LOANS (Tables)

9 Months Ended

Sep. 30, 2016

Schedule of composition of loans

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

	September 30,		December 31,
	2016		2015
Commercial real estate	$	362,858	$	312,805
Commercial, financial, and agricultural		136,065		122,140
One to four family residential real estate		211,072		140,502
Construction :
Consumer		11,768		11,770
Commercial		14,343		15,330
Consumer		20,698		15,847
Total loans	$	756,804	$	618,394

Schedule of the accretable yield by acquisition

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

	Peninsula						Eagle						Niagara
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2015	$	426	$	1,342	$	1,768	$	—	$	—	$	—	$	—	$	—	$	—
Acquisitions		—		—		—		391		1,700		2,091		88		600		688
Accretion		—		(525)		(525)		—		(299)		(299)		—		(49)		(49)
Reclassification from nonaccretable difference		(80)		—		(80)		(54)		—		(54)		—		—		—
Balance, September 30, 2016	$	346	$	817	$	1,163	$	337	$	1,401	$	1,738	$	88	$	551	$	639

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

	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Balance, December 31, 2014	$	744	$	2,042	$	2,786
Accretion		(429)		(525)		(954)
Reclassification from nonaccretable difference		188		—		188
Balance, September 30, 2015	$	503	$	1,517	$	2,020

Schedule of the allowance for loan losses

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

	September 30,		December 31,
	2016		2015
Balance, January 1	$	5,004	$	5,140
Recoveries on loans previously charged off		120		690
Loans charged off		(612)		(2,030)
Provision		350		1,204
Balance at end of period	$	4,862	$	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 September 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 September 30, 2016
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,824		700	$	78	$	348	$	5	$	23	$	1,755	$	4,733
Charge-offs		(20)		—		—		(76)		—		(10)		—		(106)
Recoveries		17		4		—		2		—		12		—		35
Provision		(235)		(180)		(16)		133		1		49		448		200
Ending balance ALLR	$	1,586	$	524	$	62	$	407	$	6	$	74	$	2,203	$	4,862
Nine Months Ended September 30, 2016
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,611	$	645	$	79	$	274	$	7	$	64	$	2,324	$	5,004
Charge-offs		(245)		(206)		—		(125)		—		(36)		—		(612)
Recoveries		40		40		—		4		7		29		—		120
Provision		180		45		(17)		254		(8)		17		(121)		350
Ending balance ALLR	$	1,586	$	524	$	62	$	407	$	6	$	74	$	2,203	$	4,862
At September 30, 2016
Loans:
Ending balance	$	362,858	$	136,065	$	14,343	$	211,072	$	11,768	$	20,698	$	—	$	756,804
Ending balance ALLR		(1,586)		(524)		(62)		(407)		(6)		(74)		(2,203)		(4,862)
Net loans	$	361,272	$	135,541	$	14,281	$	210,665	$	11,762	$	20,624	$	(2,203)	$	751,942
Ending balance ALLR:
Individually evaluated	$	570	$	252	$	—	$	68	$	—	$	64	$	—	$	954
Collectively evaluated		1,016		272		62		339		6		10		2,203		3,908
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Total	$	1,586	$	524	$	62	$	407	$	6	$	74	$	2,203	$	4,862
Ending balance Loans:
Individually evaluated	$	2,035	$	329	$	—	$	1,038	$	—	$	288	$	—	$	3,690
Collectively evaluated		357,030		135,736		14,343		206,199		11,709		20,410		—		745,427
Acquired with deteriorated credit quality		3,793		—		—		3,835		59		—		—		7,687
Total	$	362,858	$	136,065	$	14,343	$	211,072	$	11,768	$	20,698	$	—	$	756,804

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 September 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 September 30, 2015
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,550	$	2,571	$	128	$	282	$	5	$	27	$	37	$	5,600
Charge-offs		(52)		(57)		—		(62)		—		(36)		—		(207)
Recoveries		28		3		—		—		—		5		—		36
Provision		(221)		355		(17)		74		2		46		111		350
Ending balance ALLR	$	2,305	$	2,872	$	111	$	294	$	7	$	42	$	148	$	5,779
Nine Months Ended September 30, 2015
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,813	$	1,539	$	142	$	285	$	6	$	13	$	342	$	5,140
Charge-offs		(52)		(157)		—		(92)		—		(64)		—		(365)
Recoveries		120		3		—		1		1		24		—		149
Provision		(576)		1,487		(31)		100		—		69		(194)		855
Ending balance ALLR	$	2,305	$	2,872	$	111	$	294	$	7	$	42	$	148	$	5,779
At September 30, 2015
Loans:
Ending balance	$	310,025	$	120,804	$	15,498	$	144,807	$	11,957	$	16,815	$	—	$	619,906
Ending balance ALLR		(2,305)		(2,872)		(111)		(294)		(7)		(42)		(148)		(5,779)
Net loans	$	307,720	$	117,932	$	15,387	$	144,513	$	11,950	$	16,773	$	(148)	$	614,127
Ending balance ALLR:
Individually evaluated	$	518	$	1,927	$	—	$	56	$	—	$	23	$	—	$	2,524
Collectively evaluated		1,787		945		111		238		7		19		148		3,255
Total	$	2,305	$	2,872	$	111	$	294	$	7	$	42	$	148	$	5,779
Ending balance Loans:
Individually evaluated	$	1,924	$	4,728	$	—	$	394	$	—	$	46	$	—	$	7,092
Collectively evaluated		303,390		115,897		15,496		140,789		11,957		16,767		—		604,296
Acquired with deteriorated credit quality		4,711		179		2		3,624		—		2		—		8,518
Total	$	310,025	$	120,804	$	15,498	$	144,807	$	11,957	$	16,815	$	—	$	619,906

