Mackinac Financial (MFNC) 10-Q 15 May 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 10, 2017
Document and Entity Information
Entity Registrant Name	MACKINAC FINANCIAL CORP /MI/
Entity Central Index Key	36,506
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		6,294,930
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
ASSETS
Cash and due from banks	$ 41,166	$ 44,620
Federal funds sold	3	2,135
Cash and cash equivalents	41,169	46,755
Interest-bearing deposits in other financial institutions	13,448	14,047
Securities available for sale	83,882	86,273
Federal Home Loan Bank stock	2,719	2,911
Loans:
Commercial	552,483	543,573
Mortgage	215,042	218,171
Consumer	19,021	20,113
Total Loans	786,546	781,857
Allowance for loan losses	(5,146)	(5,020)
Net loans	781,400	776,837
Premises and equipment	15,970	15,891
Other real estate held for sale	4,466	4,782
Deferred tax asset	7,651	8,760
Deposit based intangibles	2,110	2,172
Goodwill	5,694	5,694
Other assets	18,126	19,398
TOTAL ASSETS	976,635	983,520
Deposits:
Noninterest bearing deposits	147,106	164,179
NOW, money market, interest checking	283,314	286,622
Savings	61,171	58,315
CDs less than $250,000	141,569	141,629
CDs more than $250,000	8,802	8,489
Brokered	179,858	164,278
Total deposits	821,820	823,512
Federal funds purchased	3,000	6,000
Borrowings	66,279	67,579
Other liabilities	5,527	7,820
Total liabilities	896,626	904,911
SHAREHOLDERS' EQUITY:
Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 6,294,930 and 6,270,034 respectively	61,683	61,583
Retained earnings	18,176	17,206
Accumulated other comprehensive income (loss)
Unrealized (losses) gains on available for sale securities	228	(102)
Minimum pension liability	(78)	(78)
Total shareholders' equity	80,009	78,609
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 976,635	$ 983,520

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
CONSOLIDATED BALANCE SHEETS
Common stock, par value	$ 0	$ 0
Common stock, Authorized shares	18,000,000	18,000,000
Common stock, Shares issued	6,294,930	6,270,034
Common stock, Shares outstanding	6,294,930	6,270,034

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Interest and fees on loans:
Taxable	$ 9,957	$ 7,960
Tax-exempt	33	2
Interest on securities:
Taxable	399	262
Tax-exempt	79	31
Other interest income	128	55
Total interest income	10,596	8,310
INTEREST EXPENSE:
Deposits	959	769
Borrowings	471	253
Total interest expense	1,430	1,022
Net interest income	9,166	7,288
Provision for loan losses	150	0
Net interest income after provision for loan losses	9,016	7,288
OTHER INCOME:
Deposit service fees	272	216
Income from mortgage loans sold on the secondary market	298	267
SBA/USDA loan sale gains	60
Net mortgage servicing (amortization) income	(8)	(54)
Net realized security gains		97
Other	154	101
Total other income	776	627
OTHER EXPENSE:
Salaries and employee benefits	3,797	3,387
Occupancy	785	640
Furniture and equipment	481	383
Data processing	461	345
Advertising	123	156
Professional service fees	321	241
Loan origination expenses and deposit and card related fees	179	127
Writedowns and losses on other real estate held for sale	12	16
FDIC insurance assessment	157	108
Telephone	157	112
Transaction related expenses		106
Other	704	577
Total other expenses	7,177	6,198
Income before provision for income taxes	2,615	1,717
Provision for income taxes	889	585
NET INCOME	$ 1,726	$ 1,132
INCOME PER COMMON SHARE:
Basic (in dollars per share)	$ 0.28	$ 0.18
Diluted (in dollars per share)	$ 0.28	$ 0.18

CONSOLIDATED STATEMENTS COMPREH

CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME
Net income	$ 1,726	$ 1,132
Other comprehensive income
Unrealized gains arising during the period	500	424
Reclassification adjustment for securities gains included in net income		(97)
Tax effect	(170)	(110)
Net change in unrealized gains on available for sale securities	330	217
Total comprehensive income	$ 2,056	$ 1,349

CONSOLIDATED STATEMENTS OF CHAN

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - USD ($) $ in Thousands	Shares of Common Stock	Common Stock and Additional Paid in Capital	Retained Earnings (Accumulated Deficit)	Accumulated Other Comprehensive Income (Loss)	Total
Balance, beginning of period at Dec. 31, 2015		$ 61,133	$ 15,221	$ 248	$ 76,602
Balance (in shares) at Dec. 31, 2015	6,217,620
Increase (Decrease) in Shareholders' Equity
Net income for period			1,132		1,132
Other comprehensive income (loss):
Net unrealized gain on securities available for sale				217	217
Total comprehensive income			1,132	217	1,349
Stock compensation		150			150
Restricted stock award vesting (in shares)	22,626
Repurchase of common stock		(99)			(99)
Repurchase of common stock (in shares)	(9,000)
Dividend on common stock			(607)		(607)
Balance, end of period at Mar. 31, 2016		61,184	15,746	465	77,395
Balance (in shares) at Mar. 31, 2016	6,231,246
Balance, beginning of period at Dec. 31, 2015		61,133	15,221	248	76,602
Balance (in shares) at Dec. 31, 2015	6,217,620
Other comprehensive income (loss):
Repurchase of common stock (in shares)	(14,000)
Balance, end of period at Dec. 31, 2016		61,583	17,206	(180)	78,609
Balance (in shares) at Dec. 31, 2016	6,263,371
Increase (Decrease) in Shareholders' Equity
Net income for period			1,726		1,726
Other comprehensive income (loss):
Net unrealized gain on securities available for sale				330	330
Total comprehensive income			1,726	330	2,056
Stock compensation		100			100
Restricted stock award vesting (in shares)	31,559
Dividend on common stock			(756)		(756)
Balance, end of period at Mar. 31, 2017		$ 61,683	$ 18,176	$ 150	$ 80,009
Balance (in shares) at Mar. 31, 2017	6,294,930

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash Flows from Operating Activities:
Net income	$ 1,726	$ 1,132
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	572	395
Provision for loan losses	150	0
Deferred tax expense	889	585
Gain on sales/calls of securities		(97)
Gain on sale of loans sold in the secondary market	(298)	(228)
Origination of loans held for sale in secondary market	(15,026)	(13,802)
Proceeds from sale of loans in the secondary market	15,324	14,030
(Gain) loss on sale of premises, equipment, and other real estate held for sale	(4)	16
Writedown of other real estate held for sale	16
Stock compensation	100	150
Change in other assets	1,334	(513)
Change in other liabilities	(2,293)	(485)
Net cash provided by operating activities	2,490	1,183
Cash Flows from Investing Activities:
Net increase in loans	(5,099)	(946)
Net decrease in interest bearing deposits in other financial institutions	599	100
Purchase of securities available for sale		(5,225)
Proceeds from maturities, sales, calls or paydowns of securities available for sale	2,776	5,238
Redemption of FHLB stock	192
Capital expenditures	(536)	(337)
Proceeds from life insurance		99
Proceeds from sale of premises, equipment, and other real estate	740	247
Net cash used in investing activities	(1,328)	(824)
Cash Flows from Financing Activities:
Net decrease in deposits	(1,692)	(17,345)
Net activity on lines of credit	(750)	800
(Decrease) increase in fed funds purchased	(3,000)	10,000
Principal payments on borrowings	(550)	(100)
Repurchase of common stock		(99)
Dividend on common stock	(756)	(607)
Net cash used in financing activities	(6,748)	(7,351)
Net (decrease) in cash and cash equivalents	(5,586)	(6,992)
Cash and cash equivalents at beginning of period	46,755	25,008
Cash and cash equivalents at end of period	41,169	18,016
Cash paid during the year for:
Interest	1,411	1,013
Income taxes		50
Noncash Investing and Financing Activities:
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale	$ 576	$ 623

SUMMARY OF SIGNIFICANT ACCOUNTI

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2017
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements of Mackinac Financial Corporation (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016. In order to properly reflect some categories of other income and other expenses, reclassifications of expense and income items have been made to prior period numbers. The “net” other income and other expenses was not changed due to these reclassifications. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed real estate, deferred tax assets, mortgage servicing rights, and the assessment of goodwill for impairment. Acquired Loans Loans acquired with evidence of credit deterioration since inception and for which it is probable that all contractual payments will not be received are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). These loans are recorded at fair value at the time of acquisition, with no carryover of the related allowance for loan losses. Fair value of acquired loans is determined using a discounted cash flow methodology based on assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, and current market rates. In recording the fair values of acquired impaired loans at acquisition date, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). Over the life of the acquired loans, management continues to estimate cash flows expected to be collected on pools of loans sharing common risk characteristics, which are treated in the aggregate when applying various valuation techniques. Management evaluates at each balance sheet date whether the present value of our pools of loans determined using the effective interest rates has decreased significantly and if so, recognizes a provision for loan loss in our consolidated statement of income. For any significant increases in cash flows expected to be collected, we adjust the amount of the accretable yield recognized on a prospective basis over the pool’s remaining life. Performing acquired loans are accounted for under Financial Accounting Standards Board (“FASB”) Topic 310-20, Receivables – Nonrefundable Fees and Other Costs. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, portions of the accretable difference may be delayed or suspended if management deems appropriate. The Corporation’s policy for determining when to discontinue accruing interest on performing acquired loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans. Allowance for Loan Losses The allowance for loan losses includes specific allowances related to commercial loans, when they have been judged to be impaired. A loan is impaired when, based on current information, it is probable that the Corporation will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. The Corporation also has an unallocated allowance for loan losses for loans not considered impaired. The allowance for loan losses is maintained at a level which management believes is adequate to provide for incurred loan losses. Management periodically evaluates the adequacy of the allowance using the Corporation’s past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other factors. The allowance does not include the effects of expected losses related to future events or future changes in economic conditions. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability. In management’s opinion, the allowance for loan losses is adequate to cover probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio as of the balance sheet date. Stock Compensation Plans On May 22, 2012, the Corporation’s shareholders approved the Mackinac Financial Corporation 2012 Incentive Compensation Plan, under which current and prospective employees, non-employee directors and consultants may be awarded incentive stock options, non-statutory stock options, shares of restricted stock awards (“RSAs”), or stock appreciation rights. The aggregate number of shares of the Corporation’s common stock issuable under the plan is 575,000. Awards are made to certain other senior officers at the discretion of the Corporation’s management. Compensation cost equal to the fair value of the award is recognized over the vesting period.

