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. Acquired loans are those purchased in the Firstbank merger. These loans were recorded at estimated fair value at the merger date with no carryover of the related allowance. The acquired loans were segregated between those considered to be performing (“acquired non-impaired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Acquired loans restructured after acquisition are not considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the merger date and are accounted for in pools. The fair value estimates for acquired loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the merger date fair value of acquired impaired loans, and in subsequent accounting, we have generally aggregated acquired commercial and consumer loans into pools of loans with common risk characteristics. The difference between the fair value of an acquired non-impaired loan and contractual amounts due at the merger date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio. The excess of an acquired impaired loan’s undiscounted contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess cash flows expected to be collected over the carrying amount of the acquired loan is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans. We evaluate quarterly the remaining contractual required payments receivable and estimate cash flows expected to be collected over the lives of the impaired loans. Contractually required payments receivable may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the merger date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period. Increases in expected cash flows of acquired impaired loans subsequent to the merger date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance. Our total loans at June 30, 2016 were $2.38 billion compared to $2.28 billion at December 31, 2015, an increase of $102 million, or 4.5%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at June 30, 2016 and December 31, 2015, and the percentage change in loans from the end of 2015 to the end of the second quarter of 2016, are as follows: Percent June 30, 2016 December 31, 2015 Increase Balance % Balance % (Decrease) Originated loans Commercial: Commercial and industrial $ 653,135,000 36.3 % $ 577,872,000 35.7 % 13.0 % Vacant land, land development, and residential construction 30,232,000 1.7 30,138,000 1.9 0.3 Real estate – owner occupied 338,909,000 18.8 330,798,000 20.5 2.5 Real estate – non-owner occupied 603,236,000 33.5 520,754,000 32.2 15.8 Real estate – multi-family and residential rental 39,233,000 2.2 33,954,000 2.1 15.5 Total commercial 1,664,745,000 92.5 1,493,516,000 92.4 11.5 Retail: Home equity and other 69,396,000 3.9 67,816,000 4.2 2.3 1-4 family mortgages 65,813,000 3.6 55,255,000 3.4 19.1 Total retail 135,209,000 7.5 123,071,000 7.6 9.9 Total originated loans $ 1,799,954,000 100.0 % $ 1,616,587,000 100.0 % 11.3 % Percent June 30, 2016 December 31, 2015 Increase Balance % Balance % (Decrease) Acquired loans Commercial: Commercial and industrial $ 97,001,000 16.7 % $ 118,431,000 17.9 % (18.1 )% Vacant land, land development, and residential construction 10,297,000 1.8 14,982,000 2.3 (31.3 ) Real estate – owner occupied 99,889,000 17.2 115,121,000 17.4 (13.2 ) Real estate – non-owner occupied 113,694,000 19.6 123,597,000 18.7 (8.0 ) Real estate – multi-family and residential rental 74,129,000 12.8 81,049,000 12.3 (8.5 ) Total commercial 395,010,000 68.1 453,180,000 68.6 (12.8 ) Retail: Home equity and other 61,671,000 10.6 72,830,000 11.0 (15.3 ) 1-4 family mortgages 123,305,000 21.3 135,130,000 20.4 (8.7 ) Total retail 184,976,000 31.9 207,960,000 31.4 (11.1 ) Total acquired loans $ 579,986,000 100.0 % $ 661,140,000 100.0 % (12.3% ) Percent June 30, 2016 December 31, 2015 Increase Balance % Balance % (Decrease) Total loans Commercial: Commercial and industrial $ 750,136,000 31.5 % $ 696,303,000 30.6 % 7.7 % Vacant land, land development, and residential construction 40,529,000 1.7 45,120,000 2.0 (10.2 ) Real estate – owner occupied 438,798,000 18.4 445,919,000 19.6 (1.6 ) Real estate – non-owner occupied 716,930,000 30.1 644,351,000 28.3 11.3 Real estate – multi-family and residential rental 113,362,000 4.8 115,003,000 5.0 (1.4 ) Total commercial 2,059,755,000 86.5 1,946,696,000 85.5 5.8 Retail: Home equity and other 131,067,000 5.5 140,646,000 6.2 (6.8 ) 1-4 family mortgages 189,118,000 8.0 190,385,000 8.3 (0.7 ) Total retail 320,185,000 13.5 331,031,000 14.5 (3.3 ) Total loans $ 2,379,940,000 100.0 % $ 2,277,727,000 100.0 % 4.5 % The total contractually required payments due on and carrying value of acquired impaired loans were $19.2 million and $8.8 million, respectively, as of June 30, 2016. The total contractually required payments due on and carrying value of acquired impaired loans were $24.6 million and $13.1 million, respectively, as of December 31, 2015. Changes in the accretable yield for acquired impaired loans for the three and six months ended June 30, 2016 and June 30, 2015 were as follows: Balance at March 31, 2016 $ 6,319,000 Additions 0 Accretion income (674,000 ) Net reclassification from nonaccretable to accretable 1,193,000 Reductions (1) (236,000 ) Balance at June 30, 2016 $ 6,602,000 Balance at December 31, 2015 $ 5,193,000 Additions 21,000 Accretion income (1,354,000 ) Net reclassification from nonaccretable to accretable 3,565,000 Reductions (1) (823,000 ) Balance at June 30, 2016 $ 6,602,000 Balance at March 31, 2015 $ 5,241,000 Additions 0 Accretion income (681,000 ) Net reclassification from nonaccretable to accretable 708,000 Reductions (1) (153,000 ) Balance at June 30, 2015 $ 5,115,000 Balance at December 31, 2014 $ 4,998,000 Additions 0 Accretion income (1,327,000 ) Net reclassification from nonaccretable to accretable 1,649,000 Reductions (1) (205,000 ) Balance at June 30, 2015 $ 5,115,000 (1) Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs. Nonperforming originated loans as of June 30, 2016 and December 31, 2015 were as follows: June 30, 2016 December 31, 2015 Loans past due 90 days or more still accruing interest $ 0 $ 0 Nonaccrual loans 2,042,000 1,954,000 Total nonperforming originated loans $ 2,042,000 $ 1,954,000 Nonperforming acquired loans as of June 30, 2016 and December 31, 2015 were as follows: June 30, 2016 December 31, 2015 Loans past due 90 days or more still accruing interest $ 0 $ 5,000 Nonaccrual loans 3,126,000 3,485,000 Total nonperforming acquired loans $ 3,126,000 $ 3,490,000 The recorded principal balance of nonperforming loans was as follows: June 30, 2016 December 31, 2015 Commercial: Commercial and industrial $ 819,000 $ 458,000 Vacant land, land development, and residential construction 125,000 155,000 Real estate – owner occupied 1,465,000 1,797,000 Real estate – non-owner occupied 51,000 79,000 Real estate – multi-family and residential rental 114,000 157,000 Total commercial 2,574,000 2,646,000 Retail: Home equity and other 616,000 771,000 1-4 family mortgages 1,978,000 2,027,000 Total retail 2,594,000 2,798,000 Total nonperforming loans $ 5,168,000 $ 5,444,000 Acquired impaired loans are not reported as nonperforming loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio. An age analysis of past due loans is as follows as of June 30, 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 $ 1,000 $ 0 $ 0 $ 1,000 $ 653,134,000 $ 