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

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

June 30, 2017

were

$2.53

billion compared to

$2.38

billion at

December 31, 2016,

an increase of

$149

million, or

6.2%.

The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at

June 30, 2017

and

December 31, 2016,

and the percentage change in loans from the end of

2016

to the end of the

second

quarter of

2017,

are as follows:

											Percent
	June 30, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	708,245,000		34.1	%	$	636,771,000		33.8	%		11.2	%
Vacant land, land development, and residential construction		21,654,000		1.0			26,519,000		1.4			(18.3	)
Real estate – owner occupied		411,547,000		19.8			363,509,000		19.3			3.2
Real estate – non-owner occupied		696,499,000		33.5			652,054,000		34.6			6.8
Real estate – multi-family and residential rental		50,185,000		2.4			50,045,000		2.6			0.3
Total commercial		1,888,130,000		90.8			1,728,898,000		91.7			9.2

Retail:
Home equity and other		69,788,000		3.4			69,831,000		3.7			(0.1	)
1-4 family mortgages		120,957,000		5.8			85,819,000		4.6			40.9
Total retail		190,745,000		9.2			155,650,000		8.3			22.5

Total originated loans	$	2,078,875,000		100.0	%	$	1,884,548,000		100.0	%		10.3	%

											Percent
	June 30, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	72,571,000		16.2	%	$	77,132,000		15.6	%		(5.9	%)
Vacant land, land development, and residential construction		7,373,000		1.6			8,309,000		1.7			(11.3	)
Real estate – owner occupied		80,086,000		17.9			86,955,000		17.6			(7.9	)
Real estate – non-owner occupied		86,537,000		19.3			96,215,000		19.5			(10.1	)
Real estate – multi-family and residential rental		63,896,000		14.2			67,838,000		13.7			(5.8	)
Total commercial		310,463,000		69.2			336,449,000		68.1			(7.7	)

Retail:
Home equity and other		38,203,000		8.5			48,216,000		9.8			(20.8	)
1-4 family mortgages		99,740,000		22.3			109,407,000		22.1			(8.8	)
Total retail		137,943,000		30.8			157,623,000		31.9			(12.5	)

Total acquired loans	$	448,406,000		100.0	%	$	494,072,000		100.0	%		(9.2	%)

											Percent
	June 30, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	780,816,000		30.9	%	$	713,903,000		30.0	%		9.4	%
Vacant land, land development, and residential construction		29,027,000		1.1			34,828,000		1.5			(16.7	)
Real estate – owner occupied		491,633,000		19.5			450,464,000		18.9			9.1
Real estate – non-owner occupied		783,036,000		31.0			748,269,000		31.5			4.6
Real estate – multi-family and residential rental		114,081,000		4.5			117,883,000		4.9			(3.2	)
Total commercial		2,198,593,000		87.0			2,065,347,000		86.8			6.5

Retail:
Home equity and other		107,991,000		4.3			118,047,000		5.0			(8.5	)
1-4 family mortgages		220,697,000		8.7			195,226,000		8.2			13.0
Total retail		328,688,000		13.0			313,273,000		13.2			4.9

Total loans	$	2,527,281,000		100.0	%	$	2,378,620,000		100.0	%		6.2	%

The total contractually required payments due on and carrying value of acquired impaired loans were

$13.9

million and

$5.7

million, respectively, as of

June 30, 2017.

The total contractually required payments due on and carrying value of acquired impaired loans were

$15.5

million and

$6.2

million, respectively, as of

December 31, 2016.

Changes in the accretable yield for acquired impaired loans for the

three

and

six

months ended

June 30, 2017

and

June 30, 2016

were as follows:

Balance at March 31, 2017	$	1,464,000
Additions		220,000
Accretion income		(140,000	)
Net reclassification from nonaccretable to accretable		184,000
Reductions (1)		(70,000	)

Balance at June 30, 2017	$	1,658,000


Balance at December 31, 2016	$	1,726,000
Additions		221,000
Accretion income		(287,000	)
Net reclassification from nonaccretable to accretable		247,000
Reductions (1)		(249,000	)

