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

September 30, 2019

were

$2.93

billion compared to

$2.75

billion at

December 31, 2018,

an increase of

$180

million, or

6.5%.

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

September 30, 2019

and

December 31, 2018,

and the percentage change in loans from the end of

2018

to the end of the

third

quarter of

2019,

are as follows:

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	848,659,000		31.5	%	$	768,698,000		31.3	%		10.4	%
Vacant land, land development, and residential construction		44,016,000		1.6			39,950,000		1.6			10.2
Real estate – owner occupied		527,580,000		19.6			500,188,000		20.4			5.5
Real estate – non-owner occupied		819,743,000		30.5			745,127,000		30.4			10.0
Real estate – multi-family and residential rental		101,799,000		3.8			98,035,000		4.0			3.8
Total commercial		2,341,797,000		87.0			2,151,998,000		87.7			8.8

Retail:
Home equity and other		63,026,000		2.4			65,023,000		2.7			(3.1	)
1-4 family mortgages		285,354,000		10.6			235,425,000		9.6			21.2
Total retail		348,380,000		13.0			300,448,000		12.3			16.0

Total originated loans	$	2,690,177,000		100.0	%	$	2,452,446,000		100.0	%		9.7	%

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	34,089,000		14.1	%	$	54,025,000		18.0	%		(36.9	%)
Vacant land, land development, and residential construction		4,401,000		1.8			4,935,000		1.6			(10.8	)
Real estate – owner occupied		39,687,000		16.3			48,431,000		16.1			(18.1	)
Real estate – non-owner occupied		63,337,000		26.1			71,155,000		23.7			(11.0	)
Real estate – multi-family and residential rental		25,056,000		10.3			29,562,000		9.8			(15.2	)
Total commercial		166,570,000		68.6			208,108,000		69.2			(20.0	)

Retail:
Home equity and other		15,526,000		6.4			20,416,000		6.8			(24.0	)
1-4 family mortgages		60,740,000		25.0			72,115,000		24.0			(15.8	)
Total retail		76,266,000		31.4			92,531,000		30.8			(17.6	)

Total acquired loans	$	242,836,000		100.0	%	$	300,639,000		100.0	%		(19.2	%)

											Percent
	September 30, 2019					December 31, 2018					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	882,748,000		30.1	%	$	822,723,000		29.9	%		7.3	%
Vacant land, land development, and residential construction		48,417,000		1.7			44,885,000		1.6			7.9
Real estate – owner occupied		567,267,000		19.3			548,619,000		19.9			3.4
Real estate – non-owner occupied		883,080,000		30.1			816,282,000		29.7			8.2
Real estate – multi-family and residential rental		126,855,000		4.3			127,597,000		4.6			(0.6	)
Total commercial		2,508,367,000		85.5			2,360,106,000		85.7			6.3

Retail:
Home equity and other		78,552,000		2.7			85,439,000		3.1			(8.1	)
1-4 family mortgages		346,094,000		11.8			307,540,000		11.2			12.5
Total retail		424,646,000		14.5			392,979,000		14.3			8.1

Total loans	$	2,933,013,000		100.0	%	$	2,753,085,000		100.0	%		6.5	%

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

$6.2

million and

$3.6

million, respectively, as of

September 30, 2019.

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

$8.0

million and

$4.6

million, respectively, as of

December 31, 2018.

Changes in the accretable yield for acquired impaired loans for the

three

and

nine

months ended

September 30, 2019

and

September 30, 2018

were as follows:

Balance at June 30, 2019	$	1,236,000
Additions		0
Accretion income		(90,000	)
Net reclassification from nonaccretable to accretable		230,000
Reductions (1)		(57,000	)

Balance at September 30, 2019	$	1,319,000


Balance at December 31, 2018	$	1,274,000
Additions		9,000
Accretion income		(315,000	)
Net reclassification from nonaccretable to accretable		435,000
Reductions (1)		(84,000	)

