates. Each Right entitles the registered holder to purchase from us 1/1000 of a share of our Series C Junior Participating Preferred Stock, no par value per share (“Series C Preferred Stock”). Each 1/1000 of a share of Series C Preferred Stock has economic and voting terms similar to those of one whole share of common stock. The Rights are not exercisable and generally do not become exercisable until a person or group has acquired, subject to certain exceptions and conditions, beneficial ownership of 4.99% or more of the outstanding shares of common stock. At that time, each Right will generally entitle its holder to purchase securities of the Company at a discount of 50% to the current market price of the common stock. However, the Rights owned by the person acquiring beneficial ownership of 4.99% or more of the outstanding shares of common stock would automatically be void. The significant dilution that would result is expected to deter any person from acquiring beneficial ownership of 4.99% or more and thereby triggering the Rights.

To date, none of the Rights have been exercised or have become exercisable because no unpermitted 4.99% or more change in the beneficial ownership of the outstanding common stock has occurred. The Rights will generally expire on the earlier to occur of the close of business on November 15, 2016, and certain other events described in the Preservation Plan, including such date as our Board of Directors determines that the Preservation Plan is no longer necessary for its intended purposes.  At the present time, the Board of Directors does not intend to extend the Preservation Plan.

A reconciliation of basic and diluted net income per common share follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(In thousands, except per share amounts)
Net income	$	6,438	$	5,619	$	10,538	$	9,400
Weighted average shares outstanding (1)		21,281		22,889		21,516		22,943
Stock units for deferred compensation plan for non-employee directors		114		111		114		111
Effect of stock options		148		120		150		120
Restricted stock units		55		310		70		310
Performance share units		41		-		37		-
Weighted average shares outstanding for calculation of diluted earnings per share		21,639		23,430		21,887		23,484
Net income per common share
Basic (1)	$	0.30	$	0.25	$	0.49	$	0.41
Diluted	$	0.30	$	0.24	$	0.48	$	0.40

⁽¹⁾ Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

Weighted average stock options outstanding that were not considered in computing diluted net income per share because they were anti-dilutive totaled 0.03 million for both three-month periods ended June 30, 2016 and 2015, respectively and totaled 0.03 million for both six-month periods ended June 30, 2016 and 2015, respectively.

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2016

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

7.  Derivative Financial Instruments

We are required to record derivatives on our Condensed Consolidated Statements of Financial Condition as assets and liabilities measured at their fair value.  The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

Our derivative financial instruments according to the type of hedge in which they are designated follows:

	June 30, 2016
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	26,831		0.1	$	899
Mandatory commitments to sell mortgage loans		57,034		0.1		(377	)
Pay-fixed interest rate swap agreements		44,396		9.1		(2,205	)
Pay-variable interest rate swap agreements		44,396		9.1		2,205
Purchased options		3,119		5.0		203
Written options		3,119		5.0		(203	)
Total	$	178,895		4.7	$	522

	December 31, 2015
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	20,581		0.1	$	550
Mandatory commitments to sell mortgage loans		46,320		0.1		69
Pay-fixed interest rate swap agreements		27,587		8.0		(497	)
Pay-variable interest rate swap agreements		27,587		8.0		497
Purchased options		2,098		5.7		122
Written options		2,098		5.7		(122	)
Total	$	126,271		3.7	$	619

Certain financial derivative instruments have not been designated as hedges. The fair value of these derivative financial instruments has been recorded on our Condensed Consolidated Statements of Financial Condition and is adjusted on an ongoing basis to reflect their then current fair value. The changes in fair value of derivative financial instruments not designated as hedges are recognized in our Condensed Consolidated Statements of Operations.

In the ordinary course of business, we enter into rate-lock mortgage loan commitments with customers (“Rate-Lock Commitments”).  These commitments expose us to interest rate risk.  We also enter into mandatory commitments to sell mortgage loans (“Mandatory Commitments”) to reduce the impact of price fluctuations of mortgage loans held for sale and Rate-Lock Commitments.  Mandatory Commitments help protect our loan sale profit margin from fluctuations in interest rates. The changes in the fair value of Rate-Lock Commitments and Mandatory Commitments are recognized currently as part of net gains on mortgage loans.  We obtain market prices on Mandatory Commitments and Rate-Lock Commitments.  Net gains on mortgage loans, as well as net income may be more volatile as a result of these derivative instruments, which are not designated as hedges.

During 2015, we began offering to our deposit customers an equity linked time deposit product (“Altitude CD”).  The Altitude CD is a time deposit that provides the customer a guaranteed return of principal at maturity plus a potential equity return (a written option), while we receive a like stream of funds based on the equity return (a purchased option).  The written and purchased options will generally move in opposite directions resulting in little or no net impact on our Condensed Consolidated Statements of Operations.  All of the written and purchased options in the table above relate to this Altitude CD product.

We have a program that allows commercial loan customers to lock in a fixed rate for a longer period of time than we would normally offer for interest rate risk reasons.  We will enter into a variable rate commercial loan and an interest rate swap agreement with a customer and then enter into an offsetting interest rate swap agreement with an unrelated party.  The interest rate swap agreement fair values will generally move in opposite directions resulting in little or no net impact on our Condensed Consolidated Statements of Operations.  All of the interest rate swap agreements in the table above relate to this program.

The following tables illustrate the impact that the derivative financial instruments discussed above have on individual line items in the Condensed Consolidated Statements of Financial Condition for the periods presented:

Fair Values of Derivative Instruments

	Asset Derivatives						Liability Derivatives
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
	Balance Sheet Location	Fair Value		Balance  Sheet  Location	Fair Value		Balance  Sheet  Location	Fair Value		Balance  Sheet  Location	Fair Value
	(In thousands)
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets	$	899	Other assets	$	550	Other liabilities	$	-	Other liabilities	$	-
Mandatory commitments to sell mortgage loans	Other assets		-	Other assets		69	Other liabilities		377	Other liabilities		-
Pay-fixed interest rate swap agreements	Other assets		-	Other assets		-	Other liabilities		2,205	Other liabilities		497
Pay-variable interest rate swap agreements	Other assets		2,205	Other assets		497	Other liabilities		-	Other liabilities		-
Purchased options	Other assets		203	Other assets		122	Other liabilities		-	Other liabilities		-
Written options	Other assets		-	Other assets		-	Other liabilities		203	Other liabilities		122
Total derivatives		$	3,307		$	1,238		$	2,785		$	619

The effect of derivative financial instruments on the Condensed Consolidated Statements of Operations follows:

		Gain (Loss) Recognized in Income
	Location of Gain (Loss)	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	Recognized in Income	2016			2015			2016			2015
		(In thousands)
No hedge designation
Rate-lock mortgage loan commitments	Net gains on mortgage loans	$	130		$	(283	)	$	349		$	105
Mandatory  commitments to sell mortgage loans	Net gains on mortgage loans		(240	)		559			(446	)		520
Pay-fixed interest rate  swap agreements	Interest income		(590	)		221			(1,708	)		(40	)
Pay-variable interest rate swap agreements	Interest income		590			(221	)		1,708			40
Purchased options	Interest expense		3			-			81			-
Written options	Interest expense		(3	)		-			(81	)		-
Total		$	(110	)	$	276		$	(97	)	$	625

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Intangible Assets

6 Months Ended

Jun. 30, 2016

Intangible Assets [Abstract]

Intangible Assets

8.  Intangible Assets

The following table summarizes intangible assets, net of amortization:

	June 30, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	4,012	$	6,118	$	3,838

Amortization of other intangibles has been estimated through 2021 and thereafter in the following table.

	(In thousands)
Six months ending December 31, 2016	$	173
2017		346
2018		346
2019		346
2020		346
2021 and thereafter		549
Total	$	2,106

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Share Based Compensation

6 Months Ended

Jun. 30, 2016

Share Based Compensation [Abstract]

Share Based Compensation

9.  Share Based Compensation

We maintain share based payment plans that include a non-employee director stock purchase plan and a long-term incentive plan that permits the issuance of share based compensation, including stock options and non-vested share awards. The long-term incentive plan, which is shareholder approved, permits the grant of additional share based awards for up to 0.2 million shares of common stock as of June 30, 2016.  The non-employee director stock purchase plan permits the issuance of additional share based payments for up to 0.2 million shares of common stock as of June 30, 2016. Share based awards and payments are measured at fair value at the date of grant and are expensed over the requisite service period. Common shares issued upon exercise of stock options come from currently authorized but unissued shares.

During each first quarter period of 2016 and 2015, pursuant to our long-term incentive plan, we granted 0.07 million shares of restricted stock and 0.03 million performance stock units (“PSU”) to certain officers.  The shares of restricted stock and PSUs cliff vest after a period of three years.  The performance feature of the PSUs is based on a comparison of our total shareholder return over the three year period starting on the grant date to the total shareholder return over that period for a banking index of our peers.  No long term incentive grants were made during the second quarters of 2016 or 2015.

Our directors may elect to receive a portion of their quarterly cash retainer fees in the form of common stock (either on a current basis or on a deferred basis pursuant to the non-employee director stock purchase plan referenced above). Shares equal in value to that portion of each director’s fees that he or she has elected to receive in stock are issued each quarter and vest immediately.  We issued 0.004 million shares and 0.002 million shares to directors during the first six months of 2016 and 2015, respectively and expensed their value during those same periods.

Total compensation expense recognized for grants pursuant to our long-term incentive plan was $0.4 million and $0.8 million during the three and six month periods ended June 30, 2016, respectively, and was $0.4 million and $0.7 million during the same periods in 2015, respectively.  The corresponding tax benefit relating to this expense was $0.1 million and $0.3 million for the three and six month periods ended June 30, 2016, respectively and $0.1 million and $0.3 million for the same periods in 2015. Total expense recognized for non-employee director share based payments was $0.03 million and $0.06 million during the three and six month periods ended June 30, 2016, respectively, and was $0.02 million and $0.03 million during the same periods in 2015, respectively.  The corresponding tax benefit relating to this expense was $0.01 million and $0.02 million for the three and six month periods ended June 30, 2016, respectively and $0.01 million and $0.01 million during the same periods in 2015.

At June 30, 2016, the total expected compensation cost related to non-vested stock options, restricted stock, PSUs and restricted stock unit awards not yet recognized was $2.1 million.  The weighted-average period over which this amount will be recognized is 2.0 years.

A summary of outstanding stock option grants and related transactions follows:

	Number of Shares			Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregated Intrinsic Value
								(In thousands)
Outstanding at January 1, 2016		235,596		$	4.94
Granted		-
Exercised		(16,014	)		3.69
Forfeited		(664	)		6.42
Expired		(400	)		4.25
Outstanding at June 30, 2016		218,518		$	5.02		5.54	$	2,109
Vested and expected to vest at June 30, 2016		218,518		$	5.02		5.54	$	2,109
Exercisable at June 30, 2016		218,518		$	5.02		5.54	$	2,109

A summary of outstanding non-vested restricted stock, restricted stock units and PSUs and related transactions follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2016		261,981		$	11.29
Granted		96,660			14.39
Vested		(107,795	)		7.92
Forfeited		(4,924	)		13.24
Outstanding at June 30, 2016		245,922		$	13.94

Certain information regarding options exercised during the periods follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Intrinsic value	$	60	$	187	$	177	$	243
Cash proceeds received	$	27	$	67	$	59	$	82
Tax benefit realized	$	21	$	65	$	62	$	85

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Income Tax

6 Months Ended

Jun. 30, 2016

Income Tax [Abstract]

Income Tax

10.  Income Tax

Income tax expense was $2.6 million during both three month periods ended June 30, 2016 and 2015, respectively and $4.6 million and $4.4 million during the six months ended June 30, 2016 and 2015, respectively.   As described in note #2, we adopted ASU 2016-09, “Compensation – Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting” during the second quarter of 2016 which now requires us to recognize for book purposes either income tax expense or benefit relating to excess deficiencies/benefits relating to share-based compensation.  Included in income tax expense for both three and six month periods ended June 30, 2016 is a tax benefit of $0.3 million due to the vesting of certain share-based compensation grants during the second quarter of 2016.

We assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard.  The ultimate realization of this asset is primarily based on generating future income.  We concluded at both June 30, 2016 and 2015, that the realization of substantially all of our deferred tax assets continues to be more likely than not.

We did maintain a valuation allowance against our deferred tax assets of approximately $1.1 million at both June 30, 2016 and December 31, 2015. This valuation allowance on our deferred tax assets primarily relates to state income taxes at our Mepco segment.  In this instance, we determined that the future realization of these particular deferred tax assets was not more likely than not.  This conclusion was primarily based on the uncertainty of Mepco’s future earnings attributable to particular states (given the various apportionment criteria) and the significant reduction in the size of Mepco’s business.

At both June 30, 2016 and December 31, 2015, we had approximately $1.0 million, of gross unrecognized tax benefits.  We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease during the balance of 2016.

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Regulatory Matters

6 Months Ended

Jun. 30, 2016

Regulatory Matters [Abstract]

Regulatory Matters

11.  Regulatory Matters

Capital guidelines adopted by federal and state regulatory agencies and restrictions imposed by law limit the amount of cash dividends our Bank can pay to us. Under these guidelines, the amount of dividends that may be paid in any calendar year is limited to the Bank’s current year net profits, combined with the retained net profits of the preceding two years. Further, the Bank cannot pay a dividend at any time that it has negative undivided profits.  As of June 30, 2016, the Bank had positive undivided profits of $2.1 million.  We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarters of 2016 and 2015, we requested regulatory approval for returns of capital from the Bank to the parent company of  $18.0 million and $18.5 million, respectively.  These return of capital requests were approved by our banking regulators on February 24, 2016 and February 13, 2015, respectively and the Bank returned these amounts to the parent company on February 25, 2016 and February 17, 2015, respectively.  It is not our intent to have dividends paid in amounts that would reduce the capital of our Bank to levels below those which we consider prudent and in accordance with guidelines of regulatory authorities.

We are also subject to various regulatory capital requirements. The prompt corrective action regulations establish quantitative measures to ensure capital adequacy and require minimum amounts and ratios of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can result in certain mandatory, and possibly discretionary, actions by regulators that could have a material effect on our consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital requirements that involve quantitative measures as well as qualitative judgments by the regulators. The most recent regulatory filings as of June 30, 2016 and December 31, 2015, categorized our Bank as well capitalized. Management is not aware of any conditions or events that would have changed the most recent Federal Deposit Insurance Corporation (“FDIC”) categorization.

On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework (the “New Capital Rules”). The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act.  In general, under the New Capital Rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the New Capital Rules include a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that applies to all supervised financial institutions.  The capital conservation buffer began to phase in on January 1, 2016 with 0.625% added to the minimum ratio for adequately capitalized institutions for 2016.  To avoid limits on capital distributions and certain discretionary bonus payments we must meet the minimum ratio for adequately capitalized institutions plus the phased in buffer.  The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.  As to the quality of capital, the New Capital Rules emphasize common equity Tier 1 capital, the most loss-absorbing form of capital, and implement strict eligibility criteria for regulatory capital instruments. The New Capital Rules also change the methodology for calculating risk-weighted assets to enhance risk sensitivity.  The New Capital Rules became effective for us on January 1, 2015.

Our actual capital amounts and ratios follow:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
June 30, 2016
Total capital to risk-weighted assets
Consolidated	$	275,163		15.97	%	$	137,844		8.00	%	NA		NA
Independent Bank		260,344		15.12			137,712		8.00			172,140		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	253,484		14.71	%	$	103,383		6.00	%	NA		NA
Independent Bank		238,734		13.87			103,284		6.00			137,712		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	228,648		13.27	%	$	77,537		4.50	%	NA		NA
Independent Bank		238,734		13.87			77,463		4.50			111,891		6.50	%
Tier 1 capital to average assets
Consolidated	$	253,484		10.47	%	$	96,803		4.00	%	NA		NA
Independent Bank		238,734		9.87			96,737		4.00			120,921		5.00	%
December 31, 2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
	(In thousands)
Total shareholders’ equity	$	246,923		$	251,092		$	256,850		$	259,947
Add (deduct)
Accumulated other comprehensive (income) loss for regulatory purposes		(2,515	)		238			(2,514	)		238
Intangible assets		(1,264	)		(912	)		(1,264	)		(912	)
Disallowed deferred tax assets		(14,496	)		(11,147	)		(14,338	)		(18,406	)
Common equity tier 1 capital		228,648			239,271			238,734			240,867
Qualifying trust preferred securities		34,500			34,500			-			-
Disallowed deferred tax assets		(9,664	)		(16,721	)		-			-
Tier 1 capital		253,484			257,050			238,734			240,867
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,679			21,120			21,610			21,027
Total risk-based capital	$	275,163		$	278,170		$	260,344		$	261,894

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Fair Value Disclosures

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures

12.  Fair Value Disclosures

FASB ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange, as well as U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.

Level 2:  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 instruments include securities traded in less active dealer or broker markets.

Level 3:  Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We used the following methods and significant assumptions to estimate fair value:

Securities:  Where quoted market prices are available in an active market, securities (trading or available for sale) are classified as Level 1 of the valuation hierarchy.  Level 1 securities include certain preferred stocks included in our trading portfolio for which there are quoted prices in active markets.  If quoted market prices are not available for the specific security, then fair values are estimated by (1) using quoted market prices of securities with similar characteristics, (2) matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or (3) a discounted cash flow analysis whose significant fair value inputs can generally be verified and do not typically involve judgment by management. These securities are classified as Level 2 of the valuation hierarchy and primarily include agency securities, private label mortgage-backed securities, other asset backed securities, municipal securities, trust preferred securities and corporate securities.

Loans held for sale:  The fair value of mortgage loans held for sale is based on mortgage backed security pricing for comparable assets (recurring Level 2).

Impaired loans with specific loss allocations based on collateral value:  From time to time, certain loans are considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2016 and December 31, 2015, all of our impaired loans were evaluated based on either the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. When the fair value of the collateral is based on an appraised value or when an appraised value is not available we record the impaired loan as nonrecurring Level 3.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and thus will typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate:  At the time of acquisition, other real estate is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Subsequent write-downs to reflect declines in value since the time of acquisition may occur from time to time and are recorded in net (gains) losses on other real estate and repossessed assets in the Condensed Consolidated Statements of Operations. The fair value of the property used at and subsequent to the time of acquisition is typically determined by a third party appraisal of the property.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by us.  Once received, an independent third party (for commercial properties over $0.25 million) or a member of our Collateral Evaluation Department (for commercial properties under $0.25 million) or a member of our Special Assets Group (for retail properties) reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.   We compare the actual selling price of collateral that has been sold to the most recent appraised value of our properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value.  For commercial and retail properties we typically discount an appraisal to account for various factors that the appraisal excludes in its assumptions.  These additional discounts generally do not result in material adjustments to the appraised value.

Capitalized mortgage loan servicing rights:  The fair value of capitalized mortgage loan servicing rights is based on a valuation model used by an independent third party that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Certain model assumptions are generally unobservable and are based upon the best information available including data relating to our own servicing portfolio, reviews of mortgage servicing assumption and valuation surveys and input from various mortgage servicers and, therefore, are recorded as nonrecurring Level 3.  Management evaluates the third party valuation for reasonableness each quarter as part of our financial reporting control processes.

Derivatives:  The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets (recurring Level 2).  The fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management (recurring Level 2).  The fair value of purchased and written options is based on prices of financial instruments with similar characteristics and do not typically involve judgment by management (recurring Level 2).

Assets and liabilities measured at fair value, including financial assets for which we have elected the fair value option, were as follows:

			Fair Value Measurements Using
	Fair Value Measure- ments		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
June 30, 2016:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	212	$	212	$	-	$	-
Securities available for sale
U.S. agency		31,679		-		31,679		-
U.S. agency residential mortgage-backed		182,063		-		182,063		-
U.S. agency commercial mortgage-backed		7,996		-		7,996		-
Private label mortgage-backed		26,246		-		26,246		-
Other asset backed		139,846		-		139,846		-
Obligations of states and political subdivisions		158,341		-		158,341		-
Corporate		49,527		-		49,527		-
Trust preferred		2,397		-		2,397		-
Foreign government		1,660		-		1,660		-
Loans held for sale		31,713		-		31,713		-
Derivatives (1)		3,307		-		3,307		-
Liabilities
Derivatives (2)		2,785		-		2,785		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		10,007		-		-		10,007
Impaired loans (4)
Commercial
Income producing - real estate		649		-		-		649
Land, land development & construction-real estate		158		-		-		158
Commercial and industrial		1,638		-		-		1,638
Mortgage
1-4 Family		651		-		-		651
Other real estate (5)
Commercial
Land, land development & construction-real estate		176		-		-		176
Mortgage
1-4 Family		48		-		-		48
Resort lending		92		-		-		92

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

			Fair Value Measurements Using
	Fair Value Measure- ments		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
December 31, 2015:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	148	$	148	$	-	$	-
Securities available for sale
U.S. agency		47,512		-		47,512		-
U.S. agency residential mortgage-backed		196,056		-		196,056		-
U.S. agency commercial mortgage-backed		34,028		-		34,028		-
Private label mortgage-backed		4,903		-		4,903		-
Other asset backed		116,904		-		116,904		-
Obligations of states and political subdivisions		144,984		-		144,984		-
Corporate		38,614		-		38,614		-
Trust preferred		2,483		-		2,483		-
Loans held for sale		27,866		-		27,866		-
Derivatives (1)		1,238		-		1,238		-
Liabilities
Derivatives (2)		619		-		619		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		8,481		-		-		8,481
Impaired loans (4)
Commercial
Income producing - real estate		711		-		-		711
Land, land development & construction-real estate		40		-		-		40
Commercial and industrial		1,257		-		-		1,257
Mortgage
1-4 Family		421		-		-		421
Resort lending		129		-		-		129
Other real estate (5)
Commercial
Land, land development & construction-real estate		639		-		-		639
Commercial and industrial		165		-		-		165
Mortgage
1-4 Family		26		-		-		26
Resort lending		107		-		-		107
Home equity - 1st lien		14		-		-		14
Installment
Home equity - 1st lien		36		-		-		36

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2016 and 2015.

