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Note 3 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2021

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

3. LOANS AND ALLOWANCE FOR LOAN LOSSES

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

Our total loans at June 30, 2021 were $3.25 billion compared to $3.19 billion at December 31, 2020, an increase of $55.4 million, or 1.7%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2021 and December 31, 2020, and the percentage change in loans from the end of 2020 to the end of the second quarter of 2021, are as follows:

											Percent
	June 30, 2021					December 31, 2020					Increase
	Balance		%			Balance		%			(Decrease)

Commercial:
Commercial and industrial (1)	$	1,103,807,000		34.0	%	$	1,145,423,000		35.9	%		(3.6	%)
Vacant land, land development, and residential construction		43,111,000		1.3			55,055,000		1.7			(21.7	)
Real estate – owner occupied		550,504,000		16.9			529,953,000		16.6			3.9
Real estate – non-owner occupied		950,993,000		29.3			917,436,000		28.7			3.7
Real estate – multi-family and residential rental		161,894,000		5.0			146,095,000		4.6			10.8
Total commercial		2,810,309,000		86.5			2,793,962,000		87.5			0.6

Retail:
Home equity and other		58,240,000		1.8			61,620,000		1.9			(5.5	)
1-4 family mortgages		380,292,000		11.7			337,888,000		10.6			12.5
Total retail		438,532,000		13.5			399,508,000		12.5			9.8

Total loans	$	3,248,841,000		100.0	%	$	3,193,470,000		100.0	%		1.7	%

(1)

Includes $246 million and $365 million in loans originated under the Paycheck Protection Program for June 30, 2021 and December 31, 2020, respectively.

Nonperforming loans as of June 30, 2021 and December 31, 2020 were as follows:

	June 30, 2021		December 31, 2020

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,746,000		3,384,000

Total nonperforming loans	$	2,746,000	$	3,384,000

The recorded principal balance of nonperforming loans was as follows:

	June 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	606,000	$	172,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		0		619,000
Real estate – non-owner occupied		0		22,000
Real estate – multi-family and residential rental		0		0
Total commercial		606,000		813,000

Retail:
Home equity and other		153,000		242,000
1-4 family mortgages		1,987,000		2,329,000
Total retail		2,140,000		2,571,000

Total nonperforming loans	$	2,746,000	$	3,384,000

An age analysis of past due loans is as follows as of June 30, 2021:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing

Commercial:
Commercial and industrial	$	0	$	456,000	$	606,000	$	1,062,000	$	1,102,745,000	$	1,103,807,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		43,111,000		43,111,000		0
Real estate – owner occupied		0		431,000		0		431,000		550,073,000		550,504,000		0
Real estate – non-owner occupied		0		0		0		0		950,993,000		950,993,000		0
Real estate – multi-family and residential rental		0		0		0		0		161,894,000		161,894,000		0
Total commercial		0		887,000		606,000		1,493,000		2,808,816,000		2,810,309,000		0

Retail:
Home equity and other		50,000		0		35,000		85,000		58,155,000		58,240,000		0
1-4 family mortgages		200,000		55,000		101,000		356,000		379,936,000		380,292,000		0
Total retail		250,000		55,000		136,000		441,000		438,091,000		438,532,000		0

Total past due loans	$	250,000	$	942,000	$	742,000	$	1,934,000	$	3,246,907,000	$	3,248,841,000	$	0

An age analysis of past due loans is as follows as of December 31, 2020:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing

Commercial:
Commercial and industrial	$	261,000	$	172,000	$	0	$	433,000	$	1,144,990,000	$	1,145,423,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		55,055,000		55,055,000		0
Real estate – owner occupied		0		197,000		421,000		618,000		529,335,000		529,953,000		0
Real estate – non-owner occupied		0		0		23,000		23,000		917,413,000		917,436,000		0
Real estate – multi-family and residential rental		0		0		0		0		146,095,000		146,095,000		0
Total commercial		261,000		369,000		444,000		1,074,000		2,792,888,000		2,793,962,000		0

