Note 4 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2014

Receivables [Abstract]

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

4. 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 (See Note 2 – Business Combination for further information). 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 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, 2014 were $2.07 billion compared to $1.05 billion at December 31, 2013, an increase of 1.02 billion, or 96.4%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at September 30, 2014 and December 31, 2013, and the percentage change in loans from the end of 2013 to the end of the third quarter of 2014, are as follows:

											Percent
	September 30, 2014					December 31, 2013					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	362,329,000		30.5	%	$	286,373,000		27.2	%		26.5	%
Vacant land, land development, and residential construction		30,246,000		2.5			36,741,000		3.5			(17.7	)
Real estate – owner occupied		267,072,000		22.5			261,877,000		24.9			2.0
Real estate – non-owner occupied		401,762,000		33.9			364,066,000		34.6			10.4
Real estate – multi-family and residential rental		42,393,000		3.6			37,639,000		3.5			12.6
Total commercial		1,103,802,000		93.0			986,696,000		93.7			11.9
Retail:
Home equity and other		44,917,000		3.8			35,080,000		3.3			28.0
1-4 family mortgages		37,994,000		3.2			31,467,000		3.0			20.7
Total retail		82,911,000		7.0			66,547,000		6.3			24.6
Total originated loans	$	1,186,713,000		100.0	%	$	1,053,243,000		100.0	%		12.7	%

										Percent
	September 30, 2014					December 31, 2013				Increase
	Balance		%			Balance		%		(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	179,476,000		20.4	%	$	0		NA		NM
Vacant land, land development, and residential construction		21,972,000		2.5			0		NA		NM
Real estate – owner occupied		145,398,000		16.5			0		NA		NM
Real estate – non-owner occupied		182,660,000		20.7			0		NA		NM
Real estate – multi-family and residential rental		53,256,000		6.0			0		NA		NM
Total commercial		582,762,000		66.1			0		NA		NM
Retail:
Home equity and other		119,033,000		13.5			0		NA		NM
1-4 family mortgages		179,757,000		20.4			0		NA		NM
Total retail		298,790,000		33.9			0		NA		NM
Total acquired loans	$	881,552,000		100.0	%	$	0		NA		NM

											Percent
	September 30, 2014					December 31, 2013					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	541,805,000		26.2	%	$	286,373,000		27.2	%		89.2	%
Vacant land, land development, and residential construction		52,218,000		2.5			36,741,000		3.5			42.1
Real estate – owner occupied		412,470,000		19.9			261,877,000		24.9			57.5
Real estate – non-owner occupied		584,422,000		28.3			364,066,000		34.6			60.5
Real estate – multi-family and residential rental		95,649,000		4.6			37,639,000		3.5			154.1
Total commercial		1,686,564,000		81.5			986,696,000		93.7			70.9
Retail:
Home equity and other		163,950,000		7.9			35,080,000		3.3			367.4
1-4 family mortgages		217,751,000		10.6			31,467,000		3.0			592.0
Total retail		381,701,000		18.5			66,547,000		6.3			473.6
Total loans	$	2,068,265,000		100.0	%	$	1,053,243,000		100.0	%		96.4	%

The total outstanding balance and carrying value of acquired impaired loans was $34.4 million and $23.7 million, respectively, as of September 30, 2014. Changes in the accretable yield for acquired impaired loans for the three and nine months ended September 30, 2014 were as follows:

Balance at June 30, 2014	$	2,411,000
Additions		0
Accretion		(285,000	)
Net reclassification from nonaccretable to accretable		0
Disposals		(48,000	)
Ending balance	$	2,078,000

Balance at December 31, 2013	$	0
Additions		2,514,000
Accretion		(388,000	)
Net reclassification from nonaccretable to accretable		0
Disposals		(48,000	)
Ending balance	$	2,078,000

Nonperforming originated loans as of September 30, 2014 and December 31, 2013 were as follows:

	September 30,		December 31,
	2014		2013
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		4,856,000		6,718,000
Total nonperforming originated loans	$	4,856,000	$	6,718,000

