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Note 3 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2020

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

3. 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.

Our total loans at June 30, 2020 were $3.33 billion compared to $2.86 billion at December 31, 2019, an increase of $476 million, or 16.7%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2020 and December 31, 2019, and the percentage change in loans from the end of 2019 to the end of the second quarter of 2020, are as follows:

											Percent
	June 30, 2020					December 31, 2019					Increase
	Balance		%			Balance		%			(Decrease)

Commercial:
Commercial and industrial (1)	$	1,307,455,000		39.2	%	$	846,551,000		29.6	%		54.4	%
Vacant land, land development, and residential construction		52,984,000		1.6			56,119,000		2.0			(5.6	)
Real estate – owner occupied		567,621,000		17.0			579,003,000		20.3			(2.0	)
Real estate – non-owner occupied		841,145,000		25.2			835,346,000		29.2			0.7
Real estate – multi-family and residential rental		132,047,000		4.0			124,525,000		4.4			6.0
Total commercial		2,901,252,000		87.0			2,441,544,000		85.5			18.8

Retail:
Home equity and other		64,743,000		2.0			75,374,000		2.6			(14.1	)
1-4 family mortgages		367,061,000		11.0			339,749,000		11.9			8.0
Total retail		431,804,000		13.0			415,123,000		14.5			4.0

Total loans	$	3,333,056,000		100.0	%	$	2,856,667,000		100.0	%		16.7	%

(1)

For June 30, 2020, includes $549 million in loans originated under the Paycheck Protection Program.

Nonperforming loans as of June 30, 2020 and December 31, 2019 were as follows:

	June 30, 2020		December 31, 2019

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		3,212,000		2,284,000

Total nonperforming loans	$	3,212,000	$	2,284,000

The recorded principal balance of nonperforming loans was as follows:

	June 30, 2020		December 31, 2019
Commercial:
Commercial and industrial	$	98,000	$	0
Vacant land, land development, and residential construction		198,000		0
Real estate – owner occupied		275,000		134,000
Real estate – non-owner occupied		25,000		0
Real estate – multi-family and residential rental		0		2,000
Total commercial		596,000		136,000

Retail:
Home equity and other		250,000		255,000
1-4 family mortgages		2,366,000		1,893,000
Total retail		2,616,000		2,148,000

Total nonperforming loans	$	3,212,000	$	2,284,000

An age analysis of past due loans is as follows as of June 30, 2020:

	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	$	0	$	38,000	$	38,000	$	1,307,417,000	$	1,307,455,000	$	0
Vacant land, land development, and residential construction		0		22,000		198,000		220,000		52,764,000		52,984,000		0
Real estate – owner occupied		0		0		181,000		181,000		567,440,000		567,621,000		0
Real estate – non-owner occupied		0		25,000		0		25,000		841,120,000		841,145,000		0
Real estate – multi-family and residential rental		0		0		0		0		132,047,000		132,047,000		0
Total commercial		0		47,000		417,000		464,000		2,900,788,000		2,901,252,000		0

Retail:
Home equity and other		49,000		39,000		90,000		178,000		64,565,000		64,743,000		0
1-4 family mortgages		238,000		96,000		429,000		763,000		366,298,000		367,061,000		0
Total retail		287,000		135,000		519,000		941,000		430,863,000		431,804,000		0

Total past due loans	$	287,000	$	182,000	$	936,000	$	1,405,000	$	3,331,651,000	$	3,333,056,000	$	0

An age analysis of past due loans is as follows as of December 31, 2019:

	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	$	0	$	0	$	0	$	846,551,000	$	846,551,000	$	0
Vacant land, land development, and residential construction		191,000		0		0		191,000		55,928,000		56,119,000		0
Real estate – owner occupied		0		0		134,000		134,000		578,869,000		579,003,000		0
Real estate – non-owner occupied		0		0		0		0		835,346,000		835,346,000		0
Real estate – multi-family and residential rental		0		0		0		0		124,525,000		124,525,000		0
Total commercial		191,000		0		134,000		325,000		2,441,219,000		2,441,544,000		0

Retail:
Home equity and other		171,000		65,000		20,000		256,000		75,118,000		75,374,000		0
1-4 family mortgages		745,000		29,000		529,000		1,303,000		338,446,000		339,749,000		0
Total retail		916,000		94,000		549,000		1,559,000		413,564,000		415,123,000		0

Total past due loans	$	1,107,000	$	94,000	$	683,000	$	1,884,000	$	2,854,783,000	$	2,856,667,000	$	0

