Mackinac Financial (MFNC) 10-Q 10 May 19 2019 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 09, 2019
Document and Entity Information
Entity Registrant Name	MACKINAC FINANCIAL CORP /MI/
Entity Central Index Key	0000036506
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		10,740,712
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
ASSETS
Cash and due from banks	$ 55,923	$ 64,151
Federal funds sold	1,040	6
Cash and cash equivalents	56,963	64,157
Interest-bearing deposits in other financial institutions	12,712	13,452
Securities available for sale	113,460	116,748
Federal Home Loan Bank stock	4,924	4,924
Loans:
Commercial	732,678	717,032
Mortgage	293,126	301,461
Consumer	19,624	20,371
Total Loans	1,045,428	1,038,864
Allowance for loan losses	(5,154)	(5,183)
Net loans	1,040,274	1,033,681
Premises and equipment	23,479	22,783
Other real estate held for sale	1,961	3,119
Deferred tax asset	6,906	5,763
Deposit based intangibles	5,549	5,720
Goodwill	19,224	22,024
Other assets	31,544	25,669
TOTAL ASSETS	1,316,996	1,318,040
Deposits:
Noninterest bearing deposits	245,201	241,556
NOW, money market, interest checking	363,753	368,890
Savings	110,978	111,358
CDs less than $250,000	245,427	225,236
CDs more than $250,000	12,706	13,737
Brokered	119,183	136,760
Total deposits	1,097,248	1,097,537
Federal funds purchased	6,780	2,905
Borrowings	46,878	57,536
Other liabilities	11,344	7,993
Total liabilities	1,162,250	1,165,971
SHAREHOLDERS’ EQUITY:
Common stock and additional paid in capital - No par value Authorized - 18,000,000 shares Issued and outstanding - 10,740,712 and 10,712,745 respectively	129,204	129,066
Retained earnings	25,347	23,466
Accumulated other comprehensive income (loss)
Unrealized gains (losses) on available for sale securities	413	(245)
Minimum pension liability	(218)	(218)
Total shareholders’ equity	154,746	152,069
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,316,996	$ 1,318,040

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
CONDENSED CONSOLIDATED BALANCE SHEETS
Common stock, par value	$ 0	$ 0
Common stock, Authorized shares	18,000,000	18,000,000
Common stock, Shares issued	10,740,712	10,712,745
Common stock, Shares outstanding	10,740,712	10,712,745

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest and fees on loans:
Taxable	$ 14,595	$ 10,390
Tax-exempt	47	25
Interest on securities:
Taxable	703	372
Tax-exempt	98	69
Other interest income	385	199
Total interest income	15,828	11,055
INTEREST EXPENSE:
Deposits	2,354	1,236
Borrowings	238	510
Total interest expense	2,592	1,746
Net interest income	13,236	9,309
Provision for loan losses	100	50
Net interest income after provision for loan losses	13,136	9,259
OTHER INCOME:
Deposit service fees	406	269
Income from mortgage loans sold on the secondary market	312	177
SBA/USDA loan sale gains	125	51
Net mortgage servicing fees (amortization)	(8)	(8)
Other	282	125
Total other income	1,117	614
OTHER EXPENSE:
Salaries and employee benefits	5,435	4,154
Occupancy	1,081	811
Furniture and equipment	718	531
Data processing	709	504
Advertising	309	195
Professional service fees	434	304
Loan origination expenses and deposit and card related fees	179	126
Writedowns and losses on other real estate held for sale	28	26
FDIC insurance assessment	134	156
Communications	228	155
Transaction related expenses		189
Other	989	777
Total other expenses	10,244	7,928
Income before provision for income taxes	4,009	1,945
Provision for income taxes	842	408
NET INCOME	$ 3,167	$ 1,537
INCOME PER COMMON SHARE:
Basic (in dollars per share)	$ 0.30	$ 0.24
Diluted (in dollars per share)	$ 0.30	$ 0.24

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CONDENSED CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME
Net income	$ 3,167	$ 1,537
Other comprehensive income
Unrealized gains (losses) arising during the period	973	(537)
Tax effect	(315)	113
Net change in unrealized gains (losses) on available for sale securities	658	(424)
Total comprehensive income	$ 3,825	$ 1,113

CONDENSED CONSOLIDATED STATEM_3

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - USD ($) $ in Thousands	Shares of Common Stock	Common Stock and Additional Paid in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance, beginning of period at Dec. 31, 2017		$ 61,981	$ 19,711	$ (292)	$ 81,400
Balance (in shares) at Dec. 31, 2017	6,294,930
Increase (Decrease) in Shareholders' Equity
Net income for period			1,537		1,537
Other comprehensive income (loss):
Net unrealized gain on securities available for sale				(424)	(424)
Total comprehensive income			1,537	(424)	1,113
Stock compensation		99			99
Restricted stock award vesting (in shares)	37,630
Dividend on common stock			(755)		(755)
Balance, end of period at Mar. 31, 2018		62,080	20,493	(716)	81,857
Balance (in shares) at Mar. 31, 2018	6,332,560
Balance, beginning of period at Dec. 31, 2018		129,066	23,466	(463)	152,069
Balance (in shares) at Dec. 31, 2018	10,712,745
Increase (Decrease) in Shareholders' Equity
Net income for period			3,167		3,167
Other comprehensive income (loss):
Net unrealized gain on securities available for sale				658	658
Total comprehensive income			3,167	658	3,825
Stock compensation		138			138
Restricted stock award vesting (in shares)	27,967
Dividend on common stock			(1,286)		(1,286)
Balance, end of period at Mar. 31, 2019		$ 129,204	$ 25,347	$ 195	$ 154,746
Balance (in shares) at Mar. 31, 2019	10,740,712

CONDENSED CONSOLIDATED STATEM_4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash Flows from Operating Activities:
Net income	$ 3,167	$ 1,537
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	618	631
Provision for loan losses	100	50
Deferred tax expense, net	324	408
Gain on sale of loans sold in the secondary market	(258)	(139)
Origination of loans held for sale in the secondary market	(13,604)	(8,201)
Proceeds from sale of loans in the secondary market	13,862	8,340
Loss on sale of other real estate held for sale	28	26
Stock compensation	138	99
Change in other assets	(2,386)	513
Change in other liabilities	3,351	(1,144)
Net cash provided by operating activities	5,340	2,120
Cash Flows from Investing Activities:
Net decrease (increase) in loans	(9,291)	(1,454)
Net decrease in interest bearing deposits in other financial institutions	740	1,983
Proceeds from maturities, sales, calls or paydowns of securities available for sale	4,306	1,336
Capital expenditures	(346)	(548)
Proceeds from sale of other real estate, premises and fixed assets	415	1,070
Net cash (used in) provided by investing activities	(4,176)	2,387
Cash Flows from Financing Activities:
Net (decrease) increase in deposits	(289)	(11,201)
Net activity on line of credit		1,000
Increase in fed funds purchased	3,875	10,000
Principal payments on borrowings	(10,658)	(550)
Dividend on common stock	(1,286)	(755)
Net cash used in financing activities	(8,358)	(1,506)
Net increase in cash and cash equivalents	(7,194)	3,001
Cash and cash equivalents at beginning of period	64,157	37,426
Cash and cash equivalents at end of period	56,963	40,427
Cash paid during the year for:
Interest	2,523	1,746
Income taxes		40
Noncash Investing and Financing Activities:
Transfers of Foreclosures from Loans to Other Real Estate Held for Sale	$ 298	$ 64

SUMMARY OF SIGNIFICANT ACCOUNTI

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements of Mackinac Financial Corporation (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018. In order to properly reflect some categories of other income and other expenses, reclassifications of expense and income items have been made to prior period numbers. The “net” other income and other expenses were unchanged by these reclassifications. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reporting 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, the assessment of goodwill for impairment, and the fair value of assets and liabilities acquired in business combinations. 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 using a discounted cash flow methodology based on assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, 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 Financial Accounting Standards Board (“FASB”) 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. Allowance for Loan Losses The allowance for loan losses includes specific allowances related to loans, when they 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. 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”), stock grants, or stock appreciation rights. The aggregate number of shares of the Corporation’s common stock issuable under the plan is 575,000. At March 31, 2019 there were 216,310 shares available for issuance under this plan. 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.

RECENT ACCOUNTING PRONOUNCEMENT

RECENT ACCOUNTING PRONOUNCEMENTS	3 Months Ended
	Mar. 31, 2019
RECENT ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS	2. RECENT ACCOUNTING PRONOUNCEMENTS 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 the 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 was adopted January 1, 2019, and accordingly an asset and liability of $4.838 million were recognized. The asset is included in other assets and the liability is included within other liabilities. In September 2016, 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 SEC registrants 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. The Corporation has formed a cross-functional implementation team consisting of individuals from finance, credit and information systems. A project plan and timeline has been developed and the implementation team meets regularly to assess the project status to ensure adherence to the timeline. The implementation team has also been working with a software vendor to assist in implementing required changes to credit loss estimation models and proceses, an is finalizing the historical data collected to be utilized in the credit loss models. The Corporation expects to recognize a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective. The Corporation has not yet determined the magnitude of any such one-time adjustment or ther potential impact of ASU 2016-13 on its condensed consolidated financial statements.

EARNINGS PER SHARE

EARNINGS PER SHARE	3 Months Ended
	Mar. 31, 2019
EARNINGS PER SHARE
EARNINGS PER SHARE	3. EARNINGS PER SHARE Diluted earnings per share, which reflects the potential dilution that could occur if 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 three months ended March 31, 2019 and 2018 (dollars in thousands, except per share data): Three Months Ended March 31, 2019 2018 (Numerator): Net income $ 3,167 $ (Denominator): Weighted average shares outstanding 10,720,127 Effect of restricted stock awards 3,794 Diluted weighted average shares outstanding 10,723,921 6,330,210 Income per common share: Basic $ 0.30 $ 0.24 Diluted $ 0.30 $ 0.24

INVESTMENT SECURITIES

INVESTMENT SECURITIES	3 Months Ended
	Mar. 31, 2019
INVESTMENT SECURITIES
INVESTMENT SECURITIES	4. INVESTMENT SECURITIES At March 31, 2019 the Corporation has an investment security portfolio totaling $113.460 million, a decrease of $3.288 million from December 31, 2018 balance of $116.748 million. The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2019 and December 31, 2018 are as follows (dollars in thousands): Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value March 31, 2019 Corporate $ 20,172 $ 30 $ (44) $ 20,158 US Agencies 15,952 13 (118) 15,847 US Agencies - MBS 31,158 345 (126) 31,377 Obligations of states and political subdivisions 45,654 587 (163) 46,078 Total securities available for sale $ 112,936 $ 975 $ (451) $ 113,460 December 31, 2018 Corporate $ 20,198 $ 24 $ (158) $ 20,064 US Agencies 16,198 5 (233) 15,970 US Agencies - MBS 32,974 124 (258) 32,840 Obligations of states and political subdivisions 47,828 341 (295) 47,874 Total securities available for sale $ 117,198 $ 494 $ (944) $ 116,748 March 31, 2019 December 31, 2018 Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value Available -for-sale securities Under 1 year $ 18,890 $ 18,846 $ 13,683 $ 13,665 After 1 year through five years 78,722 79,156 83,928 83,486 After 5 years through 10 years 12,455 12,589 16,712 16,739 After 10 years 2,869 2,869 2,875 2,858 Total available -for-sale securities $ 112,936 $ 113,460 $ 117,198 $ 116,748 The Corporation has evaluated gross unrealized losses that exist within the portfolio and considers them temporary in nature. The Corporation has both the ability and the intent to hold the investment securities until their respective maturities and therefore does not anticipate the realization of the temporary losses. The amortized cost and estimated fair value of investment securities pledged to secure FHLB borrowings and customer relationships were $26.330 million and $26.583 million, respectively, at March 31, 2019.

