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Note 3 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2016

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

Acquired loans are those purchased in the Firstbank merger. These loans were recorded at estimated fair value at the merger date with no carryover of the related allowance. The acquired loans were segregated between those considered to be performing (“acquired non-impaired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Acquired loans restructured after acquisition are not considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the merger date and are accounted for in pools.

The fair value estimates for acquired loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the merger date fair value of acquired impaired loans, and in subsequent accounting, we have generally aggregated acquired commercial and consumer loans into pools of loans with common risk characteristics.

The difference between the fair value of an acquired non-impaired loan and contractual amounts due at the merger date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

The excess of an acquired impaired loan’s undiscounted contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess cash flows expected to be collected over the carrying amount of the acquired loan is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

We evaluate quarterly the remaining contractual required payments receivable and estimate cash flows expected to be collected over the lives of the impaired loans. Contractually required payments receivable may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the merger date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to the merger date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance.

Our total loans at September 30, 2016 were $2.41 billion compared to $2.28 billion at December 31, 2015, an increase of $129 million, or 5.6%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2016 and December 31, 2015, and the percentage change in loans from the end of 2015 to the end of the third quarter of 2016, are as follows:

											Percent
	September 30, 2016					December 31, 2015					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	667,051,000		35.6	%	$	577,872,000		35.7	%		15.4	%
Vacant land, land development, and residential construction		28,003,000		1.5			30,138,000		1.9			(7.1	)
Real estate – owner occupied		346,323,000		18.5			330,798,000		20.5			4.7
Real estate – non-owner occupied		638,090,000		34.1			520,754,000		32.2			22.5
Real estate – multi-family and residential rental		46,239,000		2.4			33,954,000		2.1			36.2
Total commercial		1,725,706,000		92.1			1,493,516,000		92.4			15.5

Retail:
Home equity and other		72,680,000		3.9			67,816,000		4.2			7.2
1-4 family mortgages		74,835,000		4.0			55,255,000		3.4			35.4
Total retail		147,515,000		7.9			123,071,000		7.6			19.9

Total originated loans	$	1,873,221,000		100.0	%	$	1,616,587,000		100.0	%		15.9	%

											Percent
	September 30, 2016					December 31, 2015					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	83,279,000		15.6	%	$	118,431,000		17.9	%		(29.7%	)
Vacant land, land development, and residential construction		9,452,000		1.8			14,982,000		2.3			(36.9	)
Real estate – owner occupied		94,381,000		17.7			115,121,000		17.4			(18.0	)
Real estate – non-owner occupied		103,354,000		19.4			123,597,000		18.7			(16.4	)
Real estate – multi-family and residential rental		71,864,000		13.5			81,049,000		12.3			(11.3	)
Total commercial		362,330,000		68.0			453,180,000		68.6			(20.0	)

Retail:
Home equity and other		54,946,000		10.3			72,830,000		11.0			(24.6	)
1-4 family mortgages		115,880,000		21.7			135,130,000		20.4			(14.2	)
Total retail		170,826,000		32.0			207,960,000		31.4			(17.9	)

Total acquired loans	$	533,156,000		100.0	%	$	661,140,000		100.0	%		(19.4%	)

											Percent
	September 30, 2016					December 31, 2015					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	750,330,000		31.2	%	$	696,303,000		30.6	%		7.8	%
Vacant land, land development, and residential construction		37,455,000		1.6			45,120,000		2.0			(17.0	)
Real estate – owner occupied		440,704,000		18.3			445,919,000		19.6			(1.2	)
Real estate – non-owner occupied		741,444,000		30.8			644,351,000		28.3			15.1
Real estate – multi-family and residential rental		118,103,000		4.9			115,003,000		5.0			2.7
Total commercial		2,088,036,000		86.8			1,946,696,000		85.5			7.3

Retail:
Home equity and other		127,626,000		5.3			140,646,000		6.2			(9.3	)
1-4 family mortgages		190,715,000		7.9			190,385,000		8.3			0.2
Total retail		318,341,000		13.2			331,031,000		14.5			(3.8	)