Balance at September 30, 2019	$	1,319,000


Balance at June 30, 2018	$	1,247,000
Additions		0
Accretion income		(118,000	)
Net reclassification from nonaccretable to accretable		118,000
Reductions (1)		(2,000	)

Balance at September 30, 2018	$	1,245,000


Balance at December 31, 2017	$	1,404,000
Additions		0
Accretion income		(372,000	)
Net reclassification from nonaccretable to accretable		289,000
Reductions (1)		(76,000	)

Balance at September 30, 2018	$	1,245,000

(

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

Nonperforming originated loans as of

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019		December 31, 2018

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		753,000		803,000

Total nonperforming originated loans	$	753,000	$	803,000

Nonperforming acquired loans as of

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019		December 31, 2018

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		1,891,000		3,338,000

Total nonperforming acquired loans	$	1,891,000	$	3,338,000

The recorded principal balance of all nonperforming loans was as follows:

	September 30, 2019		December 31, 2018
Commercial:
Commercial and industrial	$	0	$	17,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		183,000		950,000
Real estate – non-owner occupied		25,000		0
Real estate – multi-family and residential rental		3,000		141,000
Total commercial		211,000		1,108,000

Retail:
Home equity and other		279,000		454,000
1-4 family mortgages		2,154,000		2,579,000
Total retail		2,433,000		3,033,000

Total nonperforming loans	$	2,644,000	$	4,141,000

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

September 30, 2019:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	0	$	0	$	0	$	848,659,000	$	848,659,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		44,016,000		44,016,000		0
Real estate – owner occupied		0		0		183,000		183,000		527,397,000		527,580,000		0
Real estate – non-owner occupied		0		0		0		0		819,743,000		819,743,000		0
Real estate – multi-family and residential rental		0		0		0		0		101,799,000		101,799,000		0
Total commercial		0		0		183,000		183,000		2,341,614,000		2,341,797,000		0

Retail:
Home equity and other		75,000		0		0		75,000		62,951,000		63,026,000		0
1-4 family mortgages		10,000		0		100,000		110,000		285,244,000		285,354,000		0
Total retail		85,000		0		100,000		185,000		348,195,000		348,380,000		0

Total past due loans	$	85,000	$	0	$	283,000	$	368,000	$	2,689,809,000	$	2,690,177,000	$	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	$	0	$	0	$	0	$	34,089,000	$	34,089,000	$	0
Vacant land, land development, and residential construction		24,000		0		0		24,000		4,377,000		4,401,000		0
Real estate – owner occupied		0		0		0		0		39,687,000		39,687,000		0
Real estate – non-owner occupied		0		0		26,000		26,000		63,311,000		63,337,000		0
Real estate – multi-family and residential rental		1,000		0		0		1,000		25,055,000		25,056,000		0
Total commercial		25,000		0		26,000		51,000		166,519,000		166,570,000		0

Retail:
Home equity and other		124,000		1,000		32,000		157,000		15,369,000		15,526,000		0
1-4 family mortgages		310,000		299,000		387,000		996,000		59,744,000		60,740,000		0
Total retail		434,000		300,000		419,000		1,153,000		75,113,000		76,266,000		0

Total past due loans	$	459,000	$	300,000	$	445,000	$	1,204,000	$	241,632,000	$	242,836,000	$	0

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

December 31, 2018:

	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	$	186,000	$	0	$	0	$	186,000	$	768,512,000	$	768,698,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		39,950,000		39,950,000		0
Real estate – owner occupied		0		0		0		0		500,188,000		500,188,000		0
Real estate – non-owner occupied		0		0		0		0		745,127,000		745,127,000		0
Real estate – multi-family and residential rental		0		0		0		0		98,035,000		98,035,000		0
Total commercial		186,000		0		0		186,000		2,151,812,000		2,151,998,000		0

Retail:
Home equity and other		44,000		0		0		44,000		64,979,000		65,023,000		0
1-4 family mortgages		291,000		0		137,000		428,000		234,997,000		235,425,000		0
Total retail		335,000		0		137,000		472,000		299,976,000		300,448,000		0

