Document and Entity Information
Document and Entity Information - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Mar. 12, 2018 | Jun. 30, 2017 | |
Document and Entity Information | |||
Entity Registrant Name | MACKINAC FINANCIAL CORP /MI/ | ||
Entity Central Index Key | 36,506 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2017 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 56,785 | ||
Entity Common Stock, Shares Outstanding | 6,310,564 | ||
Document Fiscal Year Focus | 2,017 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
ASSETS | ||
Cash and due from banks | $ 37,420 | $ 44,620 |
Federal funds sold | 6 | 2,135 |
Cash and cash equivalents | 37,426 | 46,755 |
Interest-bearing deposits in other financial institutions | 13,374 | 14,047 |
Securities available for sale | 75,897 | 86,273 |
Federal Home Loan Bank stock | 3,112 | 2,911 |
Loans: | ||
Commercial | 572,936 | 543,573 |
Mortgage | 220,708 | 218,171 |
Consumer | 17,434 | 20,113 |
Total Loans | 811,078 | 781,857 |
Allowance for loan losses | (5,079) | (5,020) |
Net loans | 805,999 | 776,837 |
Premises and equipment | 16,290 | 15,891 |
Other real estate held for sale | 3,558 | 4,782 |
Deferred tax asset | 4,970 | 8,760 |
Deposit based intangibles | 1,922 | 2,172 |
Goodwill | 5,694 | 5,694 |
Other assets | 17,125 | 19,398 |
TOTAL ASSETS | 985,367 | 983,520 |
Deposits: | ||
Noninterest bearing deposits | 148,079 | 164,179 |
NOW, money market, interest checking | 280,309 | 286,622 |
Savings | 61,097 | 58,315 |
CDs less than $250,000 | 142,159 | 141,629 |
CDs more than $250,000 | 11,055 | 8,489 |
Brokered | 175,299 | 164,278 |
Total deposits | 817,998 | 823,512 |
Federal funds purchased | 6,000 | |
Borrowings | 79,552 | 67,579 |
Other liabilities | 6,417 | 7,820 |
Total liabilities | 903,967 | 904,911 |
SHAREHOLDERS' EQUITY: | ||
Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 6,294,930 and 6,263,371 respectively | 61,981 | 61,583 |
Retained earnings | 19,711 | 17,206 |
Accumulated other comprehensive income (loss) | ||
Unrealized (losses) on available for sale securities | (71) | (102) |
Minimum pension liability | (221) | (78) |
Total shareholders' equity | 81,400 | 78,609 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 985,367 | $ 983,520 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 |
CONSOLIDATED BALANCE SHEETS | ||
Common stock, par value | $ 0 | $ 0 |
Common stock, Authorized shares | 18,000,000 | 18,000,000 |
Common stock, Shares issued | 6,294,930 | 6,263,371 |
Common stock, Shares outstanding | 6,294,930 | 6,263,371 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Interest and fees on loans: | |||
Taxable | $ 41,770 | $ 36,078 | $ 32,034 |
Tax-exempt | 95 | 64 | 13 |
Interest on securities: | |||
Taxable | 1,606 | 1,322 | 1,095 |
Tax-exempt | 298 | 220 | 162 |
Other interest income | 607 | 299 | 209 |
Total interest income | 44,376 | 37,983 | 33,513 |
INTEREST EXPENSE: | |||
Deposits | 4,361 | 3,322 | 3,251 |
Borrowings | 2,077 | 1,563 | 1,142 |
Total interest expense | 6,438 | 4,885 | 4,393 |
Net interest income | 37,938 | 33,098 | 29,120 |
Provision for loan losses | 625 | 600 | 1,204 |
Net interest income after provision for loan losses | 37,313 | 32,498 | 27,916 |
OTHER INCOME: | |||
Deposit service fees | 1,056 | 995 | 836 |
Income from mortgage loans sold on the secondary market | 1,373 | 1,575 | 1,071 |
SBA/USDA loan sale gains | 867 | 897 | 610 |
Net mortgage servicing (amortization) income | (31) | (40) | 547 |
Net realized security gains | 231 | 150 | 455 |
Other | 545 | 576 | 370 |
Total other income | 4,041 | 4,153 | 3,889 |
OTHER EXPENSE: | |||
Salaries and employee benefits | 15,490 | 14,625 | 12,449 |
Occupancy | 3,104 | 2,680 | 2,424 |
Furniture and equipment | 2,209 | 1,749 | 1,551 |
Data processing | 2,037 | 1,620 | 1,381 |
Advertising | 711 | 620 | 507 |
Professional service fees | 1,534 | 1,169 | 1,270 |
Loan origination expenses and deposit and card related fees | 1,335 | 1,100 | 955 |
Writedowns and losses on other real estate held for sale | 388 | 202 | 332 |
FDIC insurance assessment | 731 | 488 | 506 |
Telephone | 604 | 528 | 455 |
Transaction related expenses | 50 | 3,101 | |
Other | 2,143 | 2,003 | 2,046 |
Total other expenses | 30,336 | 29,885 | 23,876 |
Income before provision for income taxes | 11,018 | 6,766 | 7,929 |
Provision for income taxes | 5,539 | 2,283 | 2,333 |
NET INCOME | $ 5,479 | $ 4,483 | $ 5,596 |
INCOME PER COMMON SHARE: | |||
Basic (in dollars per share) | $ 0.87 | $ 0.72 | $ 0.90 |
Diluted (in dollars per share) | $ 0.87 | $ 0.72 | $ 0.89 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||
Net income | $ 5,479 | $ 4,483 | $ 5,596 |
Other comprehensive income | |||
Unrealized (losses) gains arising during the period | 295 | (455) | (24) |
Reclassification adjustment for securities gains included in net income | (231) | (150) | (455) |
Tax effect | (22) | 206 | 214 |
Net change in unrealized gains on available for sale securities | 42 | (399) | (265) |
Defined benefit pension plan: | |||
Net unrealized actuarial loss on defined benefit pension obligation | (161) | (44) | |
Tax effect | 55 | 15 | |
Changes from defined benefit pension plan | (106) | (29) | |
Other comprehensive (loss), net of tax | (64) | (428) | (265) |
Total comprehensive income | $ 5,415 | $ 4,055 | $ 5,331 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - USD ($) $ in Thousands | Shares of Common Stock | Common Stock and Additional Paid in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Total |
Balance, beginning of period at Dec. 31, 2014 | $ 61,679 | $ 11,804 | $ 513 | $ 73,996 | |
Balance (in shares) at Dec. 31, 2014 | 6,266,756 | ||||
Increase (Decrease) in Shareholders' Equity | |||||
Net income | 5,596 | 5,596 | |||
Other comprehensive income (loss): | |||||
Net change in unrealized gain on securities available for sale | (265) | (265) | |||
Total comprehensive income | (265) | 5,331 | |||
Stock compensation | 576 | 576 | |||
Restricted stock award vesting (in shares) | 53,319 | ||||
Repurchase of common stock | (1,122) | (1,122) | |||
Repurchase of common stock (in shares) | (102,455) | ||||
Dividend on common stock | (2,179) | (2,179) | |||
Balance, end of period at Dec. 31, 2015 | 61,133 | 15,221 | 248 | 76,602 | |
Balance (in shares) at Dec. 31, 2015 | 6,217,620 | ||||
Increase (Decrease) in Shareholders' Equity | |||||
Net income | 4,483 | 4,483 | |||
Other comprehensive income (loss): | |||||
Net change in unrealized gain on securities available for sale | (399) | (399) | |||
Actuarial loss on defined benefit pension obligation | (29) | (29) | |||
Total comprehensive income | (428) | 4,055 | |||
Stock compensation | 600 | 600 | |||
Restricted stock award vesting (in shares) | 59,751 | ||||
Repurchase of common stock | (150) | (150) | |||
Repurchase of common stock (in shares) | (14,000) | ||||
Dividend on common stock | (2,498) | (2,498) | |||
Balance, end of period at Dec. 31, 2016 | 61,583 | 17,206 | (180) | 78,609 | |
Balance (in shares) at Dec. 31, 2016 | 6,263,371 | ||||
Increase (Decrease) in Shareholders' Equity | |||||
Net income | 5,479 | 5,479 | |||
Other comprehensive income (loss): | |||||
Net change in unrealized gain on securities available for sale | 42 | 42 | |||
Actuarial loss on defined benefit pension obligation | (106) | (106) | |||
Total comprehensive income | (64) | 5,415 | |||
Stock compensation | 398 | 398 | |||
Restricted stock award vesting (in shares) | 31,559 | ||||
Reclassification of certain deferred tax effects | 48 | (48) | |||
Dividend on common stock | (3,022) | (3,022) | |||
Balance, end of period at Dec. 31, 2017 | $ 61,981 | $ 19,711 | $ (292) | $ 81,400 | |
Balance (in shares) at Dec. 31, 2017 | 6,294,930 |
CONSOLIDATED STATEMENTS CASH FL
CONSOLIDATED STATEMENTS CASH FLOWS - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Cash Flows from Operating Activities: | |||
Net income | $ 5,479 | $ 4,483 | $ 5,596 |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 2,426 | 1,921 | 1,670 |
Provision for loan losses | 625 | 600 | 1,204 |
Deferred tax expense | 4,954 | 1,798 | 2,333 |
Net realized security gains | (231) | (150) | (455) |
(Gain) on sale of loans sold in the secondary market | (1,130) | (1,575) | (873) |
Origination of loans held for sale in secondary market | (65,711) | (81,693) | (53,229) |
Proceeds from sale of loans in the secondary market | 66,841 | 83,268 | 54,102 |
Loss (gain) on sale other real estate held for sale | 81 | (10) | 65 |
Writedown of other real estate held for sale | 307 | 212 | 295 |
Stock compensation | 398 | 600 | 576 |
Change in other assets | 2,523 | (10,282) | 8,188 |
Change in other liabilities | (818) | 1,205 | (6,380) |
Net cash provided by operating activities | 15,744 | 377 | 13,092 |
Cash Flows from Investing Activities: | |||
Net increase in loans | (33,600) | (56,237) | (19,321) |
Net decrease in interest-bearing deposits in other financial institutions | 673 | 3,015 | 708 |
Purchase of securities available for sale | (5,999) | (16,105) | (23,894) |
Proceeds from maturities, sales, calls or paydowns of securities available for sale | 16,011 | 26,689 | 35,091 |
Capital expenditures | (2,377) | (2,137) | (1,341) |
Proceeds from life insurance | 301 | 263 | |
Purchase additional FHLB Stock | (531) | ||
Redemption of FHLBI Stock | 330 | 15 | 804 |
Net cash used in Eagle acquisition and reimbursement of contract termination fee | (1,900) | ||
Net cash received in Niagara acquisition | 2,453 | ||
Proceeds from sale of premises, equipment, and other real estate | 2,983 | 1,608 | 1,702 |
Net cash (used in) investing activities | (22,510) | (42,298) | (5,988) |
Cash Flows from Financing Activities: | |||
Net (decrease) increase in deposits | (5,514) | 49,491 | 3,350 |
Net activity on line of credit | (750) | (8,801) | (3,367) |
(Decrease) increase in fed funds purchased | (6,000) | 6,000 | |
Repurchase of common stock | (150) | (1,122) | |
Dividend on common stock | (3,022) | (2,498) | (2,179) |
Proceeds from FHLB borrowing | 25,000 | ||
Proceeds from term borrowing | 19,800 | ||
Principal payments on borrowings | (12,277) | (174) | (725) |
Net cash (used in) provided by financing activities | (2,563) | 63,668 | (4,043) |
Net (decrease) increase in cash and cash equivalents | (9,329) | 21,747 | 3,061 |
Cash and cash equivalents at beginning of period | 46,755 | 25,008 | |
Cash and cash equivalents at end of period | 37,426 | 46,755 | 25,008 |
Cash paid during the year for: | |||
Interest | 6,383 | 4,792 | 4,423 |
Income taxes | 1,100 | 1,100 | 150 |
Business Combinations | |||
Fair value of tangible assets acquired (noncash) | 188,537 | ||
Goodwill and identifiable intangible assets acquired | 2,845 | ||
Liabilities assumed | 175,209 | ||
Noncash Investing and Financing Activities: | |||
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale (net of adjustments made through the allowance for loan losses) | $ 2,147 | $ 3,292 | $ 1,376 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Mackinac Financial Corporation (the “Corporation”) and Subsidiaries conform to accounting principles generally accepted in the United States and prevailing practices within the banking industry. Significant accounting policies are summarized below. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, mBank (the “Bank”) and other minor subsidiaries, after elimination of intercompany transactions and accounts. Nature of Operations The Corporation’s and the Bank’s revenues and assets are derived primarily from banking activities. The Bank’s primary market area is the Upper Peninsula, the northern portion of the Lower Peninsula of Michigan, Northeastern Wisconsin and Oakland County in Lower Michigan. The Bank provides to its customers commercial, real estate, agricultural, and consumer loans, as well as a variety of traditional deposit products. Less than 1.0% of the Corporation’s business activity is with Canadian customers and denominated in Canadian dollars. While the Corporation’s chief decision makers monitor the revenue streams of the various Corporation products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the Corporation’s banking operations are considered by management to be aggregated in one reportable operating segment. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed real estate, deferred tax assets, mortgage servicing rights, and the assessment of goodwill for impairment. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing deposits in correspondent banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Securities The Corporation’s securities are classified and accounted for as securities available for sale. These securities are stated at fair value. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. Unrealized holding gains and losses on securities available for sale are reported as accumulated other comprehensive income within shareholders’ equity until realized. When it is determined that securities or other investments are impaired and the impairment is other than temporary, an impairment loss is recognized in earnings and a new basis in the affected security is established. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method. Federal Home Loan Bank Stock As a member of the Federal Home Loan Bank (FHLB) system, the Bank is required to hold stock in the FHLB based on the anticipated level of borrowings to be advanced. This stock is recorded at cost, which approximates fair value. Transfer of the stock is substantially restricted. Interest Income and Fees on Loans Interest income on loans is reported on the level-yield method and includes amortization of deferred loan fees and costs over the loan term. Net loan commitment fees or costs for commitment periods greater than one year are deferred and amortized into fee income or other expense on a straight-line basis over the commitment period. The accrual of interest on loans is discontinued when, in the opinion of management, it is probable that the borrower may be unable to meet payments as they become due as well as when required by regulatory provisions. Upon such discontinuance, all unpaid accrued interest is reversed. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Interest income on impaired and nonaccrual loans is recorded on a cash basis. Acquired Loans Loans acquired with evidence of credit deterioration since inception and for which it is probable that all contractual payments will not be received are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). These loans are recorded at fair value at the time of acquisition, with no carryover of the related allowance for loan losses. Fair value of acquired loans is determined based on the present value of amounts expected to be received, which incorporates assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, collateral values, and current market rates. In recording the fair values of acquired impaired loans at acquisition date, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). Over the life of the acquired loans, management continues to estimate cash flows expected to be collected. We evaluate at each balance sheet date whether it is probable that we will be unable to collect all cash flows expected at acquisition and if so, recognize a provision for loan loss in our consolidated statement of operations. For any significant increases in cash flows expected to be collected, we adjust the amount of the accretable yield recognized on a prospective basis over the pool’s remaining life. Performing acquired loans are accounted for under ASC Topic 310-20, Receivables – Nonrefundable Fees and Other Costs. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, portions of the accretable difference may be delayed or suspended if management deems appropriate. The Corporation’s policy for determining when to discontinue accruing interest on performing acquired loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans. Servicing Rights Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based on the fair value of the rights compared to amortized cost. Impairment is determined by using prices for similar assets with similar characteristics, such as interest rates and terms. Fair value is determined by using prices for similar assets with similar characteristics, when available, or based on discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum. Allowance for Loan Losses The allowance for loan losses includes specific allowances related to loans which have been judged to be impaired. A loan is impaired when, based on current information, it is probable that the Corporation will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. The Corporation also has an unallocated allowance for loan losses for loans not considered impaired. The allowance for loan losses is maintained at a level which management believes is adequate to provide for probable loan losses. Management periodically evaluates the adequacy of the allowance using the Corporation’s past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other factors. The allowance does not include the effects of expected losses related to future events or future changes in economic conditions. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability. In management’s opinion, the allowance for loan losses is adequate to cover probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio as of the balance sheet date. Troubled Debt Restructuring Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loans should be reported as a Troubled Debt Restructure (TDR). A loan is a TDR when the Corporation, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower by modifying or renewing a loan that the Corporation would not otherwise consider. To make this determination, the Corporation must determine whether (a) the borrower is experiencing financial difficulties and (b) the Corporation granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties. Other Real Estate Held for Sale Other real estate held for sale consists of assets acquired through, or in lieu of, foreclosure and other long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. Other real estate held for sale is initially recorded at fair value, less costs to sell, establishing a new cost basis. Valuations are periodically performed by management or a third party, and the assets’ carrying values are adjusted to the lower of cost basis or fair value less costs to sell. Impairment losses are recognized for any initial or subsequent write-downs. Net revenue and expenses from operations of other real estate held for sale are included in other expense. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of premises and equipment are reflected in income. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Goodwill and Other Intangible Assets The excess of the cost of acquired entities over the fair value of identifiable assets acquired less liabilities assumed is recorded as goodwill. In accordance with ASC 350, amortization of goodwill and indefinite-lived assets is not recorded. However, the recoverability of goodwill is annually tested for impairment. The Corporation’s core deposit intangible is currently being amortized over its estimated useful life of ten years. Stock Compensation Plans On May 22, 2012, the Corporation’s shareholders approved the Mackinac Financial Corporation 2012 Incentive Compensation Plan, under which current and prospective employees, non-employee directors and consultants may be awarded incentive stock options, non-statutory stock options, shares of restricted stock awards (“RSAs”), or stock appreciation rights. The aggregate number of shares of the Corporation’s common stock issuable under the plan is 575,000. Awards are made to certain other senior officers at the discretion of the Corporation's management. Compensation cost equal to the fair value of the award is recognized over the vesting period. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) is composed of unrealized gains and losses on securities available for sale, and unrecognized actuarial gains and losses in the defined benefit pension plan, arising during the period. These gains and losses for the period are shown as a component of other comprehensive income. The accumulated gains and losses are reported as a component of equity, net of any tax effect. At December 31, 2017, the balance in accumulated other comprehensive income consisted of unrealized losses on available for sales securities of $71,000 and actuarial losses on the defined benefit pension obligation of $.185 million. At December 31, 2016, the balance in accumulated other comprehensive income consisted of unrealized losses on available for sale securities of $.102 million and actuarial losses on the defined benefit pension obligation of $78,000. The Corporation early adopted ASU No. 2018-02, “Income Statement- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (ASU 2018-02) in the fourth quarter 2017. ASU 2018-02, issued in February 2018, provides for the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income (AOCI) to retained earnings resulting from the Tax Cuts and Jobs Act of 2017. As a result, the Corporation reclassified $12,000 from AOCI to retained earnings. Earnings per Common Share Diluted earnings per share, which reflects the potential dilution that could occur if outstanding stock options and warrants were exercised and stock awards were fully vested and resulted in the issuance of common stock that then shared in our earnings, is computed by dividing net income by the weighted average number of common shares outstanding and common stock equivalents, after giving effect for dilutive shares issued. The following shows the computation of basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands, except per share data): Year Ended December 31, 2017 2016 2015 (Numerator): Net income $ 5,479 $ 4,483 $ 5,596 (Denominator): Weighted average shares outstanding 6,288,791 6,236,067 6,241,921 Effect of dilutive stock options, and vesting of restricted stock awards 33,622 32,636 31,400 Diluted weighted average shares outstanding 6,322,413 6,268,703 6,273,321 Income per common share: Basic $ .87 $ .72 $ .90 Diluted $ .87 $ .72 $ .89 Income Taxes Deferred income taxes have been provided under the liability method. Deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences are expected to reverse. Deferred tax expense (benefit) is the result of changes in the deferred tax asset and liability. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred asset will not be realized. Off-Balance-Sheet Financial Instruments In the ordinary course of business, the Corporation has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. For letters of credit, the Corporation recognizes a liability for the fair market value of the obligations it assumes under that guarantee. Recent Developments In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on the recognition of revenue from contracts with customers. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The guidance is effective January 1, 2018. The key revenue streams impacted include service charges and mortgage banking income. The Corporation will adopt the guidance using a modified retrospective approach in the first quarter of 2018. The revenue streams with in the scope of the guidance are less than 5% of total revenues, and the total amount of these fees reflected in the net income of the Corporation is not expected to significantly change. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 amends current guidance by requiring companies to recognize changes in fair value for equity investments that have a readily determinable fair value through net income rather than through other comprehensive income. Under ASU 2016-01, equity investments that do not have a readily determinable fair value will either be accounted for the same as equity investments that have a readily determinable fair value, with changes in fair value recognized through net income or carried at cost, adjusted for changes in observable prices based on orderly transactions for identical or similar investments issued by the same issuer and further adjusted for impairment, if applicable. ASU 2016-01 also requires a qualitative assessment of impairment indicators each reporting period. If this assessment indicates that impairment exists, companies must adjust the investment to fair value and recognize an impairment loss in net income, even if the impairment is determined to be temporary. ASU 2016-01 is effective for public companies for interim and annual periods beginning after December 15, 2017. As of December 31, 2017 the Corporation had $.500 million of available for sale equity securities. The Corporation recorded no impact upon adoption of ASU 2016-01 in January 2018. Any further changes to the fair value of equity securities will be recorded in net income. In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the current lease requirements in ASC 840. The ASU requires lessees to recognize an asset with right of use and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Corporation’s year ending December 31, 2019 and will be applied using modified retrospective transition method to the beginning of the earliest period presented. The Corporation currently has no capital leases, but does maintain seven operating leases for branch locations that will be impacted by the implementation of this guidance. The effect of applying the new lease guidance on the financial statements has not yet been determined. In September, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 requires an entity to measure expected credit losses for financial assets over the estimated lifetime of expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The standard includes the following core concepts in determining the expected credit loss. The estimate must: (a) be based on an asset’s amortized cost (including premiums or discounts, net deferred fees and costs, foreign exchange and fair value hedge accounting adjustments), (b) reflect losses expected over the remaining contractual life of an asset (considering the effect of voluntary prepayments), (c) consider available relevant information about the estimated collectability of cash flows (including information about past events, current conditions, and reasonable and supportable forecasts), and (d) reflect the risk of loss, even when that risk is remote. ASU 2016-13 also amends the recording of purchased credit-deteriorated assets. Under the new guidance, an allowance will be recognized at acquisition through a gross-up approach whereby an entity will record as the initial amortized cost the sum of (a) the purchase price and (b) an estimate of credit losses as of the date of acquisition. In addition, the guidance also requires immediate recognition in earnings of any subsequent changes, both favorable and unfavorable, in expected cash flows by adjusting this allowance. ASU 2016-13 also amends the impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Management may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists, as is currently permitted. In addition, an entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. As a result, entities will recognize improvements to credit losses on available-for-sale debt securities immediately in earnings rather than as interest income over time under current practice. New disclosures required by ASU 2016-13 include: (a) for financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes, (b) for financial receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year or the asset’s origination or vintage for as many as five annual periods, and (c) for available-for-sale debt securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due. Upon adoption of ASU 2016-13, a cumulative-effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Corporation is currently evaluating the provisions of ASU 2016-13 to determine the potential impact on the Corporation's consolidated financial condition and results of operations. In May 2017, the FASB issued ADU 2017-09, Compensation – Stock Compensation (Topic 718). ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification to the terms and conditions of a share-based payment award. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Corporation has determined the new guidance will not have a material impact on its consolidated financial statements. Reclassifications Certain amounts in the 2016 consolidated financial statements have been reclassified to conform to the 2017 presentation. |