Changes in fair values for financial assets which we have elected the fair value option for the periods presented were as follows:

		Changes in Fair Values for the Six-Month Periods Ended June 30 for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
		2016						2015
		Net Gains (Losses) on Assets				Total Change in Fair Values Included in Current Period		Net Gains (Losses) on Assets						Total Change in Fair Values Included in Current Period
		Securities		Loans		Earnings		Securities			Loans			Earnings
	(In thousands)
Trading securities		$	64	$	-	$	64	$	(23	)	$	-		$	(23	)
Loans held for sale			-		478		478		-			(121	)		(121	)

For those items measured at fair value pursuant to our election of the fair value option, interest income is recorded within the Condensed Consolidated Statements of Operations based on the contractual amount of interest income earned on these financial assets and dividend income is recorded based on cash dividends received.

The following represent impairment charges recognized during the three and six month periods ended June 30, 2016 and 2015 relating to assets measured at fair value on a non-recurring basis:

· Capitalized mortgage loan servicing rights, whose individual strata are measured at fair value, had a carrying amount of $10.0 million which is net of a valuation allowance of $5.4 million at June 30, 2016 and had a carrying amount of $8.5 million which is net of a valuation allowance of $3.3 million at December 31, 2015.  A recovery (charge) of $(0.6) million and $(2.1) million was included in our results of operations for the three and six month periods ending June 30, 2016, respectively and $1.2 million and $0.5 million during the same periods in 2015.

· Loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a carrying amount of $5.4 million, with a valuation allowance of $2.3 million at June 30, 2016 and had a carrying amount of $5.1 million, with a valuation allowance of $2.5 million at December 31, 2015.  The provision for loan losses included in our results of operations relating to impaired loans was a net expense (recovery) of $(0.1) million and $0.5 million for the three month periods ending June 30, 2016 and 2015, respectively, and a net expense of $0.3 million and $1.0 million for the six month periods ending June 30, 2016 and 2015, respectively.

· Other real estate, which is measured using the fair value of the property, had a carrying amount of $0.3 million which is net of a valuation allowance of $1.1 million at June 30, 2016 and a carrying amount of $1.0 million which is net of a valuation allowance of $1.7 million at December 31, 2015.  An additional charge relating to other real estate measured at fair value of $0.04 million and $0.06 million was included in our results of operations during the three and six month periods ended June 30, 2016, respectively and $0.22 million and $0.37 million during the same periods in 2015.

We had no assets or liabilities measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) during the six months ended June 30, 2016 and 2015.

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis follows:

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
June 30, 2016
Capitalized mortgage loan servicing rights	$	10,007	Present value of net servicing revenue	Discount rate		10.05	%
				Cost to service	$	80
				Ancillary income		24
				Float rate		0.98	%
Impaired loans
Commercial (1)		2,240	Sales comparison approach	Adjustment for differences between comparable sales		(1.5	)%
Mortgage		651	Sales comparison approach	Adjustment for differences between comparable sales		4.2
Other real estate
Commercial		176	Sales comparison approach	Adjustment for differences between comparable sales		(22.5	)
Mortgage and installment		140	Sales comparison approach	Adjustment for differences between comparable sales		73.8
December 31, 2015
Capitalized mortgage loan servicing rights	$	8,481	Present value of net servicing revenue	Discount rate		10.04	%
				Cost to service	$	80
				Ancillary income		24
				Float rate		1.73	%
Impaired loans
Commercial (1)		1,605	Sales comparison approach	Adjustment for differences between comparable sales		(2.1	)%
			Income approach	Capitalization rate		9.3
Mortgage		550	Sales comparison approach	Adjustment for differences between comparable sales		0.7
Other real estate
Commercial		804	Sales comparison approach	Adjustment for differences between comparable sales		(3.9	)
Mortgage and installment		183	Sales comparison approach	Adjustment for differences between comparable sales		75.6

(1) In addition to the valuation techniques and unobservable inputs discussed above, at June 30, 2016 and December 31, 2015, we had an impaired collateral dependent commercial relationship that totaled $0.2 million and $0.4 million, respectively that was primarily secured by collateral other than real estate.  Collateral securing this relationship primarily included machinery and equipment and inventory at June 30, 2016 and December 31, 2015.  Valuation techniques at June 30, 2016 and December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type.  Discount rates used ranged from 0% to 100% of stated values.

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale for which the fair value option has been elected for the periods presented.

	Aggregate Fair Value		Difference		Contractual Principal
	(In thousands)
Loans held for sale
June 30, 2016	$	31,713	$	1,192	$	30,521
December 31, 2015		27,866		714		27,152

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Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2016

Fair Values of Financial Instruments [Abstract]

Fair Values of Financial Instruments

13.  Fair Values of Financial Instruments

Most of our assets and liabilities are considered financial instruments. Many of these financial instruments lack an available trading market and it is our general practice and intent to hold the majority of our financial instruments to maturity. Significant estimates and assumptions were used to determine the fair value of financial instruments. These estimates are subjective in nature, involving uncertainties and matters of judgment, and therefore, fair values may not be a precise estimate. Changes in assumptions could significantly affect the estimates.

Estimated fair values have been determined using available data and methodologies that are considered suitable for each category of financial instrument. For instruments with adjustable interest rates which reprice frequently and without significant credit risk, it is presumed that estimated fair values approximate the recorded book balances.

Cash and due from banks and interest bearing deposits:  The recorded book balance of cash and due from banks and interest bearing deposits approximate fair value and are classified as Level 1.

Interest bearing deposits - time:  Interest bearing deposits - time have been valued based on a model using a benchmark yield curve plus a base spread and are classified as Level 2.

Securities:  Financial instrument assets actively traded in a secondary market have been valued using quoted market prices.  Trading securities are classified as Level 1 while securities available for sale are classified as Level 2 as described in Note #12.

Federal Home Loan Bank and FederalReserve Bank Stock:  It is not practicable to determine the fair value of FHLB and FRB Stock due to restrictions placed on transferability.

Net loans and loans held for sale:  The fair value of loans is calculated by discounting estimated future cash flows using estimated market discount rates that reflect credit and interest-rate risk inherent in the loans and do not necessarily represent an exit price.  Loans are classified as Level 3.  Impaired loans are valued at the lower of cost or fair value as described in Note #12.  Loans held for sale are classified as Level 2 as described in Note #12.

Accrued interest receivable and payable:  The recorded book balance of accrued interest receivable and payable approximate fair value and are classified at the same Level as the asset and liability they are associated with.

Derivative financial instruments:  The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets, the fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management and the fair value of purchased and written options is based on prices of financial instruments with similar characteristics and do not typically involve judgment by management. Each of these instruments has been classified as Level 2 as described in Note #12.

Deposits:  Deposits without a stated maturity, including demand deposits, savings, NOW and money market accounts, have a fair value equal to the amount payable on demand.  Each of these instruments is classified as Level 1.  Deposits with a stated maturity, such as certificates of deposit have generally been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Other borrowings:  Other borrowings have been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Subordinated debentures:  Subordinated debentures have generally been valued based on a quoted market price of similar instruments resulting in a Level 2 classification.

The estimated recorded book balances and fair values follow:

					Fair Value Using
	Recorded Book Balance		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
June 30, 2016
Assets
Cash and due from banks	$	34,542	$	34,542	$	34,542	$	-	$	-
Interest bearing deposits		26,488		26,488		26,488		-		-
Interest bearing deposits - time		8,560		8,600		-		8,600		-
Trading securities		212		212		212		-		-
Securities available for sale		599,755		599,755		-		599,755		-
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,229		NA		NA		NA		NA
Net loans and loans held for sale		1,591,123		1,566,760		-		31,713		1,535,047
Accrued interest receivable		6,767		6,767		3		2,178		4,586
Derivative financial instruments		3,307		3,307		-		3,307		-
Liabilities
Deposits with no stated maturity (1)	$	1,687,965	$	1,687,965	$	1,687,965	$	-	$	-
Deposits with stated maturity (1)		440,327		439,916		-		439,916		-
Other borrowings		11,797		13,152		-		13,152		-
Subordinated debentures		35,569		22,445		-		22,445		-
Accrued interest payable		536		536		18		518		-
Derivative financial instruments		2,785		2,785		-		2,785		-
December 31, 2015
Assets
Cash and due from banks	$	54,260	$	54,260	$	54,260	$	-	$	-
Interest bearing deposits		31,523		31,523		31,523		-		-
Interest bearing deposits - time		11,866		11,858		-		11,858		-
Trading securities		148		148		148		-		-
Securities available for sale		585,484		585,484		-		585,484		-
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,471		NA		NA		NA		NA
Net loans and loans held for sale		1,520,346		1,472,613		-		27,866		1,444,747
Accrued interest receivable		6,565		6,565		5		1,969		4,591
Derivative financial instruments		1,238		1,238		-		1,238		-
Liabilities
Deposits with no stated maturity (1)	$	1,659,743	$	1,659,743	$	1,659,743	$	-	$	-
Deposits with stated maturity (1)		426,220		423,776		-		423,776		-
Other borrowings		11,954		13,448		-		13,448		-
Subordinated debentures		35,569		23,069		-		23,069		-
Accrued interest payable		466		466		21		445		-
Derivative financial instruments		619		619		-		619		-

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $12.4 million and $11.8 million at June 30, 2016 and December 31, 2015, respectively.  Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $37.0 million and $38.4 million at June 30, 2016 and December 31, 2015, respectively.

The fair values for commitments to extend credit and standby letters of credit are estimated to approximate their aggregate book balance, which is nominal and therefore are not disclosed.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale the entire holdings of a particular financial instrument.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, the value of future earnings attributable to off-balance sheet activities and the value of assets and liabilities that are not considered financial instruments.

Fair value estimates for deposit accounts do not include the value of the core deposit intangible asset resulting from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

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Contingent Liabilities

6 Months Ended

Jun. 30, 2016

Contingent Liabilities [Abstract]

Contingent Liabilities

14.  Contingent Liabilities

We are involved in various litigation matters in the ordinary course of business. At the present time, we do not believe any of these matters will have a significant impact on our consolidated financial position or results of operations. The aggregate amount we have accrued for losses we consider probable as a result of these litigation matters is immaterial. However, because of the inherent uncertainty of outcomes from any litigation matter, we believe it is reasonably possible we may incur losses in addition to the amounts we have accrued. At this time, we estimate the maximum amount of additional losses that are reasonably possible is approximately $1.0 million. However, because of a number of factors, including the fact that certain of these litigation matters are still in their early stages, this maximum amount may change in the future.

The litigation matters described in the preceding paragraph primarily include claims that have been brought against us for damages, but do not include litigation matters where we seek to collect amounts owed to us by third parties (such as litigation initiated to collect delinquent loans or vehicle service contract counterparty receivables). These excluded, collection-related matters may involve claims or counterclaims by the opposing party or parties, but we have excluded such matters from the disclosure contained in the preceding paragraph in all cases where we believe the possibility of us paying damages to any opposing party is remote. Risks associated with the likelihood that we will not collect the full amount owed to us, net of reserves, are disclosed elsewhere in this report.

Our Mepco segment conducts its payment plan business activities across the United States. Mepco acquires the payment plans from companies (which we refer to as Mepco’s “counterparties”) at a discount from the face amount of the payment plan. Each payment plan (which are classified as payment plan receivables in our Condensed Consolidated Statements of Financial Condition) permits a consumer to purchase a vehicle service contract by making installment payments, generally for a term of 12 to 24 months, to the sellers of those contracts (one of the “counterparties”). Mepco thereafter collects the payments from consumers. In acquiring the payment plan, Mepco generally funds a portion of the cost to the seller of the service contract and a portion of the cost to the administrator of the service contract. The administrator, in turn, pays the necessary contractual liability insurance policy (“CLIP”) premium to the insurer or risk retention group.

Consumers are allowed to voluntarily cancel the service contract at any time and are generally entitled to receive a refund from the administrator of the unearned portion of the service contract at the time of cancellation. As a result, while Mepco does not owe any refund to the consumer, it also does not have any recourse against the consumer for nonpayment of a payment plan and therefore does not evaluate the creditworthiness of the individual consumer. If a consumer stops making payments on a payment plan or exercises the right to voluntarily cancel the service contract, the service contract seller and administrator are each obligated to refund to Mepco the amount necessary to make Mepco whole as a result of its funding of the service contract. In addition, the insurer or risk retention group that issued the CLIP for the service contract often guarantees all or a portion of the refund to Mepco. See Note #4 above for a breakdown of Mepco’s payment plan receivables by the level of recourse Mepco has against various counterparties.

Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected. These amounts represent funds actually due to Mepco from its counterparties for cancelled service contracts. Mepco is currently in the process of working to recover these receivables, primarily through negotiated settlements with the counterparties.  In some cases, Mepco requires collateral or guaranties by the principals of the counterparties to secure these refund obligations; however, this is generally only the case when no insurance company is involved to guarantee the repayment obligation of the seller and administrator counterparties. In most cases, there is no collateral to secure the counterparties’ refund obligations to Mepco, but Mepco has the contractual right to offset unpaid refund obligations against amounts Mepco would otherwise be obligated to fund to the counterparties. In addition, even when collateral is involved, the refund obligations of these counterparties are not fully secured. Mepco incurs losses when it is unable to fully recover funds owing to it by counterparties upon cancellation of the underlying service contracts. The sudden failure of one of Mepco’s major counterparties (an insurance company, administrator, or seller/dealer) could expose us to significant losses.

When counterparties do not honor their contractual obligations to Mepco to repay funds, we recognize estimated losses. Mepco pursues collection (including commencing legal action if necessary) of funds due to it under its various contracts with counterparties.  Mepco has had to initiate litigation against certain counterparties, including third party insurers, to collect amounts owed to Mepco as a result of those parties’ dispute of their contractual obligations to Mepco.  During the first quarter of 2016, we settled our last significant remaining litigation matter with certain of Mepco’s counterparties.  This settlement resulted in our receipt of a cash payment of $4.0 million and reduced vehicle service contract counterparty receivables, net which totaled $3.0 million as of June 30, 2016 compared to $7.2 million as of December 31, 2015.  This settlement also resulted in our receipt of an interest-bearing promissory note from one of Mepco’s counterparties for $1.5 million with monthly payments scheduled over a five-year period beginning in May 2016.  Due to the lack of any payment history and limited financial information on this counterparty, we established a full reserve on this promissory note as of March 31, 2016.  A full reserve on the remaining balance ($1.45 million) on this note was maintained at June 30, 2016.   This counterparty has made the first three required monthly payments on the note.  As a longer-term payment history is developed on this note, we will continue to evaluate the need for all or any part of a reserve.  Expense/(credit) related to vehicle service contract counterparty contingencies included in non-interest expense totaled $(0.001) million and $0.030 million for the three month periods ended June 30, 2016 and 2015, respectively and totaled $0.029 million and $0.059 million for the six month periods ended June 30, 2016 and 2015, respectively.  These charges (recoveries) are being classified in non-interest expense because they are associated with a default or potential default of a contractual obligation under our counterparty contracts as opposed to loss on the administration of the payment plan itself.

Our estimate of probable incurred losses from vehicle service contract counterparty contingencies requires a significant amount of judgment because a number of factors can influence the amount of loss that we may ultimately incur. These factors include our estimate of future cancellations of vehicle service contracts, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations.  We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses.

We believe our assumptions regarding the collection of vehicle service contract counterparty receivables are reasonable, and we based them on our good faith judgments using data currently available. We also believe the current amount of reserves we have established and the vehicle service contract counterparty contingencies expense that we have recorded are appropriate given our estimate of probable incurred losses at the applicable Condensed Consolidated Statement of Financial Condition date. However, because of the uncertainty surrounding the numerous and complex assumptions made, actual losses could exceed the charges we have taken to date.

The provision for loss reimbursement on sold loans represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae, Freddie Mac and Ginnie Mae). Since we sell mortgage loans without recourse, loss reimbursements only occur in those instances where we have breached a representation or warranty or other contractual requirement related to the loan sale.  The provision for loss reimbursement on sold loans was an expense of zero and $0.05 million for the three months ended June 30, 2016 and 2015, respectively and a credit of $0.02 million for both six month periods ended June 30, 2016 and 2015, respectively.  The credit provision for each six month period is due primarily to the settlement of certain loss reimbursement claims at slightly lower amounts than what had been specifically reserved for previously.  The reserve for loss reimbursements on sold mortgage loans totaled $0.5 million at both June 30, 2016 and December 31, 2015. This reserve is included in accrued expenses and other liabilities in our Condensed Consolidated Statements of Financial Condition. This reserve is based on an analysis of mortgage loans that we have sold which are further categorized by delinquency status, loan to value, and year of origination. The calculation includes factors such as probability of default, probability of loss reimbursement (breach of representation or warranty) and estimated loss severity. The reserve levels at June 30, 2016 and December 31, 2015 also reflect the resolution of the mortgage loan origination years of 2000 to 2008 with Fannie Mae and Freddie Mac.  We believe that the amounts that we have accrued for incurred losses on sold mortgage loans are appropriate given our analyses.  However, future losses could exceed our current estimate.

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Accumulated Other Comprehensive Loss ("AOCL")

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Loss ("AOCL") [Abstract]

Accumulated Other Comprehensive Loss ("AOCL")

15.  Accumulated Other Comprehensive Loss (“AOCL”)

A summary of changes in AOCL follows:

	Unrealized Gains (Losses) on Securities Available for Sale			Dispropor- tionate Tax Effects from Securities Available for Sale			Total
For the three months ended June 30,
2016
Balances at beginning of period	$	999		$	(5,798	)	$	(4,799	)
Other comprehensive income before reclassifications		1,588			-			1,588
Amounts reclassified from AOCL		(72	)		-			(72	)
Net current period other comprehensive income		1,516			-			1,516
Balances at end of period	$	2,515		$	(5,798	)	$	(3,283	)
2015
Balances at beginning of period	$	1,596		$	(5,798	)	$	(4,202	)
Other comprehensive income (loss) before reclassifications		(1,188	)		-			(1,188	)
Amounts reclassified from AOCL		-			-			-
Net current period other comprehensive income (loss)		(1,188	)		-			(1,188	)
Balances at end of period	$	408		$	(5,798	)	$	(5,390	)
For the six months ended June 30,
2016
Balances at beginning of period	$	(238	)	$	(5,798	)	$	(6,036	)
Other comprehensive income before reclassifications		2,937			-			2,937
Amounts reclassified from AOCL		(184	)		-			(184	)
Net current period other comprehensive income		2,753			-			2,753
Balances at end of period	$	2,515		$	(5,798	)	$	(3,283	)
2015
Balances at beginning of period	$	162		$	(5,798	)	$	(5,636	)
Other comprehensive income before reclassifications		295			-			295
Amounts reclassified from AOCL		(49	)		-			(49	)
Net current period other comprehensive income		246			-			246
Balances at end of period	$	408		$	(5,798	)	$	(5,390	)

The disproportionate tax effects from securities available for sale arose due to tax effects of other comprehensive income (“OCI”) in the presence of a valuation allowance against our deferred tax assets and a pretax loss from operations.  Generally, the amount of income tax expense or benefit allocated to operations is determined without regard to the tax effects of other categories of income or loss, such as OCI. However, an exception to the general rule is provided when, in the presence of a valuation allowance against deferred tax assets, there is a pretax loss from operations and pretax income from other categories in the current period.  In such instances, income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in operations.

A summary of reclassifications out of each component of AOCL for the three months ended June 30 follows:

AOCL Component	Amount Reclassified From AOCL		Affected Line Item in Condensed Consolidated Statements of Operations
	(In thousands)
2016
Unrealized gains on securities available for sale
	$	109	Net gains on securities
		-	Net impairment loss recognized in earnings
		109	Total reclassifications before tax
		37	Income tax expense
	$	72	Reclassifications, net of tax
2015
Unrealized gains on securities available for sale
	$	-	Net gains on securities
		-	Net impairment loss recognized in earnings
		-	Total reclassifications before tax
		-	Income tax expense
	$	-	Reclassifications, net of tax

A summary of reclassifications out of each component of AOCL for the six months ended June 30 follows:

AOCL Component	Amount Reclassified From AOCL		Affected Line Item in Condensed Consolidated Statements of Operations
	(In thousands)
2016
Unrealized gains on securities available for sale
	$	283	Net gains on securities
		-	Net impairment loss recognized in earnings
		283	Total reclassifications before tax
		99	Income tax expense
	$	184	Reclassifications, net of tax
2015
Unrealized gains on securities available for sale
	$	75	Net gains on securities
		-	Net impairment loss recognized in earnings
		75	Total reclassifications before tax
		26	Income tax expense
	$	49	Reclassifications, net of tax

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New Accounting Standards (Policies)

6 Months Ended

Jun. 30, 2016

New Accounting Standards [Abstract]

New Accounting Standards

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12, “Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”.  This ASU amends existing guidance related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. These amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This amended guidance became effective for us on January 1, 2016, and did not have a material impact on our consolidated operating results or financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes and replaces nearly all existing revenuerecognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis fordeciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improvesdisclosures about revenue. In addition, this ASU specifies the accounting for some costs to obtain or fulfill a contract with a customer.  This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”.  This ASU amends existing guidance related to the accounting for certain financial assets and liabilities. These amendments, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”.  This ASU amends existing guidance related to the accounting for leases. These amendments, among other things, requires lessees to account for most leases on the balance sheet while recognizing expense on the income statement in a manner similar to existing guidance.  For lessors the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases. This amended guidance is effective for us on January 1, 2019, and is not expected to have a material impact on our consolidated operating results or financial condition.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (718) Improvements to Employee Share-Based Payment Accounting”.  This ASU amends existing guidance in an effort to simplify certain aspects of accounting for share-based payments. The areas for simplification in this ASU include income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  This amended guidance is effective for us on January 1, 2017, with early adoption permitted.  We adopted this amended guidance during the second quarter of 2016 using a modified retrospective approach.  The impact of this adoption was to adjust our January 1, 2016 Condensed Consolidated Statement of Financial Position to reflect cumulative effect adjustments as follows:

	January 1, 2016 Originally Presented			Cumulative Retrospective Adjustments		January 1, 2016 Adjusted
	(Dollars in thousands)
Deferred tax assets	$	39,635		$	1,247	$	40,882
Total assets	$	2,409,066		$	1,247	$	2,410,313
Common stock	$	339,462		$	62	$	339,524
Accumulated deficit	$	(82,334	)	$	1,185	$	(81,149	)
Total Shareholders’ Equity	$	251,092		$	1,247	$	252,339
Total Liabilities and Shareholders’ Equity	$	2,409,066		$	1,247	$	2,410,313

The adjustments above reflect the recording of $1.23 million of unrealized excess benefits on share based compensation and $0.06 million (impact to equity of $0.02 million after consideration of deferred taxes)  for the impact of making an accounting policy election to account for forfeitures as they occur.  After January 1, 2016, excess tax benefits or deficiencies resulting from share-based payments will be recognized as tax benefit or expense when they occur. A tax benefit of $0.3 million was recorded during the three months ended June 30, 2016 as a result of share awards vesting during the period.  In addition, we have elected to apply the  amendments related to the presentation of excess tax benefits in the statement of cash flows on a prospective basis.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”.  This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income.  This ASU will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, allowances will be recorded rather than reducing the carrying amount as is done under the current other-than-temporary impairment model. This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. This amended guidance is effective for us on January 1, 2020.  We have not yet determined what the impact will be on our consolidated operating results or financial condition.