Total past due loans	$	521,000	$	0	$	137,000	$	658,000	$	2,451,788,000	$	2,452,446,000	$	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	$	8,000	$	0	$	0	$	8,000	$	54,017,000	$	54,025,000	$	0
Vacant land, land development, and residential construction		19,000		0		0		19,000		4,916,000		4,935,000		0
Real estate – owner occupied		108,000		950,000		0		1,058,000		47,373,000		48,431,000		0
Real estate – non-owner occupied		62,000		0		0		62,000		71,093,000		71,155,000		0
Real estate – multi-family and residential rental		0		0		0		0		29,562,000		29,562,000		0
Total commercial		197,000		950,000		0		1,147,000		206,961,000		208,108,000		0

Retail:
Home equity and other		167,000		31,000		0		198,000		20,218,000		20,416,000		0
1-4 family mortgages		821,000		347,000		612,000		1,780,000		70,335,000		72,115,000		0
Total retail		988,000		378,000		612,000		1,978,000		90,553,000		92,531,000		0

Total past due loans	$	1,185,000	$	1,328,000	$	612,000	$	3,125,000	$	297,514,000	$	300,639,000	$	0

Impaired originated loans as of

September 30, 2019,

and average originated impaired loans for the

three

and

nine

months ended

September 30, 2019,

were as follows:

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

With no related allowance recorded
Commercial:
Commercial and industrial	$	20,280,000	$	20,280,000		$	15,144,000	$	12,117,000
Vacant land, land development and residential construction		87,000		87,000			88,000		90,000
Real estate – owner occupied		665,000		665,000			1,362,000		965,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			63,000		32,000
Total commercial		21,032,000		21,032,000			16,657,000		13,204,000
Retail:
Home equity and other		743,000		720,000			764,000		680,000
1-4 family mortgages		896,000		320,000			329,000		353,000
Total retail		1,639,000		1,040,000			1,093,000		1,033,000

Total with no related allowance recorded	$	22,671,000	$	22,072,000		$	17,750,000	$	14,237,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	3,333,000	$	3,333,000	$	699,000	$	8,494,000	$	6,876,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		1,533,000		1,533,000		1,000,000		767,000		1,722,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0		66,000
Total commercial		4,866,000		4,866,000		1,699,000		9,261,000		8,664,000
Retail:
Home equity and other		411,000		397,000		312,000		385,000		395,000
1-4 family mortgages		405,000		327,000		14,000		329,000		334,000
Total retail		816,000		724,000		326,000		714,000		729,000

Total with an allowance recorded	$	5,682,000	$	5,590,000	$	2,025,000	$	9,975,000	$	9,393,000

Total impaired loans:
Commercial	$	25,898,000	$	25,898,000	$	1,699,000	$	25,918,000	$	21,868,000
Retail		2,455,000		1,764,000		326,000		1,807,000		1,762,000
Total impaired loans	$	28,353,000	$	27,662,000	$	2,025,000	$	27,725,000	$	23,630,000

Impaired acquired loans as of

September 30, 2019,

and average impaired acquired loans for the

three

and

nine

months ended

September 30, 2019,

were as follows:

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

With no related allowance recorded
Commercial:
Commercial and industrial	$	307,000	$	307,000		$	330,000	$	363,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		126,000		126,000			521,000		768,000
Real estate – non-owner occupied		209,000		207,000			209,000		120,000
Real estate – multi-family and residential rental		35,000		15,000			18,000		22,000
Total commercial		677,000		655,000			1,078,000		1,273,000
Retail:
Home equity and other		577,000		527,000			578,000		522,000
1-4 family mortgages		2,466,000		1,650,000			1,692,000		1,753,000
Total retail		3,043,000		2,177,000			2,270,000		2,275,000

