Loans and ALLL

We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees. A portion of loans are unsecured.

Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ALLL, and deferred fees or costs. Unless a loan has a nonaccrual status, interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate amortization method.

The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on the contractual term of the loan. In all cases, a loan is placed in nonaccrual status at an earlier date if collection of principal or interest is considered doubtful.

When a loan is placed in nonaccrual status, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ALLL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status.

Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, advances to mortgage brokers, farmland and agricultural production, and loans to states and political subdivisions. Repayment of these loans is dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of direct credit exposure to any one borrower to $15,000. Borrowers with direct credit needs of more than $15,000 may be serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans commonly require loan-to-value limits of 80% or less. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, property, or equipment. Government agency guarantee may be required. Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we may require annual financial statements, prepare cash flow analyses, and review credit reports.

We entered into a mortgage purchase program in 2016 with a financial institution where we participate in advances to mortgage brokers (“advances”). The mortgage brokers originate residential mortgage loans with the intent to sell them on the secondary market. We participate in the advance to the mortgage broker, which is secured by the underlying mortgage loan, until it is ultimately sold on the secondary market. As such, the average life of each participated advance is approximately 20-30 days. Funds from the sale of the loan are used to pay off our participation in the advance to the mortgage broker. We classify these advances as commercial loans and include the outstanding balance in commercial loans on our consolidated balance sheets. Under the participation agreement, we committed to a maximum outstanding aggregate amount of $50,000. The difference between our outstanding balance and the maximum outstanding aggregate amount is classified as “Unfunded commitments under lines of credit” in the “Contractual Obligations and Loan Commitments” section of the Management's Discussion and Analysis of Financial Condition and Results of Operations of this report.

We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which have amortization periods up to a maximum of 30 years. We consider the anticipated direction of interest rates, balance sheet duration, the sensitivity of our balance sheet to changes in interest rates, our liquidity needs, and overall loan demand to determine whether or not to sell fixed rate loans to Freddie Mac.

Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 100% of the lower of the appraised value of the property or the purchase price. Private mortgage insurance is typically required on loans with loan-to-value ratios in excess of 80% unless the loan qualifies for government guarantees.

Underwriting criteria for originated residential real estate loans generally include:


•	Evaluation of the borrower’s ability to make monthly payments.


•	Evaluation of the value of the property securing the loan.


•	Ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income.


•	Ensuring all debt servicing does not exceed 40% of income.


•	Verification of acceptable credit reports.


•	Verification of employment, income, and financial information.

Appraisals are performed by independent appraisers and are reviewed for appropriateness. Generally, mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market underwriting system; loans in excess of $1,000 require the approval of our Internal Loan Committee, the Executive Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.

Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 15 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Full or partial loan balances are charged against the ALLL when we believe uncollectability is probable. Subsequent recoveries, if any, are credited to the ALLL.

The ALLL is evaluated on a regular basis for appropriateness. Our periodic review of the collectability of a loan considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The primary factors behind the determination of the level of the ALLL are specific allocations for impaired loans, historical loss percentages, as well as unallocated components. Specific allocations for impaired loans are primarily determined based on the difference between the loan’s outstanding balance and the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Historical loss allocations are calculated at the loan class and segment levels based on a migration analysis of the loan portfolio, with the exception of advances to mortgage brokers, over the preceding five years. With no historical losses on advances to mortgage brokers, there is no allocation related to this portfolio. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

While we have experienced fluctuations in credit quality indicators in recent periods, credit quality remained strong at June 30, 2020. However, the COVID-19 pandemic led to temporary closures of businesses throughout the communities in which we serve, which also led to increased unemployment. Therefore, we increased the ALLL during the first six months of 2020 to account for inherent risk of probable losses within the loan portfolio as of June 30, 2020. We continue to monitor the economic impact from COVID-19 as it relates to credit risk to ensure the ALLL is appropriate.