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New Accounting Standards (Tables)

6 Months Ended

Jun. 30, 2016

New Accounting Standards [Abstract]

Condensed consolidated statement of financial position to reflect cumulative effect of adjustments

Condensed Consolidated Statement of Financial Position to reflect cumulative effect adjustments as follows:

	January 1, 2016 Originally Presented			Cumulative Retrospective Adjustments		January 1, 2016 Adjusted
	(Dollars in thousands)
Deferred tax assets	$	39,635		$	1,247	$	40,882
Total assets	$	2,409,066		$	1,247	$	2,410,313
Common stock	$	339,462		$	62	$	339,524
Accumulated deficit	$	(82,334	)	$	1,185	$	(81,149	)
Total Shareholders’ Equity	$	251,092		$	1,247	$	252,339
Total Liabilities and Shareholders’ Equity	$	2,409,066		$	1,247	$	2,410,313

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Securities (Tables)

6 Months Ended

Jun. 30, 2016

Securities [Abstract]

Securities available for sale

Securities available for sale consist of the following:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
June 30, 2016
U.S. agency	$	31,165	$	552	$	38	$	31,679
U.S. agency residential mortgage-backed		180,415		1,783		135		182,063
U.S. agency commercial mortgage-backed		7,832		167		3		7,996
Private label mortgage-backed		26,202		343		299		26,246
Other asset backed		139,895		298		347		139,846
Obligations of states and political subdivisions		156,663		2,311		633		158,341
Corporate		49,150		521		144		49,527
Trust preferred		2,920		-		523		2,397
Foreign government		1,644		16		0		1,660
Total	$	595,886	$	5,991	$	2,122	$	599,755
December 31, 2015
U.S. agency	$	47,283	$	309	$	80	$	47,512
U.S. agency residential mortgage-backed		195,055		1,584		583		196,056
U.S. agency commercial mortgage-backed		34,017		94		83		34,028
Private label mortgage-backed		5,061		161		319		4,903
Other asset backed		117,431		54		581		116,904
Obligations of states and political subdivisions		145,193		941		1,150		144,984
Corporate		38,895		9		290		38,614
Trust preferred		2,916		-		433		2,483
Total	$	585,851	$	3,152	$	3,519	$	585,484

Investments in a continuous unrealized loss position

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position follows:

	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
June 30, 2016
U.S. agency	$	3,432	$	7	$	6,168	$	31	$	9,600	$	38
U.S. agency residential mortgage-backed		23,927		53		13,743		82		37,670		135
U.S. agency commercial mortgage-backed		548		2		199		1		747		3
Private label mortgage- backed		2,566		8		1,521		291		4,087		299
Other asset backed		42,783		161		12,079		186		54,862		347
Obligations of states and political subdivisions		12,316		227		10,176		406		22,492		633
Corporate		4,033		19		3,878		125		7,911		144
Trust preferred		-		-		2,397		523		2,397		523
Total	$	89,605	$	477	$	50,161	$	1,645	$	139,766	$	2,122
December 31, 2015
U.S. agency	$	12,164	$	47	$	6,746	$	33	$	18,910	$	80
U.S. agency residential mortgage-backed		57,538		316		23,340		267		80,878		583
U.S. agency commercial mortgage-backed		16,747		60		2,247		23		18,994		83
Private label mortgage- backed		-		-		3,393		319		3,393		319
Other asset backed		102,660		434		5,189		147		107,849		581
Obligations of states and political subdivisions		52,493		597		12,240		553		64,733		1,150
Corporate		30,550		290		-		-		30,550		290
Trust preferred		-		-		2,483		433		2,483		433
Total	$	272,152	$	1,744	$	55,638	$	1,775	$	327,790	$	3,519

Trust preferred securities

The following table breaks out our trust preferred securities in further detail as of June 30, 2016 and December 31, 2015:

	June 30, 2016					December 31, 2015
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,650	$	(270	)	$	1,690	$	(226	)
Unrated issues		747		(253	)		793		(207	)

Private label mortgage backed securities below investment grade

At June 30, 2016, three private label mortgage-backed securities had credit related OTTI and are summarized as follows:

	Senior Security		Super Senior Security		Senior Support Security		Total
	(In thousands)
As of June 30, 2016
Fair value	$	1,469	$	1,194	$	76	$	2,739
Amortized cost		1,396		1,129		-		2,525
Non-credit unrealized loss		-		-		-		-
Unrealized gain		73		65		76		214
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Condensed
Consolidated Statements of Operations
For the three months ended June 30,
2016	$	-	$	-	$	-	$	-
2015		-		-		-		-
For the six months ended June 30,
2016		-		-		-		-
2015		-		-		-		-

Credit losses recognized in earnings on securities available for sale

A roll forward of credit losses recognized in earnings on securities available for sale for the three and six month periods ending June 30, follows:

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
	(In thousands)				(In thousands)
Balance at beginning of period	$	1,844	$	1,844	$	1,844	$	1,844
Additions to credit losses on securities for which no previous OTTI was recognized		-		-		-		-
Increases to credit losses on securities for which OTTI was previously recognized		-		-		-		-
Balance at end of period	$	1,844	$	1,844	$	1,844	$	1,844

Amortized cost and fair value of securities available for sale by contractual maturity

The amortized cost and fair value of securities available for sale at June 30, 2016, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	27,502	$	27,533
Maturing after one year but within five years		79,845		80,614
Maturing after five years but within ten years		66,708		67,656
Maturing after ten years		67,487		67,801
		241,542		243,604
U.S. agency residential mortgage-backed		180,415		182,063
U.S. agency commercial mortgage-backed		7,832		7,996
Private label residential mortgage-backed		26,202		26,246
Other asset backed		139,895		139,846
Total	$	595,886	$	599,755

Gains and losses realized on sale of securities available for sale

A summary of proceeds from the sale of securities available for sale and gains and losses for the six month periods ending June 30, follows:

	Proceeds		Realized Gains		Losses
	(In thousands)
2016	$	55,362	$	336	$	53
2015		11,786		75		-

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Loans (Tables)

6 Months Ended

Jun. 30, 2016

Loans [Abstract]

Analysis of allowance for loan losses by portfolio segment

An analysis of the allowance for loan losses by portfolio segment for the three months ended June 30, follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2016
Balance at beginning of period	$	5,622		$	10,296		$	1,161		$	53		$	5,363		$	22,495
Additions (deductions)
Provision for loan losses		(663	)		(359	)		126			(1	)		163			(734	)
Recoveries credited to allowance		1,114			294			351			-			-			1,759
Loans charged against the allowance		(34	)		(275	)		(499	)		-			-			(808	)
Balance at end of period	$	6,039		$	9,956		$	1,139		$	52		$	5,526		$	22,712
2015
Balance at beginning of period	$	5,916		$	12,081		$	1,564		$	62		$	5,056		$	24,679
Additions (deductions)
Provision for loan losses		177			(101	)		(45	)		3			(168	)		(134	)
Recoveries credited to allowance		652			319			284			-			-			1,255
Loans charged against the allowance		(38	)		(834	)		(342	)		-			-			(1,214	)
Balance at end of period	$	6,707		$	11,465		$	1,461		$	65		$	4,888		$	24,586

An analysis of the allowance for loan losses by portfolio segment for the six months ended June 30, follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2016
Balance at beginning of period	$	5,670		$	10,391		$	1,181		$	56		$	5,272		$	22,570
Additions (deductions)
Provision for loan losses		(1,067	)		(638	)		191			(4	)		254			(1,264	)
Recoveries credited to allowance		1,470			676			572			-			-			2,718
Loans charged against the allowance		(34	)		(473	)		(805	)		-			-			(1,312	)
Balance at end of period	$	6,039		$	9,956		$	1,139		$	52		$	5,526		$	22,712
2015
Balance at beginning of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
Additions (deductions)
Provision for loan losses		505			(834	)		(130	)		1			(335	)		(793	)
Recoveries credited to allowance		1,085			557			603			-			-			2,245
Loans charged against the allowance		(328	)		(1,702	)		(826	)		-			-			(2,856	)
Balance at end of period	$	6,707		$	11,465		$	1,461		$	65		$	4,888		$	24,586

Allowance for loan losses and recorded investment in loans by portfolio segment

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

	Commercial		Mortgage		Installment		Payment Plan Receivables		Subjective Allocation		Total
	(In thousands)
June 30, 2016
Allowance for loan losses
Individually evaluated for impairment	$	3,271	$	7,262	$	408	$	-	$	-	$	10,941
Collectively evaluated for impairment		2,768		2,694		731		52		5,526		11,771
Total ending allowance balance	$	6,039	$	9,956	$	1,139	$	52	$	5,526	$	22,712
Loans
Individually evaluated for impairment	$	17,802	$	63,430	$	5,427	$	-			$	86,659
Collectively evaluated for impairment		775,794		444,865		247,973		31,389				1,500,021
Total loans recorded investment		793,596		508,295		253,400		31,389				1,586,680
Accrued interest included in recorded investment		1,596		2,274		688		-				4,558
Total loans	$	792,000	$	506,021	$	252,712	$	31,389			$	1,582,122
December 31, 2015
Allowance for loan losses
Individually evaluated for impairment	$	2,708	$	7,818	$	457	$	-	$	-	$	10,983
Collectively evaluated for impairment		2,962		2,573		724		56		5,272		11,587
Total ending allowance balance	$	5,670	$	10,391	$	1,181	$	56	$	5,272	$	22,570
Loans
Individually evaluated for impairment	$	16,868	$	66,375	$	5,888	$	-			$	89,131
Collectively evaluated for impairment		733,399		436,349		226,409		34,599				1,430,756
Total loans recorded investment		750,267		502,724		232,297		34,599				1,519,887
Accrued interest included in recorded investment		1,869		2,270		698		-				4,837
Total loans	$	748,398	$	500,454	$	231,599	$	34,599			$	1,515,050

Loans on non-accrual status and past due more than 90 days

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) follow:

	90+ and Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
June 30, 2016
Commercial
Income producing - real estate	$	-	$	950	$	950
Land, land development and construction - real estate		-		133		133
Commercial and industrial		95		2,533		2,628
Mortgage
1-4 family		-		5,013		5,013
Resort lending		-		803		803
Home equity - 1st lien		-		180		180
Home equity - 2nd lien		-		262		262
Purchased loans		-		6		6
Installment
Home equity - 1st lien		-		181		181
Home equity - 2nd lien		-		327		327
Loans not secured by real estate		-		382		382
Other		-		15		15
Payment plan receivables
Full refund		-		2		2
Partial refund		-		13		13
Other		-		3		3
Total recorded investment	$	95	$	10,803	$	10,898
Accrued interest included in recorded investment	$	1	$	-	$	1
December 31, 2015
Commercial
Income producing - real estate	$	-	$	1,027	$	1,027
Land, land development and construction - real estate		49		401		450
Commercial and industrial		69		2,028		2,097
Mortgage
1-4 family		-		4,744		4,744
Resort lending		-		1,094		1,094
Home equity - 1st lien		-		187		187
Home equity - 2nd lien		-		147		147
Purchased loans		-		2		2
Installment
Home equity - 1st lien		-		106		106
Home equity - 2nd lien		-		443		443
Loans not secured by real estate		-		421		421
Other		-		2		2
Payment plan receivables
Full refund		-		2		2
Partial refund		-		2		2
Other		-		1		1
Total recorded investment	$	118	$	10,607	$	10,725
Accrued interest included in recorded investment	$	2	$	-	$	2

Aging analysis of loans by class

An aging analysis of loans by class follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
June 30, 2016
Commercial
Income producing - real estate	$	30	$	176	$	774	$	980	$	306,698	$	307,678
Land, land development and construction - real estate		9		114		133		256		48,189		48,445
Commercial and industrial		205		194		516		915		436,558		437,473
Mortgage
1-4 family		2,142		687		5,013		7,842		281,979		289,821
Resort lending		328		78		803		1,209		107,824		109,033
Home equity - 1st lien		228		35		180		443		26,988		27,431
Home equity - 2nd lien		494		152		262		908		51,461		52,369
Purchased loans		5		1		6		12		29,629		29,641
Installment
Home equity - 1st lien		268		37		181		486		14,430		14,916
Home equity - 2nd lien		210		121		327		658		16,612		17,270
Loans not secured by real estate		239		128		382		749		218,181		218,930
Other		13		-		15		28		2,256		2,284
Payment plan receivables
Full refund		377		137		2		516		12,683		13,199
Partial refund		397		116		13		526		10,572		11,098
Other		230		68		3		301		6,791		7,092
Total recorded investment	$	5,175	$	2,044	$	8,610	$	15,829	$	1,570,851	$	1,586,680
Accrued interest included in recorded investment	$	44	$	22	$	1	$	67	$	4,491	$	4,558
December 31, 2015
Commercial
Income producing - real estate	$	203	$	209	$	647	$	1,059	$	305,155	$	306,214
Land, land development and construction - real estate		-		-		252		252		44,231		44,483
Commercial and industrial		785		16		151		952		398,618		399,570
Mortgage
1-4 family		1,943		640		4,744		7,327		272,298		279,625
Resort lending		307		-		1,094		1,401		114,619		116,020
Home equity - 1st lien		50		-		187		237		22,327		22,564
Home equity - 2nd lien		439		54		147		640		50,618		51,258
Purchased loans		9		1		2		12		33,245		33,257
Installment
Home equity - 1st lien		315		107		106		528		16,707		17,235
Home equity - 2nd lien		231		149		443		823		19,727		20,550
Loans not secured by real estate		567		83		421		1,071		191,262		192,333
Other		15		3		2		20		2,159		2,179
Payment plan receivables
Full refund		492		62		2		556		21,294		21,850
Partial refund		415		228		2		645		5,834		6,479
Other		110		3		1		114		6,156		6,270
Total recorded investment	$	5,881	$	1,555	$	8,201	$	15,637	$	1,504,250	$	1,519,887
Accrued interest included in recorded investment	$	53	$	17	$	2	$	72	$	4,765	$	4,837

Impaired loans

Impaired loans are as follows :

	June 30, 2016		December 31, 2015
Impaired loans with no allocated allowance	(In thousands)
TDR	$	173	$	2,518
Non - TDR		542		203
Impaired loans with an allocated allowance
TDR - allowance based on collateral		5,036		4,810
TDR - allowance based on present value cash flow		80,205		81,002
Non - TDR - allowance based on collateral		398		260
Non - TDR - allowance based on present value cash flow		-		-
Total impaired loans	$	86,354	$	88,793
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,127	$	2,436
TDR - allowance based on present value cash flow		8,603		8,471
Non - TDR - allowance based on collateral		211		76
Non - TDR - allowance based on present value cash flow		-		-
Total amount of allowance for loan losses allocated	$	10,941	$	10,983

Impaired loans by class  are as follows (1):

	June 30, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	560	$	806	$	-	$	641	$	851	$	-
Land, land development & construction-real estate		133		709		-		818		1,393		-
Commercial and industrial		-		-		-		1,245		1,241		-
Mortgage
1-4 family		22		348		-		23		183		-
Resort lending		-		-		-		-		-		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		43		-		-		76		-
Home equity - 2nd lien		-		-		-		-		-		-
Loans not secured by real estate		-		-		-		-		-		-
Other		-		-		-		-		-		-
		715		1,906		-		2,727		3,744		-
With an allowance recorded:
Commercial
Income producing - real estate		8,186		8,935		663		8,377		9,232		516
Land, land development & construction-real estate		1,844		1,843		158		1,690		1,778		296
Commercial and industrial		7,079		7,359		2,450		4,097		4,439		1,896
Mortgage
1-4 family		45,474		47,259		4,700		47,792		49,808		5,132
Resort lending		17,449		17,484		2,529		18,148		18,319		2,662
Home equity - 1st lien		243		246		11		168		172		9
Home equity - 2nd lien		242		324		22		244		325		15
Installment
Home equity - 1st lien		2,172		2,315		130		2,364		2,492		143
Home equity - 2nd lien		2,709		2,725		245		2,929		2,951		271
Loans not secured by real estate		541		575		33		587		658		42
Other		5		5		-		8		8		1
		85,944		89,070		10,941		86,404		90,182		10,983
Total
Commercial
Income producing - real estate		8,746		9,741		663		9,018		10,083		516
Land, land development & construction-real estate		1,977		2,552		158		2,508		3,171		296
Commercial and industrial		7,079		7,359		2,450		5,342		5,680		1,896
Mortgage
1-4 family		45,496		47,607		4,700		47,815		49,991		5,132
Resort lending		17,449		17,484		2,529		18,148		18,319		2,662
Home equity - 1st lien		243		246		11		168		172		9
Home equity - 2nd lien		242		324		22		244		325		15
Installment
Home equity - 1st lien		2,172		2,358		130		2,364		2,568		143
Home equity - 2nd lien		2,709		2,725		245		2,929		2,951		271
Loans not secured by real estate		541		575		33		587		658		42
Other		5		5		-		8		8		1
Total	$	86,659	$	90,976	$	10,941	$	89,131	$	93,926	$	10,983
Accrued interest included in recorded investment	$	305					$	338

(1) There were no impaired payment plan receivables or purchased mortgage loans at June 30, 2016 or December 31, 2015.

Average recorded investment in and interest income earned on impaired loans by class

Average recorded investment in and interest income earned on impaired loans by class for the three month periods ending June 30, follows (1):

	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	673	$	-	$	5,658	$	50
Land, land development & construction-real estate		335		-		1,021		15
Commercial and industrial		609		-		2,855		37
Mortgage
1-4 family		11		5		25		2
Resort lending		-		-		7		-
Home equity - 1st lien		-		-		-		-
Home equity - 2nd lien		-		-		-		-
Installment
Home equity - 1st lien		1		-		-		1
Home equity - 2nd lien		7		-		-		-
Loans not secured by real estate		-		-		-		-
Other		-		-		-		-
		1,636		5		9,566		105
With an allowance recorded:
Commercial
Income producing - real estate		8,210		100		12,878		163
Land, land development & construction-real estate		1,664		13		1,943		13
Commercial and industrial		6,203		59		7,863		67
Mortgage
1-4 family		46,041		475		50,931		539
Resort lending		17,689		159		18,482		173
Home equity - 1st lien		243		2		160		2
Home equity - 2nd lien		181		4		185		4
Installment
Home equity - 1st lien		2,230		42		2,576		44
Home equity - 2nd lien		2,751		41		3,101		49
Loans not secured by real estate		555		10		668		9
Other		6		-		11		1
		85,773		905		98,798		1,064
Total
Commercial
Income producing - real estate		8,883		100		18,536		213
Land, land development & construction-real estate		1,999		13		2,964		28
Commercial and industrial		6,812		59		10,718		104
Mortgage
1-4 family		46,052		480		50,956		541
Resort lending		17,689		159		18,489		173
Home equity - 1st lien		243		2		160		2
Home equity - 2nd lien		181		4		185		4
Installment
Home equity - 1st lien		2,231		42		2,576		45
Home equity - 2nd lien		2,758		41		3,101		49
Loans not secured by real estate		555		10		668		9
Other		6		-		11		1
Total	$	87,409	$	910	$	108,364	$	1,169

(1) There were no impaired payment plan receivables or purchased mortgage loans during the three month periods ended June 30, 2016 and 2015, respectively.

Average recorded investment in and interest income earned on impaired loans by class for the six month periods ending June 30, follows (1):

	2016				2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	662	$	2	$	5,728	$	103
Land, land development & construction-real estate		496		7		1,031		49
Commercial and industrial		821		21		2,798		74
Mortgage
1-4 family		15		6		17		2
Resort lending		-		-		20		-
Home equity line of credit - 1st lien		-		-		-		-
Home equity line of credit - 2nd lien		-		-		-		-
Installment
Home equity installment - 1st lien		-		1		-		1
Home equity installment - 2nd lien		5		-		-		-
Loans not secured by real estate		-		-		-		-
Other		-		-		-		-
		1,999		37		9,594		229
With an allowance recorded:
Commercial
Income producing - real estate		8,266		207		12,864		320
Land, land development & construction-real estate		1,673		26		2,447		27
Commercial and industrial		5,501		82		7,992		133
Mortgage
1-4 family		46,625		977		51,689		1,090
Resort lending		17,842		319		18,587		344
Home equity line of credit - 1st lien		218		4		160		4
Home equity line of credit - 2nd lien		202		5		165		6
Installment
Home equity installment - 1st lien		2,274		84		2,632		94
Home equity installment - 2nd lien		2,810		85		3,138		100
Loans not secured by real estate		566		19		682		19
Other		6		-		11		1
		85,983		1,808		100,367		2,138
Total
Commercial
Income producing - real estate		8,928		209		18,592		423
Land, land development & construction-real estate		2,169		33		3,478		76
Commercial and industrial		6,322		103		10,790		207
Mortgage
1-4 family		46,640		983		51,706		1,092
Resort lending		17,842		319		18,607		344
Home equity line of credit - 1st lien		218		4		160		4
Home equity line of credit - 2nd lien		202		5		165		6
Installment
Home equity installment - 1st lien		2,274		85		2,632		95
Home equity installment - 2nd lien		2,815		85		3,138		100
Loans not secured by real estate		566		19		682		19
Other		6		-		11		1
Total	$	87,982	$	1,845	$	109,961	$	2,367

(1) There were no impaired payment plan receivables or purchased mortgage loans during the six month periods ended June 30, 2016 and 2015, respectively.