Total loans	$	2,406,377,000		100.0	%	$	2,277,727,000		100.0	%		5.6	%

The total contractually required payments due on and carrying value of acquired impaired loans were $16.5 million and $7.0 million, respectively, as of September 30, 2016. The total contractually required payments due on and carrying value of acquired impaired loans were $24.6 million and $13.1 million, respectively, as of December 31, 2015. Changes in the accretable yield for acquired impaired loans for the three and nine months ended September 30, 2016 and September 30, 2015 were as follows:

Balance at June 30, 2016	$	6,602,000
Additions		224,000
Accretion income		(638,000	)
Net reclassification from nonaccretable to accretable		1,000,000
Reductions (1)		(407,000	)

Balance at September 30, 2016	$	6,781,000


Balance at December 31, 2015	$	5,193,000
Additions		245,000
Accretion income		(1,992,000	)
Net reclassification from nonaccretable to accretable		4,565,000
Reductions (1)		(1,230,000	)

Balance at September 30, 2016	$	6,781,000


Balance at June 30, 2015	$	5,115,000
Additions		16,000
Accretion income		(653,000	)
Net reclassification from nonaccretable to accretable		1,520,000
Reductions (1)		(548,000	)

Balance at September 30, 2015	$	5,450,000


Balance at December 31, 2014	$	4,998,000
Additions		16,000
Accretion income		(1,980,000	)
Net reclassification from nonaccretable to accretable		3,166,000
Reductions (1)		(750,000	)

Balance at September 30, 2015	$	5,450,000

(1) Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

Nonperforming originated loans as of September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016		December 31, 2015

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		1,696,000		1,954,000

Total nonperforming originated loans	$	1,696,000	$	1,954,000

Nonperforming acquired loans as of September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016		December 31, 2015

Loans past due 90 days or more still accruing interest	$	0	$	5,000
Nonaccrual loans		2,973,000		3,485,000

Total nonperforming acquired loans	$	2,973,000	$	3,490,000

The recorded principal balance of nonperforming loans was as follows:

	September 30, 2016		December 31, 2015
Commercial:
Commercial and industrial	$	382,000	$	458,000
Vacant land, land development, and residential construction		110,000		155,000
Real estate – owner occupied		801,000		1,797,000
Real estate – non-owner occupied		673,000		79,000
Real estate – multi-family and residential rental		169,000		157,000
Total commercial		2,135,000		2,646,000

Retail:
Home equity and other		654,000		771,000
1-4 family mortgages		1,880,000		2,027,000
Total retail		2,534,000		2,798,000

Total nonperforming loans	$	4,669,000	$	5,444,000

Acquired impaired loans are not reported as nonperforming loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

An age analysis of past due loans is as follows as of September 30, 2016:

	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
Originated loans
Commercial:
Commercial and industrial	$	28,000	$	0	$	0	$	28,000	$	667,023,000	$	667,051,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		28,003,000		28,003,000		0
Real estate – owner occupied		0		0		0		0		346,323,000		346,323,000		0
Real estate – non-owner occupied		0		0		0		0		638,090,000		638,090,000		0
Real estate – multi-family and residential rental		0		0		0		0		46,239,000		46,239,000		0
Total commercial		28,000		0		0		28,000		1,725,678,000		1,725,706,000		0

Retail:
Home equity and other		38,000		4,000		8,000		50,000		72,630,000		72,680,000		0
1-4 family mortgages		252,000		0		262,000		514,000		74,321,000		74,835,000		0
Total retail		290,000		4,000		270,000		564,000		146,951,000		147,515,000		0

Total past due loans	$	318,000	$	4,000	$	270,000	$	592,000	$	1,872,629,000	$	1,873,221,000	$	0

	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
Acquired loans
Commercial:
Commercial and industrial	$	64,000	$	0	$	16,000	$	80,000	$	83,199,000	$	83,279,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		9,452,000		9,452,000		0
Real estate – owner occupied		125,000		0		179,000		304,000		94,077,000		94,381,000		0
Real estate – non-owner occupied		0		507,000		222,000		729,000		102,625,000		103,354,000		0
Real estate – multi-family and residential rental		0		0		156,000		156,000		71,708,000		71,864,000		0
Total commercial		189,000		507,000		573,000		1,269,000		361,061,000		362,330,000		0

