LOANS (Tables)

9 Months Ended

Sep. 30, 2017

Schedule of composition of loans

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

	September 30,		December 31,
	2017		2016
Commercial real estate	$	409,269	$	389,420
Commercial, financial, and agricultural		154,638		142,648
Commercial construction		8,892		11,505
One to four family residential real estate		204,419		205,945
Consumer		18,247		20,113
Consumer construction		12,684		12,226
Total loans	$	808,149	$	781,857

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, 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		(310)		(525)		(835)		(50)		(466)		(516)		(10)		(169)		(179)
Other adjustment to nonaccretable difference		215		—		215		37		—		37		(1)		—		(1)
Balance, September 30, 2017	$	187	$	117	$	304	$	223	$	755	$	978	$	41	$	336	$	377

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

	PFC						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

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the nine months ended September 30, 2017 and the year ended September 30, 2016 is as follows (dollars in thousands):

	September 30,		September 30,
	2017		2016
Balance, January 1	$	5,020	$	5,004
Recoveries on loans previously charged off		215		120
Loans charged off		(505)		(612)
Provision		400		350
Balance at end of period	$	5,130	$	4,862

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, 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
Three Months Ended September 30, 2017
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,463	$	695	$	95	$	259	$	6	$	15	$	2,600	$	5,133
Charge-offs		—		(171)		—		(27)		—		(52)		—		(250)
Recoveries		10		31		1		1		—		4		—		47
Provision		25		187		3		4		—		59		(78)		200
Ending balance ALLR	$	1,498	$	742	$	99	$	237	$	6	$	26	$	2,522	$	5,130
Nine Months Ended September 30, 2017
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,345	$	614	$	57	$	296	$	6	$	90	$	2,612	$	5,020
Charge-offs		—		(264)		—		(76)		—		(165)		—		(505)
Recoveries		72		35		2		63		—		43		—		215
Provision		81		357		40		(46)		—		58		(90)		400
Ending balance ALLR	$	1,498	$	742	$	99	$	237	$	6	$	26	$	2,522	$	5,130
At September 30, 2017
Loans:
Ending balance	$	409,269	$	154,638	$	8,892	$	204,419	$	12,684	$	18,247	$	—	$	808,149
Ending balance ALLR		(1,498)		(742)		(99)		(237)		(6)		(26)		(2,522)		(5,130)
Net loans	$	407,771	$	153,896	$	8,793	$	204,182	$	12,678	$	18,221	$	(2,522)	$	803,019
Ending balance ALLR:
Individually evaluated	$	571	$	331	$	38	$	19	$	—	$	17	$	—	$	976
Collectively evaluated		927		411		61		218		6		9		2,522		4,154
Total	$	1,498	$	742	$	99	$	237	$	6	$	26	$	2,522	$	5,130
Ending balance Loans:
Individually evaluated	$	1,801	$	1,283	$	377	$	525	$	—	$	46	$	—	$	4,032
Collectively evaluated		405,610		153,355		8,515		202,281		12,633		18,201		—		800,595
Acquired with deteriorated credit quality		1,858		—		—		1,613		51		—		—		3,522
Total	$	409,269	$	154,638	$	8,892	$	204,419	$	12,684	$	18,247	$	—	$	808,149

Impaired loans, by definition, are individually evaluated.

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
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

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of September 30, 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	$	4,058	$	20,655	$	156,563	$	213,805	$	9,529	$	4,659	$	—	$	—	$	409,269
Commercial, financial and agricultural		13,262		9,282		49,947		75,366		5,394		1,387		—		—		154,638
Commercial construction		—		313		3,043		1,170		377		653		—		3,336		8,892
One-to-four family residential real estate		125		1,356		2,588		5,370		1,111		3,720		—		190,149		204,419
Consumer construction		—		—		—		—		—		14		—		12,670		12,684
Consumer		—		—		—		29		6		75		—		18,137		18,247
Total loans	$	17,445	$	31,606	$	212,141	$	295,740	$	16,417	$	10,508	$	—	$	224,292	$	808,149

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		YTD				QTD		YTD
	Nonaccrual		Nonaccrual		Accrual		Average		Average		Related		Interest Income		Interest Income
	Recorded Balance		Unpaid Balance		Basis		Investment		Investment		Valuation Reserve		on Accrual Basis		on Accrual Basis
September 30, 2017
With no valuation reserve:
Commercial real estate	$	697	$	698	$	1,858	$	1,243	$	1,331	$	—	$	29	$	180
Commercial, financial and agricultural		7		8		—		29		152		—		—		—
Commercial construction		—		—		—		1,290		—		—		—		—
One to four family residential real estate		1,293		1,293		1,613		—		1,432		—		28		160
Consumer construction		14		14		53		14		14		—		1		3
Consumer		59		59		—		47		44		—		1		2
With a valuation reserve:
Commercial real estate	$	680	$	680	$	—	$	586	$	426	$	247	$	—	$	—
Commercial, financial and agricultural		201		201		—		169		140		49		—		—
Commercial construction		—		—		—		—		—		—		—		—
One to four family residential real estate		114		115		—		160		178		53		—		—
Consumer construction		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—
Total:
Commercial real estate	$	1,377	$	1,378	$	1,858	$	1,829	$	1,757	$	247	$	29	$	180
Commercial, financial and agricultural		208		209		—		198		292		49		—		—
Commercial construction		—		—		—		1,290		—		—		—		—
One to four family residential real estate		1,407		1,408		1,613		160		1,610		53		28		160
Consumer construction		14		14		53		14		14		—		1		3
Consumer		59		59		—		47		44		—		1		2
Total	$	3,065	$	3,068	$	3,524	$	3,538	$	3,717	$	349	$	59	$	345

	Nonaccrual		Nonaccrual				YTD				YTD
	Recorded		Unpaid		Accrual		Average		Related		Interest Income
	Balance		Balance		Basis		Investment		Valuation Reserve		on Accrual Basis
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		—		—		—		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 September 30, 2017 and December 31, 2016 is as follows (dollars in thousands):

	September 30,						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	$	247	$	1,320	$	1,567	$	942	$	1,732	$	2,674
Commercial, financial and agricultural		478		265		743		186		337		523
Commercial construction		—		14		14		—		—		—
One to four family residential real estate		1,847		1,408		3,255		2,113		1,956		4,069
Consumer construction		—		—		—		—		17		17
Consumer		86		58		144		133		82		215
Total past due loans	$	2,658	$	3,065	$	5,723	$	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):

	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
	2017		2016
Loans outstanding, January 1	$	9,195	$	6,887
New loans		—		—
Net activity on revolving lines of credit		554		1,720
Repayment		(476)		(2,269)
Loans outstanding at end of period	$	9,273	$	6,338

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