Balance at June 30, 2017	$	1,658,000


Balance at March 31, 2016	$	6,319,000
Additions		0
Accretion income		(674,000	)
Net reclassification from nonaccretable to accretable		1,193,000
Reductions (1)		(236,000	)

Balance at June 30, 2016	$	6,602,000


Balance at December 31, 2015	$	5,193,000
Additions		21,000
Accretion income		(1,354,000	)
Net reclassification from nonaccretable to accretable		3,565,000
Reductions (1)		(823,000	)

Balance at June 30, 2016	$	6,602,000

(

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

Nonperforming originated loans as of

June 30, 2017

and

December 31, 2016

were as follows:

	June 30, 2017		December 31, 2016

Loans past due 90 days or more still accruing interest	$	61,000	$	0
Nonaccrual loans		3,287,000		3,328,000

Total nonperforming originated loans	$	3,348,000	$	3,328,000

Nonperforming acquired loans as of

June 30, 2017

and

December 31, 2016

were as follows:

	June 30, 2017		December 31, 2016

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		3,102,000		2,611,000

Total nonperforming acquired loans	$	3,102,000	$	2,611,000

The recorded principal balance of nonperforming loans was as follows:

	June 30, 2017		December 31, 2016
Commercial:
Commercial and industrial	$	2,069,000	$	2,296,000
Vacant land, land development, and residential construction		65,000		95,000
Real estate – owner occupied		973,000		285,000
Real estate – non-owner occupied		47,000		488,000
Real estate – multi-family and residential rental		164,000		17,000
Total commercial		3,318,000		3,181,000

Retail:
Home equity and other		507,000		496,000
1-4 family mortgages		2,625,000		2,262,000
Total retail		3,132,000		2,758,000

Total nonperforming loans	$	6,450,000	$	5,939,000

Acquired impaired loans are generally

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

June 30, 2017:

	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	$	225,000	$	0	$	1,225,000	$	1,450,000	$	706,795,000	$	708,245,000	$	49,000
Vacant land, land development, and residential construction		0		0		0		0		21,654,000		21,654,000		0
Real estate – owner occupied		0		0		0		0		411,547,000		411,547,000		0
Real estate – non-owner occupied		0		0		0		0		696,499,000		696,499,000		0
Real estate – multi-family and residential rental		0		0		0		0		50,185,000		50,185,000		0
Total commercial		225,000		0		1,225,000		1,450,000		1,886,680,000		1,888,130,000		49,000

Retail:
Home equity and other		60,000		5,000		12,000		77,000		69,711,000		69,788,000		12,000
1-4 family mortgages		0		0		209,000		209,000		120,748,000		120,957,000		0
Total retail		60,000		5,000		221,000		286,000		190,459,000		190,745,000		12,000

Total past due loans	$	285,000	$	5,000	$	1,446,000	$	1,736,000	$	2,077,139,000	$	2,078,875,000	$	61,000

	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	$	18,000	$	41,000	$	59,000	$	72,512,000	$	72,571,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		7,373,000		7,373,000		0
Real estate – owner occupied		164,000		0		38,000		202,000		79,884,000		80,086,000		0
Real estate – non-owner occupied		0		0		0		0		86,537,000		86,537,000		0
Real estate – multi-family and residential rental		16,000		63,000		11,000		90,000		63,806,000		63,896,000		0
Total commercial		180,000		81,000		90,000		351,000		310,112,000		310,463,000		0

Retail:
Home equity and other		258,000		67,000		21,000		346,000		37,857,000		38,203,000		0
1-4 family mortgages		860,000		267,000		940,000		2,067,000		97,673,000		99,740,000		0
Total retail		1,118,000		334,000		961,000		2,413,000		135,530,000		137,943,000		0

Total past due loans	$	1,298,000	$	415,000	$	1,051,000	$	2,764,000	$	445,642,000	$	448,406,000	$	0

An age analysis of past due loans is as follows as of

December 31, 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	$	0	$	27,000	$	0	$	27,000	$	636,744,000	$	636,771,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		26,519,000		26,519,000		0
Real estate – owner occupied		0		0		0		0		363,509,000		363,509,000		0
Real estate – non-owner occupied		0		0		0		0		652,054,000		652,054,000		0
Real estate – multi-family and residential rental		0		0		0		0		50,045,000		50,045,000		0
Total commercial		0		27,000		0		27,000		1,728,871,000		1,728,898,000		0

