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Loans and Allowance for Loan Losses | 6 Months Ended
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Jun. 30, 2013
Loans and Allowance for Loan Losses [Abstract] |
LOANS AND ALLOWANCE FOR LOAN LOSSES |
3. | LOANS AND ALLOWANCE FOR LOAN LOSSES
Our total loans at June 30, 2013 were $1.06 billion compared to $1.04 billion at December 31, 2012, an increase of $17.5 million, or 1.7%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2013 and December 31, 2012, and the percentage change in loans from the end of 2012 to the end of the second quarter of 2013, are as follows:
|  |  |  |  |  |  |  |  |  |  |  |  |  | Percent |
|  | June 30, 2013 |  |  | December 31, 2012 |  |  | Increase |
|  | Balance |  |  | % |  |  | Balance |  |  | % |  |  | (Decrease) |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 279,300,000 |  |  |  | 26.4 | % |  | $ | 285,322,000 |  |  |  | 27.4 | % |  |  | (2.1 | %)
Vacant land, land development, and residential construction |  |  | 42,170,000 |  |  |  | 4.0 |  |  |  | 48,099,000 |  |  |  | 4.6 |  |  |  | (12.3 | )
Real estate – owner occupied |  |  | 253,172,000 |  |  |  | 23.9 |  |  |  | 259,277,000 |  |  |  | 24.9 |  |  |  | (2.4 | )
Real estate – non-owner occupied |  |  | 357,452,000 |  |  |  | 33.8 |  |  |  | 324,886,000 |  |  |  | 31.2 |  |  |  | 10.0 |
Real estate – multi-family and residential rental |  |  | 53,522,000 |  |  |  | 5.0 |  |  |  | 50,922,000 |  |  |  | 4.9 |  |  |  | 5.1 |
Total commercial |  |  | 985,616,000 |  |  |  | 93.1 |  |  |  | 968,506,000 |  |  |  | 93.0 |  |  |  | 1.8 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 37,337,000 |  |  |  | 3.5 |  |  |  | 38,917,000 |  |  |  | 3.7 |  |  |  | (4.1 | )
1-4 family mortgages |  |  | 35,709,000 |  |  |  | 3.4 |  |  |  | 33,766,000 |  |  |  | 3.3 |  |  |  | 5.8 |
Total retail |  |  | 73,046,000 |  |  |  | 6.9 |  |  |  | 72,683,000 |  |  |  | 7.0 |  |  |  | 0.5 |
Total loans |  | $ | 1,058,662,000 |  |  |  | 100.0 | % |  | $ | 1,041,189,000 |  |  |  | 100.0 | % |  |  | 1.7 | %
Nonperforming loans as of June 30, 2013 and December 31, 2012 were as follows:
|  | June 30, 2013 |  |  | December 31, 2012 |
Loans past due 90 days or more still accruing interest |  | $ | 0 |  |  | $ | 0 |
Nonaccrual loans |  |  | 10,526,000 |  |  |  | 18,970,000 |
Total nonperforming loans |  | $ | 10,526,000 |  |  | $ | 18,970,000 |
The recorded principal balance of nonaccrual loans, including troubled debt restructurings, was as follows:
|  | June 30, 2013 |  |  | December 31, 2012 |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 1,581,000 |  |  | $ | 1,677,000 |
Vacant land, land development, and residential construction |  |  | 922,000 |  |  |  | 2,194,000 |
Real estate – owner occupied |  |  | 570,000 |  |  |  | 2,087,000 |
Real estate – non-owner occupied |  |  | 4,642,000 |  |  |  | 9,010,000 |
Real estate – multi-family and residential rental |  |  | 764,000 |  |  |  | 2,021,000 |
Total commercial |  |  | 8,479,000 |  |  |  | 16,989,000 |
Retail: |  |  |  |  |  |  |  |
Home equity and other |  |  | 805,000 |  |  |  | 889,000 |
1-4 family mortgages |  |  | 1,242,000 |  |  |  | 1,092,000 |
Total retail |  |  | 2,047,000 |  |  |  | 1,981,000 |
Total nonaccrual loans |  | $ | 10,526,000 |  |  | $ | 18,970,000 |
An age analysis of past due loans is as follows as of June 30, 2013:
|  | 30 – 59 Days Past Due |  |  | 60 – 89 Days Past Due |  |  | Greater Than 89 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Loans |  |  | Recorded Balance > 89 Days and Accruing |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 0 |  |  | $ | 67,000 |  |  | $ | 578,000 |  |  | $ | 645,000 |  |  | $ | 278,655,000 |  |  | $ | 279,300,000 |  |  | $ | 0 |
Vacant land, land development, and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 357,000 |  |  |  | 357,000 |  |  |  | 41,813,000 |  |  |  | 42,170,000 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 61,000 |  |  |  | 58,000 |  |  |  | 119,000 |  |  |  | 253,053,000 |  |  |  | 253,172,000 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 2,288,000 |  |  |  | 2,288,000 |  |  |  | 355,164,000 |  |  |  | 357,452,000 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 264,000 |  |  |  | 264,000 |  |  |  | 53,258,000 |  |  |  | 53,522,000 |  |  |  | 0 |
