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 loa

ns 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, 2017

were

$2.55

billion compared to

$2.38

billion at

December 31, 2016,

an increase of

$176

million, or

7.4%.

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

September 30, 2017

and

December 31, 2016,

and the percentage change in loans from the end of

2016

to the end of the

third

quarter of

2017,

are as follows:

											Percent
	September 30, 2017					December 31, 201 6					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	710,699,000		33.3	%	$	636,771,000		33.8	%		11.6	%
Vacant land, land development, and residential construction		21,272,000		1.0			26,519,000		1.4			(19.8	)
Real estate – owner occupied		411,367,000		19.3			363,509,000		19.3			13.2
Real estate – non-owner occupied		721,304,000		33.8			652,054,000		34.6			10.6
Real estate – multi-family and residential rental		58,356,000		2.7			50,045,000		2.6			16.6
Total commercial		1,922,998,000		90.1			1,728,898,000		91.7			11.2

Retail:
Home equity and other		69,325,000		3.3			69,831,000		3.7			(0.7	)
1-4 family mortgages		141,443,000		6.6			85,819,000		4.6			64.8
Total retail		210,768,000		9.9			155,650,000		8.3			35.4

Total originated loans	$	2,133,766,000		100.0	%	$	1,884,548,000		100.0	%		13.2	%

											Percent
	Sep tember 30, 2017					December 31, 201 6					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	65,864,000		15.7	%	$	77,132,000		15.6	%		(14.6%	)
Vacant land, land development, and residential construction		7,303,000		1.7			8,309,000		1.7			(12.1	)
Real estate – owner occupied		73,980,000		17.6			86,955,000		17.6			(14.9	)
Real estate – non-owner occupied		83,863,000		19.9			96,215,000		19.5			(12.8	)
Real estate – multi-family and residential rental		60,814,000		14.5			67,838,000		13.7			(10.4	)
Total commercial		291,824,000		69.4			336,449,000		68.1			(13.3	)

Retail:
Home equity and other		34,051,000		8.1			48,216,000		9.8			(29.4	)
1-4 family mortgages		94,631,000		22.5			109,407,000		22.1			(13.5	)
Total retail		128,682,000		30.6			157,623,000		31.9			(18.4	)

Total acquired loans	$	420,506,000		100.0	%	$	494,072,000		100.0	%		(14.9%	)

											Percent
	Sep tember 30, 2017					December 31, 201 6					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	776,563,000		30.4	%	$	713,903,000		30.0	%		8.8	%
Vacant land, land development, and residential construction		28,575,000		1.1			34,828,000		1.5			(18.0	)
Real estate – owner occupied		485,347,000		19.0			450,464,000		18.9			7.7
Real estate – non-owner occupied		805,167,000		31.5			748,269,000		31.5			7.6
Real estate – multi-family and residential rental		119,170,000		4.7			117,883,000		4.9			1.1
Total commercial		2,214,822,000		86.7			2,065,347,000		86.8			7.2

Retail:
Home equity and other		103,376,000		4.0			118,047,000		5.0			(12.4	)
1-4 family mortgages		236,074,000		9.3			195,226,000		8.2			20.9
Total retail		339,450,000		13.3			313,273,000		13.2			8.4

Total loans	$	2,554,272,000		100.0	%	$	2,378,620,000		100.0	%		7.4	%

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

12.4

million and

$5.3

million, respectively, as of

September 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

nine

months ended

September 30, 2017

and

September 30, 2016

were as follows:

Balance at June 30, 2017	$	1,658,000
Additions		2,000
Accretion income		(141,000	)
Net reclassification from nonaccretable to accretable		83,000
Reductions (1)		(23,000	)

Balance at September 30, 2017	$	1,579,000


Balance at December 31, 201 6	$	1,726,000
Additions		223,000
Accretion income		(429,000	)
Net reclassification from nonaccretable to accretable		330,000
Reductions (1)		(271,000	)

Balance at September 30, 2017	$	1,579,000


Balance at June 3 0, 2016	$	6,602,000
Additions		224,000
Accretion income		(638,000	)
Net reclassification from nonaccretable to accretable		1,000,000
Reductions (1)		(407,000	)

Balance at September 30, 2016	$	6,781,000


Balance at December 31, 201 5	$	5,193,000
Additions		245,000
Accretion income		(1,992,000	)
Net reclassification from nonaccretable to accretable		4,565,000
Reductions (1)		(1,230,000	)

Balance at September 30, 2016	$	6,781,000

(

) Reductions primarily reflect the result of exit events, including loan payoffs

and charge-offs.

