LOANS (Tables)

6 Months Ended

Jun. 30, 2016

The composition of loans is as follows (dollars in thousands):


	June 30,		December 31,
	2016		2015

Commercial real estate	$	354,878	$	312,805
Commercial, financial, and agricultural		130,054		122,140
One to four family residential real estate		194,167		140,502
Construction :
Consumer		11,840		11,770
Commercial		18,576		15,330
Consumer		16,120		15,847

Total loans	$	725,635	$	618,394

Schedule of the accretable yield by acquisition

The table below presents a rollforward of the accretable yield on acquired loans for the six months ended June 30, 2016 (dollars in thousands):


	Peninsula						Eagle
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total

Balance, December 31, 2015	$	426	$	1,342	$	1,768	$	—	$	—	$	—
Acquisition of Eagle River		—		—		—		391		1,700		2,091
Accretion		—		(350)		(350)		—		(94)		(94)
Reclassification from nonaccretable difference		(68)		—		(68)		—		—		—
Balance, June 30, 2016	$	358	$	992	$	1,350	$	391	$	1,606	$	1,997

The table below presents a rollforward of the accretable yield on acquired loans for the six months ended June 30, 2015 (dollars in thousands):


	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total

Balance, December 31, 2014	$	744	$	2,042	$	2,786
Accretion		(429)		(350)		(779)
Reclassification from nonaccretable difference		188		—		188
Balance, June 30, 2015	$	503	$	1,692	$	2,195

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the six months ended June 30, 2016 and the year ended December 31, 2015 is as follows (dollars in thousands):


	June 30,		December 31,
	2016		2015

Balance, January 1	$	5,004	$	5,140
Recoveries on loans previously charged off		84		690
Loans charged off		(505)		(2,030)
Provision		150		1,204

Balance at end of period	$	4,733	$	5,004

Schedule of breakdown of the allowance for loan losses and recorded balances in loans

A breakdown of the allowance for loan losses and recorded balances in loans at June 30, 2016 is as follows (dollars in thousands):


			Commercial,				One to four
	Commercial		financial and		Commercial		family residential		Consumer
	real estate		agricultural		construction		real estate		construction		Consumer		Unallocated		Total
Three Months Ended June 30, 2016
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,615	$	580	$	74	$	257	$	7	$	40	$	2,251	$	4,824
Charge-offs		(224)		(25)		—		(10)		—		(10)		—		(269)
Recoveries		15		10		—		1		—		2		—		28
Provision		418		135		4		100		(2)		(9)		(496)		150
Ending balance ALLR	$	1,824	$	700	$	78	$	348	$	5	$	23	$	1,755	$	4,733

Six Months Ended June 30, 2016
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,611	$	645	$	79	$	274	$	7	$	64	$	2,324	$	5,004
Charge-offs		(224)		(214)		—		(49)		—		(18)		—		(505)
Recoveries		22		49		—		2		7		4		—		84
Provision		415		220		(1)		121		(9)		(27)		(569)		150
Ending balance ALLR	$	1,824	$	700	$	78	$	348	$	5	$	23	$	1,755	$	4,733

At June 30, 2016
Loans:
Ending balance	$	354,878	$	130,054	$	18,576	$	194,167	$	11,840	$	16,120	$	—	$	725,635
Ending balance ALLR		(1,824)		(700)		(78)		(348)		(5)		(23)		(1,755)		(4,733)
Net loans	$	353,054	$	129,354	$	18,498	$	193,819	$	11,835	$	16,097	$	(1,755)	$	720,902

Ending balance ALLR:
Individually evaluated	$	533	$	252	$	—	$	48	$	—	$	16	$	—	$	849
Collectively evaluated		1,291		448		78		300		5		7		1,755		3,884
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Total	$	1,824	$	700	$	78	$	348	$	5	$	23	$	1,755	$	4,733

Ending balance Loans:
Individually evaluated	$	1,755	$	354	$	—	$	1,021	$	—	$	48	$	—	$	3,178
Collectively evaluated		347,677		129,647		18,576		188,033		11,760		16,070		—		711,763
Acquired with deteriorated credit quality		5,446		53		—		5,113		80		2		—		10,694
Total	$	354,878	$	130,054	$	18,576	$	194,167	$	11,840	$	16,120	$	—	$	725,635

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans as of and for the twelve months ended December 31, 2015 is as follows (dollars in thousands):