Nonperforming acquired loans as of September 30, 2014 and December 31, 2013 were as follows:

	September 30,		December 31,
	2014		2013
Loans past due 90 days or more still accruing interest	$	81,000	$	NA
Nonaccrual loans		1,134,000		NA
Total nonperforming aquired loans	$	1,215,000	$	NA

The recorded principal balance of nonperforming loans was as follows:

	September 30,		December 31,
	2014		2013
Commercial:
Commercial and industrial	$	350,000	$	1,501,000
Vacant land, land development, and residential construction		222,000		785,000
Real estate – owner occupied		733,000		389,000
Real estate – non-owner occupied		329,000		168,000
Real estate – multi-family and residential rental		331,000		208,000
Total commercial		1,965,000		3,051,000
Retail:
Home equity and other		914,000		788,000
1-4 family mortgages		3,192,000		2,879,000
Total retail		4,106,000		3,667,000
Total nonperforming loans	$	6,071,000	$	6,718,000

Acquired impaired loans are not subject to individual evaluation for impairment and 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, 2014:

					Greater								Recorded
	30 – 59		60 – 89		Than 89								Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0	$	362,329,000	$	362,329,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		30,246,000		30,246,000		0
Real estate – owner occupied		0		0		217,000		217,000		266,855,000		267,072,000		0
Real estate – non-owner occupied		201,000		0		0		201,000		401,561,000		401,762,000		0
Real estate – multi-family and residential rental		0		0		0		0		42,393,000		42,393,000		0
Total commercial		201,000		0		217,000		418,000		1,103,384,000		1,103,802,000		0
Retail:
Home equity and other		67,000		0		0		67,000		44,850,000		44,917,000		0
1-4 family mortgages		33,000		0		344,000		377,000		37,617,000		37,994,000		0
Total retail		100,000		0		344,000		444,000		82,467,000		82,911,000		0
Total past due loans	$	301,000	$	0	$	561,000	$	862,000	$	1,185,851,000	$	1,186,713,000	$	0

					Greater								Recorded
	30 – 59		60 – 89		Than 89								Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	66,000	$	11,000	$	23,000	$	100,000	$	179,376,000	$	179,476,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		21,972,000		21,972,000		0
Real estate – owner occupied		112,000		0		1,914,000		2,026,000		143,372,000		145,398,000		0
Real estate – non-owner occupied		0		0		2,732,000		2,732,000		179,928,000		182,660,000		0
Real estate – multi-family and residential rental		0		0		81,000		81,000		53,175,000		53,256,000		0
Total commercial		178,000		11,000		4,750,000		4,939,000		577,823,000		582,762,000		0
Retail:
Home equity and other		405,000		122,000		103,000		630,000		118,403,000		119,033,000		3,000
1-4 family mortgages		1,684,000		504,000		844,000		3,032,000		176,725,000		179,757,000		238,000
Total retail		2,089,000		626,000		947,000		3,662,000		295,128,000		298,790,000		241,000
Total past due loans	$	2,267,000	$	637,000	$	5,697,000	$	8,601,000	$	872,951,000	$	881,552,000	$	241,000

An age analysis of past due loans is as follows as of December 31, 2013:

					Greater								Recorded
	30 – 59		60 – 89		Than 89								Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	309,000	$	309,000	$	286,064,000	$	286,373,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		36,741,000		36,741,000		0
Real estate –owner occupied		65,000		0		50,000		115,000		261,762,000		261,877,000		0
Real estate –non-owner occupied		0		0		0		0		364,066,000		364,066,000		0
Real estate –multi-family and residential rental		0		0		64,000		64,000		37,575,000		37,639,000		0
Total commercial		65,000		0		423,000		488,000		986,208,000		986,696,000		0
Retail:
Home equity and other		14,000		0		0		14,000		35,066,000		35,080,000		0
1-4 family mortgages		21,000		44,000		375,000		440,000		31,027,000		31,467,000		0
Total retail		35,000		44,000		375,000		454,000		66,093,000		66,547,000		0
Total past due loans	$	100,000	$	44,000	$	798,000	$	942,000	$	1,052,301,000	$	1,053,243,000	$	0