Nonperforming originated loans as of

September 30, 2017

and

December 31, 2016

were as follows:

	September 30, 201 7		December 31, 201 6

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		4,696,000		3,328,000

Total nonperforming originated loans	$	4,696,000	$	3,328,000

Nonperforming acquired loans as of

September 30, 2017

and

December 31, 2016

were as follows:

	September 30, 201 7		December 31, 201 6

Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		3,535,000		2,611,000

Total nonperforming acquired loans	$	3,535,000	$	2,611,000

The recorded principal balance of nonperforming loans was as follows:

	September 30, 201 7		December 31, 201 6
Commercial:
Commercial and industrial	$	2,401,000	$	2,296,000
Vacant land, land development, and residential construction		50,000		95,000
Real estate – owner occupied		2,309,000		285,000
Real estate – non-owner occupied		45,000		488,000
Real estate – multi-family and residential rental		247,000		17,000
Total commercial		5,052,000		3,181,000

Retail:
Home equity and other		543,000		496,000
1-4 family mortgages		2,636,000		2,262,000
Total retail		3,179,000		2,758,000

Total nonperforming loans	$	8,231,000	$	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

September 3

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	$	0	$	0	$	0	$	0	$	710,699,000	$	710,699,000	$	0
Vacant land, land development, and residential construction		50,000		0		0		50,000		21,222,000		21,272,000		0
Real estate – owner occupied		0		0		0		0		411,367,000		411,367,000		0
Real estate – non-owner occupied		0		0		0		0		721,304,000		721,304,000		0
Real estate – multi-family and residential rental		0		0		0		0		58,356,000		58,356,000		0
Total commercial		50,000		0		0		50,000		1,922,948,000		1,922,998,000		0

Retail:
Home equity and other		35,000		111,000		0		146,000		69,179,000		69,325,000		0
1-4 family mortgages		0		69,000		248,000		317,000		141,126,000		141,443,000		0
Total retail		35,000		180,000		248,000		463,000		210,305,000		210,768,000		0

Total past due loans	$	85,000	$	180,000	$	248,000	$	513,000	$	2,133,253,000	$	2,133,766,000	$	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	$	114,000	$	0	$	1,000	$	115,000	$	65,749,000	$	65,864,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		7,303,000		7,303,000		0
Real estate – owner occupied		153,000		139,000		0		292,000		73,688,000		73,980,000		0
Real estate – non-owner occupied		0		45,000		0		45,000		83,818,000		83,863,000		0
Real estate – multi-family and residential rental		0		99,000		10,000		109,000		60,705,000		60,814,000		0
Total commercial		267,000		283,000		11,000		561,000		291,263,000		291,824,000		0

Retail:
Home equity and other		207,000		157,000		21,000		385,000		33,666,000		34,051,000		0
1-4 family mortgages		481,000		363,000		707,000		1,551,000		93,080,000		94,631,000		0
Total retail		688,000		520,000		728,000		1,936,000		126,746,000		128,682,000		0

Total past due loans	$	955,000	$	803,000	$	739,000	$	2,497,000	$	418,009,000	$	420,506,000	$	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

September 30, 2017,

and average originated impaired loans for the

three

and

nine

months ended

September 30, 2017,

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	$	83,000	$	70,000		$	56,000	$	823,000
Vacant land, land development and residential construction		463,000		50,000			58,000		73,000
Real estate – owner occupied		224,000		214,000			266,000		189,000
Real estate – non-owner occupied		178,000		178,000			89,000		45,000
Real estate – multi-family and residential rental		360,000		360,000			180,000		189,000
Total commercial		1,308,000		872,000			649,000		1,319,000
Retail:
Home equity and other		849,000		776,000			729,000		488,000
1-4 family mortgages		1,264,000		603,000			614,000		632,000
Total retail		2,113,000		1,379,000			1,343,000		1,120,000

Total with no related allowance recorded	$	3,421,000	$	2,251,000		$	1,992,000	$	2,439,000

