LOANS (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of composition of loans

The composition of loans at December 31 is as follows (dollars in thousands):

	2018		2017
Commercial real estate	$	496,207		$	406,742
Commercial, financial, and agricultural		191,060			156,951
Commercial construction		29,765			9,243
One to four family residential real estate		286,908			209,890
Consumer		20,371			17,434
Consumer construction		14,553			10,818
Total loans	$	1,038,864		$	811,078

Schedule of the accretable yield by acquisition

The table below presents a rollforward of the accretable yield on acquired loans for year ended December 31, 2018 (dollars in thousands):

	PFC						Eagle River
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2017	$	149	$	—	$	149	$	218	$	603	$	821
Accretion		(86)		—		(86)		(22)		(587)		(609)
Reclassification from nonaccretable difference		65		—		65		17		—		17
Balance, December 31, 2018	$	128	$	—	$	128	$	213	$	16	$	229
	Niagara						First Federal Northern Michigan
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2017	$	38	$	281	$	319	$	—	$	—	$	—
Acquisition activity		—		—		—		700		4,498		5,198
Accretion		(48)		(212)		(260)		(515)		(1,052)		(1,567)
Reclassification from nonaccretable difference		36		—		36		386		—		386
Balance, December 31, 2018	$	26	$	69	$	95	$	571	$	3,446	$	4,017
	Lincoln Community Bank						Total
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2017	$	—	$	—	$	—	$	405	$	884	$	1,289
Acquisition activity		561		493		1,054		1,261		4,991		6,252
Accretion		—		(51)		(51)		(671)		(1,902)		(2,573)
Reclassification from nonaccretable difference		—		—		—		504		—		504
Balance, December 31, 2018	$	561	$	442	$	1,003	$	1,499	$	3,973	$	5,472

The table below presents a rollforward of the accretable yield on acquired loans for year ended December 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		(460)		(642)		(1,102)		(70)		(618)		(688)		(20)		(224)		(244)
Reclassification from nonaccretable difference		327		—		327		52		—		52		6		—		6
Balance, December 31, 2017	$	149	$	—	$	149	$	218	$	603	$	821	$	38	$	281	$	319

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 December 31, 2018 is as follows (dollars in thousands):

			Commercial,				One to four
	Commercial		financial and		Commercial		family residential		Consumer
	real estate		agricultural		construction		real estate		construction		Consumer		Unallocated		Total
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,650	$	576	$	54	$	160	$	6	$	10	$	2,623	$	5,079
Charge-offs		(198)		(132)		—		(230)		—		(156)		—		(716)
Recoveries		55		164		2		64		—		35		—		320
Provision		175		40		45		205		—		119		(84)		500
Ending balance ALLR	$	1,682	$	648	$	101	$	199	$	6	$	8	$	2,539	$	5,183
Loans:
Ending balance	$	496,207	$	191,060	$	29,765	$	286,908	$	14,553	$	20,371	$	—	$	1,038,864
Ending balance ALLR		(1,682)		(648)		(101)		(199)		(6)		(8)		(2,539)		(5,183)
Net loans	$	494,525	$	190,412	$	29,664	$	286,709	$	14,547	$	20,363	$	(2,539)	$	1,033,681
Ending balance ALLR:
Individually evaluated	$	486	$	340	$	—	$	—	$	—	$	—	$	—	$	826
Collectively evaluated		1,196		308		101		199		6		8		2,539		4,357
Total	$	1,682	$	648	$	101	$	199	$	6	$	8	$	2,539	$	5,183
Ending balance Loans:
Individually evaluated	$	2,148	$	577	$	—	$	—	$	—	$	—	$	—	$	2,725
Collectively evaluated		491,282		189,023		29,399		285,677		14,336		20,329		—		1,030,046
Acquired with deteriorated credit quality		2,777		1,460		366		1,231		217		42		—		6,093
Total	$	496,207	$	191,060	$	29,765	$	286,908	$	14,553	$	20,371	$	—	$	1,038,864

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at December 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		(155)		(264)		—		(155)		—		(229)		—		(803)
Recoveries		80		39		2		65		—		51		—		237
Provision		380		187		(5)		(46)		—		98		11		625
Ending balance ALLR	$	1,650	$	576	$	54	$	160	$	6	$	10	$	2,623	$	5,079
Loans:
Ending balance	$	406,742	$	156,951	$	9,243	$	209,890	$	10,818	$	17,434	$	—	$	811,078
Ending balance ALLR		(1,650)		(576)		(54)		(160)		(6)		(10)		(2,623)		(5,079)
Net loans	$	405,092	$	156,375	$	9,189	$	209,730	$	10,812	$	17,424	$	(2,623)	$	805,999
Ending balance ALLR:
Individually evaluated	$	168	$	166	$	—	$	—	$	—	$	—	$	—	$	334
Collectively evaluated		1,482		410		54		160		6		10		2,623		4,745
Total	$	1,650	$	576	$	54	$	160	$	6	$	10	$	2,623	$	5,079
Ending balance Loans:
Individually evaluated	$	516	$	166	$	—	$	—	$	—	$	—	$	—	$	682
Collectively evaluated		404,835		156,785		9,243		208,269		10,801		17,413		—		807,346
Acquired with deteriorated credit quality		1,391		—		—		1,621		17		21		—		3,050
Total	$	406,742	$	156,951	$	9,243	$	209,890	$	10,818	$	17,434	$	—	$	811,078

