LOANS (Tables)

3 Months Ended

Mar. 31, 2017

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


	March 31,		December 31,
	2017		2016

Commercial real estate	$	397,192	$	389,420
Commercial, financial, and agricultural		144,673		142,648
Commercial construction		10,618		11,505
One to four family residential real estate		202,654		205,945
Consumer		19,021		20,113
Consumer construction		12,388		12,226

Total loans	$	786,546	$	781,857

Schedule of the accretable yield by acquisition

The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2017 (dollars in thousands):


	PFC						Eagle River						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, 2016	$	282	$	642	$	924	$	236	$	1,221	$	1,457	$	52	$	505	$	557
Accretion		(100)		(175)		(275)		—		(179)		(179)		—		(72)		(72)
Reclassification from nonaccretable difference		57		—		57		—		—		—		(8)		—		(8)
Balance, March 31, 2017	$	239	$	467	$	706	$	236	$	1,042	$	1,278	$	44	$	433	$	477

The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2016 (dollars in thousands):


	PFC
	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total

Balance, December 31, 2015	$	426	$	1,342	$	1,768
Accretion		—		(175)		(175)
Reclassification from nonaccretable difference		(17)		—		(17)
Balance, March 31, 2016	$	409	$	1,167	$	1,576

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the three months ended March 31, 2017 and the year ended December 31, 2016 is as follows (dollars in thousands):


	March 31,		March 31,
	2017		2016

Balance, January 1	$	5,020	$	5,004
Recoveries on loans previously charged off		102		56
Loans charged off		(126)		(236)
Provision		150		0

Balance at end of period	$	5,146	$	4,824

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 March 31, 2017 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	$	1,345	$	614	$	57	$	296	$	6	$	90	$	2,612	$	5,020
Charge-offs		—		—		—		(49)		—		(77)		—		(126)
Recoveries		34		1		—		61		—		6		—		102
Provision		(19)		35		38		(43)		1		(4)		142		150
Ending balance ALLR	$	1,360	$	650	$	95	$	265	$	7	$	15	$	2,754	$	5,146

Loans:
Ending balance	$	397,192	$	144,673	$	10,618	$	202,654	$	12,388	$	19,021	$	—	$	786,546
Ending balance ALLR		(1,360)		(650)		(95)		(265)		(7)		(15)		(2,754)		(5,146)
Net loans	$	395,832	$	144,023	$	10,523	$	202,389	$	12,381	$	19,006	$	(2,754)	$	781,400

Ending balance ALLR:
Individually evaluated	$	525	$	394	$	38	$	3	$	—	$	5	$	—	$	965
Collectively evaluated		835		256		57		262		7		10		2,754		4,181
Total	$	1,360	$	650	$	95	$	265	$	7	$	15	$	2,754	$	5,146

Ending balance Loans:
Individually evaluated	$	1,564	$	1,464	$	382	$	403	$	—	$	22	$	—	$	3,835
Collectively evaluated		392,409		143,209		8,228		202,196		12,388		18,996		—		777,426
Acquired with deteriorated credit quality		3,219		—		2,008		55		—		3		—		5,285
Total	$	397,192	$	144,673	$	10,618	$	202,654	$	12,388	$	19,021	$	—	$	786,546

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 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

Allowance for loan loss reserve:
Beginning balance ALLR	$	1,611	$	645	$	79	$	274	$	7	$	64	$	2,324	$	5,004
Charge-offs		—		(185)		—		(39)		—		(12)		—		(236)
Recoveries		7		31		7		1		—		10		—		56
Provision		(3)		89		(12)		21		—		(22)		(73)		—
Ending balance ALLR	$	1,615	$	580	$	74	$	257	$	7	$	40	$	2,251	$	4,824

Loans:
Ending balance	$	317,081	$	124,005	$	14,489	$	135,641	$	11,959	$	15,450	$	—	$	618,625
Ending balance ALLR		(1,615)		(580)		(74)		(257)		(7)		(40)		(2,251)		(4,824)
Net loans	$	315,466	$	123,425	$	14,415	$	135,384	$	11,952	$	15,410	$	(2,251)	$	613,801

Ending balance ALLR:
Individually evaluated	$	533	$	185	$	—	$	45	$	—	$	31	$	—	$	794
Collectively evaluated		1,082		395		74		212		7		9		2,251		4,030
Total	$	1,615	$	580	$	74	$	257	$	7	$	40	$	2,251	$	4,824

Ending balance Loans:
Individually evaluated	$	2,001	$	392	$	—	$	750	$	—	$	36	$	—	$	3,179
Collectively evaluated		310,709		123,436		14,489		132,242		11,957		15,413		—		608,246
Acquired with deteriorated credit quality		4,371		177		—		2,649		2		1		—		7,200
Total	$	317,081	$	124,005	$	14,489	$	135,641	$	11,959	$	15,450	$	—	$	618,625

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of March 31, 2017 (dollars in thousands):