Summaries of the ALLL and the recorded investment in loans by segments follows:



	Allowance for Loan Losses
	Three Months Ended June 30, 2020
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
April 1, 2020	$	2,375		$	490		$	1,717		$	961		$	3,154	$	8,697
Charge-offs	(1		)	(6		)	—			(59		)	—		(66		)
Recoveries	30			2			39			70			—		141
Provision for loan losses	(283		)	(130		)	(563		)	(147		)	1,228		105
June 30, 2020	$	2,121		$	356		$	1,193		$	825		$	4,382	$	8,877



	Allowance for Loan Losses
	Six Months Ended June 30, 2020
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2020	$	1,914		$	634		$	2,047		$	922		$	2,422	$	7,939
Charge-offs	(5		)	(22		)	(15		)	(182		)	—		(224		)
Recoveries	52			35			66			116			—		269
Provision for loan losses	160			(291		)	(905		)	(31		)	1,960		893
June 30, 2020	$	2,121		$	356		$	1,193		$	825		$	4,382	$	8,877



	Allowance for Loan Losses and Recorded Investment in Loans
	June 30, 2020
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	63	$	63	$	824	$	—	$	—	$	950
Collectively evaluated for impairment	2,058		293		369		825		4,382		7,927
Total	$	2,121	$	356	$	1,193	$	825	$	4,382	$	8,877
Loans
Individually evaluated for impairment	$	8,235	$	13,191	$	4,926	$	—			$	26,352
Collectively evaluated for impairment	791,397		89,971		303,000		73,665				1,258,033
Total	$	799,632	$	103,162	$	307,926	$	73,665			$	1,284,385



	Allowance for Loan Losses
	Three Months Ended June 30, 2019
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
April 1, 2019	$	2,248		$	775		$	2,305		$	891		$	2,179	$	8,398
Charge-offs	(105		)	(59		)	(94		)	(75		)	—		(333		)
Recoveries	22			—			91			38			—		151
Provision for loan losses	(85		)	(104		)	(420		)	73			357		(179		)
June 30, 2019	$	2,080		$	612		$	1,882		$	927		$	2,536	$	8,037



	Allowance for Loan Losses
	Six Months Ended June 30, 2019
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2019	$	2,563		$	775		$	1,992		$	857		$	2,188	$	8,375
Charge-offs	(113		)	(59		)	(96		)	(203		)	—		(471		)
Recoveries	73			1			118			86			—		278
Provision for loan losses	(443		)	(105		)	(132		)	187			348		(145		)
June 30, 2019	$	2,080		$	612		$	1,882		$	927		$	2,536	$	8,037



	Allowance for Loan Losses and Recorded Investment in Loans
	December 31, 2019
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	15	$	26	$	1,073	$	—	$	—	$	1,114
Collectively evaluated for impairment	1,899		608		974		922		2,422		6,825
Total	$	1,914	$	634	$	2,047	$	922	$	2,422	$	7,939
Loans
Individually evaluated for impairment	$	7,865	$	14,840	$	5,486	$	—			$	28,191
Collectively evaluated for impairment	693,076		102,080		293,083		70,140				1,158,379
Total	$	700,941	$	116,920	$	298,569	$	70,140			$	1,186,570

The following tables display the internally assigned credit risk ratings for commercial and agricultural credit exposures as of:



	June 30, 2020
	Commercial								Agricultural
	Real Estate		Other		Advances to Mortgage Brokers		Total		Real Estate		Other		Total		Total
Rating
1 - Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2 - High quality	3,004		18,584		—		21,588		836		13		849		22,437
3 - High satisfactory	90,236		65,092		46,767		202,095		16,983		5,528		22,511		224,606
4 - Low satisfactory	385,803		147,480		—		533,283		32,165		18,466		50,631		583,914
5 - Special mention	17,843		9,346		—		27,189		12,528		2,865		15,393		42,582
6 - Substandard	7,126		6,984		—		14,110		6,763		3,359		10,122		24,232
7 - Vulnerable	28		1,339		—		1,367		2,916		552		3,468		4,835
8 - Doubtful	—		—		—		—		188		—		188		188
9 - Loss	—		—		—		—		—		—		—		—
Total	$	504,040	$	248,825	$	46,767	$	799,632	$	72,379	$	30,783	$	103,162	$	902,794