RECENT ACCOUNTING PRONOUNCEMENT

RECENT ACCOUNTING PRONOUNCEMENTS	3 Months Ended
	Mar. 31, 2017
RECENT ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS	2. RECENT ACCOUNTING PRONOUNCEMENTS In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on the recognition of revenue from contracts with customers. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The guidance is effective January 1, 2018 and early adoption is permitted only as of January 1, 2017. In this regard, management has completed a preliminary analysis of the impact of implementation. The key revenue streams affected by implementation would include service charges and mortgage banking income. The new guidance is not expected to have a significant impact on the Corporation’s financial results. Interest income is outside of the scope of the new standard and will not be impacted upon adoption. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 amends current guidance by requiring companies to recognize changes in fair value for equity investments that have a readily determinable fair value through net income rather than through other comprehensive income. Under ASU 2016-01, equity investments that do not have a readily determinable fair value will either be accounted for in the same manner as equity investments that have a readily determinable fair value, with changes in fair value recognized through net income or carried at cost, adjusted for changes in observable prices based on orderly transactions for identical or similar investments issued by the same issuer and further adjusted for impairment, if applicable. ASU 2016-01 also requires a qualitative assessment of impairment indicators each reporting period. If this assessment indicates that impairment exists, companies must adjust the investment to fair value and recognize an impairment loss in net income, even if the impairment is determined to be temporary. ASU 2016-01 is effective for public companies for interim and annual periods beginning after December 15, 2017. The Corporation’s adoption of ASU 2016-01 is not expected to have a material impact on the Corporation’s consolidated financial condition or results of operations. In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the current lease requirements in ASC 840. The ASU requires lessees to recognize an asset with the right of use and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Corporation’s year ending December 31, 2019 and will be applied using modified retrospective transition method to the beginning of the earliest period presented. The effect of applying the new lease guidance on the financial statements has not yet been determined. In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 requires an entity to measure expected credit losses for financial assets over the estimated lifetime of expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The standard includes the following core concepts in determining the expected credit loss. The estimate must: (a) be based on an asset’s amortized cost (including premiums or discounts, net deferred fees and costs, foreign exchange and fair value hedge accounting adjustments), (b) reflect losses expected over the remaining contractual life of an asset (considering the effect of voluntary prepayments), (c) consider available relevant information about the estimated collectability of cash flows (including information about past events, current conditions, and reasonable and supportable forecasts), and (d) reflect the risk of loss, even when that risk is remote. ASU 2016-13 also amends the recording of purchased credit-deteriorated assets. Under the new guidance, an allowance will be recognized at acquisition through a gross-up approach whereby an entity will record as the initial amortized cost the sum of (a) the purchase price and (b) an estimate of credit losses as of the date of acquisition. In addition, the guidance also requires immediate recognition in earnings of any subsequent changes, both favorable and unfavorable, in expected cash flows by adjusting this allowance. ASU 2016-13 also amends the impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Management may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists, as is currently permitted. In addition, an entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. As a result, entities will recognize improvements to credit losses on available-for-sale debt securities immediately in earnings rather than as interest income over time under current practice. New disclosures required by ASU 2016-13 include: (a) for financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes, (b) for financial receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year or the asset’s origination or vintage for as many as five annual periods, and (c) for available-for-sale debt securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due. Upon adoption of ASU 2016-13, a cumulative-effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Corporation is currently evaluating the provisions of ASU 2016-13 to determine the potential impact on the Corporation's consolidated financial condition and results of operations.

EARNINGS PER SHARE

EARNINGS PER SHARE	3 Months Ended
	Mar. 31, 2017
EARNINGS PER SHARE
EARNINGS PER SHARE	3. EARNINGS PER SHARE Diluted earnings per share, which reflects the potential dilution that could occur if outstanding stock options were exercised and stock awards were fully vested and resulted in the issuance of common stock that then shared in our earnings, is computed by dividing net income by the weighted average number of common shares outstanding and common stock equivalents, after giving effect for dilutive shares issued. The following shows the computation of basic and diluted earnings per share for the three months ended March 31, 2017 and 2016 (dollars in thousands, except per share data): Three Months Ended March 31, 2017 2016 (Numerator): Net income $ 1,726 $ (Denominator): Weighted average shares outstanding 6,270,034 Effect of dilutive stock options, and vesting of restricted stock awards 10,343 Diluted weighted average shares outstanding 6,280,377 6,227,985 Income per common share: Basic $ .28 $ .18 Diluted $ .28 $ .18

INVESTMENT SECURITIES

INVESTMENT SECURITIES	3 Months Ended
	Mar. 31, 2017
INVESTMENT SECURITIES
INVESTMENT SECURITIES	4. INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2017 and December 31, 2016 are as follows (dollars in thousands): Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value March 31, 2017 Corporate $ 19,849 $ 118 $ (15) $ 19,952 Equity 500 — — 500 US Agencies 22,991 77 (15) 23,053 US Agencies - MBS 15,903 64 (111) 15,856 Obligations of states and political subdivisions 24,293 405 (177) 24,521 Total securities available for sale $ 83,536 $ 664 $ (318) $ 83,882 December 31, 2016 Corporate $ 19,899 $ 49 $ (38) $ 19,910 Equity 500 — — 500 US Agencies 23,991 47 (86) 23,952 US Agencies - MBS 16,980 48 (195) 16,833 Obligations of states and political subdivisions 25,057 447 (426) 25,078 Total securities available for sale $ 86,427 $ 591 $ (745) $ 86,273 The Corporation has evaluated gross unrealized losses that exist within the portfolio and considers them temporary in nature. The Corporation has both the ability and the intent to hold the investment securities until their respective maturities and therefore does not anticipate the realization of the temporary losses. The amortized cost and estimated fair value of investment securities pledged to secure FHLB borrowings and customer relationships were $19.902 million and $19.869 million, respectively, at March 31, 2017.

LOANS

LOANS	3 Months Ended
	Mar. 31, 2017
LOANS
LOANS	5. LOANS 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 The Corporation completed the acquisition of Peninsula Financial Corporation (“PFC”) on December 5, 2014, The First National Bank of Eagle River (“Eagle River”) on April 29, 2016 and Niagara Bancorporation (“Niagara”) on August 31, 2016. The PFC acquired impaired loans totaled $13.290 million, the Eagle River acquired impaired loans totaled $3.401 million, and the Niagara acquired impaired loans totaled $2.105 million. In the first three months of 2017, the Corporation had positive resolution of acquired nonperforming loans, which resulted in the recognition of $100,000 of accretable interest. In the first three months of 2016, the Corporation had positive resolution of one PFC acquired nonperforming loan which resulted in the recognition of approximately $96,000 of accretable interest. 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 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 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 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 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 $ Recoveries on loans previously charged off 102 Loans charged off (126) Provision 150 Balance at end of period $ 5,146 $ 4,824 In the first three months of 2017, net charge-offs were $24,000, compared to net charge-offs of $.180 million in the same period in 2016. In the first three months of 2017, the Corporation recorded a provision for loan loss of $.150 million compared to no provision in the first three months of 2016. The Corporation’s allowance for loan loss reserve policy calls for a measurement of the adequacy of the reserve at each quarter end. This process includes an analysis of the loan portfolio to take into account increases in loans outstanding and portfolio composition, historical loss rates, and specific reserve requirements of nonperforming 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 As part of the management of the loan portfolio, risk ratings are assigned to all commercial loans. Through the loan review process, ratings are modified as believed to be appropriate to reflect changes in the credit. Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 8, with higher scores indicating higher risk. The credit risk rating structure used is shown below. In the context of the credit risk rating structure, the term Classified is defined as a problem loan which may or may not be in a nonaccrual status, dependent upon current payment status and collectability. Strong (1) Borrower is not vulnerable to sudden economic or technological changes. They have “strong” balance sheets and are within an industry that is very typical for our markets or type of lending culture. Borrowers also have “strong” financial and cash flow performance and excellent collateral (low loan to value or readily available to liquidate collateral) in conjunction with an impeccable repayment history. Good (2) Borrower shows limited vulnerability to sudden economic change. These borrowers have “above average” financial and cash flow performance and a very good repayment history. The balance sheet of the company is also very good as compared to peer and the company is in an industry that is familiar to our markets or our type of lending. The collateral securing the deal is also very good in terms of its type, loan to value, and other relevant characteristics. Average (3) Borrower is typically a well-seasoned business, however may be susceptible to unfavorable changes in the economy, and could be somewhat affected by seasonal factors. The borrowers within this category exhibit financial and cash flow performance that appear “average” to “slightly above average” when compared to peer standards and they show an adequate payment history. Collateral securing this type of credit is good, exhibiting above average loan to values, and other relevant characteristics. Acceptable/Acceptable Watch (4) A borrower within this category exhibits financial and cash flow performance that appear adequate and satisfactory when compared to peer standards and they show a satisfactory payment history. The collateral securing the request is within supervisory limits and overall is acceptable. Borrowers rated acceptable could also be newer businesses that are typically susceptible to unfavorable changes in the economy, and more than likely could be affected by seasonal factors. Special Mention (5) The borrower may have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Examples of this type of credit include a start-up company fully based on projections, a documentation issue that needs to be corrected or a general market condition that the borrower is working through to get corrected. Substandard (6) Substandard loans are classified assets exhibiting a number of well-defined weaknesses that jeopardize normal repayment. The assets are no longer adequately protected due to declining net worth, lack of earning capacity, or insufficient collateral offering the distinct possibility of the loss of a portion of the loan principal. Loans classified as substandard clearly represent troubled and deteriorating credit situations requiring constant supervision. Doubtful (7) Loans in this category exhibit the same, if not more pronounced weaknesses used to describe the substandard credit. Loans are frozen with collection improbable. Such loans are not yet rated as Charge-off because certain actions may yet occur which would salvage the loan. Charge-off/Loss (8) Loans in this category are largely uncollectible and should be charged against the loan loss reserve immediately. General Reserves: For loans with a credit risk rating of 5 or better and any loans with a risk rating of 6 or 7 not considered impaired, reserves are established based on the type of loan collateral, if any, and the assigned credit risk rating. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change. Using a historical average loss by loan type as a base, each loan graded as higher risk is assigned a specific percentage. The residential real estate and consumer loan portfolios are assigned a loss percentage as a homogenous group. If, however, on an individual loan the projected loss based on collateral value and payment histories are in excess of the computed allowance, the allocation is increased for the higher anticipated loss. These computations provide the basis for the allowance for loan losses as recorded by the Corporation. 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 Impaired Loans Nonperforming loans are those which are contractually past due 90 days or more as to interest or principal payments, on nonaccrual status, or loans, the terms of which have been renegotiated to provide a reduction or deferral on interest or principal. Loans are considered impaired when, based on current information and events, it is probable the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loans basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. 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 — 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 — — 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 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 Troubled Debt Restructuring Troubled debt restructurings (“TDR”) are determined on a loan-by-loan basis. Generally restructurings are related to interest rate reductions, loan term extensions and short term payment forbearance as means to maximize collectability of troubled credits. If a portion of the TDR loan is uncollectible (including forgiveness of principal), the uncollectible amount will be charged off against the allowance at the time of the restructuring. In general, a borrower must make at least six consecutive timely payments before the Corporation would consider a return of a restructured loan to accruing status in accordance with FDIC guidelines regarding restoration of credits to accrual status. The Corporation has, in accordance with generally accepted accounting principles and per recently enacted accounting standard updates, evaluated all loan modifications to determine the fair value impact of the underlying asset. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral. There were no troubled debt restructurings that occurred during the three months ended March 31, 2017 or March 31, 2016. Insider Loans 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 $ There were no loans to related parties classified substandard as of March 31 2017 or March 31, 2016. In addition to the outstanding balances above, there were unfunded commitments of $91,000 to related parties at March 31, 2017.