Retail:
Home equity and other		46,000		98,000		0		144,000		69,687,000		69,831,000		0
1-4 family mortgages		758,000		122,000		337,000		1,217,000		84,602,000		85,819,000		0
Total retail		804,000		220,000		337,000		1,361,000		154,289,000		155,650,000		0

Total past due loans	$	804,000	$	247,000	$	337,000	$	1,388,000	$	1,883,160,000	$	1,884,548,000	$	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	$	11,000	$	16,000	$	27,000	$	77,105,000	$	77,132,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,309,000		8,309,000		0
Real estate – owner occupied		62,000		0		50,000		112,000		86,843,000		86,955,000		0
Real estate – non-owner occupied		0		0		353,000		353,000		95,862,000		96,215,000		0
Real estate – multi-family and residential rental		0		0		17,000		17,000		67,821,000		67,838,000		0
Total commercial		62,000		11,000		436,000		509,000		335,940,000		336,449,000		0

Retail:
Home equity and other		258,000		26,000		45,000		329,000		47,887,000		48,216,000		0
1-4 family mortgages		1,255,000		467,000		439,000		2,161,000		107,246,000		109,407,000		0
Total retail		1,513,000		493,000		484,000		2,490,000		155,133,000		157,623,000		0

Total past due loans	$	1,575,000	$	504,000	$	920,000	$	2,999,000	$	491,073,000	$	494,072,000	$	0

Impaired originated loans as of

June 30, 2017,

and average originated impaired loans for the

three

and

six

months ended

June 30, 2017,

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	$	796,000	$	42,000		$	861,000	$	1,073,000
Vacant land, land development and residential construction		471,000		65,000			73,000		80,000
Real estate – owner occupied		324,000		318,000			272,000		181,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			132,000		131,000
Total commercial		1,591,000		425,000			1,338,000		1,465,000
Retail:
Home equity and other		693,000		681,000			531,000		392,000
1-4 family mortgages		1,281,000		625,000			647,000		641,000
Total retail		1,974,000		1,306,000			1,178,000		1,033,000

Total with no related allowance recorded	$	3,565,000	$	1,731,000		$	2,516,000	$	2,498,000

	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	$	4,180,000	$	4,170,000	$	1,655,000	$	3,584,000	$	3,183,000
Vacant land, land development and residential construction		499,000		499,000		12,000		499,000		665,000
Real estate – owner occupied		1,836,000		1,830,000		269,000		1,606,000		1,373,000
Real estate – non-owner occupied		489,000		489,000		4,000		2,479,000		3,326,000
Real estate – multi-family and residential rental		576,000		576,000		104,000		519,000		693,000
Total commercial		7,580,000		7,564,000		2,044,000		8,687,000		9,240,000
Retail:
Home equity and other		1,022,000		1,004,000		738,000		993,000		799,000
1-4 family mortgages		165,000		114,000		17,000		115,000		129,000
Total retail		1,187,000		1,118,000		755,000		1,108,000		928,000

Total with an allowance recorded	$	8,767,000	$	8,682,000	$	2,799,000	$	9,795,000	$	10,168,000

Total impaired loans:
Commercial	$	9,171,000	$	7,989,000	$	2,044,000	$	10,025,000	$	10,705,000
Retail		3,161,000		2,424,000		755,000		2,286,000		1,961,000
Total impaired loans	$	12,332,000	$	10,413,000	$	2,799,000	$	12,311,000	$	12,666,000

Impaired acquired loans as of

June 30, 2017,

and average impaired acquired loans for the

three

and

six

months ended

June 30, 2017,

were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Second Quarter Average Recorded Principal Balance		Year-To-Date Average Recorded Principal Balance