	December 31, 2019
	Commercial								Agricultural
	Real Estate		Other		Advances to Mortgage Brokers		Total		Real Estate		Other		Total		Total
Rating
1 - Excellent	$	—	$	390	$	—	$	390	$	—	$	—	$	—	$	390
2 - High quality	2,582		8,844		—		11,426		1,452		99		1,551		12,977
3 - High satisfactory	109,737		42,858		35,523		188,118		16,765		6,769		23,534		211,652
4 - Low satisfactory	377,198		94,847		—		472,045		42,798		20,861		63,659		535,704
5 - Special mention	15,372		3,470		—		18,842		7,165		3,754		10,919		29,761
6 - Substandard	4,874		3,625		—		8,499		9,136		3,836		12,972		21,471
7 - Vulnerable	390		1,231		—		1,621		2,711		1,574		4,285		5,906
8 - Doubtful	—		—		—		—		—		—		—		—
9 - Loss	—		—		—		—		—		—		—		—
Total	$	510,153	$	155,265	$	35,523	$	700,941	$	80,027	$	36,893	$	116,920	$	817,861

Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned credit risk ratings for commercial and agricultural loans are as follows:

1. EXCELLENT – Substantially Risk Free

Credit has strong financial condition and solid earnings history, characterized by:


•	High liquidity, strong cash flow, low leverage.


•	Unquestioned ability to meet all obligations when due.


•	Experienced management, with management succession in place.


•	Secured by cash.

2. HIGH QUALITY – Limited Risk

Credit with sound financial condition and a positive trend in earnings supplemented by:


•	Favorable liquidity and leverage ratios.


•	Ability to meet all obligations when due.


•	Management with successful track record.


•	Steady and satisfactory earnings history.


•	If loan is secured, collateral is of high quality and readily marketable.


•	Access to alternative financing.


•	Well defined primary and secondary source of repayment.


•	If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.

3. HIGH SATISFACTORY – Reasonable Risk

Credit with satisfactory financial condition and further characterized by:


•	Working capital adequate to support operations.


•	Cash flow sufficient to pay debts as scheduled.


•	Management experience and depth appear favorable.


•	Loan performing according to terms.


•	If loan is secured, collateral is acceptable and loan is fully protected.

4. LOW SATISFACTORY – Acceptable Risk

Credit with bankable risks, although some signs of weaknesses are shown:


•	Would include most start-up businesses.


•	Occasional instances of trade slowness or repayment delinquency – may have been 10-30 days slow within the past year.


•	Management’s abilities are apparent yet unproven.


•	Weakness in primary source of repayment with adequate secondary source of repayment.


•	Loan structure generally in accordance with policy.


•	If secured, loan collateral coverage is marginal.

To be classified as less than satisfactory, only one of the following criteria must be met.

5. SPECIAL MENTION – Criticized

Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan:


•	Downward trend in sales, profit levels, and margins.


•	Impaired working capital position.


•	Cash flow is strained in order to meet debt repayment.


•	Loan delinquency (30-60 days) and overdrafts may occur.


•	Shrinking equity cushion.


•	Diminishing primary source of repayment and questionable secondary source.


•	Management abilities are questionable.


•	Weak industry conditions.


•	Litigation pending against the borrower.


•	Loan may need to be restructured to improve collateral position or reduce payments.


•	Collateral or guaranty offers limited protection.


•	Negative debt service coverage, however the credit is well collateralized and payments are current.

6. SUBSTANDARD – Classified

Credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. There is a distinct possibility we will implement collection procedures if the loan deficiencies are not corrected. Any commercial loan placed in nonaccrual status will be rated “7” or worse. In addition, the following characteristics may apply:


•	Sustained losses have severely eroded the equity and cash flow.