Retail:
Home equity and other		112,000		65,000		54,000		231,000		61,389,000		61,620,000		0
1-4 family mortgages		1,147,000		247,000		342,000		1,736,000		336,152,000		337,888,000		0
Total retail		1,259,000		312,000		396,000		1,967,000		397,541,000		399,508,000		0

Total past due loans	$	1,520,000	$	681,000	$	840,000	$	3,041,000	$	3,190,429,000	$	3,193,470,000	$	0

Impaired loans as of June 30, 2021, and average impaired loans for the three and six months ended June 30, 2021, 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	$	2,732,000	$	2,675,000		$	3,129,000	$	4,167,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		12,674,000		12,674,000			13,114,000		13,607,000
Real estate – non-owner occupied		0		0			156,000		218,000
Real estate – multi-family and residential rental		0		0			0		0
Total commercial		15,406,000		15,349,000			16,399,000		17,992,000
Retail:
Home equity and other		1,317,000		1,237,000			1,088,000		1,054,000
1-4 family mortgages		3,899,000		2,227,000			2,376,000		2,442,000
Total retail		5,216,000		3,464,000			3,464,000		3,496,000

Total with no related allowance recorded	$	20,622,000	$	18,813,000		$	19,863,000	$	21,488,000

	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	$	2,975,000	$	2,975,000	$	355,000	$	1,661,000	$	1,222,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		1,214,000		1,214,000		117,000		872,000		826,000
Real estate – non-owner occupied		153,000		153,000		5,000		156,000		158,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		4,342,000		4,342,000		477,000		2,689,000		2,206,000
Retail:
Home equity and other		250,000		232,000		207,000		242,000		256,000
1-4 family mortgages		528,000		528,000		103,000		581,000		620,000
Total retail		778,000		760,000		310,000		823,000		876,000

Total with an allowance recorded	$	5,120,000	$	5,102,000	$	787,000	$	3,512,000	$	3,082,000

Total impaired loans:
Commercial	$	19,748,000	$	19,691,000	$	477,000	$	19,088,000	$	20,198,000
Retail		5,994,000		4,224,000		310,000		4,287,000		4,372,000
Total impaired loans	$	25,742,000	$	23,915,000	$	787,000	$	23,375,000	$	24,570,000

Impaired loans as of December 31, 2020, and average impaired loans for the three and six months ended June 30, 2020, were as follows:

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

With no related allowance recorded
Commercial:
Commercial and industrial	$	6,242,000	$	6,242,000		$	9,460,000	$	9,016,000
Vacant land, land development and residential construction		0		0			326,000		246,000
Real estate – owner occupied		14,782,000		14,593,000			4,316,000		3,100,000
Real estate – non-owner occupied		341,000		341,000			12,000		67,000
Real estate – multi-family and residential rental		0		0			2,000		4,000
Total commercial		21,365,000		21,176,000			14,116,000		12,433,000
Retail:
Home equity and other		1,072,000		987,000			1,273,000		1,252,000
1-4 family mortgages		4,455,000		2,575,000			2,627,000		2,407,000
Total retail		5,527,000		3,562,000			3,900,000		3,659,000

Total with no related allowance recorded	$	26,892,000	$	24,738,000		$	18,016,000	$	16,092,000

	Unpaid Contractual Principal Balance		Recorded Principal Balance		Related Allowance		Second Quarter Average Recorded Principal Balance		Year-To-Date Average Recorded Principal Balance
With an allowance recorded
Commercial:
Commercial and industrial	$	343,000	$	343,000	$	53,000	$	1,751,000	$	1,320,000
Vacant land, land development and residential construction		0		0		0		192,000		128,000
Real estate – owner occupied		763,000		734,000		77,000		126,000		443,000
Real estate – non-owner occupied		162,000		162,000		8,000		85,000		57,000
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		1,268,000		1,239,000		138,000		2,154,000		1,948,000
Retail:
Home equity and other		300,000		283,000		241,000		486,000		486,000
1-4 family mortgages		698,000		698,000		172,000		638,000		544,000
Total retail		998,000		981,000		413,000		1,124,000		1,030,000