With no related allowance recorded
Commercial:
Commercial and industrial	$	1,348,000	$	1,335,000		$	1,146,000	$	1,040,000
Vacant land, land development and residential construction		33,000		33,000			17,000		11,000
Real estate – owner occupied		1,163,000		1,158,000			1,125,000		1,153,000
Real estate – non-owner occupied		962,000		962,000			837,000		821,000
Real estate – multi-family and residential rental		226,000		211,000			221,000		177,000
Total commercial		3,732,000		3,699,000			3,346,000		3,202,000
Retail:
Home equity and other		584,000		410,000			366,000		361,000
1-4 family mortgages		2,357,000		1,927,000			1,811,000		1,750,000
Total retail		2,941,000		2,337,000			2,177,000		2,111,000

Total with no related allowance recorded	$	6,673,000	$	6,036,000		$	5,523,000	$	5,313,000

	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	$	12,000	$	12,000	$	1,000	$	15,000	$	16,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		47,000		47,000		3,000		47,000		48,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		59,000		59,000		4,000		62,000		64,000
Retail:
Home equity and other		0		0		0		0		0
1-4 family mortgages		171,000		171,000		4,000		171,000		171,000
Total retail		171,000		171,000		4,000		171,000		171,000

Total with an allowance recorded	$	230,000	$	230,000	$	8,000	$	233,000	$	235,000

Total impaired loans:
Commercial	$	3,791,000	$	3,758,000	$	4,000	$	3,408,000	$	3,266,000
Retail		3,112,000		2,508,000		4,000		2,348,000		2,282,000
Total impaired loans	$	6,903,000	$	6,266,000	$	8,000	$	5,756,000	$	5,548,000

Impaired originated loans as of

December 31, 2016,

and average impaired originated loans for the

three

and

six

months ended

June 30, 2016,

were as follows:

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance	Second Quarter Average Recorded Principal Balance		Year-To-Date Average Recorded Principal Balance

With no related allowance recorded
Commercial:
Commercial and industrial	$	1,498,000	$	1,498,000		$	2,017,000	$	1,845,000
Vacant land, land development and residential construction		487,000		95,000			0		0
Real estate – owner occupied		0		0			160,000		275,000
Real estate – non-owner occupied		0		0			5,641,000		5,660,000
Real estate – multi-family and residential rental		130,000		130,000			0		0
Total commercial		2,115,000		1,723,000			7,818,000		7,780,000
Retail:
Home equity and other		114,000		114,000			65,000		45,000
1-4 family mortgages		1,270,000		630,000			621,000		633,000
Total retail		1,384,000		744,000			686,000		678,000

Total with no related allowance recorded	$	3,499,000	$	2,467,000		$	8,504,000	$	8,458,000

	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	$	2,405,000	$	2,382,000	$	673,000	$	217,000	$	246,000
Vacant land, land development and residential construction		999,000		999,000		28,000		1,633,000		1,640,000
Real estate – owner occupied		906,000		906,000		97,000		1,339,000		1,331,000
Real estate – non-owner occupied		5,020,000		5,020,000		247,000		4,729,000		4,766,000
Real estate – multi-family and residential rental		1,040,000		1,040,000		258,000		993,000		1,004,000
Total commercial		10,370,000		10,347,000		1,303,000		8,911,000		8,987,000
Retail:
Home equity and other		434,000		412,000		203,000		491,000		515,000
1-4 family mortgages		204,000		157,000		66,000		145,000		139,000
Total retail		638,000		569,000		269,000		636,000		654,000

Total with an allowance recorded	$	11,008,000	$	10,916,000	$	1,572,000	$	9,547,000	$	9,641,000

Total impaired loans:
Commercial	$	12,485,000	$	12,070,000	$	1,303,000	$	16,729,000	$	16,767,000
Retail		2,022,000		1,313,000		269,000		1,322,000		1,332,000
Total impaired loans	$	14,507,000	$	13,383,000	$	1,572,000	$	18,051,000	$	18,099,000

Impaired acquired loans as of

December 31, 2016,

and average impaired acquired loans for the

three

and

six

months ended

June 30, 2016,

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	$	853,000	$	826,000		$	1,556,000	$	1,535,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		1,281,000		1,210,000			1,485,000		1,640,000
Real estate – non-owner occupied		928,000		789,000			792,000		821,000
Real estate – multi-family and residential rental		152,000		89,000			289,000		327,000
Total commercial		3,214,000		2,914,000			4,122,000		4,323,000
Retail:
Home equity and other		531,000		351,000			321,000		317,000
1-4 family mortgages		2,081,000		1,629,000			1,290,000		1,376,000
Total retail		2,612,000		1,980,000			1,611,000		1,693,000