Total commercial |  |  | 0 |  |  |  | 128,000 |  |  |  | 3,545,000 |  |  |  | 3,673,000 |  |  |  | 981,943,000 |  |  |  | 985,616,000 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 48,000 |  |  |  | 0 |  |  |  | 0 |  |  |  | 48,000 |  |  |  | 37,289,000 |  |  |  | 37,337,000 |  |  |  | 0 |
1-4 family mortgages |  |  | 86,000 |  |  |  | 306,000 |  |  |  | 433,000 |  |  |  | 825,000 |  |  |  | 34,884,000 |  |  |  | 35,709,000 |  |  |  | 0 |
Total retail |  |  | 134,000 |  |  |  | 306,000 |  |  |  | 433,000 |  |  |  | 873,000 |  |  |  | 72,173,000 |  |  |  | 73,046,000 |  |  |  | 0 |
Total past due loans |  | $ | 134,000 |  |  | $ | 434,000 |  |  | $ | 3,978,000 |  |  | $ | 4,546,000 |  |  | $ | 1,054,116,000 |  |  | $ | 1,058,662,000 |  |  | $ | 0 |
An age analysis of past due loans is as follows as of December 31, 2012:
|  | 30 – 59 Days Past Due |  |  | 60 – 89 Days Past Due |  |  | Greater Than 89 Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Loans |  |  | Recorded Balance > 89 Days and Accruing |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 80,000 |  |  | $ | 0 |  |  | $ | 871,000 |  |  | $ | 951,000 |  |  | $ | 284,371,000 |  |  | $ | 285,322,000 |  |  | $ | 0 |
Vacant land, land development, and residential construction |  |  | 289,000 |  |  |  | 0 |  |  |  | 614,000 |  |  |  | 903,000 |  |  |  | 47,196,000 |  |  |  | 48,099,000 |  |  |  | 0 |
Real estate – owner occupied |  |  | 199,000 |  |  |  | 0 |  |  |  | 1,337,000 |  |  |  | 1,536,000 |  |  |  | 257,741,000 |  |  |  | 259,277,000 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 303,000 |  |  |  | 0 |  |  |  | 1,123,000 |  |  |  | 1,426,000 |  |  |  | 323,460,000 |  |  |  | 324,886,000 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 613,000 |  |  |  | 613,000 |  |  |  | 50,309,000 |  |  |  | 50,922,000 |  |  |  | 0 |
Total commercial |  |  | 871,000 |  |  |  | 0 |  |  |  | 4,558,000 |  |  |  | 5,429,000 |  |  |  | 963,077,000 |  |  |  | 968,506,000 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 1,000 |  |  |  | 0 |  |  |  | 13,000 |  |  |  | 14,000 |  |  |  | 38,903,000 |  |  |  | 38,917,000 |  |  |  | 0 |
1-4 family mortgages |  |  | 47,000 |  |  |  | 190,000 |  |  |  | 437,000 |  |  |  | 674,000 |  |  |  | 33,092,000 |  |  |  | 33,766,000 |  |  |  | 0 |
Total retail |  |  | 48,000 |  |  |  | 190,000 |  |  |  | 450,000 |  |  |  | 688,000 |  |  |  | 71,995,000 |  |  |  | 72,683,000 |  |  |  | 0 |
Total past due loans |  | $ | 919,000 |  |  | $ | 190,000 |  |  | $ | 5,008,000 |  |  | $ | 6,117,000 |  |  | $ | 1,035,072,000 |  |  | $ | 1,041,189,000 |  |  | $ | 0 |
Impaired loans as of June 30, 2013, and average impaired loans for the three and six months ended June 30, 2013, were as follows:
|  | Unpaid Contractual Principal Balance |  |  | Recorded Principal Balance |  |  | Related Allowance |  | Second Quarter Average Recorded Principal Balance |  |  | Year-To-Date Average Recorded Principal Balance |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 2,793,000 |  |  | $ | 1,277,000 |  |  |  |  | $ | 1,416,000 |  |  | $ | 1,483,000 |
Vacant land, land development and residential construction |  |  | 1,543,000 |  |  |  | 1,010,000 |  |  |  |  |  | 1,194,000 |  |  |  | 1,263,000 |
Real estate – owner occupied |  |  | 2,020,000 |  |  |  | 1,383,000 |  |  |  |  |  | 1,366,000 |  |  |  | 1,430,000 |
Real estate – non-owner occupied |  |  | 8,067,000 |  |  |  | 5,194,000 |  |  |  |  |  | 4,956,000 |  |  |  | 5,134,000 |
Real estate – multi-family and residential rental |  |  | 1,468,000 |  |  |  | 514,000 |  |  |  |  |  | 599,000 |  |  |  | 537,000 |
Total commercial |  |  | 15,891,000 |  |  |  | 9,378,000 |  |  |  |  |  | 9,531,000 |  |  |  | 9,847,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 508,000 |  |  |  | 468,000 |  |  |  |  |  | 474,000 |  |  |  | 477,000 |
1-4 family mortgages |  |  | 1,235,000 |  |  |  | 676,000 |  |  |  |  |  | 721,000 |  |  |  | 744,000 |
Total retail |  |  | 1,743,000 |  |  |  | 1,144,000 |  |  |  |  |  | 1,195,000 |  |  |  | 1,221,000 |
Total with no related allowance recorded |  | $ | 17,634,000 |  |  | $ | 10,522,000 |  |  |  |  | $ | 10,726,000 |  |  | $ | 11,068,000 |