GOODWILL AND OTHER INTANGIBLE A

GOODWILL AND OTHER INTANGIBLE ASSETS	3 Months Ended
	Mar. 31, 2017
GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL AND OTHER INTANGIBLE ASSETS	6. During the fourth quarter of 2014, the Corporation recorded $3.805 million of goodwill and $1.206 million of deposit based intangible assets associated with the acquisition of PFC. During 2016, the Corporation recorded $1.839 million of goodwill and $.993 million of deposit based intangible assets associated with the acquisition of Eagle River. Also in 2016, the Corporation recorded $50,000 of goodwill and $.300 million of deposit based intangible assets associated with the acquisition of Niagara. The deposit based intangible is reported net of accumulated amortization at $2.110 million at March 31, 2017. Amortization expense in the first three months of 2017 is $62,000. Amortization expense for the next five years is expected to be at $.250 million per year.

SERVICING RIGHTS

SERVICING RIGHTS	3 Months Ended
	Mar. 31, 2017
SERVICING RIGHTS
SERVICING RIGHTS	7. SERVICING RIGHTS Mortgage Loans Mortgage servicing rights (“MSRs”) are recorded when loans are sold in the secondary market with servicing retained. As of March 31, 2017, the Corporation had obligations to service approximately $215.730 million of residential first mortgage loans. The valuation of MSRs is based upon the net present value of the projected revenues over the expected life of the loans being serviced, as reduced by estimated internal costs to service these loans. The fair value of the capitalized servicing rights approximates the carrying value. On a quarterly basis, management evaluates the MSRs for impairment. The key economic assumptions used in determining the fair value of the MSRs include an annual constant prepayment speed of 10.74% and a discount rate of 9.59% for March 31, 2017. In 2016, management decided to no longer retain the servicing on mortgage loans sold. The following table summarizes MSRs capitalized and amortized, along with the aggregate activity in related valuation allowances (dollars in thousands): Three Months Ended Three Months Ended March 31, March 31, 2017 2016 Balance at beginning of period $ 1,573 $ 1,965 Additions from loans sold with servicing retained — — Acquired MSRs — — Amortization (141) (196) Balance at end of period $ 1,432 $ 1,769 Balance of loan servicing portfolio $ 215,730 $ 219,080 Mortgage servicing rights as % of portfolio .66% .81% Commercial Loans The Corporation also retains the servicing on certain commercial loans that have been sold. These loans were originated and underwritten under the SBA and USDA government guarantee programs, in which the guaranteed portion of the loan was sold to a third party with servicing retained. The balance of these sold loans with servicing retained at March 31 2017 and March 31, 2016 was approximately $55.000 million and $49.500 million, respectively. The Corporation valued these servicing rights at $.132 million as of March 31, 2017 and at $.162 million as of March 31, 2016. This valuation was established in consideration of the discounted cash flow of net expected servicing income over the life of the loans.

BORROWINGS

BORROWINGS	3 Months Ended
	Mar. 31, 2017
BORROWINGS
BORROWINGS	8. BORROWINGS Borrowings consist of the following at March 31, 2017 and December 31, 2016 (dollars in thousands): March 31, December 31, 2017 2016 Federal Home Loan Bank fixed rate advances $ 45,000 $ 45,000 Correspondent bank line of credit — 750 Correspondent bank term note 20,649 21,199 USDA Rural Development note 630 630 $ 66,279 $ 67,579 The Federal Home Loan Bank borrowings bear a weighted average of 2.10% and mature in 2017, 2018, 2019 and 2020. They are collateralized at March 31, 2017 by the following: a collateral agreement on the Corporation’s one to four family residential real estate loans with a book value of approximately $42.506 million; mortgage related and municipal securities with an amortized cost and estimated fair value of $12.000 million and $11.991 million, respectively; and Federal Home Loan Bank stock owned by the Bank totaling $2.719 million. Prepayment of the advances is subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank of Indianapolis and the Federal Home Loan Bank of Chicago in effect as of March 31, 2017. The Corporation currently has one banking borrowing relationship. The relationship consists of a $5.0 million revolving line of credit and a term note. The line of credit bears interest at a rate of LIBOR plus 2.75% and has an initial term that expires on April 30, 2018. The term note bears the same interest and matures on April 30, 2019 and requires quarterly principal payments of $.550 million beginning March 31, 2017. This relationship is secured by all of the outstanding mBank stock. The USDA Rural Development borrowing bears an interest rate of 1.00% and matures in August, 2024. It is collateralized by loans totaling $.108 million originated and held by the Corporation’s wholly owned subsidiary, First Rural Relending, and an assignment of a demand deposit account in the amount of $.593 million, and guaranteed by the Corporation.

DEFINED BENEFIT PENSION PLAN

DEFINED BENEFIT PENSION PLAN	3 Months Ended
	Mar. 31, 2017
DEFINED BENEFIT PENSION PLAN
DEFINED BENEFIT PENSION PLAN	9. The Corporation acquired the Peninsula Financial Corporation noncontributory defined benefit pension plan in 2014. Effective December 31, 2005, the plan was amended to freeze participation in the plan; therefore, no additional employees are eligible to become participants in the plan. The benefits are based on years of service and the employee’s compensation at the time of retirement. The Plan was amended effective December 31, 2010, to freeze benefit accrual for all participants. Expected contributions to the Plan in 2017 are $19,000. The anticipated distributions over the next five years and through December 31, 2026 are detailed in the table below (dollars in thousands): 2017 $ 128 2018 125 2019 122 2020 121 2021 120 2022-2026 723 Total $ 1,339 At March 31, 2017, the plan’s assets had a fair value of $2.049 million and the Corporation had a net unfunded liability of $1.138 million. The accumulated benefit obligation at March 31, 2017 was $3.187 million. At March 31, 2016, the plan’s assets had a fair value of $2.033 million and the Corporation had a net unfunded liability of $1.147 million. The accumulated benefit obligation at March 31, 2016 was $3.180 million. Assumptions in the actuarial valuation are: 2017 2016 Weighted average discount rate Rate of increase in future compensation levels N/A N/A Expected long-term rate of return on plan assets The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligation. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy. The discount rate assumption is based on investment yields available on AA rated long-term corporate bonds. The primary investment objective is to maximize growth of the pension plan assets to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the Corporation’s risk tolerance. The intention of the plan sponsor is to invest the plan assets in mutual funds with the following asset allocation; which was in place at both March 31, 2017 and December 31, 2016. Target Actual Allocation Allocation Equity securities 50% to 70% Fixed income securities 30% to 50%

STOCK COMPENSATION PLANS

STOCK COMPENSATION PLANS	3 Months Ended
	Mar. 31, 2017
STOCK COMPENSATION PLANS
STOCK COMPENSATION PLANS	10. STOCK COMPENSATION PLANS Restricted Stock Awards The Corporation’s restricted stock awards require certain service-based or performance requirements and have a vesting period of four years. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants. The Corporation has historically granted RSAs to members of the Board of Directors and management. Awards granted are set to vest equally over their award terms and are issued at no cost to the recipient. The table below summarizes each of the grant awards: Date of Award Units Granted Market Value at grant date Vesting Term March, 2014 52,774 12.95 4 years March, 2015 37,730 11.15 4 years May, 2015 3,000 10.77 Immediate February, 2016 35,733 9.91 4 years February, 2017 28,427 13.39 4 years On August 31, 2013, 2014, 2015 and 2016, the Corporation issued 37,125 shares of its common stock for vested RSAs, in each year. In March 2015, the Corporation issued 13,194 shares of its common stock for vested RSAs. In May 2015, the Corporation granted 3,000 shares, which were immediately vested and issued. In March 2016, the Corporation issued 22,626 shares of its common stock for vested RSAs. In the first quarter of 2017, the Corporation issued 31,559 shares of its common stock for vested RSAs. A summary of changes in our nonvested shares for the period follows: Weighted Average Number Grant Date Outstanding Fair Value Nonvested balance at January 1, 2017 90,417 $ 11.19 Granted during the quarter 28,427 13.39 Vested during the quarter (31,559) 11.55 Nonvested balance at March 31, 2017 87,285 $ 11.78