653,135,000 $ 0 Vacant land, land development, and residential construction 0 0 0 0 30,232,000 30,232,000 0 Real estate – owner occupied 0 197,000 0 197,000 338,712,000 338,909,000 0 Real estate – non-owner occupied 0 0 0 0 603,236,000 603,236,000 0 Real estate – multi-family and residential rental 0 0 0 0 39,233,000 39,233,000 0 Total commercial 1,000 197,000 0 198,000 1,664,547,000 1,664,745,000 0 Retail: Home equity and other 129,000 21,000 11,000 161,000 69,235,000 69,396,000 0 1-4 family mortgages 97,000 0 403,000 500,000 65,313,000 65,813,000 0 Total retail 226,000 21,000 414,000 661,000 134,548,000 135,209,000 0 Total past due loans $ 227,000 $ 218,000 $ 414,000 $ 859,000 $ 1,799,095,000 $ 1,799,954,000 $ 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 $ 14,000 $ 0 $ 350,000 $ 364,000 $ 96,637,000 $ 97,001,000 $ 0 Vacant land, land development, and residential construction 29,000 0 0 29,000 10,268,000 10,297,000 0 Real estate – owner occupied 243,000 50,000 398,000 691,000 99,198,000 99,889,000 0 Real estate – non-owner occupied 159,000 0 419,000 578,000 113,116,000 113,694,000 0 Real estate – multi-family and residential rental 164,000 42,000 80,000 286,000 73,843,000 74,129,000 0 Total commercial 609,000 92,000 1,247,000 1,948,000 393,062,000 395,010,000 0 Retail: Home equity and other 568,000 43,000 11,000 622,000 61,049,000 61,671,000 0 1-4 family mortgages 1,188,000 261,000 344,000 1,793,000 121,512,000 123,305,000 0 Total retail 1,756,000 304,000 355,000 2,415,000 182,561,000 184,976,000 0 Total past due loans $ 2,365,000 $ 396,000 $ 1,602,000 $ 4,363,000 $ 575,623,000 $ 579,986,000 $ 0 An age analysis of past due loans is as follows as of December 31, 2015: 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 $ 577,872,000 $ 577,872,000 $ 0 Vacant land, land development, and residential construction 0 0 0 0 30,138,000 30,138,000 0 Real estate – owner occupied 432,000 0 9,000 441,000 330,357,000 330,798,000 0 Real estate – non-owner occupied 0 0 0 0 520,754,000 520,754,000 0 Real estate – multi-family and residential rental 0 0 0 0 33,954,000 33,954,000 0 Total commercial 432,000 0 9,000 441,000 1,493,075,000 1,493,516,000 0 Retail: Home equity and other 186,000 108,000 0 294,000 67,522,000 67,816,000 0 1-4 family mortgages 107,000 95,000 356,000 558,000 54,697,000 55,255,000 0 Total retail 293,000 203,000 356,000 852,000 122,219,000 123,071,000 0 Total past due loans $ 725,000 $ 203,000 $ 365,000 $ 1,293,000 $ 1,615,294,000 $ 1,616,587,000 $ 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 $ 5,000 $ 541,000 $ 546,000 $ 117,885,000 $ 118,431,000 $ 0 Vacant land, land development, and residential construction 27,000 0 0 27,000 14,955,000 14,982,000 0 Real estate – owner occupied 323,000 425,000 1,142,000 1,890,000 113,231,000 115,121,000 0 Real estate – non-owner occupied 53,000 703,000 79,000 835,000 122,762,000 123,597,000 0 Real estate – multi-family and residential rental 223,000 54,000 0 277,000 80,772,000 81,049,000 0 Total commercial 626,000 1,187,000 1,762,000 3,575,000 449,605,000 453,180,000 0 Retail: Home equity and other 395,000 44,000 28,000 467,000 72,363,000 72,830,000 5,000 1-4 family mortgages 960,000 354,000 416,000 1,730,000 133,400,000 135,130,000 0 Total retail 1,355,000 398,000 444,000 2,197,000 205,763,000 207,960,000 5,000 Total past due loans $ 1,981,000 $ 1,585,000 $ 2,206,000 $ 5,772,000 $ 655,368,000 $ 661,140,000 $ 5,000 (Continued) MERCANTILE BANK CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. LOANS AND ALLOWANCE FOR LOAN LOSSES Impaired originated loans as of June 30, 2016, and average originated impaired loans for the three and six months ended June 30, 2016, were