Impaired loans as of September 30, 2014, and average impaired loans for the three and nine months ended September 30, 2014, were as follows:

							Third Quarter		Year-To-Date
	Unpaid						Average		Average
	Contractual		Recorded				Recorded		Recorded
	Principal		Principal		Related		Principal		Principal
	Balance		Balance		Allowance		Balance		Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	1,250,000	$	1,250,000		-	$	691,000	$	525,000
Vacant land, land development and residential construction		545,000		222,000				111,000		232,000
Real estate – owner occupied		19,499,000		17,815,000				9,227,000		4,981,000
Real estate – non-owner occupied		575,000		575,000				576,000		911,000
Real estate – multi-family and residential rental		0		0				0		0
Total commercial		21,869,000		19,862,000				10,605,000		6,649,000
Retail:
Home equity and other		707,000		639,000				642,000		598,000
1-4 family mortgages		1,102,000		547,000				553,000		591,000
Total retail		1,809,000		1,186,000				1,195,000		1,189,000
Total with no related allowance recorded	$	23,678,000	$	21,048,000			$	11,800,000	$	7,838,000

							Third Quarter		Year-To-Date
	Unpaid						Average		Average
	Contractual		Recorded				Recorded		Recorded
	Principal		Principal		Related		Principal		Principal
	Balance		Balance		Allowance		Balance		Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	5,404,000	$	5,363,000	$	2,251,000	$	3,087,000	$	2,142,000
Vacant land, land development and residential construction		2,798,000		2,798,000		318,000		3,049,000		3,536,000
Real estate – owner occupied		2,218,000		2,016,000		628,000		2,238,000		1,869,000
Real estate – non-owner occupied		17,023,000		17,023,000		6,489,000		17,377,000		18,819,000
Real estate – multi-family and residential rental		1,861,000		1,808,000		799,000		1,679,000		1,783,000
Total commercial		29,304,000		29,008,000		10,485,000		27,430,000		28,149,000
Retail:
Home equity and other		117,000		87,000		87,000		88,000		139,000
1-4 family mortgages		2,206,000		2,073,000		792,000		2,093,000		2,144,000
Total retail		2,323,000		2,160,000		879,000		2,181,000		2,283,000
Total with an allowance recorded	$	31,627,000	$	31,168,000	$	11,364,000	$	29,611,000	$	30,432,000
Total impaired loans:
Commercial	$	51,173,000	$	48,870,000	$	10,485,000	$	38,035,000	$	34,798,000
Retail		4,132,000		3,346,000		879,000		3,376,000		3,472,000
Total impaired loans	$	55,305,000	$	52,216,000	$	11,364,000	$	41,411,000	$	38,270,000

Acquired impaired loans are not subject to individual evaluation for impairment and are not reported as impaired loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as impaired using the same criteria applied to the originated loan portfolio. In accordance with purchase accounting rules, acquired loans were recorded at fair value at the Merger Date and the prior allowance was eliminated. No allowance has been established on these acquired loans through September 30, 2014. Interest income of $0.6 million and $1.3 million was recognized on impaired loans during the third quarter and first nine months of 2014, respectively.