Retail:
Home equity and other		242,000		89,000		40,000		371,000		54,575,000		54,946,000		0
1-4 family mortgages		1,081,000		130,000		477,000		1,688,000		114,192,000		115,880,000		0
Total retail		1,323,000		219,000		517,000		2,059,000		168,767,000		170,826,000		0

Total past due loans	$	1,512,000	$	726,000	$	1,090,000	$	3,328,000	$	529,828,000	$	533,156,000	$	0

An age analysis of past due loans is as follows as of December 31, 2015:

	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
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0	$	577,872,000	$	577,872,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		30,138,000		30,138,000		0
Real estate – owner occupied		432,000		0		9,000		441,000		330,357,000		330,798,000		0
Real estate – non-owner occupied		0		0		0		0		520,754,000		520,754,000		0
Real estate – multi-family and residential rental		0		0		0		0		33,954,000		33,954,000		0
Total commercial		432,000		0		9,000		441,000		1,493,075,000		1,493,516,000		0

Retail:
Home equity and other		186,000		108,000		0		294,000		67,522,000		67,816,000		0
1-4 family mortgages		107,000		95,000		356,000		558,000		54,697,000		55,255,000		0
Total retail		293,000		203,000		356,000		852,000		122,219,000		123,071,000		0

Total past due loans	$	725,000	$	203,000	$	365,000	$	1,293,000	$	1,615,294,000	$	1,616,587,000	$	0

	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
Acquired Loans
Commercial:
Commercial and industrial	$	0	$	5,000	$	541,000	$	546,000	$	117,885,000	$	118,431,000	$	0
Vacant land, land development, and residential construction		27,000		0		0		27,000		14,955,000		14,982,000		0
Real estate – owner occupied		323,000		425,000		1,142,000		1,890,000		113,231,000		115,121,000		0
Real estate – non-owner occupied		53,000		703,000		79,000		835,000		122,762,000		123,597,000		0
Real estate – multi-family and residential rental		223,000		54,000		0		277,000		80,772,000		81,049,000		0
Total commercial		626,000		1,187,000		1,762,000		3,575,000		449,605,000		453,180,000		0

Retail:
Home equity and other		395,000		44,000		28,000		467,000		72,363,000		72,830,000		5,000
1-4 family mortgages		960,000		354,000		416,000		1,730,000		133,400,000		135,130,000		0
Total retail		1,355,000		398,000		444,000		2,197,000		205,763,000		207,960,000		5,000

Total past due loans	$	1,981,000	$	1,585,000	$	2,206,000	$	5,772,000	$	655,368,000	$	661,140,000	$	5,000

Impaired originated loans as of September 30, 2016, and average originated impaired loans for the three and nine months ended September 30, 2016, 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	$	1,472,000	$	1,472,000		$	1,809,000	$	1,752,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		503,000		404,000			327,000		307,000
Real estate – non-owner occupied		5,610,000		5,610,000			5,616,000		5,647,000
Real estate – multi-family and residential rental		0		0			0		0
Total commercial		7,585,000		7,486,000			7,752,000		7,706,000
Retail:
Home equity and other		122,000		116,000			118,000		63,000
1-4 family mortgages		1,191,000		567,000			618,000		616,000
Total retail		1,313,000		683,000			736,000		679,000

Total with no related allowance recorded	$	8,898,000	$	8,169,000		$	8,488,000	$	8,385,000

	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	$	222,000	$	171,000	$	38,000	$	185,000	$	227,000
Vacant land, land development and residential construction		1,493,000		1,109,000		44,000		1,367,000		1,507,000
Real estate – owner occupied		5,907,000		1,354,000		232,000		1,366,000		1,337,000
Real estate – non-owner occupied		4,635,000		4,635,000		177,000		4,670,000		4,734,000
Real estate – multi-family and residential rental		953,000		953,000		263,000		966,000		992,000
Total commercial		13,210,000		8,222,000		754,000		8,554,000		8,797,000
Retail:
Home equity and other		632,000		590,000		217,000		551,000		534,000
1-4 family mortgages		205,000		160,000		69,000		162,000		144,000
Total retail		837,000		750,000		286,000		713,000		678,000

Total with an allowance recorded	$	14,047,000	$	8,972,000	$	1,040,000	$	9,267,000	$	9,475,000

