3.	LOANS AND ALLOWANCE FOR LOAN LOSSES

Our total loans at September 30, 2013 were $1.08 billion compared to $1.04 billion at December 31, 2012, an increase of $34.3 million, or 3.3%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2013 and December 31, 2012, and the percentage change in loans from the end of 2012 to the end of the third quarter of 2013, are as follows:


											Percent
	September 30, 2013					December 31, 2012					Increase
	Balance		%			Balance		%			(Decrease)
Commercial:
Commercial and industrial	$	286,887,000		26.7	%	$	285,322,000		27.4	%		0.5	%
Vacant land, land development, and residential construction		40,741,000		3.8			48,099,000		4.6			(15.3	)
Real estate – owner occupied		258,656,000		24.1			259,277,000		24.9			(0.2	)
Real estate – non-owner occupied		368,301,000		34.2			324,886,000		31.2			13.4
Real estate – multi-family and residential rental		53,178,000		4.9			50,922,000		4.9			4.4

Total commercial		1,007,763,000		93.7			968,506,000		93.0			4.1
Retail:
Home equity and other		36,575,000		3.4			38,917,000		3.7			(6.0	)
1-4 family mortgages		31,149,000		2.9			33,766,000		3.3			(7.8	)

Total retail		67,724,000		6.3			72,683,000		7.0			(6.8	)

Total loans	$	1,075,487,000		100.0	%	$	1,041,189,000		100.0	%		3.3	%

Nonperforming loans as of September 30, 2013 and December 31, 2012 were as follows:


	September 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 was as follows:


	September 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 September 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	$	22,000	$	0	$	631,000	$	653,000	$	286,234,000	$	286,887,000	$	0
Vacant land, land development, and residential construction		0		0		85,000		85,000		40,656,000		40,741,000		0
Real estate – owner occupied		0		0		53,000		53,000		258,603,000		258,656,000		0
Real estate – non-owner occupied		0		0		1,860,000		1,860,000		366,441,000		368,301,000		0
Real estate – multi-family and residential rental		0		0		264,000		264,000		52,914,000		53,178,000		0

Total commercial		22,000		0		2,893,000		2,915,000		1,004,848,000		1,007,763,000		0
Retail:
Home equity and other		0		0		0		0		36,575,000		36,575,000		0
1-4 family mortgages		25,000		0		463,000		488,000		30,661,000		31,149,000		0

Total retail		25,000		0		463,000		488,000		67,236,000		67,724,000		0

Total past due loans	$	47,000	$	0	$	3,356,000	$	3,403,000	$	1,072,084,000	$	1,075,487,000	$	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 September 30, 2013, and average impaired loans for the three and nine months ended September 30, 2013, were as follows:


	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third Quarter Average Recorded Principal Balance		Year-To-Date Average Recorded Principal Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	2,632,000	$	1,063,000		$	1,170,000	$	1,378,000
Vacant land, land development and residential construction		1,200,000		804,000			907,000		1,148,000
Real estate – owner occupied		575,000		347,000			865,000		1,159,000
Real estate – non-owner occupied		5,135,000		4,108,000			4,651,000		4,878,000
Real estate – multi-family and residential rental		1,008,000		337,000			425,000		487,000

Total commercial		10,550,000		6,659,000			8,018,000		9,050,000
Retail:
Home equity and other		508,000		464,000			466,000		474,000
1-4 family mortgages		1,398,000		754,000			715,000		746,000

Total retail		1,906,000		1,218,000			1,181,000		1,220,000

Total with no related allowance recorded	$	12,456,000	$	7,877,000		$	9,199,000	$	10,270,000


	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To-Date Average Recorded Principal Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,002,000	$	1,941,000	$	1,035,000	$	1,764,000	$	1,990,000
Vacant land, land development and residential construction		4,557,000		4,418,000		1,216,000		4,466,000		3,158,000
Real estate – owner occupied		2,368,000		2,310,000		901,000		2,330,000		2,810,000
Real estate – non-owner occupied		28,358,000		28,346,000		9,785,000		28,789,000		30,216,000
Real estate – multi-family and residential rental		2,820,000		2,752,000		923,000		2,639,000		2,973,000