	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	$	4,066,000	$	4,030,000	$	1,252,000	$	4,100,000	$	3,395,000
Vacant land, land development and residential construction		249,000		249,000		6,000		374,000		561,000
Real estate – owner occupied		2,819,000		2,807,000		530,000		2,319,000		1,731,000
Real estate – non-owner occupied		296,000		296,000		2,000		392,000		2,569,000
Real estate – multi-family and residential rental		66,000		66,000		66,000		321,000		536,000
Total commercial		7,496,000		7,448,000		1,856,000		7,506,000		8,792,000
Retail:
Home equity and other		1,085,000		1,066,000		723,000		1,035,000		866,000
1-4 family mortgages		165,000		112,000		15,000		113,000		125,000
Total retail		1,250,000		1,178,000		738,000		1,148,000		991,000

Total with an allowance recorded	$	8,746,000	$	8,626,000	$	2,594,000	$	8,654,000	$	9,783,000

Total impaired loans:
Commercial	$	8,804,000	$	8,320,000	$	1,856,000	$	8,155,000	$	10,111,000
Retail		3,363,000		2,557,000		738,000		2,491,000		2,111,000
Total impaired loans	$	12,167,000	$	10,877,000	$	2,594,000	$	10,646,000	$	12,222,000

Impaired acquired loans as of

September 30, 2017,

and average impaired acquired loans for the

three

and

nine

months ended

September 30, 2017,

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	$	1,074,000	$	1,057,000		$	1,196,000	$	1,044,000
Vacant land, land development and residential construction		29,000		29,000			31,000		15,000
Real estate – owner occupied		1,206,000		904,000			1,031,000		1,091,000
Real estate – non-owner occupied		989,000		988,000			975,000		863,000
Real estate – multi-family and residential rental		1,306,000		1,289,000			750,000		455,000
Total commercial		4,604,000		4,267,000			3,983,000		3,468,000
Retail:
Home equity and other		677,000		495,000			453,000		394,000
1-4 family mortgages		2,485,000		2,022,000			1,974,000		1,818,000
Total retail		3,162,000		2,517,000			2,427,000		2,212,000

Total with no related allowance recorded	$	7,766,000	$	6,784,000		$	6,410,000	$	5,680,000

	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	$	0	$	0	$	0	$	6,000	$	12,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		46,000		46,000		3,000		47,000		47,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0		0
Total commercial		46,000		46,000		3,000		53,000		59,000
Retail:
Home equity and other		0		0		0		0		0
1-4 family mortgages		170,000		170,000		3,000		170,000		171,000
Total retail		170,000		170,000		3,000		170,000		171,000

Total with an allowance recorded	$	216,000	$	216,000	$	6,000	$	223,000	$	230,000

Total impaired loans:
Commercial	$	4,650,000	$	4,313,000	$	3,000	$	4,036,000	$	3,527,000
Retail		3,332,000		2,687,000		3,000		2,597,000		2,383,000
Total impaired loans	$	7,982,000	$	7,000,000	$	6,000	$	6,633,000	$	5,910,000

Impaired originated loans as of

December 31,

201

and average impaired originated loans for the

three

and

nine

months ended

September 30, 2016,

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	$	1,498,000	$	1,498,000		$	1,809,000	$	1,752,000
Vacant land, land development and residential construction		487,000		95,000			0		0
Real estate – owner occupied		0		0			327,000		307,000
Real estate – non-owner occupied		0		0			5,616,000		5,647,000
Real estate – multi-family and residential rental		130,000		130,000			0		0
Total commercial		2,115,000		1,723,000			7,752,000		7,706,000
Retail:
Home equity and other		114,000		114,000			118,000		63,000
1-4 family mortgages		1,270,000		630,000			618,000		616,000
Total retail		1,384,000		744,000			736,000		679,000

Total with no related allowance recorded	$	3,499,000	$	2,467,000		$	8,488,000	$	8,385,000

	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	$	2,405,000	$	2,382,000	$	673,000	$	185,000	$	227,000
Vacant land, land development and residential construction		999,000		999,000		28,000		1,367,000		1,507,000
Real estate – owner occupied		906,000		906,000		97,000		1,366,000		1,337,000
Real estate – non-owner occupied		5,020,000		5,020,000		247,000		4,670,000		4,734,000
Real estate – multi-family and residential rental		1,040,000		1,040,000		258,000		966,000		992,000
Total commercial		10,370,000		10,347,000		1,303,000		8,554,000		8,797,000
Retail:
Home equity and other		434,000		412,000		203,000		551,000		534,000
1-4 family mortgages		204,000		157,000		66,000		162,000		144,000
Total retail		638,000		569,000		269,000		713,000		678,000