Troubled debt restructurings

Troubled debt restructurings follow:

	June 30, 2016
	Commercial			Retail			Total
	(In thousands)
Performing TDRs		$	14,130	$	64,818		$	78,948
Non-performing TDRs(1)			2,678		3,788	(2)		6,466
Total		$	16,808	$	68,606		$	85,414

	December 31, 2015
	Commercial			Retail			Total
	(In thousands)
Performing TDRs		$	13,318	$	68,194		$	81,512
Non-performing TDRs(1)			3,041		3,777	(2)		6,818
Total		$	16,359	$	71,971		$	88,330

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

Troubled debt restructuring during the period

Loans that have been classified as troubled debt restructurings during the three-month periods endedJune 30 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-	$	-
Land, land development & construction-real estate		-		-		-
Commercial and industrial		-		-		-
Mortgage
1-4 family		1		109		110
Resort lending		-		-		-
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		3		29		29
Home equity - 2nd lien		2		71		73
Loans not secured by real estate		1		12		12
Other		-		-		-
Total		7	$	221	$	224
2015
Commercial
Income producing - real estate		1	$	73	$	73
Land, land development & construction-real estate		-		-		-
Commercial and industrial		1		17		17
Mortgage
1-4 family		1		25		40
Resort lending		1		313		309
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		1		23		24
Home equity - 2nd lien		3		58		58
Loans not secured by real estate		1		-		6
Other		-		-		-
Total		9	$	509	$	527

Loans that have been classified as troubled debt restructurings during the six-month periods endedJune 30 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		2	$	110	$	110
Land, land development & construction-real estate		-		-		-
Commercial and industrial		4		1,758		1,758
Mortgage
1-4 family		3		192		263
Resort lending		1		116		117
Home equity - 1st lien		1		107		78
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		4		59		60
Home equity - 2nd lien		4		126		129
Loans not secured by real estate		1		12		12
Other		-		-		-
Total		20	$	2,480	$	2,527
2015
Commercial
Income producing - real estate		2	$	229	$	234
Land, land development & construction-real estate		-		-		-
Commercial and industrial		3		253		247
Mortgage
1-4 family		6		1,030		845
Resort lending		1		313		309
Home equity - 1st lien		-		-		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		5		190		164
Home equity - 2nd lien		3		58		58
Loans not secured by real estate		1		-		6
Other		-		-		-
Total		21	$	2,073	$	1,863

Troubled debt restructuring during the past twelve months that subsequently defaulted

Loans that have been classified as troubled debt restructurings during the past twelve months and thathave subsequently defaulted during the three-month periods ended June 30 follow:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		-	$	-
2015
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		1		65
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		1		4
Other		-		-
		2	$	69

Loans that have been classified as troubled debt restructurings during the past twelve months and thathave subsequently defaulted during the six-month periods ended June 30 follow:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2016
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		-		-
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
		-	$	-
2015
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		2		157
Mortgage
1-4 family		-		-
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		1		4
Other		-		-
		3	$	161

Summary of loan ratings by loan class

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
		Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11	Total
					(In thousands)
June 30, 2016
Income producing - real estate	$	300,344	$	5,334	$	1,050	$	950	$	307,678
Land, land development and construction - real estate		46,529		1,669		114		133		48,445
Commercial and industrial		416,102		12,516		6,322		2,533		437,473
Total	$	762,975	$	19,519	$	7,486	$	3,616	$	793,596
Accrued interest included in total	$	1,509	$	62	$	25	$	-	$	1,596
December 31, 2015
Income producing - real estate	$	296,898	$	6,866	$	1,423	$	1,027	$	306,214
Land, land development and construction - real estate		40,844		2,995		243		401		44,483
Commercial and industrial		371,357		19,502		6,683		2,028		399,570
Total	$	709,099	$	29,363	$	8,349	$	3,456	$	750,267
Accrued interest included in total	$	1,729	$	108	$	32	$	-	$	1,869

The following tables summarize credit scores by loan class for our mortgage and installment loan segments:

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		Total
	(In thousands)
June 30, 2016
800 and above	$	31,459	$	12,187	$	6,000	$	8,476	$	2,287	$	60,409
750-799		83,455		39,058		9,279		18,317		19,259		169,368
700-749		59,358		31,410		4,840		10,455		7,601		113,664
650-699		52,187		13,815		3,646		8,249		-		77,897
600-649		28,791		6,525		1,347		3,375		-		40,038
550-599		15,745		2,485		743		1,573		-		20,546
500-549		8,594		882		581		1,280		-		11,337
Under 500		5,332		600		172		305		-		6,409
Unknown		4,900		2,071		823		339		494		8,627
Total	$	289,821	$	109,033	$	27,431	$	52,369	$	29,641	$	508,295
Accrued interest included in total	$	1,383	$	479	$	104	$	210	$	98	$	2,274
December 31, 2015
800 and above	$	28,760	$	13,943	$	4,374	$	7,696	$	2,310	$	57,083
750-799		78,802		40,888		7,137		17,405		23,283		167,515
700-749		56,519		31,980		4,341		11,022		6,940		110,802
650-699		51,813		17,433		3,203		7,691		-		80,140
600-649		27,966		4,991		1,467		3,684		-		38,108
550-599		16,714		3,070		1,027		1,918		-		22,729
500-549		10,610		1,051		572		1,295		-		13,528
Under 500		4,708		554		244		265		-		5,771
Unknown		3,733		2,110		199		282		724		7,048
Total	$	279,625	$	116,020	$	22,564	$	51,258	$	33,257	$	502,724
Accrued interest included in total	$	1,396	$	477	$	87	$	196	$	114	$	2,270

(1) Credit scores have been updated within the last twelve months.

	Installment(1)
	Home Equity 1st Lien		Home Equity 2nd Lien		Loans not Secured by Real Estate		Other		Total
	(In thousands)
June 30, 2016
800 and above	$	1,518	$	2,133	$	50,680	$	81	$	54,412
750-799		3,337		4,198		101,146		577		109,258
700-749		2,383		3,299		38,660		694		45,036
650-699		2,863		3,503		18,041		477		24,884
600-649		2,356		1,820		4,311		285		8,772
550-599		1,363		1,423		1,855		64		4,705
500-549		922		649		1,212		50		2,833
Under 500		141		240		345		25		751
Unknown		33		5		2,680		31		2,749
Total	$	14,916	$	17,270	$	218,930	$	2,284	$	253,400
Accrued interest included in total	$	57	$	64	$	551	$	16	$	688
December 31, 2015
800 and above	$	1,792	$	1,782	$	44,254	$	58	$	47,886
750-799		4,117		5,931		86,800		531		97,379
700-749		2,507		3,899		34,789		694		41,889
650-699		3,508		4,182		16,456		499		24,645
600-649		2,173		2,153		4,979		200		9,505
550-599		1,800		1,346		1,997		109		5,252
500-549		1,056		855		1,170		61		3,142
Under 500		223		370		385		23		1,001
Unknown		59		32		1,503		4		1,598
Total	$	17,235	$	20,550	$	192,333	$	2,179	$	232,297
Accrued interest included in total	$	78	$	83	$	520	$	17	$	698

(1) Credit scores have been updated within the last twelve months.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable:

	Payment Plan Receivables
	Full Refund		Partial Refund		Other		Total
	(In thousands)
June 30, 2016
AM Best rating
A+	$	-	$	11	$	-	$	11
A		1,358		9,715		-		11,073
A-		1,644		1,333		3,374		6,351
B+		-		-		3,717		3,717
Not rated		10,197		39		1		10,237
Total	$	13,199	$	11,098	$	7,092	$	31,389
December 31, 2015
AM Best rating
A+	$	-	$	6	$	-	$	6
A		2,712		5,203		-		7,915
A-		3,418		1,177		6,265		10,860
Not rated		15,720		93		5		15,818
Total	$	21,850	$	6,479	$	6,270	$	34,599

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Segments (Tables)

6 Months Ended

Jun. 30, 2016

Segments [Abstract]

Summary of selected financial information for reportable segments

A summary of selected financial information for our reportable segments follows:

	IB			Mepco			Other(1)			Elimination(2)			Total
	(In thousands)
Total assets
June 30, 2016	$	2,391,120		$	50,178		$	282,570		$	(271,172	)	$	2,452,696
December 31, 2015		2,340,566			57,208			286,936			(275,644	)		2,409,066
For the three months ended June 30,
2016
Interest income	$	20,216		$	1,052		$	12		$	(13	)	$	21,267
Net interest income		18,989			915			(274	)		0			19,630
Provision for loan losses		(734	)		0			0			0			(734	)
Income (loss) before income tax		9,298			49			(274	)		(24	)		9,049
Net income (loss)		6,550			32			(129	)		(15	)		6,438
2015
Interest income	$	18,701		$	1,430		$	20		$	(20	)	$	20,131
Net interest income		17,717			1,218			(234	)		-			18,701
Provision for loan losses		(138	)		4			-			-			(134	)
Income (loss) before income tax		8,843			(221	)		(356	)		(23	)		8,243
Net income (loss)		5,935			(77	)		(225	)		(14	)		5,619
For the six months ended June 30,
2016
Interest income	$	40,459		$	2,162		$	17		$	(17	)	$	42,621
Net interest income		38,091			1,847			(545	)		-			39,393
Provision for loan losses		(1,260	)		(4	)		-			-			(1,264	)
Income (loss) before income tax		16,160			(310	)		(697	)		(47	)		15,106
Net income (loss)		11,169			(205	)		(396	)		(30	)		10,538
2015
Interest income	$	36,922		$	2,761		$	40		$	(40	)	$	39,683
Net interest income		34,900			2,353			(461	)		-			36,792
Provision for loan losses		(794	)		1			-			-			(793	)
Income (loss) before income tax		15,102			(512	)		(739	)		(47	)		13,804
Net income (loss)		10,168			(269	)		(469	)		(30	)		9,400

(1) Includes amounts relating to our parent company.

(2) Includes parent company’s investment in subsidiaries and cash balances maintained at subsidiary.

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Shareholders' Equity and Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2016

Shareholders' Equity and Earnings Per Common Share [Abstract]

Reconciliation of basic and diluted net income per share

A reconciliation of basic and diluted net income per common share follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(In thousands, except per share amounts)
Net income	$	6,438	$	5,619	$	10,538	$	9,400
Weighted average shares outstanding (1)		21,281		22,889		21,516		22,943
Stock units for deferred compensation plan for non-employee directors		114		111		114		111
Effect of stock options		148		120		150		120
Restricted stock units		55		310		70		310
Performance share units		41		-		37		-
Weighted average shares outstanding for calculation of diluted earnings per share		21,639		23,430		21,887		23,484
Net income per common share
Basic (1)	$	0.30	$	0.25	$	0.49	$	0.41
Diluted	$	0.30	$	0.24	$	0.48	$	0.40

⁽¹⁾ Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2016

Derivative Financial Instruments [Abstract]

Derivative financial instruments according to type of hedge designation

Our derivative financial instruments according to the type of hedge in which they are designated follows:

	June 30, 2016
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	26,831		0.1	$	899
Mandatory commitments to sell mortgage loans		57,034		0.1		(377	)
Pay-fixed interest rate swap agreements		44,396		9.1		(2,205	)
Pay-variable interest rate swap agreements		44,396		9.1		2,205
Purchased options		3,119		5.0		203
Written options		3,119		5.0		(203	)
Total	$	178,895		4.7	$	522

	December 31, 2015
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	20,581		0.1	$	550
Mandatory commitments to sell mortgage loans		46,320		0.1		69
Pay-fixed interest rate swap agreements		27,587		8.0		(497	)
Pay-variable interest rate swap agreements		27,587		8.0		497
Purchased options		2,098		5.7		122
Written options		2,098		5.7		(122	)
Total	$	126,271		3.7	$	619

Fair value of derivative instruments

Fair Values of Derivative Instruments

	Asset Derivatives						Liability Derivatives
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
	Balance Sheet Location	Fair Value		Balance  Sheet  Location	Fair Value		Balance  Sheet  Location	Fair Value		Balance  Sheet  Location	Fair Value
	(In thousands)
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets	$	899	Other assets	$	550	Other liabilities	$	-	Other liabilities	$	-
Mandatory commitments to sell mortgage loans	Other assets		-	Other assets		69	Other liabilities		377	Other liabilities		-
Pay-fixed interest rate swap agreements	Other assets		-	Other assets		-	Other liabilities		2,205	Other liabilities		497
Pay-variable interest rate swap agreements	Other assets		2,205	Other assets		497	Other liabilities		-	Other liabilities		-
Purchased options	Other assets		203	Other assets		122	Other liabilities		-	Other liabilities		-
Written options	Other assets		-	Other assets		-	Other liabilities		203	Other liabilities		122
Total derivatives		$	3,307		$	1,238		$	2,785		$	619

Effect of derivative financial instruments on condensed consolidated statement of operation

The effect of derivative financial instruments on the Condensed Consolidated Statements of Operations follows:

		Gain (Loss) Recognized in Income
	Location of Gain (Loss)	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	Recognized in Income	2016			2015			2016			2015
		(In thousands)
No hedge designation
Rate-lock mortgage loan commitments	Net gains on mortgage loans	$	130		$	(283	)	$	349		$	105
Mandatory  commitments to sell mortgage loans	Net gains on mortgage loans		(240	)		559			(446	)		520
Pay-fixed interest rate  swap agreements	Interest income		(590	)		221			(1,708	)		(40	)
Pay-variable interest rate swap agreements	Interest income		590			(221	)		1,708			40
Purchased options	Interest expense		3			-			81			-
Written options	Interest expense		(3	)		-			(81	)		-
Total		$	(110	)	$	276		$	(97	)	$	625

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2016

Intangible Assets [Abstract]

Other intangible assets, net of amortization

The following table summarizes intangible assets, net of amortization:

	June 30, 2016				December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	4,012	$	6,118	$	3,838

Estimated amortization of other intangible assets

Amortization of other intangibles has been estimated through 2021 and thereafter in the following table.

	(In thousands)
Six months ending December 31, 2016	$	173
2017		346
2018		346
2019		346
2020		346
2021 and thereafter		549
Total	$	2,106

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Share Based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

Share Based Compensation [Abstract]

Summary of outstanding stock option grants and transactions

A summary of outstanding stock option grants and related transactions follows:

	Number of Shares			Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregated Intrinsic Value
								(In thousands)
Outstanding at January 1, 2016		235,596		$	4.94
Granted		-
Exercised		(16,014	)		3.69
Forfeited		(664	)		6.42
Expired		(400	)		4.25
Outstanding at June 30, 2016		218,518		$	5.02		5.54	$	2,109
Vested and expected to vest at June 30, 2016		218,518		$	5.02		5.54	$	2,109
Exercisable at June 30, 2016		218,518		$	5.02		5.54	$	2,109

Summary of non-vested restricted stock, restricted stock units and PSU's

A summary of outstanding non-vested restricted stock, restricted stock units and PSUs and related transactions follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2016		261,981		$	11.29
Granted		96,660			14.39
Vested		(107,795	)		7.92
Forfeited		(4,924	)		13.24
Outstanding at June 30, 2016		245,922		$	13.94

Information regarding options exercised

Certain information regarding options exercised during the periods follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Intrinsic value	$	60	$	187	$	177	$	243
Cash proceeds received	$	27	$	67	$	59	$	82
Tax benefit realized	$	21	$	65	$	62	$	85

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Regulatory Matters (Tables)

6 Months Ended

Jun. 30, 2016

Regulatory Matters [Abstract]

Actual capital amounts and ratios

Our actual capital amounts and ratios follow:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
June 30, 2016
Total capital to risk-weighted assets
Consolidated	$	275,163		15.97	%	$	137,844		8.00	%	NA		NA
Independent Bank		260,344		15.12			137,712		8.00			172,140		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	253,484		14.71	%	$	103,383		6.00	%	NA		NA
Independent Bank		238,734		13.87			103,284		6.00			137,712		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	228,648		13.27	%	$	77,537		4.50	%	NA		NA
Independent Bank		238,734		13.87			77,463		4.50			111,891		6.50	%
Tier 1 capital to average assets
Consolidated	$	253,484		10.47	%	$	96,803		4.00	%	NA		NA
Independent Bank		238,734		9.87			96,737		4.00			120,921		5.00	%
December 31, 2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%

NA - Not applicable

Components of regulatory capital

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
	(In thousands)
Total shareholders’ equity	$	246,923		$	251,092		$	256,850		$	259,947
Add (deduct)
Accumulated other comprehensive (income) loss for regulatory purposes		(2,515	)		238			(2,514	)		238
Intangible assets		(1,264	)		(912	)		(1,264	)		(912	)
Disallowed deferred tax assets		(14,496	)		(11,147	)		(14,338	)		(18,406	)
Common equity tier 1 capital		228,648			239,271			238,734			240,867
Qualifying trust preferred securities		34,500			34,500			-			-
Disallowed deferred tax assets		(9,664	)		(16,721	)		-			-
Tier 1 capital		253,484			257,050			238,734			240,867
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,679			21,120			21,610			21,027
Total risk-based capital	$	275,163		$	278,170		$	260,344		$	261,894

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Fair Value Disclosures (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value

Assets and liabilities measured at fair value, including financial assets for which we have elected the fair value option, were as follows:

			Fair Value Measurements Using
	Fair Value Measure- ments		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
June 30, 2016:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	212	$	212	$	-	$	-
Securities available for sale
U.S. agency		31,679		-		31,679		-
U.S. agency residential mortgage-backed		182,063		-		182,063		-
U.S. agency commercial mortgage-backed		7,996		-		7,996		-
Private label mortgage-backed		26,246		-		26,246		-
Other asset backed		139,846		-		139,846		-
Obligations of states and political subdivisions		158,341		-		158,341		-
Corporate		49,527		-		49,527		-
Trust preferred		2,397		-		2,397		-
Foreign government		1,660		-		1,660		-
Loans held for sale		31,713		-		31,713		-
Derivatives (1)		3,307		-		3,307		-
Liabilities
Derivatives (2)		2,785		-		2,785		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		10,007		-		-		10,007
Impaired loans (4)
Commercial
Income producing - real estate		649		-		-		649
Land, land development & construction-real estate		158		-		-		158
Commercial and industrial		1,638		-		-		1,638
Mortgage
1-4 Family		651		-		-		651
Other real estate (5)
Commercial
Land, land development & construction-real estate		176		-		-		176
Mortgage
1-4 Family		48		-		-		48
Resort lending		92		-		-		92

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

			Fair Value Measurements Using
	Fair Value Measure- ments		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
December 31, 2015:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	148	$	148	$	-	$	-
Securities available for sale
U.S. agency		47,512		-		47,512		-
U.S. agency residential mortgage-backed		196,056		-		196,056		-
U.S. agency commercial mortgage-backed		34,028		-		34,028		-
Private label mortgage-backed		4,903		-		4,903		-
Other asset backed		116,904		-		116,904		-
Obligations of states and political subdivisions		144,984		-		144,984		-
Corporate		38,614		-		38,614		-
Trust preferred		2,483		-		2,483		-
Loans held for sale		27,866		-		27,866		-
Derivatives (1)		1,238		-		1,238		-
Liabilities
Derivatives (2)		619		-		619		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		8,481		-		-		8,481
Impaired loans (4)
Commercial
Income producing - real estate		711		-		-		711
Land, land development & construction-real estate		40		-		-		40
Commercial and industrial		1,257		-		-		1,257
Mortgage
1-4 Family		421		-		-		421
Resort lending		129		-		-		129
Other real estate (5)
Commercial
Land, land development & construction-real estate		639		-		-		639
Commercial and industrial		165		-		-		165
Mortgage
1-4 Family		26		-		-		26
Resort lending		107		-		-		107
Home equity - 1st lien		14		-		-		14
Installment
Home equity - 1st lien		36		-		-		36

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

Changes in fair value for financial assets

Changes in fair values for financial assets which we have elected the fair value option for the periods presented were as follows:

		Changes in Fair Values for the Six-Month Periods Ended June 30 for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
		2016						2015
		Net Gains (Losses) on Assets				Total Change in Fair Values Included in Current Period		Net Gains (Losses) on Assets						Total Change in Fair Values Included in Current Period
		Securities		Loans		Earnings		Securities			Loans			Earnings
	(In thousands)
Trading securities		$	64	$	-	$	64	$	(23	)	$	-		$	(23	)
Loans held for sale			-		478		478		-			(121	)		(121	)

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis follows:

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
June 30, 2016
Capitalized mortgage loan servicing rights	$	10,007	Present value of net servicing revenue	Discount rate		10.05	%
				Cost to service	$	80
				Ancillary income		24
				Float rate		0.98	%
Impaired loans
Commercial (1)		2,240	Sales comparison approach	Adjustment for differences between comparable sales		(1.5	)%
Mortgage		651	Sales comparison approach	Adjustment for differences between comparable sales		4.2
Other real estate
Commercial		176	Sales comparison approach	Adjustment for differences between comparable sales		(22.5	)
Mortgage and installment		140	Sales comparison approach	Adjustment for differences between comparable sales		73.8
December 31, 2015
Capitalized mortgage loan servicing rights	$	8,481	Present value of net servicing revenue	Discount rate		10.04	%
				Cost to service	$	80
				Ancillary income		24
				Float rate		1.73	%
Impaired loans
Commercial (1)		1,605	Sales comparison approach	Adjustment for differences between comparable sales		(2.1	)%
			Income approach	Capitalization rate		9.3
Mortgage		550	Sales comparison approach	Adjustment for differences between comparable sales		0.7
Other real estate
Commercial		804	Sales comparison approach	Adjustment for differences between comparable sales		(3.9	)
Mortgage and installment		183	Sales comparison approach	Adjustment for differences between comparable sales		75.6

(1) In addition to the valuation techniques and unobservable inputs discussed above, at June 30, 2016 and December 31, 2015, we had an impaired collateral dependent commercial relationship that totaled $0.2 million and $0.4 million, respectively that was primarily secured by collateral other than real estate.  Collateral securing this relationship primarily included machinery and equipment and inventory at June 30, 2016 and December 31, 2015.  Valuation techniques at June 30, 2016 and December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type.  Discount rates used ranged from 0% to 100% of stated values.