Total impaired loans:
Commercial	$	20,795,000	$	15,708,000	$	754,000	$	16,306,000	$	16,503,000
Retail		2,150,000		1,433,000		286,000		1,449,000		1,357,000
Total impaired loans	$	22,945,000	$	17,141,000	$	1,040,000	$	17,755,000	$	17,860,000

Impaired acquired loans as of September 30, 2016, and average impaired acquired loans for the three and nine months ended September 30, 2016, 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	$	1,000,000	$	973,000		$	1,327,000	$	1,395,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		809,000		741,000			1,021,000		1,416,000
Real estate – non-owner occupied		1,112,000		1,111,000			961,000		894,000
Real estate – multi-family and residential rental		485,000		360,000			327,000		335,000
Total commercial		3,406,000		3,185,000			3,636,000		4,040,000
Retail:
Home equity and other		497,000		329,000			347,000		320,000
1-4 family mortgages		1,697,000		1,309,000			1,307,000		1,359,000
Total retail		2,194,000		1,638,000			1,654,000		1,679,000

Total with no related allowance recorded	$	5,600,000	$	4,823,000		$	5,290,000	$	5,719,000

	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	$	352,000	$	331,000	$	98,000	$	343,000	$	361,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		49,000		49,000		4,000		49,000		49,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		2,000		2,000		1,000		11,000		16,000
Total commercial		403,000		382,000		103,000		403,000		426,000
Retail:
Home equity and other		0		0		0		0		0
1-4 family mortgages		173,000		173,000		5,000		174,000		131,000
Total retail		173,000		173,000		5,000		174,000		131,000

Total with an allowance recorded	$	576,000	$	555,000	$	108,000	$	577,000	$	557,000

Total impaired loans:
Commercial	$	3,809,000	$	3,567,000	$	103,000	$	4,039,000	$	4,466,000
Retail		2,367,000		1,811,000		5,000		1,828,000		1,810,000
Total impaired loans	$	6,176,000	$	5,378,000	$	108,000	$	5,867,000	$	6,276,000

Impaired originated loans as of December 31, 2015, and average impaired originated loans for the three and nine months ended September 30, 2015, 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	$	1,509,000	$	1,501,000		$	1,908,000	$	1,729,000
Vacant land, land development and residential construction		0		0			0		101,000
Real estate – owner occupied		712,000		505,000			113,000		1,032,000
Real estate – non-owner occupied		5,696,000		5,696,000			5,747,000		3,204,000
Real estate – multi-family and residential rental		0		0			151,000		232,000
Total commercial		7,917,000		7,702,000			7,919,000		6,298,000
Retail:
Home equity and other		14,000		5,000			189,000		190,000
1-4 family mortgages		1,328,000		657,000			716,000		631,000
Total retail		1,342,000		662,000			905,000		821,000

Total with no related allowance recorded	$	9,259,000	$	8,364,000		$	8,824,000	$	7,119,000

	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	$	352,000	$	305,000	$	165,000	$	436,000	$	2,816,000
Vacant land, land development and residential construction		2,017,000		1,655,000		245,000		2,052,000		2,026,000
Real estate – owner occupied		5,867,000		1,314,000		242,000		1,959,000		8,778,000
Real estate – non-owner occupied		4,841,000		4,841,000		201,000		4,926,000		10,371,000
Real estate – multi-family and residential rental		1,028,000		1,028,000		365,000		1,179,000		1,266,000
Total commercial		14,105,000		9,143,000		1,218,000		10,552,000		25,257,000
Retail:
Home equity and other		600,000		562,000		209,000		160,000		143,000
1-4 family mortgages		165,000		128,000		47,000		131,000		641,000
Total retail		765,000		690,000		256,000		291,000		784,000

Total with an allowance recorded	$	14,870,000	$	9,833,000	$	1,474,000	$	10,843,000	$	26,041,000

Total impaired loans:
Commercial	$	22,022,000	$	16,845,000	$	1,218,000	$	18,471,000	$	31,555,000
Retail		2,107,000		1,352,000		256,000		1,196,000		1,605,000
Total impaired loans	$	24,129,000	$	18,197,000	$	1,474,000	$	19,667,000	$	33,160,000