Total with an allowance recorded	$	11,008,000	$	10,916,000	$	1,572,000	$	9,267,000	$	9,475,000

Total impaired loans:
Commercial	$	12,485,000	$	12,070,000	$	1,303,000	$	16,306,000	$	16,503,000
Retail		2,022,000		1,313,000		269,000		1,449,000		1,357,000
Total impaired loans	$	14,507,000	$	13,383,000	$	1,572,000	$	17,755,000	$	17,860,000

Impaired acquired loans as of

December 31,

201

and average impaired acquired loans for the

three

and

nine

months ended

September 30, 2016,

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	$	853,000	$	826,000		$	1,327,000	$	1,395,000
Vacant land, land development and residential construction		0		0			0		0
Real estate – owner occupied		1,281,000		1,210,000			1,021,000		1,416,000
Real estate – non-owner occupied		928,000		789,000			961,000		894,000
Real estate – multi-family and residential rental		152,000		89,000			327,000		335,000
Total commercial		3,214,000		2,914,000			3,636,000		4,040,000
Retail:
Home equity and other		531,000		351,000			347,000		320,000
1-4 family mortgages		2,081,000		1,629,000			1,307,000		1,359,000
Total retail		2,612,000		1,980,000			1,654,000		1,679,000

Total with no related allowance recorded	$	5,826,000	$	4,894,000		$	5,290,000	$	5,719,000

	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	$	19,000	$	19,000	$	2,000	$	343,000	$	361,000
Vacant land, land development and residential construction		0		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		49,000		49,000
Real estate – non-owner occupied		0		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		11,000		16,000
Total commercial		67,000		67,000		5,000		403,000		426,000
Retail:
Home equity and other		0		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		174,000		131,000
Total retail		172,000		172,000		4,000		174,000		131,000

Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	577,000	$	557,000

Total impaired loans:
Commercial	$	3,281,000	$	2,981,000	$	5,000	$	4,039,000	$	4,466,000
Retail		2,784,000		2,152,000		4,000		1,828,000		1,810,000
Total impaired loans	$	6,065,000	$	5,133,000	$	9,000	$	5,867,000	$	6,276,000

Impaired loans for which

allocation of the allowance for loan losses has been made generally reflect sit

uations whereby the loans have been charged-down to estimated collateral value. Interest income recognized on accruing troubled debt restructurings totaled

$0.1

million and

$0.3

million during the

third

quarters of

2017

and

2016

, respectively, and

$0.4

million and

$0.8

million during the

first

nine

months of

2017

and

2016,

respectively.

interest income was recognized on nonaccrual loans during the

third

quarter and

first

nine

months of

2017

or during the respective

2016

periods. Lost interest income on nonaccrual loans totaled

$0.1

million during the

third

quarter of

2017

and

$0.2

million during the

first

nine

months of

2017.

Lost interest income on nonaccrual loans totaled

$0.1

million during the

third

quarter of

2016

and

$0.4

million during the

first

nine

months of

2016.

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, 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	$	534,639,000	$	13,017,000	$	312,650,000	$	573,763,000	$	37,127,000
Grades 5 – 7		171,658,000		8,205,000		95,973,000		147,541,000		20,803,000
Grades 8 – 9		4,402,000		50,000		2,744,000		0		426,000
Total commercial	$	710,699,000	$	21,272,000	$	411,367,000	$	721,304,000	$	58,356,000

Retail credit exposure

– credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	69,325,000	$	141,443,000

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	$	38,477,000	$	1,536,000	$	29,429,000	$	50,688,000	$	36,523,000
Grades 5 – 7		26,315,000		4,831,000		43,010,000		32,161,000		22,899,000
Grades 8 – 9		1,072,000		936,000		1,541,000		1,014,000		1,392,000
Total commercial	$	65,864,000	$	7,303,000	$	73,980,000	$	83,863,000	$	60,814,000

Retail credit exposure

– credit risk profiled by collateral type:

	Retail Home Equity and Other		Retail 1-4 Family Mortgages

Total retail	$	34,051,000	$	94,631,000

Credit quality indicators were as follows as of

December 31,

201

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 credi

t 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 rev

iewing 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, 2017

are as follows:

	Commercial Loans			Retail Loans			Unallocated			Total

Allowance for loan losses:
Balance at June 3 0, 2017	$	15,363,000		$	2,433,000		$	159,000		$	17,955,000
Provision for loan losses		452,000			415,000			46,000			913,000
Charge-offs		(347,000	)		(320,000	)		0			(667,000	)
Recoveries		565,000			41,000			0			606,000
Ending balance	$	16,033,000		$	2,569,000		$	205,000		$	18,807,000


Allowance for loan losses:
Balance at December 31, 201 6	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		600,000			1,178,000			245,000			2,023,000
Charge-offs		(1,579,000	)		(683,000	)		0			(2,262,000	)
Recoveries		986,000			192,000			0			1,178,000
Ending balance	$	16,033,000		$	2,569,000		$	205,000		$	18,807,000

Ending balance: individually evaluated for impairment	$	1,856,000		$	738,000		$	0		$	2,594,000

Ending balance: collectively evaluated for impairment	$	14,177,000		$	1,831,000		$	205,000		$	16,213,000


Total loans:
Ending balance	$	1,922,998,000		$	210,768,000					$	2,133,766,000

Ending balance: individually evaluated for impairment	$	8,320,000		$	2,557,000					$	10,877,000

Ending balance: collectively evaluated for impairment	$	1,914,678,000		$	208,211,000					$	2,122,889,000

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

three

and

nine

months ended

September 30, 2017

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 3 0, 2017	$	324,000		$	16,000		$	0	$	340,000
Provis ion for loan losses		(18,000	)		105,000			0		87,000
Charge -offs		(1,000	)		(41,000	)		0		(42,000	)
Recove ries		1,000			0			0		1,000
Ending balance	$	306,000		$	80,000		$	0	$	386,000


Allowance for loan losses:
Balance at December 31, 201 6	$	75,000		$	18,000		$	0	$	93,000
Provision for loan losses		224,000			103,000			0		327,000
Charge-offs		(12,000	)		(41,000	)		0		(53,000	)
Recoveries		19,000			0			0		19,000
Ending balance	$	306,000		$	80,000		$	0	$	386,000

Activity in the allowance for loan losses

for originated loans during the

three

and

nine

months ended

September 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 June 3 0, 2016	$	14,729,000		$	1,913,000		$	234,000		$	16,876,000
Provision for loan losses		493,000			329,000			(252,000	)		570,000
Charge-offs		(1,000	)		(290,000	)		0			(291,000	)
Recoveries		78,000			101,000			0			179,000
Ending balance	$	15,299,000		$	2,053,000		$	(18,000	)	$	17,334,000


Allowance for loan losses:
Balance at December 31, 201 5	$	13,672,000		$	1,421,000		$	140,000		$	15,233,000
Provision for loan losses		1,429,000			1,128,000			(158,000	)		2,399,000
Charge-offs		(256,000	)		(907,000	)		0			(1,163,000	)
Recoveries		454,000			411,000			0			865,000
Ending balance	$	15,299,000		$	2,053,000		$	(18,000	)	$	17,334,000

Ending balance: individually evaluated for impairment	$	754,000		$	286,000		$	0		$	1,040,000

Ending balance: collectively evaluated for impairment	$	14,545,000		$	1,767,000		$	(18,000	)	$	16,294,000


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

nine

months ended

September 3

2016

is as follows:

	Commercial Loans			Retail Loans			Unallocated		Total

Allowance for loan losses:
Balance at June 3 0, 2016	$	211,000		$	23,000		$	0	$	234,000
Provision for loan losses		(39,000	)		69,000			0		30,000
Charge-offs		0			(72,000	)		0		(72,000	)
Recoverie s		0			0			0		0
Ending balance	$	172,000		$	20,000		$	0	$	192,000


Allowance for loan losses:
Balance at December 31, 2015	$	420,000		$	28,000		$	0	$	448,000
Provision for loan losses		(206,000	)		107,000			0		(99,000	)
Charge-of fs		0			(72,000	)		0		(72,000	)
Recoverie s		(42,000	)		(43,000	)		0		(85,000	)
Ending balance	$	172,000		$	20,000		$	0	$	192,000

The negative loan recoveries reflected for acquired loans during

the

first

nine

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

September 30, 2017

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		3	$	1,362,000	$	1,362,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		2		477,000		477,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		5		1,839,000		1,839,000