INCOME TAXES

INCOME TAXES	3 Months Ended
	Mar. 31, 2017
INCOME TAXES
INCOME TAXES	11. INCOME TAXES The Corporation has reported deferred tax assets of $7.651 million at March 31, 2017. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. The Corporation, as of March 31, 2017 had a net operating loss and tax credit carryforwards for tax purposes of approximately $9.1 million, and $2.2 million, respectively. The Corporation evaluated the future benefits from these carryforwards as of March 31, 2017 and determined that it was “more likely than not” that they would be utilized prior to expiration. The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will begin to expire in the year 2023. A portion of the NOL and credit carryforwards are subject to the limitations for utilization as set forth in Section 382 of the Internal Revenue Code. The annual limitation is $1.404 million for the NOL and the equivalent value of tax credits, which is approximately $.476 million. These limitations for use were established in conjunction with the recapitalization of the Corporation in December 2004. The Corporation will continue to evaluate the future benefits from these carryforwards in order to determine if any adjustment to the deferred tax asset is warranted. The Corporation recognized a federal income tax expense of approximately $.889 million for the three months ended March 31, 2017 and $.585 million for the three months ended March 31, 2016.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	3 Months Ended
	Mar. 31, 2017
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS	12. FAIR VALUE MEASUREMENTS Fair value estimates, methods, and assumptions are set forth below for the Corporation’s financial instruments: Cash, cash equivalents, and interest-bearing deposits - The carrying values approximate the fair values for these assets. Securities - Fair values are based on quoted market prices where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Federal Home Loan Bank stock – Federal Home Loan Bank stock is carried at cost, which is its redeemable value and approximates its fair value, since the market for this stock is limited. Loans - Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, residential mortgage, and other consumer. The fair value of loans is calculated by discounting scheduled cash flows using discount rates reflecting the credit and interest rate risk inherent in the loan. The methodology in determining fair value of nonaccrual loans is to average them into the blended interest rate at 0% interest. This has the effect of decreasing the carrying amount below the risk-free rate amount and, therefore, discounts the estimated fair value. Impaired loans are measured at the estimated fair value of the expected future cash flows at the loan’s effective interest rate or the fair value of the collateral for loans which are collateral dependent. Therefore, the carrying values of impaired loans approximate the estimated fair values for these assets. Deposits - The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and savings, is equal to the amount payable on demand at the reporting date. The fair value of time deposits is based on the discounted value of contractual cash flows applying interest rates currently being offered on similar time deposits. Borrowings - Rates currently available for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. The fair value of borrowed funds due on demand is the amount payable at the reporting date. Accrued interest - The carrying amount of accrued interest approximates fair value. Off-balance-sheet instruments - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the counterparties. Since the differences in the current fees and those reflected to the off-balance-sheet instruments at year-end are immaterial, no amounts for fair value are presented. The following table presents information for financial instruments at March 31, 2017 and December 31, 2016 (dollars in thousands): March 31, 2017 December 31, 2016 Level in Fair Carrying Estimated Carrying Estimated Value Hierarchy Amount Fair Value Amount Fair Value Financial assets: Cash and cash equivalents Level 1 $ 41,169 $ 41,169 $ 46,755 $ 46,755 Interest-bearing deposits Level 2 13,448 13,448 14,047 14,047 Securities available for sale Level 2 82,232 82,232 84,623 84,623 Securities available for sale Level 3 1,650 1,650 1,650 1,650 Federal Home Loan Bank stock Level 2 2,719 2,719 2,911 2,911 Net loans Level 3 781,400 780,377 776,837 778,377 Accrued interest receivable Level 3 2,026 2,026 2,016 2,016 Total financial assets $ 924,644 $ 923,621 $ 928,839 $ 930,379 Financial liabilities: Deposits Level 2 $ 821,820 $ 814,259 $ 823,512 $ 815,960 Borrowings Level 2 66,279 66,853 67,579 68,293 Accrued interest payable Level 3 287 287 267 267 Total financial liabilities $ 888,386 $ 881,399 $ 891,358 $ 884,520 Limitations - Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, other assets, and other liabilities. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following is information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at March 31, 2017, and the valuation techniques used by the Corporation to determine those fair values. Level 1: In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access. Level 2: Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3: Level 3 inputs are unobservable inputs, including inputs available in situations where there is little, if any, market activity for the related asset or liability. The fair value of all investment securities at March 31, 2017 and December 31, 2016 were based on level 2 and level 3 inputs. There are no other assets or liabilities measured on a recurring basis at fair value. For additional information regarding investment securities, please refer to “Note 4 Investment Securities.” The table below shows investment securities measured at fair value on a recurring basis (dollars in thousands): Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2017 (Level 1) (Level 2) (Level 3) March 31, 2017 Assets Corporate $ $ — $ 19,952 $ — $ — Equity — — — US Agencies — 23,053 — — US Agencies - MBS — 14,706 1,150 — Obligations of state and political subdivisions — 24,521 — — $ $ — Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Corporate $ $ — $ 19,910 $ — $ — Equity — — — US Agencies — 23,952 — — US Agencies - MBS — 15,683 1,150 — Obligations of state and political subdivisions 25,078 — 25,078 — — $ 86,273 $ — The Corporation had no Level 3 assets or liabilities measured at fair value on a recurring basis as of March 31, 2017, or December 31, 2016 other than as described above. In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Corporation’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. The Corporation also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include certain impaired loans and other real estate owned. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections. Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2017 Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2017 (Level 1) (Level 2) (Level 3) March 31, 2017 Assets Impaired loans $ 7,788 $ — $ — $ 7,788 $ 37 Other real estate owned 4,466 — — 4,466 12 $ 49 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2016 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Impaired loans $ $ — $ — $ $ 643 Other real estate held for sale — — 202 $ 845 Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Corporation estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals).

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY	3 Months Ended
	Mar. 31, 2017
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY	13. SHAREHOLDERS’ EQUITY The Corporation currently has a share repurchase program. The program is conducted under authorizations by the Board of Directors. The Corporation repurchased 14,000 shares in 2016, 102,455 shares in 2015, 13,700 shares in 2014 and 55,594 shares in 2013. The share repurchases were conducted under Board authorizations made and publically announced of $.600 million on February 27, 2013, $.600 million on December 17, 2013 and an additional $.750 million on April 28, 2015. None of these authorizations has an expiration date. As of March 31, 2017, $26,000 of the total authorization was available for future purchases.

COMMITMENTS, CONTINGENCIES, AND

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK	3 Months Ended
	Mar. 31, 2017
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK	14. COMMITMENTS, CONTINGENCIES AND CREDIT RISK Financial Instruments With Off-Balance-Sheet Risk The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Corporation’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. These commitments are as follows (dollars in thousands): March 31, December 31, 2017 2016 Commitments to extend credit: Variable rate $ 60,204 $ 59,496 Fixed rate 27,407 28,737 Standby letters of credit - Variable rate 7,926 8,252 Credit card commitments - Fixed rate 5,677 5,533 $ 101,214 $ 102,018 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The commitments are structured to allow for 100% collateralization on all standby letters of credit. Credit card commitments are commitments on credit cards issued by the Corporation’s subsidiary and serviced by other companies. These commitments are unsecured. Legal Proceedings and Contingencies In the normal course of business, the Corporation is involved in various legal proceedings. For expanded discussion on the Corporation’s legal proceedings, see Part II, Item 1, “Legal Proceedings” in this report. C oncentration of Credit Risk The Bank grants commercial, residential, agricultural, and consumer loans throughout Michigan. The Bank’s most prominent concentration in the loan portfolio relates to commercial real estate loans to operators of nonresidential buildings. This concentration at March 31, 2017 represents $114.650 million, or 20.75%, compared to $121.861 million, or 22.42%, of the commercial loan portfolio on December 31, 2016. The remainder of the commercial loan portfolio is diversified in such categories as hospitality and tourism, real estate agents and managers, new car dealers, gaming, petroleum, forestry, agriculture and construction. Due to the diversity of the Bank’s locations, the ability of debtors of residential and consumer loans to honor their obligations is not tied to any particular economic sector.

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS	3 Months Ended
	Mar. 31, 2017
BUSINESS COMBINATIONS
BUSINESS COMBINATIONS	15. BUSINESS COMBINATIONS The First National Bank of Eagle River The Corporation completed its acquisition of The First National Bank of Eagle River (“Eagle River”) in April 2016. Eagle River had three branch offices and approximately $125 million in assets as of April 29, 2016, including total loans of $84 million and total deposits of $105 million. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. The merger was effected by a cash payment of $12.500 million. The Corporation recorded a $.933 million core deposit intangible asset and $1.839 million of goodwill in conjunction with the acquisition. Goodwill was recorded due to the synergies and economies of scale expected from combining operations of the Corporation with Eagle River. Niagara Bancorporation The Corporation completed its acquisition of Niagara Bancorporation, Inc. (“Niagara”) in August 2016. Niagara had four branch offices and approximately $67 million in assets as of August 31, 2016 including total loans of $33 million and total deposits of $59 million. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. The merger was effected by a cash payment of $7.325 million. The corporation recorded a $.300 million core deposit intangible asset and $50,000 of goodwill in conjunction with the acquisition. Goodwill was recorded due to the synergies and economies of scale expected from combining operations of the Corporation with Niagara.

SUMMARY OF SIGNIFICANT ACCOUN23

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2017
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation	Basis of Presentation The unaudited condensed consolidated financial statements of Mackinac Financial Corporation (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016. In order to properly reflect some categories of other income and other expenses, reclassifications of expense and income items have been made to prior period numbers. The “net” other income and other expenses was not changed due to these reclassifications. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed real estate, deferred tax assets, mortgage servicing rights, and the assessment of goodwill for impairment.
Acquired Loans	Acquired Loans Loans acquired with evidence of credit deterioration since inception and for which it is probable that all contractual payments will not be received are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). These loans are recorded at fair value at the time of acquisition, with no carryover of the related allowance for loan losses. Fair value of acquired loans is determined using a discounted cash flow methodology based on assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, and current market rates. In recording the fair values of acquired impaired loans at acquisition date, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). Over the life of the acquired loans, management continues to estimate cash flows expected to be collected on pools of loans sharing common risk characteristics, which are treated in the aggregate when applying various valuation techniques. Management evaluates at each balance sheet date whether the present value of our pools of loans determined using the effective interest rates has decreased significantly and if so, recognizes a provision for loan loss in our consolidated statement of income. For any significant increases in cash flows expected to be collected, we adjust the amount of the accretable yield recognized on a prospective basis over the pool’s remaining life. Performing acquired loans are accounted for under Financial Accounting Standards Board (“FASB”) Topic 310-20, Receivables – Nonrefundable Fees and Other Costs. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, portions of the accretable difference may be delayed or suspended if management deems appropriate. The Corporation’s policy for determining when to discontinue accruing interest on performing acquired loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans.
Allowance for Loan Losses	Allowance for Loan Losses The allowance for loan losses includes specific allowances related to commercial loans, when they have been judged to be impaired. A loan is impaired when, based on current information, it is probable that the Corporation will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. The Corporation also has an unallocated allowance for loan losses for loans not considered impaired. The allowance for loan losses is maintained at a level which management believes is adequate to provide for incurred loan losses. Management periodically evaluates the adequacy of the allowance using the Corporation’s past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other factors. The allowance does not include the effects of expected losses related to future events or future changes in economic conditions. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability. In management’s opinion, the allowance for loan losses is adequate to cover probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio as of the balance sheet date.
Stock Compensation Plans	Stock Compensation Plans On May 22, 2012, the Corporation’s shareholders approved the Mackinac Financial Corporation 2012 Incentive Compensation Plan, under which current and prospective employees, non-employee directors and consultants may be awarded incentive stock options, non-statutory stock options, shares of restricted stock awards (“RSAs”), or stock appreciation rights. The aggregate number of shares of the Corporation’s common stock issuable under the plan is 575,000. Awards are made to certain other senior officers at the discretion of the Corporation’s management. Compensation cost equal to the fair value of the award is recognized over the vesting period.