LOANS

LOANS	3 Months Ended
	Mar. 31, 2019
LOANS
LOANS	5. LOANS The composition of loans is as follows (dollars in thousands): March 31, December 31, 2019 2018 Commercial real estate $ 498,471 $ 496,207 Commercial, financial, and agricultural 201,089 191,060 Commercial construction 33,118 29,765 One to four family residential real estate 281,104 286,908 Consumer 19,624 20,371 Consumer construction 12,022 14,553 Total loans $ 1,045,428 $ 1,038,864 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, Niagara Bancorporation (“Niagara”) on August 31, 2016, First Federal of Northern Michigan Bancorp (“FFNM”) on May 18, 2018 and Lincoln Community Bank (“Lincoln”) on October 1, 2018. The PFC acquired impaired loans totaled $13.290 million, the Eagle River acquired impaired loans totaled $3.401 million, the Niagara acquired impaired loans totaled $2.105 million, the FFNM acquired impaired loans totaled $5.440 million, and the Lincoln impaired loans totaled $1.901 million. The table below details the outstanding balances of the PFC acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 13,290 $ 53,849 $ 67,139 Nonaccretable difference (2,234) — (2,234) Expected cash flows 11,056 53,849 64,905 Accretable yield (744) (2,100) (2,844) Carrying balance at acquisition date $ 10,312 $ 51,749 $ 62,061 The table below details the outstanding balances of the Eagle River acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 3,401 $ 80,737 $ 84,138 Nonaccretable difference (1,172) — (1,172) Expected cash flows 2,229 80,737 82,966 Accretable yield (391) (1,700) (2,091) Carrying balance at acquisition date $ 1,838 $ 79,037 $ 80,875 The table below details the outstanding balances of the Niagara acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 2,105 $ 30,555 $ 32,660 Nonaccretable difference (265) — (265) Expected cash flows 1,840 30,555 32,395 Accretable yield (88) (600) (688) Carrying balance at acquisition date $ 1,752 $ 29,955 $ 31,707 The table below details the outstanding balances of the FFNM acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 5,440 $ 187,302 $ 192,742 Nonaccretable difference (2,100) — (2,100) Expected cash flows 3,340 187,302 190,642 Accretable yield (700) (4,498) (5,198) Carrying balance at acquisition date $ 2,640 $ 182,804 $ 185,444 The table below details the outstanding balances of the Lincoln acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 1,901 $ 37,700 $ 39,601 Nonaccretable difference (546) — (546) Expected cash flows 1,355 37,700 39,055 Accretable yield (561) (493) (1,054) Carrying balance at acquisition date $ 794 $ 37,207 $ 38,001 The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2019 (dollars in thousands): PFC Eagle River Acquired Acquired Acquired Acquired Acquired Acquired Impaired Non-impaired Total Impaired Non-impaired Total Balance, December 31, 2018 $ 128 $ — $ 128 $ 213 $ 16 $ 229 Accretion — — — — (16) (16) Reclassification from nonaccretable difference — — — — — — Balance, March 31, 2019 $ 128 $ — $ 128 $ 213 $ — $ 213 Niagara First Federal Northern Michigan Acquired Acquired Acquired Acquired Acquired Acquired Impaired Non-impaired Total Impaired Non-impaired Total Balance, December 31, 2018 $ 26 $ 69 $ 95 $ 571 $ 3,446 $ 4,017 Accretion — (51) (51) — (410) (410) Reclassification from nonaccretable difference — — — — — — Balance, March 31, 2019 $ 26 $ 18 $ 44 $ 571 $ 3,036 $ 3,607 Lincoln Community Bank Total Acquired Acquired Acquired Acquired Acquired Acquired Impaired Non-impaired Total Impaired Non-impaired Total Balance, December 31, 2018 $ 140 $ 442 $ 582 $ 1,078 $ 3,973 $ 5,051 Accretion (15) (49) (64) (15) (526) (541) Reclassification from nonaccretable difference 12 — 12 12 — 12 Balance, March 31, 2019 $ 137 $ 393 $ 530 $ 1,075 $ 3,447 $ 4,522 The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2018 (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, 2017 $ 149 $ — $ 149 $ 218 $ 603 $ 821 $ 38 $ 281 $ 319 Accretion (30) — (30) — (150) (150) — (54) (54) Reclassification from nonaccretable difference 23 — 23 — — — — — — Balance, March 31, 2018 $ 142 $ — $ 142 $ 218 $ 453 $ 671 $ 38 $ 227 $ 265 Allowance for Loan Losses An analysis of the allowance for loan losses for the three months ended March 31, 2019 and March 31, 2018 is as follows (dollars in thousands): March 31, March 31, 2019 2018 Balance, January 1 $ 5,183 $ 5,079 Recoveries on loans previously charged off 32 25 Loans charged off (161) Provision 100 50 Balance at end of period $ 5,154 $ 5,101 In the first three months of 2019, net charge-offs were $129,000, compared to net charge-offs of $28,000 in the same period in 2018. In the first three months of 2019, the Corporation recorded a provision for loan loss of $100,000 compared to a $50,000 provision for loan losses in the first three months of 2018. The Corporation’s allowance for loan loss reserve policy calls for a measurement of the adequacy of the reserve at each quarter end. This process includes an analysis of the loan portfolio to take into account increases in loans outstanding and portfolio composition, historical loss rates, and specific reserve requirements of nonperforming loans. A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 2019 is as follows (dollars in thousands): Commercial, One to four Commercial financial and Commercial family residential Consumer real estate agricultural construction real estate construction Consumer Unallocated Total Allowance for loan loss reserve: Beginning balance ALLR $ 1,682 $ 648 $ 101 $ 199 $ 6 $ 8 $ 2,539 $ 5,183 Charge-offs (20) (19) — (63) — (59) — (161) Recoveries 12 4 — 5 — 11 — 32 Provision (109) 372 (1) 60 — 49 (271) 100 Ending balance ALLR $ 1,565 $ 1,005 $ 100 $ 201 $ 6 $ 9 $ 2,268 $ 5,154 Loans: Ending balance $ 498,471 $ 201,089 $ 33,118 $ 281,104 $ 12,022 $ 19,624 $ — $ 1,045,428 Ending balance ALLR (1,565) (1,005) (100) (201) (6) (9) (2,268) (5,154) Net loans $ 496,906 $ 200,084 $ 33,018 $ 280,903 $ 12,016 $ 19,615 $ (2,268) $ 1,040,274 Ending balance ALLR: Individually evaluated $ 467 $ 648 $ — $ — $ — $ — $ — $ 1,115 Collectively evaluated 1,098 357 100 201 6 9 2,268 4,039 Total $ 1,565 $ 1,005 $ 100 $ 201 $ 6 $ 9 $ 2,268 $ 5,154 Ending balance Loans: Individually evaluated $ 2,138 $ 1,245 $ — $ — $ — $ — $ — $ 3,383 Collectively evaluated 493,570 198,425 32,753 279,943 11,809 19,585 — 1,036,085 Acquired with deteriorated credit quality 2,763 1,419 365 1,161 213 39 — 5,960 Total $ 498,471 $ 201,089 $ 33,118 $ 281,104 $ 12,022 $ 19,624 $ — $ 1,045,428 Impaired loans, by definition, are individually evaluated. A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 2018 is as follows (dollars in thousands): Commercial, One to four Commercial financial and Commercial family residential Consumer real estate agricultural construction real estate construction Consumer Unallocated Total Allowance for loan loss reserve: Beginning balance ALLR $ 1,650 $ 576 $ 54 $ 160 $ 6 $ 10 $ 2,623 $ 5,079 Charge-offs — — — (47) — (6) — (53) Recoveries 7 3 1 2 — 12 — 25 Provision 676 965 371 58 — (7) (2,013) 50 Ending balance ALLR $ 2,333 $ 1,544 $ 426 $ 173 $ 6 $ 9 $ 610 $ 5,101 Loans: Ending balance $ 411,526 $ 160,188 $ 8,004 $ 204,542 $ 11,262 $ 16,919 $ — $ 812,441 Ending balance ALLR (2,333) (1,544) (426) (173) (6) (9) (610) (5,101) Net loans $ 409,193 $ 158,644 $ 7,578 $ 204,369 $ 11,256 $ 16,910 $ (610) $ 807,340 Ending balance ALLR: Individually evaluated $ 362 $ 310 $ — $ — $ — $ — $ — $ 672 Collectively evaluated 1,971 1,234 426 173 6 9 610 4,429 Total $ 2,333 $ 1,544 $ 426 $ 173 $ 6 $ 9 $ 610 $ 5,101 Ending balance Loans: Individually evaluated $ 1,568 $ 1,307 $ 372 $ — $ — $ — $ — $ 3,247 Collectively evaluated 408,273 158,881 7,632 203,032 11,215 16,919 — 805,952 Acquired with deteriorated credit quality 1,685 — — 1,510 47 — — 3,242 Total $ 411,526 $ 160,188 $ 8,004 $ 204,542 $ 11,262 $ 16,919 $ — $ 812,441 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, and other relevant characteristics. 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, and other relevant characteristics. 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 not considered impaired, 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 is 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. Below is a breakdown of loans by risk category as of March 31, 2019 (dollars in thousands): (1) (2) (3) (4) (44) (6) (7) Rating Strong Good Average Acceptable Acceptable Watch Substandard Doubtful Unassigned Total Commercial real estate $ 10,557 $ 21,313 $ 189,296 $ 262,811 $ 3,596 $ 10,898 $ — $ — $ 498,471 Commercial, financial and agricultural 8,882 11,408 66,533 109,164 2,313 2,789 — — 201,089 Commercial construction 919 515 8,120 13,481 820 836 — 8,427 33,118 One-to-four family residential real estate 70 2,898 6,988 15,186 2,122 5,040 — 248,800 281,104 Consumer construction — — — 153 90 9 — 11,770 12,022 Consumer 17 206 446 978 — 61 — 17,916 19,624 Total loans $ 20,445 $ 36,340 $ 271,383 $ 401,773 $ 8,941 $ 19,633 $ — $ 286,913 $ 1,045,428 Below is a breakdown of loans by risk category as of December 31, 2018 (dollars in thousands): (1) (2) (3) (4) (44) (6) (7) Rating Strong Good Average Acceptable Acceptable Watch Substandard Doubtful Unassigned Total Commercial real estate $ 9,564 $ 22,265 $ 189,898 $ 257,627 $ 5,993 $ 10,860 $ — $ — $ 496,207 Commercial, financial and agricultural 8,077 8,678 72,466 97,441 2,269 2,129 — — 191,060 Commercial construction 734 706 6,844 12,244 829 823 — 7,585 29,765 One-to-four family residential real estate 70 2,873 6,941 15,711 2,095 4,757 — 254,461 286,908 Consumer construction — — — 200 50 11 — 14,292 14,553 Consumer 19 236 625 1,156 42 77 — 18,216 20,371 Total loans $ 18,464 $ 34,758 $ 276,774 $ 384,379 $ 11,278 $ 18,657 $ — $ 294,554 $ 1,038,864 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 loan 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 March 31, 2019 Commercial real estate $ 2,763 $ 2,138 $ 4,901 $ 10,635 $ 467 Commercial, financial and agricultural 1,419 1,245 2,664 2,211 648 Commercial construction 365 — 365 1,092 — One to four family residential real estate 1,161 — 1,161 3,843 — Consumer construction 213 — 213 — — Consumer 39 — 39 52 — Total $ 5,960 $ 3,383 $ 9,343 $ 17,833 $ 1,115 December 31, 2018 Commercial real estate $ 2,777 $ 2,148 $ 4,925 $ 10,740 $ 486 Commercial, financial and agricultural 1,460 577 2,037 2,249 340 Commercial construction 366 — 366 1,132 — One to four family residential real estate 1,231 — 1,231 4,136 — Consumer construction 217 — 217 — — Consumer 42 — 42 55 — Total $ 6,093 $ 2,725 $ 8,818 $ 18,312 $ 826 Individually Evaluated Impaired Loans March 31, 2019 December 31, 2018 Average Interest Income Average Interest Income Balance for Recognized for Balance for Recognized for the Period the Period the Period the Period Commercial real estate $ 7,968 $ 76 $ 5,024 $ 410 Commercial, financial and agricultural 563 2 374 26 Commercial construction 746 2 383 13 One to four family residential real estate 3,990 45 2,879 203 Consumer construction — — 9 — Consumer 54 1 38 4 Total $ 13,321 $ 126 $ 8,707 $ 656 A summary of past due loans at March 31, 2019 and December 31, 2018 is as follows (dollars in thousands): March 31, December 31, 2019 2018 30-89 days 90+ days 30-89 days 90+ days Past Due Past Due Past Due Past Due (accruing) (accruing) Nonaccrual Total (accruing) (accruing) Nonaccrual Total Commercial real estate $ 138 $ — $ 1,396 $ 1,534 $ 298 $ — $ 1,700 $ 1,998 Commercial, financial and agricultural 274 — 737 1,011 398 — 320 718 Commercial construction 52 — 282 334 112 — 266 378 One to four family residential real estate 4,315 — 3,145 7,460 5,456 18 2,725 8,199 Consumer construction — — — — — — — — Consumer 71 — 28 99 108 5 43 156 Total past due loans $ 4,850 $ — $ 5,588 $ 10,438 $ 6,372 $ 23 $ 5,054 $ 11,449 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 applicable 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 3 troubled debt restructuring that occurred during the three months ended March 31, 2019 and no troubled debt restructurings during the three months ended March 31, 2018. The three restructured loans included only modifications to the repayment schedules. The balance of these restructured loans remained at $.450 million. 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): Three Months Ended Three Months Ended March 31, March 31, 2019 2018 Loans outstanding, January 1 $ 9,817 $ 10,037 New loans 1,872 — Net activity on revolving lines of credit 358 — Repayment (96) (123) Loans outstanding at end of period $ 11,951 $ There were no loans to related parties classified substandard as of March 31, 2019 or March 31, 2018. In addition to the outstanding balances above, there were unfunded commitments of $.486 million to related parties at March 31, 2019.

GOODWILL AND OTHER INTANGIBLE A

GOODWILL AND OTHER INTANGIBLE ASSETS	3 Months Ended
	Mar. 31, 2019
GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL AND OTHER INTANGIBLE ASSETS	6. GOODWILL AND OTHER INTANGIBLE ASSETS The Corporation through the acquisition of Peninsula in 2014, Eagle River and Niagara in 2016, and FFNM and Lincoln in 2018, has recorded goodwill and core deposit intangibles as presented below (dollars in thousands): Deposit Based Goodwill Intangible Balance Initital Balance Peninsula $ 3,805 $ 1,206 Eagle River 1,839 993 Niagara 50 300 FFNM 12,278 2,894 Lincoln 1,252 1,353 Total $ 19,224 $ 6,746 Deposit Based Intangible March 31, 2019 Future Annual March 31, 2019 Amortization Amortization Balance Expense Expense Peninsula $ 684 $ 30 $ 121 Eagle River 703 25 99 Niagara 223 7 30 FFNM 2,653 82 290 Lincoln 1,286 27 135 Total $ 5,549 $ 171 $ 675 Deposit Based Intangible 2018 December 31, 2018 Amortization Balance Expense Peninsula $ 714 $ 121 Eagle River 728 99 Niagara 230 30 FFNM 2,735 159 Lincoln 1,313 41 Total $ 5,720 $ 450 The deposit based intangible asset is reported net of accumulated amortization at $5.549 million at March 31, 2019. Amortization expense in the first three months of 2019 is $.171 million. Amortization expense for the next five years is expected to be at $.675 million per year.

