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Credit Quality of Loans and Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2018
Receivables [Abstract]  
Credit Quality of Loans and Allowance for Loan Losses
Credit Quality of Loans and Allowance for Loan Losses
 
The loan portfolio consisted of the following (in thousands):
 
 
June 30, 2018
 
December 31, 2017
Commercial, financial and agricultural
 
$
354,944

 
$
435,207

Real estate – construction
 
98,108

 
90,287

Real estate – commercial
 
414,526

 
448,406

Real estate – residential
 
141,104

 
146,751

Installment loans to individuals
 
47,406

 
56,398

Lease financing receivable
 
632

 
732

Other
 
1,243

 
5,645

 
 
1,057,963

 
1,183,426

Less allowance for loan losses
 
(23,514
)
 
(26,888
)
 
 
$
1,034,449

 
$
1,156,538


 
The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment.  At June 30, 2018, one industry segment concentration, the oil and gas industry, constituted more than 10% of the loan portfolio.  The Company’s exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately $153.6 million, or 14.5% of total loans.  Additionally, the Company’s exposure to loans secured by commercial real estate is monitored.  At June 30, 2018, loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $481.0 million, or 45.5% of total loans, of which 52% are secured by owner-occupied commercial properties.  Of the $481.0 million in loans secured by commercial real estate, $31.4 million, or 6.5%, were on nonaccrual status at June 30, 2018.
 
Allowance for Loan Losses
 
The allowance for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur. Recoveries are credited to the allowance for loan losses at the time of recovery.  Quarterly, the probable level of losses in the existing portfolio is estimated through consideration of various factors.  Based on these estimates, the allowance for loan losses is increased by charges to earnings and decreased by charge‑offs (net of recoveries).

The allowance is composed of general reserves and specific reserves.  General reserves are determined by applying loss percentages to segments of the portfolio.  The loss percentages are based on each segment’s historical loss experience, generally over the past three to five years, and adjustment factors derived from conditions in the Company’s internal and external environment.  All loans considered to be impaired are evaluated on an individual basis to determine specific reserve allocations in accordance with GAAP.  Loans for which specific reserves are provided are excluded from the calculation of general reserves.
 
Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. The current analysis indicates no additional allowance is necessary on our acquired loan portfolio as of June 30, 2018. To the extent that the calculated loss is greater than the remaining unaccreted purchase discount, an allowance is recorded for such difference.
 
The Company has an internal loan review department that is independent of the lending function to challenge and corroborate the loan grade assigned by the lender and to provide additional analysis in determining the adequacy of the allowance for loan losses. Additionally, the Company utilizes the services of a third party to supplement its loan review efforts.
 
A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the six months ended June 30, 2018 and 2017 is as follows (in thousands):
 
 
 
June 30, 2018
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Coml, Fin,
and Agric
 
Construction
 
Commercial
 
Residential
 
Installment
loans to
individuals
 
Lease
financing
receivable
 
Other
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
20,577

 
$
596

 
$
3,893

 
$
837

 
$
957

 
$
3

 
$
25

 
$
26,888

Charge-offs
 
(3,647
)
 
(6
)
 
(216
)
 
(321
)
 
(448
)
 
—

 
—

 
(4,638
)
Recoveries
 
696

 
—

 
6

 
1

 
121

 
—

 
—

 
824

Provision
 
172

 
(201
)
 
(460
)
 
623

 
323

 
—

 
(17
)
 
440

Ending balance
 
$
17,798

 
$
389

 
$
3,223

 
$
1,140

 
$
953

 
$
3

 
$
8

 
$
23,514

Ending balance: individually evaluated for impairment
 
$
4,452

 
$
49

 
$
126

 
$
198

 
$
13

 
$
—

 
$
—

 
$
4,838

Ending balance: collectively evaluated for impairment
 
$
13,346

 
$
340

 
$
3,097

 
$
942

 
$
940

 
$
3

 
$
8

 
$
18,676

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
354,944

 
$
98,108

 
$
414,526

 
$
141,104

 
$
47,406

 
$
632

 
$
1,243

 
$
1,057,963

Ending balance: individually evaluated for impairment
 
$
40,228

 
$
717

 
$
29,917

 
$
3,623

 
$
65

 
$
—

 
$
—

 
$
74,550

Ending balance: collectively evaluated for impairment
 
$
314,716

 
$
97,391

 
$
384,609

 
$
137,481

 
$
47,341

 
$
632

 
$
1,243

 
$
983,413

 
 
June 30, 2017
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Coml, Fin,
and Agric
 
Construction
 
Commercial
 
Residential
 
Installment
loans to
individuals
 
Lease
financing
receivable
 
Other
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
16,057

 
$
585

 
$
5,384

 
$
940

 
$
1,395

 
$
5

 
$
6

 
$
24,372

Charge-offs
 
(11,319
)
 