•	Deteriorating liquidity.


•	Serious management problems or internal fraud.


•	Original repayment terms liberalized.


•	Likelihood of bankruptcy.


•	Inability to access other funding sources.


•	Reliance on secondary source of repayment.


•	Litigation filed against borrower.


•	Interest non-accrual may be warranted.


•	Collateral provides little or no value.


•	Requires excessive attention of the loan officer.


•	Borrower is uncooperative with loan officer.

7. VULNERABLE – Classified

Credit is considered “Substandard” and warrants placing in nonaccrual status. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:


•	Insufficient cash flow to service debt.


•	Minimal or no payments being received.


•	Limited options available to avoid the collection process.


•	Transition status, expect action will take place to collect loan without immediate progress being made.

8. DOUBTFUL – Workout

Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:


•	Normal operations are severely diminished or have ceased.


•	Seriously impaired cash flow.


•	Original repayment terms materially altered.


•	Secondary source of repayment is inadequate.


•	Survivability as a “going concern” is impossible.


•	Collection process has begun.


•	Bankruptcy petition has been filed.


•	Judgments have been filed.


•	Portion of the loan balance has been charged-off.

9. LOSS – Charge-off

Credit is considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification is for charged-off loans but does not mean that the asset has absolutely no recovery or salvage value. These loans are further characterized by:


•	Liquidation or reorganization under Bankruptcy, with poor prospects of collection.


•	Fraudulently overstated assets and/or earnings.


•	Collateral has marginal or no value.


•	Debtor cannot be located.


•	Over 120 days delinquent.

Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due aging. The following tables summarize the past due and current loans for the entire loan portfolio as of:



	June 30, 2020
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	51	$	46	$	53	$	28	$	178	$	503,862	$	504,040
Commercial other	220		249		—		1,339		1,808		247,017		248,825
Advances to mortgage brokers	—		—		—		—		—		46,767		46,767
Total commercial	271		295		53		1,367		1,986		797,646		799,632
Agricultural
Agricultural real estate	799		—		—		3,104		3,903		68,476		72,379
Agricultural other	—		—		—		552		552		30,231		30,783
Total agricultural	799		—		—		3,656		4,455		98,707		103,162
Residential real estate
Senior liens	74		—		—		184		258		270,436		270,694
Junior liens	3		—		—		—		3		4,715		4,718
Home equity lines of credit	11		—		—		112		123		32,391		32,514
Total residential real estate	88		—		—		296		384		307,542		307,926
Consumer
Secured	14		27		—		—		41		70,311		70,352
Unsecured	4		—		—		—		4		3,309		3,313
Total consumer	18		27		—		—		45		73,620		73,665
Total	$	1,176	$	322	$	53	$	5,319	$	6,870	$	1,277,515	$	1,284,385



	December 31, 2019
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual				Current		Total
Commercial
Commercial real estate	$	139	$	30	$	—	$	390	$	559	$	509,594	$	510,153
Commercial other	531		156		—		1,231		1,918		153,347		155,265
Advances to mortgage brokers	—		—		—		—		—		35,523		35,523
Total commercial	670		186		—		1,621		2,477		698,464		700,941
Agricultural
Agricultural real estate	—		—		—		2,711		2,711		77,316		80,027
Agricultural other	—		—		—		1,574		1,574		35,319		36,893
Total agricultural	—		—		—		4,285		4,285		112,635		116,920
Residential real estate
Senior liens	3,463		258		—		557		4,278		253,894		258,172
Junior liens	65		—		—		—		65		5,766		5,831
Home equity lines of credit	157		—		—		72		229		34,337		34,566
Total residential real estate	3,685		258		—		629		4,572		293,997		298,569
Consumer
Secured	68		—		—		—		68		66,547		66,615
Unsecured	3		—		—		—		3		3,522		3,525
Total consumer	71		—		—		—		71		70,069		70,140
Total	$	4,426	$	444	$	—	$	6,535	$	11,405	$	1,175,165	$	1,186,570