Total with no related allowance recorded	$	5,826,000	$	4,894,000		$	5,733,000	$	6,016,000

	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	$	19,000	$	19,000	$	2,000	$	367,000	$	370,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		50,000		50,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		20,000		21,000
Total commercial		67,000		67,000		5,000		437,000		441,000
Retail:
Home equity and other		0		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		87,000		116,000
Total retail		172,000		172,000		4,000		87,000		116,000

Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	524,000	$	557,000

Total impaired loans:
Commercial	$	3,281,000	$	2,981,000	$	5,000	$	4,559,000	$	4,764,000
Retail		2,784,000		2,152,000		4,000		1,698,000		1,809,000
Total impaired loans	$	6,065,000	$	5,133,000	$	9,000	$	6,257,000	$	6,573,000

Impaired loans for which

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

$0.2

million during the

second

quarter of

2017

and

2016,

and

$0.3

million and

$0.5

million during the

first

six

months of

2017

and

2016,

respectively.

interest income was recognized on nonaccrual loans during the

second

quarter and

first

six

months of

2017

or during the respective

2016

periods. Lost interest income on nonaccrual loans totaled less than

$0.1

million during the

second

quarter of

2017

and

$0.1

million during the

first

six

months of

2017.

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 delinquency.

Credit quality indicators were as follows as of

June 30, 2017:

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	$	549,751,000	$	13,016,000	$	313,717,000	$	566,790,000	$	33,029,000
Grades 5 – 7		153,968,000		8,573,000		96,084,000		129,709,000		16,580,000
Grades 8 – 9		4,526,000		65,000		1,746,000		0		576,000
Total commercial	$	708,245,000	$	21,654,000	$	411,547,000	$	696,499,000	$	50,185,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	69,788,000	$	120,957,000

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	$	40,597,000	$	1,649,000	$	33,119,000	$	51,489,000	$	38,027,000
Grades 5 – 7		30,471,000		5,562,000		45,415,000		34,048,000		25,658,000
Grades 8 – 9		1,503,000		162,000		1,552,000		1,000,000		211,000
Total commercial	$	72,571,000	$	7,373,000	$	80,086,000	$	86,537,000	$	63,896,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	38,203,000	$	99,740,000

Credit quality indicators were as follows as of

December 31, 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	$	440,219,000	$	16,378,000	$	238,890,000	$	542,294,000	$	29,793,000
Grades 5 – 7		190,170,000		10,046,000		123,517,000		109,304,000		19,082,000
Grades 8 – 9		6,382,000		95,000		1,102,000		456,000		1,170,000
Total commercial	$	636,771,000	$	26,519,000	$	363,509,000	$	652,054,000	$	50,045,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	69,831,000	$	85,819,000

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	$	40,911,000	$	1,887,000	$	36,246,000	$	57,671,000	$	39,574,000
Grades 5 – 7		35,233,000		6,164,000		49,255,000		37,040,000		28,015,000
Grades 8 – 9		988,000		258,000		1,454,000		1,504,000		249,000
Total commercial	$	77,132,000	$	8,309,000	$	86,955,000	$	96,215,000	$	67,838,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	48,216,000	$	109,407,000

All commercial loans are graded using the following criteria:

Grade

Excellent credit rating that contain very little, if any, risk of loss.

Grade

Strong sources of repayment and have low repayment risk.

Grade

Good sources of repayment and have limited repayment risk.

Grade

Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event.

Grade

Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics.

Grade

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

Defined weaknesses or negative trends that merit close monitoring through Watch List status.