|  | Unpaid Contractual Principal Balance |  |  | Recorded Principal Balance |  |  | Related Allowance |  |  | Second Quarter Average Recorded Principal Balance |  |  | Year-To-Date Average Recorded Principal Balance |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 1,708,000 |  |  | $ | 1,587,000 |  |  | $ | 1,154,000 |  |  | $ | 2,046,000 |  |  | $ | 2,006,000 |
Vacant land, land development and residential construction |  |  | 5,058,000 |  |  |  | 4,515,000 |  |  |  | 1,223,000 |  |  |  | 2,998,000 |  |  |  | 2,738,000 |
Real estate – owner occupied |  |  | 2,402,000 |  |  |  | 2,350,000 |  |  |  | 922,000 |  |  |  | 2,652,000 |  |  |  | 2,976,000 |
Real estate – non-owner occupied |  |  | 29,249,000 |  |  |  | 29,233,000 |  |  |  | 9,672,000 |  |  |  | 29,778,000 |  |  |  | 30,840,000 |
Real estate – multi-family and residential rental |  |  | 2,589,000 |  |  |  | 2,527,000 |  |  |  | 835,000 |  |  |  | 2,609,000 |  |  |  | 3,047,000 |
Total commercial |  |  | 41,006,000 |  |  |  | 40,212,000 |  |  |  | 13,806,000 |  |  |  | 40,083,000 |  |  |  | 41,607,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 350,000 |  |  |  | 324,000 |  |  |  | 134,000 |  |  |  | 335,000 |  |  |  | 355,000 |
1-4 family mortgages |  |  | 2,644,000 |  |  |  | 2,619,000 |  |  |  | 896,000 |  |  |  | 1,545,000 |  |  |  | 1,189,000 |
Total retail |  |  | 2,994,000 |  |  |  | 2,943,000 |  |  |  | 1,030,000 |  |  |  | 1,880,000 |  |  |  | 1,544,000 |
Total with an allowance recorded |  | $ | 44,000,000 |  |  | $ | 43,155,000 |  |  | $ | 14,836,000 |  |  | $ | 41,963,000 |  |  | $ | 43,151,000 |
Total impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 56,897,000 |  |  | $ | 49,590,000 |  |  | $ | 13,806,000 |  |  | $ | 49,614,000 |  |  | $ | 51,454,000 |
Retail |  |  | 4,737,000 |  |  |  | 4,087,000 |  |  |  | 1,030,000 |  |  |  | 3,075,000 |  |  |  | 2,765,000 |
Total impaired loans |  | $ | 61,634,000 |  |  | $ | 53,677,000 |  |  | $ | 14,836,000 |  |  | $ | 52,689,000 |  |  | $ | 54,219,000 |
Interest income of $0.7 million and $1.3 million was recognized on impaired loans during the second quarter and first six months of 2013, respectively. Impaired loans as of December 31, 2012, and average impaired loans for the three and six months ended June 30, 2012, were as follows:
|  | Unpaid Contractual Principal Balance |  |  | Recorded Principal Balance |  |  | Related Allowance |  | Second Quarter Average Recorded Principal Balance |  |  | Year-To-Date Average Recorded Principal Balance |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 1,926,000 |  |  | $ | 1,617,000 |  |  |  |  | $ | 3,270,000 |  |  | $ | 3,598,000 |
Vacant land, land development and residential construction |  |  | 2,356,000 |  |  |  | 1,401,000 |  |  |  |  |  | 1,958,000 |  |  |  | 2,224,000 |
Real estate – owner occupied |  |  | 2,368,000 |  |  |  | 1,557,000 |  |  |  |  |  | 3,661,000 |  |  |  | 3,631,000 |
Real estate – non-owner occupied |  |  | 9,984,000 |  |  |  | 5,492,000 |  |  |  |  |  | 7,145,000 |  |  |  | 7,473,000 |
Real estate – multi-family and residential rental |  |  | 1,188,000 |  |  |  | 413,000 |  |  |  |  |  | 855,000 |  |  |  | 794,000 |
Total commercial |  |  | 17,822,000 |  |  |  | 10,480,000 |  |  |  |  |  | 16,889,000 |  |  |  | 17,720,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 580,000 |  |  |  | 483,000 |  |  |  |  |  | 600,000 |  |  |  | 642,000 |
1-4 family mortgages |  |  | 1,636,000 |  |  |  | 789,000 |  |  |  |  |  | 675,000 |  |  |  | 693,000 |
Total retail |  |  | 2,216,000 |  |  |  | 1,272,000 |  |  |  |  |  | 1,275,000 |  |  |  | 1,335,000 |
Total with no related allowance recorded |  | $ | 20,038,000 |  |  | $ | 11,752,000 |  |  |  |  | $ | 18,164,000 |  |  | $ | 19,055,000 |
|  | Unpaid Contractual Principal Balance |  |  | Recorded Principal Balance |  |  | Related Allowance |  |  | Second Quarter Average Recorded Principal Balance |  |  | Year-To-Date Average Recorded Principal Balance |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 3,221,000 |  |  | $ | 1,926,000 |  |  | $ | 924,000 |  |  | $ | 3,909,000 |  |  | $ | 3,613,000 |
Vacant land, land development and residential construction |  |  | 2,333,000 |  |  |  | 2,219,000 |  |  |  | 1,367,000 |  |  |  | 3,366,000 |  |  |  | 3,667,000 |
