LOANS (Tables)

9 Months Ended

Sep. 30, 2019

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


	September 30,		December 31,
	2019		2018

Commercial real estate	$	508,332	$	496,207
Commercial, financial, and agricultural		209,872		191,060
Commercial construction		34,511		29,765
One to four family residential real estate		268,333		286,908
Consumer		20,214		20,371
Consumer construction		18,680		14,553

Total loans	$	1,059,942	$	1,038,864

Schedule of the accretable yield by acquisition

The table below presents a rollforward of the accretable yield on acquired loans for the nine months ended September 30, 2019 (dollars in thousands):


	PFC						Eagle River
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total

Balance, December 31, 2018	$	128	$	—	$	128	$	213	$	16	$	229
Accretion		(81)		—		(81)		(17)		(16)		(33)
Reclassification from nonaccretable difference		60		—		60		13		—		13
Balance, September 30, 2019	$	107	$	—	$	107	$	209	$	—	$	209

	Niagara						First Federal Northern Michigan
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total

Balance, December 31, 2018	$	26	$	69	$	95	$	571	$	3,446	$	4,017
Accretion		(14)		(69)		(83)		(145)		(1,157)		(1,302)
Reclassification from nonaccretable difference		11		—		11		109		—		109
Balance, September 30, 2019	$	23	$	—	$	23	$	535	$	2,289	$	2,824

	Lincoln Community Bank						Total
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total

Balance, December 31, 2018	$	140	$	442	$	582	$	1,078	$	3,973	$	5,051
Accretion		(109)		(138)		(247)		(366)		(1,380)		(1,746)
Reclassification from nonaccretable difference		82		—		82		275		—		275
Balance, September 30, 2019	$	113	$	304	$	417	$	987	$	2,593	$	3,580

The table below presents a rollforward of the accretable yield on acquired loans for the nine months ended September 30, 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)		(443)		(465)
Reclassification from nonaccretable difference		65		—		65		17		—		17
Balance, September 30, 2018	$	128	$	—	$	128	$	213	$	160	$	373


	Niagara						First Federal Northern Michigan						Total
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total		Impaired		Non-impaired		Total

Balance, December 31, 2017	$	38	$	281	$	319	$	—	$	—	$	—	$	405	$	884	$	1,289
Acquisition		—		—		—		700		4,498		5,198		700		4,498		5,198
Accretion		(22)		(160)		(182)		(151)		(617)		(768)		(281)		(1,220)		(1,501)
Reclassification from nonaccretable difference		10		—		10		88		—		88		180		—		180
Balance, September 30, 2018	$	26	$	121	$	147	$	637	$	3,881	$	4,518	$	1,004	$	4,162	$	5,166

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the nine months ended September 30, 2019 and September 30, 2018 is as follows (dollars in thousands):


	September 30,		September 30,
	2019		2018

Balance, January 1	$	5,183	$	5,079
Recoveries on loans previously charged off		199		290
Loans charged off		(424)		(383)
Provision		350		200

Balance at end of period	$	5,308	$	5,186

Schedule of breakdown of the allowance for loan losses and recorded balances in loans

A breakdown of the allowance for loan losses and recorded balances in loans at September 30, 2019 is as follows (dollars in thousands):


			Commercial,				One to four
	Commercial		financial and		Commercial		family residential		Consumer
	real estate		agricultural		construction		real estate		construction		Consumer		Unallocated		Total
Three Months Ended September 30, 2019
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,208	$	861	$	77	$	228	$	5	$	10	$	2,917	$	5,306
Charge-offs		(7)		—		—		(19)		—		(52)		—		(78)
Recoveries		17		—		1		2		—		10		—		30
Provision		(6)		326		—		(29)		6		207		(454)		50
Ending balance ALLR	$	1,212	$	1,187	$	78	$	182	$	11	$	175	$	2,463	$	5,308

Nine Months Ended September 30, 2019
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,682	$	648	$	101	$	199	$	6	$	8	$	2,539	$	5,183
Charge-offs		(27)		(103)		—		(139)		—		(155)		—		(424)
Recoveries		151		4		2		13		—		29		—		199
Provision		(594)		638		(25)		109		5		293		(76)		350
Ending balance ALLR	$	1,212	$	1,187	$	78	$	182	$	11	$	175	$	2,463	$	5,308