Schedule of breakdown of loans by risk category

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

	(1)		(2)		(3)		(4)		(44)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable		Acceptable Watch		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	9,564	$	22,265	$	189,898	$	257,627	$	5,993	$	10,860	$	—	$	—	$	496,207
Commercial, financial and agricultural		8,077		8,678		72,466		97,441		2,269		2,129		—		—		191,060
Commercial construction		734		706		6,844		12,244		829		823		—		7,585		29,765
One-to-four family residential real estate		70		2,873		6,941		15,711		2,095		4,757		—		254,461		286,908
Consumer construction		—		—		—		200		50		11		—		14,292		14,553
Consumer		19		236		625		1,156		42		77		—		18,216		20,371
Total loans	$	18,464	$	34,758	$	276,774	$	384,379	$	11,278	$	18,657	$	—	$	294,554	$	1,038,864

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

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

Summary of impaired loans and their effect on interest income

The following is a summary of impaired loans and their effect on interest income (dollars in thousands):

	Impaired Loans		Impaired Loans		Total		Unpaid		Related
	with No Related		with Related		Impaired		Principal		Allowance for
	Allowance		Allowance		Loans		Balance		Loan Losses
December 31, 2018
Commercial real estate	$	2,777	$	2,148	$	4,925	$	10,740	$	486
Commercial, financial and agricultural		1,460		577		2,037		2,249		340
Commercial construction		366		—		366		1,132		—
One to four family residential real estate		1,231		—		1,231		4,136		—
Consumer construction		217		—		217		—		—
Consumer		42		—		42		55		—
Total	$	6,093	$	2,725	$	8,818	$	18,312	$	826
December 31, 2017
Commercial real estate	$	1,511	$	516	$	2,027	$	3,326	$	168
Commercial, financial and agricultural		—		166		166		326		166
Commercial construction		—		—		—		—		—
One to four family residential real estate		1,621		—		1,621		2,315		—
Consumer construction		17		—		17		66		—
Consumer		21		—		21		21		—
Total	$	3,170	$	682	$	3,852	$	6,054	$	334

	Individually Evaluated Impaired Loans
	December 31, 2018				December 31, 2017
	Average		Interest Income		Average		Interest Income
	Balance for		Recognized for		Balance for		Recognized for
	the Period		the Period		the Period		the Period
Commercial real estate	$	5,024	$	410	$	2,784	$	141
Commercial, financial and agricultural		374		26		246		1
Commercial construction		383		13		—		3
One to four family residential real estate		2,879		203		2,057		134
Consumer construction		9		—		37		—
Consumer		38		4		13		2
Total	$	8,707	$	656	$	5,137	$	281

Summary of past due loans

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

	December 31,								December 31,
	2018								2017
	30-89 days		90+ days						30-89 days		90+ days
	Past Due		Past Due						Past Due		Past Due
	(accruing)		(accruing)		Nonaccrual		Total		(accruing)		(accruing)		Nonaccrual		Total
Commercial real estate	$	298	$	—	$	1,700	$	1,998	$	460	$	—	$	866	$	1,326
Commercial, financial and agricultural		398		—		320		718		16		—		338		354
Commercial construction		112		—		266		378		73		—		14		87
One to four family residential real estate		5,456		18		2,725		8,199		3,424		—		1,350		4,774
Consumer construction		—		—		—		—		—		—		—		—
Consumer		108		5		43		156		72		—		—		72
Total past due loans	$	6,372	$	23	$	5,054	$	11,449	$	4,045	$	—	$	2,568	$	6,613

Schedule of activity in insider loans granted to the entity's executive officers and directors, including their families and firms

Activity in such loans is summarized below (dollars in thousands):

	2018		2017
Loans outstanding, January 1	$	10,037	$	9,195
New loans		660		2,018
Net activity on revolving lines of credit		(245)		237
Repayment		(635)		(1,413)
Loans outstanding at end of period	$	9,817	$	10,037

PFC

Schedule of acquired portfolio at acquisition date

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

	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	13,290	$	53,849	$	67,139
Nonaccretable difference		(2,234)		—		(2,234)
Expected cash flows		11,056		53,849		64,905
Accretable yield		(744)		(2,100)		(2,844)
Carrying balance at acquisition date	$	10,312	$	51,749	$	62,061

Eagle River

Schedule of acquired portfolio at acquisition date

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

	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	3,401	$	80,737	$	84,138
Nonaccretable difference		(1,172)		—		(1,172)
Expected cash flows		2,229		80,737		82,966
Accretable yield		(391)		(1,700)		(2,091)
Carrying balance at acquisition date	$	1,838	$	79,037	$	80,875

Niagara Bancorporation

Schedule of acquired portfolio at acquisition date

The table below details the outstanding balances of the Niagara acquired portfolio and the acquisition 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

FFNM

Schedule of acquired portfolio at acquisition date

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

	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	5,440	$	187,302	$	192,742
Nonaccretable difference		(2,100)		—		(2,100)
Expected cash flows		3,340		187,302		190,642
Accretable yield		(700)		(4,498)		(5,198)
Carrying balance at acquisition date	$	2,640	$	182,804	$	185,444

Lincoln Community Bank

Schedule of acquired portfolio at acquisition date

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

	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	1,901	$	37,700	$	39,601
Nonaccretable difference		(546)		—		(546)
Expected cash flows		1,355		37,700		39,055
Accretable yield		(561)		(493)		(1,054)
Carrying balance at acquisition date	$	794	$	37,207	$	38,001