Total with no related allowance recorded	$	3,720,000	$	2,832,000		$	3,348,000	$	3,548,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	134,000	$	132,000	$	30,000	$	135,000	$	146,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		101,000		101,000		5,000		51,000		98,000
Real estate – non-owner occupied		0		0		0		0		100,000
Real estate – multi-family and residential rental		0		0		0		0		1,000
Total commercial		235,000		233,000		35,000		186,000		345,000
Retail:
Home equity and other		247,000		245,000		120,000		243,000		306,000
1-4 family mortgages		406,000		404,000		87,000		394,000		402,000
Total retail		653,000		649,000		207,000		637,000		708,000

Total with an allowance recorded	$	888,000	$	882,000	$	242,000	$	823,000	$	1,053,000

Total impaired loans:
Commercial	$	912,000	$	888,000	$	35,000	$	1,264,000	$	1,618,000
Retail		3,696,000		2,826,000		207,000		2,907,000		2,983,000
Total impaired loans	$	4,608,000	$	3,714,000	$	242,000	$	4,171,000	$	4,601,000

Impaired originated loans as of

December 31, 2018,

and average impaired originated loans for the

three

and

nine

months ended

September 30, 2018,

were as follows:

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

With no related allowance recorded
Commercial:
Commercial and industrial	$	8,604,000	$	8,604,000		$	732,000	$	469,000
Vacant land, land development and residential construction		94,000		94,000			98,000		58,000
Real estate – owner occupied		632,000		632,000			383,000		1,273,000
Real estate – non-owner occupied		0		0			0		0
Real estate – multi-family and residential rental		0		0			125,000		234,000
Total commercial		9,330,000		9,330,000			1,338,000		2,034,000
Retail:
Home equity and other		607,000		586,000			719,000		717,000
1-4 family mortgages		1,053,000		390,000			402,000		420,000
Total retail		1,660,000		976,000			1,121,000		1,137,000

Total with no related allowance recorded	$	10,990,000	$	10,306,000		$	2,459,000	$	3,171,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	5,011,000	$	5,011,000	$	83,000	$	3,572,000	$	3,067,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		2,658,000		2,658,000		363,000		2,320,000		1,926,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		140,000		135,000		5,000		140,000		106,000
Total commercial		7,809,000		7,804,000		451,000		6,032,000		5,099,000
Retail:
Home equity and other		442,000		431,000		194,000		463,000		643,000
1-4 family mortgages		409,000		341,000		44,000		346,000		289,000
Total retail		851,000		772,000		238,000		809,000		932,000

Total with an allowance recorded	$	8,660,000	$	8,576,000	$	689,000	$	6,841,000	$	6,031,000

Total impaired loans:
Commercial	$	17,139,000	$	17,134,000	$	451,000	$	7,370,000	$	7,133,000
Retail		2,511,000		1,748,000		238,000		1,930,000		2,069,000
Total impaired loans	$	19,650,000	$	18,882,000	$	689,000	$	9,300,000	$	9,202,000

Impaired acquired loans as of

December 31, 2018,

and average impaired acquired loans for the

three

and

nine

months ended

September 30, 2018,

were as follows:

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

With no related allowance recorded
Commercial:
Commercial and industrial	$	398,000	$	398,000		$	648,000	$	763,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		1,193,000		1,193,000			588,000		638,000
Real estate – non-owner occupied		0		0			221,000		228,000
Real estate – multi-family and residential rental		45,000		26,000			38,000		85,000
Total commercial		1,636,000		1,617,000			1,495,000		1,714,000
Retail:
Home equity and other		388,000		361,000			778,000		678,000
1-4 family mortgages		2,494,000		1,849,000			2,073,000		2,077,000
Total retail		2,882,000		2,210,000			2,851,000		2,755,000