Real estate – owner occupied |  |  | 4,307,000 |  |  |  | 3,626,000 |  |  |  | 1,388,000 |  |  |  | 5,545,000 |  |  |  | 6,043,000 |
Real estate – non-owner occupied |  |  | 33,818,000 |  |  |  | 32,964,000 |  |  |  | 11,773,000 |  |  |  | 17,904,000 |  |  |  | 19,272,000 |
Real estate – multi-family and residential rental |  |  | 4,471,000 |  |  |  | 3,923,000 |  |  |  | 1,408,000 |  |  |  | 7,787,000 |  |  |  | 9,582,000 |
Total commercial |  |  | 48,150,000 |  |  |  | 44,658,000 |  |  |  | 16,860,000 |  |  |  | 38,511,000 |  |  |  | 42,177,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 423,000 |  |  |  | 394,000 |  |  |  | 204,000 |  |  |  | 300,000 |  |  |  | 277,000 |
1-4 family mortgages |  |  | 555,000 |  |  |  | 475,000 |  |  |  | 125,000 |  |  |  | 586,000 |  |  |  | 524,000 |
Total retail |  |  | 978,000 |  |  |  | 869,000 |  |  |  | 329,000 |  |  |  | 886,000 |  |  |  | 801,000 |
Total with an allowance recorded |  | $ | 49,128,000 |  |  | $ | 45,527,000 |  |  | $ | 17,189,000 |  |  | $ | 39,397,000 |  |  | $ | 42,978,000 |
Total impaired loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 65,972,000 |  |  | $ | 55,138,000 |  |  | $ | 16,860,000 |  |  | $ | 55,400,000 |  |  | $ | 59,897,000 |
Retail |  |  | 3,194,000 |  |  |  | 2,141,000 |  |  |  | 329,000 |  |  |  | 2,161,000 |  |  |  | 2,136,000 |
Total impaired loans |  | $ | 69,166,000 |  |  | $ | 57,279,000 |  |  | $ | 17,189,000 |  |  | $ | 57,561,000 |  |  | $ | 62,033,000 |
Interest income of $0.4 million and $0.8 million was recognized on impaired loans during the second quarter and first six months of 2012, respectively. Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral and payment activity. Loans by credit quality indicators were as follows as of June 30, 2013: Commercial credit exposure – credit risk profiled by internal credit risk grades:
|  | Commercial and Industrial |  |  | Commercial Vacant Land, Land Development, and Residential Construction |  |  | Commercial Real Estate – Owner Occupied |  |  | Commercial Real Estate – Non-Owner Occupied |  |  | Commercial Real Estate – Multi-Family and Residential Rental |
Internal credit risk grade groupings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 189,786,000 |  |  | $ | 8,496,000 |  |  | $ | 151,604,000 |  |  | $ | 186,434,000 |  |  | $ | 29,005,000 |
Grades 5 – 7 |  |  | 87,117,000 |  |  |  | 27,903,000 |  |  |  | 98,264,000 |  |  |  | 134,121,000 |  |  |  | 21,012,000 |
Grades 8 – 9 |  |  | 2,397,000 |  |  |  | 5,771,000 |  |  |  | 3,304,000 |  |  |  | 36,897,000 |  |  |  | 3,505,000 |
Total commercial |  | $ | 279,300,000 |  |  | $ | 42,170,000 |  |  | $ | 253,172,000 |  |  | $ | 357,452,000 |  |  | $ | 53,522,000 |
Retail credit exposure – credit risk profiled by collateral type:
|  | Retail Home Equity and Other |  |  | Retail 1-4 Family Mortgages |
Total retail |  | $ | 37,337,000 |  |  | $ | 35,709,000 |
Loans by credit quality indicators were as follows as of December 31, 2012: Commercial credit exposure – credit risk profiled by internal credit risk grades:
|  | Commercial and Industrial |  |  | Commercial Vacant Land, Land Development, and Residential Construction |  |  | Commercial Real Estate – Owner Occupied |  |  | Commercial Real Estate – Non-Owner Occupied |  |  | Commercial Real Estate – Multi-Family and Residential Rental |
Internal credit risk grade groupings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Grades 1 – 4 |  | $ | 180,314,000 |  |  | $ | 6,526,000 |  |  | $ | 150,467,000 |  |  | $ | 154,127,000 |  |  | $ | 24,015,000 |
Grades 5 – 7 |  |  | 101,832,000 |  |  |  | 37,697,000 |  |  |  | 102,988,000 |  |  |  | 128,041,000 |  |  |  | 22,082,000 |
Grades 8 – 9 |  |  | 3,176,000 |  |  |  | 3,876,000 |  |  |  | 5,822,000 |  |  |  | 42,718,000 |  |  |  | 4,825,000 |
Total commercial |  | $ | 285,322,000 |  |  | $ | 48,099,000 |  |  | $ | 259,277,000 |  |  | $ | 324,886,000 |  |  | $ | 50,922,000 |
Retail credit exposure – credit risk profiled by collateral type:
|  | Retail Home Equity and Other |  |  | Retail 1-4 Family Mortgages |
Total retail |  | $ | 38,917,000 |  |  | $ | 33,766,000 |
All commercial loans are graded using the following criteria:
Grade 1. |  | Excellent credit rating that contain very little, if any, risk of loss.