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	3 Months Ended
	Mar. 31, 2017
EARNINGS PER SHARE
Schedule showing the computation of basic and diluted earnings per share	The following shows the computation of basic and diluted earnings per share for the three months ended March 31, 2017 and 2016 (dollars in thousands, except per share data): Three Months Ended March 31, 2017 2016 (Numerator): Net income $ 1,726 $ (Denominator): Weighted average shares outstanding 6,270,034 Effect of dilutive stock options, and vesting of restricted stock awards 10,343 Diluted weighted average shares outstanding 6,280,377 6,227,985 Income per common share: Basic $ .28 $ .18 Diluted $ .28 $ .18

INVESTMENT SECURITIES (Tables)

INVESTMENT SECURITIES (Tables)	3 Months Ended
	Mar. 31, 2017
INVESTMENT SECURITIES
Schedule of carrying value and estimated fair value of securities available for sale	The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2017 and December 31, 2016 are as follows (dollars in thousands): Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value March 31, 2017 Corporate $ 19,849 $ 118 $ (15) $ 19,952 Equity 500 — — 500 US Agencies 22,991 77 (15) 23,053 US Agencies - MBS 15,903 64 (111) 15,856 Obligations of states and political subdivisions 24,293 405 (177) 24,521 Total securities available for sale $ 83,536 $ 664 $ (318) $ 83,882 December 31, 2016 Corporate $ 19,899 $ 49 $ (38) $ 19,910 Equity 500 — — 500 US Agencies 23,991 47 (86) 23,952 US Agencies - MBS 16,980 48 (195) 16,833 Obligations of states and political subdivisions 25,057 447 (426) 25,078 Total securities available for sale $ 86,427 $ 591 $ (745) $ 86,273

LOANS (Tables)

LOANS (Tables)	3 Months Ended
	Mar. 31, 2017
Schedule of composition of loans	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 $ Recoveries on loans previously charged off 102 Loans charged off (126) Provision 150 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 — 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 — — 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 $
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

SERVICING RIGHTS (Tables)

SERVICING RIGHTS (Tables)	3 Months Ended
	Mar. 31, 2017
SERVICING RIGHTS
Summary of mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances	The following table summarizes MSRs capitalized and amortized, along with the aggregate activity in related valuation allowances (dollars in thousands): Three Months Ended Three Months Ended March 31, March 31, 2017 2016 Balance at beginning of period $ 1,573 $ 1,965 Additions from loans sold with servicing retained — — Acquired MSRs — — Amortization (141) (196) Balance at end of period $ 1,432 $ 1,769 Balance of loan servicing portfolio $ 215,730 $ 219,080 Mortgage servicing rights as % of portfolio .66% .81%

BORROWINGS (Tables)

BORROWINGS (Tables)	3 Months Ended
	Mar. 31, 2017
BORROWINGS
Schedule of borrowings	Borrowings consist of the following at March 31, 2017 and December 31, 2016 (dollars in thousands): March 31, December 31, 2017 2016 Federal Home Loan Bank fixed rate advances $ 45,000 $ 45,000 Correspondent bank line of credit — 750 Correspondent bank term note 20,649 21,199 USDA Rural Development note 630 630 $ 66,279 $ 67,579

DEFINED BENEFIT PENSION PLAN (T

DEFINED BENEFIT PENSION PLAN (Tables)	3 Months Ended
	Mar. 31, 2017
DEFINED BENEFIT PENSION PLAN
Schedule of anticipated distributions over the next five years	The anticipated distributions over the next five years and through December 31, 2026 are detailed in the table below (dollars in thousands): 2017 $ 128 2018 125 2019 122 2020 121 2021 120 2022-2026 723 Total $ 1,339
Schedule of assumptions in the actuarial valuation	2017 2016 Weighted average discount rate Rate of increase in future compensation levels N/A N/A Expected long-term rate of return on plan assets
Schedule of asset allocation	Target Actual Allocation Allocation Equity securities 50% to 70% Fixed income securities 30% to 50%

STOCK COMPENSATION PLANS (Table

STOCK COMPENSATION PLANS (Tables)	3 Months Ended
	Mar. 31, 2017
STOCK COMPENSATION PLANS
Summary of restricted stock units awards granted	Date of Award Units Granted Market Value at grant date Vesting Term March, 2014 52,774 12.95 4 years March, 2015 37,730 11.15 4 years May, 2015 3,000 10.77 Immediate February, 2016 35,733 9.91 4 years February, 2017 28,427 13.39 4 years
Summary of changes in nonvested shares	Weighted Average Number Grant Date Outstanding Fair Value Nonvested balance at January 1, 2017 90,417 $ 11.19 Granted during the quarter 28,427 13.39 Vested during the quarter (31,559) 11.55 Nonvested balance at March 31, 2017 87,285 $ 11.78

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	3 Months Ended
	Mar. 31, 2017
FAIR VALUE MEASUREMENTS
Schedule presenting information for financial instruments	The following table presents information for financial instruments at March 31, 2017 and December 31, 2016 (dollars in thousands): March 31, 2017 December 31, 2016 Level in Fair Carrying Estimated Carrying Estimated Value Hierarchy Amount Fair Value Amount Fair Value Financial assets: Cash and cash equivalents Level 1 $ 41,169 $ 41,169 $ 46,755 $ 46,755 Interest-bearing deposits Level 2 13,448 13,448 14,047 14,047 Securities available for sale Level 2 82,232 82,232 84,623 84,623 Securities available for sale Level 3 1,650 1,650 1,650 1,650 Federal Home Loan Bank stock Level 2 2,719 2,719 2,911 2,911 Net loans Level 3 781,400 780,377 776,837 778,377 Accrued interest receivable Level 3 2,026 2,026 2,016 2,016 Total financial assets $ 924,644 $ 923,621 $ 928,839 $ 930,379 Financial liabilities: Deposits Level 2 $ 821,820 $ 814,259 $ 823,512 $ 815,960 Borrowings Level 2 66,279 66,853 67,579 68,293 Accrued interest payable Level 3 287 287 267 267 Total financial liabilities $ 888,386 $ 881,399 $ 891,358 $ 884,520
Schedule of investment securities measured at fair value on a recurring basis	The table below shows investment securities measured at fair value on a recurring basis (dollars in thousands): Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2017 (Level 1) (Level 2) (Level 3) March 31, 2017 Assets Corporate $ $ — $ 19,952 $ — $ — Equity — — — US Agencies — 23,053 — — US Agencies - MBS — 14,706 1,150 — Obligations of state and political subdivisions — 24,521 — — $ $ — Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Corporate $ $ — $ 19,910 $ — $ — Equity — — — US Agencies — 23,952 — — US Agencies - MBS — 15,683 1,150 — Obligations of state and political subdivisions 25,078 — 25,078 — — $ 86,273 $ —
Schedule of assets measured at fair value on a non-recurring basis	Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2017 Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2017 (Level 1) (Level 2) (Level 3) March 31, 2017 Assets Impaired loans $ 7,788 $ — $ — $ 7,788 $ 37 Other real estate owned 4,466 — — 4,466 12 $ 49 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2016 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Impaired loans $ $ — $ — $ $ 643 Other real estate held for sale — — 202 $ 845

COMMITMENTS, CONTINGENCIES, A32

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Tables)	3 Months Ended
	Mar. 31, 2017
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Schedule of commitments	These commitments are as follows (dollars in thousands): March 31, December 31, 2017 2016 Commitments to extend credit: Variable rate $ 60,204 $ 59,496 Fixed rate 27,407 28,737 Standby letters of credit - Variable rate 7,926 8,252 Credit card commitments - Fixed rate 5,677 5,533 $ 101,214 $ 102,018

SUMMARY OF SIGNIFICANT ACCOUN33

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	May 22, 2012shares
2012 Incentive Compensation Plan
Stock Compensation Plans
Total authorized share balance	575,000

EARNINGS PER SHARE (Details)

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
(Numerator):
Net income	$ 1,726	$ 1,132
(Denominator):
Weighted average shares outstanding	6,270,034	6,214,083
Effect of dilutive stock options, and vesting of restricted stock awards	10,343	13,902
Diluted weighted average shares outstanding	6,280,377	6,227,985
Income per common share:
Basic (in dollars per share)	$ 0.28	$ 0.18
Diluted (in dollars per share)	$ 0.28	$ 0.18

INVESTMENT SECURITIES (Details)

INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
SECURITIES AVAILABLE FOR SALE
Amortized Cost	$ 83,536	$ 86,427
Gross Unrealized Gains	664	591
Gross Unrealized Losses	(318)	(745)
Estimated Fair Value	83,882	86,273
Corporate
SECURITIES AVAILABLE FOR SALE
Amortized Cost	19,849	19,899
Gross Unrealized Gains	118	49
Gross Unrealized Losses	(15)	(38)
Estimated Fair Value	19,952	19,910
Equity
SECURITIES AVAILABLE FOR SALE
Amortized Cost	500	500
Estimated Fair Value	500	500
US Agencies
SECURITIES AVAILABLE FOR SALE
Amortized Cost	22,991	23,991
Gross Unrealized Gains	77	47
Gross Unrealized Losses	(15)	(86)
Estimated Fair Value	23,053	23,952
US Agencies - MBS
SECURITIES AVAILABLE FOR SALE
Amortized Cost	15,903	16,980
Gross Unrealized Gains	64	48
Gross Unrealized Losses	(111)	(195)
Estimated Fair Value	15,856	16,833
Obligations of states and political subdivisions
SECURITIES AVAILABLE FOR SALE
Amortized Cost	24,293	25,057
Gross Unrealized Gains	405	447
Gross Unrealized Losses	(177)	(426)
Estimated Fair Value	24,521	$ 25,078
FHLB borrowings and customer relationships
SECURITIES AVAILABLE FOR SALE
Amortized Cost	19,902
Estimated Fair Value	$ 19,869

LOANS (Details)

