LOANS (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of composition of loans

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

	September 30,		December 31,
	2020		2019
Commercial real estate	$	499,793	$	514,394
Commercial, financial, and agricultural		326,771		211,023
Commercial construction		39,162		40,107
One to four family residential real estate		237,336		253,918
Consumer		19,575		21,238
Consumer construction		21,688		18,096
Total loans	$	1,144,325	$	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 nine months ended September 30, 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		(202)		—		(202)		(104)		—		(104)
Reclassification from nonaccretable difference		151		—		151		78		—		78
Balance, September 30, 2020	$	54	$	—	$	54	$	183	$	—	$	183
	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		(27)		—		(27)		(287)		(838)		(1,125)
Reclassification from nonaccretable difference		20		—		20		215		(15)		200
Balance, September 30, 2020	$	12	$	—	$	12	$	446	$	1,100	$	1,546
	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		(7)		(105)		(112)		(627)		(943)		(1,570)
Reclassification from nonaccretable difference		6		—		6		470		(15)		455
Balance, September 30, 2020	$	107	$	159	$	266	$	802	$	1,259	$	2,061

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

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the nine months ended September 30, 2020 and September 30, 2019 is as follows (dollars in thousands):

	September 30,		September 30,
	2020		2019
Balance, January 1	$	5,308	$	5,183
Recoveries on loans previously charged off		240		199
Loans charged off		(316)		(424)
Provision		600		350
Balance at end of period	$	5,832	$	5,308

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, 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
Three Months Ended September 30, 2020
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,838	$	1,859	$	120	$	400	$	10	$	9	$	1,119	$	5,355
Charge-offs		—		—		—		(8)		—		(16)		—		(24)
Recoveries		7		1		79		4		—		10		—		101
Provision		28		(77)		(83)		(12)		—		5		539		400
Ending balance ALLR	$	1,873	$	1,783	$	116	$	384	$	10	$	8	$	1,658	$	5,832
Nine Months Ended September 30, 2020
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,189	$	1,197	$	71	$	148	$	11	$	13	$	2,679	$	5,308
Charge-offs		—		(187)		(8)		(40)		—		(81)		—		(316)
Recoveries		98		1		80		15		—		46		—		240
Provision		586		772		(27)		261		(1)		30		(1,021)		600
Ending balance ALLR	$	1,873	$	1,783	$	116	$	384	$	10	$	8	$	1,658	$	5,832
At September 30, 2020
Loans:
Ending balance	$	499,793	$	326,771	$	39,162	$	237,336	$	21,688	$	19,575	$	—	$	1,144,325
Ending balance ALLR		(1,873)		(1,783)		(116)		(384)		(10)		(8)		(1,658)		(5,832)
Net loans	$	497,920	$	324,988	$	39,046	$	236,952	$	21,678	$	19,567	$	(1,658)	$	1,138,493
Ending balance ALLR:
Individually evaluated	$	564	$	847	$	—	$	—	$	—	$	—	$	—	$	1,411
Collectively evaluated		1,309		936		116		384		10		8		1,658		4,421
Total	$	1,873	$	1,783	$	116	$	384	$	10	$	8	$	1,658	$	5,832
Ending balance Loans:
Individually evaluated	$	2,349	$	1,483	$	—	$	—	$	—	$	—	$	—	$	3,832
Collectively evaluated		495,591		325,040		38,981		236,433		21,688		19,558		—		1,137,291
Acquired with deteriorated credit quality		1,853		248		181		903		—		17		—		3,202
Total	$	499,793	$	326,771	$	39,162	$	237,336	$	21,688	$	19,575	$	—	$	1,144,325

Impaired loans, by definition, are individually evaluated.

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

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of September 30, 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	$	8,802	$	12,059	$	215,700	$	255,094	$	3,619	$	4,519	$	—	$	—	$	499,793
Commercial, financial and agricultural		163,512		6,470		57,288		93,980		707		4,814		—		—		326,771
Commercial construction		—		40		19,063		16,671		600		385		—		2,403		39,162
One-to-four family residential real estate		—		2,167		5,617		17,889		372		2,356		—		208,935		237,336
Consumer construction		—		—		—		—		—		—		—		21,688		21,688
Consumer		—		91		152		498		—		76		—		18,758		19,575
Total loans	$	172,314	$	20,827	$	297,820	$	384,132	$	5,298	$	12,150	$	—	$	251,784	$	1,144,325

At September 30, 2020, $152.410 million of Paycheck Protection Program (“PPP”) loans are included with a risk rating of “1” in the Commercial, financial and agricultural category.

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
September 30, 2020
Commercial real estate	$	1,853	$	2,349	$	4,202	$	7,201	$	564
Commercial, financial and agricultural		248		1,483		1,731		4,395		847
Commercial construction		181		—		181		703		—
One to four family residential real estate		903		—		903		2,701		—
Consumer construction		—		—		—		—		—
Consumer		17		—		17		20		—
Total	$	3,202	$	3,832	$	7,034	$	15,020	$	1,411
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
	September 30, 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	$	7,564	$	202	$	8,374	$	301
Commercial, financial and agricultural		1,426		11		1,144		2
Commercial construction		553		22		396		—
One to four family residential real estate		3,419		106		3,508		219
Consumer construction		—		—		—		—
Consumer		38		1		44		2
Total	$	13,000	$	342	$	13,466	$	524

Summary of past due loans

A summary of past due loans at September 30, 2020 and December 31, 2019 is as follows (dollars in thousands):

	September 30,								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	$	975	$	—	$	680	$	1,655	$	1,055	$	—	$	671	$	1,726
Commercial, financial and agricultural		9,989		—		842		10,831		829		—		527		1,356
Commercial construction		156		—		46		202		59		—		105		164
One to four family residential real estate		663		—		3,790		4,453		4,357		11		3,850		8,218
Consumer construction		—		—		—		—		—		—		—		—
Consumer		109		—		56		165		83		—		19		102
Total past due loans	$	11,892	$	—	$	5,414	$	17,306	$	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):

	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
	2020		2019
Loans outstanding, January 1	$	12,196	$	9,817
New loans		—		1,872
Net activity on revolving lines of credit		(752)		954
Change in status of insiders		—		(285)
Repayment		(134)		(673)
Loans outstanding at end of period	$	11,310	$	11,685

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