Impaired loans as of December 31, 2013, and average impaired loans for the three and nine months ended September 30, 2013, were as follows:

							Third Quarter		Year-To-Date
	Unpaid						Average		Average
	Contractual		Recorded				Recorded		Recorded
	Principal		Principal		Related		Principal		Principal
	Balance		Balance		Allowance		Balance		Balance
With no related allowance recorded
Commercial:
Commercial and industrial	$	2,229,000	$	511,000		-	$	1,170,000	$	1,378,000
Vacant land, land development and residential construction		475,000		362,000				907,000		1,148,000
Real estate – owner occupied		1,270,000		785,000				865,000		1,159,000
Real estate – non-owner occupied		895,000		733,000				4,651,000		4,878,000
Real estate – multi-family and residential rental		41,000		1,000				425,000		487,000
Total commercial		4,910,000		2,392,000				8,018,000		9,050,000
Retail:
Home equity and other		507,000		461,000				466,000		474,000
1-4 family mortgages		1,272,000		647,000				715,000		746,000
Total retail		1,779,000		1,108,000				1,181,000		1,220,000
Total with no related allowance recorded	$	6,689,000	$	3,500,000			$	9,199,000	$	10,270,000

							Third Quarter		Year-To-Date
	Unpaid						Average		Average
	Contractual		Recorded				Recorded		Recorded
	Principal		Principal		Related		Principal		Principal
	Balance		Balance		Allowance		Balance		Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	1,517,000	$	1,440,000	$	792,000	$	1,764,000	$	1,990,000
Vacant land, land development and  residential construction		4,436,000		4,139,000		844,000		4,466,000		3,158,000
Real estate – owner occupied		1,513,000		1,513,000		528,000		2,330,000		2,810,000
Real estate – non-owner occupied		21,088,000		21,072,000		7,969,000		28,789,000		30,216,000
Real estate – multi-family and residential rental		3,219,000		2,684,000		1,127,000		2,639,000		2,973,000
Total commercial		31,773,000		30,848,000		11,260,000		39,988,000		41,147,000
Retail:
Home equity and other		320,000		289,000		96,000		309,000		339,000
1-4 family mortgages		2,274,000		2,231,000		1,030,000		2,480,000		1,477,000
Total retail		2,594,000		2,520,000		1,126,000		2,789,000		1,816,000
Total with an allowance recorded	$	34,367,000	$	33,368,000	$	12,386,000	$	42,777,000	$	42,963,000
Total impaired loans:
Commercial	$	36,683,000	$	33,240,000	$	11,260,000	$	48,006,000	$	50,197,000
Retail		4,373,000		3,628,000		1,126,000		3,970,000		3,036,000
Total impaired loans	$	41,056,000	$	36,868,000	$	12,386,000	$	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.   

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, 2014:

Originated Loans

Commercial credit exposure - credit risk profiled by internal credit risk grades:

			Commercial
			Vacant Land,						Commercial
			Land		Commercial		Commercial		Real Estate -
	Commercial		Development,		Real Estate -		Real Estate -		Multi-Family
	and		and Residential		Owner		Non-Owner		and Residential
	Industrial		Construction		Occupied		Occupied		Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	248,213,000	$	7,451,000	$	169,127,000	$	270,074,000	$	17,812,000
Grades 5 – 7		107,038,000		19,774,000		78,049,000		118,498,000		22,758,000
Grades 8 – 9		7,078,000		3,021,000		19,896,000		13,190,000		1,823,000
Total commercial	$	362,329,000	$	30,246,000	$	267,072,000	$	401,762,000	$	42,393,000

  Retail credit exposure - credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	44,917,000	$	37,994,000

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

			Commercial
			Vacant Land,						Commercial
			Land		Commercial		Commercial		Real Estate -
	Commercial		Development,		Real Estate -		Real Estate -		Multi-Family
	and		and Residential		Owner		Non-Owner		and Residential
	Industrial		Construction		Occupied		Occupied		Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	72,928,000	$	4,931,000	$	35,824,000	$	69,611,000	$	24,144,000
Grades 5 – 7		102,862,000		15,711,000		100,845,000		105,564,000		28,654,000
Grades 8 – 9		3,686,000		1,330,000		8,729,000		7,485,000		458,000
Total commercial	$	179,476,000	$	21,972,000	$	145,398,000	$	182,660,000	$	53,256,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	119,033,000	$	179,757,000

Credit quality indicators were as follows as of December 31, 2013:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