Impaired acquired loans as of December 31, 2015, and average impaired acquired loans for the three and nine months ended September 30, 2015, 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	$	1,528,000	$	1,494,000		$	1,596,000	$	1,432,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		2,233,000		1,952,000			910,000		535,000
Real estate – non-owner occupied		880,000		880,000			656,000		487,000
Real estate – multi-family and residential rental		452,000		404,000			2,885,000		1,799,000
Total commercial		5,093,000		4,730,000			6,047,000		4,253,000
Retail:
Home equity and other		471,000		310,000			342,000		423,000
1-4 family mortgages		1,804,000		1,548,000			816,000		855,000
Total retail		2,275,000		1,858,000			1,158,000		1,278,000

Total with no related allowance recorded	$	7,368,000	$	6,588,000		$	7,205,000	$	5,531,000

	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	$	383,000	$	376,000	$	102,000	$	73,000	$	65,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		51,000		51,000		4,000		568,000		1,016,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		23,000		23,000		0		26,000		20,000
Total commercial		457,000		450,000		106,000		667,000		1,101,000
Retail:
Home equity and other		0		0		0		0		0
1-4 family mortgages		175,000		175,000		6,000		229,000		185,000
Total retail		175,000		175,000		6,000		229,000		185,000

Total with an allowance recorded	$	632,000	$	625,000	$	112,000	$	896,000	$	1,286,000

Total impaired loans:
Commercial	$	5,550,000	$	5,180,000	$	106,000	$	6,714,000	$	5,354,000
Retail		2,450,000		2,033,000		6,000		1,387,000		1,463,000
Total impaired loans	$	8,000,000	$	7,213,000	$	112,000	$	8,101,000	$	6,817,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated collateral value. Interest income recognized on accruing troubled debt restructurings totaled $0.3 million during the third quarter of 2016 and 2015, and $0.8 million and $1.0 million during the first nine months of 2016 and 2015, respectively. No interest income was recognized on nonaccrual loans during the third quarter and first nine months of 2016 or during the respective 2015 periods.

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.

Credit quality indicators were as follows as of September 30, 2016:

Originated loans

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	$	476,862,000	$	18,294,000	$	237,640,000	$	530,972,000	$	28,478,000
Grades 5 – 7		190,018,000		9,599,000		107,614,000		107,118,000		16,807,000
Grades 8 – 9		171,000		110,000		1,069,000		0		954,000
Total commercial	$	667,051,000	$	28,003,000	$	346,323,000	$	638,090,000	$	46,239,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	72,680,000	$	74,835,000

Acquired loans

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	$	43,682,000	$	2,183,000	$	40,534,000	$	62,371,000	$	40,803,000
Grades 5 – 7		38,201,000		7,114,000		51,972,000		39,544,000		30,470,000
Grades 8 – 9		1,396,000		155,000		1,875,000		1,439,000		591,000
Total commercial	$	83,279,000	$	9,452,000	$	94,381,000	$	103,354,000	$	71,864,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	54,946,000	$	115,880,000

Credit quality indicators were as follows as of December 31, 2015:

Originated loans

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	$	417,120,000	$	18,118,000	$	230,629,000	$	400,350,000	$	19,121,000
Grades 5 – 7		160,454,000		10,365,000		98,332,000		120,404,000		13,806,000
Grades 8 – 9		298,000		1,655,000		1,837,000		0		1,027,000
Total commercial	$	577,872,000	$	30,138,000	$	330,798,000	$	520,754,000	$	33,954,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	67,816,000	$	55,255,000

Acquired loans

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	$	67,978,000	$	3,095,000	$	45,807,000	$	71,197,000	$	44,763,000
Grades 5 – 7		47,589,000		11,364,000		63,563,000		50,066,000		35,288,000
Grades 8 – 9		2,864,000		523,000		5,751,000		2,334,000		998,000
Total commercial	$	118,431,000	$	14,982,000	$	115,121,000	$	123,597,000	$	81,049,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	72,830,000	$	135,130,000

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 originated loans as of and during the three and nine months ended September 30, 2016 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at June 30, 2016	$	14,729,000		$	1,913,000		$	234,000		$	16,876,000
Provision for loan losses		493,000			329,000			(252,000	)		570,000
Charge-offs		(1,000	)		(290,000	)		0			(291,000	)
Recoveries		78,000			101,000			0			179,000
Ending balance	$	15,299,000		$	2,053,000		$	(18,000	)	$	17,334,000