At September 30, 2019
Loans:
Ending balance	$	508,332	$	209,872	$	34,511	$	268,333	$	18,680	$	20,214	$	—	$	1,059,942
Ending balance ALLR		(1,212)		(1,187)		(78)		(182)		(11)		(175)		(2,463)		(5,308)
Net loans	$	507,120	$	208,685	$	34,433	$	268,151	$	18,669	$	20,039	$	(2,463)	$	1,054,634

Ending balance ALLR:
Individually evaluated	$	490	$	773	$	—	$	—	$	—	$	—	$	—	$	1,263
Collectively evaluated		722		414		78		182		11		175		2,463		4,045
Total	$	1,212	$	1,187	$	78	$	182	$	11	$	175	$	2,463	$	5,308

Ending balance Loans:
Individually evaluated	$	2,474	$	3,642	$	361	$	—	$	—	$	—	$	—	$	6,477
Collectively evaluated		503,669		204,023		33,773		267,342		18,680		20,185		—		1,047,672
Acquired with deteriorated credit quality		2,189		2,207		377		991		—		29		—		5,793
Total	$	508,332	$	209,872	$	34,511	$	268,333	$	18,680	$	20,214	$	—	$	1,059,942

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at September 30, 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
Three Months Ended September 30, 2018
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,468	$	495	$	53	$	280	$	7	$	9	$	2,829	$	5,141
Charge-offs		—		—		—		(6)		—		(25)		—		(31)
Recoveries		11		3		1		8		—		3		—		26
Provision		196		6		51		(87)		—		21		(137)		50
Ending balance ALLR	$	1,675	$	504	$	105	$	195	$	7	$	8	$	2,692	$	5,186

Nine Months Ended September 30, 2018
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,650	$	576	$	54	$	160	$	6	$	10	$	2,623	$	5,079
Charge-offs		(1)		(128)		—		(153)		—		(101)		—		(383)
Recoveries		41		162		2		60		—		25		—		290
Provision		(15)		(106)		49		128		1		74		69		200
Ending balance ALLR	$	1,675	$	504	$	105	$	195	$	7	$	8	$	2,692	$	5,186

At September 30, 2018
Loans:
Ending balance	$	475,978	$	180,661	$	23,812	$	277,508	$	17,502	$	18,347	$	—	$	993,808
Ending balance ALLR		(1,675)		(504)		(105)		(195)		(7)		(8)		(2,692)		(5,186)
Net loans	$	474,303	$	180,157	$	23,707	$	277,313	$	17,495	$	18,339	$	(2,692)	$	988,622

Ending balance ALLR:
Individually evaluated	$	618	$	259	$	—	$	—	$	—	$	—	$	—	$	877
Collectively evaluated		1,057		245		105		195		7		8		2,692		4,309
Total	$	1,675	$	504	$	105	$	195	$	7	$	8	$	2,692	$	5,186

Ending balance Loans:
Individually evaluated	$	2,148	$	212	$	—	$	—	$	—	$	—	$	—	$	2,360
Collectively evaluated		468,132		179,292		23,443		276,132		17,502		18,292		—		982,793
Acquired with deteriorated credit quality		5,698		1,157		369		1,376		—		55		—		8,655
Total	$	475,978	$	180,661	$	23,812	$	277,508	$	17,502	$	18,347	$	—	$	993,808

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of September 30, 2019 (dollars in thousands):


	(1)		(2)		(3)		(4)		(44)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable		Acceptable Watch		Substandard		Doubtful		Unassigned		Total

Commercial real estate	$	9,143	$	18,231	$	213,506	$	257,222	$	4,728	$	5,502	$	—	$	—	$	508,332
Commercial, financial and agricultural		11,595		9,445		69,891		113,790		696		4,455		—		—		209,872
Commercial construction		—		397		7,792		22,363		402		712		—		2,845		34,511
One-to-four family residential real estate		40		1,822		3,894		13,858		851		2,953		—		244,915		268,333
Consumer construction		—		—		—		—		99		—		—		18,581		18,680
Consumer		1		172		289		715		—		65		—		18,972		20,214

Total loans	$	20,779	$	30,067	$	295,372	$	407,948	$	6,776	$	13,687	$	—	$	285,313	$	1,059,942