SERVICING RIGHTS

SERVICING RIGHTS	3 Months Ended
	Mar. 31, 2019
SERVICING RIGHTS
SERVICING RIGHTS	7. SERVICING RIGHTS Mortgage Loans Mortgage servicing rights (“MSRs”) are recorded when loans are sold in the secondary market with servicing retained. As of March 31, 2019, the Corporation had obligations to service approximately $288.687 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. The fair value of the capitalized servicing rights approximates the carrying value which management estimates at $2.898 million. On a quarterly basis, management evaluates the MSRs for impairment. The key economic assumptions used in determining the fair value of the MSRs include an annual constant prepayment speed of 10.57% and a discount rate of 10.17% as of March 31, 2019. The following table summarizes MSRs capitalized and amortized, along with the aggregate activity in related valuation allowances (dollars in thousands): March 31, March 31, 2019 2018 Balance at beginning of period $ 1,144 $ 1,033 Additions from loans sold with servicing retained 500 — Amortization (60) (108) Balance at end of period $ 1,584 $ 925 Balance of loan servicing portfolio $ 288,687 $ 195,235 Mortgage servicing rights as % of portfolio .55% .47% Fair value of servicing rights 2,898 1,737 Commercial Loans The Corporation periodically retains the servicing on certain commercial loans that have been sold. These loans 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 March 31, 2019 was approximately $41 million. The Corporation valued these servicing rights at $80,000 as of March 31, 2019 and at $80,000 as of December 31, 2018. This valuation was established in consideration of the discounted cash flow of net expected servicing income over the life of the loans.

BORROWINGS

BORROWINGS	3 Months Ended
	Mar. 31, 2019
BORROWINGS
BORROWINGS	8. BORROWINGS Borrowings consist of the following at March 31, 2019 and December 31, 2018 (dollars in thousands): March 31, December 31, 2019 2018 Federal Home Loan Bank fixed rate advances $ 46,398 $ 57,060 USDA Rural Development note 480 476 $ 46,878 $ 57,536 The Federal Home Loan Bank borrowings bear a weighted average rate of 1.72% and mature at various dates through 2026. They are collateralized at March 31, 2019 by the following: a collateral agreement on the Corporation’s one to four family residential real estate loans with a book value of approximately $60.579 million; mortgage related and municipal securities with an amortized cost and estimated fair value of $30.586 million and $30.806 million, respectively; and Federal Home Loan Bank stock owned by the Bank totaling $4.924 million. Prepayment of the advances is subject to the provisions and conditions of the credit policy of the Federal Home Loan Bank of Indianapolis in effect as of March 31, 2019. The Corporation currently has one correspondent banking borrowing relationship. The relationship currently consists of a $15.0 million revolving line of credit, which had a zero balance at March 31, 2019. The line of credit bears an interest rate of LIBOR plus 2.00%, with a floor rate of 3.00% and a ceiling of 22%. The line of credit expires on April 30, 2020. LIBOR at March 31, 2019 was 2.60%. The Corporation previously had a term note as part of this relationship that was paid in full during the second quarter of 2018. This relationship is secured by all of the outstanding mBank stock. The USDA Rural Development borrowing bears an interest rate of 1.00% and matures in August, 2024. It is collateralized by an assignment of a demand deposit account held by the Corporation’s wholly owned subsidiary, First Rural Relending, in the amount of $.427 million, and guaranteed by the Corporation.

DEFINED BENEFIT PENSION PLAN

DEFINED BENEFIT PENSION PLAN	3 Months Ended
	Mar. 31, 2019
DEFINED BENEFIT PENSION PLAN
DEFINED BENEFIT PENSION PLAN	9. The Corporation acquired the Peninsula Financial Corporation noncontributory defined benefit pension plan in 2014. 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 2019 are $22,000. The anticipated distributions over the next five years and through December 31, 2028 are detailed in the table below (dollars in thousands): 2019 $ 136 2020 132 2021 131 2022 137 2023 143 2024-2028 823 Total $ 1,502 The Corporation receives a valuation of the Plan annually. As such, at December 31, 2018, the plan’s assets had a fair value of $1.987 million and the Corporation had a net unfunded liability of $1.004 million. The accumulated benefit obligation at December 31, 2018 was $2.991 million. The accumulated benefit obligation at March 31, 2018 was $3.331 million. Assumptions in the actuarial valuation are: 2019 2018 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 March 31, 2019 and December 31, 2018. Target Actual Allocation Allocation Equity securities 50% to 70% Fixed income securities 30% to 50%

STOCK COMPENSATION PLANS

STOCK COMPENSATION PLANS	3 Months Ended
	Mar. 31, 2019
STOCK COMPENSATION PLANS
STOCK COMPENSATION PLANS	10. STOCK COMPENSATION PLANS Restricted Stock Awards The Corporation’s restricted stock awards are service-based and awarded based on performance. Each award has 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 May, 2015 3,000 10.77 Immediate February, 2016 35,733 9.91 4 years February, 2017 28,427 13.39 4 years February, 2018 18,643 16.30 4 years April, 2018 8,000 16.00 Immediate February, 2019 27,790 15.70 4 years In the first quarter of 2019, the Corporation issued 27,967 shares of its common stock for vested RSAs. In the first quarter of 2018, the Corporation issued 37,630 shares of its common stock for vested RSAs. A summary of changes in our nonvested shares for the period follows: Weighted Average Number Grant Date Outstanding Fair Value Nonvested balance at January 1, 2019 69,322 $ 12.79 Granted during the period 27,790 15.70 Vested during the period (27,967) 12.09 Nonvested balance at March 31, 2019 69,145 $ 13.28

INCOME TAXES

INCOME TAXES	3 Months Ended
	Mar. 31, 2019
INCOME TAXES
INCOME TAXES	11. INCOME TAXES The Corporation has reported deferred tax assets of $6.906 million at March 31, 2019. 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 March 31, 2019 had a net operating loss and tax credit carryforwards for tax purposes of approximately $12.5 million, and $1.7 million, respectively. As a result of the repeal of the corporate alternative minimum tax in the Tax Cuts and Jobs Act, any outstanding alternative minimum tax credits are believed to be utilized or refundable as of December 31, 2018. Therefore, the $1.6 million of alternative minimum tax credits, was reclassified to a current tax receivable included in other assets during 2018. The Corporation evaluated the future benefits from these carryforwards as of March 31, 2019 and determined that is 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 $2.0 million for the NOL and the equivalent value of tax credits, which is approximately $.420 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. The Corporation recognized a federal income tax expense of approximately $.842 million for the three months ended March 31, 2019 and $.408 million for the three months ended March 31, 2018.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	3 Months Ended
	Mar. 31, 2019
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS	12. FAIR VALUE MEASUREMENTS 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 March 31, 2019 and December 31, 2018 (dollars in thousands): March 31, 2019 December 31, 2018 Level in Fair Carrying Estimated Carrying Estimated Value Hierarchy Amount Fair Value Amount Fair Value Financial assets: Cash and cash equivalents Level 1 $ 56,963 $ 56,963 $ 64,157 $ 64,157 Interest-bearing deposits Level 2 12,712 12,712 13,452 13,452 Securities available for sale Level 2 111,972 111,972 115,260 115,260 Securities available for sale Level 3 1,488 1,488 1,488 1,488 Federal Home Loan Bank stock Level 2 4,924 4,924 4,924 4,924 Net loans Level 3 1,040,274 1,020,821 1,033,681 1,013,214 Accrued interest receivable Level 3 3,846 3,846 3,005 3,005 Total financial assets $ 1,232,179 $ 1,212,726 $ 1,235,967 $ 1,215,500 Financial liabilities: Deposits Level 2 $ 1,097,248 $ 1,053,029 $ 1,097,537 $ 1,047,709 Borrowings Level 2 46,878 46,301 57,536 56,771 Accrued interest payable Level 3 519 519 391 391 Total financial liabilities $ 1,144,645 $ 1,099,849 $ 1,155,464 $ 1,104,871 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 March 31, 2019, 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 March 31, 2019 and December 31, 2018 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 4 - Investment Securities.” The table below shows investment securities measured at fair value on a recurring basis (dollars in thousands): Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2019 (Level 1) (Level 2) (Level 3) March 31, 2019 Assets Corporate $ $ — $ 19,658 $ 500 $ — US Agencies — 15,847 — — US Agencies - MBS — 31,377 — — Obligations of state and political subdivisions 46,078 — 45,090 988 — $ 113,460 $ — Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total (Gains) Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2018 (Level 1) (Level 2) (Level 3) December 31, 2018 Assets Corporate $ $ — $ 19,564 $ 500 $ — US Agencies — 15,970 — — US Agencies - MBS — 32,840 — — Obligations of state and political subdivisions 47,874 — 46,886 988 — $ 116,748 $ — The Corporation had no Level 3 assets or liabilities measured at fair value on a recurring basis as of March 31, 2019, or December 31, 2018 other than as described above. 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 certain impaired loans and other real estate owned. The Corporation has estimated the fair values of these assets using Level 3 inputs, specifically discounted cash flow projections. Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2019 Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2019 (Level 1) (Level 2) (Level 3) March 31, 2019 Assets Impaired loans $ 9,343 $ — $ — $ 9,343 $ 219 Other real estate owned 1,961 — — 1,961 28 $ 247 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2018 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, 2018 (Level 1) (Level 2) (Level 3) December 31, 2018 Assets Impaired loans $ $ — $ — $ $ 198 Other real estate held for sale — — 182 $ 380 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 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).

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY	3 Months Ended
	Mar. 31, 2019
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY	13. 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 publically announced of $.600 million on February 27, 2013, $.600 million on December 17, 2013 and an additional $.750 million on April 28, 2015. None of these authorizations has an expiration date. As of March 31, 2019, approximately $25,000 of the total authorization was available for future purchases.

COMMITMENTS, CONTINGENCIES AND

COMMITMENTS, CONTINGENCIES AND CREDIT RISK	3 Months Ended
	Mar. 31, 2019
COMMITMENTS, CONTINGENCIES AND CREDIT RISK
COMMITMENTS, CONTINGENCIES AND CREDIT RISK	14. 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 are as follows (dollars in thousands): March 31, December 31, 2019 2018 Commitments to extend credit: Variable rate $ 96,811 $ 88,862 Fixed rate 53,811 54,434 Standby letters of credit - Variable rate 7,060 7,208 Credit card commitments - Fixed rate 5,269 5,107 $ 162,951 $ 155,611 The increase in commitments is largely a result of the FFNM transaction. 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 In the normal course of business, the Corporation is involved in various legal proceedings. For an expanded discussion on the Corporation’s legal proceedings, see Part II, Item 1, “Legal Proceedings” in this report. C oncentration 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 March 31, 2019 represents $147.752 million, or 20.17%, compared to $150.251 million, or 20.95%, of the commercial loan portfolio on December 31, 2018. 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.

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS	3 Months Ended
	Mar. 31, 2019
BUSINESS COMBINATIONS
BUSINESS COMBINATIONS	15. BUSINESS COMBINATIONS First Federal of Northern Michigan Bancorp, Inc. The Corporation completed its acquisition of First Federal of Northern Michigan Bancorp, Inc. in May 2018. FFNM had seven branch offices, one of which was consolidated into an existing mBank branch shortly after consummation of the transaction. Total assets of FFNM as of May 18, 2018 were $318 million, including total loans of $192 million. Deposits garnered in the acquisition, the majority of which were core deposits, totaled $254 million. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. As consideration in the acquisition, the Corporation issued 2,146,378 new shares, approximating $34.101 million. The Corporation recorded deposit based intangibles of $2.894 million and goodwill of $12.278 million. In the first quarter of 2019, the Corporation concluded the business combination and purchase accounting based on the final tax returns and deferred tax calculations of FFNM. As a result, the purchase price allocation has been updated to reflect changes with an increase in the deferred tax asset of $2.637 million and a decrease in goodwill of $2.637 million. The table below highlights the allocation of purchase price for the FFNM acquisition (dollars in thousands, except per share data): Purchase Price: FFNM shares outstanding 3,726,925 Price per share $ 9.15 Total purchase price $ 34,101 Net assets acquired: Cash and cash equivalents $ 13,267 Securities available for sale 96,297 FHLB Stock 1,748 Total loans 185,444 Premises and equipment 5,134 Other real estate owned 194 Deposit based intangible 2,894 Mortgage servicing rights 386 Deferred tax assets 5,481 Bank owned life insurance 5,170 Other assets 1,775 Total assets 317,790 Non-interest bearing deposits 60,616 Interest bearing deposits 193,099 Total deposits 253,715 FHLB borrowings 40,722 Deferred tax liability 133 Other liabilities 1,397 Total liabilities 295,967 Net assets acquired 21,823 Goodwill $ 12,278 Lincoln Community Bank On June 7, 2018 the Corporation announced the execution of a definitive agreement to acquire Lincoln Community Bank (“Lincoln”) located in Merrill, WI, for $8.50 million in cash, to further expand the Corporation’s market. Lincoln operated two (2) banking centers, one in each of Merrill and Gleason, WI. As of September 30, 2018, Lincoln had total assets in excess of $59 million, loans of approximately $39 million and deposits of $53 million. The acquisition and subsequent merger of Lincoln into mBank occurred on October 1, 2018. As part of the transaction, the Gleason location was closed at the end of 2018. In the first quarter of 2019, the Corporation made adjustments to the business comniation and purchase accounting based on additional tax provision information. As a result, the purchase price allocation has been updated to reflect changes with a decrease in the deferred tax liability of $.163 million and a decrease in goodwill of $.163 million. The Corporation believes the majority of the business combination and purchase accounting activity is complete, however, there may be further minor adjustments in the normal course within the allotted GAAP adjustment period. Purchase Price: Cash consideration $ 8,500 Net assets acquired: Cash and cash equivalents $ 10,971 Securities available for sale 6,947 Total loans 38,001 Premises and equipment 1,249 Other real estate owned 69 Deposit based intangible 1,353 Bank owned life insurance 1,653 Other assets 339 Total assets 60,582 Non-interest bearing deposits 15,559 Interest bearing deposits 37,654 Total deposits 53,213 Deferred tax liability 68 Other liabilities 53 Total liabilities 53,334 Net assets acquired 7,248 Goodwill $ 1,252