as follows: Unpaid Contractual Principal Balance Recorded Principal Balance Related Allowance Second Quarter Average Recorded Principal Balance Year-To-Date Average Recorded Principal Balance With no related allowance recorded Commercial: Commercial and industrial $ 2,147,000 $ 2,146,000 $ 2,017,000 $ 1,845,000 Vacant land, land development and residential construction 0 0 0 0 Real estate – owner occupied 348,000 251,000 160,000 275,000 Real estate – non-owner occupied 5,623,000 5,623,000 5,641,000 5,660,000 Real estate – multi-family and residential rental 0 0 0 0 Total commercial 8,118,000 8,020,000 7,818,000 7,780,000 Retail: Home equity and other 129,000 120,000 65,000 45,000 1-4 family mortgages 1,324,000 668,000 621,000 633,000 Total retail 1,453,000 788,000 686,000 678,000 Total with no related allowance recorded $ 9,571,000 $ 8,808,000 $ 8,504,000 $ 8,458,000 Unpaid Contractual Principal Balance Recorded Principal Balance Related Allowance Second Quarter Average Recorded Principal Balance Year-To-Date Average Recorded Principal Balance With an allowance recorded Commercial: Commercial and industrial $ 249,000 $ 199,000 $ 47,000 $ 217,000 $ 246,000 Vacant land, land development and residential construction 2,002,000 1,625,000 72,000 1,633,000 1,640,000 Real estate – owner occupied 5,930,000 1,378,000 235,000 1,339,000 1,331,000 Real estate – non-owner occupied 4,704,000 4,704,000 180,000 4,729,000 4,766,000 Real estate – multi-family and residential rental 979,000 979,000 293,000 993,000 1,004,000 Total commercial 13,864,000 8,885,000 827,000 8,911,000 8,987,000 Retail: Home equity and other 550,000 512,000 137,000 491,000 515,000 1-4 family mortgages 205,000 163,000 72,000 145,000 139,000 Total retail 755,000 675,000 209,000 636,000 654,000 Total with an allowance recorded $ 14,619,000 $ 9,560,000 $ 1,036,000 $ 9,547,000 $ 9,641,000 Total impaired loans: Commercial $ 21,982,000 $ 16,905,000 $ 827,000 $ 16,729,000 $ 16,767,000 Retail 2,208,000 1,463,000 209,000 1,322,000 1,332,000 Total impaired loans $ 24,190,000 $ 18,368,000 $ 1,036,000 $ 18,051,000 $ 18,099,000 Impaired acquired loans as of June 30, 2016, and average impaired acquired loans for the three and six months ended June 30, 2016, were as follows: Unpaid Contractual Principal Balance Recorded Principal Balance Related Allowance Second Quarter Average Recorded Principal Balance Year-To-Date Average Recorded Principal Balance With no related allowance recorded Commercial: Commercial and industrial $ 1,694,000 $ 1,681,000 $ 1,556,000 $ 1,535,000 Vacant land, land development and residential construction 0 0 0 0 Real estate – owner occupied 1,314,000 1,300,000 1,485,000 1,640,000 Real estate – non-owner occupied 811,000 811,000 792,000 821,000 Real estate – multi-family and residential rental 295,000 295,000 289,000 327,000 Total commercial 4,114,000 4,087,000 4,122,000 4,323,000 Retail: Home equity and other 367,000 365,000 321,000 317,000 1-4 family mortgages 1,305,000 1,305,000 1,290,000 1,376,000 Total retail 1,672,000 1,670,000 1,611,000 1,693,000 Total with no related allowance recorded $ 5,786,000 $ 5,757,000 $ 5,733,000 $ 6,016,000 Unpaid Contractual Principal Balance Recorded Principal Balance Related Allowance Second Quarter Average Recorded Principal Balance Year-To-Date Average Recorded Principal Balance With an allowance recorded Commercial: Commercial and industrial $ 356,000 $ 356,000 $ 101,000 $ 367,000 $ 370,000 Vacant land, land development and residential construction 0 0 0 0 0 Real estate – owner occupied 49,000 49,000 4,000 50,000 50,000 Real estate – non-owner occupied 0 0 0 0 0 Real estate – multi-family and residential rental 20,000 