Total with an allowance recorded	$	2,266,000	$	2,220,000	$	551,000	$	3,278,000	$	2,978,000

Total impaired loans:
Commercial	$	22,633,000	$	22,415,000	$	138,000	$	16,270,000	$	14,381,000
Retail		6,525,000		4,543,000		413,000		5,024,000		4,689,000
Total impaired loans	$	29,158,000	$	26,958,000	$	551,000	$	21,294,000	$	19,070,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated fair value. Interest income recognized on accruing troubled debt restructurings totaled $0.4 million during the second quarters of 2021 and 2020, and $0.8 million and $0.6 million during the first six months of 2021 and 2020, respectively. No interest income was recognized on nonaccrual loans during the second quarter and first six months of 2021 or during the respective 2020 periods. Lost interest income on nonaccrual loans totaled less than $0.1 million during the second quarters of 2021 and 2020, and $0.1 million during the first six months of 2021 and 2020.

Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of June 30, 2021:

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

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

Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	767,987,000	$	23,647,000	$	311,512,000	$	417,311,000	$	109,220,000
Grades 5 – 7		330,408,000		19,358,000		211,916,000		533,682,000		52,412,000
Grades 8 – 9		5,412,000		106,000		27,076,000		0		262,000
Total commercial	$	1,103,807,000	$	43,111,000	$	550,504,000	$	950,993,000	$	161,894,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Performing	$	58,087,000	$	378,305,000
Nonperforming		153,000		1,987,000
Total retail	$	58,240,000	$	380,292,000

(1)

Included in Commercial and Industrial Loans Grades 1 – 4 are $246 million of loans originated under the Paycheck Protection Program.

Credit quality indicators were as follows as of December 31, 2020:

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

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

Internal credit risk grade groupings:
Grades 1 – 4 (1)	$	828,706,000	$	22,547,000	$	315,134,000	$	396,700,000	$	91,711,000
Grades 5 – 7		306,614,000		32,398,000		185,541,000		520,395,000		54,111,000
Grades 8 – 9		10,103,000		110,000		29,278,000		341,000		273,000
Total commercial	$	1,145,423,000	$	55,055,000	$	529,953,000	$	917,436,000	$	146,095,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Performing	$	61,378,000	$	335,559,000
Nonperforming		242,000		2,329,000
Total retail	$	61,620,000	$	337,888,000

(1)

Included in Commercial and Industrial Loans Grades 1 – 4 are $365 million of loans originated under the Paycheck Protection Program.

All commercial loans are graded using the following criteria:

Grade 1.

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

Grade 2.

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

Grade 3.

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

Grade 4.

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

Grade 5.

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

Grade 6.

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

Grade 7.

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

Grade 8.

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

Grade 9.

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

Grade 10.

“Loss” Loans with this rating are considered uncollectable, and of such little value that continuance as an active asset is not warranted.

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditors’ rights in order to preserve our collateral position.

Activity in the allowance for loan losses and the recorded investments in loans as of and during the three and six months ended June 30, 2021 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at March 31, 2021	$	34,711,000		$	3,794,000		$	190,000		$	38,695,000
Provision for loan losses		(2,712,000	)		(383,000	)		(5,000	)		(3,100,000	)
Charge-offs		(66,000	)		(2,000	)		0			(68,000	)
Recoveries		159,000			227,000			0			386,000
Ending balance	$	32,092,000		$	3,636,000		$	185,000		$	35,913,000