SUMMARY OF SIGNIFICANT ACCOUN_2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation	Basis of Presentation The unaudited condensed consolidated financial statements of Mackinac Financial Corporation (the “Corporation”) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The unaudited consolidated financial statements and footnotes thereto should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018. In order to properly reflect some categories of other income and other expenses, reclassifications of expense and income items have been made to prior period numbers. The “net” other income and other expenses were unchanged by these reclassifications. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reporting 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, the assessment of goodwill for impairment, and the fair value of assets and liabilities acquired in business combinations.
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 using a discounted cash flow methodology based on assumptions about the amount and timing of principal and interest payments, principal prepayments and principal defaults and losses, 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 Financial Accounting Standards Board (“FASB”) 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.
Allowance for Loan Losses	Allowance for Loan Losses The allowance for loan losses includes specific allowances related to loans, when they 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.
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”), stock grants, or stock appreciation rights. The aggregate number of shares of the Corporation’s common stock issuable under the plan is 575,000. At March 31, 2019 there were 216,310 shares available for issuance under this plan. 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.

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	3 Months Ended
	Mar. 31, 2019
EARNINGS PER SHARE
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 three months ended March 31, 2019 and 2018 (dollars in thousands, except per share data): Three Months Ended March 31, 2019 2018 (Numerator): Net income $ 3,167 $ (Denominator): Weighted average shares outstanding 10,720,127 Effect of restricted stock awards 3,794 Diluted weighted average shares outstanding 10,723,921 6,330,210 Income per common share: Basic $ 0.30 $ 0.24 Diluted $ 0.30 $ 0.24

INVESTMENT SECURITIES (Tables)

INVESTMENT SECURITIES (Tables)	3 Months Ended
	Mar. 31, 2019
INVESTMENT SECURITIES
Schedule of carrying value and estimated fair value of securities available for sale	The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2019 and December 31, 2018 are as follows (dollars in thousands): Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value March 31, 2019 Corporate $ 20,172 $ 30 $ (44) $ 20,158 US Agencies 15,952 13 (118) 15,847 US Agencies - MBS 31,158 345 (126) 31,377 Obligations of states and political subdivisions 45,654 587 (163) 46,078 Total securities available for sale $ 112,936 $ 975 $ (451) $ 113,460 December 31, 2018 Corporate $ 20,198 $ 24 $ (158) $ 20,064 US Agencies 16,198 5 (233) 15,970 US Agencies - MBS 32,974 124 (258) 32,840 Obligations of states and political subdivisions 47,828 341 (295) 47,874 Total securities available for sale $ 117,198 $ 494 $ (944) $ 116,748
Schedule of carrying value and estimated fair value of securities available for sale by contractual maturity	March 31, 2019 December 31, 2018 Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value Available -for-sale securities Under 1 year $ 18,890 $ 18,846 $ 13,683 $ 13,665 After 1 year through five years 78,722 79,156 83,928 83,486 After 5 years through 10 years 12,455 12,589 16,712 16,739 After 10 years 2,869 2,869 2,875 2,858 Total available -for-sale securities $ 112,936 $ 113,460 $ 117,198 $ 116,748

LOANS (Tables)

LOANS (Tables)	3 Months Ended
	Mar. 31, 2019
Schedule of composition of loans	The composition of loans is as follows (dollars in thousands): March 31, December 31, 2019 2018 Commercial real estate $ 498,471 $ 496,207 Commercial, financial, and agricultural 201,089 191,060 Commercial construction 33,118 29,765 One to four family residential real estate 281,104 286,908 Consumer 19,624 20,371 Consumer construction 12,022 14,553 Total loans $ 1,045,428 $ 1,038,864
Schedule of the accretable yield by acquisition	The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2019 (dollars in thousands): PFC Eagle River Acquired Acquired Acquired Acquired Acquired Acquired Impaired Non-impaired Total Impaired Non-impaired Total Balance, December 31, 2018 $ 128 $ — $ 128 $ 213 $ 16 $ 229 Accretion — — — — (16) (16) Reclassification from nonaccretable difference — — — — — — Balance, March 31, 2019 $ 128 $ — $ 128 $ 213 $ — $ 213 Niagara First Federal Northern Michigan Acquired Acquired Acquired Acquired Acquired Acquired Impaired Non-impaired Total Impaired Non-impaired Total Balance, December 31, 2018 $ 26 $ 69 $ 95 $ 571 $ 3,446 $ 4,017 Accretion — (51) (51) — (410) (410) Reclassification from nonaccretable difference — — — — — — Balance, March 31, 2019 $ 26 $ 18 $ 44 $ 571 $ 3,036 $ 3,607 Lincoln Community Bank Total Acquired Acquired Acquired Acquired Acquired Acquired Impaired Non-impaired Total Impaired Non-impaired Total Balance, December 31, 2018 $ 140 $ 442 $ 582 $ 1,078 $ 3,973 $ 5,051 Accretion (15) (49) (64) (15) (526) (541) Reclassification from nonaccretable difference 12 — 12 12 — 12 Balance, March 31, 2019 $ 137 $ 393 $ 530 $ 1,075 $ 3,447 $ 4,522 The table below presents a rollforward of the accretable yield on acquired loans for the three months ended March 31, 2018 (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, 2017 $ 149 $ — $ 149 $ 218 $ 603 $ 821 $ 38 $ 281 $ 319 Accretion (30) — (30) — (150) (150) — (54) (54) Reclassification from nonaccretable difference 23 — 23 — — — — — — Balance, March 31, 2018 $ 142 $ — $ 142 $ 218 $ 453 $ 671 $ 38 $ 227 $ 265
Schedule of the allowance for loan losses	An analysis of the allowance for loan losses for the three months ended March 31, 2019 and March 31, 2018 is as follows (dollars in thousands): March 31, March 31, 2019 2018 Balance, January 1 $ 5,183 $ 5,079 Recoveries on loans previously charged off 32 25 Loans charged off (161) Provision 100 50 Balance at end of period $ 5,154 $ 5,101
Schedule of breakdown of the allowance for loan losses and recorded balances in loans	A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 2019 is as follows (dollars in thousands): Commercial, One to four Commercial financial and Commercial family residential Consumer real estate agricultural construction real estate construction Consumer Unallocated Total Allowance for loan loss reserve: Beginning balance ALLR $ 1,682 $ 648 $ 101 $ 199 $ 6 $ 8 $ 2,539 $ 5,183 Charge-offs (20) (19) — (63) — (59) — (161) Recoveries 12 4 — 5 — 11 — 32 Provision (109) 372 (1) 60 — 49 (271) 100 Ending balance ALLR $ 1,565 $ 1,005 $ 100 $ 201 $ 6 $ 9 $ 2,268 $ 5,154 Loans: Ending balance $ 498,471 $ 201,089 $ 33,118 $ 281,104 $ 12,022 $ 19,624 $ — $ 1,045,428 Ending balance ALLR (1,565) (1,005) (100) (201) (6) (9) (2,268) (5,154) Net loans $ 496,906 $ 200,084 $ 33,018 $ 280,903 $ 12,016 $ 19,615 $ (2,268) $ 1,040,274 Ending balance ALLR: Individually evaluated $ 467 $ 648 $ — $ — $ — $ — $ — $ 1,115 Collectively evaluated 1,098 357 100 201 6 9 2,268 4,039 Total $ 1,565 $ 1,005 $ 100 $ 201 $ 6 $ 9 $ 2,268 $ 5,154 Ending balance Loans: Individually evaluated $ 2,138 $ 1,245 $ — $ — $ — $ — $ — $ 3,383 Collectively evaluated 493,570 198,425 32,753 279,943 11,809 19,585 — 1,036,085 Acquired with deteriorated credit quality 2,763 1,419 365 1,161 213 39 — 5,960 Total $ 498,471 $ 201,089 $ 33,118 $ 281,104 $ 12,022 $ 19,624 $ — $ 1,045,428 Impaired loans, by definition, are individually evaluated. A breakdown of the allowance for loan losses and recorded balances in loans at March 31, 2018 is as follows (dollars in thousands): Commercial, One to four Commercial financial and Commercial family residential Consumer real estate agricultural construction real estate construction Consumer Unallocated Total Allowance for loan loss reserve: Beginning balance ALLR $ 1,650 $ 576 $ 54 $ 160 $ 6 $ 10 $ 2,623 $ 5,079 Charge-offs — — — (47) — (6) — (53) Recoveries 7 3 1 2 — 12 — 25 Provision 676 965 371 58 — (7) (2,013) 50 Ending balance ALLR $ 2,333 $ 1,544 $ 426 $ 173 $ 6 $ 9 $ 610 $ 5,101 Loans: Ending balance $ 411,526 $ 160,188 $ 8,004 $ 204,542 $ 11,262 $ 16,919 $ — $ 812,441 Ending balance ALLR (2,333) (1,544) (426) (173) (6) (9) (610) (5,101) Net loans $ 409,193 $ 158,644 $ 7,578 $ 204,369 $ 11,256 $ 16,910 $ (610) $ 807,340 Ending balance ALLR: Individually evaluated $ 362 $ 310 $ — $ — $ — $ — $ — $ 672 Collectively evaluated 1,971 1,234 426 173 6 9 610 4,429 Total $ 2,333 $ 1,544 $ 426 $ 173 $ 6 $ 9 $ 610 $ 5,101 Ending balance Loans: Individually evaluated $ 1,568 $ 1,307 $ 372 $ — $ — $ — $ — $ 3,247 Collectively evaluated 408,273 158,881 7,632 203,032 11,215 16,919 — 805,952 Acquired with deteriorated credit quality 1,685 — — 1,510 47 — — 3,242 Total $ 411,526 $ 160,188 $ 8,004 $ 204,542 $ 11,262 $ 16,919 $ — $ 812,441
Schedule of breakdown of loans by risk category	Below is a breakdown of loans by risk category as of March 31, 2019 (dollars in thousands): (1) (2) (3) (4) (44) (6) (7) Rating Strong Good Average Acceptable Acceptable Watch Substandard Doubtful Unassigned Total Commercial real estate $ 10,557 $ 21,313 $ 189,296 $ 262,811 $ 3,596 $ 10,898 $ — $ — $ 498,471 Commercial, financial and agricultural 8,882 11,408 66,533 109,164 2,313 2,789 — — 201,089 Commercial construction 919 515 8,120 13,481 820 836 — 8,427 33,118 One-to-four family residential real estate 70 2,898 6,988 15,186 2,122 5,040 — 248,800 281,104 Consumer construction — — — 153 90 9 — 11,770 12,022 Consumer 17 206 446 978 — 61 — 17,916 19,624 Total loans $ 20,445 $ 36,340 $ 271,383 $ 401,773 $ 8,941 $ 19,633 $ — $ 286,913 $ 1,045,428 Below is a breakdown of loans by risk category as of December 31, 2018 (dollars in thousands): (1) (2) (3) (4) (44) (6) (7) Rating Strong Good Average Acceptable Acceptable Watch Substandard Doubtful Unassigned Total Commercial real estate $ 9,564 $ 22,265 $ 189,898 $ 257,627 $ 5,993 $ 10,860 $ — $ — $ 496,207 Commercial, financial and agricultural 8,077 8,678 72,466 97,441 2,269 2,129 — — 191,060 Commercial construction 734 706 6,844 12,244 829 823 — 7,585 29,765 One-to-four family residential real estate 70 2,873 6,941 15,711 2,095 4,757 — 254,461 286,908 Consumer construction — — — 200 50 11 — 14,292 14,553 Consumer 19 236 625 1,156 42 77 — 18,216 20,371 Total loans $ 18,464 $ 34,758 $ 276,774 $ 384,379 $ 11,278 $ 18,657 $ — $ 294,554 $ 1,038,864
Summary of impaired loans and their effect on interest income	The following is a summary of impaired loans and their effect on interest income (dollars in thousands): Impaired Loans Impaired Loans Total Unpaid Related with No Related with Related Impaired Principal Allowance for Allowance Allowance Loans Balance Loan Losses March 31, 2019 Commercial real estate $ 2,763 $ 2,138 $ 4,901 $ 10,635 $ 467 Commercial, financial and agricultural 1,419 1,245 2,664 2,211 648 Commercial construction 365 — 365 1,092 — One to four family residential real estate 1,161 — 1,161 3,843 — Consumer construction 213 — 213 — — Consumer 39 — 39 52 — Total $ 5,960 $ 3,383 $ 9,343 $ 17,833 $ 1,115 December 31, 2018 Commercial real estate $ 2,777 $ 2,148 $ 4,925 $ 10,740 $ 486 Commercial, financial and agricultural 1,460 577 2,037 2,249 340 Commercial construction 366 — 366 1,132 — One to four family residential real estate 1,231 — 1,231 4,136 — Consumer construction 217 — 217 — — Consumer 42 — 42 55 — Total $ 6,093 $ 2,725 $ 8,818 $ 18,312 $ 826 Individually Evaluated Impaired Loans March 31, 2019 December 31, 2018 Average Interest Income Average Interest Income Balance for Recognized for Balance for Recognized for the Period the Period the Period the Period Commercial real estate $ 7,968 $ 76 $ 5,024 $ 410 Commercial, financial and agricultural 563 2 374 26 Commercial construction 746 2 383 13 One to four family residential real estate 3,990 45 2,879 203 Consumer construction — — 9 — Consumer 54 1 38 4 Total $ 13,321 $ 126 $ 8,707 $ 656
Summary of past due loans	A summary of past due loans at March 31, 2019 and December 31, 2018 is as follows (dollars in thousands): March 31, December 31, 2019 2018 30-89 days 90+ days 30-89 days 90+ days Past Due Past Due Past Due Past Due (accruing) (accruing) Nonaccrual Total (accruing) (accruing) Nonaccrual Total Commercial real estate $ 138 $ — $ 1,396 $ 1,534 $ 298 $ — $ 1,700 $ 1,998 Commercial, financial and agricultural 274 — 737 1,011 398 — 320 718 Commercial construction 52 — 282 334 112 — 266 378 One to four family residential real estate 4,315 — 3,145 7,460 5,456 18 2,725 8,199 Consumer construction — — — — — — — — Consumer 71 — 28 99 108 5 43 156 Total past due loans $ 4,850 $ — $ 5,588 $ 10,438 $ 6,372 $ 23 $ 5,054 $ 11,449
Schedule of activity in insider loans granted to the entity's executive officers and directors, including their families and firms	The Bank, in the ordinary course of business, grants loans to the Corporation’s executive officers and directors, including their families and firms in which they are principal owners. Activity in such loans is summarized below (dollars in thousands): Three Months Ended Three Months Ended March 31, March 31, 2019 2018 Loans outstanding, January 1 $ 9,817 $ 10,037 New loans 1,872 — Net activity on revolving lines of credit 358 — Repayment (96) (123) Loans outstanding at end of period $ 11,951 $
PFC
Schedule of acquired portfolio at acquisition date	The table below details the outstanding balances of the PFC acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 13,290 $ 53,849 $ 67,139 Nonaccretable difference (2,234) — (2,234) Expected cash flows 11,056 53,849 64,905 Accretable yield (744) (2,100) (2,844) Carrying balance at acquisition date $ 10,312 $ 51,749 $ 62,061
Eagle River
Schedule of acquired portfolio at acquisition date	The table below details the outstanding balances of the Eagle River acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 3,401 $ 80,737 $ 84,138 Nonaccretable difference (1,172) — (1,172) Expected cash flows 2,229 80,737 82,966 Accretable yield (391) (1,700) (2,091) Carrying balance at acquisition date $ 1,838 $ 79,037 $ 80,875
Niagara Bancorporation
Schedule of acquired portfolio at acquisition date	The table below details the outstanding balances of the Niagara acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 2,105 $ 30,555 $ 32,660 Nonaccretable difference (265) — (265) Expected cash flows 1,840 30,555 32,395 Accretable yield (88) (600) (688) Carrying balance at acquisition date $ 1,752 $ 29,955 $ 31,707
FFNM
Schedule of acquired portfolio at acquisition date	The table below details the outstanding balances of the FFNM acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 5,440 $ 187,302 $ 192,742 Nonaccretable difference (2,100) — (2,100) Expected cash flows 3,340 187,302 190,642 Accretable yield (700) (4,498) (5,198) Carrying balance at acquisition date $ 2,640 $ 182,804 $ 185,444
Lincoln Community Bank
Schedule of acquired portfolio at acquisition date	The table below details the outstanding balances of the Lincoln acquired portfolio and the fair value adjustments at acquisition date (dollars in thousands): Acquired Acquired Acquired Impaired Non-impaired Total Loans acquired - contractual payments $ 1,901 $ 37,700 $ 39,601 Nonaccretable difference (546) — (546) Expected cash flows 1,355 37,700 39,055 Accretable yield (561) (493) (1,054) Carrying balance at acquisition date $ 794 $ 37,207 $ 38,001