Grade

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

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

six

months ended

June 30, 2017

are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at March 31, 2017	$	15,671,000		$	2,365,000		$	90,000		$	18,126,000
Provision for loan losses		372,000			121,000			69,000			562,000
Charge-offs		(1,006,000	)		(144,000	)		0			(1,150,000	)
Recoveries		326,000			91,000			0			417,000
Ending balance	$	15,363,000		$	2,433,000		$	159,000		$	17,955,000


Allowance for loan losses:
Balance at December 31, 2016	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		147,000			764,000			199,000			1,110,000
Charge-offs		(1,231,000	)		(364,000	)		0			(1,595,000	)
Recoveries		421,000			151,000			0			572,000
Ending balance	$	15,363,000		$	2,433,000		$	159,000		$	17,955,000

Ending balance: individually evaluated for impairment	$	2,044,000		$	755,000		$	0		$	2,799,000

Ending balance: collectively evaluated for impairment	$	13,319,000		$	1,678,000		$	159,000		$	15,156,000


Total loans:
Ending balance	$	1,888,130,000		$	190,745,000					$	2,078,875,000

Ending balance: individually evaluated for impairment	$	7,989,000		$	2,424,000					$	10,413,000

Ending balance: collectively evaluated for impairment	$	1,880,141,000		$	188,321,000					$	2,068,462,000

Activity in the allowance for loan losses for acquired loans during the

three

and

six

months ended

June 30, 2017

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at March 31, 2017	$	125,000		$	25,000		$	0	$	150,000
Provision for loan losses		197,000			(9,000	)		0		188,000
Charge-offs		0			0			0		0
Recoveries		2,000			0			0		2,000
Ending balance	$	324,000		$	16,000		$	0	$	340,000


Allowance for loan losses:
Balance at December 31, 2016	$	75,000		$	18,000		$	0	$	93,000
Provision for loan losses		242,000			(2,000	)		0		240,000
Charge-offs		(11,000	)		0			0		(11,000	)
Recoveries		18,000			0			0		18,000
Ending balance	$	324,000		$	16,000		$	0	$	340,000

Activity in the allowance for loan losses for originated loans during the

three

and

six

months ended

June 30, 2016

and the recorded investments in originated loans as of

December 31, 2016

are as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at March 31, 2016	$	13,924,000		$	1,834,000		$	214,000	$	15,972,000
Provision for loan losses		842,000			296,000			20,000		1,158,000
Charge-offs		(166,000	)		(231,000	)		0		(397,000	)
Recoveries		129,000			14,000			0		143,000
Ending balance	$	14,729,000		$	1,913,000		$	234,000	$	16,876,000


Allowance for loan losses:
Balance at December 31, 2015	$	13,672,000		$	1,421,000		$	140,000	$	15,233,000
Provision for loan losses		936,000			799,000			94,000		1,829,000
Charge-offs		(255,000	)		(617,000	)		0		(872,000	)
Recoveries		376,000			310,000			0		686,000
Ending balance	$	14,729,000		$	1,913,000		$	234,000	$	16,876,000

Ending balance: individually evaluated for impairment	$	827,000		$	209,000		$	0	$	1,036,000

Ending balance: collectively evaluated for impairment	$	13,902,000		$	1,704,000		$	234,000	$	15,840,000


Total loans:
Ending balance	$	1,728,898,000		$	155,650,000				$	1,884,548,000

Ending balance: individually evaluated for impairment	$	12,070,000		$	1,313,000				$	13,383,000

Ending balance: collectively evaluated for impairment	$	1,716,828,000		$	154,337,000				$	1,871,165,000

Activity in the allowance for loan losses for acquired loans during the

three

and

six

months ended

June 30, 2016

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at March 31, 2016	$	266,000		$	24,000		$	0	$	290,000
Provision for loan losses		(57,000	)		(1,000	)		0		(58,000	)
Charge-offs		0			0			0		0
Recoveries		2,000			0			0		2,000
Ending balance	$	211,000		$	23,000		$	0	$	234,000


Allowance for loan losses:
Balance at December 31, 2015	$	420,000		$	28,000		$	0	$	448,000
Provision for loan losses		(167,000	)		38,000			0		(129,000	)
Charge-offs		0			0			0		0
Recoveries		(42,000	)		(43,000	)		0		(85,000	)
Ending balance	$	211,000		$	23,000		$	0	$	234,000

The negative loan recoveries reflected for acquired loans during the

first

six

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.