Total with no related allowance recorded	$	4,518,000	$	3,827,000		$	4,346,000	$	4,469,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Third Quarter Average Recorded Principal Balance		Year-To- Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	175,000	$	166,000	$	43,000	$	0	$	0
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		147,000		147,000		0		0		400,000
Real estate – non-owner occupied		210,000		210,000		0		0		0
Real estate – multi-family and residential rental		3,000		3,000		0		0		0
Total commercial		535,000		526,000		43,000		0		400,000
Retail:
Home equity and other		462,000		440,000		178,000		34,000		12,000
1-4 family mortgages		418,000		371,000		89,000		0		0
Total retail		880,000		811,000		267,000		34,000		12,000

Total with an allowance recorded	$	1,415,000	$	1,337,000	$	310,000	$	34,000	$	412,000

Total impaired loans:
Commercial	$	2,171,000	$	2,143,000	$	43,000	$	1,495,000	$	2,114,000
Retail		3,762,000		3,021,000		267,000		2,885,000		2,767,000
Total impaired loans	$	5,933,000	$	5,164,000	$	310,000	$	4,380,000	$	4,881,000

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

$0.5

million and

$0.2

million during the

third

quarters of

2019

and

2018,

respectively, and

$0.9

million and

$0.7

million during the

first

nine

months of

2019

and

2018,

respectively.

interest income was recognized on nonaccrual loans during the

third

quarter and

first

nine

months of

2019

or during the respective

2018

periods. Lost interest income on nonaccrual loans totaled

$0.1

million during the

third

quarters of

2019

and

2018,

and

$0.1

million and

$0.2

million during the

first

nine

months of

2019

and

2018,

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 delinquency.

Credit quality indicators were as follows as of

September 30, 2019:

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	$	510,197,000	$	25,101,000	$	330,704,000	$	562,161,000	$	69,498,000
Grades 5 – 7		314,845,000		18,828,000		194,440,000		257,495,000		32,155,000
Grades 8 – 9		23,617,000		87,000		2,436,000		87,000		146,000
Total commercial	$	848,659,000	$	44,016,000	$	527,580,000	$	819,743,000	$	101,799,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	63,026,000	$	285,354,000

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	$	16,261,000	$	1,076,000	$	20,231,000	$	51,020,000	$	16,097,000
Grades 5 – 7		17,369,000		3,079,000		19,122,000		12,153,000		8,924,000
Grades 8 – 9		459,000		246,000		334,000		164,000		35,000
Total commercial	$	34,089,000	$	4,401,000	$	39,687,000	$	63,337,000	$	25,056,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	15,526,000	$	60,740,000

Credit quality indicators were as follows as of

December 31, 2018:

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	$	508,611,000	$	28,170,000	$	325,459,000	$	526,445,000	$	75,051,000
Grades 5 – 7		238,942,000		11,686,000		163,455,000		218,682,000		22,798,000
Grades 8 – 9		21,145,000		94,000		11,274,000		0		186,000
Total commercial	$	768,698,000	$	39,950,000	$	500,188,000	$	745,127,000	$	98,035,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	65,023,000	$	235,425,000

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	$	34,678,000	$	1,246,000	$	21,595,000	$	54,401,000	$	16,050,000
Grades 5 – 7		19,122,000		3,431,000		25,485,000		16,687,000		13,460,000
Grades 8 – 9		225,000		258,000		1,351,000		67,000		52,000
Total commercial	$	54,025,000	$	4,935,000	$	48,431,000	$	71,155,000	$	29,562,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	20,416,000	$	72,115,000

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

nine

months ended

September 30, 2019

are as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 30, 2019	$	21,073,000		$	2,161,000		$	97,000	$	23,331,000
Provision for loan losses		522,000			149,000			69,000		740,000
Charge-offs		(405,000	)		(114,000	)		0		(519,000	)
Recoveries		96,000			84,000			0		180,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000


Allowance for loan losses:
Balance at December 31, 2018	$	19,442,000		$	2,068,000		$	44,000	$	21,554,000
Provision for loan losses		2,080,000			405,000			122,000		2,607,000
Charge-offs		(407,000	)		(364,000	)		0		(771,000	)
Recoveries		171,000			171,000			0		342,000
Ending balance	$	21,286,000		$	2,280,000		$	166,000	$	23,732,000

