LOANS (Tables)

6 Months Ended

Jun. 30, 2021

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


	June 30,		December 31,
	2021		2020

Commercial real estate	$	480,477	$	498,450
Commercial, financial, and agricultural		209,747		273,759
Commercial construction		48,205		47,698
One to four family residential real estate		210,364		227,044
Consumer		18,238		18,980
Consumer construction		11,024		11,661

Total loans	$	978,055	$	1,077,592

Schedule of the accretable yield by acquisition

The table below presents a rollforward of the accretable yield on acquired loans for the six months ended June 30, 2021 (dollars in thousands):


	PFC						Eagle River
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2020	$	53	$	—	$	53	$	183	$	—	$	183
Accretion		(12)		—		(12)		(153)		—		(153)
Reclassification from nonaccretable difference		9		—		9		114		—		114
Balance, June 30, 2021	$	50	$	—	$	50	$	144	$	—	$	144

	Niagara						First Federal Northern Michigan
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2020	$	12	$	—	$	12	$	292	$	869	$	1,161
Accretion		(1)		—		(1)		(276)		(384)		(660)
Reclassification from nonaccretable difference		1		—		1		207		—		207
Balance, June 30, 2021	$	12	$	—	$	12	$	223	$	485	$	708

	Lincoln Community Bank						Total
	Acquired		Acquired		Acquired		Acquired		Acquired		Acquired
	Impaired		Non-impaired		Total		Impaired		Non-impaired		Total
Balance, December 31, 2020	$	85	$	130	$	215	$	625	$	999	$	1,624
Accretion		(109)		(50)		(159)		(551)		(434)		(985)
Reclassification from nonaccretable difference		81		—		81		412		—		412
Balance, June 30, 2021	$	57	$	80	$	137	$	486	$	565	$	1,051

The table below presents a rollforward of the accretable yield on acquired loans for the six months ended June 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		(150)		—		(150)		(77)		—		(77)
Reclassification from nonaccretable difference		113		—		113		58		—		58
Balance, June 30, 2020	$	68	$	—	$	68	$	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)		(595)		(832)
Reclassification from nonaccretable difference		3		—		3		177		1		178
Balance, June 30, 2020	$	18	$	—	$	18	$	458	$	1,359	$	1,817

	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)		(73)		(76)		(471)		(668)		(1,139)
Reclassification from nonaccretable difference		3		—		3		354		1		355
Balance, June 30, 2020	$	108	$	191	$	299	$	842	$	1,550	$	2,392

Schedule of the allowance for loan losses

An analysis of the allowance for loan losses for the six months ended June 30, 2021 and June 30, 2020 is as follows (dollars in thousands):


	June 30,		June 30,
	2021		2020

Balance, January 1	$	5,816	$	5,308
Recoveries on loans previously charged off		45		139
Loans charged off		(310)		(292)
Provision		100		200

Balance at end of period	$	5,651	$	5,355

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 June 30, 2021 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 June 30, 2021
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,738	$	2,076	$	209	$	560	$	8	$	6	$	245	$	5,842
Charge-offs		—		(46)		—		(185)		—		(24)		—		(255)
Recoveries		4		3		—		4		—		3		—		14
Provision		(9)		(559)		(2)		202		(3)		23		398		50
Ending balance ALLR	$	2,733	$	1,474	$	207	$	581	$	5	$	8	$	643	$	5,651

Six Months Ended June 30, 2021
Allowance for loan loss reserve:
Beginning balance ALLR	$	2,983	$	1,734	$	209	$	605	$	5	$	8	$	272	$	5,816
Charge-offs		(8)		(46)		—		(203)		—		(53)		—		(310)
Recoveries		7		14		—		9		—		15		—		45
Provision		(249)		(228)		(2)		170		—		38		371		100
Ending balance ALLR	$	2,733	$	1,474	$	207	$	581	$	5	$	8	$	643	$	5,651

At June 30, 2021
Loans:
Ending balance	$	480,477	$	209,747	$	48,205	$	210,364	$	11,024	$	18,238	$	—	$	978,055
Ending balance ALLR		(2,733)		(1,474)		(207)		(581)		(5)		(8)		(643)		(5,651)
Net loans	$	477,744	$	208,273	$	47,998	$	209,783	$	11,019	$	18,230	$	(643)	$	972,404

Ending balance ALLR:
Individually evaluated	$	258	$	302	$	—	$	—	$	—	$	—	$	—	$	560
Collectively evaluated		2,475		1,172		207		581		5		8		643		5,091
Total	$	2,733	$	1,474	$	207	$	581	$	5	$	8	$	643	$	5,651

Ending balance Loans:
Individually evaluated	$	1,957	$	3,421	$	359	$	—	$	—	$	—	$	—	$	5,737
Collectively evaluated		477,550		206,198		47,761		209,667		11,024		18,223		—		970,423
Acquired with deteriorated credit quality		970		128		85		697		—		15		—		1,895
Total	$	480,477	$	209,747	$	48,205	$	210,364	$	11,024	$	18,238	$	—	$	978,055

Impaired loans, by definition, are individually evaluated.