Impaired loans as of June 30, 2020, and average impaired loans for the three and six months ended June 30, 2020, 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	$	8,784,000	$	8,753,000		$	9,460,000	$	9,016,000
Vacant land, land development and residential construction		538,000		453,000			326,000		246,000
Real estate – owner occupied		4,434,000		4,375,000			4,316,000		3,100,000
Real estate – non-owner occupied		25,000		25,000			12,000		67,000
Real estate – multi-family and residential rental		21,000		0			2,000		4,000
Total commercial		13,802,000		13,606,000			14,116,000		12,433,000
Retail:
Home equity and other		1,359,000		1,274,000			1,273,000		1,252,000
1-4 family mortgages		4,561,000		2,571,000			2,627,000		2,407,000
Total retail		5,920,000		3,845,000			3,900,000		3,659,000

Total with no related allowance recorded	$	19,722,000	$	17,451,000		$	18,016,000	$	16,092,000

	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	$	1,331,000	$	1,330,000	$	1,006,000	$	1,751,000	$	1,320,000
Vacant land, land development and residential construction		0		0		0		192,000		128,000
Real estate – owner occupied		49,000		49,000		2,000		126,000		443,000
Real estate – non-owner occupied		170,000		170,000		3,000		85,000		57,000
Real estate – multi-family and residential rental		1,000		1,000		0		0		0
Total commercial		1,551,000		1,550,000		1,011,000		2,154,000		1,948,000
Retail:
Home equity and other		596,000		577,000		339,000		486,000		486,000
1-4 family mortgages		662,000		662,000		162,000		638,000		544,000
Total retail		1,258,000		1,239,000		501,000		1,124,000		1,030,000

Total with an allowance recorded	$	2,809,000	$	2,789,000	$	1,512,000	$	3,278,000	$	2,978,000

Total impaired loans:
Commercial	$	15,353,000	$	15,156,000	$	1,011,000	$	16,270,000	$	14,381,000
Retail		7,178,000		5,084,000		501,000		5,024,000		4,689,000
Total impaired loans	$	22,531,000	$	20,240,000	$	1,512,000	$	21,294,000	$	19,070,000

Impaired loans as of December 31, 2019, and average impaired loans for the three and six months ended June 30, 2019, 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	$	8,129,000	$	8,129,000		$	10,214,000	$	9,810,000
Vacant land, land development and residential construction		85,000		85,000			90,000		91,000
Real estate – owner occupied		715,000		667,000			2,083,000		1,996,000
Real estate – non-owner occupied		178,000		178,000			175,000		117,000
Real estate – multi-family and residential rental		29,000		9,000			89,000		68,000
Total commercial		9,136,000		9,068,000			12,651,000		12,082,000
Retail:
Home equity and other		1,279,000		1,209,000			1,360,000		1,222,000
1-4 family mortgages		3,272,000		1,968,000			2,201,000		2,214,000
Total retail		4,551,000		3,177,000			3,561,000		3,436,000

Total with no related allowance recorded	$	13,687,000	$	12,245,000		$	16,212,000	$	15,518,000

	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	$	460,000	$	458,000	$	202,000	$	9,687,000	$	8,184,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		1,078,000		1,078,000		982,000		1,384,000		1,858,000
Real estate – non-owner occupied		0		0		0		47,000		101,000
Real estate – multi-family and residential rental		0		0		0		65,000		90,000
Total commercial		1,538,000		1,536,000		1,184,000		11,183,000		10,233,000
Retail:
Home equity and other		502,000		485,000		356,000		572,000		672,000
1-4 family mortgages		358,000		356,000		83,000		639,000		663,000
Total retail		860,000		841,000		439,000		1,211,000		1,335,000

Total with an allowance recorded	$	2,398,000	$	2,377,000	$	1,623,000	$	12,394,000	$	11,568,000

Total impaired loans:
Commercial	$	10,674,000	$	10,604,000	$	1,184,000	$	23,834,000	$	22,315,000
Retail		5,411,000		4,018,000		439,000		4,772,000		4,771,000
Total impaired loans	$	16,085,000	$	14,622,000	$	1,623,000	$	28,606,000	$	27,086,000

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 fair value. Interest income recognized on accruing troubled debt restructurings totaled $0.4 million and $0.2 million during the second quarters of 2020 and 2019, respectively, and $0.6 million and $0.5 million during the first six months of 2020 and 2019, respectively. No interest income was recognized on nonaccrual loans during the second quarter and first six months of 2020 or during the respective 2019 periods. Lost interest income on nonaccrual loans totaled less than $0.1 million during the second quarters of 2020 and 2019, and $0.1 million and less than $0.1 million during the first six months of 2020 and 2019, 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.