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

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
September 30, 2019

Commercial real estate	$	2,189	$	2,474	$	4,663	$	8,903	$	490
Commercial, financial and agricultural		2,207		3,642		5,849		3,819		773
Commercial construction		377		361		738		374		—
One to four family residential real estate		991		—		991		3,085		—
Consumer construction		—		—		—		—		—
Consumer		29		—		29		40		—
Total	$	5,793	$	6,477	$	12,270	$	16,221	$	1,263

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


	Individually Evaluated Impaired Loans
	September 30, 2019				December 31, 2018
	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	$	7,225	$	224	$	5,024	$	410
Commercial, financial and agricultural		379		1		374		26
Commercial construction		390		—		383		13
One to four family residential real estate		3,611		198		2,879		203
Consumer construction		—		—		9		—
Consumer		47		1		38		4
Total	$	11,652	$	424	$	8,707	$	656


	Individually Evaluated Impaired Loans
	September 30, 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	$	4,937	$	265	$	2,784	$	141
Commercial, financial and agricultural		768		2		246		1
Commercial construction		185		—		—		3
One to four family residential real estate		1,499		100		2,057		134
Consumer construction		9		3		37		—
Consumer		38		1		13		2
Total	$	7,436	$	371	$	5,137	$	281

A summary of past due loans at September 30, 2019 and December 31, 2018 is as follows (dollars in thousands):


	September 30,								December 31,
	2019								2018
	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	$	444	$	—	$	761	$	1,205	$	298	$	—	$	1,700	$	1,998
Commercial, financial and agricultural		273		—		714		987		398		—		320		718
Commercial construction		255		—		205		460		112		—		266		378
One to four family residential real estate		3,338		11		3,090		6,439		5,456		18		2,725		8,199
Consumer construction		—		—		—		—		—		—		—		—
Consumer		73		—		74		147		108		5		43		156

Total past due loans	$	4,383	$	11	$	4,844	$	9,238	$	6,372	$	23	$	5,054	$	11,449

Summary of past due loans


	Individually Evaluated Impaired Loans
	September 30, 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	$	4,937	$	265	$	2,784	$	141
Commercial, financial and agricultural		768		2		246		1
Commercial construction		185		—		—		3
One to four family residential real estate		1,499		100		2,057		134
Consumer construction		9		3		37		—
Consumer		38		1		13		2
Total	$	7,436	$	371	$	5,137	$	281

A summary of past due loans at September 30, 2019 and December 31, 2018 is as follows (dollars in thousands):


	September 30,								December 31,
	2019								2018
	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	$	444	$	—	$	761	$	1,205	$	298	$	—	$	1,700	$	1,998
Commercial, financial and agricultural		273		—		714		987		398		—		320		718
Commercial construction		255		—		205		460		112		—		266		378
One to four family residential real estate		3,338		11		3,090		6,439		5,456		18		2,725		8,199
Consumer construction		—		—		—		—		—		—		—		—
Consumer		73		—		74		147		108		5		43		156

Total past due loans	$	4,383	$	11	$	4,844	$	9,238	$	6,372	$	23	$	5,054	$	11,449

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

The Bank, in the ordinary course of business, grants loans to the Corporation’s executive officers and directors, including their families and firms in which they are principal owners. Activity in such loans is summarized below (dollars in thousands):


	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
	2019		2018
Loans outstanding, January 1	$	9,817	$	10,037
New loans		1,872		669
Net activity on revolving lines of credit		954		(375)
Change in status of insiders		(285)		—
Repayment		(673)		(153)
Loans outstanding at end of period	$	11,685	$	10,178

PFC

Schedule of acquired portfolio at acquisition date

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


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

Eagle River

Schedule of acquired portfolio at acquisition date

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


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

Niagara Bancorporation

Schedule of acquired portfolio at acquisition date

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


	Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total
Loans acquired - contractual payments	$	2,105	$	30,555	$	32,660
Nonaccretable difference		(265)		—		(265)
Expected cash flows		1,840		30,555		32,395
Accretable yield		(88)		(600)		(688)
Carrying balance at acquisition date	$	1,752	$	29,955	$	31,707

FFNM

Schedule of acquired portfolio at acquisition date

The table below details the outstanding balances of the FFNM acquired portfolio and the 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 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