Aggregate fair value and aggregate remaining contractual principal balance for loans held for sale

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale for which the fair value option has been elected for the periods presented.

	Aggregate Fair Value		Difference		Contractual Principal
	(In thousands)
Loans held for sale
June 30, 2016	$	31,713	$	1,192	$	30,521
December 31, 2015		27,866		714		27,152

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Fair Values of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2016

Fair Values of Financial Instruments [Abstract]

Estimated recorded book balances and fair values

The estimated recorded book balances and fair values follow:

					Fair Value Using
	Recorded Book Balance		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un- observable Inputs (Level 3)
	(In thousands)
June 30, 2016
Assets
Cash and due from banks	$	34,542	$	34,542	$	34,542	$	-	$	-
Interest bearing deposits		26,488		26,488		26,488		-		-
Interest bearing deposits - time		8,560		8,600		-		8,600		-
Trading securities		212		212		212		-		-
Securities available for sale		599,755		599,755		-		599,755		-
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,229		NA		NA		NA		NA
Net loans and loans held for sale		1,591,123		1,566,760		-		31,713		1,535,047
Accrued interest receivable		6,767		6,767		3		2,178		4,586
Derivative financial instruments		3,307		3,307		-		3,307		-
Liabilities
Deposits with no stated maturity (1)	$	1,687,965	$	1,687,965	$	1,687,965	$	-	$	-
Deposits with stated maturity (1)		440,327		439,916		-		439,916		-
Other borrowings		11,797		13,152		-		13,152		-
Subordinated debentures		35,569		22,445		-		22,445		-
Accrued interest payable		536		536		18		518		-
Derivative financial instruments		2,785		2,785		-		2,785		-
December 31, 2015
Assets
Cash and due from banks	$	54,260	$	54,260	$	54,260	$	-	$	-
Interest bearing deposits		31,523		31,523		31,523		-		-
Interest bearing deposits - time		11,866		11,858		-		11,858		-
Trading securities		148		148		148		-		-
Securities available for sale		585,484		585,484		-		585,484		-
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,471		NA		NA		NA		NA
Net loans and loans held for sale		1,520,346		1,472,613		-		27,866		1,444,747
Accrued interest receivable		6,565		6,565		5		1,969		4,591
Derivative financial instruments		1,238		1,238		-		1,238		-
Liabilities
Deposits with no stated maturity (1)	$	1,659,743	$	1,659,743	$	1,659,743	$	-	$	-
Deposits with stated maturity (1)		426,220		423,776		-		423,776		-
Other borrowings		11,954		13,448		-		13,448		-
Subordinated debentures		35,569		23,069		-		23,069		-
Accrued interest payable		466		466		21		445		-
Derivative financial instruments		619		619		-		619		-

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $12.4 million and $11.8 million at June 30, 2016 and December 31, 2015, respectively.  Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $37.0 million and $38.4 million at June 30, 2016 and December 31, 2015, respectively.

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Accumulated Other Comprehensive Loss ("AOCL") (Tables)

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Loss ("AOCL") [Abstract]

Schedule of accumulated other comprehensive loss (AOCL), net of tax

A summary of changes in AOCL follows:

	Unrealized Gains (Losses) on Securities Available for Sale			Dispropor- tionate Tax Effects from Securities Available for Sale			Total
For the three months ended June 30,
2016
Balances at beginning of period	$	999		$	(5,798	)	$	(4,799	)
Other comprehensive income before reclassifications		1,588			-			1,588
Amounts reclassified from AOCL		(72	)		-			(72	)
Net current period other comprehensive income		1,516			-			1,516
Balances at end of period	$	2,515		$	(5,798	)	$	(3,283	)
2015
Balances at beginning of period	$	1,596		$	(5,798	)	$	(4,202	)
Other comprehensive income (loss) before reclassifications		(1,188	)		-			(1,188	)
Amounts reclassified from AOCL		-			-			-
Net current period other comprehensive income (loss)		(1,188	)		-			(1,188	)
Balances at end of period	$	408		$	(5,798	)	$	(5,390	)
For the six months ended June 30,
2016
Balances at beginning of period	$	(238	)	$	(5,798	)	$	(6,036	)
Other comprehensive income before reclassifications		2,937			-			2,937
Amounts reclassified from AOCL		(184	)		-			(184	)
Net current period other comprehensive income		2,753			-			2,753
Balances at end of period	$	2,515		$	(5,798	)	$	(3,283	)
2015
Balances at beginning of period	$	162		$	(5,798	)	$	(5,636	)
Other comprehensive income before reclassifications		295			-			295
Amounts reclassified from AOCL		(49	)		-			(49	)
Net current period other comprehensive income		246			-			246
Balances at end of period	$	408		$	(5,798	)	$	(5,390	)

Summary of reclassifications out of each component of AOCL

A summary of reclassifications out of each component of AOCL for the three months ended June 30 follows:

AOCL Component	Amount Reclassified From AOCL		Affected Line Item in Condensed Consolidated Statements of Operations
	(In thousands)
2016
Unrealized gains on securities available for sale
	$	109	Net gains on securities
		-	Net impairment loss recognized in earnings
		109	Total reclassifications before tax
		37	Income tax expense
	$	72	Reclassifications, net of tax
2015
Unrealized gains on securities available for sale
	$	-	Net gains on securities
		-	Net impairment loss recognized in earnings
		-	Total reclassifications before tax
		-	Income tax expense
	$	-	Reclassifications, net of tax

A summary of reclassifications out of each component of AOCL for the six months ended June 30 follows:

AOCL Component	Amount Reclassified From AOCL		Affected Line Item in Condensed Consolidated Statements of Operations
	(In thousands)
2016
Unrealized gains on securities available for sale
	$	283	Net gains on securities
		-	Net impairment loss recognized in earnings
		283	Total reclassifications before tax
		99	Income tax expense
	$	184	Reclassifications, net of tax
2015
Unrealized gains on securities available for sale
	$	75	Net gains on securities
		-	Net impairment loss recognized in earnings
		75	Total reclassifications before tax
		26	Income tax expense
	$	49	Reclassifications, net of tax

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New Accounting Standards (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Dec. 31, 2014
Cumulative Effect Adjustments to Condensed Consolidated Statement of Financial Position [Abstract]
Deferred tax assets	$ 35,257	$ 35,257		$ 39,635
Total assets	2,452,696	2,452,696		2,409,066
Common stock	324,268	324,268		339,462
Accumulated deficit	(74,062)	(74,062)		(82,334)
Total Shareholders' Equity	246,923	246,923	$ 254,375	251,092	$ 250,371
Total Liabilities and Shareholders' Equity	2,452,696	2,452,696		2,409,066
Income tax expense (benefit)	(300)		$ (300)
ASU 2016-09 [Member]
Cumulative Effect Adjustments to Condensed Consolidated Statement of Financial Position [Abstract]
Deferred tax assets				40,882
Total assets				2,410,313
Common stock				339,524
Accumulated deficit				(81,149)
Total Shareholders' Equity				252,339
Total Liabilities and Shareholders' Equity				2,410,313
Unrealized excess benefits on share based compensation		1,230
Forfeiture provision		60
Impact to equity after consideration of deferred taxes		$ 20
Income tax expense (benefit)	$ (300)
ASU 2016-09 [Member] | Originally Presented [Member]
Cumulative Effect Adjustments to Condensed Consolidated Statement of Financial Position [Abstract]
Deferred tax assets				39,635
Total assets				2,409,066
Common stock				339,462
Accumulated deficit				(82,334)
Total Shareholders' Equity				251,092
Total Liabilities and Shareholders' Equity				2,409,066
ASU 2016-09 [Member] | Cumulative Retrospective Adjustments [Member]
Cumulative Effect Adjustments to Condensed Consolidated Statement of Financial Position [Abstract]
Deferred tax assets				1,247
Total assets				1,247
Common stock				62
Accumulated deficit				1,185
Total Shareholders' Equity				1,247
Total Liabilities and Shareholders' Equity				$ 1,247

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Securities (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) Security	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) Security	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) Security
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 595,886		$ 595,886		$ 585,851
Unrealized Gains	5,991		5,991		3,152
Unrealized Losses	2,122		2,122		3,519
Fair Value	599,755		599,755		585,484
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	89,605		89,605		272,152
Less Than Twelve Months, Unrealized Losses	477		477		1,744
Twelve Months or More, Fair Value	50,161		50,161		55,638
Twelve Months or More, Unrealized Losses	1,645		1,645		1,775
Total, Fair Value	139,766		139,766		327,790
Total, Unrealized Losses	2,122		2,122		3,519
Private Label Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	2,739		2,739
Amortized cost	2,525		2,525
Non-credit unrealized loss	0		0
Unrealized gain	214		214
Cumulative credit related OTTI	1,594		1,594
OTTI changes recorded in earnings	0	$ 0	0	$ 0
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Balance at beginning of period	1,844	1,844	1,844	1,844	1,844
Additions to credit losses on securities for which no previous OTTI was recognized	0	0	0	0
Increases to credit losses on securities for which OTTI was previously recognized	0	0	0	0
Balance at end of period	1,844	1,844	1,844	1,844	1,844
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Fiscal Year Maturity [Abstract]
Maturing within one year	27,502		27,502
Maturing after one year but within five years	79,845		79,845
Maturing after five years but within ten years	66,708		66,708
Maturing after ten years	67,487		67,487
Available-for-sale securities, debt maturities, amortized cost basis	241,542		241,542
U.S. agency residential mortgage-backed	180,415		180,415
U.S. agency commercial mortgage-backed	7,832		7,832
Private label residential mortgage-backed	26,202		26,202
Other asset backed	139,895		139,895
Total	595,886		595,886
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
Maturing within one year	27,533		27,533
Maturing after one year but within five years	80,614		80,614
Maturing after five years but within ten years	67,656		67,656
Maturing after ten years	67,801		67,801
Total available-for-sale securities fair value	243,604		243,604
U.S. agency residential mortgage-backed	182,063		182,063
U.S. agency commercial mortgage-backed	7,996		7,996
Private label residential mortgage-backed	26,246		26,246
Other asset backed	139,846		139,846
Total	599,755		599,755
Gain and losses realized on sale of securities available for sale [Abstract]
Proceeds			55,362	11,786
Realized gains			336	75
Realized losses			53	0
Trading securities, realized gains (losses)			64	(23)
Credit related OTTI recognized in earnings	0	0
U.S. Agency [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	31,165		31,165		47,283
Unrealized Gains	552		552		309
Unrealized Losses	38		38		80
Fair Value	31,679		31,679		47,512
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	3,432		3,432		12,164
Less Than Twelve Months, Unrealized Losses	7		7		47
Twelve Months or More, Fair Value	6,168		6,168		6,746
Twelve Months or More, Unrealized Losses	31		31		33
Total, Fair Value	9,600		9,600		18,910
Total, Unrealized Losses	$ 38		$ 38		80
Number of securities with market fair value less than amortized cost | Security	19		19
U.S. Agency Residential Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 180,415		$ 180,415		195,055
Unrealized Gains	1,783		1,783		1,584
Unrealized Losses	135		135		583
Fair Value	182,063		182,063		196,056
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	23,927		23,927		57,538
Less Than Twelve Months, Unrealized Losses	53		53		316
Twelve Months or More, Fair Value	13,743		13,743		23,340
Twelve Months or More, Unrealized Losses	82		82		267
Total, Fair Value	37,670		37,670		80,878
Total, Unrealized Losses	$ 135		$ 135		583
Number of securities with market fair value less than amortized cost | Security	56		56
U.S. Agency Commercial Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 7,832		$ 7,832		34,017
Unrealized Gains	167		167		94
Unrealized Losses	3		3		83
Fair Value	7,996		7,996		34,028
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	548		548		16,747
Less Than Twelve Months, Unrealized Losses	2		2		60
Twelve Months or More, Fair Value	199		199		2,247
Twelve Months or More, Unrealized Losses	1		1		23
Total, Fair Value	747		747		18,994
Total, Unrealized Losses	$ 3		$ 3		83
Number of securities with market fair value less than amortized cost | Security	4		4
Private Label Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 26,202		$ 26,202		5,061
Unrealized Gains	343		343		161
Unrealized Losses	299		299		319
Fair Value	26,246		26,246		4,903
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	2,566		2,566		0
Less Than Twelve Months, Unrealized Losses	8		8		0
Twelve Months or More, Fair Value	1,521		1,521		3,393
Twelve Months or More, Unrealized Losses	291		291		319
Total, Fair Value	4,087		4,087		3,393
Total, Unrealized Losses	$ 299		$ 299		$ 319
Number of securities with market fair value less than amortized cost | Security	9		9
Number of securities purchased prior to 2016 | Security					4
Number of securities with impairment in excess of ten percent | Security	2		2
Percentage of excess impairment on securities	10.00%		10.00%
Number of securities with impairment for more than 12 months | Security	3		3
Private Label Mortgage Backed Securities Below Investment Grade [Abstract]
Number of private label mortgage backed securities complete recovery of cost basis | Security	4		4
Number of private label mortgage backed securities currently with OTTI unrealized gains | Security	3		3
Number of private label mortgage backed securities with OTTI unrealized loss less than previous OTTI credit | Security	3		3
Senior Security [Member]
Private Label Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	$ 1,469		$ 1,469
Amortized cost	1,396		1,396
Non-credit unrealized loss	0		0
Unrealized gain	73		73
Cumulative credit related OTTI	757		757
OTTI changes recorded in earnings	0	0	0	0
Super Senior Security [Member]
Private Label Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	1,194		1,194
Amortized cost	1,129		1,129
Non-credit unrealized loss	0		0
Unrealized gain	65		65
Cumulative credit related OTTI	457		457
OTTI changes recorded in earnings	0	0	0	0
Senior Support Security [Member]
Private Label Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	76		76
Amortized cost	0		0
Non-credit unrealized loss	0		0
Unrealized gain	76		76
Cumulative credit related OTTI	380		380
OTTI changes recorded in earnings	0	$ 0	0	$ 0
Other Asset Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	139,895		139,895		$ 117,431
Unrealized Gains	298		298		54
Unrealized Losses	347		347		581
Fair Value	139,846		139,846		116,904
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	42,783		42,783		102,660
Less Than Twelve Months, Unrealized Losses	161		161		434
Twelve Months or More, Fair Value	12,079		12,079		5,189
Twelve Months or More, Unrealized Losses	186		186		147
Total, Fair Value	54,862		54,862		107,849
Total, Unrealized Losses	$ 347		$ 347		581
Number of securities with market fair value less than amortized cost | Security	88		88
Obligations of States and Political Subdivisions [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 156,663		$ 156,663		145,193
Unrealized Gains	2,311		2,311		941
Unrealized Losses	633		633		1,150
Fair Value	158,341		158,341		144,984
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	12,316		12,316		52,493
Less Than Twelve Months, Unrealized Losses	227		227		597
Twelve Months or More, Fair Value	10,176		10,176		12,240
Twelve Months or More, Unrealized Losses	406		406		553
Total, Fair Value	22,492		22,492		64,733
Total, Unrealized Losses	$ 633		$ 633		1,150
Number of securities with market fair value less than amortized cost | Security	52		52
Number of securities with impairment in excess of ten percent | Security	1		1
Percentage of excess impairment on securities	10.00%		10.00%
Corporate [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 49,150		$ 49,150		38,895
Unrealized Gains	521		521		9
Unrealized Losses	144		144		290
Fair Value	49,527		49,527		38,614
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	4,033		4,033		30,550
Less Than Twelve Months, Unrealized Losses	19		19		290
Twelve Months or More, Fair Value	3,878		3,878		0
Twelve Months or More, Unrealized Losses	125		125		0
Total, Fair Value	7,911		7,911		30,550
Total, Unrealized Losses	$ 144		$ 144		290
Number of securities with market fair value less than amortized cost | Security	8		8
Trust Preferred [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	$ 2,920		$ 2,920		2,916
Unrealized Gains	0		0		0
Unrealized Losses	523		523		433
Fair Value	2,397		2,397		2,483
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	0		0		0
Less Than Twelve Months, Unrealized Losses	0		0		0
Twelve Months or More, Fair Value	2,397		2,397		2,483
Twelve Months or More, Unrealized Losses	523		523		433
Total, Fair Value	2,397		2,397		2,483
Total, Unrealized Losses	$ 523		$ 523		433
Number of securities with market fair value less than amortized cost | Security	3		3
Number of securities rated as investment grade | Security	1		1
Number of securities rated as below investment grade | Security	1		1
Number of major credit rating agencies | Security	2		2
Number of securities non-rated | Security	1		1
Non-rated trust preferred securities, amortized cost	$ 1,000		$ 1,000
Non-rated trust preferred securities, fair value	700		700
Rated Issues [Member]
Trust preferred securities [Abstract]
Fair Value	1,650		1,650		1,690
Net Unrealized Loss			(270)		(226)
Unrated Issues [Member]
Trust preferred securities [Abstract]
Fair Value	747		747		793
Net Unrealized Loss			(253)		$ (207)
Foreign Government [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized Cost	1,644		1,644
Unrealized Gains	16		16
Unrealized Losses	0		0
Fair Value	$ 1,660		$ 1,660

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Loans (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		$ 22,495	$ 24,679	$ 22,570	$ 25,990
Additions (deductions) [Abstract]
Provision for loan losses		(734)	(134)	(1,264)	(793)
Recoveries credited to allowance		1,759	1,255	2,718	2,245
Loans charged against the allowance		(808)	(1,214)	(1,312)	(2,856)
Balance at end of period		22,712	24,586	22,712	24,586
Allowance for loan losses [Abstract]
Individually evaluated for impairment		10,941		10,941		$ 10,983
Collectively evaluated for impairment		11,771		11,771		11,587
Total ending allowance balance		22,712		22,712		22,570
Loans [Abstract]
Individually evaluated for impairment		86,659		86,659		89,131
Collectively evaluated for impairment		1,500,021		1,500,021		1,430,756
Total loans recorded investment		1,586,680		1,586,680		1,519,887
Accrued interest included in recorded investment		4,558		4,558		4,837
Total loans		1,582,122		1,582,122		1,515,050
Commercial [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		5,622	5,916	5,670	5,445
Additions (deductions) [Abstract]
Provision for loan losses		(663)	177	(1,067)	505
Recoveries credited to allowance		1,114	652	1,470	1,085
Loans charged against the allowance		(34)	(38)	(34)	(328)
Balance at end of period		6,039	6,707	6,039	6,707
Allowance for loan losses [Abstract]
Individually evaluated for impairment		3,271		3,271		2,708
Collectively evaluated for impairment		2,768		2,768		2,962
Total ending allowance balance		6,039		6,039		5,670
Loans [Abstract]
Individually evaluated for impairment		17,802		17,802		16,868
Collectively evaluated for impairment		775,794		775,794		733,399
Total loans recorded investment		793,596		793,596		750,267
Accrued interest included in recorded investment		1,596		1,596		1,869
Total loans		792,000		792,000		748,398
Mortgage [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		10,296	12,081	10,391	13,444
Additions (deductions) [Abstract]
Provision for loan losses		(359)	(101)	(638)	(834)
Recoveries credited to allowance		294	319	676	557
Loans charged against the allowance		(275)	(834)	(473)	(1,702)
Balance at end of period		9,956	11,465	9,956	11,465
Allowance for loan losses [Abstract]
Individually evaluated for impairment		7,262		7,262		7,818
Collectively evaluated for impairment		2,694		2,694		2,573
Total ending allowance balance		9,956		9,956		10,391
Loans [Abstract]
Individually evaluated for impairment		63,430		63,430		66,375
Collectively evaluated for impairment		444,865		444,865		436,349
Total loans recorded investment		508,295		508,295		502,724
Accrued interest included in recorded investment	[1]	2,274		2,274		2,270
Total loans		506,021		506,021		500,454
Installment [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		1,161	1,564	1,181	1,814
Additions (deductions) [Abstract]
Provision for loan losses		126	(45)	191	(130)
Recoveries credited to allowance		351	284	572	603
Loans charged against the allowance		(499)	(342)	(805)	(826)
Balance at end of period		1,139	1,461	1,139	1,461
Allowance for loan losses [Abstract]
Individually evaluated for impairment		408		408		457
Collectively evaluated for impairment		731		731		724
Total ending allowance balance		1,139		1,139		1,181
Loans [Abstract]
Individually evaluated for impairment		5,427		5,427		5,888
Collectively evaluated for impairment		247,973		247,973		226,409
Total loans recorded investment		253,400		253,400		232,297
Accrued interest included in recorded investment	[1]	688		688		698
Total loans		252,712		252,712		231,599
Payment Plan Receivables [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		53	62	56	64
Additions (deductions) [Abstract]
Provision for loan losses		(1)	3	(4)	1
Recoveries credited to allowance		0	0	0	0
Loans charged against the allowance		0	0	0	0
Balance at end of period		52	65	52	65
Allowance for loan losses [Abstract]
Individually evaluated for impairment		0		0		0
Collectively evaluated for impairment		52		52		56
Total ending allowance balance		52		52		56
Loans [Abstract]
Individually evaluated for impairment		0		0		0
Collectively evaluated for impairment		31,389		31,389		34,599
Total loans recorded investment		31,389		31,389		34,599
Accrued interest included in recorded investment		0		0		0
Total loans		31,389		31,389		34,599
Subjective Allocation [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		5,363	5,056	5,272	5,223
Additions (deductions) [Abstract]
Provision for loan losses		163	(168)	254	(335)
Recoveries credited to allowance		0	0	0	0
Loans charged against the allowance		0	0	0	0
Balance at end of period		5,526	$ 4,888	5,526	$ 4,888
Allowance for loan losses [Abstract]
Individually evaluated for impairment		0		0		0
Collectively evaluated for impairment		5,526		5,526		5,272
Total ending allowance balance		$ 5,526		$ 5,526		$ 5,272

[1] Credit scores have been updated within the last twelve months.