RESTRICTIONS ON CASH AND CASH E
RESTRICTIONS ON CASH AND CASH EQUIVALENTS | 12 Months Ended |
Dec. 31, 2017 | |
RESTRICTIONS ON CASH AND CASH EQUIVALENTS | |
RESTRICTIONS ON CASH AND CASH EQUIVALENTS | NOTE 2 — RESTRICTIONS ON CASH AND CASH EQUIVALENTS Cash and cash equivalents in the amount of $15.131 million were restricted on December 31, 2017 to meet the reserve requirements of the Federal Reserve System. In the normal course of business, the Corporation maintains cash and due from bank balances with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation’s insured limit of $250,000. Management believes that these financial institutions have strong credit ratings and the credit risk related to these deposits is minimal. |
SECURITIES AVAILABLE FOR SALE
SECURITIES AVAILABLE FOR SALE | 12 Months Ended |
Dec. 31, 2017 | |
SECURITIES AVAILABLE FOR SALE | |
SECURITIES AVAILABLE FOR SALE | NOTE 3 — SECURITIES AVAILABLE FOR SALE The carrying value and estimated fair value of securities available for sale are as follows (dollars in thousands): Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value December 31, 2017 Corporate $ 24,352 $ 82 $ (43) $ 24,391 Equity 500 — — 500 US Agencies 16,935 10 (99) 16,846 US Agencies - MBS 12,830 42 (156) 12,716 Obligations of states and political subdivisions 21,370 307 (233) 21,444 Total securities available for sale $ 75,987 $ 441 $ (531) $ 75,897 December 31, 2016 Corporate $ 19,899 $ 49 $ (38) $ 19,910 Equity 500 — — 500 US Agencies 23,991 47 (86) 23,952 US Agencies - MBS 16,980 48 (195) 16,833 Obligations of states and political subdivisions 25,057 447 (426) 25,078 Total securities available for sale $ 86,427 $ 591 $ (745) $ 86,273 Following is information pertaining to securities with gross unrealized losses at December 31, 2017 and 2016 aggregated by investment category and length of time these individual securities have been in a loss position (dollars in thousands): Less Than Twelve Months Over Twelve Months Gross Gross Unrealized Fair Unrealized Fair Losses Value Losses Value December 31, 2017 Corporate $ (43) $ 14,204 $ — $ — Equity — — — — US Agencies (87) 14,799 (12) 745 US Agencies - MBS (67) 4,400 (89) 5,218 Obligations of states and political subdivisions (99) 10,245 (134) 1,589 Total securities available for sale $ (296) $ 43,648 $ (235) $ 7,552 December 31, 2016 Corporate (38) 12,085 — — Equity — — — — US Agencies — — US Agencies - MBS (3) 932 Obligations of states and political subdivisions — — Total securities available for sale $ (742) $ 56,155 $ (3) $ 932 There were 105 securities in an unrealized loss position in 2017 and 118 in 2016. The gross unrealized losses in the current portfolio are considered temporary in nature and related to interest rate fluctuations. The Corporation has both the ability and intent to hold the investment securities until their respective maturities and therefore does not anticipate the realization of the temporary losses. Following is a summary of the proceeds from sales and calls of securities available for sale, as well as gross gains and losses for the years ended December 31 (dollars in thousands): 2017 2016 2015 Proceeds from sales and calls $ 11,651 $ 19,719 $ 25,628 Gross gains on sales and calls 253 190 455 Gross (losses) on sales and calls (22) (40) — The carrying value and estimated fair value of securities available for sale at December 31, 2017, by contractual maturity, are shown below (dollars in thousands): Amortized Estimated Cost Fair Value Due in one year or less $ 8,908 $ 9,262 Due after one year through five years 37,544 40,665 Due after five years through ten years 13,780 10,984 Due after ten years 2,925 2,270 Subtotal 63,157 63,181 US Agencies - MBS 12,830 12,716 Total $ 75,987 $ 75,897 Contractual maturities may differ from expected maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities with a market value of $2.460 million are pledged as collateral to the Federal Home Loan Bank and $2.124 million are pledged to certain customer relationships. See Note 10 for information on securities pledged to secure borrowings from the Federal Home Loan Bank. |
LOANS
LOANS | 12 Months Ended |
Dec. 31, 2017 | |
LOANS | |
LOANS | NOTE 4 — LOANS The composition of loans at December 31 is as follows (dollars in thousands): 2017 2016 Commercial real estate $ 406,742 $ Commercial, financial, and agricultural 156,951 Commercial construction 9,243 One to four family residential real estate 209,890 Consumer 17,434 Consumer construction Total loans $ 811,078 $ 781,857 The Corporation completed the acquisition of Peninsula Financial Corporation, (“PFC”), on December 5, 2014, The First National Bank of Eagle River (“Eagle River”) on April 29, 2016 and Niagara Bancorporation (“Niagara”) on August 31, 2016. The PFC acquired impaired loans totaled $13.290 million, the Eagle River acquired impaired loans totaled $3.401 million, and the Niagara acquired impaired loans totaled $2.105 million. In 2017, The Corporation had positive resolution of acquired nonperforming loans, which resulted in the recognition of approximately $.550 million of accretable interest. In 2016, the Corporation had positive resolution of acquired nonperforming loans, which resulted in the recognition of approximately $96,000 of accretable interest. In 2015, the Corporation had positive resolution of acquired nonperforming loans, which resulted in the recognition of approximately $.578 million of the accretable interest. 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 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 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 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 Acquisitions — — — — — — — — — 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 The table below presents a rollforward of the accretable yield on acquired loans for year ended December 31, 2016 (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, 2015 $ 426 $ 1,342 $ 1,768 $ — $ — $ — $ — $ — $ — Acquisition — — — 391 1,700 2,091 88 600 688 Accretion (50) (700) (750) (46) (479) (525) — (95) (95) Reclassification from nonaccretable difference (94) — (94) (109) — (109) (36) — (36) Balance, December 31, 2016 $ 282 $ 642 $ 924 $ 236 $ 1,221 $ 1,457 $ 52 $ 505 $ 557 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 Impaired loans, by definition, are individually evaluated. A breakdown of the allowance for loan losses and recorded balances in loans at December 31, 2016 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 $ 1,611 $ 645 $ 79 $ 274 $ 7 $ 64 $ 2,324 $ 5,004 Charge-offs (245) (232) — (133) — (113) — (723) Recoveries 54 41 7 5 — 32 — 139 Provision (75) 160 (29) 150 (1) 107 288 600 Ending balance ALLR $ 1,345 $ 614 $ 57 $ 296 $ 6 $ 90 $ 2,612 $ 5,020 Loans: Ending balance $ 389,420 $ 142,648 $ 11,505 $ 205,945 $ 12,226 $ 20,113 $ — $ 781,857 Ending balance ALLR (1,345) (614) (57) (296) (6) (90) (2,612) (5,020) Net loans $ 388,075 $ 142,034 $ 11,448 $ 205,649 $ 12,220 $ 20,023 $ (2,612) $ 776,837 Ending balance ALLR: Individually evaluated $ 70 $ 251 $ — $ — $ — $ — $ — $ 321 Collectively evaluated 1,275 363 57 296 6 90 2,612 4,699 Total $ 1,345 $ 614 $ 57 $ 296 $ 6 $ 90 $ 2,612 $ 5,020 Ending balance Loans: Individually evaluated $ 345 $ 325 $ — $ — $ — $ — $ — $ 670 Collectively evaluated 385,841 142,323 11,505 203,153 12,169 20,109 — 775,100 Acquired with deteriorated credit quality 3,234 — — 2,792 57 4 — 6,087 Total $ 389,420 $ 142,648 $ 11,505 $ 205,945 $ 12,226 $ 20,113 $ — $ 781,857 Impaired loans, by definition, are individually evaluated. As part of the management of the loan portfolio, risk ratings are assigned to all commercial loans. Through the loan review process, ratings are modified as believed to be appropriate to reflect changes in the credit. Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we operate a credit risk rating system under which our credit management personnel assign a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 8, with higher scores indicating higher risk. The credit risk rating structure used is shown below. In the context of the credit risk rating structure, the term Classified is defined as a problem loan which may or may not be in a nonaccrual status, dependent upon current payment status and collectability. Strong (1) Borrower is not vulnerable to sudden economic or technological changes. They have “strong” balance sheets and are within an industry that is very typical for our markets or type of lending culture. Borrowers also have “strong” financial and cash flow performance and excellent collateral (low loan to value or readily available to liquidate collateral) in conjunction with an impeccable repayment history. Good (2) Borrower shows limited vulnerability to sudden economic change. These borrowers have “above average” financial and cash flow performance and a very good repayment history. The balance sheet of the company is also very good as compared to peer and the company is in an industry that is familiar to our markets or our type of lending. The collateral securing the deal is also very good in terms of its type, loan to value, etc. Average (3) Borrower is typically a well-seasoned business, however may be susceptible to unfavorable changes in the economy, and could be somewhat affected by seasonal factors. The borrowers within this category exhibit financial and cash flow performance that appear “average” to “slightly above average” when compared to peer standards and they show an adequate payment history. Collateral securing this type of credit is good, exhibiting above average loan to values, etc. Acceptable (4) A borrower within this category exhibits financial and cash flow performance that appear adequate and satisfactory when compared to peer standards and they show a satisfactory payment history. The collateral securing the request is within supervisory limits and overall is acceptable. Borrowers rated acceptable could also be newer businesses that are typically susceptible to unfavorable changes in the economy, and more than likely could be affected by seasonal factors. Acceptable Watch (44) The borrower may have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Acceptable watch assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Examples of this type of credit include a start-up company fully based on projections, a documentation issue that needs to be corrected or a general market condition that the borrower is working through to get corrected. Substandard (6) Substandard loans are classified assets exhibiting a number of well-defined weaknesses that jeopardize normal repayment. The assets are no longer adequately protected due to declining net worth, lack of earning capacity, or insufficient collateral offering the distinct possibility of the loss of a portion of the loan principal. Loans classified as substandard clearly represent troubled and deteriorating credit situations requiring constant supervision. Doubtful (7) Loans in this category exhibit the same, if not more pronounced weaknesses used to describe the substandard credit. Loans are frozen with collection improbable. Such loans are not yet rated as Charge-off because certain actions may yet occur which would salvage the loan. Charge-off/Loss (8) Loans in this category are largely uncollectible and should be charged against the loan loss reserve immediately. General Reserves: For loans with a credit risk rating of 44 or better and any loans with a risk rating of 6 or 7 with no specific reserve, reserves are established based on the type of loan collateral, if any, and the assigned credit risk rating. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change. Using a historical average loss by loan type as a base, each loan graded as higher risk is assigned a specific percentage. The residential real estate and consumer loan portfolios are assigned a loss percentage as a homogenous group. If, however, on an individual loan the projected loss based on collateral value and payment histories are in excess of the computed allowance, the allocation is increased for the higher anticipated loss. These computations provide the basis for the allowance for loan losses as recorded by the Corporation. Commercial construction loans in the amount of $3.854 million and $4.414 million at December 31, 2017, and 2016, respectively did not receive a specific risk rating. These amounts represent loans made for land development and unimproved land purchases. 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 Below is a breakdown of loans by risk category as of December 31, 2016 (dollars in thousands) (1) (2) (3) (4) (44) (6) (7) Rating Strong Good Average Acceptable Acceptable Watch Substandard Doubtful Unassigned Total Commercial real estate $ 3,021 $ 23,940 $ 140,618 $ 205,710 $ 10,808 $ 5,323 $ — $ — $ 389,420 Commercial, financial and agricultural 10,421 13,434 49,434 65,097 2,485 1,777 — — 142,648 Commercial construction — 900 3,146 1,877 783 385 — 4,414 11,505 One-to-four family residential real estate 740 1,373 3,412 6,927 2,658 5,493 — 185,342 205,945 Consumer construction 28 — — — — 17 — 12,181 12,226 Consumer 20 — 15 42 13 103 — 19,920 20,113 Total loans $ 14,230 $ 39,647 $ 196,625 $ 279,653 $ 16,747 $ 13,098 $ — $ 221,857 $ 781,857 Impaired Loans Impaired loans are those which are contractually past due 90 days or more as to interest or principal payments, on nonaccrual status, or loans, the terms of which have been renegotiated to provide a reduction or deferral on interest or principal. Loans are considered impaired when, based on current information and events, it is probable the Corporation will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loans basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. 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, 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 $ $ $ $ $ December 31, 2016 Commercial real estate $ 3,234 $ 345 $ 3,579 $ 4,700 $ 70 Commercial, financial and agricultural — 325 325 400 251 Commercial construction — — — — — One to four family residential real estate 2,792 — 2,792 3,794 — Consumer construction 57 — 57 80 — Consumer 4 — 4 28 — Total $ 6,087 $ 670 $ 6,757 $ 9,002 $ 321 Individually Evaluated Impaired Loans 2017 2016 2015 Average Interest Income Average Interest Income Average Interest Income Balance for Recognized for Balance for Recognized for Balance for Recognized for the Period the Period the Period the Period the Period the Period Commercial real estate $ 2,784 $ 141 $ 3,848 $ 178 $ 2,656 $ 232 Commercial, financial and agricultural 246 1 200 4 628 9 Commercial construction — 3 — — — — One to four family residential real estate 2,057 134 3,794 182 2,120 129 Consumer construction 37 — 40 4 — — Consumer 13 2 14 2 — — Total $ 5,137 $ 281 $ 7,896 $ 370 $ 5,404 $ 370 A summary of past due loans at December 31, is as follows (dollars in thousands): 2017 2016 30-89 days 30-89 days Past Due 90+ days Past Due 90+ days (accruing) Past Due Nonaccrual Total (accruing) Past Due Nonaccrual Total Commercial real estate $ 460 $ — $ 866 $ 1,326 $ 942 $ — $ 1,732 $ 2,674 Commercial, financial and agricultural 16 — 338 354 186 — 337 523 Commercial construction 73 — 14 87 — — — — One to four family residential real estate 3,424 — 1,350 4,774 2,113 — 1,956 4,069 Consumer construction — — — — — — 17 17 Consumer 72 — — 72 133 — 82 215 Total past due loans $ 4,045 $ — $ 2,568 $ 6,613 $ 3,374 $ — $ 4,124 $ 7,498 Troubled Debt Restructuring Troubled debt restructurings (“TDR”) are determined on a loan-by-loan basis. Generally, restructurings are related to interest rate reductions, loan term extensions and short term payment forbearance as means to maximize collectability of troubled credits. If a portion of the TDR loan is uncollectible (including forgiveness of principal), the uncollectible amount will be charged off against the allowance at the time of the restructuring. In general, a borrower must make at least six consecutive timely payments before the Corporation would consider a return of a restructured loan to accruing status in accordance with FDIC guidelines regarding restoration of credits to accrual status. The Corporation has, in accordance with generally accepted accounting principles and per recently enacted accounting standard updates, evaluated all loan modifications to determine the fair value impact of the underlying asset. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral. There were no troubled debt restructurings that occurred during the years ended December 31 2017, and December 31, 2016. Insider Loans 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): 2017 2016 Loans outstanding, January 1 $ 9,195 $ New loans 2,018 Net activity on revolving lines of credit 237 Repayment (1,413) Loans outstanding at end of period $ $ There were no loans to related-parties classified substandard as of December 31, 2017 and 2016. In addition to the outstanding balances above, there were unfunded commitments of $.605 million to related parties at December 31, 2017. |
PREMISES AND EQUIPMENT
PREMISES AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2017 | |
PREMISES AND EQUIPMENT | |
PREMISES AND EQUIPMENT | NOTE 5 — PREMISES AND EQUIPMENT Details of premises and equipment at December 31 are as follows (dollars in thousands): 2017 2016 Land $ 2,998 $ 2,566 Buildings and improvements 18,473 18,001 Furniture, fixtures, and equipment 11,178 9,142 Construction in progress — 310 Total cost basis 32,649 30,019 Less - accumulated depreciation 16,359 14,128 Net book value $ 16,290 $ 15,891 Depreciation of premises and equipment charged to operating expenses amounted to $1.978 million in 2017, $1.617 million in 2016, and $1.457 million in 2015. |
OTHER REAL ESTATE HELD FOR SALE
OTHER REAL ESTATE HELD FOR SALE | 12 Months Ended |
Dec. 31, 2017 | |
OTHER REAL ESTATE HELD FOR SALE | |
OTHER REAL ESTATE HELD FOR SALE | NOTE 6 — OTHER REAL ESTATE HELD FOR SALE An analysis of other real estate held for sale for the years ended December 31 is as follows (dollars in thousands): 2017 2016 Balance, January 1 $ 4,782 $ 2,324 Other real estate transferred from loans due to foreclosure 2,147 3,292 Other real estate acquired — 1,205 Proceeds from other real estate sold (2,983) (1,640) Transfer to premise and equipment — (197) Writedowns of other real estate held for sale (307) (212) Gain (loss) on sale of other real estate held for sale (81) 10 Total other real estate held for sale $ 3,558 $ 4,782 Foreclosed residential real estate property of $.894 million is included in other real estate as of December 31, 2017. The recorded investment in consumer mortgage loans secured by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdictions was $13,000 as of December 31, 2017. |
DEPOSITS
DEPOSITS | 12 Months Ended |
Dec. 31, 2017 | |
DEPOSITS | |
DEPOSITS | NOTE 7 — DEPOSITS The distribution of deposits at December 31 is as follows (dollars in thousands): 2017 2016 Noninterest bearing deposits $ 148,079 $ 164,179 NOW, money market, interest checking 280,309 286,622 Savings 61,097 58,315 CDs <$250,000 142,159 141,629 CDs >$250,000 11,055 8,489 Brokered 175,299 164,278 Total deposits $ 817,998 $ 823,512 Maturities of non-brokered time deposits outstanding at December 31, 2017 are as follows (dollars in thousands): 2018 $ 90,456 2019 30,118 2020 18,296 2021 8,644 2022 3,901 Thereafter 1,799 Total $ 153,214 |
GOODWILL AND OTHER INTANGIBLE A
GOODWILL AND OTHER INTANGIBLE ASSETS | 12 Months Ended |
Dec. 31, 2017 | |
GOODWILL AND OTHER INTANGIBLE ASSETS | |
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS During the fourth quarter of 2014, the Corporation recorded $3.805 million of goodwill and $1.206 million of deposit based intangible assets associated with the acquisition of Peninsula. During 2016, the Corporation recorded $1.839 million of goodwill and $.993 million of deposit based intangible assets associated with the acquisition of Eagle River. Also in 2016, the Corporation recorded $50,000 of goodwill and $.300 million of deposit based intangible assets with the acquisition of Niagara. The deposit based intangible is reported net of accumulated amortization at $1.922 million at December 31, 2017, compared to $2.172 million at December 31, 2016. Amortization expense in 2017 is $.249 million, compared to $.197 million in 2016 and $.121 million in 2015. Amortization expense for the next five years is expected to be at $.250 million per year. |
SERVICING RIGHTS
SERVICING RIGHTS | 12 Months Ended |
Dec. 31, 2017 | |
SERVICING RIGHTS | |
SERVICING RIGHTS | NOTE 9 – SERVICING RIGHTS Mortgage Loans Mortgage servicing rights (“MSRs”) are recorded when loans are sold in the secondary market with servicing retained. As of December 31, 2017, the Corporation had obligations to service $198.524 million of residential first mortgage loans. The valuation of MSRs is based upon the net present value of the projected revenues over the expected life of the loans being serviced, as reduced by estimated internal costs to service these loans. On a quarterly basis, management evaluates the MSRs for impairment. The key economic assumptions used in determining the fair value of the mortgage servicing rights include an annual constant prepayment speed of 10.57% and a discount rate of 10.17% for December 31, 2017. In 2016, management decided to no longer retain the servicing on mortgage loans sold. The following summarizes the fair value of the mortgage servicing rights capitalized and amortized. There was no valuation allowance required (dollars in thousands): December 31, December 31, 2017 2016 Balance at beginning of period $ 1,573 $ 1,965 Acquired MSRs — 207 Amortization (540) (599) Balance at end of period $ 1,033 $ 1,573 Balance of loan servicing portfolio $ 198,524 $ 221,355 Mortgage servicing rights as % of portfolio .71% Commercial Loans The Corporation also retains the servicing on commercial loans that have been sold that were originated and underwritten under the SBA and USDA government guarantee programs, in which the guaranteed portion of the loan was sold to a third party with servicing retained. The balance of these sold loans with servicing retained at December 31, 2017 and December 31, 2016 was approximately $44 million and $41 million, respectively. The Corporation valued these servicing rights at $.110 million as of December 31, 2017 and $.140 million at December 31, 2016. This valuation was established in consideration of the discounted cash flow of expected servicing income over the life of the loans. |