Retail:
Home equity and other		1		68,000		68,000
1-4 family mortgages		0		0		0
Total originated retail		1		68,000		68,000

Total originated loans		6	$	1,907,000	$	1,907,000

Acquired loans
Commercial:
Commercial and industrial		1	$	282,000	$	282,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		1		64,000		64,000
Real estate – multi-family and residential rental		1		1,064,000		1,064,000
Total acquired commercial		3		1,410,000		1,410,000

Retail:
Home equity and other		2		90,000		90,000
1-4 family mortgages		1		51,000		51,000
Total acquired retail		3		141,000		141,000

Total acquired loans		6	$	1,551,000	$	1,551,000

Loans modified as troubled debt restructurings during the

nine

months ended

September 30, 2017

were as follows:

	Number of Contracts		Pre- Modification Recorded Principal Balance		Post- Modification Recorded Principal Balance
Originated loans
Commercial:
Commercial and industrial		9	$	4,114,000	$	4,293,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		4		1,195,000		1,195,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		13		5,309,000		5,488,000

Retail:
Home equity and other		7		657,000		658,000
1-4 family mortgages		0		0		0
Total originated retail		7		657,000		658,000

Total originated loans		20	$	5,966,000	$	6,146,000

Acquired loans
Commercial:
Commercial and industrial		2	$	399,000	$	399,000
Vacant land, land development and residential construction		1		38,000		38,000
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		2		745,000		744,000
Real estate – multi-family and residential rental		1		1,064,000		1,064,000
Total acquired commercial		6		2,246,000		2,245,000

Retail:
Home equity and other		7		256,000		258,000
1-4 family mortgages		3		185,000		185,000
Total acquired retail		10		441,000		443,000

Total acquired loans		16	$	2,687,000	$	2,688,000

Loans modified as troubled debt restructurings during the

three

months ended

September 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		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0

Retail:
Home equity and other		1		56,000		56,000
1-4 family mortgages		0		0		0
Total originated retail		1		56,000		56,000

Total originated loans		1	$	56,000	$	56,000

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		44,000		44,000
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		44,000		44,000

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

Total acquired loans		2	$	47,000	$	47,000

Loans modified as troubled debt restructurings during the

nine

months ended

September 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		3		240,000		240,000
1-4 family mortgages		1		33,000		40,000
Total originated retail		4		273,000		280,000

Total originated loans		6	$	460,000	$	467,000

Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		1		44,000		44,000
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		3		111,000		111,000

Retail:
Home equity and other		3		54,000		54,000
1-4 family mortgages		1		19,000		19,000
Total acquired retail		4		73,000		73,000

Total acquired loans		7	$	184,000	$	184,000

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, 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

nine

months ended

September 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

September 30, 2017 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		1	$	114,000
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		1		114,000

Retail:
Home equity and other		1		99,000
1-4 family mortgages		0		0
Total retail		1		99,000

Total		2	$	213,000

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, 2017 (

amounts as of period end):

	Number of Contracts		Recorded Principal Balance
Commercial:
Commercial and industrial		1	$	114,000
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		1		114,000

Retail:
Home equity and other		1		99,000
1-4 family mortgages		0		0
Total retail		1		99,000

Total		2	$	213,000

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, 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

nine

months ended

September 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

September 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

nine

months ended

September 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

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

September 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	$	2,775,000		$	934,000		$	1,658,000		$	564,000		$	131,000
Charge-Offs		0			0			0			0			0
Payments		(572,000	)		(276,000	)		(144,000	)		(24,000	)		(131,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		858,000			0			477,000			0			0
Ending Balance	$	3,061,000		$	658,000		$	1,991,000		$	540,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1,050,000		$	151,000
Charge-Offs		0			0
Payments		(17,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		69,000			0
Ending Balance	$	1,102,000		$	148,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2017

is as follows:

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

Commercial Loan Portfolio:
Beginning Balance	$	992,000		$	33,000		$	980,000		$	914,000		$	63,000
Charge-Offs		0			0			(227,000	)		0			0
Payments		(239,000	)		(4,000	)		(253,000	)		(33,000	)		(19,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		280,000			0			0			62,000			1,064,000
Ending Balance	$	1,033,000		$	29,000		$	500,000		$	943,000		$	1,108,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	202,000		$	510,000
Charge-Offs		0			0
Payments		(8,000	)		(6,000	)
Transfers to ORE		0			0
Net Additions/Deletions		92,000			50,000
Ending Balance	$	286,000		$	554,000