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

June 30, 2017

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		6	$	2,752,000	$	2,931,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		818,000		818,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		3,570,000		3,749,000

Retail:
Home equity and other		2		260,000		261,000
1-4 family mortgages		0		0		0
Total originated retail		2		260,000		261,000

Total originated loans		11	$	3,830,000	$	4,010,000

Acquired loans
Commercial:
Commercial and industrial		1	$	118,000	$	117,000
Vacant land, land development and residential construction		1		38,000		38,000
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		1		680,000		680,000
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		3		836,000		835,000

Retail:
Home equity and other		3		160,000		161,000
1-4 family mortgages		1		77,000		77,000
Total acquired retail		4		237,000		238,000

Total acquired loans		7	$	1,073,000	$	1,073,000

Loans modified as troubled debt restructurings during the

six

months ended

June 30, 2017

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		6	$	2,752,000	$	2,931,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		3		818,000		818,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		3,570,000		3,749,000

Retail:
Home equity and other		6		589,000		590,000
1-4 family mortgages		0		0		0
Total originated retail		6		589,000		590,000

Total originated loans		15	$	4,159,000	$	4,339,000

Acquired loans
Commercial:
Commercial and industrial		1	$	118,000	$	117,000
Vacant land, land development and residential construction		1		38,000		38,000
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		1		680,000		680,000
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		3		836,000		835,000

Retail:
Home equity and other		5		166,000		168,000
1-4 family mortgages		2		134,000		134,000
Total acquired retail		7		300,000		302,000

Total acquired loans		10	$	1,136,000	$	1,137,000

Loans modified as troubled debt restructurings during the

three

months ended

June 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		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		1		167,000		167,000

Retail:
Home equity and other		2		184,000		184,000
1-4 family mortgages		1		33,000		40,000
Total originated retail		3		217,000		224,000

Total originated loans		4	$	384,000	$	391,000

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		1		60,000		60,000
Real estate – multi-family and residential rental		1		7,000		7,000
Total acquired commercial		2		67,000		67,000

Retail:
Home equity and other		1		25,000		25,000
1-4 family mortgages		0		0		0
Total acquired retail		1		25,000		25,000

Total acquired loans		3	$	92,000	$	92,000

Loans modified as troubled debt restructurings during the

six

months ended

June 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		2		184,000		184,000
1-4 family mortgages		1		33,000		40,000
Total originated retail		3		217,000		224,000

Total originated loans		5	$	404,000	$	411,000

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		1		60,000		60,000
Real estate – multi-family and residential rental		1		7,000		7,000
Total acquired commercial		2		67,000		67,000

Retail:
Home equity and other		2		51,000		51,000
1-4 family mortgages		1		19,000		19,000
Total acquired retail		3		70,000		70,000

Total acquired loans		5	$	137,000	$	137,000

The following originated loans, modified as troubled debt restructurings within the previous

twelve

months, became over

days past due within the

three

months ended

June 30, 2017 (

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

days past due within the

six

months ended

June 30, 2017 (

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

days past due within the

three

months ended

June 30, 2017 (

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

days past due within the

six

months ended

June 30, 2017 (

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

days past due within the

three

months ended

June 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

days past due within the

six

months ended

June 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

days past due within the

three

months ended

June 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		1		22,000
Total commercial		1		22,000

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

Total		1	$	22,000

The following acquired loans, modified as troubled debt restructurings within the previous

twelve

months, became over

days past due within the

six

months ended

June 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		1		22,000
Total commercial		1		22,000

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

Total		1	$	22,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

June 30, 2017

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	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000
Charge-Offs		0			0			0			0			0
Payments		(1,537,000	)		(25,000	)		(25,000	)		(20,000	)		(160,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		2,775,000			0			804,000			(3,967,000	)		0
Ending Balance	$	2,775,000		$	934,000		$	1,658,000		$	564,000		$	131,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	706,000		$	154,000
Charge-Offs		0			0
Payments		(55,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		399,000			0
Ending Balance	$	1,050,000		$	151,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