BORROWINGS
BORROWINGS | 12 Months Ended |
Dec. 31, 2017 | |
BORROWINGS | |
BORROWINGS | NOTE 10 — BORROWINGS Borrowings consist of the following at December 31 (dollars in thousands): 2017 2016 Federal Home Loan Bank fixed rate advances $ 60,000 $ 45,000 Correspondent bank line of credit — 750 Correspondent bank term note 18,999 21,199 USDA Rural Development note 553 630 $ 79,552 $ 67,579 The Federal Home Loan Bank borrowings bear a weighted average rate of 1.66% and mature in 2018, 2019, and 2021. They are collateralized at December 31, 2017 by the following: a collateral agreement on the Corporation’s one to four family residential real estate loans with a book value of approximately $72.552 million; mortgage related and municipal securities with an amortized cost and estimated fair value of $2.482 million and $2.460 million, respectively; and Federal Home Loan Bank stock owned by the Bank totaling $3.112 million. Prepayment of the advances is subject to the provisions and conditions of the credit policies of the Federal Home Loan Bank of Indianapolis and the Federal Home Loan Bank of Chicago in effect as of December 31, 2017. The Corporation currently has one correspondent banking borrowing relationship. The relationship consists of a $5.0 million revolving line of credit and a term note. The line of credit bears interest at a rate of LIBOR plus 2.75%, and has an initial term that expires on April 30, 2018. LIBOR was 1.69% at December 31, 2017. The term note had a balance of $18.999 million at December 31, 2017 and bears the same interest as the line of credit, and matures on April 30, 2019 and requires quarterly principal payments of $550,000 which began on March 31, 2017. The relationship is secured by all of the outstanding common stock of mBank. The USDA Rural Development borrowing bears an interest rate of 1.00% and matures in August, 2024. It is collateralized by loans totaling $.553 million originated and held by the Corporation’s wholly owned subsidiary, First Rural Relending, and an assignment of a demand deposit account in the amount of $.619 million, and guaranteed by the Corporation. Maturities and principal payments of borrowings outstanding at December 31, 2017 are as follows (dollars in thousands): 2018 $ 12,277 2019 31,876 2020 10,078 2021 25,079 2022 80 Thereafter 162 Total $ 79,552 |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2017 | |
INCOME TAXES | |
INCOME TAXES | NOTE 11 — INCOME TAXES The components of the federal income tax provision (credit) for the years ended December 31 are as follows (dollars in thousands): 2017 2016 2015 Current tax expense $ 585 $ 485 $ — Change in valuation allowance — — (760) Adjustment of deferred taxes due to change in enacted tax rate 2,025 — — Deferred tax expense 2,929 1,798 3,093 Provision for income taxes $ 5,539 $ 2,283 $ 2,333 A summary of the source of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes for the years ended December 31 is as follows (dollars in thousands): 2017 2016 2015 Tax expense at statutory rate $ 3,746 $ $ 2,695 Increase (decrease) in taxes resulting from: Tax-exempt interest (133) (60) Change in valuation allowance — — (760) Adjustment of deferred taxes due to change in enacted tax rate 2,025 — — Expiration of deferred tax assets — — 429 Nondeductible transaction expenses 17 95 — Other (116) 29 Provision for income taxes, as reported $ 5,539 $ 2,283 $ 2,333 Deferred income taxes are provided for the temporary differences between the financial reporting and tax bases of the Corporation’s assets and liabilities. The major components of net deferred tax assets at December 31 are as follows (dollars in thousands): 2017 2016 Deferred tax assets: NOL carryforward $ 1,580 $ 3,080 Allowance for loan losses 948 1,413 Alternative Minimum Tax Credit 1,463 1,944 OREO 119 142 Tax credit carryovers 235 235 Deferred compensation 242 443 Pension liability 240 387 Stock compensation 79 116 Unrealized loss on securities 19 52 Purchase accounting adjustments 785 1,791 Other 63 805 Total deferred tax assets 5,773 10,408 Deferred tax liabilities: Core deposit premium (404) (739) FHLB stock dividend (56) (91) Depreciation (79) (208) Mortgage servicing rights (240) (583) Other (24) (27) Total deferred tax liabilities (803) (1,648) Net deferred tax asset $ 4,970 $ 8,760 The Corporation has reported net deferred tax assets of $4.970 million at December 31, 2017. The income tax expense for 2017 was impacted by the adjustment of deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, and additional expense of $2.025 million was recorded in 2017. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. The Corporation, as of December 31, 2017 had a net operating loss and tax credit carryforwards for tax purposes of approximately $7.5 million, and $1.7 million, respectively. The Corporation evaluated the future benefits from these carryforwards as of December 31, 2017 and determined that it was “more likely than not” that they would be utilized prior to expiration. The net operating loss carryforwards expire twenty years from the date they originated. These carryforwards, if not utilized, will begin to expire in the year 2023. A portion of the NOL and credit carryforwards are subject to the limitations for utilization as set forth in Section 382 of the Internal Revenue Code. The annual limitation is $1.537 million for the NOL and the equivalent value of tax credits, which is approximately $.476 million. These limitations for use were established in conjunction with the recapitalization of the Corporation in December 2004. The Corporation will continue to evaluate the future benefits from these carryforwards in order to determine if any adjustment to the deferred tax asset is warranted. |
OPERATING LEASES
OPERATING LEASES | 12 Months Ended |
Dec. 31, 2017 | |
OPERATING LEASES | |
OPERATING LEASES | NOTE 12 — OPERATING LEASES The Corporation currently maintains seven operating leases for office locations. The first operating lease, for the Corporation's location in Birmingham, was originated in September 2005 and had an original term of 66 months with an option to renew for an additional five-year period. The original term of this was extended during 2011 for an additional three year term, again in 2014 for an additional three year term, and again in 2017 for an additional three year term. The second operating lease, for a second location in Manistique, was executed in April 2010, the terms of which began at that time. The original term of this lease expired in 2013, and the third of the four consecutive renewal terms of two years each is in place. The third operating lease, for a loan production office in Traverse City, was executed in May 2012, the terms of which began in August 2012. The original term of this lease expired in 2015 and automatically renewed at that time. The lease was renegotiated in 2016 for a term of 36-months, with two consecutive options to extend the lease for 36 months each. The fourth operating lease was initiated in December 2013 as the Corporation consolidated its banking offices in Marquette. The original term of this lease is 15 years with options for two consecutive renewal terms of four years each. The fifth operating lease, located in Troy, for the asset based lending office, was initiated in December 2013. The Corporation terminated this lease in early 2018. With the acquisition of PFC, the Corporation acquired three additional operating leases for office locations. The first, for an additional location in Marquette, was executed in February 2011 with a term of five years and expired in 2016. The Corporation opted not to renew this lease, and subsequently closed that office location. The second, for the location in Negaunee was executed in September 2012 with an initial term of five years, expiring in 2017. This lease was renewed for one additional term of five years. The final, for a location in Ishpeming was executed in April 2008 for an initial term of five years. This lease was renewed in May 2013 for an additional five years. Future minimum payments for base rent, by year and in the aggregate, under the initial terms of the operating lease agreements, consist of the following (dollars in thousands): 2018 $ 772 2019 747 2020 608 2021 503 2022 499 Thereafter 3,124 Total $ 6,253 Rent expense for all operating leases amounted to $1.109 million in 2017, $1.053 million in 2016, and $.985 million in 2015. |
RETIREMENT PLAN
RETIREMENT PLAN | 12 Months Ended |
Dec. 31, 2017 | |
DEFINED BENEFIT PENSION PLAN | |
RETIREMENT PLAN | NOTE 13 — RETIREMENT PLAN The Corporation has established a 401(k) profit sharing plan. Employees who have completed three months of service and attained the age of 18 are eligible to participate in the plan. Eligible employees can elect to have a portion, not to exceed 80%, of their annual compensation paid into the plan. In addition, the Corporation may make discretionary contributions into the plan. Retirement plan contributions charged to operations totaled $340,800, $300,000, and $288,000 in 2017, 2016, and 2015, respectively. |
DEFINED BENEFIT PENSION PLAN
DEFINED BENEFIT PENSION PLAN | 12 Months Ended |
Dec. 31, 2017 | |
DEFINED BENEFIT PENSION PLAN | |
DEFINED BENEFIT PENSION PLAN | NOTE 14 — DEFINED BENEFIT PENSION PLAN The Corporation acquired the Peninsula Financial Corporation noncontributory defined benefit pension plan. Effective December 31, 2005, the plan was amended to freeze participation in the plan; therefore, no additional employees are eligible to become participants in the plan. The benefits are based on years of service and the employee’s compensation at the time of retirement. The Plan was amended effective December 31, 2010, to freeze benefit accrual for all participants. Expected contributions to the Plan in 2018 are $79,000. The anticipated distributions over the next five years and through December 31, 2017 are detailed in the table below (dollars in thousands): 2018 $ 133 2019 130 2020 126 2021 125 2022 131 2023-2027 796 Total $ 1,441 The following table sets forth the plan’s funded status and amounts recognized in the Corporation’s balance sheets and the activity from date of acquisition (dollars in thousands): 2017 2016 Change in benefit obligation: Benefit obligation, beginning of year $ 3,187 $ 3,180 Interest cost 118 187 Actuarial loss 161 (44) Benefits paid (135) (136) Benefit obligation at end of year 3,331 3,187 Change in plan assets: Fair value of plan assets, beginning of year 2,049 2,033 Actual return on plan assets 259 103 Employer contributions 18 49 Benefits paid (135) (136) Fair value of plan assets at end of year 2,191 2,049 Funded status, included with other liabilities $ (1,140) $ (1,138) Net pension costs included in the Corporation’s results of operations was immaterial. Assumptions in the actuarial valuation were: 2017 2016 Weighted average discount rate Rate of increase in future compensation levels N/A N/A Expected long-term rate of return on plan assets The expected long-term rate of return on plan assets reflects management’s expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligation. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy. The discount rate assumption is based on investment yields available on AA rated long-term corporate bonds. The primary investment objective is to maximize growth of the pension plan assets to meet the projected obligations to the beneficiaries over a long period of time, and to do so in a manner that is consistent with the Corporation’s risk tolerance. The intention of the plan sponsor is to invest the plan assets in mutual funds with the following asset allocation, which was in place at both December 31, 2017 and December 31, 2016: Target Actual Allocation Allocation Equity securities 50% to 70% Fixed income securities 30% to 50% |
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN | 12 Months Ended |
Dec. 31, 2017 | |
DEFERRED COMPENSATION PLAN | |
DEFERRED COMPENSATION PLAN | NOTE 15 — DEFERRED COMPENSATION PLAN Prior to the recapitalization in 2004, as an incentive to retain key members of management and directors, the Corporation established a deferred compensation plan, with benefits based on the number of years the individuals have served the Corporation. This plan was discontinued and no longer applies to current officers and directors. A liability was recorded on a present value basis and discounted using the rates in effect at the time the deferred compensation agreement was entered into. The liability may change depending upon changes in long-term interest rates. The liability at December 31, 2017 and 2016, for vested benefits under this plan, was $.113 million and $.179 million, respectively. These benefits were originally contracted to be paid over a ten to fifteen-year period. The final payment is scheduled to occur in 2023. The deferred compensation plan is unfunded; however, the Bank maintains life insurance policies on the majority of the plan participants. The cash surrender value of the policies was $1.465 million and $1.398 million at December 31, 2017 and 2016, respectively. Peninsula Financial Corporation, acquired by the Corporation in December 2014, also had a deferred compensation plan, which was similar in nature to the Corporation’s discontinued plan. The liability for this plan at December 31, 2017 and 2016, for vested benefits under this plan was $1.038 million and $1.124 million, respectively. The bank owned life insurance policy as of December 31, 2017 and 2016 had cash surrender values of $1.741 million and $1.722 million, respectively. This Plan was also discontinued by the Corporation and will not apply to future employees or directors of the Corporation. Deferred compensation expense for both plans was $65,000 and $77,000 and $27,000 for 2017, 2016 and 2015 respectively. |
REGULATORY MATTERS
REGULATORY MATTERS | 12 Months Ended |
Dec. 31, 2017 | |
REGULATORY MATTERS | |
REGULATORY MATTERS | NOTE 16 — REGULATORY MATTERS The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management has determined that, as of December 31, 2017, the Corporation is well capitalized. Effective January 1, 2015, the Corporation was subject to new capital requirements due to the Basel III regulation, including: · A new minimum ratio of Common Equity Tier I Capital to risk-weighted assets of 4.5%; · An increase in the minimum required amount of Additional Tier 1 Capital to 6% of risk-weighted assets; · A continuation of the current minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and · A minimum leverage ratio of Tier I Capital to total assets equal to 4% in all circumstances. In order to be “well-capitalized” under the new guidelines, a depository institution must maintain a Common Equity Tier 1 Capital ratio of 6.5% or more; an Additional Tier 1 Capital ratio of 8% or more; a Total Capital ratio of 10% or more; and a leverage ratio of 5% or more. The Corporation’s and the Bank’s actual capital and ratios compared to generally applicable regulatory requirements as of December 31, 2017 are as follows (dollars in thousands): Actual Adequacy Purposes Well-Capitalized Amount Ratio Amount Ratio Amount Ratio Total capital to risk weighted assets: Consolidated $ 74,533 > $ 64,190 > > $ 80,237 mBank $ 93,598 > $ 64,202 > > $ 80,252 Tier 1 capital to risk weighted assets: Consolidated $ 69,454 > $ 48,142 > > $ 64,190 mBank $ 88,560 > $ 48,151 > > $ 64,202 Common equity Tier 1 capital to risk weighted assets Consolidated $ 69,454 > $ 36,107 > > $ 52,154 mBank $ 88,560 > $ 36,113 > > $ 52,164 Tier 1 capital to average assets: Consolidated $ 69,454 > $ 39,375 > > $ 49,219 mBank $ 88,560 > $ 39,279 > > $ 49,098 The Corporation’s and the Bank’s actual capital and ratios compared to generally applicable regulatory requirements as of December 31, 2016 are as follows (dollars in thousands): Actual Adequacy Purposes Well-Capitalized Amount Ratio Amount Ratio Amount Ratio Total capital to risk weighted assets: Consolidated $ 73,811 > $ 62,503 > > $ 78,128 mBank $ 92,521 > $ 62,102 > > $ 77,627 Tier 1 capital to risk weighted assets: Consolidated $ 68,791 > $ 46,877 > > $ 62,503 mBank $ 87,542 > $ 46,576 > > $ 62,102 Common equity Tier 1 capital to risk weighted assets Consolidated $ 68,791 > $ 35,158 > > $ 50,783 mBank $ 87,542 > $ 34,932 > > $ 50,458 Tier 1 capital to average assets: Consolidated $ 68,791 > $ 37,939 > > $ 47,242 mBank $ 87,542 > $ 37,889 > > $ 47,361 |
STOCK COMPENSATION PLANS
STOCK COMPENSATION PLANS | 12 Months Ended |
Dec. 31, 2017 | |
STOCK COMPENSATION PLANS | |
STOCK COMPENSATION PLANS | NOTE 17 — STOCK COMPENSATION PLANS Restricted Stock Awards The Corporation’s restricted stock awards (“RSAs”) require certain service-based or performance requirements and have a vesting period of four years. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants. The Corporation has historically granted RSAs to members of the Board of Directors and management. Awards granted are set to vest equally over their award terms and are issued at no cost to the recipient. The table below summarizes each of the grant awards. Market Value at Date of Award Units Granted grant date Vesting Term August, 2012 148,500 $ 7.91 4 years March, 2014 52,774 12.95 4 years March, 2015 37,730 11.15 4 years May, 2015 3,000 10.77 Immediate February, 2016 35,733 9.91 4 years February, 2017 28,427 13.39 4 years On August 31, 2013, 2014, 2015 and 2016, the Corporation issued 37,125 shares of its common stock for vested RSAs, in each year. In March 2015, the Corporation issued 13,194 shares of its common stock for vested RSAs. In May 2015, the Corporation granted 3,000 shares, which were immediately vested and issued. In March 2016, the Corporation issued 22,626 shares of its common stock for vested RSAs. In the first quarter of 2017, the Corporation issued 31,559 shares of its common stock for vested RSAs. The Corporation recognized annual compensation expense of $.398 million in 2017, $.600 million in 2016 and $.576 million in 2015. Unrecognized compensation expense at the end of 2017 was $.660 million. A summary of changes in our nonvested awards for the year follows: Weighted Average Number Grant Date Outstanding Fair Value Nonvested balance at January 1, 2017 90,417 $ 11.19 Granted during the period 28,427 13.39 Vested during the period (31,559) 11.55 Nonvested balance at December 31, 2017 87,285 $ 11.78 |
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2017 | |
SHAREHOLDERS' EQUITY | |
SHAREHOLDERS' EQUITY | NOTE 18 — SHAREHOLDERS’ EQUITY The Corporation currently has a share repurchase program. The program is conducted under authorizations by the Board of Directors. The Corporation repurchased 14,000 shares in 2016, 102,455 shares in 2015, 13,700 shares in 2014 and 55,594 shares in 2013. The share repurchases were conducted under Board authorizations made and publicly announced of $600,000 on February 27, 2013, $600,000 on December 17, 2013 and an additional $750,000 on April 28, 2015. None of these authorizations has an expiration date. As of December 31, 2017, $26,000 of the total authorization was available for future purchases. |
COMMITMENTS, CONTINGENCIES AND
COMMITMENTS, CONTINGENCIES AND CREDIT RISK | 12 Months Ended |
Dec. 31, 2017 | |
COMMITMENTS, CONTINGENCIES AND CREDIT RISK | |
COMMITMENTS, CONTINGENCIES AND CREDIT RISK | NOTE 19 — COMMITMENTS, CONTINGENCIES, AND CREDIT RISK Financial Instruments with Off-Balance-Sheet Risk The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Corporation’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. These commitments at December 31 are as follows (dollars in thousands): 2017 2016 Commitments to extend credit: Variable rate $ 72,187 $ 59,496 Fixed rate 37,468 28,737 Standby letters of credit - Variable rate 7,753 8,252 Credit card commitments - Fixed rate 5,788 5,533 $ 123,196 $ 102,018 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The commitments are structured to allow for 100% collateralization on all standby letters of credit. Credit card commitments are commitments on credit cards issued by the Corporation’s subsidiary and serviced by other companies. These commitments are unsecured. Legal Proceedings and Contingencies At December 31, 2017, there were no pending material legal proceedings to which the Corporation is a party or to which any of its property was subject, except for proceedings which arise in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial position or results of operations of the Corporation. Concentration of Credit Risk The Bank grants commercial, residential, agricultural, and consumer loans throughout Michigan and Northeastern Wisconsin. The Bank’s most prominent concentration in the loan portfolio relates to commercial real estate loans to operators of nonresidential buildings. This concentration at December 31, 2017 represents $119.025 million, or 20.77%, compared to $121.861 million, or 22.42%, of the commercial loan portfolio on December 31, 2016. The remainder of the commercial loan portfolio is diversified in such categories as hospitality and tourism, real estate agents and managers, new car dealers, gas stations and convenience stores, petroleum, forestry, agriculture, and construction. Due to the diversity of the Bank’s locations, the ability of debtors of residential and consumer loans to honor their obligations is not tied to any particular economic sector. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 12 Months Ended |
Dec. 31, 2017 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | NOTE 20 — FAIR VALUE Fair value estimates, methods, and assumptions are set forth below for the Corporation’s financial instruments: Cash, cash equivalents, and interest-bearing deposits - The carrying values approximate the fair values for these assets. Securities - Fair values are based on quoted market prices where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Federal Home Loan Bank stock — Federal Home Loan Bank stock is carried at cost, which is its redeemable value and approximates its fair value, since the market for this stock is limited. Loans - Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, residential mortgage, and other consumer. The fair value of loans is calculated by discounting scheduled cash flows using discount rates reflecting the credit and interest rate risk inherent in the loan. The methodology in determining fair value of nonaccrual loans is to average them into the blended interest rate at 0% interest. This has the effect of decreasing the carrying amount below the risk-free rate amount and, therefore, discounts the estimated fair value. Impaired loans are measured at the estimated fair value of the expected future cash flows at the loan’s effective interest rate or the fair value of the collateral for loans which are collateral dependent. Therefore, the carrying values of impaired loans approximate the estimated fair values for these assets. Deposits - The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and savings, is equal to the amount payable on demand at the reporting date. The fair value of time deposits is based on the discounted value of contractual cash flows applying interest rates currently being offered on similar time deposits. Borrowings - Rates currently available for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. The fair value of borrowed funds due on demand is the amount payable at the reporting date. Accrued interest - The carrying amount of accrued interest approximates fair value. Off-balance-sheet instruments - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present creditworthiness of the counterparties. Since the differences in the current fees and those reflected to the off-balance-sheet instruments at year-end are immaterial, no amounts for fair value are presented. The following table presents information for financial instruments at December 31 (dollars in thousands): December 31, 2017 December 31, 2016 Level in Fair Carrying Estimated Carrying Estimated Value Hierarchy Amount Fair Value Amount Fair Value Financial assets: Cash and cash equivalents Level 1 $ 37,426 37,426 $ 46,755 $ 46,755 Interest-bearing deposits Level 2 13,374 13,374 14,047 14,047 Securities available for sale Level 2 74,397 74,397 84,623 84,623 Securities available for sale Level 3 1,500 1,500 1,650 1,650 Federal Home Loan Bank stock Level 2 3,112 3,112 2,911 2,911 Net loans Level 3 805,999 797,726 776,837 778,377 Accrued interest receivable Level 3 2,276 2,276 2,016 2,016 Total financial assets $ 938,084 $ 929,811 $ 928,839 $ 930,379 Financial liabilities: Deposits Level 2 $ 817,998 788,632 $ 823,512 $ 815,960 Borrowings Level 2 79,552 79,242 67,579 68,293 Accrued interest payable Level 3 322 322 267 267 Total financial liabilities $ 897,872 $ 868,196 $ 891,358 $ 884,520 Limitations - Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, other assets, and other liabilities. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following is information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and the valuation techniques used by the Corporation to determine those fair values. Level 1: In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access. Level 2: Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3: Level 3 inputs are unobservable inputs, including inputs available in situations where there is little, if any, market activity for the related asset or liability. The fair value of all investment securities at December 31, 2017 and 2016 were based on level 2 and level 3 inputs. There are no other assets or liabilities measured on a recurring basis at fair value. For additional information regarding investment securities, please refer to “Note 3 — Investment Securities.” The table below shows investment securities measured at fair value on a recurring basis (dollars in thousands): Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2017 (Level 1) (Level 2) (Level 3) December 31, 2017 Assets Corporate $ $ — $ 24,391 $ — $ — Equity — — — US Agencies — 16,846 — — US Agencies - MBS — 12,716 — — Obligations of state and political subdivisions 21,444 — 20,444 1,000 — $ 75,897 $ — Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Corporate $ $ — $ 19,910 $ — $ — Equity — — — US Agencies — 23,952 — — US Agencies - MBS — 15,683 — Obligations of state and political subdivisions — 25,078 — — $ 86,273 $ — The Corporation had no other Level 3 assets or liabilities on a recurring basis as of December 31, 2017. In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Corporation’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. The Corporation also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include loans and other real estate held for sale. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections. The table below shows the activity in level three assets for the years ended, December 31, 2017 and 2016 (dollars in thousands): Balance at Transfers Balance Beginning Net Gains (losses) in (out) of at end of Period Realized Unrealized Level 3 Purchases Sales of Period Year Ended December 31, 2017 Equity $ 500 $ — $ — $ — $ — $ — $ 500 US Agencies- MBS 1,150 38 — — — (1,188) — Obligations of state and political subdivisions — — — 740 260 — 1,000 Balance at Transfers Balance Beginning Net Gains (losses) in (out) of at end of Period Realized Unrealized Level 3 Purchases Sales of Period Year Ended December 31, 2016 Equity $ — $ — $ — $ — $ 500 $ — $ 500 US Agencies- MBS — — — — 1,150 — 1,150 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2017 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2017 (Level 1) (Level 2) (Level 3) December 31, 2017 Assets Impaired loans $ $ — $ — $ $ 141 Other real estate held for sale — — 388 $ 529 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2016 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Year Ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Impaired loans $ 9,856 $ — $ — $ 9,856 $ 643 Other real estate held for sale 4,782 — — 4,782 202 $ 845 The Corporation had no investments subject to fair value measurement on a nonrecurring basis. Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Corporation estimates the fair value of the loans based on the present value of expected future cash flows or collateral values using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). |