Impaired Loans

Loans may be classified as impaired if they meet one or more of the following criteria:


1.	There has been a charge-off of its principal balance (in whole or in part);


2.	The loan has been classified as a TDR; or


3.	The loan is in nonaccrual status.

Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by comparing the loan’s outstanding balance to the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, less costs to sell, if the loan is collateral dependent. Large groups of smaller-balance, homogeneous residential real estate and consumer loans are collectively evaluated for impairment by comparing the loan’s unpaid principal balance to the present value of expected future cash flows discounted at the loan’s effective interest rate.

We do not recognize interest income on impaired loans in nonaccrual status. For impaired loans not classified as nonaccrual, interest income is recognized daily, as earned, according to the terms of the loan agreement and the principal amount outstanding.

The following is a summary of impaired loans as of:



	June 30, 2020						December 31, 2019
	Recorded Balance		Unpaid Principal Balance		Valuation Allowance		Recorded Balance		Unpaid Principal Balance		Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate	$	1,045	$	1,287	$	63	$	517	$	635	$	15
Agricultural real estate	2,201		2,251		61		1,509		1,509		12
Agricultural other	1,355		1,355		2		1,355		1,355		14
Residential real estate senior liens	4,814		5,242		824		5,401		5,830		1,073
Total impaired loans with a valuation allowance	9,415		10,135		950		8,782		9,329		1,114
Impaired loans without a valuation allowance
Commercial real estate	3,930		4,004				4,961		5,224
Commercial other	3,260		3,260				2,387		2,387
Agricultural real estate	7,689		7,689				8,372		8,422
Agricultural other	1,946		1,946				3,604		3,604
Home equity lines of credit	112		112				85		385
Total impaired loans without a valuation allowance	16,937		17,011				19,409		20,022
Impaired loans
Commercial	8,235		8,551		63		7,865		8,246		15
Agricultural	13,191		13,241		63		14,840		14,890		26
Residential real estate	4,926		5,354		824		5,486		6,215		1,073
Total impaired loans	$	26,352	$	27,146	$	950	$	28,191	$	29,351	$	1,114

The following is a summary of impaired loans for the:



	Three Months Ended June 30
	2020					2019
	Average Recorded Balance		Interest Income Recognized			Average Recorded Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	1,085	$	21		$	2,497	$	7
Commercial other	460		—			11		—
Agricultural real estate	2,224		26			951		57
Agricultural other	1,355		20			641		9
Residential real estate senior liens	5,050		49			6,439		19
Residential real estate junior liens	—		—			12		—
Total impaired loans with a valuation allowance	10,174		116			10,551		92
Impaired loans without a valuation allowance
Commercial real estate	4,046		60			3,985		21
Commercial other	2,826		32			2,751		13
Agricultural real estate	7,441		87			7,307		58
Agricultural other	2,406		56			4,833		86
Home equity lines of credit	101		(1		)	34		—
Consumer secured	2		—			8		—
Total impaired loans without a valuation allowance	16,822		234			18,918		178
Impaired loans
Commercial	8,417		113			9,244		41
Agricultural	13,426		189			13,732		210
Residential real estate	5,151		48			6,485		19
Consumer	2		—			8		—
Total impaired loans	$	26,996	$	350		$	29,469	$	270



	Six Months Ended June 30
	2020				2019
	Average Recorded Balance		Interest Income Recognized		Average Recorded Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	951	$	46	$	2,952	$	56
Commercial other	460		6		11		—
Agricultural real estate	2,051		50		671		63
Agricultural other	1,355		42		343		9
Residential real estate senior liens	5,197		104		6,561		87
Residential real estate junior liens	—		—		12		—
Total impaired loans with a valuation allowance	10,014		248		10,550		215
Impaired loans without a valuation allowance
Commercial real estate	4,304		119		3,636		74
Commercial other	2,608		47		2,861		34
Agricultural real estate	7,612		146		7,465		65
Agricultural other	2,821		63		5,460		156
Home equity lines of credit	94		5		38		6
Consumer secured	2		—		8		—
Total impaired loans without a valuation allowance	17,441		380		19,468		335
Impaired loans
Commercial	8,323		218		9,460		164
Agricultural	13,839		301		13,939		293
Residential real estate	5,291		109		6,611		93
Consumer	2		—		8		—
Total impaired loans	$	27,455	$	628	$	30,018	$	550