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Loans, Receivables Past Due (Details) - USD ($) $ in Thousands		Jun. 30, 2016	Dec. 31, 2015
Non performing loans [Abstract]
90+ and Still Accruing		$ 95	$ 118
Non-Accrual		10,803	10,607
Total Non-performing Loans		10,898	10,725
Accrued interest included in recorded investment		1	2
Aging analysis of loans by class [Abstract]
Total		15,829	15,637
Loans not Past Due		1,570,851	1,504,250
Total loans recorded investment		1,586,680	1,519,887
Accrued interest included in recorded investment		4,558	4,837
Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		5,175	5,881
Accrued interest included in recorded investment		44	53
Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		2,044	1,555
Accrued interest included in recorded investment		22	17
Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		8,610	8,201
Accrued interest included in recorded investment		1	2
Loans Past Due Total [Member]
Aging analysis of loans by class [Abstract]
Accrued interest included in recorded investment		67	72
Loans Not Past Due [Member]
Aging analysis of loans by class [Abstract]
Accrued interest included in recorded investment		4,491	4,765
Commercial [Member]
Aging analysis of loans by class [Abstract]
Total loans recorded investment		793,596	750,267
Accrued interest included in recorded investment		1,596	1,869
Commercial [Member] | Income Producing - Real Estate [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		950	1,027
Total Non-performing Loans		950	1,027
Aging analysis of loans by class [Abstract]
Total		980	1,059
Loans not Past Due		306,698	305,155
Total loans recorded investment		307,678	306,214
Commercial [Member] | Income Producing - Real Estate [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		30	203
Commercial [Member] | Income Producing - Real Estate [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		176	209
Commercial [Member] | Income Producing - Real Estate [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		774	647
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	49
Non-Accrual		133	401
Total Non-performing Loans		133	450
Aging analysis of loans by class [Abstract]
Total		256	252
Loans not Past Due		48,189	44,231
Total loans recorded investment		48,445	44,483
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		9	0
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		114	0
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		133	252
Commercial [Member] | Commercial and Industrial [Member]
Non performing loans [Abstract]
90+ and Still Accruing		95	69
Non-Accrual		2,533	2,028
Total Non-performing Loans		2,628	2,097
Aging analysis of loans by class [Abstract]
Total		915	952
Loans not Past Due		436,558	398,618
Total loans recorded investment		437,473	399,570
Commercial [Member] | Commercial and Industrial [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		205	785
Commercial [Member] | Commercial and Industrial [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		194	16
Commercial [Member] | Commercial and Industrial [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		516	151
Mortgage [Member]
Aging analysis of loans by class [Abstract]
Total loans recorded investment		508,295	502,724
Accrued interest included in recorded investment	[1]	2,274	2,270
Mortgage [Member] | 1-4 Family [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		5,013	4,744
Total Non-performing Loans		5,013	4,744
Aging analysis of loans by class [Abstract]
Total		7,842	7,327
Loans not Past Due		281,979	272,298
Total loans recorded investment		289,821	279,625
Accrued interest included in recorded investment	[1]	1,383	1,396
Mortgage [Member] | 1-4 Family [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		2,142	1,943
Mortgage [Member] | 1-4 Family [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		687	640
Mortgage [Member] | 1-4 Family [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		5,013	4,744
Mortgage [Member] | Resort Lending [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		803	1,094
Total Non-performing Loans		803	1,094
Aging analysis of loans by class [Abstract]
Total		1,209	1,401
Loans not Past Due		107,824	114,619
Total loans recorded investment		109,033	116,020
Accrued interest included in recorded investment	[1]	479	477
Mortgage [Member] | Resort Lending [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		328	307
Mortgage [Member] | Resort Lending [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		78	0
Mortgage [Member] | Resort Lending [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		803	1,094
Mortgage [Member] | Home Equity - 1st Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		180	187
Total Non-performing Loans		180	187
Aging analysis of loans by class [Abstract]
Total		443	237
Loans not Past Due		26,988	22,327
Total loans recorded investment		27,431	22,564
Accrued interest included in recorded investment	[1]	104	87
Mortgage [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		228	50
Mortgage [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		35	0
Mortgage [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		180	187
Mortgage [Member] | Home Equity - 2nd Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		262	147
Total Non-performing Loans		262	147
Aging analysis of loans by class [Abstract]
Total		908	640
Loans not Past Due		51,461	50,618
Total loans recorded investment		52,369	51,258
Accrued interest included in recorded investment	[1]	210	196
Mortgage [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		494	439
Mortgage [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		152	54
Mortgage [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		262	147
Mortgage [Member] | Purchased Loans [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		6	2
Total Non-performing Loans		6	2
Aging analysis of loans by class [Abstract]
Total		12	12
Loans not Past Due		29,629	33,245
Total loans recorded investment		29,641	33,257
Accrued interest included in recorded investment	[1]	98	114
Mortgage [Member] | Purchased Loans [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		5	9
Mortgage [Member] | Purchased Loans [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		1	1
Mortgage [Member] | Purchased Loans [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		6	2
Installment [Member]
Aging analysis of loans by class [Abstract]
Total loans recorded investment		253,400	232,297
Accrued interest included in recorded investment	[1]	688	698
Installment [Member] | Home Equity - 1st Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		181	106
Total Non-performing Loans		181	106
Aging analysis of loans by class [Abstract]
Total		486	528
Loans not Past Due		14,430	16,707
Total loans recorded investment		14,916	17,235
Accrued interest included in recorded investment	[1]	57	78
Installment [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		268	315
Installment [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		37	107
Installment [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		181	106
Installment [Member] | Home Equity - 2nd Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		327	443
Total Non-performing Loans		327	443
Aging analysis of loans by class [Abstract]
Total		658	823
Loans not Past Due		16,612	19,727
Total loans recorded investment		17,270	20,550
Accrued interest included in recorded investment	[1]	64	83
Installment [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		210	231
Installment [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		121	149
Installment [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		327	443
Installment [Member] | Loans Not Secured by Real Estate [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		382	421
Total Non-performing Loans		382	421
Aging analysis of loans by class [Abstract]
Total		749	1,071
Loans not Past Due		218,181	191,262
Total loans recorded investment		218,930	192,333
Accrued interest included in recorded investment	[1]	551	520
Installment [Member] | Loans Not Secured by Real Estate [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		239	567
Installment [Member] | Loans Not Secured by Real Estate [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		128	83
Installment [Member] | Loans Not Secured by Real Estate [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		382	421
Installment [Member] | Other [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		15	2
Total Non-performing Loans		15	2
Aging analysis of loans by class [Abstract]
Total		28	20
Loans not Past Due		2,256	2,159
Total loans recorded investment		2,284	2,179
Accrued interest included in recorded investment	[1]	16	17
Installment [Member] | Other [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		13	15
Installment [Member] | Other [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		0	3
Installment [Member] | Other [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		15	2
Payment Plan Receivables [Member]
Aging analysis of loans by class [Abstract]
Total loans recorded investment		31,389	34,599
Accrued interest included in recorded investment		0	0
Payment Plan Receivables [Member] | Full Refund [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		2	2
Total Non-performing Loans		2	2
Aging analysis of loans by class [Abstract]
Total		516	556
Loans not Past Due		12,683	21,294
Total loans recorded investment		13,199	21,850
Payment Plan Receivables [Member] | Full Refund [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		377	492
Payment Plan Receivables [Member] | Full Refund [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		137	62
Payment Plan Receivables [Member] | Full Refund [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		2	2
Payment Plan Receivables [Member] | Partial Refund [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		13	2
Total Non-performing Loans		13	2
Aging analysis of loans by class [Abstract]
Total		526	645
Loans not Past Due		10,572	5,834
Total loans recorded investment		11,098	6,479
Payment Plan Receivables [Member] | Partial Refund [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		397	415
Payment Plan Receivables [Member] | Partial Refund [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		116	228
Payment Plan Receivables [Member] | Partial Refund [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		13	2
Payment Plan Receivables [Member] | Other [Member]
Non performing loans [Abstract]
90+ and Still Accruing		0	0
Non-Accrual		3	1
Total Non-performing Loans		3	1
Aging analysis of loans by class [Abstract]
Total		301	114
Loans not Past Due		6,791	6,156
Total loans recorded investment		7,092	6,270
Payment Plan Receivables [Member] | Other [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total		230	110
Payment Plan Receivables [Member] | Other [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total		68	3
Payment Plan Receivables [Member] | Other [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total		$ 3	$ 1

[1] Credit scores have been updated within the last twelve months.

XML

Loans, Impaired Financing Receivables (Details) - USD ($) $ in Thousands		3 Months Ended				6 Months Ended
		Jun. 30, 2016		Jun. 30, 2015	[2]	Jun. 30, 2016		Jun. 30, 2015	[3]	Dec. 31, 2015
Impaired loans [Abstract]
TDR		$ 173				$ 173				$ 2,518
Non - TDR		542				542				203
TDR allowances based on collateral		5,036				5,036				4,810
TDR - allowances based on present value cash flow		80,205				80,205				81,002
Non - TDR - allowance based on collateral		398				398				260
Non - TDR - allowance based on present value cash flow		0				0				0
Total impaired loans		86,354				86,354				88,793
Amount of allowance for loan losses allocated [Abstract]
TDR - allowance based on collateral		2,127				2,127				2,436
TDR - allowance based on present value cash flow		8,603				8,603				8,471
Non - TDR - allowance based on collateral		211				211				76
Non - TDR - allowance based on present value cash flow		0				0				0
Allowance for loan losses allocated		10,941				10,941				10,983
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	715				715				2,727
Unpaid Principal Balance, with no related allowance	[1]	1,906				1,906				3,744
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	85,944				85,944				86,404
Unpaid Principal Balance, with an allowance recorded	[1]	89,070				89,070				90,182
Recorded Investment	[1]	86,659				86,659				89,131
Unpaid Principal Balance	[1]	90,976				90,976				93,926
Related Allowance	[1]	10,941				10,941				10,983
Accrued interest included in recorded investment	[1]	305				305				338
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		1,636	[2]	$ 9,566		1,999	[3]	$ 9,594
Interest Income Recognized, with No Related Allowance		5	[2]	105		37	[3]	229
Average Recorded Investment, with Related Allowance		85,773	[2]	98,798		85,983	[3]	100,367
Interest Income Recognized, with Related Allowance		905	[2]	1,064		1,808	[3]	2,138
Average Recorded Investment		87,409	[2]	108,364		87,982	[3]	109,961
Interest Income Recognized		910	[2]	1,169		1,845	[3]	2,367
Commercial [Member] | Income Producing - Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	560				560				641
Unpaid Principal Balance, with no related allowance	[1]	806				806				851
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	8,186				8,186				8,377
Unpaid Principal Balance, with an allowance recorded	[1]	8,935				8,935				9,232
Recorded Investment	[1]	8,746				8,746				9,018
Unpaid Principal Balance	[1]	9,741				9,741				10,083
Related Allowance	[1]	663				663				516
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		673	[2]	5,658		662	[3]	5,728
Interest Income Recognized, with No Related Allowance		0	[2]	50		2	[3]	103
Average Recorded Investment, with Related Allowance		8,210	[2]	12,878		8,266	[3]	12,864
Interest Income Recognized, with Related Allowance		100	[2]	163		207	[3]	320
Average Recorded Investment		8,883	[2]	18,536		8,928	[3]	18,592
Interest Income Recognized		100	[2]	213		209	[3]	423
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	133				133				818
Unpaid Principal Balance, with no related allowance	[1]	709				709				1,393
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	1,844				1,844				1,690
Unpaid Principal Balance, with an allowance recorded	[1]	1,843				1,843				1,778
Recorded Investment	[1]	1,977				1,977				2,508
Unpaid Principal Balance	[1]	2,552				2,552				3,171
Related Allowance	[1]	158				158				296
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		335	[2]	1,021		496	[3]	1,031
Interest Income Recognized, with No Related Allowance		0	[2]	15		7	[3]	49
Average Recorded Investment, with Related Allowance		1,664	[2]	1,943		1,673	[3]	2,447
Interest Income Recognized, with Related Allowance		13	[2]	13		26	[3]	27
Average Recorded Investment		1,999	[2]	2,964		2,169	[3]	3,478
Interest Income Recognized		13	[2]	28		33	[3]	76
Commercial [Member] | Commercial and Industrial [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				1,245
Unpaid Principal Balance, with no related allowance	[1]	0				0				1,241
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	7,079				7,079				4,097
Unpaid Principal Balance, with an allowance recorded	[1]	7,359				7,359				4,439
Recorded Investment	[1]	7,079				7,079				5,342
Unpaid Principal Balance	[1]	7,359				7,359				5,680
Related Allowance	[1]	2,450				2,450				1,896
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		609	[2]	2,855		821	[3]	2,798
Interest Income Recognized, with No Related Allowance		0	[2]	37		21	[3]	74
Average Recorded Investment, with Related Allowance		6,203	[2]	7,863		5,501	[3]	7,992
Interest Income Recognized, with Related Allowance		59	[2]	67		82	[3]	133
Average Recorded Investment		6,812	[2]	10,718		6,322	[3]	10,790
Interest Income Recognized		59	[2]	104		103	[3]	207
Mortgage [Member] | 1-4 Family [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	22				22				23
Unpaid Principal Balance, with no related allowance	[1]	348				348				183
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	45,474				45,474				47,792
Unpaid Principal Balance, with an allowance recorded	[1]	47,259				47,259				49,808
Recorded Investment	[1]	45,496				45,496				47,815
Unpaid Principal Balance	[1]	47,607				47,607				49,991
Related Allowance	[1]	4,700				4,700				5,132
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		11	[2]	25		15	[3]	17
Interest Income Recognized, with No Related Allowance		5	[2]	2		6	[3]	2
Average Recorded Investment, with Related Allowance		46,041	[2]	50,931		46,625	[3]	51,689
Interest Income Recognized, with Related Allowance		475	[2]	539		977	[3]	1,090
Average Recorded Investment		46,052	[2]	50,956		46,640	[3]	51,706
Interest Income Recognized		480	[2]	541		983	[3]	1,092
Mortgage [Member] | Resort Lending [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	0				0				0
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	17,449				17,449				18,148
Unpaid Principal Balance, with an allowance recorded	[1]	17,484				17,484				18,319
Recorded Investment	[1]	17,449				17,449				18,148
Unpaid Principal Balance	[1]	17,484				17,484				18,319
Related Allowance	[1]	2,529				2,529				2,662
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	7		0	[3]	20
Interest Income Recognized, with No Related Allowance		0	[2]	0		0	[3]	0
Average Recorded Investment, with Related Allowance		17,689	[2]	18,482		17,842	[3]	18,587
Interest Income Recognized, with Related Allowance		159	[2]	173		319	[3]	344
Average Recorded Investment		17,689	[2]	18,489		17,842	[3]	18,607
Interest Income Recognized		159	[2]	173		319	[3]	344
Mortgage [Member] | Home Equity - 1st Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	0				0				0
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	243				243				168
Unpaid Principal Balance, with an allowance recorded	[1]	246				246				172
Recorded Investment	[1]	243				243				168
Unpaid Principal Balance	[1]	246				246				172
Related Allowance	[1]	11				11				9
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	0		0	[3]	0
Interest Income Recognized, with No Related Allowance		0	[2]	0		0	[3]	0
Average Recorded Investment, with Related Allowance		243	[2]	160		218	[3]	160
Interest Income Recognized, with Related Allowance		2	[2]	2		4	[3]	4
Average Recorded Investment		243	[2]	160		218	[3]	160
Interest Income Recognized		2	[2]	2		4	[3]	4
Mortgage [Member] | Home Equity - 2nd Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	0				0				0
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	242				242				244
Unpaid Principal Balance, with an allowance recorded	[1]	324				324				325
Recorded Investment	[1]	242				242				244
Unpaid Principal Balance	[1]	324				324				325
Related Allowance	[1]	22				22				15
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	0		0	[3]	0
Interest Income Recognized, with No Related Allowance		0	[2]	0		0	[3]	0
Average Recorded Investment, with Related Allowance		181	[2]	185		202	[3]	165
Interest Income Recognized, with Related Allowance		4	[2]	4		5	[3]	6
Average Recorded Investment		181	[2]	185		202	[3]	165
Interest Income Recognized		4	[2]	4		5	[3]	6
Installment [Member] | Home Equity - 1st Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	43				43				76
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	2,172				2,172				2,364
Unpaid Principal Balance, with an allowance recorded	[1]	2,315				2,315				2,492
Recorded Investment	[1]	2,172				2,172				2,364
Unpaid Principal Balance	[1]	2,358				2,358				2,568
Related Allowance	[1]	130				130				143
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		1	[2]	0		0	[3]	0
Interest Income Recognized, with No Related Allowance		0	[2]	1		1	[3]	1
Average Recorded Investment, with Related Allowance		2,230	[2]	2,576		2,274	[3]	2,632
Interest Income Recognized, with Related Allowance		42	[2]	44		84	[3]	94
Average Recorded Investment		2,231	[2]	2,576		2,274	[3]	2,632
Interest Income Recognized		42	[2]	45		85	[3]	95
Installment [Member] | Home Equity - 2nd Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	0				0				0
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	2,709				2,709				2,929
Unpaid Principal Balance, with an allowance recorded	[1]	2,725				2,725				2,951
Recorded Investment	[1]	2,709				2,709				2,929
Unpaid Principal Balance	[1]	2,725				2,725				2,951
Related Allowance	[1]	245				245				271
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		7	[2]	0		5	[3]	0
Interest Income Recognized, with No Related Allowance		0	[2]	0		0	[3]	0
Average Recorded Investment, with Related Allowance		2,751	[2]	3,101		2,810	[3]	3,138
Interest Income Recognized, with Related Allowance		41	[2]	49		85	[3]	100
Average Recorded Investment		2,758	[2]	3,101		2,815	[3]	3,138
Interest Income Recognized		41	[2]	49		85	[3]	100
Installment [Member] | Loans Not Secured by Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	0				0				0
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	541				541				587
Unpaid Principal Balance, with an allowance recorded	[1]	575				575				658
Recorded Investment	[1]	541				541				587
Unpaid Principal Balance	[1]	575				575				658
Related Allowance	[1]	33				33				42
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	0		0	[3]	0
Interest Income Recognized, with No Related Allowance		0	[2]	0		0	[3]	0
Average Recorded Investment, with Related Allowance		555	[2]	668		566	[3]	682
Interest Income Recognized, with Related Allowance		10	[2]	9		19	[3]	19
Average Recorded Investment		555	[2]	668		566	[3]	682
Interest Income Recognized		10	[2]	9		19	[3]	19
Installment [Member] | Other [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance	[1]	0				0				0
Unpaid Principal Balance, with no related allowance	[1]	0				0				0
No Related Allowance	[1]	0				0				0
Recorded Investment, with an allowance recorded	[1]	5				5				8
Unpaid Principal Balance, with an allowance recorded	[1]	5				5				8
Recorded Investment	[1]	5				5				8
Unpaid Principal Balance	[1]	5				5				8
Related Allowance	[1]	0				0				$ 1
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	0		0	[3]	0
Interest Income Recognized, with No Related Allowance		0	[2]	0		0	[3]	0
Average Recorded Investment, with Related Allowance		6	[2]	11		6	[3]	11
Interest Income Recognized, with Related Allowance		0	[2]	1		0	[3]	1
Average Recorded Investment		6	[2]	11		6	[3]	11
Interest Income Recognized		$ 0	[2]	$ 1		$ 0	[3]	$ 1

[1] There were no impaired payment plan receivables or purchased mortgage loans at June 30, 2016 or December 31, 2015.

[2] There were no impaired payment plan receivables or purchased mortgage loans during the three month periods ended June 30, 2016 and 2015, respectively.

[3] There were no impaired payment plan receivables or purchased mortgage loans during the six month periods ended June 30, 2016 and 2015, respectively.