LOANS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Loans
Total loans	$ 786,546,000	$ 618,625,000	$ 781,857,000
Changes in the allowance for loan losses
Net charge off activity		180,000
PFC
Acquired portfolio
Loans acquired - contractual payments	67,139,000
Nonaccretable difference	(2,234,000)
Expected cash flows	64,905,000
Accretable yield	(2,844,000)
Carrying balance at acquisition date	62,061,000
Balance at the beginning of period	924,000	1,768,000
Accretion	(275,000)	(175,000)
Reclassification from nonaccretable difference	57,000	(17,000)
Balance at the end of period	706,000	1,576,000
Eagle River
Acquired portfolio
Loans acquired - contractual payments	84,138,000
Nonaccretable difference	(1,172,000)
Expected cash flows	82,966,000
Accretable yield	(2,091,000)
Carrying balance at acquisition date	80,875,000
Balance at the beginning of period	1,457,000
Accretion	(179,000)
Balance at the end of period	1,278,000
Niagara Bancorporation
Acquired portfolio
Loans acquired - contractual payments	32,660,000
Nonaccretable difference	(265,000)
Expected cash flows	32,395,000
Accretable yield	(688,000)
Carrying balance at acquisition date	31,707,000
Balance at the beginning of period	557,000
Accretion	(72,000)
Reclassification from nonaccretable difference	(8,000)
Balance at the end of period	477,000
Commercial real estate
Loans
Total loans	397,192,000	317,081,000	389,420,000
Commercial, financial, and agricultural
Loans
Total loans	144,673,000	124,005,000	142,648,000
Commercial construction
Loans
Total loans	10,618,000	14,489,000	11,505,000
One to four family residential real estate
Loans
Total loans	202,654,000	135,641,000	205,945,000
Consumer
Loans
Total loans	19,021,000	15,450,000	20,113,000
Consumer construction
Loans
Total loans	12,388,000	11,959,000	$ 12,226,000
Acquired impaired
Acquired portfolio
Accretion	(100,000)	(96,000)
Acquired impaired | PFC
Acquired portfolio
Loans acquired - contractual payments	13,290,000
Nonaccretable difference	(2,234,000)
Expected cash flows	11,056,000
Accretable yield	(744,000)
Carrying balance at acquisition date	10,312,000
Balance at the beginning of period	282,000	426,000
Accretion	(100,000)
Reclassification from nonaccretable difference	57,000	(17,000)
Balance at the end of period	239,000	409,000
Acquired impaired | Eagle River
Acquired portfolio
Loans acquired - contractual payments	3,401,000
Nonaccretable difference	(1,172,000)
Expected cash flows	2,229,000
Accretable yield	(391,000)
Carrying balance at acquisition date	1,838,000
Balance at the beginning of period	236,000
Balance at the end of period	236,000
Acquired impaired | Niagara Bancorporation
Acquired portfolio
Loans acquired - contractual payments	2,105,000
Nonaccretable difference	(265,000)
Expected cash flows	1,840,000
Accretable yield	(88,000)
Carrying balance at acquisition date	1,752,000
Balance at the beginning of period	52,000
Reclassification from nonaccretable difference	(8,000)
Balance at the end of period	44,000
Acquired Non-impaired | PFC
Acquired portfolio
Loans acquired - contractual payments	53,849,000
Expected cash flows	53,849,000
Accretable yield	(2,100,000)
Carrying balance at acquisition date	51,749,000
Balance at the beginning of period	642,000	1,342,000
Accretion	(175,000)	(175,000)
Balance at the end of period	467,000	$ 1,167,000
Acquired Non-impaired | Eagle River
Acquired portfolio
Loans acquired - contractual payments	80,737,000
Expected cash flows	80,737,000
Accretable yield	(1,700,000)
Carrying balance at acquisition date	79,037,000
Balance at the beginning of period	1,221,000
Accretion	(179,000)
Balance at the end of period	1,042,000
Acquired Non-impaired | Niagara Bancorporation
Acquired portfolio
Loans acquired - contractual payments	30,555,000
Expected cash flows	30,555,000
Accretable yield	(600,000)
Carrying balance at acquisition date	29,955,000
Balance at the beginning of period	505,000
Accretion	(72,000)
Balance at the end of period	$ 433,000

LOANS - ALLOWANCE (Details)

LOANS - ALLOWANCE (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Allowance for loan loss reserve:
Balance at beginning of period	$ 5,020	$ 5,004
Charge-offs	(126)	(236)
Recoveries	102	56
Provision	150	0
Balance at end of period	5,146	4,824
Loans:
Ending balance			$ 786,546	$ 781,857	$ 618,625
Ending balance ALLR	(5,020)	(5,004)	(5,146)	(5,020)	(4,824)
Net loans			781,400	776,837	613,801
Ending balance ALLR:
Individually evaluated			965		794
Collectively evaluated			4,181		4,030
Total	5,020	5,004	5,146	5,020	4,824
Ending balance Loans:
Individually evaluated			3,835		3,179
Collectively evaluated			777,426		608,246
Acquired with deteriorated credit quality			5,285		7,200
Total Loans			786,546	781,857	618,625
Commercial real estate
Allowance for loan loss reserve:
Balance at beginning of period	1,345	1,611
Recoveries	34	7
Provision	(19)	(3)
Balance at end of period	1,360	1,615
Loans:
Ending balance			397,192	389,420	317,081
Ending balance ALLR	(1,345)	(1,611)	(1,360)	(1,345)	(1,615)
Net loans			395,832		315,466
Ending balance ALLR:
Individually evaluated			525		533
Collectively evaluated			835		1,082
Total	1,345	1,611	1,360	1,345	1,615
Ending balance Loans:
Individually evaluated			1,564		2,001
Collectively evaluated			392,409		310,709
Acquired with deteriorated credit quality			3,219		4,371
Total Loans			397,192	389,420	317,081
Commercial, financial, and agricultural
Allowance for loan loss reserve:
Balance at beginning of period	614	645
Charge-offs		(185)
Recoveries	1	31
Provision	35	89
Balance at end of period	650	580
Loans:
Ending balance			144,673	142,648	124,005
Ending balance ALLR	(614)	(645)	(650)	(614)	(580)
Net loans			144,023		123,425
Ending balance ALLR:
Individually evaluated			394		185
Collectively evaluated			256		395
Total	614	645	650	614	580
Ending balance Loans:
Individually evaluated			1,464		392
Collectively evaluated			143,209		123,436
Acquired with deteriorated credit quality					177
Total Loans			144,673	142,648	124,005
Commercial construction
Allowance for loan loss reserve:
Balance at beginning of period	57	79
Recoveries		7
Provision	38	(12)
Balance at end of period	95	74
Loans:
Ending balance			10,618	11,505	14,489
Ending balance ALLR	(57)	(79)	(95)	(57)	(74)
Net loans			10,523		14,415
Ending balance ALLR:
Individually evaluated			38
Collectively evaluated			57		74
Total	57	79	95	57	74
Ending balance Loans:
Individually evaluated			382
Collectively evaluated			8,228		14,489
Acquired with deteriorated credit quality			2,008
Total Loans			10,618	11,505	14,489
One to four family residential real estate
Allowance for loan loss reserve:
Balance at beginning of period	296	274
Charge-offs	(49)	(39)
Recoveries	61	1
Provision	(43)	21
Balance at end of period	265	257
Loans:
Ending balance			202,654	205,945	135,641
Ending balance ALLR	(296)	(274)	(265)	(296)	(257)
Net loans			202,389		135,384
Ending balance ALLR:
Individually evaluated			3		45
Collectively evaluated			262		212
Total	296	274	265	296	257
Ending balance Loans:
Individually evaluated			403		750
Collectively evaluated			202,196		132,242
Acquired with deteriorated credit quality			55		2,649
Total Loans			202,654	205,945	135,641
Consumer construction
Allowance for loan loss reserve:
Balance at beginning of period	6	7
Provision	1
Balance at end of period	7	7
Loans:
Ending balance			12,388	12,226	11,959
Ending balance ALLR	(6)	(7)	(7)	(6)	(7)
Net loans			12,381		11,952
Ending balance ALLR:
Collectively evaluated			7		7
Total	6	7	7	6	7
Ending balance Loans:
Collectively evaluated			12,388		11,957
Acquired with deteriorated credit quality					2
Total Loans			12,388	12,226	11,959
Consumer
Allowance for loan loss reserve:
Balance at beginning of period	90	64
Charge-offs	(77)	(12)
Recoveries	6	10
Provision	(4)	(22)
Balance at end of period	15	40
Loans:
Ending balance			19,021	20,113	15,450
Ending balance ALLR	(90)	(64)	(15)	(90)	(40)
Net loans			19,006		15,410
Ending balance ALLR:
Individually evaluated			5		31
Collectively evaluated			10		9
Total	90	64	15	90	40
Ending balance Loans:
Individually evaluated			22		36
Collectively evaluated			18,996		15,413
Acquired with deteriorated credit quality			3		1
Total Loans			19,021	20,113	15,450
Unallocated
Allowance for loan loss reserve:
Balance at beginning of period	2,612	2,324
Provision	142	(73)
Balance at end of period	2,754	2,251
Loans:
Ending balance ALLR	(2,612)	(2,324)	(2,754)	(2,612)	(2,251)
Net loans			(2,754)		(2,251)
Ending balance ALLR:
Collectively evaluated			2,754		2,251
Total	$ 2,612	$ 2,324	$ 2,754	$ 2,612	$ 2,251