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of September 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	$	3,592	$	24,337	$	119,657	$	209,084	$	—	$	6,188	$	—	$	—	$	362,858
Commercial, financial and agricultural		9,835		10,946		46,722		67,037		—		1,525		—		—		136,065
Commercial construction		—		912		3,093		4,116		—		404		—		5,818		14,343
One-to-four family residential real estate		545		1,304		3,534		9,133		—		5,284		—		191,272		211,072
Consumer construction		29		—		—		707		—		18		—		11,014		11,768
Consumer		23		—		16		2		—		64		—		20,593		20,698
Total loans	$	14,024	$	37,499	$	173,022	$	290,079	$	—	$	13,483	$	—	$	228,697	$	756,804

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				Nine 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
September 30, 2016
With no valuation reserve:
Commercial real estate	$	593	$	3,272	$	4,011	$	4,273	$	—	$	—	$	29	$	295	$	330
Commercial, financial and agricultural		—		—		109		208		—		—		—		6		10
Commercial construction		—		—		—		—		—		—		—		—		—
One to four family residential real estate		2,107		3,360		4,697		4,141		—		—		4		237		266
Consumer construction		18		59		18		19		—		—		—		4		4
Consumer		9		—		84		72		—		—		—		—		1
With a valuation reserve:
Commercial real estate	$	1,528	$	—	$	1,226	$	702	$	170	$	—	$	—		—	$	—
Commercial, financial and agricultural		328		—		—		—		231		—		—		—		—
Commercial construction		—		—		—		—		—		—		—		—		—
One to four family residential real estate		—		—		94		91		—		—		—		—		—
Consumer construction		—		—		—		—		—		—		—		—		—
Consumer		54		—		5		6		53		—		—		—		—
Total:
Commercial real estate	$	2,121	$	3,272	$	5,237	$	4,975	$	170	$	—	$	29	$	295	$	330
Commercial, financial and agricultural		328		—		109		208		231		—		—		6		10
Commercial construction		—		—		—		—		—		—		—		—		—
One to four family residential real estate		2,107		3,360		4,791		4,232		—		—		4		237		266
Consumer construction		18		59		18		19		—		—		—		4		4
Consumer		63		—		89		78		53		—		—		—		1
Total	$	4,637	$	6,691	$	10,244	$	9,512	$	454	$	—	$	33	$	542	$	611

									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				Nine 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
September 30, 2015
With no valuation reserve:
Commercial real estate	$	692	$	3,978	$	4,740	$	5,344	$	—	$	41	$	45	$	574	$	611
Commercial, financial and agricultural		—		179		219		357		—		2		2		21		23
Commercial construction		—		—		—		103		—		—		0		3		7
One to four family residential real estate		1,017		2,584		3,968		4,401		—		33		37		105		150
Consumer construction		21		2		76		117		—		—		—		—		1
Consumer		5		2		20		20		—		—		—		1		1
With a valuation reserve:
Commercial real estate	$	929	$	—	$	929	$	686	$	118	$	—	$	6	$	—	$	26
Commercial, financial and agricultural		4,706		—		4,747		3,935		1,927		—		50		—		140
Commercial construction		—		—		—		—		—		—		—		—		0
One to four family residential real estate		597		—		576		546		84		—		0		—		12
Consumer construction		—		—		—		—		—		—		—		—		—
Consumer		61		—		20		20		—		—		—		—		—
Total:
Commercial real estate	$	1,621	$	3,978	$	5,669	$	6,030	$	118	$	41	$	51	$	574	$	637
Commercial, financial and agricultural		4,706		179		4,966		4,292		1,927		2		52		21		163
Commercial construction		—		—		—		103		—		—		—		3		7
One to four family residential real estate		1,614		2,584		4,544		4,947		84		33		37		105		162
Consumer construction		21		2		76		117		—		—		—		—		1
Consumer		66		2		40		40		—		—		—		1		1
Total	$	8,028	$	6,745	$	15,295	$	15,529	$	2,129	$	76	$	140	$	704	$	971

Summary of past due loans

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

	September 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	$	1,008	$	2,122	$	3,130	$	521	$	471	$	992
Commercial, financial and agricultural		1,710		328		2,038		222		460		682
Commercial construction		678		34		712		270		—		270
One to four family residential real estate		1,381		2,106		3,487		807		1,528		2,335
Consumer construction		—		—		—		—		20		20
Consumer		198		77		275		130		60		190
Total past due loans	$	4,975	$	4,667	$	9,642	$	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):

	Nine Months Ended		Year ended
	September 30,		December 31,
	2016		2015
Loans outstanding, January 1	$	6,887	$	8,789
New loans		—		—
Net activity on revolving lines of credit		1,720		778
Repayment		(2,269)		(2,680)
Loans outstanding at end of period	$	6,338	$	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

Niagara Bancorporation

Schedule of acquired portfolio at acquisition date

	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	2,105	$	29,936	$	32,041
Nonaccretable difference		(265)		—		(265)
Expected cash flows		1,840		29,936		31,776
Accretable yield		(88)		(600)		(688)
Carrying balance at acquisition date	$	1,752	$	29,336	$	31,088