XML

Loans, Troubled Debt Restructurings (Details) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2016 USD ($) Contract	Jun. 30, 2015 USD ($) Contract	Jun. 30, 2016 USD ($) Contract	Jun. 30, 2015 USD ($) Contract	Dec. 31, 2015 USD ($)
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		$ 85,414		$ 85,414		$ 88,330
Troubled debt restructuring, specific reserve		$ 10,700		$ 10,700		10,900
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		7	9	20	21
Pre-modification recorded balance		$ 221	$ 509	$ 2,480	$ 2,073
Post-modification recorded balance		224	527	2,527	1,863
Increase (decrease) in allowance for loan losses		0	100	300	100
Charge offs due to troubled debt restructurings		$ 0	$ 0	$ 0	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	2	0	3
Recorded Balance		$ 0	$ 69	$ 0	$ 161
Past due period for modified loans		90 days
Increase (decrease) in allowance for loan loss due to TDRs that subsequently defaulted			0		(10)
Charge-offs on TDRs that subsequently defaulted			$ 0		$ 0
Minimum [Member]
Financing Receivable, Modifications [Line Items]
Modification of stated interest rate of loans, range of period				9 months
Modifications involving extension of maturity date, period range				1 month
Maximum [Member]
Financing Receivable, Modifications [Line Items]
Modification of stated interest rate of loans, range of period				36 months
Modifications involving extension of maturity date, period range				60 months
Maximum in Certain Circumstances [Member]
Financing Receivable, Modifications [Line Items]
Modification of stated interest rate of loans, range of period				480 months
Modifications involving extension of maturity date, period range				230 months
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		$ 16,808		$ 16,808		16,359
Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		$ 68,606		$ 68,606		71,971
Income Producing - Real Estate [Member] | Commercial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	1	2	2
Pre-modification recorded balance		$ 0	$ 73	$ 110	$ 229
Post-modification recorded balance		$ 0	$ 73	$ 110	$ 234
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Land, Land Development and Construction - Real Estate [Member] | Commercial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	0	0	0
Pre-modification recorded balance		$ 0	$ 0	$ 0	$ 0
Post-modification recorded balance		$ 0	$ 0	$ 0	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Commercial and Industrial [Member] | Commercial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	1	4	3
Pre-modification recorded balance		$ 0	$ 17	$ 1,758	$ 253
Post-modification recorded balance		$ 0	$ 17	$ 1,758	$ 247
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	1	0	2
Recorded Balance		$ 0	$ 65	$ 0	$ 157
1-4 Family [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		1	1	3	6
Pre-modification recorded balance		$ 109	$ 25	$ 192	$ 1,030
Post-modification recorded balance		$ 110	$ 40	$ 263	$ 845
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Resort Lending [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	1	1	1
Pre-modification recorded balance		$ 0	$ 313	$ 116	$ 313
Post-modification recorded balance		$ 0	$ 309	$ 117	$ 309
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Home Equity - 1st Lien [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	0	1	0
Pre-modification recorded balance		$ 0	$ 0	$ 107	$ 0
Post-modification recorded balance		$ 0	$ 0	$ 78	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Home Equity - 1st Lien [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		3	1	4	5
Pre-modification recorded balance		$ 29	$ 23	$ 59	$ 190
Post-modification recorded balance		$ 29	$ 24	$ 60	$ 164
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Home Equity - 2nd Lien [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	0	0	0
Pre-modification recorded balance		$ 0	$ 0	$ 0	$ 0
Post-modification recorded balance		$ 0	$ 0	$ 0	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Home Equity - 2nd Lien [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		2	3	4	3
Pre-modification recorded balance		$ 71	$ 58	$ 126	$ 58
Post-modification recorded balance		$ 73	$ 58	$ 129	$ 58
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Loans Not Secured by Real Estate [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		1	1	1	1
Pre-modification recorded balance		$ 12	$ 0	$ 12	$ 0
Post-modification recorded balance		$ 12	$ 6	$ 12	$ 6
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	1	0	1
Recorded Balance		$ 0	$ 4	$ 0	$ 4
Other [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	0	0	0
Pre-modification recorded balance		$ 0	$ 0	$ 0	$ 0
Post-modification recorded balance		$ 0	$ 0	$ 0	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0	0
Recorded Balance		$ 0	$ 0	$ 0	$ 0
Performing TDRs [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		78,948		78,948		81,512
Performing TDRs [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		14,130		14,130		13,318
Performing TDRs [Member] | Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		64,818		64,818		68,194
Non-performing TDRs [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	[1]	6,466		6,466		6,818
Non-performing TDRs [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	[1]	2,678		2,678		3,041
Non-performing TDRs [Member] | Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	[1],[2]	$ 3,788		$ 3,788		$ 3,777

[1] Included in non-performing loans table above.

[2] Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

XML

Loans, Loan Ratings by Loan Class, Commercial Segment (Details) - USD ($) $ in Thousands		Jun. 30, 2016	Dec. 31, 2015
Loan ratings/credit scores by loan class [Abstract]
Commercial		$ 792,000	$ 748,398
Accrued interest included in total		$ 4,558	4,837
Credit ratings of insurer or risk retention group counterparties [Abstract]
Subsidiary's outstanding payment plan insured by third party		42.00%
Subsidiary's outstanding payment plan 2, insured by third party		35.40%
Payment Plan Receivables, Full Refund		$ 13,199	21,850
Payment Plan Receivables, Partial Refund		11,098	6,479
Payment Plan Receivables, Other		7,092	6,270
Total		31,389	34,599
Other Real Estate and Foreclosed Assets [Abstract]
Foreclosed residential real estate properties		1,900	2,800
Retail mortgage loans in process of foreclosure		1,100	1,100
AM Best Rating A+ [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		0	0
Payment Plan Receivables, Partial Refund		11	6
Payment Plan Receivables, Other		0	0
Total		11	6
AM Best A Rating [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		1,358	2,712
Payment Plan Receivables, Partial Refund		9,715	5,203
Payment Plan Receivables, Other		0	0
Total		11,073	7,915
AM Best Rating, A- Rating [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		1,644	3,418
Payment Plan Receivables, Partial Refund		1,333	1,177
Payment Plan Receivables, Other		3,374	6,265
Total		6,351	10,860
AM Best Rating, B+ Rating [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		0
Payment Plan Receivables, Partial Refund		0
Payment Plan Receivables, Other		3,717
Total		3,717
Not Rated [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		10,197	15,720
Payment Plan Receivables, Partial Refund		39	93
Payment Plan Receivables, Other		1	5
Total		10,237	15,818
Commercial [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		793,596	750,267
Accrued interest included in total		1,596	1,869
Commercial [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		762,975	709,099
Accrued interest included in total		1,509	1,729
Commercial [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		19,519	29,363
Accrued interest included in total		62	108
Commercial [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		7,486	8,349
Accrued interest included in total		25	32
Commercial [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		3,616	3,456
Accrued interest included in total		0	0
Commercial [Member] | Income Producing - Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		307,678	306,214
Commercial [Member] | Income Producing - Real Estate [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		300,344	296,898
Commercial [Member] | Income Producing - Real Estate [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		5,334	6,866
Commercial [Member] | Income Producing - Real Estate [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		1,050	1,423
Commercial [Member] | Income Producing - Real Estate [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		950	1,027
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		48,445	44,483
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		46,529	40,844
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		1,669	2,995
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		114	243
Commercial [Member] | Land, Land Development and Construction - Real Estate [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		133	401
Commercial [Member] | Commercial and Industrial [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		437,473	399,570
Commercial [Member] | Commercial and Industrial [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		416,102	371,357
Commercial [Member] | Commercial and Industrial [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		12,516	19,502
Commercial [Member] | Commercial and Industrial [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		6,322	6,683
Commercial [Member] | Commercial and Industrial [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial		2,533	2,028
Mortgage [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	60,409	57,083
750-799	[1]	169,368	167,515
700-749	[1]	113,664	110,802
650-699	[1]	77,897	80,140
600-649	[1]	40,038	38,108
550-599	[1]	20,546	22,729
500-549	[1]	11,337	13,528
Under 500	[1]	6,409	5,771
Unknown	[1]	8,627	7,048
Total	[1]	508,295	502,724
Accrued interest included in total	[1]	2,274	2,270
Mortgage [Member] | 1-4 Family [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	31,459	28,760
750-799	[1]	83,455	78,802
700-749	[1]	59,358	56,519
650-699	[1]	52,187	51,813
600-649	[1]	28,791	27,966
550-599	[1]	15,745	16,714
500-549	[1]	8,594	10,610
Under 500	[1]	5,332	4,708
Unknown	[1]	4,900	3,733
Total	[1]	289,821	279,625
Accrued interest included in total	[1]	1,383	1,396
Mortgage [Member] | Resort Lending [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	12,187	13,943
750-799	[1]	39,058	40,888
700-749	[1]	31,410	31,980
650-699	[1]	13,815	17,433
600-649	[1]	6,525	4,991
550-599	[1]	2,485	3,070
500-549	[1]	882	1,051
Under 500	[1]	600	554
Unknown	[1]	2,071	2,110
Total	[1]	109,033	116,020
Accrued interest included in total	[1]	479	477
Mortgage [Member] | Home Equity - 1st Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	6,000	4,374
750-799	[1]	9,279	7,137
700-749	[1]	4,840	4,341
650-699	[1]	3,646	3,203
600-649	[1]	1,347	1,467
550-599	[1]	743	1,027
500-549	[1]	581	572
Under 500	[1]	172	244
Unknown	[1]	823	199
Total	[1]	27,431	22,564
Accrued interest included in total	[1]	104	87
Mortgage [Member] | Home Equity - 2nd Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	8,476	7,696
750-799	[1]	18,317	17,405
700-749	[1]	10,455	11,022
650-699	[1]	8,249	7,691
600-649	[1]	3,375	3,684
550-599	[1]	1,573	1,918
500-549	[1]	1,280	1,295
Under 500	[1]	305	265
Unknown	[1]	339	282
Total	[1]	52,369	51,258
Accrued interest included in total	[1]	210	196
Mortgage [Member] | Purchased Loans [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	2,287	2,310
750-799	[1]	19,259	23,283
700-749	[1]	7,601	6,940
650-699	[1]	0	0
600-649	[1]	0	0
550-599	[1]	0	0
500-549	[1]	0	0
Under 500	[1]	0	0
Unknown	[1]	494	724
Total	[1]	29,641	33,257
Accrued interest included in total	[1]	98	114
Installment [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	54,412	47,886
750-799	[1]	109,258	97,379
700-749	[1]	45,036	41,889
650-699	[1]	24,884	24,645
600-649	[1]	8,772	9,505
550-599	[1]	4,705	5,252
500-549	[1]	2,833	3,142
Under 500	[1]	751	1,001
Unknown	[1]	2,749	1,598
Total	[1]	253,400	232,297
Accrued interest included in total	[1]	688	698
Installment [Member] | Home Equity - 1st Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	1,518	1,792
750-799	[1]	3,337	4,117
700-749	[1]	2,383	2,507
650-699	[1]	2,863	3,508
600-649	[1]	2,356	2,173
550-599	[1]	1,363	1,800
500-549	[1]	922	1,056
Under 500	[1]	141	223
Unknown	[1]	33	59
Total	[1]	14,916	17,235
Accrued interest included in total	[1]	57	78
Installment [Member] | Home Equity - 2nd Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	2,133	1,782
750-799	[1]	4,198	5,931
700-749	[1]	3,299	3,899
650-699	[1]	3,503	4,182
600-649	[1]	1,820	2,153
550-599	[1]	1,423	1,346
500-549	[1]	649	855
Under 500	[1]	240	370
Unknown	[1]	5	32
Total	[1]	17,270	20,550
Accrued interest included in total	[1]	64	83
Installment [Member] | Loans Not Secured by Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	50,680	44,254
750-799	[1]	101,146	86,800
700-749	[1]	38,660	34,789
650-699	[1]	18,041	16,456
600-649	[1]	4,311	4,979
550-599	[1]	1,855	1,997
500-549	[1]	1,212	1,170
Under 500	[1]	345	385
Unknown	[1]	2,680	1,503
Total	[1]	218,930	192,333
Accrued interest included in total	[1]	551	520
Installment [Member] | Other [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	81	58
750-799	[1]	577	531
700-749	[1]	694	694
650-699	[1]	477	499
600-649	[1]	285	200
550-599	[1]	64	109
500-549	[1]	50	61
Under 500	[1]	25	23
Unknown	[1]	31	4
Total	[1]	2,284	2,179
Accrued interest included in total	[1]	$ 16	$ 17

[1] Credit scores have been updated within the last twelve months.

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Segments (Details) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) Segment	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Segments [Abstract]
Number of reportable segments | Segment				2
Selected financial information for reportable segments [Abstract]
Total assets		$ 2,452,696		$ 2,452,696		$ 2,409,066
Interest income		21,267	$ 20,131	42,621	$ 39,683
Net interest income		19,630	18,701	39,393	36,792
Provision for loan losses		(734)	(134)	(1,264)	(793)
Income (loss) before income tax		9,049	8,243	15,106	13,804
Net income (loss)		6,438	5,619	10,538	9,400
Other [Member]
Selected financial information for reportable segments [Abstract]
Total assets	[1]	282,570		282,570		286,936
Interest income	[1]	12	20	17	40
Net interest income	[1]	(274)	(234)	(545)	(461)
Provision for loan losses	[1]	0	0	0	0
Income (loss) before income tax	[1]	(274)	(356)	(697)	(739)
Net income (loss)	[1]	(129)	(225)	(396)	(469)
Operating Segments [Member] | IB [Member]
Selected financial information for reportable segments [Abstract]
Total assets		2,391,120		2,391,120		2,340,566
Interest income		20,216	18,701	40,459	36,922
Net interest income		18,989	17,717	38,091	34,900
Provision for loan losses		(734)	(138)	(1,260)	(794)
Income (loss) before income tax		9,298	8,843	16,160	15,102
Net income (loss)		6,550	5,935	11,169	10,168
Operating Segments [Member] | Mepco [Member]
Selected financial information for reportable segments [Abstract]
Total assets		50,178		50,178		57,208
Interest income		1,052	1,430	2,162	2,761
Net interest income		915	1,218	1,847	2,353
Provision for loan losses		0	4	(4)	1
Income (loss) before income tax		49	(221)	(310)	(512)
Net income (loss)		32	(77)	(205)	(269)
Elimination [Member]
Selected financial information for reportable segments [Abstract]
Total assets	[2]	(271,172)		(271,172)		$ (275,644)
Interest income	[2]	(13)	(20)	(17)	(40)
Net interest income	[2]	0	0	0	0
Provision for loan losses	[2]	0	0	0	0
Income (loss) before income tax	[2]	(24)	(23)	(47)	(47)
Net income (loss)	[2]	$ (15)	$ (14)	$ (30)	$ (30)

[1] Includes amounts relating to our parent company.

[2] Includes parent company's investment in subsidiaries and cash balances maintained at subsidiary.

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Shareholders' Equity and Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended		6 Months Ended
		Nov. 15, 2011	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Apr. 26, 2016	Jan. 21, 2016
Class of Stock [Line Items]
Stock repurchased					$ 15,510	$ 3,668
Shareholders with certain limited exceptions		5.00%
Number of Series C Junior participating preferred stock purchase by each right		1/1000
Beneficial ownership level		4.99%
Discount to current market price of the common stock		50.00%
Earnings Per Share Reconciliation [Abstract]
Net income			$ 6,438	$ 5,619	$ 10,538	$ 9,400
Weighted average shares outstanding (in shares)	[1]		21,281,000	22,889,000	21,516,000	22,943,000
Stock units for deferred compensation plan for non-employee directors (in shares)			114,000	111,000	114,000	111,000
Effect of stock options (in shares)			148,000	120,000	150,000	120,000
Restricted stock units (in shares)			55,000	310,000	70,000	310,000
Performance share units (in shares)			41,000	0	37,000	0
Weighted average shares outstanding for calculation of diluted earnings per share (in shares)			21,639,000	23,430,000	21,887,000	23,484,000
Net income per common share [Abstract]
Basic (in dollars per share)	[1]		$ 0.30	$ 0.25	$ 0.49	$ 0.41
Diluted (in dollars per share)			$ 0.30	$ 0.24	$ 0.48	$ 0.40
Common Stock [Member]
Class of Stock [Line Items]
Stock repurchase program percentage of shares authorized to be repurchased								5.00%
Stock repurchased (in shares)					1,059,865
Stock repurchased					$ 15,500
Stock repurchase program, remaining shares to be repurchased (in shares)			52,703		52,703
Stock repurchase program, remaining amount to be repurchased			$ 5,000		$ 5,000
Stock repurchase program, additional authorized amount							$ 5,000
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted loss per share (in shares)			30,000	30,000	30,000	30,000

[1] Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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Derivative Financial Instruments (Details) - No Hedge Designation [Member] - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 178,895	$ 126,271
Average Maturity	4 years 8 months 12 days	3 years 8 months 12 days
Fair Value	$ 522	$ 619
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	3,307	1,238
Liability Derivatives	2,785	619
Rate-Lock Mortgage Loan Commitments [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 26,831	$ 20,581
Average Maturity	1 month 6 days	1 month 6 days
Fair Value	$ 899	$ 550
Rate-Lock Mortgage Loan Commitments [Member] | Other Assets [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	899	550
Rate-Lock Mortgage Loan Commitments [Member] | Other Liabilities [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives	0	0
Mandatory Commitments to Sell Mortgage Loans [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 57,034	$ 46,320
Average Maturity	1 month 6 days	1 month 6 days
Fair Value	$ (377)	$ 69
Mandatory Commitments to Sell Mortgage Loans [Member] | Other Assets [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	0	69
Mandatory Commitments to Sell Mortgage Loans [Member] | Other Liabilities [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives	377	0
Interest Rate Swap [Member] | Fixed Income Interest Rate [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 44,396	$ 27,587
Average Maturity	9 years 1 month 6 days	8 years
Fair Value	$ (2,205)	$ (497)
Interest Rate Swap [Member] | Fixed Income Interest Rate [Member] | Other Assets [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	0	0
Interest Rate Swap [Member] | Fixed Income Interest Rate [Member] | Other Liabilities [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives	2,205	497
Interest Rate Swap [Member] | Variable Income Interest Rate [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 44,396	$ 27,587
Average Maturity	9 years 1 month 6 days	8 years
Fair Value	$ 2,205	$ 497
Interest Rate Swap [Member] | Variable Income Interest Rate [Member] | Other Assets [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	2,205	497
Interest Rate Swap [Member] | Variable Income Interest Rate [Member] | Other Liabilities [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives	0	0
Purchased Options [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 3,119	$ 2,098
Average Maturity	5 years	5 years 8 months 12 days
Fair Value	$ 203	$ 122
Purchased Options [Member] | Other Assets [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	203	122
Purchased Options [Member] | Other Liabilities [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives	0	0
Written Options [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount	$ 3,119	$ 2,098
Average Maturity	5 years	5 years 8 months 12 days
Fair Value	$ (203)	$ (122)
Written Options [Member] | Other Assets [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives	0	0
Written Options [Member] | Other Liabilities [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives	$ 203	$ 122

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Derivative Financial Instruments, Effect on Statement of Operations (Details) - No Hedge Designation [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	$ (110)	$ 276	$ (97)	$ 625
Rate-Lock Mortgage Loan Commitments [Member] | Net Gains on Mortgage Loans [Member]
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	130	(283)	349	105
Mandatory Commitments to Sell Mortgage Loans [Member] | Net Gains on Mortgage Loans [Member]
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	(240)	559	(446)	520
Purchased Options [Member] | Interest Expense [Member]
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	3	0	81	0
Written Options [Member] | Interest Expense [Member]
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	(3)	0	(81)	0
Fixed Income Interest Rate [Member] | Interest Rate Swap [Member] | Interest Income [Member]
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	(590)	221	(1,708)	(40)
Variable Income Interest Rate [Member] | Interest Rate Swap [Member] | Interest Income [Member]
Effect of derivative financial instruments on the condensed consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	$ 590	$ (221)	$ 1,708	$ 40

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Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Amortized intangible assets - core deposits [Abstract]
Gross Carrying Amount	$ 6,118	$ 6,118
Accumulated Amortization	4,012	$ 3,838
Summary of estimated intangible amortization [Abstract]
Six months ending December 31, 2016	173
2017	346
2018	346
2019	346
2020	346
2021 and thereafter	549
Total	$ 2,106

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Share Based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2016	Mar. 31, 2016	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2016	Jun. 30, 2015
Share based compensation arrangements [Line Items]
Number of additional shares approved for grant (in shares)					200,000
Total compensation cost not yet recognized	$ 2,100				$ 2,100
Total compensation cost not yet recognized, period for recognition					2 years
Information regarding options exercised [Abstract]
Intrinsic value	60		$ 187		$ 177	$ 243
Cash proceeds received	27		67		59	82
Tax benefit realized	$ 21		$ 65		62	85
Long-term Incentive Plan [Member]
Share based compensation arrangements [Line Items]
Number of stock units or restricted shares issued in period (in shares)	0		0
Total compensation expense recognized	$ 400		$ 400		800	700
Tax benefit relating to compensation expense recognized	$ 100		100		$ 300	$ 300
Stock Options [Member]
Outstanding stock option grants and transaction [Roll Forward]
Outstanding, beginning balance (in shares)		235,596			235,596
Granted (in shares)					0
Exercised (in shares)					(16,014)
Forfeited (in shares)					(664)
Expired (in shares)					(400)
Outstanding, ending balance (in shares)	218,518				218,518
Vested and expected to vest, period end (in shares)	218,518				218,518
Exercisable, period end (in shares)	218,518				218,518
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)		$ 4.94			$ 4.94
Exercised (in dollars per share)					3.69
Forfeited (in dollars per share)					6.42
Expired (in dollars per share)					4.25
Outstanding, ending balance (in dollars per share)	$ 5.02				5.02
Vested and expected to vest, period end (in dollars per share)	5.02				5.02
Exercisable, period end (in dollars per share)	$ 5.02				$ 5.02
Weighted-Average Remaining Contractual Term [Abstract]
Outstanding, Weighted Average Remaining Contractual Term					5 years 6 months 14 days
Vested and Expected to Vest, Weighted-Average Remaining Contractual Term					5 years 6 months 14 days
Exercisable, Weighted Average Remaining Contractual Term					5 years 6 months 14 days
Aggregate intrinsic value [Abstract]
Outstanding, Aggregate Intrinsic Value	$ 2,109				$ 2,109
Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	2,109				2,109
Exercisable, Aggregate Intrinsic Value	$ 2,109				$ 2,109
Non-Vested Restricted Stock, Restricted Stock Units and PSU's [Member]
Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)		261,981			261,981
Granted (in shares)					96,660
Vested (in shares)					(107,795)
Forfeited (in shares)					(4,924)
Outstanding, ending balance (in shares)	245,922				245,922
Weighted Average Grant Date Fair Value [Roll Forward]
Outstanding, beginning balance (in dollars per share)		$ 11.29			$ 11.29
Granted (in dollars per share)					14.39
Vested (in dollars per share)					7.92
Forfeited (in dollars per share)					13.24
Outstanding, ending balance (in dollars per share)	$ 13.94				$ 13.94
Director [Member]
Share based compensation arrangements [Line Items]
Shares issues as retainer fees (in shares)					4,000	2,000
Non-Employee Directors [Member]
Share based compensation arrangements [Line Items]
Number of additional shares approved for grant (in shares)					200,000
Total compensation expense recognized	$ 30		20		$ 60	$ 30
Tax benefit relating to compensation expense recognized	$ 10		$ 10		$ 20	$ 10
Officers [Member] | Restricted Stock [Member] | Long-term Incentive Plan [Member]
Share based compensation arrangements [Line Items]
Number of stock units or restricted shares issued in period (in shares)		70,000		70,000
Vesting period		3 years		3 years
Officers [Member] | Performance Stock Units [Member] | Long-term Incentive Plan [Member]
Share based compensation arrangements [Line Items]
Number of stock units or restricted shares issued in period (in shares)		30,000		30,000
Vesting period		3 years		3 years