BUSINESS COMBINATIONS
BUSINESS COMBINATIONS | 12 Months Ended |
Dec. 31, 2017 | |
BUSINESS COMBINATIONS | |
BUSINESS COMBINATIONS | NOTE 21 — BUSINESS COMBINATIONS The First National Bank of Eagle River The Corporation completed its acquisition of Eagle River on April 29, 2016. Eagle River had three branch offices and approximately $125 million in assets of April 29, 2016. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. The merger was effected with a cash payment of $12.500 million. The table below highlights the allocation of the purchase price: Purchase Price: Eagle River shares outstanding 85,776 Price per share/Cash price $ 145.73 Total purchase price $ 12,500 Reimbursement of termination fees (1,763) Cash consideration $ 10,737 Net assets acquired: Cash and cash equivalents $ 10,600 Securities available for sale, net of purchase accounting marks 23,296 FRB & FHLB Stock 575 Total Loans, net of purchase accounting marks 80,875 Premises and equipment 1,931 Other real estate owned, net of purchase accounting marks 904 Deposit based intangible 993 Mortgage servicing rights 120 Deferred tax asset 948 Bank owned life insurance 4,132 Other assets 323 Total assets 124,697 Non-interest bearing deposits 22,349 Interest bearing deposits 82,165 Total deposits 104,514 FHLB Borrowings 11,000 Other liabilities 285 Total liabilities 115,799 Net assets acquired 8,898 Goodwill $ 1,839 The results of operations for the twelve months ended December 31, 2016, include the operating results of the acquired assets and assumed liabilities for the 245 days subsequent to the acquisition date. Eagle River’s results of operations prior to the acquisition date are not included in the Corporation’s consolidated statement of comprehensive income. In addition to the data processing termination fees of $1.763 million, the Corporation incurred other Eagle River transaction related expenses of $.954 million, for a total of $2.717 million, or $1.793 million on an after tax basis during 2016. These expenses included professional services such as legal, accounting, employee severance payments and contractual arrangements for consulting services. Niagara Bancorporation The Corporation completed its acquisition of Niagara on August 31, 2016. Niagara had four branch offices and approximately $67 million in assets as of August 31, 2016. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. The merger was effected with a cash payment of $7.325 million. The table below highlights the allocation of the purchase price (dollars in thousands, except per share data): Purchase Price: Niagara shares outstanding 4,354 Price per share/Cash price $ 1,682.36 Total purchase price $ 7,325 Net assets acquired: Cash and cash equivalents $ 9,778 Securities available for sale 21,491 FRB & FHLB Stock 287 Total Loans, net of purchase accounting marks 31,707 Premises and equipment 926 Other real estate owned, net of purchase accounting marks 301 Deposit based intangible 300 Mortgage servicing rights 87 Deferred tax assets 397 Bank owned life insurance 1,109 Other assets 302 Total assets 66,685 Non-interest bearing deposits 5,396 Interest bearing deposits 53,788 Total deposits 59,184 Other liabilities 226 Total liabilities 59,410 Net assets acquired 7,275 Goodwill $ 50 The results of operations for the twelve months ended December 31, 2016, include the operating results of the acquired assets and assumed liabilities for the 122 days subsequent to the acquisition date. Niagara’s results of operations prior to the acquisition date are not included in the Corporation’s consolidated statement of comprehensive income. The Corporation incurred Niagara transaction related expenses of $.384 million, or $.253 million on an after tax basis during 2016. These expenses included professional services such as legal, accounting, employee severance payments and contractual arrangements for consulting services. The following table provides the unaudited pro forma information for the results of operations for the twelve months ended December 31, 2016 and 2015, as if both the Eagle River acquisition and Niagara acquisition had occurred on January 1. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily on the loan and deposit portfolios of Eagle River and Niagara. In addition, the merger-related costs noted above are excluded from the 2016 results of operations, for comparative purposes. Further operating cost savings are expected along with additional business synergies as a result of the merger which are not presented in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the combined banking organization that would have been achieved had the merger occurred at the beginning of the period presented, nor are they intended to represent or be indicative of future results of the Corporation. 2016 2015 Net interest income $ 36,902 $ 32,924 Noninterest income 5,129 4,865 Noninterest expense 30,857 26,851 Net income 7,375 7,219 Net income per diluted share $ 1.18 $ 1.15 Fair Value In most instances, determining the fair value of the acquired assets and assumed liabilities required the Corporation to estimate the cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations is related to the valuation of acquired loans. For such loans, the excess cash flows expected at merger over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at merger and the cash flows expected to be collected at merger reflects the impact of estimated credit losses, interest rate changes, and other factors, such as prepayments. In accordance with the applicable accounting guidance for business combinations, there was no carry-over of the acquired banks’ previously established allowance for loan losses. Goodwill recognized in these acquisitions was based primarily due to the synergies and economies of scale expected from combining the operations of the Corporation with Eagle River and Niagara. |
SUBSEQUENT EVENT
SUBSEQUENT EVENT | 12 Months Ended |
Dec. 31, 2017 | |
SUBSEQUENT EVENT. | |
SUBSEQUENT EVENT | NOTE 22 — SUBSEQUENT EVENT On January 16, 2018, the Corporation announced the signing of a definitive agreement to acquire First Federal of Northern Michigan Bancorp, Inc in Alpena, Michigan (“FFNM”). FFNM is headquartered in Alpena, Michigan and has assets in excess of $320 million. The consummation of this transaction is expected to occur in the second quarter of 2018. Completion of the acquisition is subject to regulatory approval in addition to satisfaction of other customary closing conditions. |
PARENT COMPANY ONLY FINANCIAL S
PARENT COMPANY ONLY FINANCIAL STATEMENTS | 12 Months Ended |
Dec. 31, 2017 | |
PARENT COMPANY ONLY FINANCIAL STATEMENTS | |
PARENT COMPANY ONLY FINANCIAL STATEMENTS | NOTE 23 — PARENT COMPANY ONLY FINANCIAL STATEMENTS BALANCE SHEETS December 31, 2017 and 2016 (Dollars in Thousands) 2017 2016 ASSETS Cash and cash equivalents $ 198 $ 106 Investment in subsidiaries 97,984 97,407 Other assets 3,263 4,014 TOTAL ASSETS $ 101,445 $ 101,527 LIABILITIES AND SHAREHOLDERS’ EQUITY Line of Credit $ — $ 750 Other borrowing 18,999 21,199 Other liabilities 1,046 969 Total liabilities 20,045 22,918 Shareholders’ equity: Common stock and additional paid in capital - no par value Authorized 18,000,000 shares Issued and outstanding - 6,294,930 and 6,263,371 shares respectively 61,981 61,583 Retained earnings 19,711 17,206 Accumulated other comprehensive income (292) (180) Total shareholders’ equity 81,400 78,609 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 101,445 $ 101,527 STATEMENTS OF OPERATIONS Years Ended December 31, 2017, 2016, and 2015 (Dollars in Thousands) 2017 2016 2015 INCOME: Interest income $ — $ 2 $ — Total income $ — $ 2 $ — EXPENSES: Interest expense on borrowings 868 707 453 Salaries and benefits 698 900 876 Professional service fees 279 173 256 Transaction related expenses 50 443 — Other 294 152 184 Total expenses 2,189 2,375 1,769 Loss before income taxes and equity in net income of subsidiaries (2,189) (2,373) (1,769) Provision for (benefit of) income taxes (27) (807) Loss before equity in net income of subsidiaries (2,162) (1,566) (1,167) Equity in net income of subsidiaries 7,641 6,049 6,763 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 5,479 $ 4,483 $ 5,596 STATEMENTS OF CASH FLOWS Years Ended December 31, 2017, 2016, and 2015 (Dollars in Thousands) 2017 2016 2015 Cash Flows from Operating Activities: Net income $ 5,479 $ 4,483 $ 5,596 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net (income) of subsidiaries (7,641) (6,049) (6,763) Increase in capital from stock based compensation 398 600 576 Change in other assets 751 (1,033) 2,903 Change in other liabilities 77 (132) (4,907) Net cash provided by (used in) operating activities (936) (2,131) (2,595) Cash Flows from Investing Activities: Investments in subsidiaries 7,000 11,825 5,839 Net cash paid in acquisitions — (19,825) — Net cash provided by (used in) investing activities 7,000 (8,000) 5,839 Cash Flows from Financing Activities: Increase on term borrowing — 19,799 — Principal payments on term borrowings (2,200) (100) (100) Net activity on line of credit (750) (7,800) (550) Repurchase of common stock — (150) (1,122) Dividend on common stock (3,022) (2,498) (2,179) Net cash provided by (used in) financing activities (5,972) 9,251 Net increase (decrease) in cash and cash equivalents 92 (880) (707) Cash and cash equivalents at beginning of period 106 986 1,693 Cash and cash equivalents at end of period $ 198 $ 106 $ 986 |
SUMMARY OF SIGNIFICANT ACCOUN31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | The accounting policies of Mackinac Financial Corporation (the “Corporation”) and Subsidiaries conform to accounting principles generally accepted in the United States and prevailing practices within the banking industry. Significant accounting policies are summarized below. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, mBank (the “Bank”) and other minor subsidiaries, after elimination of intercompany transactions and accounts. |
Nature of Operations | Nature of Operations The Corporation’s and the Bank’s revenues and assets are derived primarily from banking activities. The Bank’s primary market area is the Upper Peninsula, the northern portion of the Lower Peninsula of Michigan, Northeastern Wisconsin and Oakland County in Lower Michigan. The Bank provides to its customers commercial, real estate, agricultural, and consumer loans, as well as a variety of traditional deposit products. Less than 1.0% of the Corporation’s business activity is with Canadian customers and denominated in Canadian dollars. While the Corporation’s chief decision makers monitor the revenue streams of the various Corporation products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the Corporation’s banking operations are considered by management to be aggregated in one reportable operating segment. |
Use of Estimates in Preparation of Financial Statements | Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed real estate, deferred tax assets, mortgage servicing rights, and the assessment of goodwill for impairment. |
Cash and Cash Equivalents | Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing deposits in correspondent banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. |
Securities | Securities The Corporation’s securities are classified and accounted for as securities available for sale. These securities are stated at fair value. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. Unrealized holding gains and losses on securities available for sale are reported as accumulated other comprehensive income within shareholders’ equity until realized. When it is determined that securities or other investments are impaired and the impairment is other than temporary, an impairment loss is recognized in earnings and a new basis in the affected security is established. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific-identification method. |
Federal Home Loan Bank Stock | Federal Home Loan Bank Stock As a member of the Federal Home Loan Bank (FHLB) system, the Bank is required to hold stock in the FHLB based on the anticipated level of borrowings to be advanced. This stock is recorded at cost, which approximates fair value. Transfer of the stock is substantially restricted. |
Interest Income and Fees on Loans | Interest Income and Fees on Loans Interest income on loans is reported on the level-yield method and includes amortization of deferred loan fees and costs over the loan term. Net loan commitment fees or costs for commitment periods greater than one year are deferred and amortized into fee income or other expense on a straight-line basis over the commitment period. The accrual of interest on loans is discontinued when, in the opinion of management, it is probable that the borrower may be unable to meet payments as they become due as well as when required by regulatory provisions. Upon such discontinuance, all unpaid accrued interest is reversed. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Interest income on impaired and nonaccrual loans is recorded on a cash basis. |
Acquired Loans | Acquired Loans Loans acquired with evidence of credit deterioration since inception and for which it is probable that all contractual payments will not be received are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). These loans are recorded at fair value at the time of acquisition, with no carryover of the related allowance for loan losses. Fair value of acquired loans is determined based on the present value of amounts expected to be received, which incorporates assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, collateral values, and current market rates. In recording the fair values of acquired impaired loans at acquisition date, management calculates a non-accretable difference (the credit component of the purchased loans) and an accretable difference (the yield component of the purchased loans). Over the life of the acquired loans, management continues to estimate cash flows expected to be collected. We evaluate at each balance sheet date whether it is probable that we will be unable to collect all cash flows expected at acquisition and if so, recognize a provision for loan loss in our consolidated statement of operations. For any significant increases in cash flows expected to be collected, we adjust the amount of the accretable yield recognized on a prospective basis over the pool’s remaining life. Performing acquired loans are accounted for under ASC Topic 310-20, Receivables – Nonrefundable Fees and Other Costs. Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, portions of the accretable difference may be delayed or suspended if management deems appropriate. The Corporation’s policy for determining when to discontinue accruing interest on performing acquired loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans. |
Servicing Rights | Servicing Rights Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based on the fair value of the rights compared to amortized cost. Impairment is determined by using prices for similar assets with similar characteristics, such as interest rates and terms. Fair value is determined by using prices for similar assets with similar characteristics, when available, or based on discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum. |
Allowance for Loan Losses | Allowance for Loan Losses The allowance for loan losses includes specific allowances related to loans which have been judged to be impaired. A loan is impaired when, based on current information, it is probable that the Corporation will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loan’s initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. The Corporation also has an unallocated allowance for loan losses for loans not considered impaired. The allowance for loan losses is maintained at a level which management believes is adequate to provide for probable loan losses. Management periodically evaluates the adequacy of the allowance using the Corporation’s past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other factors. The allowance does not include the effects of expected losses related to future events or future changes in economic conditions. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require additions to the allowance for loan losses based on their judgments of collectability. In management’s opinion, the allowance for loan losses is adequate to cover probable losses relating to specifically identified loans, as well as probable losses inherent in the balance of the loan portfolio as of the balance sheet date. |
Troubled Debt Restructuring | Troubled Debt Restructuring Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loans should be reported as a Troubled Debt Restructure (TDR). A loan is a TDR when the Corporation, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower by modifying or renewing a loan that the Corporation would not otherwise consider. To make this determination, the Corporation must determine whether (a) the borrower is experiencing financial difficulties and (b) the Corporation granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties. |
Other Real Estate Held for Sale | Other Real Estate Held for Sale Other real estate held for sale consists of assets acquired through, or in lieu of, foreclosure and other long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. Other real estate held for sale is initially recorded at fair value, less costs to sell, establishing a new cost basis. Valuations are periodically performed by management or a third party, and the assets’ carrying values are adjusted to the lower of cost basis or fair value less costs to sell. Impairment losses are recognized for any initial or subsequent write-downs. Net revenue and expenses from operations of other real estate held for sale are included in other expense. |
Premises and Equipment | Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of premises and equipment are reflected in income. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. |
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets The excess of the cost of acquired entities over the fair value of identifiable assets acquired less liabilities assumed is recorded as goodwill. In accordance with ASC 350, amortization of goodwill and indefinite-lived assets is not recorded. However, the recoverability of goodwill is annually tested for impairment. The Corporation’s core deposit intangible is currently being amortized over its estimated useful life of ten years. |
Stock Compensation Plans | Stock Compensation Plans On May 22, 2012, the Corporation’s shareholders approved the Mackinac Financial Corporation 2012 Incentive Compensation Plan, under which current and prospective employees, non-employee directors and consultants may be awarded incentive stock options, non-statutory stock options, shares of restricted stock awards (“RSAs”), or stock appreciation rights. The aggregate number of shares of the Corporation’s common stock issuable under the plan is 575,000. Awards are made to certain other senior officers at the discretion of the Corporation's management. Compensation cost equal to the fair value of the award is recognized over the vesting period. |
Comprehensive Income (Loss) | Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) is composed of unrealized gains and losses on securities available for sale, and unrecognized actuarial gains and losses in the defined benefit pension plan, arising during the period. These gains and losses for the period are shown as a component of other comprehensive income. The accumulated gains and losses are reported as a component of equity, net of any tax effect. At December 31, 2017, the balance in accumulated other comprehensive income consisted of unrealized losses on available for sales securities of $71,000 and actuarial losses on the defined benefit pension obligation of $.185 million. At December 31, 2016, the balance in accumulated other comprehensive income consisted of unrealized losses on available for sale securities of $.102 million and actuarial losses on the defined benefit pension obligation of $78,000. The Corporation early adopted ASU No. 2018-02, “Income Statement- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (ASU 2018-02) in the fourth quarter 2017. ASU 2018-02, issued in February 2018, provides for the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income (AOCI) to retained earnings resulting from the Tax Cuts and Jobs Act of 2017. As a result, the Corporation reclassified $12,000 from AOCI to retained earnings. |
Earnings per Common Share | Earnings per Common Share Diluted earnings per share, which reflects the potential dilution that could occur if outstanding stock options and warrants were exercised and stock awards were fully vested and resulted in the issuance of common stock that then shared in our earnings, is computed by dividing net income by the weighted average number of common shares outstanding and common stock equivalents, after giving effect for dilutive shares issued. The following shows the computation of basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands, except per share data): Year Ended December 31, 2017 2016 2015 (Numerator): Net income $ 5,479 $ 4,483 $ 5,596 (Denominator): Weighted average shares outstanding 6,288,791 6,236,067 6,241,921 Effect of dilutive stock options, and vesting of restricted stock awards 33,622 32,636 31,400 Diluted weighted average shares outstanding 6,322,413 6,268,703 6,273,321 Income per common share: Basic $ .87 $ .72 $ .90 Diluted $ .87 $ .72 $ .89 |
Income Taxes | Income Taxes Deferred income taxes have been provided under the liability method. Deferred tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences are expected to reverse. Deferred tax expense (benefit) is the result of changes in the deferred tax asset and liability. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred asset will not be realized. |
Off-Balance-Sheet Financial Instruments | Off-Balance-Sheet Financial Instruments In the ordinary course of business, the Corporation has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. For letters of credit, the Corporation recognizes a liability for the fair market value of the obligations it assumes under that guarantee. |