Grade 2. |  | Strong sources of repayment and have low repayment risk.
Grade 3. |  | Good sources of repayment and have limited repayment risk.
Grade 4. |  | Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event.
Grade 5. |  | Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics.
Grade 6. |  | Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and review by the Board of Directors and senior management).
Grade 7. |  | Defined weaknesses or negative trends that merit close monitoring through Watch List status.
Grade 8. |  | Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in a distinct possibility of loss requiring close monitoring through Watch List status.
Grade 9. |  | Vital weaknesses exist where collection of principal is highly questionable.
Grade 10. |  | Considered uncollectable and of such little value that continuance as an asset is not warranted.
The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position. Activity in the allowance for loan losses and the recorded investments in loans as of and during the three and six months ended June 30, 2013 are as follows:
|  | Commercial Loans |  |  | Retail Loans |  |  | Unallocated |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2013 |  | $ | 23,717,000 |  |  | $ | 2,302,000 |  |  | $ | 16,000 |  |  | $ | 26,035,000 |
Provision for loan losses |  |  | (1,480,000 | ) |  |  | (10,000 | ) |  |  | (10,000 | ) |  |  | (1,500,000 | )
Charge-offs |  |  | (363,000 | ) |  |  | (19,000 | ) |  |  | 0 |  |  |  | (382,000 | )
Recoveries |  |  | 508,000 |  |  |  | 286,000 |  |  |  | 0 |  |  |  | 794,000 |
Ending balance |  | $ | 22,382,000 |  |  | $ | 2,559,000 |  |  | $ | 6,000 |  |  | $ | 24,947,000 |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2012 |  | $ | 26,043,000 |  |  | $ | 2,645,000 |  |  | $ | (11,000 | ) |  | $ | 28,677,000 |
Provision for loan losses |  |  | (2,644,000 | ) |  |  | (373,000 | ) |  |  | 17,000 |  |  |  | (3,000,000 | )
Charge-offs |  |  | (2,775,000 | ) |  |  | (22,000 | ) |  |  | 0 |  |  |  | (2,797,000 | )
Recoveries |  |  | 1,758,000 |  |  |  | 309,000 |  |  |  | 0 |  |  |  | 2,067,000 |
Ending balance |  | $ | 22,382,000 |  |  | $ | 2,559,000 |  |  | $ | 6,000 |  |  | $ | 24,947,000 |
Ending balance: individually evaluated for impairment |  | $ | 13,806,000 |  |  | $ | 1,030,000 |  |  | $ | 0 |  |  | $ | 14,836,000 |
Ending balance: collectively evaluated for impairment |  | $ | 8,576,000 |  |  | $ | 1,529,000 |  |  | $ | 6,000 |  |  | $ | 10,111,000 |
Total loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 985,616,000 |  |  | $ | 73,046,000 |  |  |  |  |  |  | $ | 1,058,662,000 |
Ending balance: individually evaluated for impairment |  | $ | 49,590,000 |  |  | $ | 4,087,000 |  |  |  |  |  |  | $ | 53,677,000 |
Ending balance: collectively evaluated for impairment |  | $ | 936,026,000 |  |  | $ | 68,959,000 |  |  |  |  |  |  | $ | 1,004,985,000 |
Activity in the allowance for loan losses and the recorded investments in loans as of and during the three and six months ended June 30, 2012 are as follows:
|  | Commercial Loans |  |  | Retail Loans |  |  | Unallocated |  |  | Total |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2012 |  | $ | 27,808,000 |  |  | $ | 3,048,000 |  |  | $ | 87,000 |  |  | $ | 30,943,000 |
Provision for loan losses |  |  | (3,026,000 | ) |  |  | 62,000 |  |  |  | (36,000 | ) |  |  | (3,000,000 | )
Charge-offs |  |  | (1,650,000 | ) |  |  | (58,000 | ) |  |  | 0 |  |  |  | (1,708,000 | )
Recoveries |  |  | 3,339,000 |  |  |  | 115,000 |  |  |  | 0 |  |  |  | 3,454,000 |
Ending balance |  | $ | 26,471,000 |  |  | $ | 3,167,000 |  |  | $ | 51,000 |  |  | $ | 29,689,000 |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2011 |  | $ | 33,431,000 |  |  | $ | 3,019,000 |  |  | $ | 82,000 |  |  | $ | 36,532,000 |
Provision for loan losses |  |  | (3,125,000 | ) |  |  | 156,000 |  |  |  | (31,000 | ) |  |  | (3,000,000 | )
Charge-offs |  |  | (9,113,000 | ) |  |  | (171,000 | ) |  |  | 0 |  |  |  | (9,284,000 | )
Recoveries |  |  | 5,278,000 |  |  |  | 163,000 |  |  |  | 0 |  |  |  | 5,441,000 |
Ending balance |  | $ | 26,471,000 |  |  | $ | 3,167,000 |  |  | $ | 51,000 |  |  | $ | 29,689,000 |
Ending balance: individually evaluated for impairment |  | $ | 12,584,000 |  |  | $ | 616,000 |  |  | $ | 0 |  |  | $ | 13,200,000 |