June 30, 2017

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	$	922,000		$	0	$	996,000		$	583,000		$	68,000
Charge-Offs		0			0		0			0			0
Payments		(46,000	)		0		(16,000	)		(39,000	)		(5,000	)
Transfers to ORE		0			0		0			(291,000	)		0
Net Additions/Deletions		116,000			33,000		0			661,000			0
Ending Balance	$	992,000		$	33,000	$	980,000		$	914,000		$	63,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	206,000		$	376,000
Charge-Offs		(25,000	)		0
Payments		(32,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		53,000			137,000
Ending Balance	$	202,000		$	510,000

Activity for originated loans categorized as troubled debt restructurings during the

six

months ended

June 30, 2017

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	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(1,662,000	)		(554,000	)		(52,000	)		(143,000	)		(273,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		2,934,000			0			804,000			(4,403,000	)		(312,000	)
Ending Balance	$	2,775,000		$	934,000		$	1,658,000		$	564,000		$	131,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000		$	157,000
Charge-Offs		0			0
Payments		(55,000	)		(6,000	)
Transfers to ORE		0			0
Net Additions/Deletions		720,000			0
Ending Balance	$	1,050,000		$	151,000

Activity for acquired loans categorized as troubled debt restructurings during the

six

months ended

June 30, 2017

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	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(279,000	)		0		(16,000	)		(184,000	)		(5,000	)
Transfers to ORE		0			0		0			(291,000	)		0
Net Additions/Deletions		146,000			33,000		108,000			661,000			8,000
Ending Balance	$	992,000		$	33,000	$	980,000		$	914,000		$	63,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		(25,000	)		0
Payments		(41,000	)		(7,000	)
Transfers to ORE		0			0
Net Additions/Deletions		60,000			191,000
Ending Balance	$	202,000		$	510,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

June 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	$	1,946,000	$	2,062,000		$	1,369,000		$	10,529,000		$	469,000
Charge-Offs		0		0			0			0			0
Payments		0		(26,000	)		(35,000	)		(94,000	)		(8,000	)
Transfers to ORE		0		0			0			0			0
Net Additions/Deletions		157,000		0			97,000			0			0
Ending Balance	$	2,103,000	$	2,036,000		$	1,431,000		$	10,435,000		$	461,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	146,000		$	126,000
Charge-Offs		0			0
Payments		(1,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		184,000			40,000
Ending Balance	$	329,000		$	163,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

June 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	$	1,687,000		$	0	$	1,455,000		$	637,000		$	278,000
Charge-Offs		0			0		0			0			0
Payments		(43,000	)		0		(172,000	)		(12,000	)		(11,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		0			56,000			7,000
Ending Balance	$	1,644,000		$	0	$	1,283,000		$	681,000		$	274,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	161,000		$	335,000
Charge-Offs		0			0
Payments		(7,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		26,000			0
Ending Balance	$	180,000		$	333,000

Activity for originated loans categorized as troubled debt restructurings during the

six

months ended

June 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		(101,000	)		(50,000	)		(66,000	)		(222,000	)		(15,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		176,000			0			97,000			0			0
Ending Balance	$	2,103,000		$	2,036,000		$	1,431,000		$	10,435,000		$	461,000

	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	)		(5,000	)
Transfers to ORE		0			0
Net Additions/Deletions		184,000			40,000
Ending Balance	$	329,000		$	163,000

Activity for acquired loans categorized as troubled debt restructurings during the

six

months ended

June 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		(43,000	)		0		(369,000	)		(22,000	)		(64,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		49,000			0		0			56,000			7,000
Ending Balance	$	1,644,000		$	0	$	1,283,000		$	681,000		$	274,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	141,000		$	316,000
Charge-Offs		0			0
Payments		(14,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		53,000			20,000
Ending Balance	$	180,000		$	333,000

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

	June 30, 2017		December 31, 2016

Commercial:
Commercial and industrial	$	155,000	$	9,000
Vacant land, land development, and residential construction		12,000		28,000
Real estate – owner occupied		164,000		100,000
Real estate – non-owner occupied		4,000		247,000
Real estate – multi-family and residential rental		104,000		258,000
Total commercial		439,000		642,000

Retail:
Home equity and other		101,000		48,000
1-4 family mortgages		4,000		4,000
Total retail		105,000		52,000

Total related allowance	$	544,000	$	694,000

In general, our policy dictates that a renewal or modification of an

- or

-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

contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated

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

- or

-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.