Recent Developments | Recent Developments In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on the recognition of revenue from contracts with customers. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The guidance is effective January 1, 2018. The key revenue streams impacted include service charges and mortgage banking income. The Corporation will adopt the guidance using a modified retrospective approach in the first quarter of 2018. The revenue streams with in the scope of the guidance are less than 5% of total revenues, and the total amount of these fees reflected in the net income of the Corporation is not expected to significantly change. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 amends current guidance by requiring companies to recognize changes in fair value for equity investments that have a readily determinable fair value through net income rather than through other comprehensive income. Under ASU 2016-01, equity investments that do not have a readily determinable fair value will either be accounted for the same as equity investments that have a readily determinable fair value, with changes in fair value recognized through net income or carried at cost, adjusted for changes in observable prices based on orderly transactions for identical or similar investments issued by the same issuer and further adjusted for impairment, if applicable. ASU 2016-01 also requires a qualitative assessment of impairment indicators each reporting period. If this assessment indicates that impairment exists, companies must adjust the investment to fair value and recognize an impairment loss in net income, even if the impairment is determined to be temporary. ASU 2016-01 is effective for public companies for interim and annual periods beginning after December 15, 2017. As of December 31, 2017 the Corporation had $.500 million of available for sale equity securities. The Corporation recorded no impact upon adoption of ASU 2016-01 in January 2018. Any further changes to the fair value of equity securities will be recorded in net income. In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the current lease requirements in ASC 840. The ASU requires lessees to recognize an asset with right of use and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Corporation’s year ending December 31, 2019 and will be applied using modified retrospective transition method to the beginning of the earliest period presented. The Corporation currently has no capital leases, but does maintain seven operating leases for branch locations that will be impacted by the implementation of this guidance. The effect of applying the new lease guidance on the financial statements has not yet been determined. In September, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 requires an entity to measure expected credit losses for financial assets over the estimated lifetime of expected credit loss and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The standard includes the following core concepts in determining the expected credit loss. The estimate must: (a) be based on an asset’s amortized cost (including premiums or discounts, net deferred fees and costs, foreign exchange and fair value hedge accounting adjustments), (b) reflect losses expected over the remaining contractual life of an asset (considering the effect of voluntary prepayments), (c) consider available relevant information about the estimated collectability of cash flows (including information about past events, current conditions, and reasonable and supportable forecasts), and (d) reflect the risk of loss, even when that risk is remote. ASU 2016-13 also amends the recording of purchased credit-deteriorated assets. Under the new guidance, an allowance will be recognized at acquisition through a gross-up approach whereby an entity will record as the initial amortized cost the sum of (a) the purchase price and (b) an estimate of credit losses as of the date of acquisition. In addition, the guidance also requires immediate recognition in earnings of any subsequent changes, both favorable and unfavorable, in expected cash flows by adjusting this allowance. ASU 2016-13 also amends the impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Management may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists, as is currently permitted. In addition, an entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. As a result, entities will recognize improvements to credit losses on available-for-sale debt securities immediately in earnings rather than as interest income over time under current practice. New disclosures required by ASU 2016-13 include: (a) for financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes, (b) for financial receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year or the asset’s origination or vintage for as many as five annual periods, and (c) for available-for-sale debt securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due. Upon adoption of ASU 2016-13, a cumulative-effect adjustment to retained earnings will be recorded as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Corporation is currently evaluating the provisions of ASU 2016-13 to determine the potential impact on the Corporation's consolidated financial condition and results of operations. In May 2017, the FASB issued ADU 2017-09, Compensation – Stock Compensation (Topic 718). ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification to the terms and conditions of a share-based payment award. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Corporation has determined the new guidance will not have a material impact on its consolidated financial statements. |
Reclassifications | Reclassifications Certain amounts in the 2016 consolidated financial statements have been reclassified to conform to the 2017 presentation. |
SUMMARY OF SIGNIFICANT ACCOUN32
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule showing the computation of basic and diluted earnings per share | The following shows the computation of basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands, except per share data): Year Ended December 31, 2017 2016 2015 (Numerator): Net income $ 5,479 $ 4,483 $ 5,596 (Denominator): Weighted average shares outstanding 6,288,791 6,236,067 6,241,921 Effect of dilutive stock options, and vesting of restricted stock awards 33,622 32,636 31,400 Diluted weighted average shares outstanding 6,322,413 6,268,703 6,273,321 Income per common share: Basic $ .87 $ .72 $ .90 Diluted $ .87 $ .72 $ .89 |
SECURITIES AVAILABLE FOR SALE (
SECURITIES AVAILABLE FOR SALE (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
SECURITIES AVAILABLE FOR SALE | |
Schedule of carrying value and estimated fair value of securities available for sale | The carrying value and estimated fair value of securities available for sale are as follows (dollars in thousands): Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value December 31, 2017 Corporate $ 24,352 $ 82 $ (43) $ 24,391 Equity 500 — — 500 US Agencies 16,935 10 (99) 16,846 US Agencies - MBS 12,830 42 (156) 12,716 Obligations of states and political subdivisions 21,370 307 (233) 21,444 Total securities available for sale $ 75,987 $ 441 $ (531) $ 75,897 December 31, 2016 Corporate $ 19,899 $ 49 $ (38) $ 19,910 Equity 500 — — 500 US Agencies 23,991 47 (86) 23,952 US Agencies - MBS 16,980 48 (195) 16,833 Obligations of states and political subdivisions 25,057 447 (426) 25,078 Total securities available for sale $ 86,427 $ 591 $ (745) $ 86,273 |
Schedule of securities with gross unrealized losses aggregated by investment category and length of time these individual securities have been in a loss position | Following is information pertaining to securities with gross unrealized losses at December 31, 2017 and 2016 aggregated by investment category and length of time these individual securities have been in a loss position (dollars in thousands): Less Than Twelve Months Over Twelve Months Gross Gross Unrealized Fair Unrealized Fair Losses Value Losses Value December 31, 2017 Corporate $ (43) $ 14,204 $ — $ — Equity — — — — US Agencies (87) 14,799 (12) 745 US Agencies - MBS (67) 4,400 (89) 5,218 Obligations of states and political subdivisions (99) 10,245 (134) 1,589 Total securities available for sale $ (296) $ 43,648 $ (235) $ 7,552 December 31, 2016 Corporate (38) 12,085 — — Equity — — — — US Agencies — — US Agencies - MBS (3) 932 Obligations of states and political subdivisions — — Total securities available for sale $ (742) $ 56,155 $ (3) $ 932 |
Summary of the proceeds from sales and calls of securities available for sale, as well as gross gains and losses | Following is a summary of the proceeds from sales and calls of securities available for sale, as well as gross gains and losses for the years ended December 31 (dollars in thousands): 2017 2016 2015 Proceeds from sales and calls $ 11,651 $ 19,719 $ 25,628 Gross gains on sales and calls 253 190 455 Gross (losses) on sales and calls (22) (40) — |
Schedule of carrying value and estimated fair value of securities available for sale by contractual maturity | The carrying value and estimated fair value of securities available for sale at December 31, 2017, by contractual maturity, are shown below (dollars in thousands): Amortized Estimated Cost Fair Value Due in one year or less $ 8,908 $ 9,262 Due after one year through five years 37,544 40,665 Due after five years through ten years 13,780 10,984 Due after ten years 2,925 2,270 Subtotal 63,157 63,181 US Agencies - MBS 12,830 12,716 Total $ 75,987 $ 75,897 |
LOANS (Tables)
LOANS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Schedule of composition of loans | The composition of loans at December 31 is as follows (dollars in thousands): 2017 2016 Commercial real estate $ 406,742 $ Commercial, financial, and agricultural 156,951 Commercial construction 9,243 One to four family residential real estate 209,890 Consumer 17,434 Consumer construction Total loans $ 811,078 $ 781,857 |
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, 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 Acquisitions — — — — — — — — — 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 The table below presents a rollforward of the accretable yield on acquired loans for year ended December 31, 2016 (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, 2015 $ 426 $ 1,342 $ 1,768 $ — $ — $ — $ — $ — $ — Acquisition — — — 391 1,700 2,091 88 600 688 Accretion (50) (700) (750) (46) (479) (525) — (95) (95) Reclassification from nonaccretable difference (94) — (94) (109) — (109) (36) — (36) Balance, December 31, 2016 $ 282 $ 642 $ 924 $ 236 $ 1,221 $ 1,457 $ 52 $ 505 $ 557 |
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, 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 Impaired loans, by definition, are individually evaluated. A breakdown of the allowance for loan losses and recorded balances in loans at December 31, 2016 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 $ 1,611 $ 645 $ 79 $ 274 $ 7 $ 64 $ 2,324 $ 5,004 Charge-offs (245) (232) — (133) — (113) — (723) Recoveries 54 41 7 5 — 32 — 139 Provision (75) 160 (29) 150 (1) 107 288 600 Ending balance ALLR $ 1,345 $ 614 $ 57 $ 296 $ 6 $ 90 $ 2,612 $ 5,020 Loans: Ending balance $ 389,420 $ 142,648 $ 11,505 $ 205,945 $ 12,226 $ 20,113 $ — $ 781,857 Ending balance ALLR (1,345) (614) (57) (296) (6) (90) (2,612) (5,020) Net loans $ 388,075 $ 142,034 $ 11,448 $ 205,649 $ 12,220 $ 20,023 $ (2,612) $ 776,837 Ending balance ALLR: Individually evaluated $ 70 $ 251 $ — $ — $ — $ — $ — $ 321 Collectively evaluated 1,275 363 57 296 6 90 2,612 4,699 Total $ 1,345 $ 614 $ 57 $ 296 $ 6 $ 90 $ 2,612 $ 5,020 Ending balance Loans: Individually evaluated $ 345 $ 325 $ — $ — $ — $ — $ — $ 670 Collectively evaluated 385,841 142,323 11,505 203,153 12,169 20,109 — 775,100 Acquired with deteriorated credit quality 3,234 — — 2,792 57 4 — 6,087 Total $ 389,420 $ 142,648 $ 11,505 $ 205,945 $ 12,226 $ 20,113 $ — $ 781,857 |
Schedule of breakdown of loans by risk category | 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 Below is a breakdown of loans by risk category as of December 31, 2016 (dollars in thousands) (1) (2) (3) (4) (44) (6) (7) Rating Strong Good Average Acceptable Acceptable Watch Substandard Doubtful Unassigned Total Commercial real estate $ 3,021 $ 23,940 $ 140,618 $ 205,710 $ 10,808 $ 5,323 $ — $ — $ 389,420 Commercial, financial and agricultural 10,421 13,434 49,434 65,097 2,485 1,777 — — 142,648 Commercial construction — 900 3,146 1,877 783 385 — 4,414 11,505 One-to-four family residential real estate 740 1,373 3,412 6,927 2,658 5,493 — 185,342 205,945 Consumer construction 28 — — — — 17 — 12,181 12,226 Consumer 20 — 15 42 13 103 — 19,920 20,113 Total loans $ 14,230 $ 39,647 $ 196,625 $ 279,653 $ 16,747 $ 13,098 $ — $ 221,857 $ 781,857 |
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, 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 $ $ $ $ $ December 31, 2016 Commercial real estate $ 3,234 $ 345 $ 3,579 $ 4,700 $ 70 Commercial, financial and agricultural — 325 325 400 251 Commercial construction — — — — — One to four family residential real estate 2,792 — 2,792 3,794 — Consumer construction 57 — 57 80 — Consumer 4 — 4 28 — Total $ 6,087 $ 670 $ 6,757 $ 9,002 $ 321 Individually Evaluated Impaired Loans 2017 2016 2015 Average Interest Income Average Interest Income Average Interest Income Balance for Recognized for Balance for Recognized for Balance for Recognized for the Period the Period the Period the Period the Period the Period Commercial real estate $ 2,784 $ 141 $ 3,848 $ 178 $ 2,656 $ 232 Commercial, financial and agricultural 246 1 200 4 628 9 Commercial construction — 3 — — — — One to four family residential real estate 2,057 134 3,794 182 2,120 129 Consumer construction 37 — 40 4 — — Consumer 13 2 14 2 — — Total $ 5,137 $ 281 $ 7,896 $ 370 $ 5,404 $ 370 |
Summary of past due loans | A summary of past due loans at December 31, is as follows (dollars in thousands): 2017 2016 30-89 days 30-89 days Past Due 90+ days Past Due 90+ days (accruing) Past Due Nonaccrual Total (accruing) Past Due Nonaccrual Total Commercial real estate $ 460 $ — $ 866 $ 1,326 $ 942 $ — $ 1,732 $ 2,674 Commercial, financial and agricultural 16 — 338 354 186 — 337 523 Commercial construction 73 — 14 87 — — — — One to four family residential real estate 3,424 — 1,350 4,774 2,113 — 1,956 4,069 Consumer construction — — — — — — 17 17 Consumer 72 — — 72 133 — 82 215 Total past due loans $ 4,045 $ — $ 2,568 $ 6,613 $ 3,374 $ — $ 4,124 $ 7,498 |
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): 2017 2016 Loans outstanding, January 1 $ 9,195 $ New loans 2,018 Net activity on revolving lines of credit 237 Repayment (1,413) Loans outstanding at end of period $ $ |
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 |
PREMISES AND EQUIPMENT (Tables)
PREMISES AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
PREMISES AND EQUIPMENT | |
Schedule of details of premises and equipment | Details of premises and equipment at December 31 are as follows (dollars in thousands): 2017 2016 Land $ 2,998 $ 2,566 Buildings and improvements 18,473 18,001 Furniture, fixtures, and equipment 11,178 9,142 Construction in progress — 310 Total cost basis 32,649 30,019 Less - accumulated depreciation 16,359 14,128 Net book value $ 16,290 $ 15,891 |
OTHER REAL ESTATE HELD FOR SA36
OTHER REAL ESTATE HELD FOR SALE (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
OTHER REAL ESTATE HELD FOR SALE | |
Schedule of analysis of other real estate held for sale | An analysis of other real estate held for sale for the years ended December 31 is as follows (dollars in thousands): 2017 2016 Balance, January 1 $ 4,782 $ 2,324 Other real estate transferred from loans due to foreclosure 2,147 3,292 Other real estate acquired — 1,205 Proceeds from other real estate sold (2,983) (1,640) Transfer to premise and equipment — (197) Writedowns of other real estate held for sale (307) (212) Gain (loss) on sale of other real estate held for sale (81) 10 Total other real estate held for sale $ 3,558 $ 4,782 |
DEPOSITS (Tables)
DEPOSITS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
DEPOSITS | |
Schedule of distribution of deposits | The distribution of deposits at December 31 is as follows (dollars in thousands): 2017 2016 Noninterest bearing deposits $ 148,079 $ 164,179 NOW, money market, interest checking 280,309 286,622 Savings 61,097 58,315 CDs <$250,000 142,159 141,629 CDs >$250,000 11,055 8,489 Brokered 175,299 164,278 Total deposits $ 817,998 $ 823,512 |
Schedule of maturities of non-brokered time deposits outstanding | Maturities of non-brokered time deposits outstanding at December 31, 2017 are as follows (dollars in thousands): 2018 $ 90,456 2019 30,118 2020 18,296 2021 8,644 2022 3,901 Thereafter 1,799 Total $ 153,214 |
SERVICING RIGHTS (Tables)
SERVICING RIGHTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
SERVICING RIGHTS | |
Summary of mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances | There was no valuation allowance required (dollars in thousands): December 31, December 31, 2017 2016 Balance at beginning of period $ 1,573 $ 1,965 Acquired MSRs — 207 Amortization (540) (599) Balance at end of period $ 1,033 $ 1,573 Balance of loan servicing portfolio $ 198,524 $ 221,355 Mortgage servicing rights as % of portfolio .71% |
BORROWINGS (Tables)
BORROWINGS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
BORROWINGS | |
Schedule of borrowings | Borrowings consist of the following at December 31 (dollars in thousands): 2017 2016 Federal Home Loan Bank fixed rate advances $ 60,000 $ 45,000 Correspondent bank line of credit — 750 Correspondent bank term note 18,999 21,199 USDA Rural Development note 553 630 $ 79,552 $ 67,579 |
Schedule of maturities and principal payments of borrowings outstanding | Maturities and principal payments of borrowings outstanding at December 31, 2017 are as follows (dollars in thousands): 2018 $ 12,277 2019 31,876 2020 10,078 2021 25,079 2022 80 Thereafter 162 Total $ 79,552 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
INCOME TAXES | |
Schedule of components of the federal income tax provision (credit) | The components of the federal income tax provision (credit) for the years ended December 31 are as follows (dollars in thousands): 2017 2016 2015 Current tax expense $ 585 $ 485 $ — Change in valuation allowance — — (760) Adjustment of deferred taxes due to change in enacted tax rate 2,025 — — Deferred tax expense 2,929 1,798 3,093 Provision for income taxes $ 5,539 $ 2,283 $ 2,333 |
Summary of the source of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes | A summary of the source of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes for the years ended December 31 is as follows (dollars in thousands): 2017 2016 2015 Tax expense at statutory rate $ 3,746 $ $ 2,695 Increase (decrease) in taxes resulting from: Tax-exempt interest (133) (60) Change in valuation allowance — — (760) Adjustment of deferred taxes due to change in enacted tax rate 2,025 — — Expiration of deferred tax assets — — 429 Nondeductible transaction expenses 17 95 — Other (116) 29 Provision for income taxes, as reported $ 5,539 $ 2,283 $ 2,333 |
Schedule of major components of net deferred tax assets | The major components of net deferred tax assets at December 31 are as follows (dollars in thousands): 2017 2016 Deferred tax assets: NOL carryforward $ 1,580 $ 3,080 Allowance for loan losses 948 1,413 Alternative Minimum Tax Credit 1,463 1,944 OREO 119 142 Tax credit carryovers 235 235 Deferred compensation 242 443 Pension liability 240 387 Stock compensation 79 116 Unrealized loss on securities 19 52 Purchase accounting adjustments 785 1,791 Other 63 805 Total deferred tax assets 5,773 10,408 Deferred tax liabilities: Core deposit premium (404) (739) FHLB stock dividend (56) (91) Depreciation (79) (208) Mortgage servicing rights (240) (583) Other (24) (27) Total deferred tax liabilities (803) (1,648) Net deferred tax asset $ 4,970 $ 8,760 |
OPERATING LEASES (Tables)
OPERATING LEASES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
OPERATING LEASES | |
Schedule of future minimum payments for base rent, by year and in the aggregate, under the initial terms of the operating lease agreements | Future minimum payments for base rent, by year and in the aggregate, under the initial terms of the operating lease agreements, consist of the following (dollars in thousands): 2018 $ 772 2019 747 2020 608 2021 503 2022 499 Thereafter 3,124 Total $ 6,253 |
DEFINED BENEFIT PENSION PLAN (T
DEFINED BENEFIT PENSION PLAN (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
DEFINED BENEFIT PENSION PLAN | |
Schedule of anticipated distributions over the next five years | The anticipated distributions over the next five years and through December 31, 2017 are detailed in the table below (dollars in thousands): 2018 $ 133 2019 130 2020 126 2021 125 2022 131 2023-2027 796 Total $ 1,441 |
Schedule of funded status, amounts recognized in the balance sheets and activity from the date of acquisition | The following table sets forth the plan’s funded status and amounts recognized in the Corporation’s balance sheets and the activity from date of acquisition (dollars in thousands): 2017 2016 Change in benefit obligation: Benefit obligation, beginning of year $ 3,187 $ 3,180 Interest cost 118 187 Actuarial loss 161 (44) Benefits paid (135) (136) Benefit obligation at end of year 3,331 3,187 Change in plan assets: Fair value of plan assets, beginning of year 2,049 2,033 Actual return on plan assets 259 103 Employer contributions 18 49 Benefits paid (135) (136) Fair value of plan assets at end of year 2,191 2,049 Funded status, included with other liabilities $ (1,140) $ (1,138) |
Schedule of assumptions in the actuarial valuation | 2017 2016 Weighted average discount rate Rate of increase in future compensation levels N/A N/A Expected long-term rate of return on plan assets |
Schedule of asset allocation | The intention of the plan sponsor is to invest the plan assets in mutual funds with the following asset allocation, which was in place at both December 31, 2017 and December 31, 2016: Target Actual Allocation Allocation Equity securities 50% to 70% Fixed income securities 30% to 50% |
REGULATORY MATTERS (Tables)
REGULATORY MATTERS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
REGULATORY MATTERS | |
Schedule of the Corporation's and the Bank's actual and capital amounts and ratios compared to generally applicable regulatory requirements | The Corporation’s and the Bank’s actual capital and ratios compared to generally applicable regulatory requirements as of December 31, 2017 are as follows (dollars in thousands): Actual Adequacy Purposes Well-Capitalized Amount Ratio Amount Ratio Amount Ratio Total capital to risk weighted assets: Consolidated $ 74,533 > $ 64,190 > > $ 80,237 mBank $ 93,598 > $ 64,202 > > $ 80,252 Tier 1 capital to risk weighted assets: Consolidated $ 69,454 > $ 48,142 > > $ 64,190 mBank $ 88,560 > $ 48,151 > > $ 64,202 Common equity Tier 1 capital to risk weighted assets Consolidated $ 69,454 > $ 36,107 > > $ 52,154 mBank $ 88,560 > $ 36,113 > > $ 52,164 Tier 1 capital to average assets: Consolidated $ 69,454 > $ 39,375 > > $ 49,219 mBank $ 88,560 > $ 39,279 > > $ 49,098 The Corporation’s and the Bank’s actual capital and ratios compared to generally applicable regulatory requirements as of December 31, 2016 are as follows (dollars in thousands): Actual Adequacy Purposes Well-Capitalized Amount Ratio Amount Ratio Amount Ratio Total capital to risk weighted assets: Consolidated $ 73,811 > $ 62,503 > > $ 78,128 mBank $ 92,521 > $ 62,102 > > $ 77,627 Tier 1 capital to risk weighted assets: Consolidated $ 68,791 > $ 46,877 > > $ 62,503 mBank $ 87,542 > $ 46,576 > > $ 62,102 Common equity Tier 1 capital to risk weighted assets Consolidated $ 68,791 > $ 35,158 > > $ 50,783 mBank $ 87,542 > $ 34,932 > > $ 50,458 Tier 1 capital to average assets: Consolidated $ 68,791 > $ 37,939 > > $ 47,242 mBank $ 87,542 > $ 37,889 > > $ 47,361 |
STOCK COMPENSATION PLANS (Table
STOCK COMPENSATION PLANS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
STOCK COMPENSATION PLANS | |
Summary of restricted stock units awards granted | Market Value at Date of Award Units Granted grant date Vesting Term August, 2012 148,500 $ 7.91 4 years March, 2014 52,774 12.95 4 years March, 2015 37,730 11.15 4 years May, 2015 3,000 10.77 Immediate February, 2016 35,733 9.91 4 years February, 2017 28,427 13.39 4 years |
Summary of changes in nonvested shares | Weighted Average Number Grant Date Outstanding Fair Value Nonvested balance at January 1, 2017 90,417 $ 11.19 Granted during the period 28,427 13.39 Vested during the period (31,559) 11.55 Nonvested balance at December 31, 2017 87,285 $ 11.78 |
COMMITMENTS, CONTINGENCIES, AND
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
COMMITMENTS, CONTINGENCIES AND CREDIT RISK | |
Schedule of commitments | These commitments at December 31 are as follows (dollars in thousands): 2017 2016 Commitments to extend credit: Variable rate $ 72,187 $ 59,496 Fixed rate 37,468 28,737 Standby letters of credit - Variable rate 7,753 8,252 Credit card commitments - Fixed rate 5,788 5,533 $ 123,196 $ 102,018 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