Ending balance: collectively evaluated for impairment |  | $ | 13,887,000 |  |  | $ | 2,551,000 |  |  | $ | 51,000 |  |  | $ | 16,489,000 |
Total loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 987,491,000 |  |  | $ | 73,505,000 |  |  |  |  |  |  | $ | 1,060,996,000 |
Ending balance: individually evaluated for impairment |  | $ | 49,478,000 |  |  | $ | 2,145,000 |  |  |  |  |  |  | $ | 51,623,000 |
Ending balance: collectively evaluated for impairment |  | $ | 938,013,000 |  |  | $ | 71,360,000 |  |  |  |  |  |  | $ | 1,009,373,000 |
Loans modified as troubled debt restructurings during the three months ended June 30, 2013 were as follows:
|  | Number of Contracts |  |  | Pre- Modification Recorded Principal Balance |  |  | Post- Modification Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 1 |  |  | $ | 60,000 |  |  | $ | 60,000 |
Vacant land, land development and residential construction |  |  | 2 |  |  |  | 3,247,000 |  |  |  | 3,247,000 |
Real estate – owner occupied |  |  | 2 |  |  |  | 680,000 |  |  |  | 680,000 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 5 |  |  |  | 3,987,000 |  |  |  | 3,987,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 1 |  |  |  | 1,879,000 |  |  |  | 1,879,000 |
Total retail |  |  | 1 |  |  |  | 1,879,000 |  |  |  | 1,879,000 |
Total |  |  | 6 |  |  | $ | 5,866,000 |  |  | $ | 5,866,000 |
Loans modified as troubled debt restructurings during the six months ended June 30, 2013 were as follows:
|  | Number of Contracts |  |  | Pre- Modification Recorded Principal Balance |  |  | Post- Modification Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 1 |  |  | $ | 60,000 |  |  | $ | 60,000 |
Vacant land, land development and residential construction |  |  | 2 |  |  |  | 3,247,000 |  |  |  | 3,247,000 |
Real estate – owner occupied |  |  | 3 |  |  |  | 904,000 |  |  |  | 904,000 |
Real estate – non-owner occupied |  |  | 2 |  |  |  | 2,068,000 |  |  |  | 2,068,000 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 8 |  |  |  | 6,279,000 |  |  |  | 6,279,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 1 |  |  |  | 1,879,000 |  |  |  | 1,879,000 |
Total retail |  |  | 1 |  |  |  | 1,879,000 |  |  |  | 1,879,000 |
Total |  |  | 9 |  |  | $ | 8,158,000 |  |  | $ | 8,158,000 |
Loans modified as troubled debt restructurings during the three months ended June 30, 2012 were as follows:
|  | Number of Contracts |  |  | Pre- Modification Recorded Principal Balance |  |  | Post- Modification Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 3 |  |  | $ | 190,000 |  |  | $ | 190,000 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 2 |  |  |  | 567,000 |  |  |  | 567,000 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 1 |  |  |  | 100,000 |  |  |  | 100,000 |
Total commercial |  |  | 6 |  |  |  | 857,000 |  |  |  | 857,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  |  | 6 |  |  | $ | 857,000 |  |  | $ | 857,000 |
Loans modified as troubled debt restructurings during the six months ended June 30, 2012 were as follows:
|  | Number of Contracts |  |  | Pre- Modification Recorded Principal Balance |  |  | Post- Modification Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 6 |  |  | $ | 773,000 |  |  | $ | 770,000 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 5 |  |  |  | 1,613,000 |  |  |  | 1,612,000 |
Real estate – non-owner occupied |  |  | 1 |  |  |  | 4,391,000 |  |  |  | 4,391,000 |
Real estate – multi-family and residential rental |  |  | 1 |  |  |  | 100,000 |  |  |  | 100,000 |
Total commercial |  |  | 13 |  |  |  | 6,877,000 |  |  |  | 6,873,000 |
Retail: |  |  |  |  |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  |  | 13 |  |  | $ | 6,877,000 |  |  | $ | 6,873,000 |
The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended June 30, 2013 (amounts as of period end):
|  | Number of Contracts |  |  | Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 0 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 0 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 0 |  |  |  | 0 |
Total |  |  | 0 |  |  | $ | 0 |
The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the six months ended June 30, 2013 (amounts as of period end):