20,000 1,000 20,000 21,000 Total commercial 425,000 425,000 106,000 437,000 441,000 Retail: Home equity and other 0 0 0 0 0 1-4 family mortgages 174,000 174,000 5,000 87,000 116,000 Total retail 174,000 174,000 5,000 87,000 116,000 Total with an allowance recorded $ 599,000 $ 599,000 $ 111,000 $ 524,000 $ 557,000 Total impaired loans: Commercial $ 4,539,000 $ 4,512,000 $ 106,000 $ 4,559,000 $ 4,764,000 Retail 1,846,000 1,844,000 5,000 1,698,000 1,809,000 Total impaired loans $ 6,385,000 $ 6,356,000 $ 111,000 $ 6,257,000 $ 6,573,000 Impaired originated loans as of December 31, 2015, and average impaired originated loans for the three and six months ended June 30, 2015, were as follows: Unpaid Contractual Principal Balance Recorded Principal Balance Related Allowance Second Quarter Average Recorded Principal Balance Year-To-Date Average Recorded Principal Balance With no related allowance recorded Commercial: Commercial and industrial $ 1,509,000 $ 1,501,000 $ 1,930,000 $ 1,674,000 Vacant land, land development and residential construction 0 0 98,000 135,000 Real estate – owner occupied 712,000 505,000 1,062,000 1,342,000 Real estate – non-owner occupied 5,696,000 5,696,000 2,937,000 2,362,000 Real estate – multi-family and residential rental 0 0 306,000 309,000 Total commercial 7,917,000 7,702,000 6,333,000 5,822,000 Retail: Home equity and other 14,000 5,000 189,000 190,000 1-4 family mortgages 1,328,000 657,000 615,000 597,000 Total retail 1,342,000 662,000 804,000 787,000 Total with no related allowance recorded $ 9,259,000 $ 8,364,000 $ 7,137,000 $ 6,609,000 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 $ 352,000 $ 305,000 $ 165,000 $ 2,812,000 $ 3,617,000 Vacant land, land development and residential construction 2,017,000 1,655,000 245,000 2,092,000 2,061,000 Real estate – owner occupied 5,867,000 1,314,000 242,000 8,806,000 11,095,000 Real estate – non-owner occupied 4,841,000 4,841,000 201,000 10,319,000 12,195,000 Real estate – multi-family and residential rental 1,028,000 1,028,000 365,000 1,321,000 1,338,000 Total commercial 14,105,000 9,143,000 1,218,000 25,350,000 30,306,000 Retail: Home equity and other 600,000 562,000 209,000 165,000 138,000 1-4 family mortgages 165,000 128,000 47,000 217,000 811,000 Total retail 765,000 690,000 256,000 382,000 949,000 Total with an allowance recorded $ 14,870,000 $ 9,833,000 $ 1,474,000 $ 25,732,000 $ 31,255,000 Total impaired loans: Commercial $ 22,022,000 $ 16,845,000 $ 1,218,000 $ 31,683,000 $ 36,128,000 Retail 2,107,000 1,352,000 256,000 1,186,000 1,736,000 Total impaired loans $ 24,129,000 $ 18,197,000 $ 1,474,000 $ 32,869,000 $ 37,864,000 Impaired acquired loans as of December 31, 2015, and average impaired acquired loans for the three and six months ended June 30, 2015, were as follows: Unpaid Contractual Principal Balance Recorded Principal Balance Related Allowance Second Quarter Average Recorded Principal Balance Year-To-Date Average Recorded Principal Balance With no related allowance recorded Commercial: Commercial and industrial $ 1,528,000 $ 1,494,000 $ 1,244,000 $ 1,356,000 Vacant land, land development and residential construction 0 0 0 0 Real estate – owner occupied 2,233,000 1,952,000 317,000 249,000 Real estate – non-owner occupied 880,000 880,000 427,000 393,000 Real estate – multi-family and residential rental 452,000 404,000 2,037,000 1,520,000 Total commercial 5,093,000 4,730,000 4,025,000 3,518,000 Retail: Home equity and other 471,000 310,000 365,000 456,000 1-4 family mortgages 1,804,000 1,548,000 801,000 823,000 Total retail 2,275,000 1,858,000 1,166,000 1,279,000 Total with no related allowance recorded $ 7,368,000 $ 6,588,000 $ 5,191,000 $ 