LOANS (Tables)

3 Months Ended

Mar. 31, 2020

Schedule of composition of loans

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

	March 31,		December 31,
	2020		2019
Commercial real estate	$	522,659	$	514,394
Commercial, financial, and agricultural		207,727		211,023
Commercial construction		29,971		40,107
One to four family residential real estate		244,059		253,918
Consumer		20,375		21,238
Consumer construction		19,386		18,096
Total loans	$	1,044,177	$	1,058,776

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, 2020 (dollars in thousands):

	PFC						Eagle River
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2019	$	105	$	—	$	105	$	209	$	—	$	209
Accretion		(90)		—		(90)		(77)		—		(77)
Reclassification from nonaccretable difference		52		—		52		58		—		58
Balance, March 31, 2020	$	67	$	—	$	67	$	190	$	—	$	190
	Niagara						First Federal Northern Michigan
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2019	$	19	$	—	$	19	$	518	$	1,953	$	2,471
Accretion		(4)		—		(4)		(237)		(310)		(547)
Reclassification from nonaccretable difference		3		—		3		177		—		177
Balance, March 31, 2020	$	18	$	—	$	18	$	458	$	1,643	$	2,101
	Lincoln Community Bank						Total
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2019	$	108	$	264	$	372	$	959	$	2,217	$	3,176
Accretion		(3)		(38)		(41)		(411)		(348)		(759)
Reclassification from nonaccretable difference		3		—		3		293		—		293
Balance, March 31, 2020	$	108	$	226	$	334	$	841	$	1,869	$	2,710

The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 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
Acquisition		—		—		—		—		—		—
Accretion		—		—		—		—		(16)		(16)
Reclassification from nonaccretable difference		—		—		—		—		—		—
Balance, March 31, 2019	$	128	$	—	$	128	$	213	$	—	$	213
	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
Acquisition		—		—		—		—		—		—
Accretion		—		(51)		(51)		—		(410)		(410)
Reclassification from nonaccretable difference		—		—		—		—		—		—
Balance, March 31, 2019	$	26	$	18	$	44	$	571	$	3,036	$	3,607
	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
Acquisition		—		—		—		—		—		—
Accretion		(15)		(49)		(64)		(15)		(526)		(541)
Reclassification from nonaccretable difference		12		—		12		12		—		12
Balance, March 31, 2019	$	137	$	393	$	530	$	1,075	$	3,447	$	4,522

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the three months ended March 31, 2020 and March 31, 2019 is as follows (dollars in thousands):

	March 31,		March 31,
	2020		2019
Balance, January 1	$	5,308	$	5,183
Recoveries on loans previously charged off		29		32
Loans charged off		(145)		(161)
Provision		100		100
Balance at end of period	$	5,292	$	5,154

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, 2020 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	$	1,189	$	1,197	$	71	$	148	$	11	$	13	$	2,679	$	5,308
Charge-offs		—		(66)		—		(22)		(8)		(49)		—		(145)
Recoveries		6		—		—		10		—		13		—		29
Provision		623		502		27		291		7		33		(1,383)		100
Ending balance ALLR	$	1,818	$	1,633	$	98	$	427	$	10	$	10	$	1,296	$	5,292
Loans:
Ending balance	$	522,659	$	207,727	$	29,971	$	244,059	$	19,386	$	20,375	$	—	$	1,044,177
Ending balance ALLR		(1,818)		(1,633)		(98)		(427)		(10)		(10)		(1,296)		(5,292)
Net loans	$	520,841	$	206,094	$	29,873	$	243,632	$	19,376	$	20,365	$	(1,296)	$	1,038,885
Ending balance ALLR:
Individually evaluated	$	913	$	476	$	—	$	—	$	—	$	—	$	—	$	1,389
Collectively evaluated		905		1,157		98		427		10		10		1,296		3,903
Total	$	1,818	$	1,633	$	98	$	427	$	10	$	10	$	1,296	$	5,292
Ending balance Loans:
Individually evaluated	$	2,278	$	1,454	$	—	$	—	$	—	$	—	$	—	$	3,732
Collectively evaluated		518,642		203,857		29,604		243,251		19,386		20,374		—		1,035,114
Acquired with deteriorated credit quality		1,739		2,416		367		808		—		1		—		5,331
Total	$	522,659	$	207,727	$	29,971	$	244,059	$	19,386	$	20,375	$	—	$	1,044,177

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 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
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,682	$	648	$	101	$	199	$	6	$	8	$	2,539	$	5,183
Charge-offs		(20)		(19)		—		(63)		—		(59)		—		(161)
Recoveries		12		4		—		5		—		11		—		32
Provision		(109)		372		(1)		60		—		49		(271)		100
Ending balance ALLR	$	1,565	$	1,005	$	100	$	201	$	6	$	9	$	2,268	$	5,154
Loans:
Ending balance	$	498,471	$	201,089	$	33,118	$	281,104	$	12,022	$	19,624	$	—	$	1,045,428
Ending balance ALLR		(1,565)		(1,005)		(100)		(201)		(6)		(9)		(2,268)		(5,154)
Net loans	$	496,906	$	200,084	$	33,018	$	280,903	$	12,016	$	19,615	$	(2,268)	$	1,040,274
Ending balance ALLR:
Individually evaluated	$	467	$	648	$	—	$	—	$	—	$	—	$	—	$	1,115
Collectively evaluated		1,098		357		100		201		6		9		2,268		4,039
Total	$	1,565	$	1,005	$	100	$	201	$	6	$	9	$	2,268	$	5,154
Ending balance Loans:
Individually evaluated	$	2,138	$	1,245	$	—	$	—	$	—	$	—	$	—	$	3,383
Collectively evaluated		493,570		198,425		32,753		279,943		11,809		19,585		—		1,036,085
Acquired with deteriorated credit quality		2,763		1,419		365		1,161		213		39		—		5,960
Total	$	498,471	$	201,089	$	33,118	$	281,104	$	12,022	$	19,624	$	—	$	1,045,428