|  | Number of Contracts |  |  | Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 0 |  |  | $ | 0 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 0 |  |  |  | 0 |
Retail: |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 0 |  |  |  | 0 |
Total |  |  | 0 |  |  | $ | 0 |
The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended June 30, 2012 (amounts as of period end):
|  | Number of Contracts |  |  | Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 1 |  |  | $ | 51,000 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 1 |  |  |  | 51,000 |
Retail: |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 0 |  |  |  | 0 |
Total |  |  | 1 |  |  | $ | 51,000 |
The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the six months ended June, 30, 2012 (amounts as of period end):
|  | Number of Contracts |  |  | Recorded Principal Balance |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 1 |  |  | $ | 51,000 |
Vacant land, land development and residential construction |  |  | 0 |  |  |  | 0 |
Real estate – owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – non-owner occupied |  |  | 0 |  |  |  | 0 |
Real estate – multi-family and residential rental |  |  | 0 |  |  |  | 0 |
Total commercial |  |  | 1 |  |  |  | 51,000 |
Retail: |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 0 |  |  |  | 0 |
Total retail |  |  | 0 |  |  |  | 0 |
Total |  |  | 1 |  |  | $ | 51,000 |
Activity for loans categorized as troubled debt restructurings during the three months ended June 30, 2013 is as follows:
|  | Commercial and Industrial |  |  | Commercial Vacant Land, Land Development, and Residential Construction |  |  | Commercial Real Estate – Owner Occupied |  |  | Commercial Real Estate – Non-Owner Occupied |  |  | Commercial Real Estate – Multi-Family and Residential Rental |
Commercial Loan Portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 3,269,000 |  |  | $ | 2,327,000 |  |  | $ | 3,879,000 |  |  | $ | 35,003,000 |  |  | $ | 2,958,000 |
Charge-Offs |  |  | 0 |  |  |  | (30,000 | ) |  |  | (70,000 | ) |  |  | (5,000 | ) |  |  | 0 |
Payments |  |  | (1,063,000 | ) |  |  | (104,000 | ) |  |  | (979,000 | ) |  |  | (574,000 | ) |  |  | (183,000 | )
Transfers to ORE |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Additions |  |  | 60,000 |  |  |  | 3,247,000 |  |  |  | 749,000 |  |  |  | 0 |  |  |  | 0 |
Ending Balance |  | $ | 2,266,000 |  |  | $ | 5,440,000 |  |  | $ | 3,579,000 |  |  | $ | 34,424,000 |  |  | $ | 2,775,000 |
|  | Retail Home Equity and Other |  |  | Retail 1-4 Family Mortgages |
Retail Loan Portfolio: |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 152,000 |  |  | $ | 0 |
Charge-Offs |  |  | 0 |  |  |  | 0 |
Payments |  |  | (2,000 | ) |  |  | 0 |
Transfers to ORE |  |  | 0 |  |  |  | 0 |
Additions |  |  | 1,879,000 |  |  |  | 0 |
Ending Balance |  | $ | 2,029,000 |  |  | $ | 0 |
Activity for loans categorized as troubled debt restructurings during the six months ended June 30, 2013 is as follows:
|  | Commercial and Industrial |  |  | Commercial Vacant Land, Land Development, and Residential Construction |  |  | Commercial Real Estate – Owner Occupied |  |  | Commercial Real Estate – Non-Owner Occupied |  |  | Commercial Real Estate – Multi-Family and Residential Rental |
Commercial Loan Portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 2,721,000 |  |  | $ | 3,071,000 |  |  | $ | 4,115,000 |  |  | $ | 37,672,000 |  |  | $ | 3,025,000 |
Charge-Offs |  |  | (34,000 | ) |  |  | (725,000 | ) |  |  | (70,000 | ) |  |  | (716,000 | ) |  |  | (15,000 | )
Payments |  |  | (1,578,000 | ) |  |  | (153,000 | ) |  |  | (1,039,000 | ) |  |  | (3,786,000 | ) |  |  | (235,000 | )
Transfers to ORE |  |  | (74,000 | ) |  |  | 0 |  |  |  | (363,000 | ) |  |  | (802,000 | ) |  |  | 0 |
Additions |  |  | 1,231,000 |  |  |  | 3,247,000 |  |  |  | 936,000 |  |  |  | 2,056,000 |  |  |  | 0 |
Ending Balance |  | $ | 2,266,000 |  |  | $ | 5,440,000 |  |  | $ | 3,579,000 |  |  | $ | 34,424,000 |  |  | $ | 2,775,000 |
|  | Retail Home Equity and Other |  |  | Retail 1-4 Family Mortgages |
Retail Loan Portfolio: |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 155,000 |  |  | $ | 0 |
Charge-Offs |  |  | 0 |  |  |  | 0 |
Payments |  |  | (5,000 | ) |  |  | 0 |
Transfers to ORE |  |  | 0 |  |  |  | 0 |
Additions |  |  | 1,879,000 |  |  |  | 0 |
Ending Balance |  | $ | 2,029,000 |  |  | $ | 0 |