Allowance for loan losses:
Balance at December 31, 2020	$	33,779,000		$	4,129,000		$	59,000		$	37,967,000
Provision for loan losses		(2,130,000	)		(796,000	)		126,000			(2,800,000	)
Charge-offs		(81,000	)		(40,000	)		0			(121,000	)
Recoveries		524,000			343,000			0			867,000
Ending balance	$	32,092,000		$	3,636,000		$	185,000		$	35,913,000

Ending balance: individually evaluated for impairment	$	477,000		$	310,000		$	0		$	787,000

Ending balance: collectively evaluated for impairment	$	31,615,000		$	3,326,000		$	185,000		$	35,126,000


Total loans (*):
Ending balance	$	2,564,526,000		$	438,532,000					$	3,003,058,000

Ending balance: individually evaluated for impairment	$	19,691,000		$	4,224,000					$	23,915,000

Ending balance: collectively evaluated for impairment	$	2,544,835,000		$	434,308,000					$	2,979,143,000

(*) Excludes $246 million in loans originated under the Paycheck Protection Program.

Activity in the allowance for loan losses for loans during the three and six months ended June 30, 2020 and the recorded investments in loans as of December 31, 2020 are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at March 31, 2020	$	21,750,000		$	3,078,000		$	0		$	24,828,000
Provision for loan losses		6,466,000			1,074,000			60,000			7,600,000
Charge-offs		(301,000	)		(34,000	)		0			(335,000	)
Recoveries		47,000			106,000			0			153,000
Ending balance	$	27,962,000		$	4,224,000		$	60,000		$	32,246,000


Allowance for loan losses:
Balance at December 31, 2019	$	21,070,000		$	2,749,000		$	70,000		$	23,889,000
Provision for loan losses		7,039,000			1,321,000			(10,000	)		8,350,000
Charge-offs		(314,000	)		(61,000	)		0			(375,000	)
Recoveries		167,000			215,000			0			382,000
Ending balance	$	27,962,000		$	4,224,000		$	60,000		$	32,246,000

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

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


Total loans (*):
Ending balance	$	2,428,703,000		$	399,508,000					$	2,828,211,000

Ending balance: individually evaluated for impairment	$	22,415,000		$	4,543,000					$	26,958,000

Ending balance: collectively evaluated for impairment	$	2,406,288,000		$	394,965,000					$	2,801,253,000

(*) Excludes $365 million in loans originated under the Paycheck Protection Program.

Loans modified as troubled debt restructurings during the three months ended June 30, 2021 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance

Commercial:
Commercial and industrial		8	$	2,831,000	$	2,831,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		692,000		692,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total commercial		9		3,523,000		3,523,000

Retail:
Home equity and other		3		414,000		412,000
1-4 family mortgages		1		10,000		10,000
Total retail		4		424,000		422,000

Total loans		13	$	3,947,000	$	3,945,000

Loans modified as troubled debt restructurings during the six months ended June 30, 2021 were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance

Commercial:
Commercial and industrial		9	$	2,854,000	$	2,853,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		692,000		692,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total commercial		10		3,546,000		3,545,000

Retail:
Home equity and other		4		485,000		482,000
1-4 family mortgages		2		46,000		46,000
Total retail		6		531,000		528,000

Total loans		16	$	4,077,000	$	4,073,000

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

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance

Commercial:
Commercial and industrial		2	$	6,000	$	6,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total commercial		2		6,000		6,000

Retail:
Home equity and other		7		438,000		439,000
1-4 family mortgages		1		20,000		20,000
Total retail		8		458,000		459,000

Total loans		10	$	464,000	$	465,000

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

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance

Commercial:
Commercial and industrial		8	$	6,545,000	$	6,542,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		8		4,261,000		3,659,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total commercial		16		10,806,000		10,201,000

Retail:
Home equity and other		10		503,000		505,000
1-4 family mortgages		1		20,000		20,000
Total retail		11		523,000		525,000

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

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended June 30, 2021 (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		1		431,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		431,000

