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.

First Federal of Northern Michigan Bancorp, Inc.

The Corporation completed its acquisition of First Federal of Northern Michigan Bancorp, Inc in May 2018. FFNM had seven branch offices, one of which was consolidated into an existing mBank branch shortly after consummation of the transaction. Total assets of FFNM as of May 18, 2018 were $318 million, including total loans of $192 million and deposits, the majority of which are core deposits, of $254 million. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. As consideration in the acquisition, the Corporation issued 2,146,378 new shares, approximating $34.1 million. The Corporation recorded preliminary deposit based intangibles of $2.7 million and goodwill of $14.7 million. While the Corporation believes the majority of the business combination and purchase accounting activity is complete, it is expected there will be minor adjustments in the normal course within the allotted GAAP adjustment period. Purchase accounting activity still being analyzed primarily includes certain tax implications.

The table below highlights the allocation of purchase price for the FFNM acquisition (dollars in thousands, except per share data):


Purchase Price:

FFNM shares outstanding		3,726,925
Price per share	$	9.15
Total purchase price			$	34,101

Net assets acquired:

Cash and cash equivalents	$	13,267
Securities available for sale		96,297
FHLB Stock		1,748
Total loans		185,444
Premises and equipment		5,134
Other real estate owned		194
Deposit based intangible		2,729
Mortgage servicing rights		386
Deferred tax assets		3,229
Bank owned life insurance		5,170
Other assets		1,775
Total assets		315,373

Non-interest bearing deposits		60,616
Interest bearing deposits		193,099
Total deposits		253,715
FHLB borrowings		40,722
Deferred tax liability		133
Other liabilities		1,397
Total liabilities		295,967
Net assets acquired				19,406

Goodwill			$	14,695

The following table provides the unaudited pro forma information for the results of operations for the six months ended June 30, 2018, and the year ended December 31, 2017 as if the acquisition had occurred on January 1 of each year. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily on the loan and deposit portfolios of FFNM. In addition, the merger related costs noted above are excluded from the six months ended June 30, 2018 results of operations, for comparative pro forma purposes. Further operating cost savings are expected along with additional business synergies as a result of the merger which are not presented in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the combined banking organization that would have been achieved had the merger occurred at the beginning of the period presented, nor are they intended to represent or be indicative of future results of the Corporation.

Pro forma Mackinac Financial Combined with FFNM


	Six months ended		Year Ended
	June 30, 2018		December 31, 2017

Net interest income	$	25,700	$	51,495
Noninterest income		2,800		5,615
Noninterest expense		20,500		41,140
Net income		5,800		11,650
Net income per diluted share	$	.54		1.09

Lincoln Community Bank

On June 7, 2018 the Corporation announced the execution of a definitive agreement to acquire Lincoln Community Bank (“Lincoln”) located in Merrill, WI, for $8.50 million in cash. Lincoln currently operates two (2) banking centers, one each in Merrill and Gleason, WI. As of June 30, 2018, Lincoln has total assets in excess of $59 million, loans of approximately $40 million and deposits in excess of $52 million. The transaction is expected to close late in the third quarter of 2018 or early in the fourth quarter of 2018. The transaction remains subject to approval by federal and state regulatory authorities as well as the satisfaction of other customary closing conditions provided in the purchase agreement. The purchase agreement also provides that Lincoln will be consolidated into mBank.