GOODWILL AND OTHER INTANGIBLE_2

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)	3 Months Ended
	Mar. 31, 2019
GOODWILL AND OTHER INTANGIBLE ASSETS
Schedule of goodwill and deposit based intangible initial balance	The Corporation through the acquisition of Peninsula in 2014, Eagle River and Niagara in 2016, and FFNM and Lincoln in 2018, has recorded goodwill and core deposit intangibles as presented below (dollars in thousands): Deposit Based Goodwill Intangible Balance Initital Balance Peninsula $ 3,805 $ 1,206 Eagle River 1,839 993 Niagara 50 300 FFNM 12,278 2,894 Lincoln 1,252 1,353 Total $ 19,224 $ 6,746
Schedule of deposit based intangible asset amortization	Deposit Based Intangible March 31, 2019 Future Annual March 31, 2019 Amortization Amortization Balance Expense Expense Peninsula $ 684 $ 30 $ 121 Eagle River 703 25 99 Niagara 223 7 30 FFNM 2,653 82 290 Lincoln 1,286 27 135 Total $ 5,549 $ 171 $ 675 Deposit Based Intangible 2018 December 31, 2018 Amortization Balance Expense Peninsula $ 714 $ 121 Eagle River 728 99 Niagara 230 30 FFNM 2,735 159 Lincoln 1,313 41 Total $ 5,720 $ 450

SERVICING RIGHTS (Tables)

SERVICING RIGHTS (Tables)	3 Months Ended
	Mar. 31, 2019
SERVICING RIGHTS
Summary of mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances	The following table summarizes MSRs capitalized and amortized, along with the aggregate activity in related valuation allowances (dollars in thousands): March 31, March 31, 2019 2018 Balance at beginning of period $ 1,144 $ 1,033 Additions from loans sold with servicing retained 500 — Amortization (60) (108) Balance at end of period $ 1,584 $ 925 Balance of loan servicing portfolio $ 288,687 $ 195,235 Mortgage servicing rights as % of portfolio .55% .47% Fair value of servicing rights 2,898 1,737

BORROWINGS (Tables)

BORROWINGS (Tables)	3 Months Ended
	Mar. 31, 2019
BORROWINGS
Schedule of borrowings	Borrowings consist of the following at March 31, 2019 and December 31, 2018 (dollars in thousands): March 31, December 31, 2019 2018 Federal Home Loan Bank fixed rate advances $ 46,398 $ 57,060 USDA Rural Development note 480 476 $ 46,878 $ 57,536

DEFINED BENEFIT PENSION PLAN (T

DEFINED BENEFIT PENSION PLAN (Tables)	3 Months Ended
	Mar. 31, 2019
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, 2028 are detailed in the table below (dollars in thousands): 2019 $ 136 2020 132 2021 131 2022 137 2023 143 2024-2028 823 Total $ 1,502
Schedule of assumptions in the actuarial valuation	2019 2018 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	Target Actual Allocation Allocation Equity securities 50% to 70% Fixed income securities 30% to 50%

STOCK COMPENSATION PLANS (Table

STOCK COMPENSATION PLANS (Tables)	3 Months Ended
	Mar. 31, 2019
STOCK COMPENSATION PLANS
Summary of restricted stock units awards granted	Market Value at Date of Award Units Granted grant date Vesting Term May, 2015 3,000 10.77 Immediate February, 2016 35,733 9.91 4 years February, 2017 28,427 13.39 4 years February, 2018 18,643 16.30 4 years April, 2018 8,000 16.00 Immediate February, 2019 27,790 15.70 4 years
Summary of changes in nonvested shares	Weighted Average Number Grant Date Outstanding Fair Value Nonvested balance at January 1, 2019 69,322 $ 12.79 Granted during the period 27,790 15.70 Vested during the period (27,967) 12.09 Nonvested balance at March 31, 2019 69,145 $ 13.28

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	3 Months Ended
	Mar. 31, 2019
FAIR VALUE MEASUREMENTS
Schedule presenting information for financial instruments	The following table presents information for financial instruments at March 31, 2019 and December 31, 2018 (dollars in thousands): March 31, 2019 December 31, 2018 Level in Fair Carrying Estimated Carrying Estimated Value Hierarchy Amount Fair Value Amount Fair Value Financial assets: Cash and cash equivalents Level 1 $ 56,963 $ 56,963 $ 64,157 $ 64,157 Interest-bearing deposits Level 2 12,712 12,712 13,452 13,452 Securities available for sale Level 2 111,972 111,972 115,260 115,260 Securities available for sale Level 3 1,488 1,488 1,488 1,488 Federal Home Loan Bank stock Level 2 4,924 4,924 4,924 4,924 Net loans Level 3 1,040,274 1,020,821 1,033,681 1,013,214 Accrued interest receivable Level 3 3,846 3,846 3,005 3,005 Total financial assets $ 1,232,179 $ 1,212,726 $ 1,235,967 $ 1,215,500 Financial liabilities: Deposits Level 2 $ 1,097,248 $ 1,053,029 $ 1,097,537 $ 1,047,709 Borrowings Level 2 46,878 46,301 57,536 56,771 Accrued interest payable Level 3 519 519 391 391 Total financial liabilities $ 1,144,645 $ 1,099,849 $ 1,155,464 $ 1,104,871
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 Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2019 (Level 1) (Level 2) (Level 3) March 31, 2019 Assets Corporate $ $ — $ 19,658 $ 500 $ — US Agencies — 15,847 — — US Agencies - MBS — 31,377 — — Obligations of state and political subdivisions 46,078 — 45,090 988 — $ 113,460 $ — Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Total (Gains) Losses for Balance at for Identical Assets Inputs Inputs Twelve months ended (dollars in thousands) December 31, 2018 (Level 1) (Level 2) (Level 3) December 31, 2018 Assets Corporate $ $ — $ 19,564 $ 500 $ — US Agencies — 15,970 — — US Agencies - MBS — 32,840 — — Obligations of state and political subdivisions 47,874 — 46,886 988 — $ 116,748 $ —
Schedule of assets measured at fair value on a non-recurring basis	Assets Measured at Fair Value on a Nonrecurring Basis at March 31, 2019 Quoted Prices Significant Significant Total (Gains) in Active Markets Other Observable Unobservable Losses for Balance at for Identical Assets Inputs Inputs Three Months Ended (dollars in thousands) March 31, 2019 (Level 1) (Level 2) (Level 3) March 31, 2019 Assets Impaired loans $ 9,343 $ — $ — $ 9,343 $ 219 Other real estate owned 1,961 — — 1,961 28 $ 247 Assets Measured at Fair Value on a Nonrecurring Basis at December 31, 2018 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, 2018 (Level 1) (Level 2) (Level 3) December 31, 2018 Assets Impaired loans $ $ — $ — $ $ 198 Other real estate held for sale — — 182 $ 380

COMMITMENTS, CONTINGENCIES, AND

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Tables)	3 Months Ended
	Mar. 31, 2019
COMMITMENTS, CONTINGENCIES AND CREDIT RISK
Schedule of commitments	These commitments are as follows (dollars in thousands): March 31, December 31, 2019 2018 Commitments to extend credit: Variable rate $ 96,811 $ 88,862 Fixed rate 53,811 54,434 Standby letters of credit - Variable rate 7,060 7,208 Credit card commitments - Fixed rate 5,269 5,107 $ 162,951 $ 155,611

BUSINESS COMBINATIONS (Tables)

BUSINESS COMBINATIONS (Tables)	3 Months Ended
	Mar. 31, 2019
FFNM
Schedule of allocation of the purchase price	The table below highlights the allocation of purchase price for the FFNM acquisition (dollars in thousands, except per share data): Purchase Price: FFNM shares outstanding 3,726,925 Price per share $ 9.15 Total purchase price $ 34,101 Net assets acquired: Cash and cash equivalents $ 13,267 Securities available for sale 96,297 FHLB Stock 1,748 Total loans 185,444 Premises and equipment 5,134 Other real estate owned 194 Deposit based intangible 2,894 Mortgage servicing rights 386 Deferred tax assets 5,481 Bank owned life insurance 5,170 Other assets 1,775 Total assets 317,790 Non-interest bearing deposits 60,616 Interest bearing deposits 193,099 Total deposits 253,715 FHLB borrowings 40,722 Deferred tax liability 133 Other liabilities 1,397 Total liabilities 295,967 Net assets acquired 21,823 Goodwill $ 12,278
Lincoln Community Bank
Schedule of allocation of the purchase price	Purchase Price: Cash consideration $ 8,500 Net assets acquired: Cash and cash equivalents $ 10,971 Securities available for sale 6,947 Total loans 38,001 Premises and equipment 1,249 Other real estate owned 69 Deposit based intangible 1,353 Bank owned life insurance 1,653 Other assets 339 Total assets 60,582 Non-interest bearing deposits 15,559 Interest bearing deposits 37,654 Total deposits 53,213 Deferred tax liability 68 Other liabilities 53 Total liabilities 53,334 Net assets acquired 7,248 Goodwill $ 1,252