4,797,000 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 $ 383,000 $ 376,000 $ 102,000 $ 97,000 $ 65,000 Vacant land, land development and residential construction 0 0 0 0 0 Real estate – owner occupied 51,000 51,000 4,000 1,256,000 1,338,000 Real estate – non-owner occupied 0 0 0 0 0 Real estate – multi-family and residential rental 23,000 23,000 0 28,000 19,000 Total commercial 457,000 450,000 106,000 1,381,000 1,422,000 Retail: Home equity and other 0 0 0 0 0 1-4 family mortgages 175,000 175,000 6,000 283,000 189,000 Total retail 175,000 175,000 6,000 283,000 189,000 Total with an allowance recorded $ 632,000 $ 625,000 $ 112,000 $ 1,664,000 $ 1,611,000 Total impaired loans: Commercial $ 5,550,000 $ 5,180,000 $ 106,000 $ 5,406,000 $ 4,940,000 Retail 2,450,000 2,033,000 6,000 1,449,000 1,468,000 Total impaired loans $ 8,000,000 $ 7,213,000 $ 112,000 $ 6,855,000 $ 6,408,000 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 collateral value. Interest income recognized on accruing troubled debt restructurings totaled $0.2 million and $0.4 million during the second quarter of 2016 and 2015, respectively, and $0.5 million and $0.8 million during the first six months of 2016 and 2015, respectively. No interest income was recognized on nonaccrual loans during the second quarter and first six months of 2016 or during the respective 2015 periods. Credit Quality Indicators. Credit quality indicators were as follows as of June 30, 2016: Originated loans Commercial credit exposure – credit risk profiled by internal credit risk grades: Commercial and Industrial Commercial Vacant Land, Land Development, and Residential Construction Commercial Real Estate - Owner Occupied Commercial Real Estate - Non-Owner Occupied Commercial Real Estate - Multi-Family and Residential Rental Internal credit risk grade groupings: Grades 1 – 4 $ 455,134,000 $ 19,014,000 $ 237,652,000 $ 491,928,000 $ 20,438,000 Grades 5 – 7 197,701,000 11,093,000 99,961,000 111,308,000 17,816,000 Grades 8 – 9 300,000 125,000 1,296,000 0 979,000 Total commercial $ 653,135,000 $ 30,232,000 $ 338,909,000 $ 603,236,000 $ 39,233,000 Retail credit exposure – credit risk profiled by collateral type: Retail Home Equity and Other Retail 1-4 Family Mortgages Total retail $ 69,396,000 $ 65,813,000 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 $ 50,716,000 $ 2,322,000 $ 41,217,000 $ 70,569,000 $ 42,729,000 Grades 5 – 7 43,819,000 7,648,000 55,364,000 41,431,000 30,692,000 Grades 8 – 9 2,466,000 327,000 3,308,000 1,694,000 708,000 Total commercial $ 97,001,000 $ 10,297,000 $ 99,889,000 $ 113,694,000 $ 74,129,000 Retail credit exposure – credit risk profiled by collateral type: Retail Home Equity and Other Retail 1-4 Family Mortgages Total retail $ 61,671,000 $ 123,305,000 Credit quality indicators were as follows as of December 31, 2015: 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 $ 417,120,000 $ 18,118,000 $ 230,629,000 $ 400,350,000 $ 19,121,000 Grades 5 – 7 160,454,000 10,365,000 98,332,000 120,404,000 13,806,000 Grades 8 – 9 298,000 1,655,000 1,837,000 0 1,027,000 Total commercial $ 577,872,000 $ 30,138,000 $ 330,798,000 $ 520,754,000 $ 33,954,000 Retail credit exposure – credit risk profiled by collateral type: Retail Home Equity and Other Retail 1-4 Family Mortgages Total retail $ 67,816,000 $ 55,255,000 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 $ 67,978,000 $ 3,095,000 $ 45,807,000 $ 71,197,000 $ 44,763,000 Grades 5 – 7 47,589,000 11,364,000 63,563,000 50,066,000 35,288,000 Grades 8 – 9 2,864,000 523,000 5,751,000 2,334,000 998,000 Total commercial $ 118,431,000 $ 14,982,000 $ 115,121,000 $ 123,597,000 $ 81,049,000 Retail credit exposure – credit risk profiled by collateral type: Retail Home Equity and Other Retail 1-4 Family Mortgages Total retail $ 72,830,000 $ 135,130,000 All commercial loans are graded using the following criteria: Grade 1. Excellent credit rating that contain very little, if any, risk of loss. Grade 2. Strong sources of repayment and have low repayment risk. Grade 3. Good sources of repayment and have limited repayment risk. Grade 4. Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event. Grade 5. Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics. Grade 6. Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and review by the Board of Directors and senior management). Grade 7. Defined weaknesses or negative trends that merit close monitoring through Watch List status. Grade 8. Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in a distinct possibility of loss requiring close monitoring through Watch List status. Grade 9. Vital weaknesses exist where collection of principal is highly questionable. Grade 10. Considered uncollectable and of such little value that continuance as an asset is not warranted. The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position. Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the three and six months ended June 30, 2016 are as follows: Commercial Loans Retail Loans Unallocated Total Allowance for loan losses: Balance at March 31, 2016 $ 13,924,000 $ 1,834,000 $ 214,000 $ 15,972,000 Provision for loan losses 842,000 296,000 20,000 1,158,000 Charge-offs (166,000 ) (231,000 ) 0 (397,000 ) Recoveries 129,000 14,000 0 143,000 Ending balance $ 14,729,000 $ 1,913,000 $ 234,000 $ 16,876,000 Allowance for loan losses: Balance at December 31, 2015 $ 13,672,000 $ 1,421,000 $ 140,000 $ 15,233,000 Provision for loan losses 936,000 799,000 94,000 1,829,000 Charge-offs (255,000 ) (617,000 ) 0 (872,000 ) Recoveries 376,000 310,000 0 686,000 Ending balance $ 14,729,000 $ 1,913,000 $ 234,000 $ 16,876,000 Ending balance: individually evaluated for impairment $ 827,000 $ 209,000 $ 0 $ 1,036,000 Ending balance: collectively evaluated for impairment $ 13,902,000 $ 1,704,000 $ 234,000 $ 15,840,000 Total loans: Ending balance $ 1,664,745,000 $ 135,209,000 $ 1,799,954,000 Ending balance: individually evaluated for impairment $ 16,905,000 $ 1,463,000 $ 18,368,000 Ending balance: collectively evaluated for impairment $ 1,647,840,000 $ 133,746,000 $ 1,781,586,000 Activity in the allowance for loan losses for acquired loans during the three and six months ended June 30, 2016 is as follows: Commercial Loans Retail Loans Unallocated Total Allowance for loan losses: Balance at March 31, 2016 $ 266,000 $ 24,000 $ 0 $ 290,000 Provision for loan losses (57,000 ) (1,000 ) 0 (58,000 ) Charge-offs 0 0 0 0 Recoveries 2,000 0 0 2,000 Ending balance $ 211,000 $ 23,000 $ 0 $ 234,000 Allowance for loan losses: Balance at December 31, 2015 $ 420,000 $ 28,000 $ 0 $ 448,000 Provision for loan losses (167,000 ) 38,000 0 (129,000 ) Charge-offs 0 0 0 0 Recoveries (42,000 ) (43,000 ) 0 (85,000 ) Ending balance $ 211,000 $ 23,000 $ 0 $ 234,000 The negative loan recoveries reflected for acquired loans during the first six months of 2016 resulted from reversals of prior-period recoveries associated with certain purchased credit impaired (“PCI”) loans that were subject to pre-acquisition charge-offs. Post-acquisition payments received on these PCI loans were previously reported as loan loss recoveries in prior periods; during the first quarter of 2016, these recoveries were reversed and reported as recovery income if associated with specifically reviewed PCI loans or retained gains if associated with PCI-pooled loans. Activity in the all |