As a result of line of credit agreements with borrowers, we had committed to advance $331 and $175 in additional funds to be disbursed in connection with impaired loans as of June 30, 2020 and December 31, 2019, respectively.

Troubled Debt Restructurings

A loan modification is considered to be a TDR when the modification includes terms outside of normal lending practices to a borrower who is experiencing financial difficulties.

Typical concessions granted include, but are not limited to:

•Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.

•Extending the amortization period beyond typical lending guidelines for loans with similar risk characteristics.

•Agreeing to an interest only payment structure and delaying principal payments.

•Forgiving principal.

•Forgiving accrued interest.

To determine if a borrower is experiencing financial difficulties, factors we consider include:


•	The borrower is currently in default on any of their debt.


•	The borrower would likely default on any of their debt if the concession is not granted.


•	The borrower’s cash flow is insufficient to service all of their debt if the concession is not granted.


•	The borrower has declared, or is in the process of declaring, bankruptcy.


•	The borrower is unlikely to continue as a going concern (if the entity is a business).

The following is a summary of TDRs granted for the:



	Three Months Ended June 30
	2020					2019
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	—	$	—	$	—	1	$	37	$	37
Agricultural other	2	1,768		1,768		1	1,311		1,311
Total	2	$	1,768	$	1,768	2	$	1,348	$	1,348



	Six Months Ended June 30
	2020					2019
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	2	$	963	$	963	2	$	184	$	184
Agricultural other	4	2,361		2,361		3	1,834		1,834
Residential real estate	2	93		93		—	—		—
Total	8	$	3,417	$	3,417	5	$	2,018	$	2,018

The following is a summary of concessions we granted to borrowers in financial difficulty for the:



	Three Months Ended June 30
	2020						2019
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	—	$	—	—	$	—	—	$	—	1	$	37
Agricultural other	—	—		2	1,768		—	—		1	1,311
Total	—	$	—	2	$	1,768	—	$	—	2	$	1,348



	Six Months Ended June 30
	2020						2019
	Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period			Below Market Interest Rate			Below Market Interest Rate and Extension of Amortization Period
	Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment
Commercial other	1	$	919	1	$	44	—	$	—	2	$	184
Agricultural other	—	—		4	2,361		—	—		3	1,834
Residential real estate	—	—		2	93		—	—		—	—
Total	1	$	919	7	$	2,498	—	$	—	5	$	2,018

We did not restructure any loans by forgiving principal or accrued interest in the three and six-month periods ended June 30, 2020 or 2019.

Based on our historical loss experience, losses associated with TDRs are not significantly different than other impaired loans within the same loan segment. As such, TDRs, including TDRs that have been modified in the past 12 months that subsequently defaulted, are analyzed in the same manner as other impaired loans within their respective loan segment.

We had no loans that defaulted in the three and six-month periods ended June 30, 2020 and June 30, 2019 which were modified within 12 months prior to the default date.

The following is a summary of TDR loan balances as of:



	June 30 2020		December 31 2019
TDRs	$	23,185	$	24,737

Measures we have taken to assist our customers in connection with the COVID-19 pandemic include loan programs that provide short-term payment relief. Under these programs, borrowers whose loans were in good standing as of March 1, 2020 could elect to defer full or partial payments for a period not to exceed 180 days. Bank regulators issued a statement on March 22, 2020, and a revised statement on April 7, 2020, which provides confirmation that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers with a current payment status are not categorized as TDRs.