SUMMARY OF SIGNIFICANT ACCOUN_3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares	Mar. 31, 2019	May 22, 2012
Stock Compensation Plans
Shares available for grant	216,310
2012 Incentive Compensation Plan
Stock Compensation Plans
Total authorized share balance		575,000

RECENT ACCOUNTING PRONOUNCEME_2

RECENT ACCOUNTING PRONOUNCEMENTS (Details) - Accounting Standards Update 2016-02 - Adjustment $ in Thousands	Mar. 31, 2019USD ($)
Right-of-use assets	$ 4,838
Lease liabilities	$ 4,838

EARNINGS PER SHARE (Details)

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
(Numerator):
Net income	$ 3,167	$ 1,537
(Denominator):
Weighted average shares outstanding	10,720,127	6,304,203
Effect of restricted stock awards	3,794	26,007
Diluted weighted average shares outstanding	10,723,921	6,330,210
Income per common share:
Basic (in dollars per share)	$ 0.30	$ 0.24
Diluted (in dollars per share)	$ 0.30	$ 0.24

INVESTMENT SECURITIES (Details)

INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
SECURITIES AVAILABLE FOR SALE
Decrease in fair value of marketable securities.	$ 3,288
Total amortized cost	112,936	$ 117,198
Estimated Fair Value	113,460	116,748
Available-for-sale Securities
SECURITIES AVAILABLE FOR SALE
Total amortized cost	112,936	117,198
Gross Unrealized Gains	975	494
Gross Unrealized Losses	(451)	(944)
Estimated Fair Value	113,460	116,748
Corporate
SECURITIES AVAILABLE FOR SALE
Total amortized cost	20,172	20,198
Gross Unrealized Gains	30	24
Gross Unrealized Losses	(44)	(158)
Estimated Fair Value	20,158	20,064
US Agencies
SECURITIES AVAILABLE FOR SALE
Total amortized cost	15,952	16,198
Gross Unrealized Gains	13	5
Gross Unrealized Losses	(118)	(233)
Estimated Fair Value	15,847	15,970
US Agencies - MBS
SECURITIES AVAILABLE FOR SALE
Total amortized cost	31,158	32,974
Gross Unrealized Gains	345	124
Gross Unrealized Losses	(126)	(258)
Estimated Fair Value	31,377	32,840
Obligations of states and political subdivisions
SECURITIES AVAILABLE FOR SALE
Total amortized cost	45,654	47,828
Gross Unrealized Gains	587	341
Gross Unrealized Losses	(163)	(295)
Estimated Fair Value	$ 46,078	$ 47,874

INVESTMENT SECURITIES - BY CONT

INVESTMENT SECURITIES - BY CONTRACTUAL MATURITY (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Amortized Cost
Due in one year or less	$ 18,890	$ 13,683
Due after one year through five years	78,722	83,928
Due after five years through ten years	12,455	16,712
Due after ten years	2,869	2,875
Total amortized cost	112,936	117,198
Estimated Fair Value
Due in one year or less	18,846	13,665
Due after one year through five years	79,156	83,486
Due after five years through ten years	12,589	16,739
Due after ten years	2,869	2,858
Estimated Fair Value	113,460	$ 116,748
Collateral Pledged
Estimated Fair Value
Investment securities at cost	26,330
Securities held as collateral at fair value	$ 26,583

LOANS (Details)

LOANS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Loans
Total loans	$ 1,045,428	$ 812,441	$ 1,038,864
Acquired portfolio
Loans acquired - contractual payments	39,601
Nonaccretable difference	(546)
Expected cash flows	39,055
Accretable yield	(1,054)
Carrying balance at acquisition date	38,001
Balance at the beginning of period	5,051
Accretion	(541)
Reclassification from nonaccretable difference	12
Balance at the end of period	4,522
Changes in the allowance for loan losses
Net charge off activity	129	28
PFC
Acquired portfolio
Loans acquired - contractual payments	67,139
Nonaccretable difference	(2,234)
Expected cash flows	64,905
Accretable yield	(2,844)
Carrying balance at acquisition date	62,061
Balance at the beginning of period	128	149
Accretion		(30)
Reclassification from nonaccretable difference		(23)
Balance at the end of period	128	142
Eagle River
Acquired portfolio
Loans acquired - contractual payments	84,138
Nonaccretable difference	(1,172)
Expected cash flows	82,966
Accretable yield	(2,091)
Carrying balance at acquisition date	80,875
Balance at the beginning of period	229	821
Accretion	(16)	(150)
Balance at the end of period	213	671
Niagara Bancorporation
Acquired portfolio
Loans acquired - contractual payments	32,660
Nonaccretable difference	(265)
Expected cash flows	32,395
Accretable yield	(688)
Carrying balance at acquisition date	31,707
Balance at the beginning of period	95	319
Accretion	(51)	(54)
Balance at the end of period	44	265
FFNM
Acquired portfolio
Loans acquired - contractual payments	192,742
Nonaccretable difference	(2,100)
Expected cash flows	190,642
Accretable yield	(5,198)
Carrying balance at acquisition date	185,444
Balance at the beginning of period	4,017
Accretion	(410)
Balance at the end of period	3,607
Lincoln Community Bank
Acquired portfolio
Balance at the beginning of period	582
Accretion	(64)
Reclassification from nonaccretable difference	12
Balance at the end of period	530
Commercial real estate
Loans
Total loans	498,471	411,526	496,207
Commercial, financial, and agricultural
Loans
Total loans	201,089	160,188	191,060
Commercial construction
Loans
Total loans	33,118	8,004	29,765
One to four family residential real estate
Loans
Total loans	281,104	204,542	286,908
Consumer
Loans
Total loans	19,624	16,919	20,371
Consumer construction
Loans
Total loans	12,022	11,262	$ 14,553
Acquired Impaired
Acquired portfolio
Loans acquired - contractual payments	1,901
Nonaccretable difference	(546)
Expected cash flows	1,355
Accretable yield	(561)
Carrying balance at acquisition date	794
Balance at the beginning of period	1,078
Accretion	(15)
Reclassification from nonaccretable difference	12
Balance at the end of period	1,075
Acquired Impaired | PFC
Acquired portfolio
Loans acquired - contractual payments	13,290
Nonaccretable difference	(2,234)
Expected cash flows	11,056
Accretable yield	(744)
Carrying balance at acquisition date	10,312
Balance at the beginning of period	128	149
Accretion		(30)
Reclassification from nonaccretable difference		(23)
Balance at the end of period	128	142
Acquired Impaired | Eagle River
Acquired portfolio
Loans acquired - contractual payments	3,401
Nonaccretable difference	(1,172)
Expected cash flows	2,229
Accretable yield	(391)
Carrying balance at acquisition date	1,838
Balance at the beginning of period	213	218
Balance at the end of period	213	218
Acquired Impaired | Niagara Bancorporation
Acquired portfolio
Loans acquired - contractual payments	2,105
Nonaccretable difference	(265)
Expected cash flows	1,840
Accretable yield	(88)
Carrying balance at acquisition date	1,752
Balance at the beginning of period	26	38
Balance at the end of period	26	38
Acquired Impaired | FFNM
Acquired portfolio
Loans acquired - contractual payments	5,440
Nonaccretable difference	(2,100)
Expected cash flows	3,340
Accretable yield	(700)
Carrying balance at acquisition date	2,640
Balance at the beginning of period	571
Balance at the end of period	571
Acquired Impaired | Lincoln Community Bank
Acquired portfolio
Balance at the beginning of period	140
Accretion	(15)
Reclassification from nonaccretable difference	12
Balance at the end of period	137
Acquired Non-impaired
Acquired portfolio
Loans acquired - contractual payments	37,700
Expected cash flows	37,700
Accretable yield	(493)
Carrying balance at acquisition date	37,207
Balance at the beginning of period	3,973
Accretion	(526)
Balance at the end of period	3,447
Acquired Non-impaired | PFC
Acquired portfolio
Loans acquired - contractual payments	53,849
Expected cash flows	53,849
Accretable yield	(2,100)
Carrying balance at acquisition date	51,749
Acquired Non-impaired | Eagle River
Acquired portfolio
Loans acquired - contractual payments	80,737
Expected cash flows	80,737
Accretable yield	(1,700)
Carrying balance at acquisition date	79,037
Balance at the beginning of period	16	603
Accretion	(16)	(150)
Balance at the end of period		453
Acquired Non-impaired | Niagara Bancorporation
Acquired portfolio
Loans acquired - contractual payments	30,555
Expected cash flows	30,555
Accretable yield	(600)
Carrying balance at acquisition date	29,955
Balance at the beginning of period	69	281
Accretion	(51)	(54)
Balance at the end of period	18	$ 227
Acquired Non-impaired | FFNM
Acquired portfolio
Loans acquired - contractual payments	187,302
Expected cash flows	187,302
Accretable yield	(4,498)
Carrying balance at acquisition date	182,804
Balance at the beginning of period	3,446
Accretion	(410)
Balance at the end of period	3,036
Acquired Non-impaired | Lincoln Community Bank
Acquired portfolio
Balance at the beginning of period	442
Accretion	(49)
Balance at the end of period	$ 393

LOANS - ALLOWANCE (Details)

LOANS - ALLOWANCE (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Allowance for loan loss reserve:
Balance at beginning of period	$ 5,183	$ 5,079
Charge-offs	(161)	(53)
Recoveries	32	25
Provision	100	50
Balance at end of period	5,154	5,101
Loans:
Ending balance			$ 1,045,428	$ 1,038,864	$ 812,441
Ending balance ALLR	(5,183)	(5,079)	(5,154)	(5,183)	(5,101)
Net loans			1,040,274	1,033,681	807,340
Ending balance ALLR:
Individually evaluated			1,115		672
Collectively evaluated			4,039		4,429
Total	5,183	5,079	5,154	5,183	5,101
Ending balance Loans:
Individually evaluated			3,383		3,247
Collectively evaluated			1,036,085		805,952
Acquired with deteriorated credit quality			5,960		3,242
Total Loans			1,045,428	1,038,864	812,441
Commercial real estate
Allowance for loan loss reserve:
Balance at beginning of period	1,682	1,650
Charge-offs	(20)
Recoveries	12	7
Provision	(109)	676
Balance at end of period	1,565	2,333
Loans:
Ending balance			498,471	496,207	411,526
Ending balance ALLR	(1,682)	(1,650)	(1,565)	(1,682)	(2,333)
Net loans			496,906		409,193
Ending balance ALLR:
Individually evaluated			467		362
Collectively evaluated			1,098		1,971
Total	1,682	1,650	1,565	1,682	2,333
Ending balance Loans:
Individually evaluated			2,138		1,568
Collectively evaluated			493,570		408,273
Acquired with deteriorated credit quality			2,763		1,685
Total Loans			498,471	496,207	411,526
Commercial, financial, and agricultural
Allowance for loan loss reserve:
Balance at beginning of period	648	576
Charge-offs	(19)
Recoveries	4	3
Provision	372	965
Balance at end of period	1,005	1,544
Loans:
Ending balance			201,089	191,060	160,188
Ending balance ALLR	(648)	(576)	(1,005)	(648)	(1,544)
Net loans			200,084		158,644
Ending balance ALLR:
Individually evaluated			648		310
Collectively evaluated			357		1,234
Total	648	576	1,005	648	1,544
Ending balance Loans:
Individually evaluated			1,245		1,307
Collectively evaluated			198,425		158,881
Acquired with deteriorated credit quality			1,419
Total Loans			201,089	191,060	160,188
Commercial construction
Allowance for loan loss reserve:
Balance at beginning of period	101	54
Recoveries		1
Provision	(1)	371
Balance at end of period	100	426
Loans:
Ending balance			33,118	29,765	8,004
Ending balance ALLR	(101)	(54)	(100)	(101)	(426)
Net loans			33,018		7,578
Ending balance ALLR:
Collectively evaluated			100		426
Total	101	54	100	101	426
Ending balance Loans:
Individually evaluated					372
Collectively evaluated			32,753		7,632
Acquired with deteriorated credit quality			365
Total Loans			33,118	29,765	8,004
One to four family residential real estate
Allowance for loan loss reserve:
Balance at beginning of period	199	160
Charge-offs	(63)	(47)
Recoveries	5	2
Provision	60	58
Balance at end of period	201	173
Loans:
Ending balance			281,104	286,908	204,542
Ending balance ALLR	(199)	(160)	(201)	(199)	(173)
Net loans			280,903		204,369
Ending balance ALLR:
Collectively evaluated			201		173
Total	199	160	201	199	173
Ending balance Loans:
Collectively evaluated			279,943		203,032
Acquired with deteriorated credit quality			1,161		1,510
Total Loans			281,104	286,908	204,542
Consumer construction
Allowance for loan loss reserve:
Balance at beginning of period	6	6
Balance at end of period	6	6
Loans:
Ending balance			12,022	14,553	11,262
Ending balance ALLR	(6)	(6)	(6)	(6)	(6)
Net loans			12,016		11,256
Ending balance ALLR:
Collectively evaluated			6		6
Total	6	6	6	6	6
Ending balance Loans:
Collectively evaluated			11,809		11,215
Acquired with deteriorated credit quality			213		47
Total Loans			12,022	14,553	11,262
Consumer
Allowance for loan loss reserve:
Balance at beginning of period	8	10
Charge-offs	(59)	(6)
Recoveries	11	12
Provision	49	(7)
Balance at end of period	9	9
Loans:
Ending balance			19,624	20,371	16,919
Ending balance ALLR	(8)	(10)	(9)	(8)	(9)
Net loans			19,615		16,910
Ending balance ALLR:
Collectively evaluated			9		9
Total	8	10	9	8	9
Ending balance Loans:
Collectively evaluated			19,585		16,919
Acquired with deteriorated credit quality			39
Total Loans			19,624	20,371	16,919
Unallocated
Allowance for loan loss reserve:
Balance at beginning of period	2,539	2,623
Provision	(271)	(2,013)
Balance at end of period	2,268	610
Loans:
Ending balance ALLR	(2,539)	(2,623)	(2,268)	(2,539)	(610)
Net loans			(2,268)		(610)
Ending balance ALLR:
Collectively evaluated			2,268		610
Total	$ 2,539	$ 2,623	$ 2,268	$ 2,539	$ 610