FAIR VALUE MEASUREMENTS | |
Schedule presenting information for financial instruments | The following table presents information for financial instruments at December 31 (dollars in thousands): December 31, 2017 December 31, 2016 Level in Fair Carrying Estimated Carrying Estimated Value Hierarchy Amount Fair Value Amount Fair Value Financial assets: Cash and cash equivalents Level 1 $ 37,426 37,426 $ 46,755 $ 46,755 Interest-bearing deposits Level 2 13,374 13,374 14,047 14,047 Securities available for sale Level 2 74,397 74,397 84,623 84,623 Securities available for sale Level 3 1,500 1,500 1,650 1,650 Federal Home Loan Bank stock Level 2 3,112 3,112 2,911 2,911 Net loans Level 3 805,999 797,726 776,837 778,377 Accrued interest receivable Level 3 2,276 2,276 2,016 2,016 Total financial assets $ 938,084 $ 929,811 $ 928,839 $ 930,379 Financial liabilities: Deposits Level 2 $ 817,998 788,632 $ 823,512 $ 815,960 Borrowings Level 2 79,552 79,242 67,579 68,293 Accrued interest payable Level 3 322 322 267 267 Total financial liabilities $ 897,872 $ 868,196 $ 891,358 $ 884,520 |
Schedule of investment securities measured at fair value on a recurring basis | The table below shows investment securities measured at fair value on a recurring basis (dollars in thousands): Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2017 (Level 1) (Level 2) (Level 3) December 31, 2017 Assets Corporate $ $ — $ 24,391 $ — $ — Equity — — — US Agencies — 16,846 — — US Agencies - MBS — 12,716 — — Obligations of state and political subdivisions 21,444 — 20,444 1,000 — $ 75,897 $ — Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Corporate $ $ — $ 19,910 $ — $ — Equity — — — US Agencies — 23,952 — — US Agencies - MBS — 15,683 — Obligations of state and political subdivisions — 25,078 — — $ 86,273 $ — |
Schedule of activity in level three assets | Balance at Transfers Balance Beginning Net Gains (losses) in (out) of at end of Period Realized Unrealized Level 3 Purchases Sales of Period Year Ended December 31, 2017 Equity $ 500 $ — $ — $ — $ — $ — $ 500 US Agencies- MBS 1,150 38 — — — (1,188) — Obligations of state and political subdivisions — — — 740 260 — 1,000 Balance at Transfers Balance Beginning Net Gains (losses) in (out) of at end of Period Realized Unrealized Level 3 Purchases Sales of Period Year Ended December 31, 2016 Equity $ — $ — $ — $ — $ 500 $ — $ 500 US Agencies- MBS — — — — 1,150 — 1,150 |
Schedule of assets measured at fair value on a non-recurring basis | Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2017 (Level 1) (Level 2) (Level 3) December 31, 2017 Assets Impaired loans $ $ — $ — $ $ 141 Other real estate held for sale — — 388 $ 529 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2016 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total Losses for Balance at for Identical Assets Inputs Inputs Year Ended (dollars in thousands) December 31, 2016 (Level 1) (Level 2) (Level 3) December 31, 2016 Assets Impaired loans $ 9,856 $ — $ — $ 9,856 $ 643 Other real estate held for sale 4,782 — — 4,782 202 $ 845 |
BUSINESS COMBINATIONS (Tables)
BUSINESS COMBINATIONS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Schedule of unaudited proforma results | 2016 2015 Net interest income $ 36,902 $ 32,924 Noninterest income 5,129 4,865 Noninterest expense 30,857 26,851 Net income 7,375 7,219 Net income per diluted share $ 1.18 $ 1.15 |
Eagle River | |
Schedule of allocation of the purchase price | Purchase Price: Eagle River shares outstanding 85,776 Price per share/Cash price $ 145.73 Total purchase price $ 12,500 Reimbursement of termination fees (1,763) Cash consideration $ 10,737 Net assets acquired: Cash and cash equivalents $ 10,600 Securities available for sale, net of purchase accounting marks 23,296 FRB & FHLB Stock 575 Total Loans, net of purchase accounting marks 80,875 Premises and equipment 1,931 Other real estate owned, net of purchase accounting marks 904 Deposit based intangible 993 Mortgage servicing rights 120 Deferred tax asset 948 Bank owned life insurance 4,132 Other assets 323 Total assets 124,697 Non-interest bearing deposits 22,349 Interest bearing deposits 82,165 Total deposits 104,514 FHLB Borrowings 11,000 Other liabilities 285 Total liabilities 115,799 Net assets acquired 8,898 Goodwill $ 1,839 |
Niagara Bancorporation | |
Schedule of allocation of the purchase price | The table below highlights the allocation of the purchase price (dollars in thousands, except per share data): Purchase Price: Niagara shares outstanding 4,354 Price per share/Cash price $ 1,682.36 Total purchase price $ 7,325 Net assets acquired: Cash and cash equivalents $ 9,778 Securities available for sale 21,491 FRB & FHLB Stock 287 Total Loans, net of purchase accounting marks 31,707 Premises and equipment 926 Other real estate owned, net of purchase accounting marks 301 Deposit based intangible 300 Mortgage servicing rights 87 Deferred tax assets 397 Bank owned life insurance 1,109 Other assets 302 Total assets 66,685 Non-interest bearing deposits 5,396 Interest bearing deposits 53,788 Total deposits 59,184 Other liabilities 226 Total liabilities 59,410 Net assets acquired 7,275 Goodwill $ 50 |
PARENT COMPANY ONLY FINANCIAL48
PARENT COMPANY ONLY FINANCIAL STATEMENTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
PARENT COMPANY ONLY FINANCIAL STATEMENTS | |
Balance sheet | BALANCE SHEETS December 31, 2017 and 2016 (Dollars in Thousands) 2017 2016 ASSETS Cash and cash equivalents $ 198 $ 106 Investment in subsidiaries 97,984 97,407 Other assets 3,263 4,014 TOTAL ASSETS $ 101,445 $ 101,527 LIABILITIES AND SHAREHOLDERS’ EQUITY Line of Credit $ — $ 750 Other borrowing 18,999 21,199 Other liabilities 1,046 969 Total liabilities 20,045 22,918 Shareholders’ equity: Common stock and additional paid in capital - no par value Authorized 18,000,000 shares Issued and outstanding - 6,294,930 and 6,263,371 shares respectively 61,981 61,583 Retained earnings 19,711 17,206 Accumulated other comprehensive income (292) (180) Total shareholders’ equity 81,400 78,609 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 101,445 $ 101,527 |
Statements of operations | STATEMENTS OF OPERATIONS Years Ended December 31, 2017, 2016, and 2015 (Dollars in Thousands) 2017 2016 2015 INCOME: Interest income $ — $ 2 $ — Total income $ — $ 2 $ — EXPENSES: Interest expense on borrowings 868 707 453 Salaries and benefits 698 900 876 Professional service fees 279 173 256 Transaction related expenses 50 443 — Other 294 152 184 Total expenses 2,189 2,375 1,769 Loss before income taxes and equity in net income of subsidiaries (2,189) (2,373) (1,769) Provision for (benefit of) income taxes (27) (807) Loss before equity in net income of subsidiaries (2,162) (1,566) (1,167) Equity in net income of subsidiaries 7,641 6,049 6,763 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 5,479 $ 4,483 $ 5,596 |
Statements of cash flows | STATEMENTS OF CASH FLOWS Years Ended December 31, 2017, 2016, and 2015 (Dollars in Thousands) 2017 2016 2015 Cash Flows from Operating Activities: Net income $ 5,479 $ 4,483 $ 5,596 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net (income) of subsidiaries (7,641) (6,049) (6,763) Increase in capital from stock based compensation 398 600 576 Change in other assets 751 (1,033) 2,903 Change in other liabilities 77 (132) (4,907) Net cash provided by (used in) operating activities (936) (2,131) (2,595) Cash Flows from Investing Activities: Investments in subsidiaries 7,000 11,825 5,839 Net cash paid in acquisitions — (19,825) — Net cash provided by (used in) investing activities 7,000 (8,000) 5,839 Cash Flows from Financing Activities: Increase on term borrowing — 19,799 — Principal payments on term borrowings (2,200) (100) (100) Net activity on line of credit (750) (7,800) (550) Repurchase of common stock — (150) (1,122) Dividend on common stock (3,022) (2,498) (2,179) Net cash provided by (used in) financing activities (5,972) 9,251 Net increase (decrease) in cash and cash equivalents 92 (880) (707) Cash and cash equivalents at beginning of period 106 986 1,693 Cash and cash equivalents at end of period $ 198 $ 106 $ 986 |
SUMMARY OF SIGNIFICANT ACCOUN49
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 1 Months Ended | 12 Months Ended | |||
Feb. 29, 2016location | Dec. 31, 2017USD ($)item$ / sharesshares | Dec. 31, 2016USD ($)$ / sharesshares | Dec. 31, 2015USD ($)$ / sharesshares | May 22, 2012shares | |
Nature of Operations | |||||
Maximum percentage of the entity's business activity with Canadian customers denominated in Canadian dollars | 1.00% | ||||
Number of reportable operating segments | item | 1 | ||||
Cash and Cash Equivalents | |||||
Number of days for which federal funds are purchased and sold | 1 day | ||||
Interest Income and Fees on Loans | |||||
Minimum commitment period required before loan commitment fees or costs are deferred | 1 year | ||||
Goodwill and Other Intangible Assets | |||||
Core deposit estimated useful life | 10 years | ||||
Comprehensive Income (Loss) | |||||
Unrealized (losses) on available for sale securities | $ (71,000) | $ (102,000) | |||
Minimum pension liability | 221,000 | 78,000 | |||
Computation of basic and diluted earnings per share | |||||
Net income (in dollars) | $ 5,479,000 | $ 4,483,000 | $ 5,596,000 | ||
(Denominator): | |||||
Weighted average shares outstanding | shares | 6,288,791 | 6,236,067 | 6,241,921 | ||
Effect of dilutive stock options, and vesting of restricted stock awards | shares | 33,622 | 32,636 | 31,400 | ||
Diluted weighted average shares outstanding | shares | 6,322,413 | 6,268,703 | 6,273,321 | ||
Income per common share: | |||||
Basic (in dollars per share) | $ / shares | $ 0.87 | $ 0.72 | $ 0.90 | ||
Diluted (in dollars per share) | $ / shares | $ 0.87 | $ 0.72 | $ 0.89 | ||
Recent Developments | |||||
Maximum percentage of revenue streams with in the scope of the guidance | 5.00% | ||||
Number of branch locations | location | 7 | ||||
Available for sale equity securities | $ 75,987,000 | $ 86,427,000 | |||
Capital lease | 0 | ||||
Accounting Standards Update 2018-02 | |||||
Comprehensive Income (Loss) | |||||
Reclassification of certain deferred tax effects | 12,000 | ||||
2012 Incentive Compensation Plan | |||||
Stock Compensation Plans | |||||
Total authorized share balance | shares | 575,000 | ||||
Equity | |||||
Recent Developments | |||||
Available for sale equity securities | $ 500,000 | $ 500,000 |
RESTRICTIONS ON CASH AND CASH50
RESTRICTIONS ON CASH AND CASH EQUIVALENTS (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
RESTRICTIONS ON CASH AND CASH EQUIVALENTS | ||
Restricted cash and cash equivalents | $ 15,131 | |
Cash and due from banks | $ 37,420 | $ 44,620 |
SECURITIES AVAILABLE FOR SALE51
SECURITIES AVAILABLE FOR SALE (Details) $ in Thousands | Dec. 31, 2017USD ($)item | Dec. 31, 2016USD ($)item |
SECURITIES AVAILABLE FOR SALE | ||
Amortized Cost | $ 75,987 | $ 86,427 |
Gross Unrealized Gains | 441 | 591 |
Gross Unrealized Losses | (531) | (745) |
Estimated Fair Value | 75,897 | 86,273 |
Securities with gross unrealized losses aggregated by investment category and length of time the individual securities have been in a loss position | ||
Less Than Twelve Months, Gross Unrealized Losses | (296) | (742) |
Less Than Twelve Months, Fair Value | 43,648 | 56,155 |
Twelve Months or Longer, Gross Unrealized Losses | (235) | (3) |
Twelve Months or Longer, Fair Value | $ 7,552 | $ 932 |
Number of securities in an unrealized loss position | item | 105 | 118 |
Corporate | ||
SECURITIES AVAILABLE FOR SALE | ||
Amortized Cost | $ 24,352 | $ 19,899 |
Gross Unrealized Gains | 82 | 49 |
Gross Unrealized Losses | (43) | (38) |
Estimated Fair Value | 24,391 | 19,910 |
Securities with gross unrealized losses aggregated by investment category and length of time the individual securities have been in a loss position | ||
Less Than Twelve Months, Gross Unrealized Losses | (43) | (38) |
Less Than Twelve Months, Fair Value | 14,204 | 12,085 |
Equity | ||
SECURITIES AVAILABLE FOR SALE | ||
Amortized Cost | 500 | 500 |
Estimated Fair Value | 500 | 500 |
US Agencies | ||
SECURITIES AVAILABLE FOR SALE | ||
Amortized Cost | 16,935 | 23,991 |
Gross Unrealized Gains | 10 | 47 |
Gross Unrealized Losses | (99) | (86) |
Estimated Fair Value | 16,846 | 23,952 |
Securities with gross unrealized losses aggregated by investment category and length of time the individual securities have been in a loss position | ||
Less Than Twelve Months, Gross Unrealized Losses | (87) | (86) |
Less Than Twelve Months, Fair Value | 14,799 | 19,153 |
Twelve Months or Longer, Gross Unrealized Losses | (12) | |
Twelve Months or Longer, Fair Value | 745 | |
US Agencies - MBS | ||
SECURITIES AVAILABLE FOR SALE | ||
Amortized Cost | 12,830 | 16,980 |
Gross Unrealized Gains | 42 | 48 |
Gross Unrealized Losses | (156) | (195) |
Estimated Fair Value | 12,716 | 16,833 |
Securities with gross unrealized losses aggregated by investment category and length of time the individual securities have been in a loss position | ||
Less Than Twelve Months, Gross Unrealized Losses | (67) | (192) |
Less Than Twelve Months, Fair Value | 4,400 | 11,589 |
Twelve Months or Longer, Gross Unrealized Losses | (89) | (3) |
Twelve Months or Longer, Fair Value | 5,218 | 932 |
Obligations of states and political subdivisions | ||
SECURITIES AVAILABLE FOR SALE | ||
Amortized Cost | 21,370 | 25,057 |
Gross Unrealized Gains | 307 | 447 |
Gross Unrealized Losses | (233) | (426) |
Estimated Fair Value | 21,444 | 25,078 |
Securities with gross unrealized losses aggregated by investment category and length of time the individual securities have been in a loss position | ||
Less Than Twelve Months, Gross Unrealized Losses | (99) | (426) |
Less Than Twelve Months, Fair Value | 10,245 | $ 13,328 |
Twelve Months or Longer, Gross Unrealized Losses | (134) | |
Twelve Months or Longer, Fair Value | $ 1,589 |
SECURITIES AVAILABLE FOR SALE -
SECURITIES AVAILABLE FOR SALE - BY CONTRACTUAL MATURITY (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Summary of the proceeds from sales and calls of securities available for sale, as well as gross gains and losses | |||
Proceeds from sales and calls | $ 11,651 | $ 19,719 | $ 25,628 |
Gross gains on sales and calls | 253 | 190 | $ 455 |
Gross (losses) on sales and calls | (22) | (40) | |
Amortized Cost | |||
Due in one year or less | 8,908 | ||
Due after one year through five years | 37,544 | ||
Due after five years through ten years | 13,780 | ||
Due after ten years | 2,925 | ||
Subtotal | 63,157 | ||
US Agencies - MBS | 12,830 | ||
Total amortized cost | 75,987 | ||
Estimated Fair Value | |||
Due in one year or less | 9,262 | ||
Due after one year through five years | 40,665 | ||
Due after five years through ten years | 10,984 | ||
Due after ten years | 2,270 | ||
Subtotal | 63,181 | ||
US Agencies - MBS | 12,716 | ||
Estimated Fair Value | 75,897 | $ 86,273 | |
FHLB | |||
Estimated Fair Value | |||
Securities held as collateral | 2,124 | ||
Customer Relationship | |||
Estimated Fair Value | |||
Securities held as collateral | $ 2,460 |
LOANS (Details)
LOANS (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Loans | |||
Total loans | $ 811,078,000 | $ 781,857,000 | |
Acquired portfolio | |||
Balance at the beginning of period | 1,457,000 | ||
Acquisition | 2,091,000 | ||
Accretion | (525,000) | ||
Reclassification from nonaccretable difference | (109,000) | ||
Balance at the end of period | 1,457,000 | ||
PFC | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 67,139,000 | ||
Nonaccretable difference | (2,234,000) | ||
Expected cash flows | 64,905,000 | ||
Accretable yield | (2,844,000) | ||
Carrying balance at acquisition date | 62,061,000 | ||
Balance at the beginning of period | 924,000 | 1,768,000 | |
Accretion | (1,102,000) | (750,000) | |
Reclassification from nonaccretable difference | 327,000 | (94,000) | |
Balance at the end of period | 149,000 | 924,000 | $ 1,768,000 |
Eagle River | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 84,138,000 | ||
Nonaccretable difference | (1,172,000) | ||
Expected cash flows | 82,966,000 | ||
Accretable yield | (2,091,000) | ||
Carrying balance at acquisition date | 80,875,000 | ||
Balance at the beginning of period | 1,457,000 | ||
Accretion | (688,000) | ||
Reclassification from nonaccretable difference | 52,000 | ||
Balance at the end of period | 821,000 | 1,457,000 | |
Niagara Bancorporation | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 32,660,000 | ||
Nonaccretable difference | (265,000) | ||
Expected cash flows | 32,395,000 | ||
Accretable yield | (688,000) | ||
Carrying balance at acquisition date | 31,707,000 | ||
Balance at the beginning of period | 557,000 | ||
Acquisition | 688,000 | ||
Accretion | (244,000) | (95,000) | |
Reclassification from nonaccretable difference | 6,000 | (36,000) | |
Balance at the end of period | 319,000 | 557,000 | |
Commercial real estate | |||
Loans | |||
Total loans | 406,742,000 | 389,420,000 | |
Commercial, financial, and agricultural | |||
Loans | |||
Total loans | 156,951,000 | 142,648,000 | |
Commercial construction | |||
Loans | |||
Total loans | 9,243,000 | 11,505,000 | |
One to four family residential real estate | |||
Loans | |||
Total loans | 209,890,000 | 205,945,000 | |
Consumer | |||
Loans | |||
Total loans | 17,434,000 | 20,113,000 | |
Consumer construction | |||
Loans | |||
Total loans | 10,818,000 | 12,226,000 | |
Acquired Impaired | |||
Acquired portfolio | |||
Accretion | (550,000) | (96,000) | (578,000) |
Acquired Impaired | PFC | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 13,290,000 | ||
Nonaccretable difference | (2,234,000) | ||
Expected cash flows | 11,056,000 | ||
Accretable yield | (744,000) | ||
Carrying balance at acquisition date | 10,312,000 | ||
Balance at the beginning of period | 282,000 | 426,000 | |
Accretion | (460,000) | (50,000) | |
Reclassification from nonaccretable difference | 327,000 | (94,000) | |
Balance at the end of period | 149,000 | 282,000 | 426,000 |
Acquired Impaired | Eagle River | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 3,401,000 | ||
Nonaccretable difference | (1,172,000) | ||
Expected cash flows | 2,229,000 | ||
Accretable yield | (391,000) | ||
Carrying balance at acquisition date | 1,838,000 | ||
Balance at the beginning of period | 236,000 | ||
Acquisition | 391,000 | ||
Accretion | (70,000) | (46,000) | |
Reclassification from nonaccretable difference | 52,000 | (109,000) | |
Balance at the end of period | 218,000 | 236,000 | |
Acquired Impaired | Niagara Bancorporation | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 2,105,000 | ||
Nonaccretable difference | (265,000) | ||
Expected cash flows | 1,840,000 | ||
Accretable yield | (88,000) | ||
Carrying balance at acquisition date | 1,752,000 | ||
Balance at the beginning of period | 52,000 | ||
Acquisition | 88,000 | ||
Accretion | (20,000) | ||
Reclassification from nonaccretable difference | 6,000 | (36,000) | |
Balance at the end of period | 38,000 | 52,000 | |
Acquired Non-impaired | PFC | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 53,849,000 | ||
Expected cash flows | 53,849,000 | ||
Accretable yield | (2,100,000) | ||
Carrying balance at acquisition date | 51,749,000 | ||
Balance at the beginning of period | 642,000 | 1,342,000 | |
Accretion | (642,000) | (700,000) | |
Balance at the end of period | 642,000 | $ 1,342,000 | |
Acquired Non-impaired | Eagle River | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 80,737,000 | ||
Expected cash flows | 80,737,000 | ||
Accretable yield | (1,700,000) | ||
Carrying balance at acquisition date | 79,037,000 | ||
Balance at the beginning of period | 1,221,000 | ||
Acquisition | 1,700,000 | ||
Accretion | (618,000) | (479,000) | |
Balance at the end of period | 603,000 | 1,221,000 | |
Acquired Non-impaired | Niagara Bancorporation | |||
Acquired portfolio | |||
Loans acquired - contractual payments | 30,555,000 | ||
Expected cash flows | 30,555,000 | ||
Accretable yield | (600,000) | ||
Carrying balance at acquisition date | 29,955,000 | ||
Balance at the beginning of period | 505,000 | ||
Acquisition | 600,000 | ||
Accretion | (224,000) | (95,000) | |
Balance at the end of period | $ 281,000 | $ 505,000 |
LOANS - ALLOWANCE (Details)
LOANS - ALLOWANCE (Details) - USD ($) $ in Thousands | 12 Months Ended | ||||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2017 | Dec. 31, 2016 | |
Allowance for loan loss reserve: | |||||
Balance at beginning of period | $ 5,020 | $ 5,004 | |||
Charge-offs | (803) | (723) | |||
Recoveries | 237 | 139 | |||
Provision | 625 | 600 | $ 1,204 | ||
Balance at end of period | 5,079 | 5,020 | 5,004 | ||
Loans: | |||||
Ending balance | $ 811,078 | $ 781,857 | |||
Ending balance ALLR | (5,020) | (5,004) | (5,004) | (5,079) | (5,020) |
Net loans | 805,999 | 776,837 | |||
Ending balance ALLR: | |||||
Individually evaluated | 334 | 321 | |||
Collectively evaluated | 4,745 | 4,699 | |||
Total | 5,020 | 5,004 | 5,004 | 5,079 | 5,020 |
Ending balance Loans: | |||||
Individually evaluated | 682 | 670 | |||
Collectively evaluated | 807,346 | 775,100 | |||
Acquired with deteriorated credit quality | 3,050 | 6,087 | |||
Total Loans | 811,078 | 781,857 | |||
Commercial real estate | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 1,345 | 1,611 | |||
Charge-offs | (155) | (245) | |||
Recoveries | 80 | 54 | |||
Provision | 380 | (75) | |||
Balance at end of period | 1,650 | 1,345 | 1,611 | ||
Loans: | |||||
Ending balance | 406,742 | 389,420 | |||
Ending balance ALLR | (1,345) | (1,611) | (1,611) | (1,650) | (1,345) |
Net loans | 405,092 | 388,075 | |||
Ending balance ALLR: | |||||
Individually evaluated | 168 | 70 | |||
Collectively evaluated | 1,482 | 1,275 | |||
Total | 1,345 | 1,611 | 1,611 | 1,650 | 1,345 |
Ending balance Loans: | |||||
Individually evaluated | 516 | 345 | |||
Collectively evaluated | 404,835 | 385,841 | |||
Acquired with deteriorated credit quality | 1,391 | 3,234 | |||
Total Loans | 406,742 | 389,420 | |||
Commercial, financial, and agricultural | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 614 | 645 | |||
Charge-offs | (264) | (232) | |||
Recoveries | 39 | 41 | |||
Provision | 187 | 160 | |||
Balance at end of period | 576 | 614 | 645 | ||
Loans: | |||||
Ending balance | 156,951 | 142,648 | |||
Ending balance ALLR | (614) | (645) | (645) | (576) | (614) |
Net loans | 156,375 | 142,034 | |||
Ending balance ALLR: | |||||
Individually evaluated | 166 | 251 | |||
Collectively evaluated | 410 | 363 | |||
Total | 614 | 645 | 645 | 576 | 614 |
Ending balance Loans: | |||||
Individually evaluated | 166 | 325 | |||
Collectively evaluated | 156,785 | 142,323 | |||
Total Loans | 156,951 | 142,648 | |||
Commercial construction | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 57 | 79 | |||
Recoveries | 2 | 7 | |||
Provision | (5) | (29) | |||
Balance at end of period | 54 | 57 | 79 | ||
Loans: | |||||
Ending balance | 9,243 | 11,505 | |||
Ending balance ALLR | (57) | (79) | (79) | (54) | (57) |
Net loans | 9,189 | 11,448 | |||
Ending balance ALLR: | |||||
Collectively evaluated | 54 | 57 | |||
Total | 57 | 79 | 79 | 54 | 57 |
Ending balance Loans: | |||||
Collectively evaluated | 9,243 | 11,505 | |||
Total Loans | 9,243 | 11,505 | |||
One to four family residential real estate | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 296 | 274 | |||
Charge-offs | (155) | (133) | |||
Recoveries | 65 | 5 | |||
Provision | (46) | 150 | |||
Balance at end of period | 160 | 296 | 274 | ||
Loans: | |||||
Ending balance | 209,890 | 205,945 | |||
Ending balance ALLR | (296) | (274) | (274) | (160) | (296) |
Net loans | 209,730 | 205,649 | |||
Ending balance ALLR: | |||||
Collectively evaluated | 160 | 296 | |||
Total | 296 | 274 | 274 | 160 | 296 |
Ending balance Loans: | |||||
Collectively evaluated | 208,269 | 203,153 | |||
Acquired with deteriorated credit quality | 1,621 | 2,792 | |||
Total Loans | 209,890 | 205,945 | |||
Consumer construction | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 6 | 7 | |||
Provision | (1) | ||||
Balance at end of period | 6 | 6 | 7 | ||
Loans: | |||||
Ending balance | 10,818 | 12,226 | |||
Ending balance ALLR | (6) | (7) | (7) | (6) | (6) |
Net loans | 10,812 | 12,220 | |||
Ending balance ALLR: | |||||
Collectively evaluated | 6 | 6 | |||
Total | 6 | 7 | 7 | 6 | 6 |
Ending balance Loans: | |||||
Collectively evaluated | 10,801 | 12,169 | |||
Acquired with deteriorated credit quality | 17 | 57 | |||
Total Loans | 10,818 | 12,226 | |||
Consumer | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 90 | 64 | |||
Charge-offs | (229) | (113) | |||
Recoveries | 51 | 32 | |||
Provision | 98 | 107 | |||
Balance at end of period | 10 | 90 | 64 | ||
Loans: | |||||
Ending balance | 17,434 | 20,113 | |||
Ending balance ALLR | (90) | (64) | (64) | (10) | (90) |
Net loans | 17,424 | 20,023 | |||
Ending balance ALLR: | |||||
Collectively evaluated | 10 | 90 | |||
Total | 90 | 64 | 64 | 10 | 90 |
Ending balance Loans: | |||||
Collectively evaluated | 17,413 | 20,109 | |||
Acquired with deteriorated credit quality | 21 | 4 | |||
Total Loans | 17,434 | 20,113 | |||
Unallocated | |||||
Allowance for loan loss reserve: | |||||
Balance at beginning of period | 2,612 | 2,324 | |||
Provision | 11 | 288 | |||
Balance at end of period | 2,623 | 2,612 | 2,324 | ||
Loans: | |||||