			Commercial
			Vacant Land,						Commercial
			Land		Commercial		Commercial		Real Estate -
	Commercial		Development,		Real Estate -		Real Estate -		Multi-Family
	and		and Residential		Owner		Non-Owner		and Residential
	Industrial		Construction		Occupied		Occupied		Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	208,151,000	$	6,973,000	$	156,230,000	$	219,325,000	$	15,465,000
Grades 5 – 7		76,237,000		25,535,000		103,066,000		122,717,000		19,469,000
Grades 8 – 9		1,985,000		4,233,000		2,581,000		22,024,000		2,705,000
Total commercial	$	286,373,000	$	36,741,000	$	261,877,000	$	364,066,000	$	37,639,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	35,080,000	$	31,467,000

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, 2014 are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Balance at June 30, 2014	$	19,107,000		$	1,774,000		$	(25,000	)	$	20,856,000
Provision for loan losses		(473,000	)		63,000			10,000			(400,000	)
Charge-offs		(24,000	)		(321,000	)		0			(345,000	)
Recoveries		102,000			161,000			0			263,000
Ending balance	$	18,712,000		$	1,677,000		$	(15,000	)	$	20,374,000
Allowance for loan losses:
Balance at December 31, 2013	$	20,455,000		$	2,358,000		$	8,000		$	22,821,000
Provision for loan losses		(2,251,000	)		(726,000	)		(23,000	)		(3,000,000	)
Charge-offs		(708,000	)		(328,000	)		0			(1,036,000	)
Recoveries		1,216,000			373,000			0			1,589,000
Ending balance	$	18,712,000		$	1,677,000		$	(15,000	)	$	20,374,000
Ending balance: individually evaluated for impairment	$	10,485,000		$	879,000		$	0		$	11,364,000
Ending balance: collectively evaluated for impairment	$	8,227,000		$	798,000		$	(15,000	)	$	9,010,000
Total loans:
Ending balance	$	1,103,802,000		$	82,911,000					$	1,186,713,000
Ending balance: individually evaluated for impairment	$	48,870,000		$	3,346,000					$	52,216,000
Ending balance: collectively evaluated for impairment	$	1,054,932,000		$	79,565,000					$	1,134,497,000

In accordance with purchase accounting rules, acquired loans were recorded at fair value at the Merger Date and the prior allowance was eliminated. No allowance has been established on these acquired loans through September 30, 2014.

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, 2013 are as follows:

	Commercial			Retail
	Loans			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

Loans modified as troubled debt restructurings during the three months ended September 30, 2014 were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		2	$	5,994,000	$	6,094,000
Vacant land, land development and  residential construction		0		0		0
Real estate – owner occupied		2		16,787,000		16,787,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and  residential rental		0		0		0
Total originated commercial		4		22,781,000		22,881,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		4	$	22,781,000	$	22,881,000
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		0		0		0
Real estate – multi-family and  residential rental		0		0		0
Total acquired commercial		0		0		0
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total acquired retail		0		0		0
Total acquired loans		0	$	0	$	0

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Total loans
Commercial:
Commercial and industrial		2	$	5,994,000	$	6,094,000
Vacant land, land development and  residential construction		0		0		0
Real estate – owner occupied		2		16,787,000		16,787,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and  residential rental		0		0		0
Total commercial		4		22,781,000		22,881,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total retail		0		0		0
Total loans		4	$	22,781,000	$	22,881,000

Loans modified as troubled debt restructurings during the nine months ended September 30, 2014 were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		2	$	5,994,000	$	6,094,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		17,783,000		17,783,000
Real estate – non-owner occupied		1		146,000		146,000
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		6		23,923,000		24,023,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		6	$	23,923,000	$	24,023,000

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
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		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		0		0		0
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total acquired		0		0		0
Total acquired loans		0	$	0	$	0
Total loans
Commercial:
Commercial and industrial		2	$	5,994,000	$	6,094,000
Vacant land, land development and  residential construction		0		0		0
Real estate – owner occupied		3		17,783,000		17,783,000
Real estate – non-owner occupied		1		146,000		146,000
Real estate – multi-family and residential rental		0		0		0
Total commercial		6		23,923,000		24,023,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total retail		0		0		0
Total loans		6	$	23,923,000	$	24,023,000