			Commercial,				One to four
	Commercial		financial and		Commercial		family residential		Consumer
	real estate		agricultural		construction		real estate		construction		Consumer		Unallocated		Total
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,813	$	1,539	$	142	$	285	$	6	$	13	$	342	$	5,140
Charge-offs		(52)		(1,749)		—		(142)		—		(87)		—		(2,030)
Recoveries		588		22		52		2		—		26		—		690
Provision		(1,738)		833		(115)		129		1		112		1,982		1,204
Ending balance ALLR	$	1,611	$	645	$	79	$	274	$	7	$	64	$	2,324	$	5,004

Loans:
Ending balance	$	312,805	$	122,140	$	15,330	$	140,502	$	11,770	$	15,847	$	—	$	618,394
Ending balance ALLR		(1,611)		(645)		(79)		(274)		(7)		(64)		(2,324)		(5,004)
Net loans	$	311,194	$	121,495	$	15,251	$	140,228	$	11,763	$	15,783	$	(2,324)	$	613,390

Ending balance ALLR:
Individually evaluated	$	420	$	192	$	—	$	60	$	—	$	55	$	—	$	727
Collectively evaluated		1,191		453		79		214		7		9		2,324		4,277
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Total	$	1,611	$	645	$	79	$	274	$	7	$	64	$	2,324	$	5,004

Ending balance Loans:
Individually evaluated	$	1,086	$	617	$	—	$	325	$	83	$	—	$	—	$	2,111
Collectively evaluated		307,336		121,345		15,330		136,940		11,686		15,845		—		608,482
Acquired with deteriorated credit quality		4,383		178		—		3,237		1		2		—		7,801
Total	$	312,805	$	122,140	$	15,330	$	140,502	$	11,770	$	15,847	$	—	$	618,394

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at June 30, 2015 is as follows (dollars in thousands):


			Commercial,				One to four
	Commercial		financial and		Commercial		family residential		Consumer
	real estate		agricultural		construction		real estate		construction		Consumer		Unallocated		Total
Three Months Ended June 30, 2015
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,770	$	2,353	$	144	$	244	$	6	$	19	$	(9)	$	5,527
Charge-offs		—		(110)		—		(30)		—		(7)		—		(147)
Recoveries		11		—		—		1		—		8		—		20
Provision		(231)		328		(16)		67		(1)		7		46		200
Ending balance ALLR	$	2,550	$	2,571	$	128	$	282	$	5	$	27	$	37	$	5,600

Six Months Ended June 30, 2015
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,813	$	1,539	$	142	$	285	$	6	$	13	$	342	$	5,140
Charge-offs		—		(110)		—		(30)		—		(18)		—		(158)
Recoveries		92		—		—		1		1		19		—		113
Provision		(355)		1,142		(14)		26		(2)		13		(305)		505
Ending balance ALLR	$	2,550	$	2,571	$	128	$	282	$	5	$	27	$	37	$	5,600

At June 30, 2015
Loans:
Ending balance	$	320,013	$	107,205	$	19,868	$	142,276	$	8,722	$	17,163	$	—	$	615,247
Ending balance ALLR		(2,550)		(2,571)		(128)		(282)		(5)		(27)		(37)		(5,600)
Net loans	$	317,463	$	104,634	$	19,740	$	141,994	$	8,717	$	17,136	$	(37)	$	609,647

Ending balance ALLR:
Individually evaluated	$	570	$	1,591	$	—	$	53	$	—	$	18	$	—	$	2,232
Collectively evaluated		1,980		980		128		229		5		9		37		3,368
Total	$	2,550	$	2,571	$	128	$	282	$	5	$	27	$	37	$	5,600

Ending balance Loans:
Individually evaluated	$	1,984	$	4,905	$	—	$	368	$	—	$	33	$	—	$	7,290
Collectively evaluated		312,969		102,110		19,762		137,846		8,722		17,127		—		598,536
Acquired with deteriorated credit quality		5,060		190		106		4,062		—		3		—		9,421
Total	$	320,013	$	107,205	$	19,868	$	142,276	$	8,722	$	17,163	$	—	$	615,247

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of June 30, 2016 (dollars in thousands):