Allowance for loan losses:
Balance at December 31, 2015	$	13,672,000		$	1,421,000		$	140,000		$	15,233,000
Provision for loan losses		1,429,000			1,128,000			(158,000	)		2,399,000
Charge-offs		(256,000	)		(907,000	)		0			(1,163,000	)
Recoveries		454,000			411,000			0			865,000
Ending balance	$	15,299,000		$	2,053,000		$	(18,000	)	$	17,334,000

Ending balance: individually evaluated for impairment	$	754,000		$	286,000		$	0		$	1,040,000

Ending balance: collectively evaluated for impairment	$	14,545,000		$	1,767,000		$	(18,000	)	$	16,294,000


Total loans:
Ending balance	$	1,725,706,000		$	147,515,000					$	1,873,221,000

Ending balance: individually evaluated for impairment	$	15,708,000		$	1,433,000					$	17,141,000

Ending balance: collectively evaluated for impairment	$	1,709,998,000		$	146,082,000					$	1,856,080,000

Activity in the allowance for loan losses for acquired loans during the three and nine months ended September 30, 2016 is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 30, 2016	$	211,000		$	23,000		$	0	$	234,000
Provision for loan losses		(39,000	)		69,000			0		30,000
Charge-offs		0			(72,000	)		0		(72,000	)
Recoveries		0			0			0		0
Ending balance	$	172,000		$	20,000		$	0	$	192,000


Allowance for loan losses:
Balance at December 31, 2015	$	420,000		$	28,000		$	0	$	448,000
Provision for loan losses		(206,000	)		107,000			0		(99,000	)
Charge-offs		0			(72,000	)		0		(72,000	)
Recoveries		(42,000	)		(43,000	)		0		(85,000	)
Ending balance	$	172,000		$	20,000		$	0	$	192,000

The negative loan recoveries reflected for acquired loans during the first nine months of 2016 resulted from reversals of prior-period recoveries associated with certain purchased credit impaired (“PCI”) loans that were subject to pre-acquisition charge-offs. Post-acquisition payments received on these PCI loans were previously reported as loan loss recoveries in prior periods; during the first quarter of 2016, these recoveries were reversed and reported as recovery income if associated with specifically reviewed PCI loans or retained gains if associated with PCI-pooled loans.

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the three and nine months ended September 30, 2015 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at June 30, 2015	$	13,992,000		$	1,714,000		$	34,000		$	15,740,000
Provision for loan losses		9,000			(13,000	)		(89,000	)		(93,000	)
Charge-offs		0			(46,000	)		0			(46,000	)
Recoveries		200,000			36,000			0			236,000
Ending balance	$	14,201,000		$	1,691,000		$	(55,000	)	$	15,837,000


Allowance for loan losses:
Balance at December 31, 2014	$	17,736,000		$	1,487,000		$	76,000		$	19,299,000
Provision for loan losses		(1,641,000	)		578,000			(131,000	)		(1,194,000	)
Charge-offs		(4,276,000	)		(563,000	)		0			(4,839,000	)
Recoveries		2,382,000			189,000			0			2,571,000
Ending balance	$	14,201,000		$	1,691,000		$	(55,000	)	$	15,837,000

Ending balance: individually evaluated for impairment	$	1,657,000		$	170,000		$	0		$	1,827,000

Ending balance: collectively evaluated for impairment	$	12,544,000		$	1,521,000		$	(55,000	)	$	14,010,000


Total loans:
Ending balance	$	1,402,320,000		$	117,390,000					$	1,519,710,000

Ending balance: individually evaluated for impairment	$	17,835,000		$	1,212,000					$	19,047,000

Ending balance: collectively evaluated for impairment	$	1,384,485,000		$	116,178,000					$	1,500,663,000

Activity in the allowance for loan losses for acquired loans during the three and nine months ended September 30, 2015 is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 30, 2015	$	561,000		$	260,000		$	0	$	821,000
Provision for loan losses		(389,000	)		(18,000	)		0		(407,000	)
Charge-offs		(87,000	)		(49,000	)		0		(136,000	)
Recoveries		0			4,000			0		4,000
Ending balance	$	85,000		$	197,000		$	0	$	282,000


Allowance for loan losses:
Balance at December 31, 2014	$	681,000		$	61,000		$	0	$	742,000
Provision for loan losses		(479,000	)		173,000			0		(306,000	)
Charge-offs		(118,000	)		(56,000	)		0		(174,000	)
Recoveries		1,000			19,000			0		20,000
Ending balance	$	85,000		$	197,000		$	0	$	282,000

In accordance with acquisition accounting rules, acquired loans were recorded at fair value at the merger date and the prior allowance was eliminated.