Ending balance: individually evaluated for impairment	$	1,699,000		$	326,000		$	0	$	2,025,000

Ending balance: collectively evaluated for impairment	$	19,587,000		$	1,954,000		$	166,000	$	21,707,000


Total loans:
Ending balance	$	2,341,797,000		$	348,380,000				$	2,690,177,000

Ending balance: individually evaluated for impairment	$	25,898,000		$	1,764,000				$	27,662,000

Ending balance: collectively evaluated for impairment	$	2,315,899,000		$	346,616,000				$	2,662,515,000

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

three

and

nine

months ended

September 30, 2019

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 30, 2019	$	198,000		$	524,000		$	0	$	722,000
Provision for loan losses		(23,000	)		(17,000	)		0		(40,000	)
Charge-offs		0			0			0		0
Recoveries		0			0			0		0
Ending balance	$	175,000		$	507,000		$	0	$	682,000


Allowance for loan losses:
Balance at December 31, 2018	$	177,000		$	649,000		$	0	$	826,000
Provision for loan losses		(3,000	)		(154,000	)		0		(157,000	)
Charge-offs		0			0			0		0
Recoveries		1,000			12,000			0		13,000
Ending balance	$	175,000		$	507,000		$	0	$	682,000

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

three

and

nine

months ended

September 30, 2018

and the recorded investments in originated loans as of

December 31, 2018

are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at June 30, 2018	$	18,326,000		$	2,216,000		$	(60,000	)	$	20,482,000
Provision for loan losses		371,000			(41,000	)		143,000			473,000
Charge-offs		0			(169,000	)		0			(169,000	)
Recoveries		63,000			227,000			0			290,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000


Allowance for loan losses:
Balance at December 31, 2017	$	16,456,000		$	2,584,000		$	93,000		$	19,133,000
Provision for loan losses		922,000			(307,000	)		(10,000	)		605,000
Charge-offs		(342,000	)		(493,000	)		0			(835,000	)
Recoveries		1,724,000			449,000			0			2,173,000
Ending balance	$	18,760,000		$	2,233,000		$	83,000		$	21,076,000

Ending balance: individually evaluated for impairment	$	750,000		$	248,000		$	0		$	998,000

Ending balance: collectively evaluated for impairment	$	18,010,000		$	1,985,000		$	83,000		$	20,078,000


Total loans:
Ending balance	$	2,151,998,000		$	300,448,000					$	2,452,446,000

Ending balance: individually evaluated for impairment	$	17,134,000		$	1,748,000					$	18,882,000

Ending balance: collectively evaluated for impairment	$	2,134,864,000		$	298,700,000					$	2,433,564,000

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

three

and

nine

months ended

September 30, 2018

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 30, 2018	$	105,000		$	580,000		$	0	$	685,000
Provision for loan losses		9,000			(82,000	)		0		(73,000	)
Charge-offs		0			0			0		0
Recoveries		0			4,000			0		4,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000


Allowance for loan losses:
Balance at December 31, 2017	$	291,000		$	77,000		$	0	$	368,000
Provision for loan losses		69,000			426,000			0		495,000
Charge-offs		(246,000	)		(15,000	)		0		(261,000	)
Recoveries		0			14,000			0		14,000
Ending balance	$	114,000		$	502,000		$	0	$	616,000

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

Loans modified as troubled debt restructurings during the

three

months ended

September 30, 2019

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		1	$	28,000	$	28,000
Vacant land, land development and residential construction		1		87,000		87,000
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		2		115,000		115,000

Retail:
Home equity and other		1		14,000		14,000
1-4 family mortgages		0		0		0
Total originated retail		1		14,000		14,000

Total originated loans		3	$	129,000	$	129,000

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000

Retail:
Home equity and other		4		48,000		47,000
1-4 family mortgages		1		49,000		49,000
Total acquired retail		5		97,000		96,000