Credit quality indicators were as follows as of June 30, 2020:

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 ⁽¹⁾	$	1,008,010,000	$	21,500,000	$	309,221,000	$	545,764,000	$	73,394,000
Grades 5 – 7		289,342,000		30,914,000		253,695,000		294,423,000		58,461,000
Grades 8 – 9		10,103,000		570,000		4,705,000		958,000		192,000
Total commercial	$	1,307,455,000	$	52,984,000	$	567,621,000	$	841,145,000	$	132,047,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Performing		64,493,000		364,695,000
Nonperforming		250,000		2,366,000
Total retail	$	64,743,000	$	367,061,000

(1)

Included in Commercial and Industrial Loans Grades 1 – 4 are $549 million of loans originated under the Paycheck Protection Program.

Credit quality indicators were as follows as of December 30, 2019:

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
$ 521,920,000 $ 26,065,000 $ 351,671,000 $ 563,087,000 $ 85,152,000

Grades 5 – 7
309,824,000 29,716,000 220,980,000 272,124,000 39,203,000

Grades 8 – 9
14,807,000 338,000 6,352,000 135,000 170,000

Total commercial
$ 846,551,000 $ 56,119,000 $ 579,003,000 $ 835,346,000 $ 124,525,000

Retail credit exposure – credit risk profiled by collateral type:

Retail

Home Equity

and Other

Retail

1-4 Family

Mortgages

Performing
75,119,000 337,856,000

Nonperforming
255,000 1,893,000

Total retail
$ 75,374,000 $ 339,749,000

All commercial loans are graded using the following criteria:

Grade 1.

“Exceptional” Loans with this rating contain very little, if any, risk.

Grade 2.

“Outstanding” Loans with this rating have excellent and stable sources of repayment and conform to bank policy and regulatory requirements.

Grade 3.

“Very Good” Loans with this rating have strong sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are acceptable.

Grade 4.

“Good” Loans with this rating have solid sources of repayment and conform to bank policy and regulatory requirements. These are loans for which repayment risks are modest.

Grade 5.

“Acceptable” Loans with this rating exhibit acceptable sources of repayment and conform with most bank policies and all regulatory requirements. These are loans for which repayment risks are satisfactory.

Grade 6.

“Monitor” Loans with this rating are considered to have emerging weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if further deterioration is observed, these credits will be downgraded to the criticized asset report.

Grade 7.

“Special Mention” Loans with this rating have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Grade 8.

“Substandard” Loans with this rating are inadequately protected by current sound net worth, paying capacity of the obligor, or of the pledged collateral, if any. A Substandard loan normally has one or more well-defined weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility of loss if the deficiencies are not corrected.

Grade 9.

“Doubtful” Loans with this rating exhibit all the weaknesses inherent in the Substandard classification and where collection or liquidation in full is highly questionable and improbable.

Grade 10.

“Loss” Loans with this rating are considered uncollectable, and of such little value that continuance as an active 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 creditors’ 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, 2020 are as follows:

Commercial

Loans

Retail

Loans

Unallocated

Total

Allowance for loan losses:

Balance at March 31, 2020
$ 21,750,000 $ 3,078,000 $ 0 $ 24,828,000

Provision for loan losses
6,466,000 1,074,000 60,000 7,600,000

Charge-offs
(301,000
)
(34,000
)
0 (335,000
)

Recoveries
47,000 106,000 0 153,000

Ending balance
$ 27,962,000 $ 4,224,000 $ 60,000 $ 32,246,000

Allowance for loan losses:

Balance at December 31, 2019
$ 21,070,000 $ 2,749,000 $ 70,000 $ 23,889,000

Provision for loan losses
7,039,000 1,321,000 (10,000
)
8,350,000

Charge-offs
(314,000
)
(61,000
)
0 (375,000
)

Recoveries
167,000 215,000 0 382,000

Ending balance
$ 27,962,000 $ 4,224,000 $ 60,000 $ 32,246,000

Ending balance: individually evaluated for impairment
$ 1,011,000 $ 501,000 $ 0 $ 1,512,000

Ending balance: collectively evaluated for impairment
$ 26,951,000 $ 3,723,000 $ 60,000 $ 30,734,000

Total loans:

Ending balance
$ 2,901,252,000 $ 431,804,000 $ 3,333,056,000

Ending balance: individually evaluated for impairment
$ 15,156,000 $ 5,084,000 $ 20,240,000