Activity for originated loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2017

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Comm ercial 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		(1,950,000	)		(830,000	)		(196,000	)		(167,000	)		(404,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		3,508,000			0			1,281,000			(4,403,000	)		(312,000	)
Ending Balance	$	3,061,000		$	658,000		$	1,991,000		$	540,000		$	0

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000		$	157,000
Charge-Offs		0			0
Payments		(69,000	)		(9,000	)
Transfers to ORE		0			0
Net Additions/Deletions		786,000			0
Ending Balance	$	1,102,000		$	148,000

Activity for acquired loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2017

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commer cial 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			(239,000	)		0			0
Payments		(518,000	)		(4,000	)		(161,000	)		(218,000	)		(16,000	)
Transfers to ORE		0			0			0			(291,000	)		0
Net Additions/Deletions		426,000			33,000			0			724,000			1,064,000
Ending Balance	$	1,033,000		$	29,000		$	500,000		$	943,000		$	1,108,000

	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		(49,000	)		(12,000	)
Transfers to ORE		0			0
Net Additions/Deletions		152,000			240,000
Ending Balance	$	286,000		$	554,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

September 30, 2016

is as follows:

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

Commercial Loan Portfolio:
Beginning Balance	$	2,103,000		$	2,036,000		$	1,431,000		$	10,435,000		$	461,000
Charge-Offs		0			0			0			0			0
Payments		(230,000	)		(526,000	)		(37,000	)		(91,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		0			0			0			0			0
Ending Balance	$	1,873,000		$	1,510,000		$	1,394,000		$	10,344,000		$	454,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	329,000		$	163,000
Charge-Offs		0			0
Payments		(1,000	)		(3,000	)
Transfers to ORE		0			0
Net Additions/Deletions		59,000			0
Ending Balance	$	387,000		$	160,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

September 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, 644,000		$	0	$	1, 283,000		$	681 ,000		$	27 4,000
Charge-Offs		0			0		0			0			0
Payments		( 397,000	)		0		( 747,000	)		( 24,000	)		( 35,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		41,00 0			0			0
Ending Balance	$	1, 247,000		$	0	$	577 ,000		$	657 ,000		$	239 ,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	1 80,000		$	33 3,000
Charge-Offs		0			0
Payments		( 7,000	)		( 4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		3 ,000			0
Ending Balance	$	1 76,000		$	3 29,000

Activity for originated loans categorized as troubled debt restructurings during the

nine

months ended

September 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		(175,000	)		(576,000	)		(103,000	)		(313,000	)		(22,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		20,000			0			97,000			0			0
Ending Balance	$	1,873,000		$	1,510,000		$	1,394,000		$	10,344,000		$	454,000

	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	)		(8,000	)
Transfers to ORE		0			0
Net Additions/Deletions		242,000			40,000
Ending Balance	$	387,000		$	160,000

Activity for acquired loans categorized as troubled debt restructurings during the

nine

months ended

September 30, 2016

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Comme rcial 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		(391,000	)		0		(1,116,000	)		(46,000	)		(99,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		0			0		41,000			56,000			7,000
Ending Balance	$	1,247,000		$	0	$	577,000		$	657,000		$	239,000

	Retail Home Equity and Other			Retail 1-4 Family Mortgages
Retail Loan Portfolio:
Beginning Balance	$	141,000		$	316,000
Charge-Offs		0			0
Payments		(20,000	)		(6,000	)
Transfers to ORE		0			0
Net Additions/Deletions		55,000			19,000
Ending Balance	$	176,000		$	329,000

The allowance related to loans categorized as troubled debt

restructurings was as follows:

	September 30, 201 7		December 31, 201 6

Commercial:
Commercial and industrial	$	111,000	$	9,000
Vacant land, land development, and residential construction		6,000		28,000
Real estate – owner occupied		157,000		100,000
Real estate – non-owner occupied		2,000		247,000
Real estate – multi-family and residential rental		0		258,000
Total commercial		276,000		642,000

Retail:
Home equity and other		187,000		48,000
1-4 family mortgages		3,000		4,000
Total retail		190,000		52,000

Total related allowance	$	466,000	$	694,000

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.