LOANS (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of composition of loans

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

	March 31,		December 31,
	2018		2017
Commercial real estate	$	411,526	$	406,742
Commercial, financial, and agricultural		160,188		156,951
Commercial construction		8,004		9,243
One to four family residential real estate		204,542		209,890
Consumer		16,919		17,434
Consumer construction		11,262		10,818
Total loans	$	812,441	$	811,078

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, 2018 (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, 2017	$	149	$	—	$	149	$	218	$	603	$	821	$	38	$	281	$	319
Accretion		(30)		—		(30)		—		(150)		(150)		—		(54)		(54)
Reclassification from nonaccretable difference		23		—		23		—		—		—		—		—		—
Balance, March 31, 2018	$	142	$	—	$	142	$	218	$	453	$	671	$	38	$	227	$	265

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

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the three months ended March 31, 2018 and March 31, 2017 is as follows (dollars in thousands):

	March 31,		March 31,
	2018		2017
Balance, January 1	$	5,079	$	5,020
Recoveries on loans previously charged off		25		102
Loans charged off		(53)		(126)
Provision		50		150
Balance at end of period	$	5,101	$	5,146

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, 2018 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	$	1,650	$	576	$	54	$	160	$	6	$	10	$	2,623	$	5,079
Charge-offs		—		—		—		(47)		—		(6)		—		(53)
Recoveries		7		3		1		2		—		12		—		25
Provision		676		965		371		58		—		(7)		(2,013)		50
Ending balance ALLR	$	2,333	$	1,544	$	426	$	173	$	6	$	9	$	610	$	5,101
Loans:
Ending balance	$	411,526	$	160,188	$	8,004	$	204,542	$	11,262	$	16,919	$	—	$	812,441
Ending balance ALLR		(2,333)		(1,544)		(426)		(173)		(6)		(9)		(610)		(5,101)
Net loans	$	409,193	$	158,644	$	7,578	$	204,369	$	11,256	$	16,910	$	(610)	$	807,340
Ending balance ALLR:
Individually evaluated	$	362	$	310	$	—	$	—	$	—	$	—	$	—	$	672
Collectively evaluated		1,971		1,234		426		173		6		9		610		4,429
Total	$	2,333	$	1,544	$	426	$	173	$	6	$	9	$	610	$	5,101
Ending balance Loans:
Individually evaluated	$	1,568	$	1,307	$	372	$	—	$	—	$	—	$	—	$	3,247
Collectively evaluated		408,273		158,881		7,632		203,032		11,215		16,919		—		805,952
Acquired with deteriorated credit quality		1,685		—		—		1,510		47		—		—		3,242
Total	$	411,526	$	160,188	$	8,004	$	204,542	$	11,262	$	16,919	$	—	$	812,441

Impaired loans, by definition, are individually evaluated.

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

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of March 31, 2018 (dollars in thousands):

	(1)		(2)		(3)		(4)		(44)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable		Acceptable Watch		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	4,004	$	23,121	$	160,116	$	211,764	$	8,514	$	4,007	$	—	$	—	$	411,526
Commercial, financial and agricultural		11,622		12,264		52,168		80,536		2,228		1,370		—		—		160,188
Commercial construction		—		289		2,531		1,299		642		372		—		2,871		8,004
One-to-four family residential real estate		—		1,440		2,461		5,874		1,199		2,992		—		190,576		204,542
Consumer construction		—		—		—		—		—		13		—		11,249		11,262
Consumer		—		—		—		26		4		78		—		16,811		16,919
Total loans	$	15,626	$	37,114	$	217,276	$	299,499	$	12,587	$	8,832	$	—	$	221,507	$	812,441

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

	(1)		(2)		(3)		(4)		(44)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable		Acceptable Watch		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	2,775	$	23,929	$	159,385	$	207,921	$	8,700	$	4,032	$	—	$	—	$	406,742
Commercial, financial and agricultural		11,528		8,980		53,448		77,964		3,658		1,373		—		—		156,951
Commercial construction		—		308		2,749		1,310		648		374		—		3,854		9,243
One-to-four family residential real estate		—		1,377		2,575		5,449		1,212		3,515		—		195,762		209,890
Consumer construction		—		—		—		—		—		14		—		10,804		10,818
Consumer		—		—		—		28		5		96		—		17,305		17,434
Total loans	$	14,303	$	34,594	$	218,157	$	292,672	$	14,223	$	9,404	$	—	$	227,725	$	811,078

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):

	Impaired Loans		Impaired Loans		Total		Unpaid		Related
	with No Related		with Related		Impaired		Principal		Allowance for
	Allowance		Allowance		Loans		Balance		Loan Losses
March 31, 2018
Commercial real estate	$	1,685	$	1,568	$	3,253	$	2,512	$	362
Commercial, financial and agricultural		—		1,307		1,307		1,307		310
Commercial construction		—		372		372		372		—
One to four family residential real estate		1,510		—		1,510		2,200		—
Consumer construction		47		—		47		62		—
Consumer		—		—		—		—		—
Total	$	3,242	$	3,247	$	6,489	$	6,453	$	672
December 31, 2017
Commercial real estate	$	1,511	$	516	$	2,027	$	3,326	$	168
Commercial, financial and agricultural		—		166		166		326		166
Commercial construction		—		—		—		—		—
One to four family residential real estate		1,621		—		1,621		2,315		—
Consumer construction		17		—		17		66		—
Consumer		21		—		21		21		—
Total	$	3,170	$	682	$	3,852	$	6,054	$	334
	Individually Evaluated Impaired Loans
	March 31, 2018				December 31, 2017
	Average		Interest Income		Average		Interest Income
	Balance for		Recognized for		Balance for		Recognized for
	the Period		the Period		the Period		the Period
Commercial real estate	$	2,919	$	56	$	2,784	$	141
Commercial, financial and agricultural		817		7		246		1
Commercial construction		186		—		—		3
One to four family residential real estate		2,257		30		2,057		134
Consumer construction		64		1		37		—
Consumer		11		—		13		2
Total	$	6,254	$	94	$	5,137	$	281

Summary of past due loans

A summary of past due loans at March 31, 2018 and December 31, 2017 is as follows (dollars in thousands):

	March 31,								December 31,
	2018								2017
	30-89 days								30-89 days
	Past Due		90+ days						Past Due		90+ days
	(accruing)		Past Due		Nonaccrual		Total		(accruing)		Past Due		Nonaccrual		Total
Commercial real estate	$	664	$	—	$	1,823	$	2,487	$	460	$	—	$	866	$	1,326
Commercial, financial and agricultural		—		—		247		247		16		—		338		354
Commercial construction		—		—		13		13		73		—		14		87
One to four family residential real estate		2,387		—		2,181		4,568		3,424		—		1,350		4,774
Consumer construction		—		—		—		—		—		—		—		—
Consumer		17		—		78		95		72		—		—		72
Total past due loans	$	3,068	$	—	$	4,342	$	7,410	$	4,045	$	—	$	2,568	$	6,613

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,
	2018		2017
Loans outstanding, January 1	$	10,037	$	9,195
Net activity on revolving lines of credit		—		500
Repayment		(123)		(313)
Loans outstanding at end of period	$	9,914	$	9,382

PFC

Schedule of acquired portfolio at acquisition date

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

	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

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

	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