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

Total		1	$	431,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the six months ended June 30, 2021 (amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		2	$	522,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		1		431,000
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		3		953,000

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

Total		3	$	953,000

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended June 30, 2020 (amounts as of period end):

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

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

Total		0	$	0

The following loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the six months ended June 30, 2020 (amounts as of period end):

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

Retail:
Home equity and other		0		0
1-4 family mortgages		1		32,000
Total retail		1		32,000

Total		1	$	32,000

Activity for loans categorized as troubled debt restructurings during the three months ended June 30, 2021 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	$	3,760,000		$	0	$	13,887,000		$	471,000		$	0
Charge-Offs		0			0		0			0			0
Payments		(845,000	)		0		(685,000	)		(318,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		2,648,000			0		686,000			0			0
Ending Balance	$	5,563,000		$	0	$	13,888,000		$	153,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,099,000		$	820,000
Charge-Offs		0			0
Payments		(115,000	)		(131,000	)
Transfers to ORE		0			0
Net Additions/Deletions		412,000			10,000
Ending Balance	$	1,396,000		$	699,000

Activity for loans categorized as troubled debt restructurings during the six months ended June 30, 2021 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	$	6,414,000		$	0	$	14,797,000		$	480,000		$	0
Charge-Offs		0			0		0			0			0
Payments		(3,521,000	)		0		(1,595,000	)		(327,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		2,670,000			0		686,000			0			0
Ending Balance	$	5,563,000		$	0	$	13,888,000		$	153,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,146,000		$	806,000
Charge-Offs		0			0
Payments		(232,000	)		(153,000	)
Transfers to ORE		0			0
Net Additions/Deletions		482,000			46,000
Ending Balance	$	1,396,000		$	699,000

Activity for loans categorized as troubled debt restructurings during the three months ended June 30, 2020 is as follows:

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

Commercial Loan Portfolio:
Beginning Balance	$	12,204,000		$	82,000		$	3,811,000		$	174,000		$	3,000
Charge-Offs		0			0			0			0			0
Payments		(2,143,000	)		(2,000	)		(20,000	)		(4,000	)		(2,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		6,000			0			0			0			0
Ending Balance	$	10,067,000		$	80,000		$	3,791,000		$	170,000		$	1,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,452,000		$	715,000
Charge-Offs		0			0
Payments		(175,000	)		(20,000	)
Transfers to ORE		0			0
Net Additions/Deletions		438,000			20,000
Ending Balance	$	1,715,000		$	715,000

Activity for loans categorized as troubled debt restructurings during the six months ended June 30, 2020 is as follows:

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

Commercial Loan Portfolio:
Beginning Balance	$	8,587,000		$	85,000		$	1,145,000		$	178,000		$	7,000
Charge-Offs		0			0			0			0			0
Payments		(4,975,000	)		(5,000	)		(1,008,000	)		(8,000	)		(6,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		6,455,000			0			3,654,000			0			0
Ending Balance	$	10,067,000		$	80,000		$	3,791,000		$	170,000		$	1,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,415,000		$	724,000
Charge-Offs		0			0
Payments		(203,000	)		(29,000	)
Transfers to ORE		0			0
Net Additions/Deletions		503,000			20,000
Ending Balance	$	1,715,000		$	715,000

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

	June 30, 2021		December 31, 2020

Commercial:
Commercial and industrial	$	355,000	$	53,000
Vacant land, land development, and residential construction		0		0
Real estate – owner occupied		117,000		59,000
Real estate – non-owner occupied		5,000		8,000
Real estate – multi-family and residential rental		0		0
Total commercial		477,000		120,000

Retail:
Home equity and other		175,000		202,000
1-4 family mortgages		103,000		145,000
Total retail		278,000		347,000

Total related allowance	$	755,000	$	467,000

In general, our policy dictates that a renewal or modification of an 8- or 9-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated 8 contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated 9 reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal. We believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe 8- or 9-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.