Ending balance: collectively evaluated for impairment
$ 2,886,096,000 $ 426,720,000 $ 3,312,816,000

Activity in the allowance for loan losses for loans during the three and six months ended June 30, 2019 and the recorded investments in loans as of December 31, 2019 are as follows:

Commercial

Loans

Retail

Loans

Unallocated

Total

Allowance for loan losses:

Balance at March 31, 2019
$ 20,211,000 $ 2,696,000 $ 228,000 $ 23,135,000

Provision for loan losses
1,015,000 16,000 (131,000
)
900,000

Charge-offs
(2,000
)
(75,000
)
0 (77,000
)

Recoveries
47,000 48,000 0 95,000

Ending balance
$ 21,271,000 $ 2,685,000 $ 97,000 $ 24,053,000

Allowance for loan losses:

Balance at December 31, 2018
$ 19,619,000 $ 2,717,000 $ 44,000 $ 22,380,000

Provision for loan losses
1,579,000 118,000 53,000 1,750,000

Charge-offs
(2,000
)
(250,000
)
0 (252,000
)

Recoveries
75,000 100,000 0 175,000

Ending balance
$ 21,271,000 $ 2,685,000 $ 97,000 $ 24,053,000

Ending balance: individually evaluated for impairment
$ 2,149,000 $ 387,000 $ 0 $ 2,536,000

Ending balance: collectively evaluated for impairment
$ 19,122,000 $ 2,298,000 $ 97,000 $ 21,517,000

Total loans:

Ending balance
$ 2,441,544,000 $ 415,123,000 $ 2,856,667,000

Ending balance: individually evaluated for impairment
$ 10,986,000 $ 4,070,000 $ 15,056,000

Ending balance: collectively evaluated for impairment
$ 2,430,558,000 $ 411,053,000 $
2,841,611,000

Loans modified as troubled debt restructurings during the three months ended June 30, 2020 were as follows:

Number of

Contracts

Pre-

Modification

Recorded

Principal

Balance

Post-

Modification

Recorded

Principal

Balance

Commercial:

Commercial and industrial
2 $ 6,000 $ 6,000

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 commercial
2 6,000 6,000

Retail:

Home equity and other
7 438,000 439,000

1-4 family mortgages
1 20,000 20,000

Total retail
8 458,000 459,000

Total loans
10 $ 464,000 $ 465,000

Loans modified as troubled debt restructurings during the six months ended June 30, 2020 were as follows:

Number of

Contracts

Pre-

Modification

Recorded

Principal

Balance

Post-

Modification

Recorded

Principal

Balance

Commercial:

Commercial and industrial
8 $ 6,545,000 $ 6,542,000

Vacant land, land development and residential construction
0 0 0

Real estate – owner occupied
8 4,261,000 3,659,000

Real estate – non-owner occupied
0 0 0

Real estate – multi-family and residential rental
0 0 0

Total commercial
16 10,806,000 10,201,000

Retail:

Home equity and other
10 503,000 505,000

1-4 family mortgages
1 20,000 20,000

Total retail
11 523,000 525,000

Total loans
27 $ 11,329,000 $ 10,726,000

Loans modified as troubled debt restructurings during the three months ended June 30, 2019 were as follows:

Number of

Contracts

Pre-

Modification

Recorded

Principal

Balance

Post-

Modification

Recorded

Principal

Balance

Commercial:

Commercial and industrial
3 $ 14,040,000 $ 14,337,000

Vacant land, land development and residential construction
0 0 0

Real estate – owner occupied
1 1,567,000 1,567,000

Real estate – non-owner occupied
0 0 0

Real estate – multi-family and residential rental
0 0 0

Total commercial
4 15,607,000 15,904,000

Retail:

Home equity and other
4 93,000 94,000

1-4 family mortgages
3 122,000 122,000

Total retail
7 215,000 216,000

Total loans
11 $ 15,822,000 $ 16,120,000

Loans modified as troubled debt restructurings during the six months ended June 30, 2019 were as follows:

Number of

Contracts

Pre-

Modification

Recorded

Principal

Balance

Post-

Modification

Recorded

Principal

Balance

Commercial:

Commercial and industrial
6 $ 14,429,000 $ 14,726,000

Vacant land, land development and residential construction
0 0 0

Real estate – owner occupied
2 2,257,000 2,246,000

Real estate – non-owner occupied
0 0 0

Real estate – multi-family and residential rental
0 0 0

Total commercial
8 16,686,000 16,972,000

Retail:

Home equity and other
8 163,000 164,000

1-4 family mortgages
4 154,000 154,000

Total retail
12 317,000 318,000

Total loans
20 $ 17,003,000 $ 17,290,000

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, 2020 (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, 2020 (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
1 32,000

Total retail
1 32,000

Total
1 $ 32,000

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, 2019 (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, 2019 (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 June 30, 2020 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
$ 12,204,000 $ 82,000 $ 3,811,000 $ 174,000 $ 3,000

Charge-Offs
0 0 0 0 0

Payments
(2,143,000
)
(2,000
)
(20,000
)
(4,000
)
(2,000
)

Transfers to ORE
0 0 0 0 0

Net Additions/Deletions
6,000 0 0 0 0

Ending Balance
$ 10,067,000 $ 80,000 $ 3,791,000 $ 170,000 $ 1,000

Retail

Home Equity

and Other

Retail

1-4 Family

Mortgages

Retail Loan Portfolio:

Beginning Balance
$ 1,452,000 $ 715,000

Charge-Offs
0 0

Payments
(175,000
)
(20,000
)

Transfers to ORE
0 0

Net Additions/Deletions
438,000 20,000

Ending Balance
$ 1,715,000 $ 715,000

Activity for loans categorized as troubled debt restructurings during the six months ended June 30, 2020 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
$ 8,587,000 $ 85,000 $ 1,145,000 $ 178,000 $ 7,000

Charge-Offs
0 0 0 0 0

Payments
(4,975,000
)
(5,000
)
(1,008,000
)
(8,000
)
(6,000
)

Transfers to ORE
0 0 0 0 0

Net Additions/Deletions
6,455,000 0 3,654,000 0 0

Ending Balance
$ 10,067,000 $ 80,000 $ 3,791,000 $ 170,000 $ 1,000

Retail

Home Equity

and Other

Retail

1-4 Family

Mortgages

Retail Loan Portfolio:

Beginning Balance
$ 1,415,000 $ 724,000

Charge-Offs
0 0

Payments
(203,000
)
(29,000
)

Transfers to ORE
0 0

Net Additions/Deletions
503,000 20,000

Ending Balance
$ 1,715,000 $ 715,000

Activity for loans categorized as troubled debt restructurings during the three months ended June 30, 2019 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
$ 15,610,000 $ 0 $ 3,695,000 $ 189,000 $ 21,000

Charge-Offs
0 0 0 0 0

Payments
(3,148,000
)
0 (2,377,000
)
(4,000
)
(4,000
)

Transfers to ORE
0 0 0 0 0

Net Additions/Deletions
11,672,000 0 1,180,000 0 0

Ending Balance
$ 24,134,000 $ 0 $ 2,498,000 $ 185,000 $ 17,000

Retail

Home Equity

and Other

Retail

1-4 Family

Mortgages

Retail Loan Portfolio:

Beginning Balance
$ 1,444,000 $ 600,000

Charge-Offs
(18,000
)
0

Payments
(62,000
)
(14,000
)

Transfers to ORE
0 0

Net Additions/Deletions
102,000 120,000

Ending Balance
$ 1,466,000 $ 706,000

Activity for loans categorized as troubled debt restructurings during the six months ended June 30, 2019 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
$ 14,138,000 $ 0 $ 3,100,000 $ 210,000 $ 24,000

Charge-Offs
0 0 0 0 0

Payments
(4,814,000
)
0 (2,425,000
)
(25,000
)
(7,000
)

Transfers to ORE
0 0 (97,000
)
0 0

Net Additions/Deletions
14,810,000 0 1,920,000 0 0

Ending Balance
$ 24,134,000 $ 0 $ 2,498,000 $ 185,000 $ 17,000

Retail

Home Equity

and Other

Retail

1-4 Family

Mortgages

Retail Loan Portfolio:

Beginning Balance
$ 1,402,000 $ 578,000

Charge-Offs
(18,000
)
0

Payments
(90,000
)
(24,000
)

Transfers to ORE
0 0

Net Additions/Deletions
172,000 152,000

Ending Balance
$ 1,466,000 $ 706,000

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

June 30,

2020

December 31,

2019

Commercial:

Commercial and industrial
$ 946,000 $ 202,000

Vacant land, land development, and residential construction
0 0

Real estate – owner occupied
2,000 982,000

Real estate – non-owner occupied
3,000 0

Real estate – multi-family and residential rental
0 0

Total commercial
951,000 1,184,000

Retail:

Home equity and other
288,000 311,000

1-4 family mortgages
154,000 83,000

Total retail
442,000 394,000

Total related allowance
$ 1,393,000 $ 1,578,000

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.