A breakdown of the allowance for loan losses and recorded balances in loans at June 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 June 30, 2020
Allowance for loan loss reserve:
Beginning balance ALLR	$	1,818	$	1,633	$	98	$	427	$	10	$	10	$	1,296	$	5,292
Charge-offs		—		(121)		—		(10)		—		(16)		—		(147)
Recoveries		85		—		1		1		—		23		—		110
Provision		(65)		347		21		(18)		—		(8)		(177)		100
Ending balance ALLR	$	1,838	$	1,859	$	120	$	400	$	10	$	9	$	1,119	$	5,355

Six Months Ended June 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)		—		(32)		(8)		(65)		—		(292)
Recoveries		91		—		1		11		—		36		—		139
Provision		558		849		48		273		7		25		(1,560)		200
Ending balance ALLR	$	1,838	$	1,859	$	120	$	400	$	10	$	9	$	1,119	$	5,355

At June 30, 2020
Loans:
Ending balance	$	507,530	$	332,279	$	38,712	$	235,467	$	20,057	$	19,745	$	—	$	1,153,790
Ending balance ALLR		(1,838)		(1,859)		(120)		(400)		(10)		(9)		(1,119)		(5,355)
Net loans	$	505,692	$	330,420	$	38,592	$	235,067	$	20,047	$	19,736	$	(1,119)	$	1,148,435

Ending balance ALLR:
Individually evaluated	$	914	$	527	$	—	$	—	$	—	$	—	$	—	$	1,441
Collectively evaluated		924		1,332		120		400		10		9		1,119		3,914
Total	$	1,838	$	1,859	$	120	$	400	$	10	$	9	$	1,119	$	5,355

Ending balance Loans:
Individually evaluated	$	2,436	$	1,589	$	—	$	—	$	—	$	—	$	—	$	4,025
Collectively evaluated		503,233		330,433		38,531		234,576		20,057		19,723		—		1,146,553
Acquired with deteriorated credit quality		1,861		257		181		891		—		22		—		3,212
Total	$	507,530	$	332,279	$	38,712	$	235,467	$	20,057	$	19,745	$	—	$	1,153,790

Schedule of breakdown of loans by risk category

Below is a breakdown of loans by risk category as of June 30, 2021 (dollars in thousands):

(1)

(2)

(3)

(4)

(44)

(6)

(7)

Rating

Strong

Good

Average

Acceptable

Acceptable Watch

Substandard

Doubtful

Unassigned

Total

Commercial real estate

9,378

9,386

216,690

236,767

4,308

3,948

—

480,477

Commercial, financial and agricultural

66,446

9,341

38,192

91,672

580

3,516

—

209,747

Commercial construction

—

20,550

15,868

482

378

—

10,891

48,205

One-to-four family residential real estate

—

607

4,783

19,124

361

1,607

—

183,882

210,364

Consumer construction

—

11,024

Consumer

—

100

1,548

—

16,511

18,238

Total loans

75,824

19,419

280,315

364,979

5,731

9,479

—

222,308

978,055

At June 30, 2021, $55.384 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, 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	$	7,425	$	10,521	$	223,875	$	249,159	$	3,352	$	4,118	$	—	$	—	$	498,450
Commercial, financial and agricultural		116,107		6,760		51,150		94,743		656		4,343		—		—		273,759
Commercial construction		—		40		19,063		16,671		600		385		—		10,939		47,698
One-to-four family residential real estate		—		3,139		5,614		18,864		369		1,814		—		197,244		227,044
Consumer construction		—		—		—		—		—		—		—		11,661		11,661
Consumer		—		79		128		1,141		—		67		—		17,565		18,980

Total loans	$	123,532	$	20,539	$	299,830	$	380,578	$	4,977	$	10,727	$	—	$	237,409	$	1,077,592

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
June 30, 2021

Commercial real estate	$	2,159	$	768	$	2,927	$	4,776	$	258
Commercial, financial and agricultural		2,023		1,526		3,549		3,658		302
Commercial construction		444		—		444		578		—
One to four family residential real estate		697		—		697		1,903		—
Consumer construction		—		—		—		—		—
Consumer		15		—		15		15		—
Total	$	5,338	$	2,294	$	7,632	$	10,930	$	560

December 31, 2020
Commercial real estate	$	1,251	$	2,309	$	3,560	$	5,786	$	476
Commercial, financial and agricultural		2,423		1,445		3,868		3,946		679
Commercial construction		537		—		537		678		—
One to four family residential real estate		869		—		869		1,993		—
Consumer construction		—		—		—		—		—
Consumer		16		—		16		19		—
Total	$	5,096	$	3,754	$	8,850	$	12,422	$	1,155


	Individually Evaluated Impaired Loans
	June 30, 2021				December 31, 2020
	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	$	5,022	$	111	$	6,860	$	270
Commercial, financial and agricultural		944		7		1,204		13
Commercial construction		168		9		541		27
One to four family residential real estate		2,237		58		3,064		135
Consumer construction		—		—		—		—
Consumer		22		1		37		1
Total	$	8,393	$	186	$	11,706	$	446

Summary of past due loans

A summary of past due loans at June 30, 2021 and December 31, 2020 is as follows (dollars in thousands):


	June 30,								December 31,
	2021								2020
	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	$	147	$	—	$	1,530	$	1,677	$	24	$	—	$	1,481	$	1,505
Commercial, financial and agricultural		33		—		359		392		42		—		478		520
Commercial construction		—		—		59		59		—		—		79		79
One to four family residential real estate		742		6		2,964		3,712		1,925				3,371		5,296
Consumer construction		—		—		—		—		—		—		—		—
Consumer		44		—		15		59		78		—		49		127

Total past due loans	$	966	$	6	$	4,927	$	5,899	$	2,069	$	—	$	5,458	$	7,527

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):


	Six Months Ended		Six Months Ended
	June 30,		June 30,
	2021		2020
Loans outstanding, January 1	$	11,778	$	12,196
New loans		—		—
Net activity on revolving lines of credit		1,464		(354)
Change in status of insiders		(9,869)		—
Repayment		(15)		(100)
Loans outstanding at end of period	$	3,358	$	11,742

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

MACKINAC FINANCIAL CORP /MI/ 10-Q