Total acquired loans		6	$	199,000	$	198,000

Loans modified as troubled debt restructurings during the

nine

months ended

September 30, 2019

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		7	$	14,457,000	$	14,754,000
Vacant land, land development and residential construction		1		87,000		87,000
Real estate – owner occupied		1		1,567,000		1,567,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		9		16,111,000		16,408,000

Retail:
Home equity and other		3		37,000		37,000
1-4 family mortgages		0		0		0
Total originated retail		3		37,000		37,000

Total originated loans		12	$	16,148,000	$	16,445,000

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		102,000		102,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		102,000		102,000

Retail:
Home equity and other		10		188,000		188,000
1-4 family mortgages		5		202,000		203,000
Total acquired retail		15		390,000		391,000

Total acquired loans		16	$	492,000	$	493,000

Loans modified as troubled debt restructurings during the

three

months ended

September 30, 2018

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		5	$	3,118,000	$	2,964,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		2,284,000		2,284,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		6		5,402,000		5,248,000

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	$	5,402,000	$	5,248,000

Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000

Retail:
Home equity and other		0		0		0
1-4 family mortgages		1		12,000		12,000
Total acquired retail		1		12,000		12,000

Total acquired loans		3	$	195,000	$	191,000

Loans modified as troubled debt restructurings during the

nine

months ended

September 30, 2018

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		9	$	4,186,000	$	4,126,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		2		3,261,000		3,261,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		11		7,447,000		7,387,000

Retail:
Home equity and other		1		50,000		50,000
1-4 family mortgages		0		0		0
Total originated retail		1		50,000		50,000

Total originated loans		12	$	7,497,000	$	7,437,000

Acquired loans
Commercial:
Commercial and industrial		1	$	33,000	$	29,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		150,000		150,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		2		183,000		179,000

Retail:
Home equity and other		10		217,000		218,000
1-4 family mortgages		2		37,000		36,000
Total acquired retail		12		254,000		254,000

Total acquired loans		14	$	437,000	$	433,000

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

twelve

months, became over

days past due within the

three

months ended

September 30, 2019 (

amounts as of period end):

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

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

Total		0	$	0

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

twelve

months, became over

days past due within the

nine

months ended

September 30, 2019 (

amounts as of period end):

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

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

Total		0	$	0

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

twelve

months, became over

days past due within the

three

months ended

September 30, 2019 (

amounts as of period end):

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

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

Total		0	$	0

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

twelve

months, became over

days past due within the

nine

months ended

September 30, 2019 (

amounts as of period end):

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

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

Total		1	$	6,000

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

twelve

months, became over

days past due within the

three

months ended

September 30, 2018 (

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

nine

months ended

September 30, 2018 (

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

September 30, 2018 (

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

nine

months ended

September 30, 2018 (

amounts as of period end):

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

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

Total		0	$	0

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2019

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental

Commercial Loan Portfolio:
Beginning Balance	$	23,645,000		$	0	$	1,582,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(35,000	)		0		(37,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		2,000			87,000		0			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	913,000		$	141,000
Charge-Offs		0			0
Payments		(35,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		13,000			0
Ending Balance	$	891,000		$	140,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2019

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental

Commercial Loan Portfolio:
Beginning Balance	$	489,000		$	0	$	916,000		$	185,000		$	17,000
Charge-Offs		0			0		0			0			0
Payments		(50,000	)		0		(790,000	)		(4,000	)		(5,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		102,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	553,000		$	565,000
Charge-Offs		0			0
Payments		(10,000	)		(12,000	)
Transfers to ORE		0			0
Net Additions/Deletions		47,000			49,000
Ending Balance	$	590,000		$	602,000

Activity for originated loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2019