LOANS - LOANS BY RISK CATEGORY

LOANS - LOANS BY RISK CATEGORY (Details) $ in Thousands	Mar. 31, 2019USD ($)item	Dec. 31, 2018USD ($)	Mar. 31, 2018USD ($)
Breakdown of loans by risk category
Total loans	$ 1,045,428	$ 1,038,864	$ 812,441
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	$ 498,471	496,207	411,526
Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	201,089	191,060	160,188
Commercial construction
Breakdown of loans by risk category
Total loans	33,118	29,765	8,004
One to four family residential real estate
Breakdown of loans by risk category
Total loans	281,104	286,908	204,542
Consumer construction
Breakdown of loans by risk category
Total loans	12,022	14,553	11,262
Consumer
Breakdown of loans by risk category
Total loans	19,624	20,371	$ 16,919
Strong (1)
Breakdown of loans by risk category
Total loans	20,445	18,464
Strong (1) | Commercial real estate
Breakdown of loans by risk category
Total loans	10,557	9,564
Strong (1) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	8,882	8,077
Strong (1) | Commercial construction
Breakdown of loans by risk category
Total loans	919	734
Strong (1) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	70	70
Strong (1) | Consumer
Breakdown of loans by risk category
Total loans	17	19
Good (2)
Breakdown of loans by risk category
Total loans	36,340	34,758
Good (2) | Commercial real estate
Breakdown of loans by risk category
Total loans	21,313	22,265
Good (2) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	11,408	8,678
Good (2) | Commercial construction
Breakdown of loans by risk category
Total loans	515	706
Good (2) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	2,898	2,873
Good (2) | Consumer
Breakdown of loans by risk category
Total loans	206	236
Average (3)
Breakdown of loans by risk category
Total loans	271,383	276,774
Average (3) | Commercial real estate
Breakdown of loans by risk category
Total loans	189,296	189,898
Average (3) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	66,533	72,466
Average (3) | Commercial construction
Breakdown of loans by risk category
Total loans	8,120	6,844
Average (3) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	6,988	6,941
Average (3) | Consumer
Breakdown of loans by risk category
Total loans	446	625
Acceptable
Breakdown of loans by risk category
Total loans	401,773	384,379
Acceptable | Commercial real estate
Breakdown of loans by risk category
Total loans	262,811	257,627
Acceptable | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	109,164	97,441
Acceptable | Commercial construction
Breakdown of loans by risk category
Total loans	13,481	12,244
Acceptable | One to four family residential real estate
Breakdown of loans by risk category
Total loans	15,186	15,711
Acceptable | Consumer construction
Breakdown of loans by risk category
Total loans	153	200
Acceptable | Consumer
Breakdown of loans by risk category
Total loans	978	1,156
Acceptable Watch
Breakdown of loans by risk category
Total loans	8,941	11,278
Acceptable Watch | Commercial real estate
Breakdown of loans by risk category
Total loans	3,596	5,993
Acceptable Watch | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	2,313	2,269
Acceptable Watch | Commercial construction
Breakdown of loans by risk category
Total loans	820	829
Acceptable Watch | One to four family residential real estate
Breakdown of loans by risk category
Total loans	2,122	2,095
Acceptable Watch | Consumer construction
Breakdown of loans by risk category
Total loans	90	50
Acceptable Watch | Consumer
Breakdown of loans by risk category
Total loans		42
Substandard (6)
Breakdown of loans by risk category
Total loans	19,633	18,657
Substandard (6) | Commercial real estate
Breakdown of loans by risk category
Total loans	10,898	10,860
Substandard (6) | Commercial, financial, and agricultural
Breakdown of loans by risk category
Total loans	2,789	2,129
Substandard (6) | Commercial construction
Breakdown of loans by risk category
Total loans	836	823
Substandard (6) | One to four family residential real estate
Breakdown of loans by risk category
Total loans	5,040	4,757
Substandard (6) | Consumer construction
Breakdown of loans by risk category
Total loans	9	11
Substandard (6) | Consumer
Breakdown of loans by risk category
Total loans	61	77
Rating Unassigned
Breakdown of loans by risk category
Total loans	286,913	294,554
Rating Unassigned | Commercial construction
Breakdown of loans by risk category
Total loans	8,427	7,585
Rating Unassigned | One to four family residential real estate
Breakdown of loans by risk category
Total loans	248,800	254,461
Rating Unassigned | Consumer construction
Breakdown of loans by risk category
Total loans	11,770	14,292
Rating Unassigned | Consumer
Breakdown of loans by risk category
Total loans	$ 17,916	$ 18,216

LOANS - IMPAIRED LOANS AND EFFE

LOANS - IMPAIRED LOANS AND EFFECT ON INTEREST INCOME (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Impaired Loans
Number of days past due to be considered as nonperforming loans	90 days
Recorded investment
With no valuation reserve	$ 5,960	$ 6,093
With a valuation reserve	3,383	2,725
Total	9,343	8,818
Unpaid Principal Balance	17,833	18,312
Related Allowance for Loan Losses	1,115	826
Average investment
Average Balance for the Period	13,321	8,707
Interest Income Recognized During Impairment
Interest Income Recognized for the Period	126	656
Commercial real estate
Recorded investment
With no valuation reserve	2,763	2,777
With a valuation reserve	2,138	2,148
Total	4,901	4,925
Unpaid Principal Balance	10,635	10,740
Related Allowance for Loan Losses	467	486
Average investment
Average Balance for the Period	7,968	5,024
Interest Income Recognized During Impairment
Interest Income Recognized for the Period	76	410
Commercial, financial, and agricultural
Recorded investment
With no valuation reserve	1,419	1,460
With a valuation reserve	1,245	577
Total	2,664	2,037
Unpaid Principal Balance	2,211	2,249
Related Allowance for Loan Losses	648	340
Average investment
Average Balance for the Period	563	374
Interest Income Recognized During Impairment
Interest Income Recognized for the Period	2	26
Commercial construction
Recorded investment
With no valuation reserve	365	366
Total	365	366
Unpaid Principal Balance	1,092	1,132
Average investment
Average Balance for the Period	746	383
Interest Income Recognized During Impairment
Interest Income Recognized for the Period	2	13
One to four family residential real estate
Recorded investment
With no valuation reserve	1,161	1,231
Total	1,161	1,231
Unpaid Principal Balance	3,843	4,136
Average investment
Average Balance for the Period	3,990	2,879
Interest Income Recognized During Impairment
Interest Income Recognized for the Period	45	203
Consumer construction
Recorded investment
With no valuation reserve	213	217
Total	213	217
Average investment
Average Balance for the Period		9
Consumer
Recorded investment
With no valuation reserve	39	42
Total	39	42
Unpaid Principal Balance	52	55
Average investment
Average Balance for the Period	54	38
Interest Income Recognized During Impairment
Interest Income Recognized for the Period	$ 1	$ 4

LOANS - PAST DUE (Details)

LOANS - PAST DUE (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Past due loans
Nonaccrual	$ 5,588	$ 5,054
Total	10,438	11,449
30-89 days Past Due
Past due loans
30-89 days Past Due (accruing)	4,850	6,372
90+ days Past Due
Past due loans
90+ days Past Due (accruing)		23
Commercial real estate
Past due loans
Nonaccrual	1,396	1,700
Total	1,534	1,998
Commercial real estate | 30-89 days Past Due
Past due loans
30-89 days Past Due (accruing)	138	298
Commercial, financial, and agricultural
Past due loans
Nonaccrual	737	320
Total	1,011	718
Commercial, financial, and agricultural | 30-89 days Past Due
Past due loans
30-89 days Past Due (accruing)	274	398
Commercial construction
Past due loans
Nonaccrual	282	266
Total	334	378
Commercial construction | 30-89 days Past Due
Past due loans
30-89 days Past Due (accruing)	52	112
One to four family residential real estate
Past due loans
Nonaccrual	3,145	2,725
Total	7,460	8,199
One to four family residential real estate | 30-89 days Past Due
Past due loans
30-89 days Past Due (accruing)	4,315	5,456
One to four family residential real estate | 90+ days Past Due
Past due loans
90+ days Past Due (accruing)		18
Consumer
Past due loans
Nonaccrual	28	43
Total	99	156
Consumer | 30-89 days Past Due
Past due loans
30-89 days Past Due (accruing)	$ 71	108
Consumer | 90+ days Past Due
Past due loans
90+ days Past Due (accruing)		$ 5

LOANS - TROUBLED DEBT RESTRUCTU

LOANS - TROUBLED DEBT RESTRUCTURING (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019USD ($)loan	Mar. 31, 2018loan	Mar. 31, 2019USD ($)item
LOANS
Number of consecutive timely payments before being considered return to accruing status | item			6
Number of troubled debt restructurings | loan	3	0
Restructured loans	$ 450		$ 450
Changes in troubled debt restructuring
Ending balance	$ 450

LOANS - INSIDER LOANS (Details)

LOANS - INSIDER LOANS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms
Loans outstanding, beginning of period	$ 9,817,000	$ 10,037,000
New loans	1,872,000
Net activity on revolving lines of credit	358,000
Repayment	(96,000)	(123,000)
Loans outstanding, end of period	11,951,000	9,914,000
Loans outstanding	9,817,000	10,037,000	$ 11,951,000
Unfunded commitments			486,000
Substandard (6)
Activity in insider loans granted to the entity's executive officers and directors, including their families and firms
Loans outstanding, end of period	0	0
Loans outstanding	$ 0	$ 0	$ 0

GOODWILL AND OTHER INTANGIBLE_3

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018	Oct. 01, 2018	Jun. 07, 2018	May 31, 2018	May 18, 2018	Aug. 31, 2016	Apr. 29, 2016	Dec. 05, 2014
Goodwill	$ 19,224	$ 22,024	$ 19,224
Deposit based intangible assets	5,549	5,720	6,746
Amortization expense	171	450
Future Amortization Expense	675
Amortization expense year one	675
Amortization expense year two	675
Amortization expense year three	675
Amortization expense year four	675
Amortization expense year five	675
PFC
Goodwill									$ 3,805
Deposit based intangible assets	684	714							$ 1,206
Amortization expense	30	121
Future Amortization Expense	121
Eagle River
Goodwill								$ 1,839
Deposit based intangible assets	703	728						$ 993
Amortization expense	25	99
Future Amortization Expense	99
Niagara Bancorporation
Goodwill							$ 50
Deposit based intangible assets	223	230					$ 300
Amortization expense	7	30
Future Amortization Expense	30
FFNM
Goodwill					$ 12,278	$ 12,278
Deposit based intangible assets	2,653	2,735				$ 2,894
Amortization expense	82	159
Future Amortization Expense	290
Lincoln Community Bank
Goodwill			1,252	$ 1,252
Deposit based intangible assets	1,286	1,313	$ 1,353
Amortization expense	27	$ 41
Future Amortization Expense	$ 135

SERVICING RIGHTS (Details)

SERVICING RIGHTS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Changes in mortgage servicing rights capitalized and amortized, along with the aggregate activity in related valuation allowances
Capitalized servicing rights as estimated by management	$ 2,898,000
Commercial loans
Commercial Loans
Commercial Loans	41,000,000
Servicing rights	$ 80,000		$ 80,000
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	$ 1,144,000	$ 1,033,000
Additions from loans sold with servicing retained	500,000
Amortization	(60,000)	(108,000)
Balance at end of period	1,584,000	925,000
Balance of loan servicing portfolio	$ 288,687,000	$ 195,235,000
Mortgage servicing rights as % of portfolio	0.55%	0.47%
Fair value of servicing rights	$ 2,898	$ 1,737

BORROWINGS (Details)

BORROWINGS (Details)	3 Months Ended
	Mar. 31, 2019USD ($)item	Dec. 31, 2018USD ($)
BORROWINGS
Borrowings	$ 46,878,000	$ 57,536,000
Collateral Pledged
BORROWINGS
Amortized cost estimated fair value	26,583,000
Federal Home Loan Bank borrowings
BORROWINGS
Borrowings	$ 46,398,000	57,060,000
Federal Home Loan Bank Borrowing Weighted Average Interest Rate	1.72%
Federal Home Loan Bank borrowings | Mortgage related and municipal securities | Collateral Pledged
BORROWINGS
Available for sale equity securities	$ 30,586,000
Amortized cost estimated fair value	30,806,000
Federal Home Loan Bank borrowings | FHLB stock
BORROWINGS
Stock owned and pledged as collateral	4,924,000
Federal Home Loan Bank borrowings | One to four family residential real estate
BORROWINGS
Loans pledged as collateral	$ 60,579,000
Correspondent bank line of credit
BORROWINGS
Number of banking borrowing relationships | item	1
Correspondent bank line of credit | LIBOR
BORROWINGS
Variable rate basis	LIBOR
Variable rate (as a percent)	2.00%
Correspondent bank line of credit | LIBOR | Minimum
BORROWINGS
Floor rate (as a percent)	3.00%
Correspondent bank line of credit | LIBOR | Maximum
BORROWINGS
Floor rate (as a percent)	22.00%
USDA Rural Development note
BORROWINGS
Borrowings	$ 480,000	$ 476,000
Interest rate on note (as a percent)	1.00%
USDA Rural Development note | First Rural Relending
BORROWINGS
Demand deposit account pledged as collateral	$ 427,000
Revolving Credit Facility
BORROWINGS
Line of Credit	0
Maximum borrowing capacity	$ 15,000,000
Revolving Credit Facility | LIBOR
BORROWINGS
LIBOR rate at point of time	2.60%