							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	1	$	25,183	$	118,729	$	204,188	$	—	$	6,777	$	—	$	—	$	354,878
Commercial, financial and agricultural		5,829		3,977		52,084		66,556		—		1,608		—		—		130,054
Commercial construction		—		942		3,882		7,329		—		407		—		6,016		18,576
One-to-four family residential real estate		501		1,510		3,677		9,329		—		5,829		—		173,321		194,167
Consumer construction		29		—		—		—		—		21		—		11,790		11,840
Consumer		19		—		16		2		—		60		—		16,023		16,120

Total loans	$	6,379	$	31,612	$	178,388	$	287,404	$	—	$	14,702	$	—	$	207,150	$	725,635

Below is a breakdown of loans by risk category as of December 31, 2015 (dollars in thousands):


							(4)
	(1)		(2)		(3)		Acceptable/		(5)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable Watch		Sp. Mention		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	2,072	$	26,197	$	113,868	$	164,954	$	—	$	5,714	$	—	$	—	$	312,805
Commercial, financial and agricultural		13,067		5,954		47,194		53,791		—		2,134		—		—		122,140
Commercial construction		—		400		3,869		8,257		—		395		—		2,409		15,330
One-to-four family residential real estate		591		1,222		3,172		4,078		—		4,093		—		127,346		140,502
Consumer construction		—		—		—		—		—		—		—		11,770		11,770
Consumer		24		—		19		—		—		61		—		15,743		15,847

Total loans	$	15,754	$	33,773	$	168,122	$	231,080	$	—	$	12,397	$	—	$	157,268	$	618,394

Summary of impaired loans and their effect on interest income

The following is a summary of impaired loans and their effect on interest income (dollars in thousands):


											Three Months Ended				Six Months Ended
					QTD		YTD				Interest Income		Interest Income		Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Average		Related		Recognized		on		Recognized		on
	Basis		Basis		Investment		Investment		Valuation Reserve		During Impairment		Accrual Basis		During Impairment		Accrual Basis
June 30, 2016

With no valuation reserve:
Commercial real estate	$	614	$	3,344	$	4,502	$	4,354	$	—	$	71	$	80	$	295	$	311
Commercial, financial and agricultural		—		—		75		243		—		—		—		6		10
Commercial construction		—		—		—		—		—		—		—		—		—
One to four family residential real estate		1,247		3,168		4,291		3,914		—		110		121		237		262
Consumer construction		19		—		20		20		—		4		4		4		4
Consumer		53		—		54		56		—		—		—		—		1

With a valuation reserve:
Commercial real estate	$	1,233	$	—	$	912	$	475	$	113	$	—	$	—		—	$	—
Commercial, financial and agricultural		—		—		—		—		—		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—		—
One to four family residential real estate		149		—		104		90		39		—		—		—		—
Consumer construction		—		—		—		—		—		—		—		—		—
Consumer		6		—		6		7		6		—		—		—		—

Total:
Commercial real estate	$	1,847	$	3,344	$	5,414	$	4,829	$	113	$	71	$	80	$	295	$	311
Commercial, financial and agricultural		—		—		75		243		—		—		—		6		10
Commercial construction		—		—		—		—		—		—		—		—		—
One to four family residential real estate		1,396		3,168		4,395		4,004		39		110		121		237		262
Consumer construction		19		—		20		20		—		4		4		4		4
Consumer		59		—		60		63		6		—		—		—		1
Total	$	3,321	$	6,512	$	9,964	$	9,159	$	158	$	185	$	205	$	542	$	588


									Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Related		Recognized		on
	Basis		Basis		Investment		Valuation Reserve		During Impairment		Accrual Basis
December 31, 2015

With no valuation reserve:
Commercial real estate	$	471	$	4,051	$	7,205	$	—	$	576	$	655
Commercial, financial and agricultural		—		1,778		4,849		—		78		214
Commercial construction		—		—		260		—		3		6
One to four family residential real estate		1,267		2,385		5,413		—		137		205
Consumer construction		20		2		99		—		—		1
Consumer		50		1		102		—		1		2

With a valuation reserve:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	—
Commercial, financial and agricultural		460		—		699		192		—		36
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		229		—		232		58		—		6
Consumer construction		—		—		—		—		—		—
Consumer		10		0		10		1		0		0

Total:
Commercial real estate	$	471	$	4,051	$	7,205	$	—	$	576	$	655
Commercial, financial and agricultural		460		1,778		5,548		192		78		250
Commercial construction		—		—		260		—		3		6
One to four family residential real estate		1,496		2,385		5,645		58		137		211
Consumer construction		20		2		99		—		—		1
Consumer		60		1		112		1		1		2
Total	$	2,507	$	8,217	$	18,869	$	251	$	795	$	1,125