Total commercial		40,105,000		39,767,000		13,860,000		39,988,000		41,147,000
Retail:
Home equity and other		322,000		293,000		102,000		309,000		339,000
1-4 family mortgages		2,370,000		2,340,000		1,101,000		2,480,000		1,477,000

Total retail		2,692,000		2,633,000		1,203,000		2,789,000		1,816,000

Total with an allowance recorded	$	42,797,000	$	42,400,000	$	15,063,000	$	42,777,000	$	42,963,000

Total impaired loans:
Commercial	$	50,655,000	$	46,426,000	$	13,860,000	$	48,006,000	$	50,197,000
Retail		4,598,000		3,851,000		1,203,000		3,970,000		3,036,000

Total impaired loans	$	55,253,000	$	50,277,000	$	15,063,000	$	51,976,000	$	53,233,000

Interest income of $0.7 million and $2.2 million was recognized on impaired loans during the third quarter and first nine months of 2013, respectively.

Impaired loans as of December 31, 2012, and average impaired loans for the three and nine months ended September 30, 2012, were as follows:


	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Third 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		$	3,209,000	$	3,521,000
Vacant land, land development and residential construction		2,356,000		1,401,000			1,480,000		1,959,000
Real estate – owner occupied		2,368,000		1,557,000			3,391,000		3,535,000
Real estate – non-owner occupied		9,984,000		5,492,000			5,832,000		6,850,000
Real estate – multi-family and residential rental		1,188,000		413,000			918,000		841,000

Total commercial		17,822,000		10,480,000			14,830,000		16,706,000
Retail:
Home equity and other		580,000		483,000			482,000		603,000
1-4 family mortgages		1,636,000		789,000			715,000		715,000

Total retail		2,216,000		1,272,000			1,197,000		1,318,000

Total with no related allowance recorded	$	20,038,000	$	11,752,000		$	16,027,000	$	18,024,000


	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third 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	$	3,528,000	$	3,406,000
Vacant land, land development and residential construction		2,333,000		2,219,000		1,367,000		2,981,000		3,529,000
Real estate – owner occupied		4,307,000		3,626,000		1,388,000		4,120,000		5,235,000
Real estate – non-owner occupied		33,818,000		32,964,000		11,773,000		25,220,000		23,085,000
Real estate – multi-family and residential rental		4,471,000		3,923,000		1,408,000		4,748,000		8,306,000

Total commercial		48,150,000		44,658,000		16,860,000		40,597,000		43,561,000
Retail:
Home equity and other		423,000		394,000		204,000		291,000		259,000
1-4 family mortgages		555,000		475,000		125,000		503,000		484,000

Total retail		978,000		869,000		329,000		794,000		743,000

Total with an allowance recorded	$	49,128,000	$	45,527,000	$	17,189,000	$	41,391,000	$	44,304,000

Total impaired loans:
Commercial	$	65,972,000	$	55,138,000	$	16,860,000	$	55,427,000	$	60,267,000
Retail		3,194,000		2,141,000		329,000		1,991,000		2,061,000

Total impaired loans	$	69,166,000	$	57,279,000	$	17,189,000	$	57,418,000	$	62,328,000

Interest income of $0.4 million and $1.1 million was recognized on impaired loans during the third quarter and first nine 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 September 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	$	208,750,000	$	8,089,000	$	157,824,000	$	205,586,000	$	31,755,000
Grades 5 – 7		75,339,000		27,022,000		97,819,000		130,040,000		18,230,000
Grades 8 – 9		2,798,000		5,630,000		3,013,000		32,675,000		3,193,000

Total commercial	$	286,887,000	$	40,741,000	$	258,656,000	$	368,301,000	$	53,178,000

Retail credit exposure – credit risk profiled by collateral type:


	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Total retail	$	36,575,000	$	31,149,000

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 nine months ended September 30, 2013 are as follows:


	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2013	$	22,382,000		$	2,559,000		$	6,000		$	24,947,000
Provision for loan losses		(1,730,000	)		(7,000	)		37,000			(1,700,000	)
Charge-offs		0			(85,000	)		0			(85,000	)
Recoveries		2,002,000			31,000			0			2,033,000

Ending balance	$	22,654,000		$	2,498,000		$	43,000		$	25,195,000

Allowance for loan losses:
Balance at December 31, 2012	$	26,043,000		$	2,645,000		$	(11,000	)	$	28,677,000
Provision for loan losses		(4,375,000	)		(379,000	)		54,000			(4,700,000	)
Charge-offs		(2,774,000	)		(107,000	)		0			(2,881,000	)
Recoveries		3,760,000			339,000			0			4,099,000

Ending balance	$	22,654,000		$	2,498,000		$	43,000		$	25,195,000

Ending balance: individually evaluated for impairment	$	13,860,000		$	1,203,000		$	0		$	15,063,000

Ending balance: collectively evaluated for impairment	$	8,794,000		$	1,295,000		$	43,000		$	10,132,000

Total loans:
Ending balance	$	1,007,763,000		$	67,724,000					$	1,075,487,000

Ending balance: individually evaluated for impairment	$	46,426,000		$	3,851,000					$	50,277,000

Ending balance: collectively evaluated for impairment	$	961,337,000		$	63,873,000					$	1,025,210,000

Activity in the allowance for loan losses and the recorded investments in loans as of and during the three and nine months ended September 30, 2012 are as follows:


	Commercial Loans			Retail Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2012	$	26,471,000		$	3,167,000		$	51,000		$	29,689,000
Provision for loan losses		(355,000	)		(35,000	)		(10,000	)		(400,000	)
Charge-offs		(1,548,000	)		(343,000	)		0			(1,891,000	)
Recoveries		326,000			38,000			0			364,000

Ending balance	$	24,894,000		$	2,827,000		$	41,000		$	27,762,000

Allowance for loan losses:
Balance at December 31, 2011	$	33,431,000		$	3,019,000		$	82,000		$	36,532,000
Provision for loan losses		(3,480,000	)		121,000			(41,000	)		(3,400,000	)
Charge-offs		(10,662,000	)		(513,000	)		0			(11,175,000	)
Recoveries		5,605,000			200,000			0			5,805,000

Ending balance	$	24,894,000		$	2,827,000		$	41,000		$	27,762,000

Ending balance: individually evaluated for impairment	$	15,498,000		$	305,000		$	0		$	15,803,000

Ending balance: collectively evaluated for impairment	$	9,396,000		$	2,522,000		$	41,000		$	11,959,000

Total loans:
Ending balance	$	957,411,000		$	77,877,000					$	1,035,288,000

Ending balance: individually evaluated for impairment	$	61,378,000		$	1,836,000					$	63,214,000

Ending balance: collectively evaluated for impairment	$	896,033,000		$	76,041,000					$	972,074,000

Loans modified as troubled debt restructurings during the three months ended September 30, 2013 were as follows:


	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		1	$	553,000	$	553,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		2		171,000		171,000
Real estate – multi-family and residential rental		2		346,000		346,000

Total commercial		5		1,070,000		1,070,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0

Total retail		0		0		0

Total		5	$	1,070,000	$	1,070,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2013 were as follows:


	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	613,000	$	613,000
Vacant land, land development and residential construction		2		3,247,000		3,247,000
Real estate – owner occupied		3		909,000		909,000
Real estate – non-owner occupied		4		2,239,000		2,239,000
Real estate – multi-family and residential rental		2		346,000		346,000

Total commercial		13		7,354,000		7,354,000
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		14	$	9,233,000	$	9,233,000

Loans modified as troubled debt restructurings during the three months ended September 30, 2012 were as follows:


	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		1	$	133,000	$	128,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		5		18,042,000		18,042,000
Real estate – multi-family and residential rental		0		0		0

Total commercial		6		18,175,000		18,170,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0

Total retail		0		0		0

Total		6	$	18,175,000	$	18,170,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2012 were as follows:


	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Commercial:
Commercial and industrial		6	$	850,000	$	843,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		5		1,588,000		1,587,000
Real estate – non-owner occupied		6		22,433,000		22,433,000
Real estate – multi-family and residential rental		0		0		0

Total commercial		17		24,871,000		24,863,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0

Total retail		0		0		0

Total		17	$	24,871,000	$	24,863,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 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 nine months ended September 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 September 30, 2012 (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 nine months ended September 30, 2012 (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

Activity for loans categorized as troubled debt restructurings during the three months ended September 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	$	2,266,000		$	5,440,000		$	3,580,000		$	34,424,000		$	2,775,000
Charge-Offs		0			0			0			0			0
Payments		(324,000	)		(303,000	)		(271,000	)		(1,690,000	)		(295,000	)
Transfers to ORE		0			0			0			(350,000	)		0
Net Additions/Deletions		466,000			0			(652,000	)		68,000			343,000

Ending Balance	$	2,408,000		$	5,137,000		$	2,657,000		$	32,452,000		$	2,823,000


	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	2,029,000		$	0
Charge-Offs		0			0
Payments		(16,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		0			0

Ending Balance	$	2,013,000		$	0

Activity for loans categorized as troubled debt restructurings during the nine months ended September 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		$	4,116,000		$	37,672,000		$	3,026,000
Charge-Offs		(35,000	)		(725,000	)		(70,000	)		(716,000	)		(15,000	)
Payments		(1,902,000	)		(456,000	)		(1,310,000	)		(5,475,000	)		(530,000	)
Transfers to ORE		(74,000	)		0			(363,000	)		(1,153,000	)		0
Net Additions/Deletions		1,698,000			3,247,000			284,000			2,124,000			342,000

Ending Balance	$	2,408,000		$	5,137,000		$	2,657,000		$	32,452,000		$	2,823,000


	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	155,000		$	0
Charge-Offs		0			0
Payments		(21,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		1,879,000			0

Ending Balance	$	2,013,000		$	0

Activity for loans categorized as troubled debt restructurings during the three months ended September 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	$	4,665,000		$	3,250,000		$	6,809,000		$	16,881,000		$	4,985,000
Charge-Offs		(60,000	)		0			(12,000	)		(474,000	)		0
Payments		(268,000	)		(55,000	)		(2,750,000	)		(178,000	)		(263,000	)
Transfers to ORE		(45,000	)		0			0			(579,000	)		0
Net Additions/Deletions		123,000			0			105,000			18,043,000			0

Ending Balance	$	4,415,000		$	3,195,000		$	4,152,000		$	33,693,000		$	4,722,000


	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	159,000		$	0
Charge-Offs		0			0
Payments		(2,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		0			0

Ending Balance	$	157,000		$	0

Activity for loans categorized as troubled debt restructurings during the nine months ended September 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	$	4,553,000		$	5,100,000		$	6,183,000		$	12,037,000		$	12,626,000
Charge-Offs		(172,000	)		0			(426,000	)		(499,000	)		(2,180,000	)
Payments		(763,000	)		(1,952,000	)		(3,317,000	)		(689,000	)		(5,914,000	)
Transfers to ORE		(96,000	)		(351,000	)		0			(579,000	)		0
Net Additions/Deletions		893,000			398,000			1,712,000			23,423,000			190,000

Ending Balance	$	4,415,000		$	3,195,000		$	4,152,000		$	33,693,000		$	4,722,000


	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	164,000		$	0
Charge-Offs		0			0
Payments		(7,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		0			0

Ending Balance	$	157,000		$	0

The allowance related to loans categorized as troubled debt restructurings was as follows:


	September 30,		December 31,
	2013		2012
Commercial:
Commercial and industrial	$	619,000	$	772,000
Vacant land, land development, and residential construction		1,208,000		713,000
Real estate – owner occupied		893,000		1,116,000
Real estate – non-owner occupied		9,639,000		9,751,000
Real estate – multi-family and residential rental		885,000		745,000

Total commercial		13,244,000		13,097,000
Retail:
Home equity and other		0		0
1-4 family mortgages		920,000		0

Total retail		920,000		0

Total related allowance	$	14,164,000	$	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.