DEFINED BENEFIT PENSION PLAN (D

DEFINED BENEFIT PENSION PLAN (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019USD ($)item	Mar. 31, 2018USD ($)	Dec. 31, 2018USD ($)
Defined Benefit Pension Plan
Number of years over which anticipated pension distributions disclosed | item	5
Anticipated distributions from the plan
2019	$ 136
2020	132
2021	131
2022	137
2023	143
2024-2028	823
Total	1,502
Peninsula Financial Corporation noncontributory defined benefit pension plan
Defined Benefit Pension Plan
Expected contributions to the plan next fiscal year	$ 22
Change in plan assets
Fair value of plan assets			$ 1,987
Accrued pension expense, included with other assets or liabilities			1,004
Accumulated benefit obligation		$ 3,331	$ 2,991
Assumptions in the actuarial valuation
Weighted average discount rate	4.02%	3.33%
Expected long-term rate of return on plan assets	8.00%	8.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Minimum
Plan assets
Target Allocation	50.00%		50.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Maximum
Plan assets
Target Allocation	70.00%		70.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Equity securities | Plan
Plan assets
Actual Allocation	59.00%		59.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Minimum
Plan assets
Target Allocation	30.00%		30.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Maximum
Plan assets
Target Allocation	50.00%		50.00%
Peninsula Financial Corporation noncontributory defined benefit pension plan | Fixed income securities | Plan
Plan assets
Actual Allocation	41.00%		41.00%

STOCK COMPENSATION PLANS (Detai

STOCK COMPENSATION PLANS (Details) - $ / shares	Feb. 28, 2019	Feb. 28, 2018	Feb. 28, 2017	Feb. 29, 2016	Feb. 28, 2019	Apr. 30, 2018	Feb. 28, 2018	Feb. 28, 2017	Feb. 29, 2016	May 31, 2015	Mar. 31, 2019	Mar. 31, 2018
Summary of nonvested shares
Nonvested beginning balance (in shares)											69,322
Granted during the period (in shares)											27,790
Vested during the period (in shares)											(27,967)
Nonvested ending balance (in shares)											69,145
Weighted Average Grant Date Fair Value
Nonvested beginning balance (in dollars per share)											$ 12.79
Granted during the period (in dollars per share)											15.70
Vested during the period (in dollars per share)											12.09
Nonvested ending balance (in dollars per share)											$ 13.28
RSUs
Stock Compensation Plans
Vesting period	4 years	4 years	4 years	4 years							4 years
Market value at grant date (in dollars per share)	$ 15.70	$ 16.30	$ 13.39	$ 9.91	$ 15.70	$ 16	$ 16.30	$ 13.39	$ 9.91	$ 10.77
Stock issued for vested restricted stocks											27,967	37,630
Summary of nonvested shares
Granted during the period (in shares)					27,790	8,000	18,643	28,427	35,733	3,000

INCOME TAXES (Details)

INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
INCOME TAXES
Deferred tax assets, net of valuation allowance	$ 6,906
Net operating loss (NOL) carryforwards	12,500
Tax credit carryforwards	1,700
Alternative minimum tax credits was reclassified to current tax receivable			$ 1,600
Annual limitation for usage of NOL	2,000
Annual limitation for usage of tax credits	420
Deferred tax expense	$ 842	$ 408

FAIR VALUE (Details)

FAIR VALUE (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
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	12,712	$ 13,452
Securities available for sale	113,460	116,748
Marketable Securities	113,460	116,748
Carrying Amount
Financial assets:
Total financial assets	1,232,179	1,235,967
Financial liabilities:
Total financial liabilities	1,144,645	1,155,464
Estimated Fair Value
Financial assets:
Total financial assets	1,212,726	1,215,500
Financial liabilities:
Total financial liabilities	1,099,849	1,104,871
Level 1 | Carrying Amount
Financial assets:
Cash and cash equivalents	56,963	64,157
Level 1 | Estimated Fair Value
Financial assets:
Cash and cash equivalents	56,963	64,157
Level 2 | Carrying Amount
Financial assets:
Interest-bearing deposits	12,712	13,452
Federal Home Loan Bank stock	4,924	4,924
Financial liabilities:
Deposits	1,097,248	1,097,537
Borrowings	46,878	57,536
Level 2 | Estimated Fair Value
Financial assets:
Interest-bearing deposits	12,712	13,452
Federal Home Loan Bank stock	4,924	4,924
Financial liabilities:
Deposits	1,053,029	1,047,709
Borrowings	46,301	56,771
Level 3 | Carrying Amount
Financial assets:
Net loans	1,040,274	1,033,681
Accrued interest receivable	3,846	3,005
Financial liabilities:
Accrued interest payable	519	391
Level 3 | Estimated Fair Value
Financial assets:
Net loans	1,020,821	1,013,214
Accrued interest receivable	3,846	3,005
Financial liabilities:
Accrued interest payable	519	391
Available-for-sale Securities
Financial assets:
Marketable Securities	113,460	116,748
Available-for-sale Securities | Level 2 | Carrying Amount
Financial assets:
Marketable Securities	111,972	115,260
Available-for-sale Securities | Level 2 | Estimated Fair Value
Financial assets:
Marketable Securities	111,972	115,260
Available-for-sale Securities | Level 3 | Carrying Amount
Financial assets:
Marketable Securities	1,488	1,488
Available-for-sale Securities | Level 3 | Estimated Fair Value
Financial assets:
Marketable Securities	1,488	1,488
Corporate
Financial assets:
Marketable Securities	20,158	20,064
US Agencies
Financial assets:
Marketable Securities	15,847	15,970
US Agencies - MBS
Financial assets:
Marketable Securities	31,377	32,840
Obligations of states and political subdivisions
Financial assets:
Marketable Securities	$ 46,078	$ 47,874

FAIR VALUE - OTHER ASSETS AND O

FAIR VALUE - OTHER ASSETS AND OTHER LIABILITIES (Details) - Recurring - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair value measurements
Other assets	$ 0	$ 0
Other liabilities	0	0
Level 3
Fair value measurements
Assets	0	0
Liabilities	$ 0	$ 0

FAIR VALUE - RECURRING (Details

FAIR VALUE - RECURRING (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Marketable Securities	$ 113,460	$ 116,748
Recurring
Marketable Securities	113,460	116,748
Available-for-sale Securities
Marketable Securities	113,460	116,748
Corporate
Marketable Securities	20,158	20,064
Corporate | Recurring
Marketable Securities	20,158	20,064
Corporate | Level 2 | Recurring
Marketable Securities	19,658	19,564
Corporate | Level 3 | Recurring
Marketable Securities	500	500
US Agencies
Marketable Securities	15,847	15,970
US Agencies | Recurring
Marketable Securities	15,847	15,970
US Agencies | Level 2 | Recurring
Marketable Securities	15,847	15,970
US Agencies - MBS
Marketable Securities	31,377	32,840
US Agencies - MBS | Recurring
Marketable Securities	31,377	32,840
US Agencies - MBS | Level 2 | Recurring
Marketable Securities	31,377	32,840
Obligations of states and political subdivisions
Marketable Securities	46,078	47,874
Obligations of states and political subdivisions | Recurring
Marketable Securities	46,078	47,874
Obligations of states and political subdivisions | Level 2 | Recurring
Marketable Securities	45,090	46,886
Obligations of states and political subdivisions | Level 3 | Recurring
Marketable Securities	$ 988	$ 988

FAIR VALUE - NONRECURRING BASIS

FAIR VALUE - NONRECURRING BASIS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Fair value
Impaired loans	$ 9,343	$ 8,818
Other real estate owned	1,961	3,119
Nonrecurring
Fair value
Total (Gains) Losses	247	380
Nonrecurring | Impaired loans
Fair value
Total (Gains) Losses	219	198
Nonrecurring | Other real estate owned
Fair value
Total (Gains) Losses	28	182
Nonrecurring | Level 3 | Impaired loans
Fair value
Impaired loans	9,343	8,818
Nonrecurring | Level 3 | Other real estate owned
Fair value
Other real estate owned	$ 1,961	$ 3,119

SHAREHOLDERS' EQUITY (Details)

SHAREHOLDERS' EQUITY (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Mar. 31, 2019	Apr. 28, 2015	Dec. 17, 2013	Feb. 27, 2013
Participation in the TARP Capital Purchase Program
Number of shares authorized to be repurchased					$ 25,000		$ 600,000	$ 600,000
Number of additional shares authorized to be repurchased						$ 750,000
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, A_2

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Financial Instruments with Off-Balance-Sheet Risk
Commitments	$ 162,951	$ 155,611
Commitments to extend credit
Financial Instruments with Off-Balance-Sheet Risk
Commitments, variable rate	96,811	88,862
Commitments, fixed rate	53,811	54,434
Standby letters of credit
Financial Instruments with Off-Balance-Sheet Risk
Commitments, variable rate	$ 7,060	7,208
Percentage collateralization on financial instruments allowed under commitments	100.00%
Credit card commitments
Financial Instruments with Off-Balance-Sheet Risk
Commitments, fixed rate	$ 5,269	$ 5,107

COMMITMENTS, CONTINGENCIES, A_3

COMMITMENTS, CONTINGENCIES, AND CREDIT RISK - CREDIT RISK (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Concentration of Credit Risk
Loan portfolio	$ 1,040,274	$ 1,033,681	$ 807,340
Commercial real estate
Concentration of Credit Risk
Loan portfolio	496,906		$ 409,193
Bank | Commercial real estate | Commercial loan portfolio | Credit risk concentration
Concentration of Credit Risk
Loan portfolio	$ 147,752	$ 150,251
Percentage of concentration risk under a specified benchmark	20.17%	20.95%

BUSINESS COMBINATIONS (Details)

BUSINESS COMBINATIONS (Details)	Jun. 07, 2018USD ($)item	May 31, 2018USD ($)item$ / sharesshares	Mar. 31, 2019USD ($)shares	Dec. 31, 2018USD ($)shares	Oct. 01, 2018USD ($)	Sep. 30, 2018USD ($)	May 18, 2018USD ($)	Aug. 31, 2016USD ($)	Apr. 29, 2016USD ($)
Business Acquisition [Line Items]
Assets			$ 1,316,996,000	$ 1,318,040,000
Purchase Price:
Shares outstanding (in Shares) | shares			10,740,712	10,712,745
Net assets acquired:
Goodwill			$ 19,224,000	$ 22,024,000	$ 19,224,000
Eagle River
Net assets acquired:
Goodwill									$ 1,839,000
Niagara Bancorporation
Net assets acquired:
Goodwill								$ 50,000
FFNM
Business Acquisition [Line Items]
Number of banking offices | item		7
Increase deferred tax asset			2,637,000
Decrease Goodwill			2,637,000
FFNM acquisition (in shares) | shares		2,146,378
Purchase Price:
Shares outstanding (in Shares) | shares		3,726,925
Price per share / Cash Price | $ / shares		$ 9.15
Total purchase price		$ 34,101,000
Net assets acquired:
Cash and cash equivalents		13,267,000
Securities available for sale		96,297,000
FHLB Stock		1,748,000
Total loans		185,444,000					$ 192,000,000
Premises and equipment		5,134,000
Other real estate owned		194,000
Deposit based intangible		2,894,000
Mortgage service rights		386,000
Deferred tax assets		5,481,000
Bank owned life insurance		5,170,000
Other assets		1,775,000
Total assets		317,790,000
Non-interest bearing deposits		60,616,000
Interest bearing deposits		193,099,000
Total deposits		253,715,000					254,000,000
FHLB Borrowings		40,722,000
Deferred tax liability		133,000
Other liabilities		1,397,000
Total liabilities		295,967,000
Net assets acquired		21,823,000
Goodwill		$ 12,278,000					12,278,000
FFNM | Minimum
Business Acquisition [Line Items]
Assets							$ 318,000,000
Lincoln Community Bank
Business Acquisition [Line Items]
Number of banking centers | item	2
Cash consideration	$ 8,500,000
Decrease deferred tax liability			163,000
Decrease Goodwill			$ 163,000
Net assets acquired:
Cash and cash equivalents	10,971,000
Securities available for sale	6,947,000
Total loans	38,001,000					$ 39,000,000
Premises and equipment	1,249,000
Other real estate owned	69,000
Deposit based intangible	1,353,000
Bank owned life insurance	1,653,000
Other assets	339,000
Total assets	60,582,000
Non-interest bearing deposits	15,559,000
Interest bearing deposits	37,654,000
Total deposits	53,213,000					53,000,000
Deferred tax liability	68,000
Other liabilities	53,000
Total liabilities	53,334,000
Net assets acquired	7,248,000
Goodwill	$ 1,252,000				$ 1,252,000
Lincoln Community Bank | Minimum
Business Acquisition [Line Items]
Assets						$ 59,000,000