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of March 31, 2020 (dollars in thousands):

	(1)		(2)		(3)		(4)		(44)		(6)		(7)		Rating
	Strong		Good		Average		Acceptable		Acceptable Watch		Substandard		Doubtful		Unassigned		Total
Commercial real estate	$	14,737	$	18,108	$	227,628	$	253,746	$	3,865	$	4,575	$	—	$	—	$	522,659
Commercial, financial and agricultural		17,609		9,053		64,182		111,434		759		4,690		—		—		207,727
Commercial construction		—		278		8,768		16,474		596		398		—		3,457		29,971
One-to-four family residential real estate		40		2,217		5,119		15,187		617		2,556		—		218,323		244,059
Consumer construction		—		—		—		—		—		—		—		19,386		19,386
Consumer		—		130		252		473		—		85		—		19,435		20,375
Total loans	$	32,386	$	29,786	$	305,949	$	397,314	$	5,837	$	12,304	$	—	$	260,601	$	1,044,177

Below is a breakdown of loans by risk category as of December 31, 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	$	9,979	$	17,516	$	228,962	$	248,177	$	4,468	$	5,292	$	—	$	—	$	514,394
Commercial, financial and agricultural		15,126		4,510		70,748		115,229		930		4,480		—		—		211,023
Commercial construction		—		292		6,390		28,893		400		607		—		3,525		40,107
One-to-four family residential real estate		40		2,145		4,937		15,168		634		2,632		—		228,362		253,918
Consumer construction		—		—		—		—		—		—		—		18,096		18,096
Consumer		—		158		250		640		—		41		—		20,149		21,238
Total loans	$	25,145	$	24,621	$	311,287	$	408,107	$	6,432	$	13,052	$	—	$	270,132	$	1,058,776

Summary of impaired loans and their effect on interest income

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

	Impaired Loans		Impaired Loans		Total		Unpaid		Related
	with No Related		with Related		Impaired		Principal		Allowance for
	Allowance		Allowance		Loans		Balance		Loan Losses
March 31, 2020
Commercial real estate	$	1,739	$	2,278	$	4,017	$	7,061	$	913
Commercial, financial and agricultural		2,416		1,454		3,870		3,870		476
Commercial construction		367		—		367		373		—
One to four family residential real estate		808		—		808		2,450		—
Consumer construction		—		—		—		—		—
Consumer		1		—		1		1		—
Total	$	5,331	$	3,732	$	9,063	$	13,755	$	1,389
December 31, 2019
Commercial real estate	$	4,318	$	2,374	$	6,692	$	7,937	$	497
Commercial, financial and agricultural		2,354		1,475		3,829		4,892		770
Commercial construction		373		—		373		386		—
One to four family residential real estate		1,920		—		1,920		2,881		—
Consumer construction		—		—		—		—		—
Consumer		9		—		9		33		—
Total	$	8,974	$	3,849	$	12,823	$	16,129	$	1,267

	Individually Evaluated Impaired Loans
	March 31, 2020				December 31, 2019
	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	$	7,841	$	65	$	8,374	$	301
Commercial, financial and agricultural		1,597		—		1,144		2
Commercial construction		21		1		396		—
One to four family residential real estate		2,665		39		3,508		219
Consumer construction		—		—		—		—
Consumer		17		1		44		2
Total	$	12,141	$	106	$	13,466	$	524

Summary of past due loans

A summary of past due loans at March 31, 2020 and December 31, 2019 is as follows (dollars in thousands):

	March 31,								December 31,
	2020								2019
	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	$	1,621	$	—	$	959	$	2,580	$	1,055	$	—	$	671	$	1,726
Commercial, financial and agricultural		1,538		—		816		2,354		829		—		527		1,356
Commercial construction		128		—		99		227		59		—		105		164
One to four family residential real estate		3,321		—		4,479		7,800		4,357		11		3,850		8,218
Consumer construction		—		—		—		—		—		—		—		—
Consumer		156		—		63		219		83		—		19		102
Total past due loans	$	6,764	$	—	$	6,416	$	13,180	$	6,383	$	11	$	5,172	$	11,566

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,
	2020		2019
Loans outstanding, January 1	$	12,196	$	9,817
New loans		—		1,872
Net activity on revolving lines of credit		(354)		358
Repayment		(100)		(96)
Loans outstanding at end of period	$	11,742	$	11,951

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		(421)		—		(421)
Expected cash flows		1,480		37,700		39,180
Accretable yield		(140)		(493)		(633)
Carrying balance at acquisition date	$	1,340	$	37,207	$	38,547