Ending balance ALLR | (2,612) | (2,324) | (2,324) | (2,623) | (2,612) |
Net loans | (2,623) | (2,612) | |||
Ending balance ALLR: | |||||
Collectively evaluated | 2,623 | 2,612 | |||
Total | $ 2,612 | $ 2,324 | $ 2,324 | $ 2,623 | $ 2,612 |
LOANS - LOANS BY RISK CATEGORY
LOANS - LOANS BY RISK CATEGORY (Details) $ in Thousands | Dec. 31, 2017USD ($)item | Dec. 31, 2016USD ($) |
Breakdown of loans by risk category | ||
Total loans | $ 811,078 | $ 781,857 |
Minimum | ||
Breakdown of loans by risk category | ||
Credit risk rating for which reserves are established if no specific reserves made | item | 6 | |
Maximum | ||
Breakdown of loans by risk category | ||
Credit risk rating for which general reserves are established | item | 44 | |
Credit risk rating for which reserves are established if no specific reserves made | item | 7 | |
Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | $ 406,742 | 389,420 |
Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 156,951 | 142,648 |
Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 9,243 | 11,505 |
One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 209,890 | 205,945 |
Consumer construction | ||
Breakdown of loans by risk category | ||
Total loans | 10,818 | 12,226 |
Consumer | ||
Breakdown of loans by risk category | ||
Total loans | 17,434 | 20,113 |
Strong (1) | ||
Breakdown of loans by risk category | ||
Total loans | 14,303 | 14,230 |
Strong (1) | Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | 2,775 | 3,021 |
Strong (1) | Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 11,528 | 10,421 |
Strong (1) | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 740 | |
Strong (1) | Consumer construction | ||
Breakdown of loans by risk category | ||
Total loans | 28 | |
Strong (1) | Consumer | ||
Breakdown of loans by risk category | ||
Total loans | 20 | |
Good (2) | ||
Breakdown of loans by risk category | ||
Total loans | 34,594 | 39,647 |
Good (2) | Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | 23,929 | 23,940 |
Good (2) | Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 8,980 | 13,434 |
Good (2) | Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 308 | 900 |
Good (2) | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 1,377 | 1,373 |
Average (3) | ||
Breakdown of loans by risk category | ||
Total loans | 218,157 | 196,625 |
Average (3) | Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | 159,385 | 140,618 |
Average (3) | Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 53,448 | 49,434 |
Average (3) | Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 2,749 | 3,146 |
Average (3) | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 2,575 | 3,412 |
Average (3) | Consumer | ||
Breakdown of loans by risk category | ||
Total loans | 15 | |
Acceptable | ||
Breakdown of loans by risk category | ||
Total loans | 292,672 | 279,653 |
Acceptable | Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | 207,921 | 205,710 |
Acceptable | Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 77,964 | 65,097 |
Acceptable | Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 1,310 | 1,877 |
Acceptable | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 5,449 | 6,927 |
Acceptable | Consumer | ||
Breakdown of loans by risk category | ||
Total loans | 28 | 42 |
Acceptable Watch | ||
Breakdown of loans by risk category | ||
Total loans | 14,223 | 16,747 |
Acceptable Watch | Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | 8,700 | 10,808 |
Acceptable Watch | Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 3,658 | 2,485 |
Acceptable Watch | Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 648 | 783 |
Acceptable Watch | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 1,212 | 2,658 |
Acceptable Watch | Consumer | ||
Breakdown of loans by risk category | ||
Total loans | 5 | 13 |
Substandard (6) | ||
Breakdown of loans by risk category | ||
Total loans | 9,404 | 13,098 |
Substandard (6) | Commercial real estate | ||
Breakdown of loans by risk category | ||
Total loans | 4,032 | 5,323 |
Substandard (6) | Commercial, financial, and agricultural | ||
Breakdown of loans by risk category | ||
Total loans | 1,373 | 1,777 |
Substandard (6) | Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 374 | 385 |
Substandard (6) | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 3,515 | 5,493 |
Substandard (6) | Consumer construction | ||
Breakdown of loans by risk category | ||
Total loans | 14 | 17 |
Substandard (6) | Consumer | ||
Breakdown of loans by risk category | ||
Total loans | 96 | 103 |
Rating Unassigned | ||
Breakdown of loans by risk category | ||
Total loans | 227,725 | 221,857 |
Rating Unassigned | Commercial construction | ||
Breakdown of loans by risk category | ||
Total loans | 3,854 | 4,414 |
Rating Unassigned | One to four family residential real estate | ||
Breakdown of loans by risk category | ||
Total loans | 195,762 | 185,342 |
Rating Unassigned | Consumer construction | ||
Breakdown of loans by risk category | ||
Total loans | 10,804 | 12,181 |
Rating Unassigned | Consumer | ||
Breakdown of loans by risk category | ||
Total loans | $ 17,305 | $ 19,920 |
LOANS - IMPAIRED LOANS AND EFFE
LOANS - IMPAIRED LOANS AND EFFECT ON INTEREST INCOME (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Impaired Loans | |||
Number of days past due to be considered as nonperforming loans | 90 days | ||
Recorded investment | |||
With no valuation reserve | $ 3,170 | $ 6,087 | |
With a valuation reserve | 682 | 670 | |
Total | 3,852 | 6,757 | |
Unpaid Principal Balance | 6,054 | 9,002 | |
Related Allowance for Loan Losses | 334 | 321 | |
Average investment | |||
Average Balance for the Period | 5,137 | 7,896 | $ 5,404 |
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | 281 | 370 | 370 |
Commercial real estate | |||
Recorded investment | |||
With no valuation reserve | 1,511 | 3,234 | |
With a valuation reserve | 516 | 345 | |
Total | 2,027 | 3,579 | |
Unpaid Principal Balance | 3,326 | 4,700 | |
Related Allowance for Loan Losses | 168 | 70 | |
Average investment | |||
Average Balance for the Period | 2,784 | 3,848 | 2,656 |
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | 178 | 232 | |
Commercial, financial, and agricultural | |||
Recorded investment | |||
With a valuation reserve | 166 | 325 | |
Total | 166 | 325 | |
Unpaid Principal Balance | 326 | 400 | |
Related Allowance for Loan Losses | 166 | 251 | |
Average investment | |||
Average Balance for the Period | 246 | 200 | 628 |
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | 141,000 | 4 | 9 |
Commercial construction | |||
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | 1 | ||
One to four family residential real estate | |||
Recorded investment | |||
With no valuation reserve | 1,621 | 2,792 | |
Total | 1,621 | 2,792 | |
Unpaid Principal Balance | 2,315 | 3,794 | |
Average investment | |||
Average Balance for the Period | 2,057 | 3,794 | 2,120 |
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | 3 | 182 | $ 129 |
Consumer construction | |||
Recorded investment | |||
With no valuation reserve | 17 | 57 | |
Total | 17 | 57 | |
Unpaid Principal Balance | 66 | 80 | |
Average investment | |||
Average Balance for the Period | 37 | 40 | |
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | 134 | 4 | |
Consumer | |||
Recorded investment | |||
With no valuation reserve | 21 | 4 | |
Total | 21 | 4 | |
Unpaid Principal Balance | 21 | 28 | |
Average investment | |||
Average Balance for the Period | 13 | 14 | |
Interest Income Recognized During Impairment | |||
Interest Income Recognized for the Period | $ 2 | $ 2 |
LOANS - PAST DUE (Details)
LOANS - PAST DUE (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Past due loans | ||
Total | $ 6,613 | $ 7,498 |
30-89 days Past Due | ||
Past due loans | ||
30-89 days Past Due (accruing) | 4,045 | 3,374 |
90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | 2,568 | 4,124 |
Commercial real estate | ||
Past due loans | ||
Total | 1,326 | 2,674 |
Commercial real estate | 30-89 days Past Due | ||
Past due loans | ||
30-89 days Past Due (accruing) | 460 | 942 |
Commercial real estate | 90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | 866 | 1,732 |
Commercial, financial, and agricultural | ||
Past due loans | ||
Total | 354 | 523 |
Commercial, financial, and agricultural | 30-89 days Past Due | ||
Past due loans | ||
30-89 days Past Due (accruing) | 16 | 186 |
Commercial, financial, and agricultural | 90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | 338 | 337 |
Commercial construction | ||
Past due loans | ||
Total | 87 | |
Commercial construction | 30-89 days Past Due | ||
Past due loans | ||
30-89 days Past Due (accruing) | 73 | |
Commercial construction | 90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | 14 | |
One to four family residential real estate | ||
Past due loans | ||
Total | 4,774 | 4,069 |
One to four family residential real estate | 30-89 days Past Due | ||
Past due loans | ||
30-89 days Past Due (accruing) | 3,424 | 2,113 |
One to four family residential real estate | 90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | 1,350 | 1,956 |
Consumer construction | ||
Past due loans | ||
Total | 17 | |
Consumer construction | 90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | 17 | |
Consumer | ||
Past due loans | ||
Total | 72 | 215 |
Consumer | 30-89 days Past Due | ||
Past due loans | ||
30-89 days Past Due (accruing) | $ 72 | 133 |
Consumer | 90+ days Past Due | ||
Past due loans | ||
90+ days Past Due/Nonaccrual | $ 82 |
LOANS - TROUBLED DEBT RESTRUCTU
LOANS - TROUBLED DEBT RESTRUCTURING (Details) - item | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
LOANS | ||
Number of consecutive timely payments before being considered return to accruing status | 6 | |
Number of troubled debt restructurings | 0 | 0 |
LOANS - INSIDER LOANS (Details)
LOANS - INSIDER LOANS (Details) - Bank - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | |
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms | |||
Loans outstanding, beginning of period | $ 9,195 | $ 6,887 | |
New loans | 2,018 | 2,510 | |
Net activity on revolving lines of credit | 237 | 2,119 | |
Repayment | (1,413) | (2,321) | |
Loans outstanding, end of period | 10,037 | 9,195 | |
Loans outstanding | 9,195 | 6,887 | $ 10,037 |
Unfunded commitments | 605 | ||
Substandard (6) | |||
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms | |||
Loans outstanding, beginning of period | 0 | ||
Loans outstanding, end of period | 0 | 0 | |
Loans outstanding | $ 0 | $ 0 | $ 0 |
PREMISES AND EQUIPMENT (Details
PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Premises and Equipment | |||
Total cost basis | $ 32,649 | $ 30,019 | |
Less - accumulated depreciation | 16,359 | 14,128 | |
Net book value | 16,290 | 15,891 | |
Depreciation charged to operating expenses | 1,978 | 1,617 | $ 1,457 |
Land | |||
Premises and Equipment | |||
Total cost basis | 2,998 | 2,566 | |
Buildings and improvements | |||
Premises and Equipment | |||
Total cost basis | 18,473 | 18,001 | |
Furniture Fixtures And Equipment | |||
Premises and Equipment | |||
Total cost basis | $ 11,178 | 9,142 | |
Construction in progress | |||
Premises and Equipment | |||
Total cost basis | $ 310 |
OTHER REAL ESTATE HELD FOR SA61
OTHER REAL ESTATE HELD FOR SALE (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Changes in other real estate held for sale | ||
Balance at the beginning of the period | $ 4,782 | $ 2,324 |
Other real estate transferred from loans due to foreclosure | 2,147 | 3,292 |
Other real estate acquired | 1,205 | |
Proceeds from other real estate sold | 2,983 | 1,640 |
Transfer to premise and equipment | (197) | |
Writedowns of other real estate held for sale | (307) | (212) |
Gain (loss) on sale of other real estate held for sale | (81) | 10 |
Total other real estate held for sale | 3,558 | $ 4,782 |
Foreclosed residential real estate property | 894 | |
Mortgage loans secured by residential real estate property in process of foreclosure | $ 13,000,000 |
DEPOSITS (Details)
DEPOSITS (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Distribution of deposits | ||
Noninterest bearing deposits | $ 148,079 | $ 164,179 |
NOW, money market, interest checking | 280,309 | 286,622 |
Savings | 61,097 | 58,315 |
CDs less than $250,000 | 142,159 | 141,629 |
CDs more than $250,000 | 11,055 | 8,489 |
Brokered | 175,299 | 164,278 |
Total deposits | 817,998 | $ 823,512 |
Maturities of non-brokered time deposits outstanding | ||
2,018 | 90,456 | |
2,019 | 30,118 | |
2,020 | 18,296 | |
2,021 | 8,644 | |
2,022 | 3,901 | |
Thereafter | 1,799 | |
Total | $ 153,214 |
GOODWILL AND OTHER INTANGIBLE63
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) | 12 Months Ended | |||||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Aug. 31, 2016 | Apr. 29, 2016 | Dec. 31, 2014 | |
Goodwill | $ 5,694,000 | $ 5,694,000 | ||||
Deposit based intangible assets | 1,922,000 | 2,172,000 | ||||
Amortization expense | 249,000 | 197,000 | $ 121,000 | |||
Amortization expense year one | 250,000 | |||||
Amortization expense year two | 250,000 | |||||
Amortization expense year three | 250,000 | |||||
Amortization expense year four | 250,000 | |||||
Amortization expense year five | $ 250,000 | |||||
PFC | ||||||
Goodwill | $ 3,805,000 | |||||
Deposit based intangible assets | $ 1,206,000 | |||||
Eagle River | ||||||
Goodwill | 1,839,000 | $ 1,839,000 | ||||
Deposit based intangible assets | 993,000 | |||||
Niagara Bancorporation | ||||||
Goodwill | 50,000 | $ 50,000 | ||||
Deposit based intangible assets | $ 300,000 |
SERVICING RIGHTS (Details)
SERVICING RIGHTS (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Changes in mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances | ||
Valuation allowance | $ 0 | |
Commercial loans | ||
Commercial Loans | ||
Commercial Loans | 44,000 | $ 41,000 |
Servicing rights | $ 110 | 140 |
Mortgage loans | ||
Mortgage Loans | ||
Annual constant prepayment speed (as a percent) | 10.57% | |
Discount rate (as a percent) | 10.17% | |
Changes in mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances | ||
Balance at beginning of period | $ 1,573 | 1,965 |
Acquired MSRs | 207 | |
Amortization | (540) | (599) |
Balance at end of period | 1,033 | 1,573 |
Balance of loan servicing portfolio | $ 198,524 | $ 221,355 |
Mortgage servicing rights as % of portfolio | 0.52% | 0.71% |
BORROWINGS (Details)
BORROWINGS (Details) | 12 Months Ended | |
Dec. 31, 2017USD ($)item | Dec. 31, 2016USD ($) | |
BORROWINGS | ||
Borrowings | $ 79,552,000 | $ 67,579,000 |
LIBOR | ||
BORROWINGS | ||
Variable rate basis | LIBOR | |
Federal Home Loan Bank borrowings | ||
BORROWINGS | ||
Borrowings | $ 60,000,000 | 45,000,000 |
Interest rate on note (as a percent) | 1.66% | |
Federal Home Loan Bank borrowings | Mortgage related and municipal securities | ||
BORROWINGS | ||
Securities pledged as collateral, amortized cost | $ 2,482,000 | |
Securities pledged as collateral, fair value | 2,460,000 | |
Federal Home Loan Bank borrowings | FHLB stock | ||
BORROWINGS | ||
Stock owned and pledged as collateral | 3,112,000 | |
Federal Home Loan Bank borrowings | One to four family residential real estate | ||
BORROWINGS | ||
Loans pledged as collateral | $ 72,552,000 | |
Correspondent bank line of credit | ||
BORROWINGS | ||
Borrowings | 750,000 | |
Number of banking borrowing relationships | item | 1 | |
Quarterly principal payment | $ 550,000 | |
Correspondent bank line of credit | LIBOR | ||
BORROWINGS | ||
Variable rate (as a percent) | 2.75% | |
Correspondent bank term note | ||
BORROWINGS | ||
Borrowings | $ 18,999,000 | 21,199,000 |
USDA Rural Development note | ||
BORROWINGS | ||
Borrowings | $ 553,000 | $ 630,000 |
Interest rate on note (as a percent) | 1.00% | |
USDA Rural Development note | First Rural Relending | ||
BORROWINGS | ||
Loans pledged as collateral | $ 553,000 | |
Demand deposit account pledged as collateral | 619,000 | |
Revolving Credit Facility | ||
BORROWINGS | ||
Line of Credit | $ 5,000,000 | |
Revolving Credit Facility | LIBOR | ||
BORROWINGS | ||
LIBOR rate at point of time | 1.69% |
BORROWINGS - MATURITIES (Detail
BORROWINGS - MATURITIES (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Maturities and principal payments of borrowings outstanding | ||
2,018 | $ 12,277 | |
2,019 | 31,876 | |
2,020 | 10,078 | |
2,021 | 25,079 | |
2,022 | 80 | |
Thereafter | 162 | |
Borrowings | $ 79,552 | $ 67,579 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 12 Months Ended | |||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Components of the federal income tax provision (credit) | ||||
Current tax expense | $ 585 | $ 485 | ||
Change in valuation allowance | $ (760) | |||
Adjustment of deferred taxes due to change in enacted tax rate | 2,025 | |||
Deferred tax expense | 2,929 | 1,798 | 3,093 | |
Provision for income taxes | 5,539 | 2,283 | 2,333 | |
Source of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes | ||||
Tax expense at statutory rate | 3,746 | 2,301 | 2,695 | |
Increase (decrease) in taxes resulting from: Tax-exempt interest | (133) | (96) | (60) | |
Change in valuation allowance | (760) | |||
Adjustment of deferred taxes due to change in enacted tax rate | 2,025 | |||
Expiration of deferred tax assets | 429 | |||
Nondeductible transaction expenses | 17 | 95 | ||
Other | (116) | (17) | 29 | |
Provision for income taxes | 5,539 | 2,283 | 2,333 | |
Deferred tax assets: | ||||
NOL carryforward | 1,580 | 3,080 | ||
Allowance for loan losses | 948 | 1,413 | ||
Alternative Minimum Tax Credit | 1,463 | 1,944 | ||
OREO | 119 | 142 | ||
Tax credit carryovers | 235 | 235 | ||
Deferred compensation | 242 | 443 | ||
Pension Liability | 240 | 387 | ||
Stock compensation | 79 | 116 | ||
Unrealized loss on securities | 19 | 52 | ||
Purchase accounting adjustments | 785 | 1,791 | ||
Other | 63 | 805 | ||
Total deferred tax assets | 5,773 | 10,408 | ||
Deferred tax liabilities: | ||||
Core deposit premium | (404) | (739) | ||
FHLB stock dividend | (56) | (91) | ||
Depreciation | (79) | (208) | ||
Mortgage servicing rights | (240) | (583) | ||
Other | (24) | (27) | ||
Total deferred tax liabilities | (803) | (1,648) | ||
Net deferred tax asset | 4,970 | 8,760 | ||
INCOME TAXES | ||||
Deferred tax asset | 4,970 | |||
Net operating loss (NOL) carryforwards | 7,500 | |||
Tax credit carryforwards | $ 1,700 | |||
Expiration period from date of origination for net operating loss carryforwards | 20 years | |||
Annual limitation for usage of NOL | $ 1,537 | |||
Annual limitation for usage of tax credits | 476 | |||
Additional income tax expenses recorded from effect of Tax Cuts and Jobs Act of 2017 | 2,025 | |||
Reduction in valuation allowance | 760 | |||
Forecast | ||||
INCOME TAXES | ||||
Effective income tax rate | 21.00% | |||
PARENT COMPANY | ||||
Components of the federal income tax provision (credit) | ||||
Provision for income taxes | (27) | (807) | (602) | |
Source of differences between income taxes at the federal statutory rate and the provision (credit) for income taxes | ||||
Provision for income taxes | $ (27) | $ (807) | $ (602) |
OPERATING LEASES (Details)
OPERATING LEASES (Details) $ in Thousands | 1 Months Ended | 12 Months Ended | ||||||||||
Dec. 31, 2013item | May 31, 2013 | Sep. 30, 2012item | Feb. 28, 2011 | Apr. 30, 2010item | Apr. 30, 2008 | Sep. 30, 2005 | Dec. 31, 2017USD ($)item | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2014 | Dec. 31, 2011 | |
OPERATING LEASES | ||||||||||||
Number of operating leases | item | 7 | |||||||||||
Additional number of operating leases acquired | item | 3 | |||||||||||
Future minimum payments, by year and in the aggregate, under the initial terms of the operating lease agreements | ||||||||||||
2,018 | $ 772 | |||||||||||
2,019 | 747 | |||||||||||
2,020 | 608 | |||||||||||
2,021 | 503 | |||||||||||
2,022 | 499 | |||||||||||
Thereafter | 3,124 | |||||||||||
Total | 6,253 | |||||||||||
Rent Expenses | ||||||||||||
Rent expense for all operating leases | $ 1,109 | $ 1,053 | $ 985 | |||||||||
Birmingham | ||||||||||||
OPERATING LEASES | ||||||||||||
Operating lease term | 66 months | |||||||||||
Option to renew additional lease term | 5 years | |||||||||||
Additional period for operating lease | 3 years | 3 years | 3 years | |||||||||
Manistique | ||||||||||||
OPERATING LEASES | ||||||||||||
Additional period for operating lease | 2 years | |||||||||||
Maximum number of additional lease terms for which the lease may be extended | item | 4 | |||||||||||
Traverse City | ||||||||||||
OPERATING LEASES | ||||||||||||
Operating lease term | 36 months | |||||||||||
Option to renew additional lease term | 36 months | |||||||||||
Maximum number of additional lease terms for which the lease may be extended | item | 2 | |||||||||||
Marquette | ||||||||||||
OPERATING LEASES | ||||||||||||
Operating lease term | 15 years | 5 years | ||||||||||
Additional period for operating lease | 4 years | |||||||||||
Maximum number of additional lease terms for which the lease may be extended | item | 2 | |||||||||||
Negaunee | ||||||||||||
OPERATING LEASES | ||||||||||||
Operating lease term | 5 years | |||||||||||
Additional period for operating lease | 5 years | |||||||||||
Maximum number of additional lease terms for which the lease may be extended | item | 1 | |||||||||||
Ishpeming | ||||||||||||
OPERATING LEASES | ||||||||||||
Operating lease term | 5 years | |||||||||||
Option to renew additional lease term | 5 years |
RETIREMENT PLAN (Details)
RETIREMENT PLAN (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
DEFINED BENEFIT PENSION PLAN | |||
Minimum period of service to be completed in order to participate in the retirement plan | 3 months | ||
Minimum age to be attained in order to participate in the retirement plan | 18 years | ||
Employee's contribution limit as a percentage of annual compensation under the 401 (k) profit sharing plan | 80.00% | ||
Retirement plan contributions charged to operations | $ 340,800 | $ 300,000 | $ 288,000 |
DEFINED BENEFIT PENSION PLAN (D
DEFINED BENEFIT PENSION PLAN (Details) | 12 Months Ended | ||
Dec. 31, 2017USD ($)item | Dec. 31, 2016USD ($) | Dec. 31, 2018USD ($) | |
Defined Benefit Pension Plan | |||
Number of years over which anticipated pension distributions disclosed | item | 5 | ||
Anticipated distributions from the plan | |||
2,018 | $ 133,000 | ||
2,019 | 130,000 | ||
2,020 | 126,000 | ||
2,021 | 125,000 | ||
2,022 | 131,000 | ||
2023-2027 | 796,000 | ||
Total | 1,441,000 | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | |||
Change in benefit obligation: | |||
Benefit obligation, beginning of year | 3,187,000 | $ 3,180,000 | |
Interest cost | 118,000 | 187,000 | |
Actuarial loss | 161,000 | (44,000) | |
Benefits paid | (135,000) | (136,000) | |
Benefit obligation at end of year | 3,331,000 | 3,187,000 | |
Change in plan assets | |||
Fair value of plan assets, beginning of year | 2,049,000 | 2,033,000 | |
Actual return on plan assets | 259,000 | 103,000 | |
Employer contributions | 18,000 | 49,000 | |
Benefits paid | (135,000) | (136,000) | |
Funded status | (1,140,000) | (1,138,000) | |
Fair value of plan assets at end of year | $ 2,191,000 | $ 2,049,000 | |
Assumptions in the actuarial valuation | |||
Weighted average discount rate | 3.33% | 3.78% | |
Expected long-term rate of return on plan assets | 8.00% | 8.00% | |
Peninsula Financial Corporation noncontributory defined benefit pension plan | Forecast | |||
Defined Benefit Pension Plan | |||
Expected contributions to the plan | $ 79,000 | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Plan | |||
Plan assets | |||
Actual Allocation | 60.00% | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Plan | Minimum | |||
Plan assets | |||
Target Allocation | 50.00% | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Plan | Maximum | |||
Plan assets | |||
Target Allocation | 70.00% | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Plan | |||
Plan assets | |||
Actual Allocation | 40.00% | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Plan | Minimum | |||
Plan assets | |||
Target Allocation | 30.00% | ||
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Plan | Maximum | |||
Plan assets | |||
Target Allocation | 50.00% |
DEFERRED COMPENSATION PLAN (Det
DEFERRED COMPENSATION PLAN (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
DEFERRED COMPENSATION PLAN | |||
Liability for vested benefits under the plan | $ 113,000 | $ 179,000 | |
Cash surrender value of life insurance policies of the plan participants | 1,465,000 | 1,398,000 | |
Deferred compensation expense | $ 65,000 | 77,000 | $ 27,000 |
Minimum | |||
DEFERRED COMPENSATION PLAN | |||
Original contractual term | 10 years | ||
Maximum | |||
DEFERRED COMPENSATION PLAN | |||
Original contractual term | 15 years | ||
PFC | |||
DEFERRED COMPENSATION PLAN | |||
Liability for vested benefits under the plan | $ 1,038,000 | 1,124,000 | |
Cash surrender value of life insurance policies of the plan participants | $ 1,741,000 | $ 1,722,000 |
REGULATORY MATTERS (Details)
REGULATORY MATTERS (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Minimum | New Rule | ||
Corporation's and the Bank's actual and required capital amounts and ratios | ||
Total capital to risk weighted assets, Adequacy Purposes Ratio (as a percent) | 8.00% | |
Total capital to risk weighted assets, Action Provisions Ratio (as a percent) | 10.00% | |