Activity for loans categorized as troubled debt restructurings during the three months ended June 30, 2012 is as follows:
|  | Commercial and Industrial |  |  | Commercial Vacant Land, Land Development, and Residential Construction |  |  | Commercial Real Estate – Owner Occupied |  |  | Commercial Real Estate – Non-Owner Occupied |  |  | Commercial Real Estate – Multi-Family and Residential Rental |
Commercial Loan Portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 4,834,000 |  |  | $ | 3,930,000 |  |  | $ | 6,331,000 |  |  | $ | 16,115,000 |  |  | $ | 10,286,000 |
Charge-Offs |  |  | (76,000 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Payments |  |  | (209,000 | ) |  |  | (1,040,000 | ) |  |  | (89,000 | ) |  |  | (222,000 | ) |  |  | (5,402,000 | )
Transfers to ORE |  |  | (51,000 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Additions |  |  | 1,089,000 |  |  |  | 338,000 |  |  |  | 568,000 |  |  |  | 88,000 |  |  |  | 100,000 |
Ending Balance |  | $ | 5,587,000 |  |  | $ | 3,228,000 |  |  | $ | 6,810,000 |  |  | $ | 15,981,000 |  |  | $ | 4,984,000 |
|  | Retail Home Equity and Other |  |  | Retail 1-4 Family Mortgages |
Retail Loan Portfolio: |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 161,000 |  |  | $ | 0 |
Charge-Offs |  |  | 0 |  |  |  | 0 |
Payments |  |  | (2,000 | ) |  |  | 0 |
Transfers to ORE |  |  | 0 |  |  |  | 0 |
Additions |  |  | 0 |  |  |  | 0 |
Ending Balance |  | $ | 159,000 |  |  | $ | 0 |
Activity for loans categorized as troubled debt restructurings during the six months ended June 30, 2012 is as follows:
|  | Commercial and Industrial |  |  | Commercial Vacant Land, Land Development, and Residential Construction |  |  | Commercial Real Estate – Owner Occupied |  |  | Commercial Real Estate – Non-Owner Occupied |  |  | Commercial Real Estate – Multi-Family and Residential Rental |
Commercial Loan Portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 4,575,000 |  |  | $ | 5,078,000 |  |  | $ | 6,183,000 |  |  | $ | 12,037,000 |  |  | $ | 12,626,000 |
Charge-Offs |  |  | (112,000 | ) |  |  | 0 |  |  |  | (414,000 | ) |  |  | (25,000 | ) |  |  | (2,181,000 | )
Payments |  |  | (495,000 | ) |  |  | (1,897,000 | ) |  |  | (566,000 | ) |  |  | (511,000 | ) |  |  | (5,650,000 | )
Transfers to ORE |  |  | (51,000 | ) |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Additions |  |  | 1,670,000 |  |  |  | 47,000 |  |  |  | 1,607,000 |  |  |  | 4,480,000 |  |  |  | 189,000 |
Ending Balance |  | $ | 5,587,000 |  |  | $ | 3,228,000 |  |  | $ | 6,810,000 |  |  | $ | 15,981,000 |  |  | $ | 4,984,000 |
|  | Retail Home Equity and Other |  |  | Retail 1-4 Family Mortgages |
Retail Loan Portfolio: |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 164,000 |  |  | $ | 0 |
Charge-Offs |  |  | 0 |  |  |  | 0 |
Payments |  |  | (5,000 | ) |  |  | 0 |
Transfers to ORE |  |  | 0 |  |  |  | 0 |
Additions |  |  | 0 |  |  |  | 0 |
Ending Balance |  | $ | 159,000 |  |  | $ | 0 |
The allowance related to loans categorized as troubled debt restructurings was as follows:
|  | June 30, 2013 |  |  | December 31, 2012 |
Commercial: |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 680,000 |  |  | $ | 772,000 |
Vacant land, land development, and residential construction |  |  | 1,204,000 |  |  |  | 713,000 |
Real estate – owner occupied |  |  | 921,000 |  |  |  | 1,116,000 |
Real estate – non-owner occupied |  |  | 9,517,000 |  |  |  | 9,751,000 |
Real estate – multi-family and residential rental |  |  | 748,000 |  |  |  | 745,000 |
Total commercial |  |  | 13,070,000 |  |  |  | 13,097,000 |
Retail: |  |  |  |  |  |  |  |
Home equity and other |  |  | 0 |  |  |  | 0 |
1-4 family mortgages |  |  | 644,000 |  |  |  | 0 |
Total retail |  |  | 644,000 |  |  |  | 0 |
Total related allowance |  | $ | 13,714,000 |  |  | $ | 13,097,000 |
In general, our policy dictates that a renewal or modification of an 8- or 9-rated loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated 8 contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated 9 reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal; we believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe 8- or 9-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

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