											Three Months Ended				Six Months Ended
					QTD		YTD				Interest Income		Interest Income		Interest Income		Interest Income
	Nonaccrual		Accrual		Average		Average		Related		Recognized		on		Recognized		on
	Basis		Basis		Investment		Investment		Valuation Reserve		During Impairment		Accrual Basis		During Impairment		Accrual Basis
June 30, 2015

With no valuation reserve:
Commercial real estate	$	1,418	$	3,328	$	4,862	$	5,607	$	—	$	66	$	83	$	533	$	566
Commercial, financial and agricultural		69		190		229		517		—		2		3		19		21
Commercial construction		—		106		174		281		—		1		1		3		7
One to four family residential real estate		1,291		2,645		4,094		4,708		—		36		52		72		113
Consumer construction		22		—		23		131		—		—		1		—		1
Consumer		29		3		30		21		—		—		—		1		1

With a valuation reserve:
Commercial real estate	$	981	$	—	$	981	$	753	$	570	$	—	$	15	$	—	$	20
Commercial, financial and agricultural		4,836		—		5,704		3,599		1,591		—		71		—		90
Commercial construction		—		—		—		—		—		—		—		—		0
One to four family residential real estate		866		—		667		599		—		—		10		—		12
Consumer construction		—		—		—		—		82		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—

Total:
Commercial real estate	$	2,399	$	3,328	$	5,843	$	6,360	$	570	$	66	$	98	$	533	$	586
Commercial, financial and agricultural		4,905		190		5,933		4,116		1,591		2		74		19		111
Commercial construction		—		106		174		281		—		1		1		3		7
One to four family residential real estate		2,157		2,645		4,761		5,307		—		36		62		72		125
Consumer construction		22		—		23		131		82		—		1		—		1
Consumer		29		3		30		21		—		—		—		1		1
Total	$	9,512	$	6,272	$	16,764	$	16,216	$	2,243	$	105	$	236	$	628	$	831

Summary of past due loans

A summary of past due loans at June 30, 2016 and December 31, 2015 is as follows (dollars in thousands):


	June 30,						December 31,
	2016						2015
	30-89 days		90+ days				30-89 days		90+ days
	Past Due		Past Due/				Past Due		Past Due/
	(accruing)		Nonaccrual		Total		(accruing)		Nonaccrual		Total

Commercial real estate	$	1,189	$	550	$	1,739	$	521	$	471	$	992
Commercial, financial and agricultural		550		21		571		222		460		682
Commercial construction		24		—		24		270		—		270
One to four family residential real estate		374		1,063		1,437		807		1,528		2,335
Consumer construction		—		19		19		—		20		20
Consumer		985		64		1,049		130		60		190

Total past due loans	$	3,122	$	1,717	$	4,839	$	1,950	$	2,539	$	4,489

Schedule of activity in insider loans granted to the entity's executive officers and directors, including their families and firms

The Bank, in the ordinary course of business, grants loans to the Corporation’s executive officers and directors, including their families and firms in which they are principal owners. Activity in such loans is summarized below (dollars in thousands):


	Six Months Ended		Year ended
	June 30,		December 31,
	2016		2015
Loans outstanding, January 1	$	6,887	$	8,789
New loans		—		—
Net activity on revolving lines of credit		895		778
Repayment		(2,090)		(2,680)

Loans outstanding at end of period	$	5,692	$	6,887

Peninsula Financial Corporation

Schedule of acquired portfolio at acquisition date


	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	13,290	$	53,849	$	67,139
Nonaccretable difference		(2,234)		—		(2,234)
Expected cash flows		11,056		53,849		64,905
Accretable yield		(744)		(2,100)		(2,844)
Carrying balance at acquisition date	$	10,312	$	51,749	$	62,061

Eagle

Schedule of acquired portfolio at acquisition date

The table below details the outstanding balances of the Eagle acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands):


	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	3,401	$	82,639	$	86,040
Nonaccretable difference		(1,172)		—		(1,172)
Expected cash flows		2,229		82,639		84,868
Accretable yield		(391)		(1,700)		(2,091)
Carrying balance at acquisition date	$	1,838	$	80,939	$	82,777