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

Commercial real estate	$	3,309	$	24,533	$	149,448	$	204,557	$	10,582	$	4,763	$	—	$	—	$	397,192
Commercial, financial and agricultural		10,616		13,463		48,226		68,018		2,463		1,887		—		—		144,673
Commercial construction		—		875		3,163		1,961		756		382		—		3,481		10,618
One-to-four family residential real estate		825		1,367		3,190		7,128		2,798		4,165		—		183,181		202,654
Consumer construction		28		—		—		—		—		16		—		12,344		12,388
Consumer		15		—		14		39		12		59		—		18,882		19,021

Total loans	$	14,793	$	40,238	$	204,041	$	281,703	$	16,611	$	11,272	$	—	$	217,888	$	786,546

Below is a breakdown of loans by risk category as of December 31, 2016 (dollars in thousands):


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

Commercial real estate	$	3,021	$	23,940	$	140,618	$	216,518	$		$	5,323	$	—	$	—	$	389,420
Commercial, financial and agricultural		10,421		13,434		49,434		67,582				1,777		—		—		142,648
Commercial construction		—		900		3,146		2,660				385		—		4,414		11,505
One-to-four family residential real estate		740		1,373		3,412		9,585				5,493		—		185,342		205,945
Consumer construction		28		—		—		—		—		17		—		12,181		12,226
Consumer		20		—		15		55				103		—		19,920		20,113

Total loans	$	14,230	$	39,647	$	196,625	$	296,400	$	—	$	13,098	$	—	$	221,857	$	781,857

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):


							QTD				Interest Income
	Nonaccrual			Nonaccrual	Accrual		Average		Related		on
	Recorded Balance			Unpaid Balance	Basis		Investment		Valuation Reserve		Accrual Basis
March 31, 2017

With no valuation reserve:
Commercial real estate	$	1,391	$	1,834	$	2,097	$	4,086	$	—	$	121
Commercial, financial and agricultural		9		9		—		9		—		—
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		1,253		1,607		1,903		3,981		—		104
Consumer construction		16		21		55		73		—		1
Consumer		15		19		3		52		—		—

With a valuation reserve:
Commercial real estate	$	301	$	310	$	—	$	302	$	50	$	—
Commercial, financial and agricultural		335		335		—		327		261		—
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		386		387		—		235		27		—
Consumer construction		—		—		—		—		—		—
Consumer		24		24		—		12		11		—

Total:
Commercial real estate	$	1,692	$	2,144	$	2,097	$	4,388	$	50	$	121
Commercial, financial and agricultural		344		344		—		336		261		—
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		1,639		1,994		1,903		4,216		27		104
Consumer construction		16		21		55		73		—		1
Consumer		39		43		3		64		11		—
Total	$	3,730	$	4,546	$	4,058	$	9,077	$	349	$	226

December 31, 2016

With no valuation reserve:
Commercial real estate	$	1,426	$	1,891	$	3,234	$	5,318	$	—	$	232
Commercial, financial and agricultural		11		11		—		116		—		3
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		1,623		2,198		2,792		4,500		—		196
Consumer construction		17		22		57		36		—		4
Consumer		82		86		4		127		—		2

With a valuation reserve:
Commercial real estate	$	306	$	328	$	—	$	103	$	50	$	—
Commercial, financial and agricultural		326		357		—		109		231		—
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		333		333		—		171		94		—
Consumer construction		—		—		—		—		—		—
Consumer		0		0		—		5		5		—

Total:
Commercial real estate	$	1,732	$	2,219	$	3,234	$	5,421	$	50	$	232
Commercial, financial and agricultural		337		368		—		225		231		3
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		1,956		2,531		2,792		4,671		94		196
Consumer construction		17		22		57		36		—		4
Consumer		82		86		4		132		5		2
Total	$	4,124	$	5,226	$	6,087	$	10,485	$	380	$	437

Summary of past due loans

A summary of past due loans at March 31, 2017 and December 31, 2016 is as follows (dollars in thousands):


	March 31,						December 31,
	2017						2016
	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	$	822	$	1,692	$	2,514	$	942	$	1,732	$	2,674
Commercial, financial and agricultural		150		344		494		186		337		523
Commercial construction		—		—		—		—		—		—
One to four family residential real estate		2,206		1,639		3,845		2,113		1,956		4,069
Consumer construction		52		16		68		—		17		17
Consumer		71		39		110		133		82		215

Total past due loans	$	3,301	$	3,730	$	7,031	$	3,374	$	4,124	$	7,498

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):


	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2017		2016
Loans outstanding, January 1	$	9,195	$	6,887
New loans		—		—
Net activity on revolving lines of credit		500		510
Repayment		(313)		(2,034)

Loans outstanding at end of period	$	9,382	$	5,363

PFC

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 River

Schedule of acquired portfolio at acquisition date

The table below details the outstanding balances of the Eagle River 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	$	80,737	$	84,138
Nonaccretable difference		(1,172)		—		(1,172)
Expected cash flows		2,229		80,737		82,966
Accretable yield		(391)		(1,700)		(2,091)
Carrying balance at acquisition date	$	1,838	$	79,037	$	80,875

Niagara Bancorporation

Schedule of acquired portfolio at acquisition date


	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	2,105	$	30,555	$	32,660
Nonaccretable difference		(265)		—		(265)
Expected cash flows		1,840		30,555		32,395
Accretable yield		(88)		(600)		(688)
Carrying balance at acquisition date	$	1,752	$	29,955	$	31,707