LOANS - LOANS BY RISK CATEGORY

LOANS - LOANS BY RISK CATEGORY (Details) $ in Thousands	Mar. 31, 2017USD ($)item	Dec. 31, 2016USD ($)	Mar. 31, 2016USD ($)
Breakdown of loans by risk category
Total loans	$ 786,546	$ 781,857	$ 618,625
Minimum
Breakdown of loans by risk category
Credit risk rating for which reserves are established if no specific reserves made | item	6
Maximum
Breakdown of loans by risk category
Credit risk rating for which general reserves are established | item	5
Credit risk rating for which reserves are established if no specific reserves made | item	7
Commercial real estate
Breakdown of loans by risk category
Total loans	$ 397,192	389,420	317,081
Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	144,673	142,648	124,005
Commercial construction
Breakdown of loans by risk category
Total loans	10,618	11,505	14,489
One to four family residential real estate
Breakdown of loans by risk category
Total loans	202,654	205,945	135,641
Consumer construction
Breakdown of loans by risk category
Total loans	12,388	12,226	11,959
Consumer
Breakdown of loans by risk category
Total loans	19,021	20,113	$ 15,450
Strong (1)
Breakdown of loans by risk category
Total loans	14,793	14,230
Strong (1) | Commercial real estate
Breakdown of loans by risk category
Total loans	3,309	3,021
Strong (1) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	10,616	10,421
Strong (1) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	825	740
Strong (1) | Consumer construction
Breakdown of loans by risk category
Total loans	28	28
Strong (1) | Consumer
Breakdown of loans by risk category
Total loans	15	20
Good (2)
Breakdown of loans by risk category
Total loans	40,238	39,647
Good (2) | Commercial real estate
Breakdown of loans by risk category
Total loans	24,533	23,940
Good (2) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	13,463	13,434
Good (2) | Commercial construction
Breakdown of loans by risk category
Total loans	875	900
Good (2) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	1,367	1,373
Average (3)
Breakdown of loans by risk category
Total loans	204,041	196,625
Average (3) | Commercial real estate
Breakdown of loans by risk category
Total loans	149,448	140,618
Average (3) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	48,226	49,434
Average (3) | Commercial construction
Breakdown of loans by risk category
Total loans	3,163	3,146
Average (3) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	3,190	3,412
Average (3) | Consumer
Breakdown of loans by risk category
Total loans	14	15
Acceptable/Acceptable Watch (4)
Breakdown of loans by risk category
Total loans	281,703	296,400
Acceptable/Acceptable Watch (4) | Commercial real estate
Breakdown of loans by risk category
Total loans	204,557	216,518
Acceptable/Acceptable Watch (4) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	68,018	67,582
Acceptable/Acceptable Watch (4) | Commercial construction
Breakdown of loans by risk category
Total loans	1,961	2,660
Acceptable/Acceptable Watch (4) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	7,128	9,585
Acceptable/Acceptable Watch (4) | Consumer
Breakdown of loans by risk category
Total loans	39	55
Special Mention (5)
Breakdown of loans by risk category
Total loans	16,611
Special Mention (5) | Commercial real estate
Breakdown of loans by risk category
Total loans	10,582
Special Mention (5) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	2,463
Special Mention (5) | Commercial construction
Breakdown of loans by risk category
Total loans	756
Special Mention (5) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	2,798
Special Mention (5) | Consumer
Breakdown of loans by risk category
Total loans	12
Substandard (6)
Breakdown of loans by risk category
Total loans	11,272	13,098
Substandard (6) | Commercial real estate
Breakdown of loans by risk category
Total loans	4,763	5,323
Substandard (6) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	1,887	1,777
Substandard (6) | Commercial construction
Breakdown of loans by risk category
Total loans	382	385
Substandard (6) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	4,165	5,493
Substandard (6) | Consumer construction
Breakdown of loans by risk category
Total loans	16	17
Substandard (6) | Consumer
Breakdown of loans by risk category
Total loans	59	103
Rating Unassigned
Breakdown of loans by risk category
Total loans	217,888	221,857
Rating Unassigned | Commercial construction
Breakdown of loans by risk category
Total loans	3,481	4,414
Rating Unassigned | One to four family residential real estate
Breakdown of loans by risk category
Total loans	183,181	185,342
Rating Unassigned | Consumer construction
Breakdown of loans by risk category
Total loans	12,344	12,181
Rating Unassigned | Consumer
Breakdown of loans by risk category
Total loans	$ 18,882	$ 19,920

LOANS - IMPAIRED LOANS AND EFFE

LOANS - IMPAIRED LOANS AND EFFECT ON INTEREST INCOME (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Impaired Loans
Number of days past due to be considered as nonperforming loans	90 days
Recorded investment
Total	$ 349
Average investment
Total	9,077	$ 10,485
Related Valuation Reserve		380
Interest Income on Accrual Basis
Total	226	437
Accrual Basis
Recorded investment
Total	4,058	6,087
Non Accrual Recorded Balance
Recorded investment
Total	3,730	4,124
Non Accrual Unpaid Balance
Recorded investment
Total	4,546	5,226
Commercial real estate
Recorded investment
With a valuation reserve	50
Total	50
Average investment
With no valuation reserve	4,086	5,318
With a valuation reserve	302	103
Total	4,388	5,421
Related Valuation Reserve		50
Interest Income on Accrual Basis
With no valuation reserve	121	232
Total	121	232
Commercial real estate | Accrual Basis
Recorded investment
With no valuation reserve	2,097	3,234
Total	2,097	3,234
Commercial real estate | Non Accrual Recorded Balance
Recorded investment
With no valuation reserve	1,391	1,426
With a valuation reserve	301	306
Total	1,692	1,732
Commercial real estate | Non Accrual Unpaid Balance
Recorded investment
With no valuation reserve	1,834	1,891
With a valuation reserve	310	328
Total	2,144	2,219
Commercial, financial, and agricultural
Recorded investment
With a valuation reserve	261
Total	261
Average investment
With no valuation reserve	9	116
With a valuation reserve	327	109
Total	336	225
Related Valuation Reserve		231
Interest Income on Accrual Basis
With no valuation reserve		3
Total		3
Commercial, financial, and agricultural | Non Accrual Recorded Balance
Recorded investment
With no valuation reserve	9	11
With a valuation reserve	335	326
Total	344	337
Commercial, financial, and agricultural | Non Accrual Unpaid Balance
Recorded investment
With no valuation reserve	9	11
With a valuation reserve	335	357
Total	344	368
One to four family residential real estate
Recorded investment
With a valuation reserve	27
Total	27
Average investment
With no valuation reserve	3,981	4,500
With a valuation reserve	235	171
Total	4,216	4,671
Related Valuation Reserve		94
Interest Income on Accrual Basis
With no valuation reserve	104	196
Total	104	196
One to four family residential real estate | Accrual Basis
Recorded investment
With no valuation reserve	1,903	2,792
Total	1,903	2,792
One to four family residential real estate | Non Accrual Recorded Balance
Recorded investment
With no valuation reserve	1,253	1,623
With a valuation reserve	386	333
Total	1,639	1,956
One to four family residential real estate | Non Accrual Unpaid Balance
Recorded investment
With no valuation reserve	1,607	2,198
With a valuation reserve	387	333
Total	1,994	2,531
Consumer construction
Average investment
With no valuation reserve	73	36
Total	73	36
Interest Income on Accrual Basis
With no valuation reserve	1	4
Total	1	4
Consumer construction | Accrual Basis
Recorded investment
With no valuation reserve	55	57
Total	55	57
Consumer construction | Non Accrual Recorded Balance
Recorded investment
With no valuation reserve	16	17
Total	16	17
Consumer construction | Non Accrual Unpaid Balance
Recorded investment
With no valuation reserve	21	22
Total	21	22
Consumer
Recorded investment
With a valuation reserve	11
Total	11
Average investment
With no valuation reserve	52	127
With a valuation reserve	12	5
Total	64	132
Related Valuation Reserve		5
Interest Income on Accrual Basis
With no valuation reserve		2
Total		2
Consumer | Accrual Basis
Recorded investment
With no valuation reserve	3	4
Total	3	4
Consumer | Non Accrual Recorded Balance
Recorded investment
With no valuation reserve	15	82
With a valuation reserve	24	0
Total	39	82
Consumer | Non Accrual Unpaid Balance
Recorded investment
With no valuation reserve	19	86
With a valuation reserve	24	0
Total	$ 43	$ 86

LOANS - PAST DUE (Details)

LOANS - PAST DUE (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Past due loans
30-89 days Past Due (accruing)	$ 3,301	$ 3,374
90+ days Past Due/Nonaccrual	3,730	4,124
Total	7,031	7,498
Commercial real estate
Past due loans
30-89 days Past Due (accruing)	822	942
90+ days Past Due/Nonaccrual	1,692	1,732
Total	2,514	2,674
Commercial, financial, and agricultural
Past due loans
30-89 days Past Due (accruing)	150	186
90+ days Past Due/Nonaccrual	344	337
Total	494	523
One to four family residential real estate
Past due loans
30-89 days Past Due (accruing)	2,206	2,113
90+ days Past Due/Nonaccrual	1,639	1,956
Total	3,845	4,069
Consumer construction
Past due loans
30-89 days Past Due (accruing)	52
90+ days Past Due/Nonaccrual	16	17
Total	68	17
Consumer
Past due loans
30-89 days Past Due (accruing)	71	133
90+ days Past Due/Nonaccrual	39	82
Total	$ 110	$ 215

LOANS - INSIDER LOANS (Details)

LOANS - INSIDER LOANS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms
Loans outstanding, beginning of period	$ 9,195,000	$ 6,887,000
Net activity on revolving lines of credit	500,000	510,000
Repayment	(313,000)	(2,034,000)
Loans outstanding, end of period	9,382,000	5,363,000
Loans outstanding	9,195,000	6,887,000	$ 9,382,000
Bank
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms
Unfunded commitments			91,000
Bank | Substandard (6)
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms
Loans outstanding, end of period	0	0
Loans outstanding	$ 0	$ 0	$ 0

GOODWILL AND OTHER INTANGIBLE42

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Aug. 31, 2016	Apr. 30, 2016	Dec. 31, 2014
Goodwill	$ 5,694,000	$ 5,694,000
Deposit based intangible assets	2,110,000	2,172,000
Amortization of Intangible Assets	62,000
Amortization expense year one	250,000
Amortization expense year two	250,000
Amortization expense year three	250,000
Amortization expense year four	250,000
Amortization expense year five	$ 250,000
PFC
Goodwill					$ 3,805,000
Deposit based intangible assets					$ 1,206,000
Eagle River
Goodwill		1,839,000		$ 1,839,000
Deposit based intangible assets		993,000
Niagara Bancorporation
Goodwill		50,000	$ 50,000
Deposit based intangible assets		$ 300,000

SERVICING RIGHTS (Details)

SERVICING RIGHTS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Commercial loans
Commercial Loans
Commercial Loans	$ 55,000	$ 49,500
Servicing rights	$ 132	162
Mortgage loans
Mortgage Loans
Annual constant prepayment speed (as a percent)	10.74%
Discount rate (as a percent)	9.59%
Changes in mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances
Balance at beginning of period	$ 1,573	1,965
Amortization	(141)	(196)
Balance at end of period	1,432	1,769
Balance of loan servicing portfolio	$ 215,730	$ 219,080
Mortgage servicing rights as % of portfolio	0.66%	0.81%

BORROWINGS (Details)

BORROWINGS (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017USD ($)item	Dec. 31, 2016USD ($)
BORROWINGS
Borrowings	$ 66,279	$ 67,579
Federal Home Loan Bank Borrowing Weighted Average Interest Rate	2.10%
Federal Home Loan Bank borrowings
BORROWINGS
Borrowings	$ 45,000	45,000
Federal Home Loan Bank borrowings | Mortgage related and municipal securities
BORROWINGS
Securities pledged as collateral, amortized cost	12,000
Securities pledged as collateral, fair value	11,991
Federal Home Loan Bank borrowings | FHLB stock
BORROWINGS
Stock owned and pledged as collateral	2,719
Federal Home Loan Bank borrowings | One to four family residential real estate
BORROWINGS
Loans pledged as collateral	$ 42,506
Correspondent bank line of credit
BORROWINGS
Borrowings		750
Number of banking borrowing relationships | item	1
Variable rate (as a percent)	2.75%
Correspondent bank term note
BORROWINGS
Borrowings	$ 20,649	21,199
Quarterly principal payment	550
USDA Rural Development note
BORROWINGS
Borrowings	$ 630	$ 630
Interest rate on note (as a percent)	1.00%
USDA Rural Development note | First Rural Relending
BORROWINGS
Loans pledged as collateral	$ 108
Demand deposit account pledged as collateral	593
Revolving Credit Facility
BORROWINGS
Line of Credit	$ 5,000