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Income Tax (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Income Tax [Abstract]
Income tax expense	$ 2,611	$ 2,624	$ 4,568	$ 4,404
Tax benefit relating to compensation expense recognized	(300)			$ (300)
Gross unrecognized tax benefits	1,000		1,000		$ 1,000
Mepco [Member]
Valuation Allowance [Line Items]
Valuation allowance against deferred tax assets attributable to Mepco	$ 1,100		$ 1,100		$ 1,100

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Regulatory Matters (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Regulatory Matters [Abstract]
Undivided profits			$ 2,100
Request for approval to transfer capital from bank to parent entity	$ 18,000	$ 18,500
Components of regulatory capital [Abstract]
Total shareholders' equity			246,923	$ 251,092	$ 254,375	$ 250,371
Add (deduct) [Abstract]
Accumulated other comprehensive (income) loss for regulatory purposes			(3,283)	(6,036)
Intangible assets			(2,106)	(2,280)
Consolidated [Member]
Total capital to risk-weighted assets [Abstract]
Total risk-based capital			275,163	278,170
Minimum for Adequately Capitalized Institutions, Amount			$ 137,844	$ 133,668
Actual, Ratio			15.97%	16.65%
Minimum for Adequately Capitalized Institutions, Ratio			8.00%	8.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 253,484	$ 257,050
Minimum for Adequately Capitalized Institutions, Amount			$ 103,383	$ 100,251
Actual, Ratio			14.71%	15.38%
Minimum for Adequately Capitalized Institutions, Ratio			6.00%	6.00%
Common equity tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 228,648	$ 239,271
Minimum for Adequately Capitalized Institutions, Amount			$ 77,537	$ 75,188
Actual, Ratio			13.27%	14.32%
Minimum for Adequately Capitalized Institutions, Ratio			4.50%	4.50%
Tier 1 capital to average assets [Abstract]
Tier 1 capital			$ 253,484	$ 257,050
Minimum for Adequately Capitalized Institutions, Amount			$ 96,803	$ 94,217
Actual, Ratio			10.47%	10.91%
Minimum for Adequately Capitalized Institutions, Ratio			4.00%	4.00%
Components of regulatory capital [Abstract]
Total shareholders' equity			$ 246,923	$ 251,092
Add (deduct) [Abstract]
Accumulated other comprehensive (income) loss for regulatory purposes			(2,515)	238
Intangible assets			(1,264)	(912)
Disallowed deferred tax assets			(14,496)	(11,147)
Common equity tier 1 capital			228,648	239,271
Qualifying trust preferred securities			34,500	34,500
Disallowed deferred tax assets			(9,664)	(16,721)
Tier 1 capital			253,484	257,050
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets			21,679	21,120
Total risk-based capital			275,163	278,170
Independent Bank [Member]
Total capital to risk-weighted assets [Abstract]
Total risk-based capital			260,344	261,894
Minimum for Adequately Capitalized Institutions, Amount			137,712	133,514
Minimum for Well Capitalized Institutions, Amount			$ 172,140	$ 166,893
Actual, Ratio			15.12%	15.69%
Minimum for Adequately Capitalized Institutions, Ratio			8.00%	8.00%
Minimum for Well-Capitalized Institutions, Ratio			10.00%	10.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 238,734	$ 240,867
Minimum for Adequately Capitalized Institutions, Amount			103,284	100,136
Minimum for Well-Capitalized Institutions, Amount			$ 137,712	$ 133,514
Actual, Ratio			13.87%	14.43%
Minimum for Adequately Capitalized Institutions, Ratio			6.00%	6.00%
Minimum for Well Capitalized Institutions, Ratio			8.00%	8.00%
Common equity tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 238,734	$ 240,867
Minimum for Adequately Capitalized Institutions, Amount			77,463	75,102
Minimum for Well-Capitalized Institutions, Amount			$ 111,891	$ 108,480
Actual, Ratio			13.87%	14.43%
Minimum for Adequately Capitalized Institutions, Ratio			4.50%	4.50%
Minimum for Well Capitalized Institutions, Ratio			6.50%	6.50%
Tier 1 capital to average assets [Abstract]
Tier 1 capital			$ 238,734	$ 240,867
Minimum for Adequately Capitalized Institutions, Amount			96,737	94,145
Minimum for Well-Capitalized Institutions, Amount			$ 120,921	$ 117,682
Actual, Ratio			9.87%	10.23%
Minimum for Adequately Capitalized Institutions, Ratio			4.00%	4.00%
Minimum for Well-Capitalized Institutions, Ratio			5.00%	5.00%
Components of regulatory capital [Abstract]
Total shareholders' equity			$ 256,850	$ 259,947
Add (deduct) [Abstract]
Accumulated other comprehensive (income) loss for regulatory purposes			(2,514)	238
Intangible assets			(1,264)	(912)
Disallowed deferred tax assets			(14,338)	(18,406)
Common equity tier 1 capital			238,734	240,867
Qualifying trust preferred securities			0	0
Disallowed deferred tax assets			0	0
Tier 1 capital			238,734	240,867
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets			21,610	21,027
Total risk-based capital			$ 260,344	$ 261,894

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Fair Value Disclosures, Significant Assumptions (Details) - USD ($) $ in Thousands		Jun. 30, 2016	Dec. 31, 2015
Fair Value Disclosures [Abstract]
Value of collateral-dependent impaired loans that will be reviewed by independent third party, minimum		$ 250
Value of collateral-dependent impaired loans that will be reviewed by special assets group, maximum		250
Assets [Abstract]
Trading securities		212	$ 148
Securities available for sale		599,755	585,484
Loans held for sale		31,713	27,866
Assets [Abstract]
Capitalized mortgage loan servicing rights		10,007	8,481
U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		31,679	47,512
U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		182,063	196,056
U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		7,996	34,028
Private Label Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		26,246	4,903
Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		139,846	116,904
Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		158,341	144,984
Corporate [Member]
Assets [Abstract]
Securities available for sale		49,527	38,614
Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		2,397	2,483
Foreign Government [Member]
Assets [Abstract]
Securities available for sale		1,660
Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		212	148
Loans held for sale		31,713	27,866
Derivatives	[1]	3,307	1,238
Liabilities [Abstract]
Derivatives	[2]	2,785	619
Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		31,679	47,512
Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		182,063	196,056
Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		7,996	34,028
Fair Value, Measurements, Recurring [Member] | Private Label Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		26,246	4,903
Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		139,846	116,904
Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		158,341	144,984
Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale		49,527	38,614
Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		2,397	2,483
Fair Value, Measurements, Recurring [Member] | Foreign Government [Member]
Assets [Abstract]
Securities available for sale		1,660
Fair Value, Measurements, Nonrecurring [Member]
Assets [Abstract]
Capitalized mortgage loan servicing rights	[3]	10,007	8,481
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	649	711
Land, land development & construction - real estate	[4]	158	40
Commercial and industrial	[4]	1,638	1,257
Mortgage [Abstract]
1-4 Family	[4]	651	421
Resort Lending	[4]		129
Commercial [Abstract]
Land, land development & construction - real estate	[4]	158	40
Commercial and industrial	[4]	1,638	1,257
Mortgage [Abstract]
1-4 Family	[4]	651	421
Resort Lending	[4]		129
Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Land, land development & construction - real estate	[5]	176	639
Commercial and industrial	[5]		165
Mortgage [Abstract]
1-4 Family	[5]	48	26
Resort Lending	[5]	92	107
Commercial [Abstract]
Land, land development & construction - real estate	[5]	176	639
Commercial and industrial	[5]		165
Mortgage [Abstract]
1-4 Family	[5]	48	26
Resort Lending	[5]	92	107
Home equity - 1st lien	[5]		14
Installment [Abstract]
Home equity - 1st lien	[5]		36
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Trading securities		212	148
Securities available for sale		0	0
Derivatives		0	0
Liabilities [Abstract]
Derivatives		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		212	148
Loans held for sale		0	0
Derivatives	[1]	0	0
Liabilities [Abstract]
Derivatives	[2]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Foreign Government [Member]
Assets [Abstract]
Securities available for sale		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets [Abstract]
Capitalized mortgage loan servicing rights	[3]	0	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	0	0
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]		0
Commercial [Abstract]
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]		0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Commercial [Abstract]
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]		0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Home equity - 1st lien	[5]		0
Installment [Abstract]
Home equity - 1st lien	[5]		0
Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Trading securities		0	0
Securities available for sale		599,755	585,484
Derivatives		3,307	1,238
Liabilities [Abstract]
Derivatives		2,785	619
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		0	0
Loans held for sale		31,713	27,866
Derivatives	[1]	3,307	1,238
Liabilities [Abstract]
Derivatives	[2]	2,785	619
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		31,679	47,512
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		182,063	196,056
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		7,996	34,028
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		26,246	4,903
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		139,846	116,904
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		158,341	144,984
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale		49,527	38,614
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		2,397	2,483
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Foreign Government [Member]
Assets [Abstract]
Securities available for sale		1,660
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets [Abstract]
Capitalized mortgage loan servicing rights	[3]	0	0
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	0	0
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]		0
Commercial [Abstract]
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]		0
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]		0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Commercial [Abstract]
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]		0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Home equity - 1st lien	[5]		0
Installment [Abstract]
Home equity - 1st lien	[5]		0
Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Trading securities		0	0
Securities available for sale		0	0
Derivatives		0	0
Liabilities [Abstract]
Derivatives		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		0	0
Loans held for sale		0	0
Derivatives	[1]	0	0
Liabilities [Abstract]
Derivatives	[2]	0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		0	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Foreign Government [Member]
Assets [Abstract]
Securities available for sale		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member]
Assets [Abstract]
Capitalized mortgage loan servicing rights	[3]	10,007	8,481
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	649	711
Land, land development & construction - real estate	[4]	158	40
Commercial and industrial	[4]	1,638	1,257
Mortgage [Abstract]
1-4 Family	[4]	651	421
Resort Lending	[4]		129
Commercial [Abstract]
Land, land development & construction - real estate	[4]	158	40
Commercial and industrial	[4]	1,638	1,257
Mortgage [Abstract]
1-4 Family	[4]	651	421
Resort Lending	[4]		129
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Land, land development & construction - real estate	[5]	176	639
Commercial and industrial	[5]		165
Mortgage [Abstract]
1-4 Family	[5]	48	26
Resort Lending	[5]	92	107
Commercial [Abstract]
Land, land development & construction - real estate	[5]	176	639
Commercial and industrial	[5]		165
Mortgage [Abstract]
1-4 Family	[5]	48	26
Resort Lending	[5]	$ 92	107
Home equity - 1st lien	[5]		14
Installment [Abstract]
Home equity - 1st lien	[5]		$ 36

[1] Included in accrued income and other assets.

[2] Included in accrued expenses and other liabilities.

[3] Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

[4] Only includes impaired loans with specific loss allocations based on collateral value.

[5] Only includes other real estate with subsequent write downs to fair value.

XML

Fair Value Disclosures, Changes in Fair Value for Financial Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Impairment charges recognized [Abstract]
Capitalized mortgage loan servicing rights, carrying amount	$ 10,000		$ 10,000		$ 8,500
Capitalized mortgage loan servicing rights, valuation allowance	5,400		5,400		3,300
Capitalized mortgage loan servicing rights	(600)	$ 1,200	(2,100)	$ 500
Collateral dependent loans, carrying amount	5,400		5,400		5,100
Collateral dependent loans, valuation allowance	2,300		2,300		2,500
Additional provision for loan losses on impaired loans	(100)	500	300	1,000
Other real estate, carrying amount	300		300		1,000
Other real estate, valuation allowance	1,100		1,100		$ 1,700
Other real estate, additional charge	$ 40	$ 220	60	370
Trading Securities [Member]
Changes in fair value for financial assets [Abstract]
Net Gains (Losses) on Assets			64	(23)
Total Change in Fair Values Included in Current Period Earnings			64	(23)
Loans Held For Sale [Member]
Changes in fair value for financial assets [Abstract]
Net Gains (Losses) on Assets			478	(121)
Total Change in Fair Values Included in Current Period Earnings			$ 478	$ (121)

XML

Fair Value Disclosures, Quantitative Information About Level 3 (Details) - USD ($)		3 Months Ended	6 Months Ended	12 Months Ended
		Jun. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Asset (Liability) Fair Value [Abstract]
Capitalized mortgage loan servicing rights		$ 10,007,000	$ 10,007,000	$ 8,481,000
Impaired Loans Commercial [Member]
Impaired loan [Abstract]
Commercial	[1]	2,240,000	$ 2,240,000	1,605,000
Unobservable Inputs Weighted Average [Abstract]
Total impaired collateral value		200,000		$ 400,000
Impaired Loans Commercial [Member] | Minimum [Member]
Unobservable Inputs Weighted Average [Abstract]
Discount rate			0.00%	0.00%
Impaired Loans Commercial [Member] | Maximum [Member]
Unobservable Inputs Weighted Average [Abstract]
Discount rate			100.00%	100.00%
Mortgage [Member]
Impaired loan [Abstract]
Mortgage		651,000	$ 651,000	$ 550,000
Other Real Estate Commercial [Member]
Other real estate [Abstract]
Commercial		176,000	176,000	804,000
Mortgage and Installment [Member]
Other real estate [Abstract]
Mortgage and installment		$ 140,000	$ 140,000	$ 183,000
Income Approach [Member] | Impaired Loans Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Capitalization rate				9.30%
Present Value of Net Servicing Revenue [Member]
Unobservable Inputs Weighted Average [Abstract]
Discount rate			10.05%	10.04%
Cost to service			$ 80	$ 80
Ancillary income			$ 24	$ 24
Float rate			0.98%	1.73%
Sales Comparison Approach [Member] | Impaired Loans Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales			(1.50%)	(2.10%)
Sales Comparison Approach [Member] | Mortgage [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales			4.20%	0.70%
Sales Comparison Approach [Member] | Other Real Estate Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales			(22.50%)	(3.90%)
Sales Comparison Approach [Member] | Mortgage and Installment [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales			73.80%	75.60%

[1] In addition to the valuation techniques and unobservable inputs discussed above, at June 30, 2016 and December 31, 2015, we had an impaired collateral dependent commercial relationship that totaled $0.2 million and $0.4 million, respectively that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment and inventory at June 30, 2016 and December 31, 2015. Valuation techniques at June 30, 2016 and December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type. Discount rates used ranged from 0% to 100% of stated values.

XML

Fair Value Disclosures, Difference Between Aggregate Fair Value and Aggregate Remaining Contractual Principal (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair value option - Loans held for sale [Abstract]
Loans held for sale	$ 31,713	$ 27,866
Difference	1,192	714
Contractual Principal	$ 30,521	$ 27,152

XML

Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands		Jun. 30, 2016	Dec. 31, 2015
Assets [Abstract]
Interest bearing deposits - time		$ 8,560	$ 11,866
Trading securities		212	148
Securities available for sale		599,755	585,484
Federal Home Loan Bank and Federal Reserve Bank Stock		15,229	15,471
Liabilities [Abstract]
Other borrowings		11,797	11,954
Subordinated debentures		35,569	35,569
Reciprocal deposits included in deposits with no stated maturity		12,400	11,800
Reciprocal deposits included in deposits with stated maturity		37,000	38,400
Recorded Book Balance [Member]
Assets [Abstract]
Cash and due from banks		34,542	54,260
Interest bearing deposits		26,488	31,523
Interest bearing deposits - time		8,560	11,866
Trading securities		212	148
Securities available for sale		599,755	585,484
Federal Home Loan Bank and Federal Reserve Bank Stock		15,229	15,471
Net loans and loans held for sale		1,591,123	1,520,346
Accrued interest receivable		6,767	6,565
Derivative financial instruments		3,307	1,238
Liabilities [Abstract]
Deposits with no stated maturity	[1]	1,687,965	1,659,743
Deposits with stated maturity	[1]	440,327	426,220
Other borrowings		11,797	11,954
Subordinated debentures		35,569	35,569
Accrued interest payable		536	466
Derivative financial instruments		2,785	619
Fair Value [Member]
Assets [Abstract]
Cash and due from banks		34,542	54,260
Interest bearing deposits		26,488	31,523
Interest bearing deposits - time		8,600	11,858
Trading securities		212	148
Securities available for sale		599,755	585,484
Net loans and loans held for sale		1,566,760	1,472,613
Accrued interest receivable		6,767	6,565
Derivative financial instruments		3,307	1,238
Liabilities [Abstract]
Deposits with no stated maturity	[1]	1,687,965	1,659,743
Deposits with stated maturity	[1]	439,916	423,776
Other borrowings		13,152	13,448
Subordinated debentures		22,445	23,069
Accrued interest payable		536	466
Derivative financial instruments		2,785	619
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Cash and due from banks		34,542	54,260
Interest bearing deposits		26,488	31,523
Interest bearing deposits - time		0	0
Trading securities		212	148
Securities available for sale		0	0
Net loans and loans held for sale		0	0
Accrued interest receivable		3	5
Derivative financial instruments		0	0
Liabilities [Abstract]
Deposits with no stated maturity	[1]	1,687,965	1,659,743
Deposits with stated maturity	[1]	0	0
Other borrowings		0	0
Subordinated debentures		0	0
Accrued interest payable		18	21
Derivative financial instruments		0	0
Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Cash and due from banks		0	0
Interest bearing deposits		0	0
Interest bearing deposits - time		8,600	11,858
Trading securities		0	0
Securities available for sale		599,755	585,484
Net loans and loans held for sale		31,713	27,866
Accrued interest receivable		2,178	1,969
Derivative financial instruments		3,307	1,238
Liabilities [Abstract]
Deposits with no stated maturity	[1]	0	0
Deposits with stated maturity	[1]	439,916	423,776
Other borrowings		13,152	13,448
Subordinated debentures		22,445	23,069
Accrued interest payable		518	445
Derivative financial instruments		2,785	619
Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Cash and due from banks		0	0
Interest bearing deposits		0	0
Interest bearing deposits - time		0	0
Trading securities		0	0
Securities available for sale		0	0
Net loans and loans held for sale		1,535,047	1,444,747
Accrued interest receivable		4,586	4,591
Derivative financial instruments		0	0
Liabilities [Abstract]
Deposits with no stated maturity	[1]	0	0
Deposits with stated maturity	[1]	0	0
Other borrowings		0	0
Subordinated debentures		0	0
Accrued interest payable		0	0
Derivative financial instruments		$ 0	$ 0

[1] Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $12.4 million and $11.8 million at June 30, 2016 and December 31, 2015, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $37.0 million and $38.4 million at June 30, 2016 and December 31, 2015, respectively.

XML

Contingent Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2016	Mar. 31, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Loss Contingencies [Line Items]
Cash payment for litigation settlement relating to collection of vehicle service contracts counterparty receivables		$ 4,000
Aggregate amount of counterparty obligations	$ 3,036			$ 3,036		$ 7,229
Vehicle service contract counterparty contingencies	(1)		$ 30	29	$ 59
Provision for loss reimbursement on sold loans	0		$ 45	(15)	$ (24)
Reserve for loss reimbursement on sold mortgage loans	500			500		$ 500
Promissory Note [Member]
Loss Contingencies [Line Items]
Notes payable amount of settlement to counterparties	$ 1,500
Term of note	5 years
Full reserve on the remaining balance				1,450
Pending Litigation [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Estimate of reasonably possible loss	$ 1,000			$ 1,000
Accounts Receivables Due to Mepco [Member] | Minimum [Member]
Loss Contingencies [Line Items]
Installment payments period for service contract				12 months
Accounts Receivables Due to Mepco [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Installment payments period for service contract				24 months

XML

Accumulated Other Comprehensive Loss ("AOCL") (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period			$ 251,092	$ 250,371
Other comprehensive income (loss) before reclassifications	$ 1,588	$ (1,188)	2,937	295
Amounts reclassified from AOCL	(72)	0	(184)	(49)
Net current period other comprehensive income (loss)	1,516	(1,188)	2,753	246
Balance at end of period	246,923	254,375	246,923	254,375
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications before tax	9,049	8,243	15,106	13,804
Income tax expense	2,611	2,624	4,568	4,404
Reclassifications, net of tax	6,438	5,619	10,538	9,400
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period	(4,799)	(4,202)	(6,036)	(5,636)
Balance at end of period	(3,283)	(5,390)	(3,283)	(5,390)
Unrealized Gains (Losses) on Securities Available For Sale [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period	999	1,596	(238)	162
Other comprehensive income (loss) before reclassifications	1,588	(1,188)	2,937	295
Amounts reclassified from AOCL	(72)	0	(184)	(49)
Net current period other comprehensive income (loss)	1,516	(1,188)	2,753	246
Balance at end of period	2,515	408	2,515	408
Unrealized Gains (Losses) on Securities Available For Sale [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gains on securities	109	0	283	75
Net impairment loss recognized in earnings	0	0	0	0
Total reclassifications before tax	109	0	283	75
Income tax expense	37	0	99	26
Reclassifications, net of tax	72	0	184	49
Disproportionate Tax Effects from Securities Available for Sale [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period	(5,798)	(5,798)	(5,798)	(5,798)
Other comprehensive income (loss) before reclassifications	0	0	0	0
Amounts reclassified from AOCL	0	0	0	0
Net current period other comprehensive income (loss)	0	0	0	0
Balance at end of period	$ (5,798)	$ (5,798)	$ (5,798)	$ (5,798)