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

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
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 originated commercial		5		1,070,000		1,070,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		5	$	1,070,000	$	1,070,000

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

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
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 originated 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 originated retail		1		1,879,000		1,879,000
Total originated loans		14	$	9,233,000	$	9,233,000

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, 2014 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		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, 2014 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		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 three months ended September 30, 2013 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		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, 2013 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		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 originated loans categorized as troubled debt restructurings during the three months ended September 30, 2014 is as follows:

				Commercial									Commercial
				Vacant Land,			Commercial			Commercial			Real Estate -
	Commercial			Land Development,			Real Estate -			Real Estate -			Multi-Family
	and			and Residential			Owner			Non-Owner			and Residential
	Industrial			Construction			Occupied			Occupied			Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,176,000		$	3,786,000		$	2,711,000		$	18,664,000		$	719,000
Charge-Offs		0			0			0			0			0
Payments		(205,000	)		(287,000	)		(91,000	)		(655,000	)		(130,000	)
Transfers to ORE		(21,000	)		0			0			0			0
Net Additions/Deletions		6,315,000			0			16,748,000			0			0
Ending Balance	$	7,265,000		$	3,499,000		$	19,368,000		$	18,009,000		$	589,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	0	$	2,077,000
Charge-Offs		0		0
Payments		0		(51,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	0	$	2,026,000

Activity for originated loans categorized as troubled debt restructurings during the nine months ended September 30, 2014 is as follows:

				Commercial									Commercial
				Vacant Land,			Commercial			Commercial			Real Estate -
	Commercial			Land Development,			Real Estate -			Real Estate -			Multi-Family
	and			and Residential			Owner			Non-Owner			and Residential
	Industrial			Construction			Occupied			Occupied			Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,656,000		$	4,501,000		$	1,816,000		$	22,311,000		$	2,620,000
Charge-Offs		(67,000	)		0			(11,000	)		0			(420,000	)
Payments		(632,000	)		(3,901,000	)		(181,000	)		(4,621,000	)		(1,611,000	)
Transfers to ORE		(21,000	)		0			0			0			0
Net Additions/Deletions		6,329,000			2,899,000			17,744,000			319,000			0
Ending Balance	$	7,265,000		$	3,499,000		$	19,368,000		$	18,009,000		$	589,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	0	$	2,191,000
Charge-Offs		0		0
Payments		0		(165,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	0	$	2,026,000

Activity for originated loans categorized as troubled debt restructurings during the three months ended September 30, 2013 is as follows:

				Commercial									Commercial
				Vacant Land,			Commercial			Commercial			Real Estate -
	Commercial			Land Development,			Real Estate -			Real Estate -			Multi-Family
	and			and Residential			Owner			Non-Owner			and Residential
	Industrial			Construction			Occupied			Occupied			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			Retail
	Home Equity			1-4 Family
	and Other			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 originated loans categorized as troubled debt restructurings during the nine months ended September 30, 2013 is as follows:

				Commercial									Commercial
				Vacant Land,			Commercial			Commercial			Real Estate -
	Commercial			Land Development,			Real Estate -			Real Estate -			Multi-Family
	and			and Residential			Owner			Non-Owner			and Residential
	Industrial			Construction			Occupied			Occupied			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			Retail
	Home Equity			1-4 Family
	and Other			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

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

	September 30,		December 31,
	2014		2013
Commercial:
Commercial and industrial	$	514,000	$	187,000
Vacant land, land development, and residential construction		1,672,000		798,000
Real estate – owner occupied		1,419,000		528,000
Real estate – non-owner occupied		1,773,000		7,828,000
Real estate – multi-family and residential rental		5,855,000		1,010,000
Total commercial		11,233,000		10,351,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total related allowance	$	11,233,000	$	10,351,000

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.