DEFINED BENEFIT PENSION PLAN (D

DEFINED BENEFIT PENSION PLAN (Details)	3 Months Ended
	Mar. 31, 2017USD ($)item	Mar. 31, 2016USD ($)
Defined Benefit Pension Plan
Expected contributions to the plan	$ 19,000
Number of years over which anticipated pension distributions disclosed | item	5
Anticipated distributions from the plan
2,017	$ 128
2,018	125
2,019	122
2,020	121
2,021	120
2022-2026	723
Total	1,339
Peninsula Financial Corporation noncontributory defined benefit pension plan
Change in plan assets
Fair value of plan assets	2,049,000	$ 2,033,000
Accrued pension expense, included with other assets or liabilities	1,138,000	1,147,000
Accumulated benefit obligation	$ 3,187,000	$ 3,180,000
Assumptions in the actuarial valuation
Weighted average discount rate	3.78%	3.99%
Expected long-term rate of return on plan assets	8.00%	8.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities
Plan assets
Target Allocation, minimum	50.00%
Target Allocation, maximum	70.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Plan
Plan assets
Actual Allocation	60.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities
Plan assets
Target Allocation, minimum	30.00%
Target Allocation, maximum	50.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Plan
Plan assets
Actual Allocation	40.00%

STOCK COMPENSATION PLANS (Detai

STOCK COMPENSATION PLANS (Details) - $ / shares	Aug. 31, 2016	Aug. 31, 2015	Aug. 31, 2014	Aug. 31, 2013	Feb. 28, 2017	Mar. 31, 2016	Feb. 29, 2016	May 31, 2015	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2017
Summary of nonvested shares
Nonvested beginning balance (in shares)											90,417
Granted during the period (in shares)											28,427
Vested during the period (in shares)											(31,559)
Nonvested ending balance (in shares)											87,285
Weighted Average Grant Date Fair Value
Nonvested beginning balance (in dollars per share)											$ 11.19
Granted during the period (in dollars per share)											13.39
Vested during the period (in dollars per share)											11.55
Nonvested ending balance (in dollars per share)											$ 11.78
RSUs
Stock Compensation Plans
Market value at grant date (in dollars per share)					$ 13.39		$ 9.91	$ 10.77	$ 11.15	$ 12.95
Stock issued for vested restricted stocks	37,125	37,125	37,125	37,125		22,626		3,000	13,194		31,559
Vesting period					4 years		4 years		4 years	4 years	4 years
Summary of nonvested shares
Granted during the period (in shares)					28,427		35,733	3,000	37,730	52,774

INCOME TAXES (Details)

INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
INCOME TAXES
Deferred tax assets, net of valuation allowance	$ 7,651		$ 8,760
Net operating loss (NOL) carryforwards	9,100
Tax credit carryforwards	$ 2,200
Expiration period from date of origination for net operating loss carryforwards	20 years
Annual limitation for usage of NOL	$ 1,404
Annual limitation for usage of tax credits	476
Deferred tax expense (benefit)	$ 889	$ 585

FAIR VALUE MEASUREMENTS (Detail

FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Fair Value Measurements
Blended interest rate for determining fair value of nonaccrual loans (as a percent)	0.00%
Fair value of commitments	$ 0
Financial assets:
Interest-bearing deposits	13,448	$ 14,047
Securities available for sale	83,882	86,273
Carrying Amount
Financial assets:
Total financial assets	924,644	928,839
Financial liabilities:
Total financial liabilities	888,386	891,358
Estimated Fair Value
Financial assets:
Total financial assets	923,621	930,379
Financial liabilities:
Total financial liabilities	881,399	884,520
Level 1 | Carrying Amount
Financial assets:
Cash and cash equivalents	41,169	46,755
Level 1 | Estimated Fair Value
Financial assets:
Cash and cash equivalents	41,169	46,755
Level 2 | Carrying Amount
Financial assets:
Interest-bearing deposits	13,448	14,047
Securities available for sale	82,232	84,623
Federal Home Loan Bank stock	2,719	2,911
Financial liabilities:
Deposits	821,820	823,512
Borrowings	66,279	67,579
Level 2 | Estimated Fair Value
Financial assets:
Interest-bearing deposits	13,448	14,047
Securities available for sale	82,232	84,623
Federal Home Loan Bank stock	2,719	2,911
Financial liabilities:
Deposits	814,259	815,960
Borrowings	66,853	68,293
Significant Unobservable Inputs (Level 3) | Carrying Amount
Financial assets:
Securities available for sale	1,650	1,650
Net loans	781,400	776,837
Accrued interest receivable	2,026	2,016
Financial liabilities:
Accrued interest payable	287	267
Significant Unobservable Inputs (Level 3) | Estimated Fair Value
Financial assets:
Securities available for sale	1,650	1,650
Net loans	780,377	778,377
Accrued interest receivable	2,026	2,016
Financial liabilities:
Accrued interest payable	$ 287	$ 267

FAIR VALUE MEASUREMENTS - OTHER

FAIR VALUE MEASUREMENTS - OTHER ASSETS AND OTHER LIABILITIES (Details) - Recurring - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Fair value measurements
Other assets	$ 0	$ 0
Other liabilities	0	0
Significant Unobservable Inputs (Level 3)
Fair value measurements
Assets	0	0
Liabilities	$ 0	$ 0

FAIR VALUE MEASUREMENTS - RECUR

FAIR VALUE MEASUREMENTS - RECURRING (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Available-for-sale Securities	$ 83,882	$ 86,273
Corporate
Available-for-sale Securities	19,952	19,910
Equity
Available-for-sale Securities	500	500
US Agencies
Available-for-sale Securities	23,053	23,952
US Agencies - MBS
Available-for-sale Securities	15,856	16,833
Obligations of states and political subdivisions
Available-for-sale Securities	24,521	25,078
Recurring
Available-for-sale Securities	83,882	86,273
Recurring | Corporate
Available-for-sale Securities	19,952	19,910
Recurring | Equity
Available-for-sale Securities	500	500
Recurring | US Agencies
Available-for-sale Securities	23,053	23,952
Recurring | US Agencies - MBS
Available-for-sale Securities	15,856	16,833
Recurring | Obligations of states and political subdivisions
Available-for-sale Securities	24,521	25,078
Level 2 | Recurring | Corporate
Available-for-sale Securities	19,952	19,910
Level 2 | Recurring | US Agencies
Available-for-sale Securities	23,053	23,952
Level 2 | Recurring | US Agencies - MBS
Available-for-sale Securities	14,706	15,683
Level 2 | Recurring | Obligations of states and political subdivisions
Available-for-sale Securities	24,521	25,078
Significant Unobservable Inputs (Level 3) | Recurring | Equity
Available-for-sale Securities	500	500
Significant Unobservable Inputs (Level 3) | Recurring | US Agencies - MBS
Available-for-sale Securities	$ 1,150	$ 1,150

FAIR VALUE MEASUREMENTS - NONRE

FAIR VALUE MEASUREMENTS - NONRECURRING BASIS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Fair value
Impaired loans	$ 349
Other real estate owned	4,466	$ 4,782
Nonrecurring
Fair value
Total Losses	49	845
Nonrecurring | Impaired loans
Fair value
Impaired loans	7,788	9,856
Total Losses	37	643
Nonrecurring | Other real estate owned
Fair value
Other real estate owned	4,466	4,782
Total Losses	12	202
Nonrecurring | Significant Unobservable Inputs (Level 3) | Impaired loans
Fair value
Impaired loans	7,788	9,856
Nonrecurring | Significant Unobservable Inputs (Level 3) | Other real estate owned
Fair value
Other real estate owned	$ 4,466	$ 4,782

SHAREHOLDERS' EQUITY (Details)

SHAREHOLDERS' EQUITY (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Mar. 31, 2017	Apr. 28, 2015	Dec. 17, 2013	Feb. 27, 2013
Participation in the TARP Capital Purchase Program
Number of shares authorized to be repurchased						$ 26,000		$ 600,000	$ 600,000
Number of additional shares authorized to be repurchased							$ 750,000
Shares of Common Stock
Participation in the TARP Capital Purchase Program
Number of shares repurchased	9,000	14,000	102,455	13,700	55,594

COMMITMENTS, CONTINGENCIES, A53

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Financial Instruments with Off-Balance-Sheet Risk
Commitments	$ 101,214	$ 102,018
Commitments to extend credit
Financial Instruments with Off-Balance-Sheet Risk
Commitments, variable rate	60,204	59,496
Commitments, fixed rate	27,407	28,737
Standby letters of credit
Financial Instruments with Off-Balance-Sheet Risk
Commitments, variable rate	$ 7,926	8,252
Percentage collateralization on financial instruments allowed under commitments	100.00%
Credit card commitments
Financial Instruments with Off-Balance-Sheet Risk
Commitments, fixed rate	$ 5,677	$ 5,533

COMMITMENTS, CONTINGENCIES, A54

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK - CREDIT RISK (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Concentration of Credit Risk
Loan portfolio	$ 781,400	$ 776,837	$ 613,801
Commercial real estate
Concentration of Credit Risk
Loan portfolio	395,832		$ 315,466
Bank | Commercial real estate | Commercial loan portfolio | Credit risk concentration
Concentration of Credit Risk
Loan portfolio	$ 114,650	$ 121,861
Percentage of concentration risk under a specified benchmark	20.75%	22.42%

BUSINESS COMBINATIONS (Details)

BUSINESS COMBINATIONS (Details)	1 Months Ended
	Aug. 31, 2016USD ($)item	Apr. 30, 2016USD ($)	Apr. 29, 2016USD ($)item	Mar. 31, 2017USD ($)	Dec. 31, 2016USD ($)
Business Acquisition [Line Items]
Assets				$ 976,635,000	$ 983,520,000
Goodwill				$ 5,694,000	5,694,000
Eagle River
Business Acquisition [Line Items]
Number of banking offices | item			3
Assets			$ 125,000,000
Total loans		$ 84,000,000
Total deposits		105,000,000
Deposit based intangible		933,000
Total purchase price		12,500,000
Goodwill		$ 1,839,000			1,839,000
Niagara Bancorporation
Business Acquisition [Line Items]
Number of banking offices | item	4
Assets	$ 67,000,000
Total loans	33,000,000
Total deposits	59,000,000
Deposit based intangible	300,000
Purchase price of acquisition	7,325,000
Goodwill	$ 50,000				$ 50,000