Loans modified as troubled debt restructurings during the three months ended September 30, 2016 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0

Retail:
Home equity and other		1		56,000		56,000
1-4 family mortgages		0		0		0
Total originated retail		1		56,000		56,000

Total originated loans		1	$	56,000	$	56,000

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		44,000		44,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		44,000		44,000

Retail:
Home equity and other		1		3,000		3,000
1-4 family mortgages		0		0		0
Total acquired retail		1		3,000		3,000

Total acquired loans		2	$	47,000	$	47,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2016 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		1	$	20,000	$	20,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		167,000		167,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		2		187,000		187,000

Retail:
Home equity and other		3		240,000		240,000
1-4 family mortgages		1		33,000		40,000
Total originated retail		4		273,000		280,000

Total originated loans		6	$	460,000	$	467,000

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		44,000		44,000
Real estate – non-owner occupied		1		60,000		60,000
Real estate – multi-family and residential rental		1		7,000		7,000
Total acquired commercial		3		111,000		111,000

Retail:
Home equity and other		3		54,000		54,000
1-4 family mortgages		1		19,000		19,000
Total acquired retail		4		73,000		73,000

Total acquired loans		7	$	184,000	$	184,000

Loans modified as troubled debt restructurings during the three months ended September 30, 2015 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0

Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0

Total originated loans		0	$	0	$	0

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		1		237,000		237,000
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		237,000		237,000

Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total acquired retail		0		0		0

Total acquired loans		1	$	237,000	$	237,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2015 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		9	$	1,876,000	$	1,901,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		1,876,000		1,901,000

Retail:
Home equity and other		0		0		0
1-4 family mortgagess		0		0		0
Total originated retail		0		0		0

Total originated loans		9	$	1,876,000	$	1,901,000

Acquired loans
Commercial:
Commercial and industrial		2	$	286,000	$	286,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		66,000		66,000
Real estate – non-owner occupied		4		655,000		655,000
Real estate – multi-family and residential rental		2		202,000		202,000
Total acquired commercial		11		1,209,000		1,209,000

Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total acquired retail		0		0		0

Total acquired loans		11	$	1,209,000	$	1,209,000

The following originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 30, 2016 (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 originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2016 (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 acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended September 30, 2016 (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 acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the nine months ended September 30, 2016 (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

	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

	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

	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		1		18,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		18,000

Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0

Total		1	$	18,000

	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		1		18,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		18,000

Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0

Total		1	$	18,000

Activity for originated loans categorized as troubled debt restructurings during the three months ended September 30, 2016 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	$	2,103,000		$	2,036,000		$	1,431,000		$	10,435,000		$	461,000
Charge-Offs		0			0			0			0			0
Payments		(230,000	)		(526,000	)		(37,000	)		(91,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		0			0			0			0			0
Ending Balance	$	1,873,000		$	1,510,000		$	1,394,000		$	10,344,000		$	454,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	329,000		$	163,000
Charge-Offs		0			0
Payments		(1,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		59,000			0
Ending Balance	$	387,000		$	160,000

Activity for acquired loans categorized as troubled debt restructurings during the three months ended September 30, 2016 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	$	1,644,000		$	0	$	1,283,000		$	681,000		$	274,000
Charge-Offs		0			0		0			0			0
Payments		(397,000	)		0		(747,000	)		(24,000	)		(35,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		41,000			0			0
Ending Balance	$	1,247,000		$	0	$	577,000		$	657,000		$	239,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	180,000		$	333,000
Charge-Offs		0			0
Payments		(7,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		3,000			0
Ending Balance	$	176,000		$	329,000