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental

Commercial Loan Portfolio:
Beginning Balance	$	13,590,000		$	0	$	2,682,000		$	0	$	0
Charge-Offs		0			0		0			0		0
Payments		(4,790,000	)		0		(2,387,000	)		0		0
Transfers to ORE		0			0		0			0		0
Net Additions/Deletions		14,812,000			87,000		1,250,000			0		0
Ending Balance	$	23,612,000		$	87,000	$	1,545,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	938,000		$	142,000
Charge-Offs		0			0
Payments		(84,000	)		(2,000	)
Transfers to ORE		0			0
Net Additions/Deletions		37,000			0
Ending Balance	$	891,000		$	140,000

Activity for acquired loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2019

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi Family and Residential Rental

Commercial Loan Portfolio:
Beginning Balance	$	548,000		$	0	$	418,000		$	210,000		$	24,000
Charge-Offs		0			0		0			0			0
Payments		(109,000	)		0		(865,000	)		(29,000	)		(12,000	)
Transfers to ORE		0			0		(97,000	)		0			0
Net Additions/Deletions		0			0		772,000			0			0
Ending Balance	$	439,000		$	0	$	228,000		$	181,000		$	12,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	464,000		$	436,000
Charge-Offs		(18,000	)		0
Payments		(53,000	)		(36,000	)
Transfers to ORE		0			0
Net Additions/Deletions		197,000			202,000
Ending Balance	$	590,000		$	602,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2018

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	$	2,425,000	$	229,000		$	1,784,000		$	0	$	0
Charge-Offs		0		0			0			0		0
Payments		0		(207,000	)		(439,000	)		0		0
Transfers to ORE		0		0			0			0		0
Net Additions/Deletions		3,315,000		0			2,278,000			0		0
Ending Balance	$	5,740,000	$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,019,000		$	143,000
Charge-Offs		0			0
Payments		(81,000	)		(1,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			0
Ending Balance	$	938,000		$	142,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2018

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	$	694,000		$	0	$	393,000		$	225,000		$	32,000
Charge-Offs		0			0		0			0			0
Payments		(36,000	)		0		(15,000	)		(8,000	)		(3,000	)
Transfers to ORE		0			0		(93,000	)		0			0
Net Additions/Deletions		(80,000	)		0		151,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	302,000		$	400,000
Charge-Offs		0			0
Payments		(2,000	)		(9,000	)
Transfers to ORE		0			0
Net Additions/Deletions		0			13,000
Ending Balance	$	300,000		$	404,000

Activity for originated loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2018

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	$	2,989,000		$	383,000		$	1,599,000		$	0	$	0
Charge-Offs		(230,000	)		0			0			0		0
Payments		(934,000	)		(361,000	)		(4,057,000	)		0		0
Transfers to ORE		0			0			0			0		0
Net Additions/Deletions		3,915,000			0			6,081,000			0		0
Ending Balance	$	5,740,000		$	22,000		$	3,623,000		$	0	$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,127,000		$	146,000
Charge-Offs		0			0
Payments		(238,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		49,000			0
Ending Balance	$	938,000		$	142,000

Activity for acquired loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2018

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	$	1,001,000		$	0	$	427,000		$	237,000		$	41,000
Charge-Offs		(275,000	)		0		0			0			0
Payments		(69,000	)		0		(1,645,000	)		(20,000	)		(12,000	)
Transfers to ORE		0			0		(92,000	)		0			0
Net Additions/Deletions		(79,000	)		0		1,746,000			0			0
Ending Balance	$	578,000		$	0	$	436,000		$	217,000		$	29,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	219,000		$	393,000
Charge-Offs		(30,000	)		0
Payments		(40,000	)		(26,000	)
Transfers to ORE		(82,000	)		0
Net Additions/Deletions		233,000			37,000
Ending Balance	$	300,000		$	404,000

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

	September 30, 2019		December 31, 2018

Commercial:
Commercial and industrial	$	729,000	$	126,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		1,005,000		363,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1,734,000		489,000

Retail:
Home equity and other		402,000		337,000
1-4 family mortgages		98,000		110,000
Total retail		500,000		447,000

Total related allowance	$	2,234,000	$	936,000

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.