Tier 1 capital to risk weighted assets, Actual Ratio (as a percent) | 4.50% | |
Tier 1 capital to risk weighted assets, Adequacy Purposes Ratio (as a percent) | 4.00% | |
Tier 1 capital to risk weighted assets, Action Provisions Ratio (as a percent) | 6.50% | |
Tier 1 capital to average assets, Action Provisions Ratio (as a percent) | 5.00% | |
Increase in minimum required amount of Additional Tier 1 Capital | 6.00% | |
Additional Tier 1 Capital ratio | 8.00% | |
Consolidated | ||
Corporation's and the Bank's actual and required capital amounts and ratios | ||
Total capital to risk weighted assets, Actual Amount | $ 74,533 | $ 73,811 |
Total capital to risk weighted assets, Actual Ratio (as a percent) | 9.30% | 9.50% |
Tier 1 capital to risk weighted assets, Actual Amount | $ 69,454 | $ 68,791 |
Tier 1 capital to risk weighted assets, Actual Ratio (as a percent) | 8.70% | 8.80% |
Common equity Tier 1 capital to risk weighted assets, Actual Amount | $ 69,454 | $ 68,791 |
Common equity Tier 1 capital to risk weighted assets, Actual Ratio (as a percent) | 8.70% | 8.80% |
Tier 1 capital to average assets, Actual Amount | $ 69,454 | $ 68,791 |
Tier 1 capital to average assets, Actual Ratio (as a percent) | 7.10% | 7.30% |
Consolidated | Minimum | ||
Corporation's and the Bank's actual and required capital amounts and ratios | ||
Total capital to risk weighted assets, Adequacy Purposes Amount | $ 64,190 | $ 62,503 |
Total capital to risk weighted assets, Adequacy Purposes Ratio (as a percent) | 8.00% | 8.00% |
Total capital to risk weighted assets, Action Provisions Amount | $ 80,237 | $ 78,128 |
Total capital to risk weighted assets, Action Provisions Ratio (as a percent) | 10.00% | 10.00% |
Tier 1 capital to risk weighted assets, Adequacy Purposes Amount | $ 48,142 | $ 46,877 |
Tier 1 capital to risk weighted assets, Adequacy Purposes Ratio (as a percent) | 6.00% | 6.00% |
Tier 1 capital to risk weighted assets, Action Provisions Amount | $ 64,190 | $ 62,503 |
Tier 1 capital to risk weighted assets, Action Provisions Ratio (as a percent) | 8.00% | 8.00% |
Common equity Tier 1 capital to risk weighted assets, Adequacy Purpose Amount | $ 36,107 | $ 35,158 |
Common equity Tier 1 capital to risk weighted assets, Adequacy Purpose Ratio (as a percent) | 4.50% | 4.50% |
Common equity Tier 1 capital to risk weighted assets, Well-Capitalized Amount | $ 52,154 | $ 50,783 |
Common equity Tier 1 capital to risk weighted assets, Well-Capitalized Ratio (as a percent) | 6.50% | 6.50% |
Tier 1 capital to average assets, Adequacy Purposes Amount | $ 39,375 | $ 37,939 |
Tier 1 capital to average assets, Adequacy Purposes Ratio (as a percent) | 4.00% | 4.00% |
Tier 1 capital to average assets, Action Provisions Amount | $ 49,219 | $ 47,242 |
Tier 1 capital to average assets, Action Provisions Ratio (as a percent) | 5.00% | 5.00% |
Bank | ||
Corporation's and the Bank's actual and required capital amounts and ratios | ||
Total capital to risk weighted assets, Actual Amount | $ 93,598 | $ 92,521 |
Total capital to risk weighted assets, Actual Ratio (as a percent) | 11.70% | 11.90% |
Tier 1 capital to risk weighted assets, Actual Amount | $ 88,560 | $ 87,542 |
Tier 1 capital to risk weighted assets, Actual Ratio (as a percent) | 11.00% | 11.30% |
Common equity Tier 1 capital to risk weighted assets, Actual Amount | $ 88,560 | $ 87,542 |
Common equity Tier 1 capital to risk weighted assets, Actual Ratio (as a percent) | 11.00% | 11.30% |
Tier 1 capital to average assets, Actual Amount | $ 88,560 | $ 87,542 |
Tier 1 capital to average assets, Actual Ratio (as a percent) | 9.00% | 9.20% |
Bank | Minimum | ||
Corporation's and the Bank's actual and required capital amounts and ratios | ||
Total capital to risk weighted assets, Adequacy Purposes Amount | $ 64,202 | $ 62,102 |
Total capital to risk weighted assets, Adequacy Purposes Ratio (as a percent) | 8.00% | 8.00% |
Total capital to risk weighted assets, Action Provisions Amount | $ 80,252 | $ 77,627 |
Total capital to risk weighted assets, Action Provisions Ratio (as a percent) | 10.00% | 10.00% |
Tier 1 capital to risk weighted assets, Adequacy Purposes Amount | $ 48,151 | $ 46,576 |
Tier 1 capital to risk weighted assets, Adequacy Purposes Ratio (as a percent) | 6.00% | 6.00% |
Tier 1 capital to risk weighted assets, Action Provisions Amount | $ 64,202 | $ 62,102 |
Tier 1 capital to risk weighted assets, Action Provisions Ratio (as a percent) | 8.00% | 8.00% |
Common equity Tier 1 capital to risk weighted assets, Adequacy Purpose Amount | $ 36,113 | $ 34,932 |
Common equity Tier 1 capital to risk weighted assets, Adequacy Purpose Ratio (as a percent) | 4.50% | 4.50% |
Common equity Tier 1 capital to risk weighted assets, Well-Capitalized Amount | $ 52,164 | $ 50,458 |
Common equity Tier 1 capital to risk weighted assets, Well-Capitalized Ratio (as a percent) | 6.50% | 6.50% |
Tier 1 capital to average assets, Adequacy Purposes Amount | $ 39,279 | $ 37,889 |
Tier 1 capital to average assets, Adequacy Purposes Ratio (as a percent) | 4.00% | 4.00% |
Tier 1 capital to average assets, Action Provisions Amount | $ 49,098 | $ 47,361 |
Tier 1 capital to average assets, Action Provisions Ratio (as a percent) | 5.00% | 5.00% |
STOCK COMPENSATION PLANS (Detai
STOCK COMPENSATION PLANS (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||||||||
Feb. 28, 2017 | Aug. 31, 2016 | Mar. 31, 2016 | Feb. 29, 2016 | Aug. 31, 2015 | May 31, 2015 | Mar. 31, 2015 | Aug. 31, 2014 | Mar. 31, 2014 | Aug. 31, 2013 | Aug. 31, 2012 | Mar. 31, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Stock Compensation Plans | |||||||||||||||
Annual Compensation cost | $ 398 | $ 600 | $ 576 | ||||||||||||
Unrecognized compensation expenses | $ 660 | ||||||||||||||
Summary of nonvested shares | |||||||||||||||
Nonvested beginning balance (in shares) | 90,417 | 90,417 | |||||||||||||
Granted during the period (in shares) | 28,427 | ||||||||||||||
Vested during the period (in shares) | (31,559) | ||||||||||||||
Nonvested ending balance (in shares) | 87,285 | 90,417 | |||||||||||||
Weighted Average Grant Date Fair Value | |||||||||||||||
Nonvested beginning balance (in dollars per share) | $ 11.19 | $ 11.19 | |||||||||||||
Granted during the period (in dollars per share) | 13.39 | ||||||||||||||
Vested during the period (in dollars per share) | 11.55 | ||||||||||||||
Nonvested ending balance (in dollars per share) | $ 11.78 | $ 11.19 | |||||||||||||
RSUs | |||||||||||||||
Stock Compensation Plans | |||||||||||||||
Market value at grant date (in dollars per share) | $ 13.39 | $ 9.91 | $ 10.77 | $ 11.15 | $ 12.95 | $ 7.91 | |||||||||
Stock issued for vested restricted stocks | 37,125 | 22,626 | 37,125 | 3,000 | 13,194 | 37,125 | 37,125 | 31,559 | |||||||
Vesting period | 4 years | 4 years | 4 years | 4 years | 4 years | ||||||||||
Summary of nonvested shares | |||||||||||||||
Granted during the period (in shares) | 28,427 | 35,733 | 3,000 | 37,730 | 52,774 | 148,500 |
SHAREHOLDERS' EQUITY (Details)
SHAREHOLDERS' EQUITY (Details) - USD ($) | 12 Months Ended | |||||||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2017 | Apr. 28, 2015 | Dec. 17, 2013 | Feb. 27, 2013 | |
Participation in the TARP Capital Purchase Program | ||||||||
Number of shares authorized to be repurchased | $ 26,000 | $ 600,000 | ||||||
Number of additional shares authorized to be repurchased | $ 750,000 | $ 600,000 | ||||||
Shares of Common Stock | ||||||||
Participation in the TARP Capital Purchase Program | ||||||||
Number of shares repurchased | 14,000 | 102,455 | 13,700 | 55,594 |
COMMITMENTS, CONTINGENCIES, A75
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Details) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017USD ($)item | Dec. 31, 2016USD ($) | |
Financial Instruments with Off-Balance-Sheet Risk | ||
Commitments | $ 123,196 | $ 102,018 |
Number of pending material legal proceedings | item | 0 | |
Commitments to extend credit | ||
Financial Instruments with Off-Balance-Sheet Risk | ||
Commitments, variable rate | $ 72,187 | 59,496 |
Commitments, fixed rate | 37,468 | 28,737 |
Standby letters of credit | ||
Financial Instruments with Off-Balance-Sheet Risk | ||
Commitments, variable rate | $ 7,753 | 8,252 |
Percentage collateralization on financial instruments allowed under commitments | 100.00% | |
Credit card commitments | ||
Financial Instruments with Off-Balance-Sheet Risk | ||
Commitments, fixed rate | $ 5,788 | $ 5,533 |
COMMITMENTS, CONTINGENCIES, A76
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK - CREDIT RISK (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Concentration of Credit Risk | ||
Loan portfolio | $ 805,999 | $ 776,837 |
Commercial real estate | ||
Concentration of Credit Risk | ||
Loan portfolio | 405,092 | 388,075 |
Bank | Commercial real estate | Commercial loan portfolio | Credit risk concentration | ||
Concentration of Credit Risk | ||
Loan portfolio | $ 119,025 | $ 121,861 |
Percentage of concentration risk under a specified benchmark | 20.77% | 22.42% |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Fair Value Measurements | ||
Blended interest rate for determining fair value of nonaccrual loans (as a percent) | 0.00% | |
Fair value of commitments | $ 0 | |
Financial assets: | ||
Interest-bearing deposits | 13,374 | $ 14,047 |
Securities available for sale | 75,897 | 86,273 |
Carrying Amount | ||
Financial assets: | ||
Total financial assets | 938,084 | 928,839 |
Financial liabilities: | ||
Total financial liabilities | 897,872 | 891,358 |
Estimated Fair Value | ||
Financial assets: | ||
Total financial assets | 929,811 | 930,379 |
Financial liabilities: | ||
Total financial liabilities | 868,196 | 884,520 |
Level 1 | Carrying Amount | ||
Financial assets: | ||
Cash and cash equivalents | 37,426 | 46,755 |
Level 1 | Estimated Fair Value | ||
Financial assets: | ||
Cash and cash equivalents | 37,426 | 46,755 |
Level 2 | Carrying Amount | ||
Financial assets: | ||
Interest-bearing deposits | 13,374 | 14,047 |
Securities available for sale | 74,397 | 84,623 |
Federal Home Loan Bank stock | 3,112 | 2,911 |
Financial liabilities: | ||
Deposits | 817,998 | 823,512 |
Borrowings | 79,552 | 67,579 |
Level 2 | Estimated Fair Value | ||
Financial assets: | ||
Interest-bearing deposits | 13,374 | 14,047 |
Securities available for sale | 74,397 | 84,623 |
Federal Home Loan Bank stock | 3,112 | 2,911 |
Financial liabilities: | ||
Deposits | 788,632 | 815,960 |
Borrowings | 79,242 | 68,293 |
Level 3 | Carrying Amount | ||
Financial assets: | ||
Securities available for sale | 1,500 | 1,650 |
Net loans | 805,999 | 776,837 |
Accrued interest receivable | 2,276 | 2,016 |
Financial liabilities: | ||
Accrued interest payable | 322 | 267 |
Level 3 | Estimated Fair Value | ||
Financial assets: | ||
Securities available for sale | 1,500 | 1,650 |
Net loans | 797,726 | 778,377 |
Accrued interest receivable | 2,276 | 2,016 |
Financial liabilities: | ||
Accrued interest payable | $ 322 | $ 267 |
FAIR VALUE MEASUREMENTS - OTHER
FAIR VALUE MEASUREMENTS - OTHER ASSETS AND OTHER LIABILITIES (Details) - Recurring - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Fair value measurements | ||
Other assets | $ 0 | |
Other liabilities | $ 0 | |
Level 3 | ||
Fair value measurements | ||
Assets | $ 0 |
FAIR VALUE MEASUREMENTS - RECUR
FAIR VALUE MEASUREMENTS - RECURRING (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 |
Available-for-sale Securities | $ 75,897 | $ 86,273 |
Corporate | ||
Available-for-sale Securities | 24,391 | 19,910 |
Equity | ||
Available-for-sale Securities | 500 | 500 |
US Agencies | ||
Available-for-sale Securities | 16,846 | 23,952 |
US Agencies - MBS | ||
Available-for-sale Securities | 12,716 | 16,833 |
Obligations of states and political subdivisions | ||
Available-for-sale Securities | 21,444 | 25,078 |
Recurring | ||
Available-for-sale Securities | 75,897 | 86,273 |
Recurring | Corporate | ||
Available-for-sale Securities | 24,391 | 19,910 |
Recurring | Equity | ||
Available-for-sale Securities | 500 | 500 |
Recurring | US Agencies | ||
Available-for-sale Securities | 16,846 | 23,952 |
Recurring | US Agencies - MBS | ||
Available-for-sale Securities | 12,716 | 16,833 |
Recurring | Obligations of states and political subdivisions | ||
Available-for-sale Securities | 21,444 | 25,078 |
Level 2 | Recurring | Corporate | ||
Available-for-sale Securities | 24,391 | 19,910 |
Level 2 | Recurring | US Agencies | ||
Available-for-sale Securities | 16,846 | 23,952 |
Level 2 | Recurring | US Agencies - MBS | ||
Available-for-sale Securities | 12,716 | 15,683 |
Level 2 | Recurring | Obligations of states and political subdivisions | ||
Available-for-sale Securities | 20,444 | 25,078 |
Level 3 | Recurring | Equity | ||
Available-for-sale Securities | 500 | 500 |
Level 3 | Recurring | US Agencies - MBS | ||
Available-for-sale Securities | $ 1,150 | |
Level 3 | Recurring | Obligations of states and political subdivisions | ||
Available-for-sale Securities | $ 1,000 |
FAIR VALUE MEASUREMENTS - LEVEL
FAIR VALUE MEASUREMENTS - LEVEL 3 ACTIVITIES (Details) - Level 3 - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Equity | ||
Fair values of assets using Level 3 inputs, specifically discounted cash flow projections | ||
Balance at the beginning | $ 500 | |
Purchases | $ 500 | |
Balance at the end | 500 | 500 |
US Agencies - MBS | ||
Fair values of assets using Level 3 inputs, specifically discounted cash flow projections | ||
Balance at the beginning | 1,150 | |
Realized net gain (losses) | 38 | |
Purchases | 1,150 | |
Sales | (1,188) | |
Balance at the end | $ 1,150 | |
Obligations of states and political subdivisions | ||
Fair values of assets using Level 3 inputs, specifically discounted cash flow projections | ||
Transfers in (out) of level 3 | 740 | |
Purchases | 260 | |
Balance at the end | $ 1,000 |
FAIR VALUE MEASUREMENTS - NONRE
FAIR VALUE MEASUREMENTS - NONRECURRING BASIS (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Fair value | |||
Impaired loans | $ 3,852 | $ 6,757 | |
Other real estate owned | 3,558 | 4,782 | $ 2,324 |
Nonrecurring | |||
Fair value | |||
Impaired loans | 3,852 | 9,856 | |
Other real estate owned | 3,558 | $ 4,782 | |
Total Losses | 529 | 845 | |
Investments | 0 | ||
Nonrecurring | Impaired loans | |||
Fair value | |||
Total Losses | 141 | 643 | |
Nonrecurring | Other real estate owned | |||
Fair value | |||
Total Losses | 388 | 202 | |
Nonrecurring | Level 3 | |||
Fair value | |||
Impaired loans | 3,852 | 9,856 | |
Other real estate owned | $ 3,558 | $ 4,782 |
BUSINESS COMBINATIONS (Details)
BUSINESS COMBINATIONS (Details) | Aug. 31, 2016USD ($)$ / sharesshares | Apr. 29, 2016USD ($)item$ / sharesshares | Aug. 31, 2016USD ($)item$ / sharesshares | Dec. 31, 2017USD ($)$ / sharesshares | Dec. 31, 2016USD ($)$ / sharesshares |
Business Acquisition [Line Items] | |||||
Assets | $ 985,367,000 | $ 983,520,000 | |||
Purchase Price: | |||||
Shares outstanding (in Shares) | shares | 6,294,930 | 6,263,371 | |||
Cash consideration | $ 1,900,000 | ||||
Net assets acquired: | |||||
Goodwill | $ 5,694,000 | 5,694,000 | |||
Eagle River | |||||
Business Acquisition [Line Items] | |||||
Number of banking offices | item | 3 | ||||
Assets | $ 125,000,000 | ||||
Purchase Price: | |||||
Shares outstanding (in Shares) | shares | 85,776,000 | ||||
Price per share / Cash Price | $ / shares | $ 145.73 | ||||
Total purchase price | $ 12,500,000 | ||||
Reimbursement of termination fees | (1,763,000) | ||||
Cash consideration | 10,737,000 | ||||
Net assets acquired: | |||||
Cash and cash equivalents | 10,600,000 | ||||
Securities available for sale, net of purchase accounting marks | 23,296,000 | ||||
FRB & FHLB Stock | 575,000 | ||||
Total Loans, net of purchase accounting marks | 80,875,000 | ||||
Premises and equipment | 1,931,000 | ||||
Other real estate owned | 904,000 | ||||
Deposit based intangible | 993,000 | ||||
Mortgage service rights | 120,000 | ||||
Deferred tax benefit - book for valuation marks | 948,000 | ||||
Bank owned life insurance | 4,132,000 | ||||
Other assets | 323,000 | ||||
Total assets | 124,697,000 | ||||
Non-interest bearing deposits | 22,349,000 | ||||
Interest bearing deposits | 82,165,000 | ||||
Total deposits | 104,514,000 | ||||
FHLB Borrowings | 11,000,000 | ||||
Other liabilities | 285,000 | ||||
Total liabilities | 115,799,000 | ||||
Net assets acquired | 8,898,000 | ||||
Goodwill | $ 1,839,000 | $ 1,839,000 | |||
Number of days included into the pro-forma results | 245 days | ||||
Data processing termination fees | $ 1,763,000 | ||||
Other related expenses | 954,000 | ||||
Merger transaction related expenses before tax | 2,717,000 | ||||
Merger transaction related expenses after tax | 1,793,000 | ||||
Niagara Bancorporation | |||||
Business Acquisition [Line Items] | |||||
Number of banking offices | item | 4 | ||||
Assets | $ 67,000,000 | $ 67,000,000 | |||
Purchase Price: | |||||
Shares outstanding (in Shares) | shares | 4,354,000 | 4,354,000 | |||
Price per share / Cash Price | $ / shares | $ 1,682.36 | $ 1,682.36 | |||
Total purchase price | $ 7,325,000 | ||||
Net assets acquired: | |||||
Cash and cash equivalents | 9,778,000 | $ 9,778,000 | |||
Securities available for sale, net of purchase accounting marks | 21,491,000 | 21,491,000 | |||
FRB & FHLB Stock | 287,000 | 287,000 | |||
Total Loans, net of purchase accounting marks | 31,707,000 | 31,707,000 | |||
Premises and equipment | 926,000 | 926,000 | |||
Other real estate owned | 301,000 | 301,000 | |||
Deposit based intangible | 300,000 | 300,000 | |||
Mortgage service rights | 87,000 | 87,000 | |||
Deferred tax benefit - book for valuation marks | 397,000 | 397,000 | |||
Bank owned life insurance | 1,109,000 | 1,109,000 | |||
Other assets | 302,000 | 302,000 | |||
Total assets | 66,685,000 | 66,685,000 | |||
Non-interest bearing deposits | 5,396,000 | 5,396,000 | |||
Interest bearing deposits | 53,788,000 | 53,788,000 | |||
Total deposits | 59,184,000 | 59,184,000 | |||
Other liabilities | 226,000 | 226,000 | |||
Total liabilities | 59,410,000 | 59,410,000 | |||
Net assets acquired | 7,275,000 | 7,275,000 | |||
Goodwill | $ 50,000 | $ 50,000 | $ 50,000 | ||
Number of days included into the pro-forma results | 122 days | ||||
Merger transaction related expenses before tax | $ 384,000 | ||||
Merger transaction related expenses after tax | 253,000 | ||||
Eagle River and Niagara | |||||
Unaudited proforma results | |||||
Net interest income | 36,902,000 | 32,924,000 | |||
Noninterest income | 5,129,000 | 4,865,000 | |||
Noninterest expense | 30,857,000 | 26,851,000 | |||
Net income | $ 7,375,000 | $ 7,219,000 | |||
Net income per diluted share | $ / shares | $ 1.18 | $ 1.15 | |||
PARENT COMPANY | |||||
Business Acquisition [Line Items] | |||||
Assets | $ 101,445,000 | $ 101,527,000 | |||
Net cash used in Eagle acquisition and reimbursement of contract termination fee | $ 19,825,000 | ||||
Purchase Price: | |||||
Shares outstanding (in Shares) | shares | 6,294,930 | 6,263,371 |
SEBSEQUENT EVENT (Details)
SEBSEQUENT EVENT (Details) - USD ($) $ in Thousands | Jan. 16, 2018 | Dec. 31, 2017 | Dec. 31, 2016 |
Subsequent Event | |||
Total assets | $ 985,367 | $ 983,520 | |
Subsequent Event | FFNM | Minimum | |||
Subsequent Event | |||
Total assets | $ 320,000 |
PARENT COMPANY ONLY FINANCIAL84
PARENT COMPANY ONLY FINANCIAL STATEMENTS (Details) - USD ($) $ in Thousands | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 |
ASSETS | |||||
Cash and cash equivalents | $ 37,426 | $ 46,755 | $ 25,008 | $ 21,947 | |
Other assets | 17,125 | 19,398 | |||
TOTAL ASSETS | 985,367 | 983,520 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Other liabilities | 6,417 | 7,820 | |||
Total liabilities | 903,967 | 904,911 | |||
Shareholders' equity: | |||||
Common stock and additional paid in capital - no par value Authorized 18,000,000 shares Issued and outstanding - 6,217,620 and 6,266,756 shares respectively | 61,981 | 61,583 | |||
Retained earnings | 19,711 | 17,206 | |||
Total shareholders' equity | 81,400 | 78,609 | 76,602 | $ 73,996 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 985,367 | 983,520 | |||
PARENT COMPANY | |||||
ASSETS | |||||
Cash and cash equivalents | 198 | 106 | $ 986 | $ 1,693 | |
Investment in subsidiaries | 97,984 | 97,407 | |||
Other assets | 3,263 | 4,014 | |||
TOTAL ASSETS | 101,445 | 101,527 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Line of Credit | 750 | ||||
Other borrowing | 18,999 | 21,199 | |||
Other liabilities | 1,046 | 969 | |||
Total liabilities | 20,045 | 22,918 | |||
Shareholders' equity: | |||||
Common stock and additional paid in capital - no par value Authorized 18,000,000 shares Issued and outstanding - 6,217,620 and 6,266,756 shares respectively | 61,981 | 61,583 | |||
Retained earnings | 19,711 | 17,206 | |||
Accumulated other comprehensive income | (292) | (180) | |||
Total shareholders' equity | 81,400 | 78,609 | |||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 101,445 | $ 101,527 |
PARENT COMPANY ONLY FINANCIAL85
PARENT COMPANY ONLY FINANCIAL STATEMENTS - BALANCE SHEET (Details) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 |
BALANCE SHEET | ||
Common stock, par value | $ 0 | $ 0 |
Common stock, Authorized shares | 18,000,000 | 18,000,000 |
Common stock, Shares issued | 6,294,930 | 6,263,371 |
Common stock, Shares outstanding | 6,294,930 | 6,263,371 |
PARENT COMPANY | ||
BALANCE SHEET | ||
Common stock, Authorized shares | 18,000,000 | 18,000,000 |
Common stock, Shares issued | 6,294,930 | 6,263,371 |
Common stock, Shares outstanding | 6,294,930 | 6,263,371 |
PARENT COMPANY ONLY FINANCIAL86
PARENT COMPANY ONLY FINANCIAL STATEMENTS - STATEMENT OF OPERATIONS (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
INCOME: | |||
Interest income | $ 44,376 | $ 37,983 | $ 33,513 |
EXPENSES: | |||
Interest expense on borrowings | 2,077 | 1,563 | 1,142 |
Salaries and benefits | 15,490 | 14,625 | 12,449 |
Professional service fees | 1,534 | 1,169 | 1,270 |
Transaction related expenses | 50 | 3,101 | |
Other | 2,143 | 2,003 | 2,046 |
Total other expenses | 30,336 | 29,885 | 23,876 |
Loss before income taxes and equity in net income of subsidiaries | 11,018 | 6,766 | 7,929 |
(Benefit of) income taxes | 5,539 | 2,283 | 2,333 |
NET INCOME | 5,479 | 4,483 | 5,596 |
PARENT COMPANY | |||
INCOME: | |||
Interest income | 2 | ||
Total income | 2 | ||
EXPENSES: | |||
Interest expense on borrowings | 868 | 707 | 453 |
Salaries and benefits | 698 | 900 | 876 |
Professional service fees | 279 | 173 | 256 |
Transaction related expenses | 50 | 443 | |
Other | 294 | 152 | 184 |
Total other expenses | 2,189 | 2,375 | 1,769 |
Loss before income taxes and equity in net income of subsidiaries | (2,189) | (2,373) | (1,769) |
(Benefit of) income taxes | (27) | (807) | (602) |
Loss before equity in net income of subsidiaries | (2,162) | (1,566) | (1,167) |
Equity in net income of subsidiaries | 7,641 | 6,049 | 6,763 |
NET INCOME | $ 5,479 | $ 4,483 | $ 5,596 |
PARENT COMPANY ONLY FINANCIAL87
PARENT COMPANY ONLY FINANCIAL STATEMENTS - CASH FLOWS (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Cash Flows from Operating Activities: | |||
Net income | $ 5,479 | $ 4,483 | $ 5,596 |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Increase in capital from stock compensation | 398 | 600 | 576 |
Change in other assets | 2,523 | (10,282) | 8,188 |
Change in other liabilities | (818) | 1,205 | (6,380) |
Net cash provided by operating activities | 15,744 | 377 | 13,092 |
Cash Flows from Investing Activities: | |||
Net cash (used in) investing activities | (22,510) | (42,298) | (5,988) |
Cash Flows from Financing Activities: | |||
Principal payments on term borrowings | (12,277) | (174) | (725) |
Net activity on line of credit | (750) | (8,801) | (3,367) |
Repurchase of common stock | (150) | (1,122) | |
Dividend on common stock | 3,022 | 2,498 | 2,179 |
Net cash (used in) provided by financing activities | (2,563) | 63,668 | (4,043) |
Net (decrease) increase in cash and cash equivalents | (9,329) | 21,747 | 3,061 |
Cash and cash equivalents at beginning of period | 46,755 | 25,008 | |
Cash and cash equivalents at end of period | 37,426 | 46,755 | 25,008 |
PARENT COMPANY | |||
Cash Flows from Operating Activities: | |||
Net income | 5,479 | 4,483 | 5,596 |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Equity in net (income) of subsidiaries | (7,641) | (6,049) | (6,763) |
Increase in capital from stock compensation | 398 | 600 | 576 |
Change in other assets | 751 | (1,033) | 2,903 |
Change in other liabilities | 77 | (132) | (4,907) |
Net cash provided by operating activities | (936) | (2,131) | (2,595) |
Cash Flows from Investing Activities: | |||
Investments in subsidiaries | 7,000 | 11,825 | 5,839 |
Net cash paid in acquisitions | (19,825) | ||
Net cash (used in) investing activities | 7,000 | (8,000) | 5,839 |
Cash Flows from Financing Activities: | |||
Increase on term borrowings | 19,799 | ||
Principal payments on term borrowings | (2,200) | (100) | (100) |
Net activity on line of credit | (750) | (7,800) | (550) |
Repurchase of common stock | (150) | (1,122) | |
Dividend on common stock | (3,022) | (2,498) | (2,179) |
Net cash (used in) provided by financing activities | (5,972) | 9,251 | (3,951) |
Net (decrease) increase in cash and cash equivalents | 92 | (880) | (707) |
Cash and cash equivalents at beginning of period | 106 | 986 | 1,693 |
Cash and cash equivalents at end of period | $ 198 | $ 106 | $ 986 |