Activity for originated loans categorized as troubled debt restructurings during the nine months ended September 30, 2016 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	$	2,028,000		$	2,086,000		$	1,400,000		$	10,657,000		$	476,000
Charge-Offs		0			0			0			0			0
Payments		(175,000	)		(576,000	)		(103,000	)		(313,000	)		(22,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		20,000			0			97,000			0			0
Ending Balance	$	1,873,000		$	1,510,000		$	1,394,000		$	10,344,000		$	454,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	146,000		$	128,000
Charge-Offs		0			0
Payments		(1,000	)		(8,000	)
Transfers to ORE		0			0
Net Additions/Deletions		242,000			40,000
Ending Balance	$	387,000		$	160,000

Activity for acquired loans categorized as troubled debt restructurings during the nine months ended September 30, 2016 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	$	1,686,000		$	0	$	1,652,000		$	647,000		$	331,000
Charge-Offs		(48,000	)		0		0			0			0
Payments		(391,000	)		0		(1,116,000	)		(46,000	)		(99,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		41,000			56,000			7,000
Ending Balance	$	1,247,000		$	0	$	577,000		$	657,000		$	239,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	141,000		$	316,000
Charge-Offs		0			0
Payments		(20,000	)		(6,000	)
Transfers to ORE		0			0
Net Additions/Deletions		55,000			19,000
Ending Balance	$	176,000		$	329,000

Activity for originated loans categorized as troubled debt restructurings during the three months ended September 30, 2015 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	$	2,442,000		$	2,632,000		$	2,218,000		$	11,082,000		$	491,000
Charge-Offs		0			0			0			0			0
Payments		(56,000	)		(272,000	)		(291,000	)		(324,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		(302,000	)		0			0			0			0
Ending Balance	$	2,084,000		$	2,360,000		$	1,927,000		$	10,758,000		$	484,000

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	0	$	270,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	0	$	267,000

Activity for acquired loans categorized as troubled debt restructurings during the three months ended September 30, 2015 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	$	1,521,000		$	0	$	1,350,000		$	361,000		$	580,000
Charge-Offs		0			0		0			0			(42,000	)
Payments		(324,000	)		0		(77,000	)		(5,000	)		(274,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		0			236,000			0
Ending Balance	$	1,197,000		$	0	$	1,273,000		$	592,000		$	264,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	152,000		$	177,000
Charge-Offs		0			0
Payments		(5,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	147,000		$	176,000

Activity for originated loans categorized as troubled debt restructurings during the nine months ended September 30, 2015 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	$	7,026,000		$	2,680,000		$	17,160,000		$	17,439,000		$	505,000
Charge-Offs		0			0			(4,198,000	)		0			0
Payments		(6,591,000	)		(320,000	)		(11,035,000	)		(6,681,000	)		(21,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		1,649,000			0			0			0			0
Ending Balance	$	2,084,000		$	2,360,000		$	1,927,000		$	10,758,000		$	484,000

	Retail Home Equity and Other		Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	0	$	1,967,000
Charge-Offs		0		(148,000	)
Payments		0		(1,552,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	0	$	267,000

Activity for acquired loans categorized as troubled debt restructurings during the nine months ended September 30, 2015 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	$	1,439,000		$	0	$	1,569,000		$	64,000		$	381,000
Charge-Offs		0			0		0			0			(42,000	)
Payments		(597,000	)		0		(296,000	)		(6,000	)		(329,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		355,000			0		0			534,000			254,000
Ending Balance	$	1,197,000		$	0	$	1,273,000		$	592,000		$	264,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	26,000		$	178,000
Charge-Offs		0			0
Payments		(32,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		153,000			0
Ending Balance	$	147,000		$	176,000

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

	September 30, 2016		December 31, 2015

Commercial:
Commercial and industrial	$	120,000	$	221,000
Vacant land, land development, and residential construction		30,000		186,000
Real estate – owner occupied		105,000		115,000
Real estate – non-owner occupied		177,000		201,000
Real estate – multi-family and residential rental		264,000		365,000
Total commercial		696,000		1,088,000

Retail:
Home equity and other		50,000		14,000
1-4 family mortgages		5,000		6,000
Total retail		55,000		20,000

Total related allowance	$	751,000	$	1,108,000

In general, our policy dictates that a renewal or modification of an 8- or 9-rated commercial 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.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References + Details