(1
)
 
(3,448
)
 
(198
)
 
(599
)
 
—

 
—

 
(15,565
)
Recoveries
 
290

 
—

 
33

 
96

 
148

 
—

 
—

 
567

Provision
 
13,272

 
623

 
1,845

 
(438
)
 
(1
)
 
(2
)
 
1

 
15,300

Ending balance
 
$
18,300

 
$
1,207

 
$
3,814

 
$
400

 
$
943

 
$
3

 
$
7

 
$
24,674

Ending balance: individually evaluated for impairment
 
$
3,092

 
$
9

 
$
1,120

 
$
28

 
$
103

 
$
—

 
$
—

 
$
4,352

Ending balance: collectively evaluated for impairment
 
$
15,208

 
$
1,198

 
$
2,694

 
$
372

 
$
840

 
$
3

 
$
7

 
$
20,322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
451,767

 
$
98,695

 
$
461,064

 
$
156,394

 
$
70,031

 
$
866

 
$
1,436

 
$
1,240,253

Ending balance: individually evaluated for impairment
 
$
35,276

 
$
25

 
$
19,526

 
$
1,325

 
$
311

 
$
—

 
$
—

 
$
56,463

Ending balance: collectively evaluated for impairment
 
$
416,491

 
$
98,670

 
$
441,108

 
$
155,003

 
$
69,720

 
$
866

 
$
1,436

 
$
1,183,294

Ending balance: loans acquired with deteriorated credit quality
 
$
—

 
$
—

 
$
430

 
$
66

 
$
—

 
$
—

 
$
—

 
$
496


 
Non-Accrual and Past Due Loans
 
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are placed on non-accrual status when, in management’s opinion, the probability of collection of interest is deemed insufficient to warrant further accrual.  For loans placed on non-accrual status, the accrual of interest is discontinued and subsequent payments received are applied to the principal balance.  Interest income is recorded after principal has been satisfied and as payments are received.  Non-accrual loans may be returned to accrual status if all principal and interest amounts contractually owed are reasonably assured of repayment within a reasonable period and there is a period of at least six months to one year of repayment performance by the borrower depending on the contractual payment terms.

An age analysis of past due loans (including both accruing and non-accruing loans) is as follows (in thousands):
 
 
June 30, 2018
 
 
30-59
Days
Past Due
 
60-89
Days
Past
Due
 
Greater
than 90
Days
Past Due
 
Total
Past
Due
 
Current
 
Total Loans
 
Recorded
Investment
> 90 days
 and
Accruing
Commercial, financial, and agricultural
 
$
8,504

 
$
4,347

 
$
24,762

 
$
37,613

 
$
317,331

 
$
354,944

 
$
3

Real estate - construction
 
1,175

 
—

 
220

 
1,395

 
96,713

 
98,108

 
—

Real estate - commercial
 
1,655

 
9,523

 
18,102

 
29,280

 
385,246

 
414,526

 
—

Real estate - residential
 
1,077

 
99

 
1,692

 
2,868

 
138,236

 
141,104

 
—

Installment loans to individuals
 
215

 
27

 
61

 
303

 
47,103

 
47,406

 
—

Lease financing receivable
 
—

 
—

 
—

 
—

 
632

 
632

 
—

Other loans
 
51

 
10

 
—

 
61

 
1,182

 
1,243

 
—

 
 
$
12,677

 
$
14,006

 
$
44,837

 
$
71,520

 
$
986,443

 
$
1,057,963

 
$
3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
30-59
Days
Past Due
 
60-89
Days
Past
Due
 
Greater
than 90
Days
Past Due
 
Total
Past
Due
 
Current
 
Total Loans
 
Recorded
Investment
> 90 days
and
Accruing
Commercial, financial, and agricultural
 
$
1,195

 
$
1,893

 
$
14,847

 
$
17,935

 
$
417,272

 
$
435,207

 
$
545

Real estate - construction
 
616

 
—

 
190

 
806

 
89,481

 
90,287

 
125

Real estate - commercial
 
5,889

 
6,402

 
4,163

 
16,454

 
431,952

 
448,406

 
58

Real estate - residential
 
1,065

 
235

 
559

 
1,859

 
144,892

 
146,751

 
—

Installment loans to individuals
 
276

 
32

 
34

 
342

 
56,056

 
56,398

 
—

Lease financing receivable
 
—

 
—

 
—

 
—

 
732

 
732

 
—

Other loans
 
—

 
—

 
—

 
—

 
5,645

 
5,645

 
—

 
 
$
9,041

 
$
8,562

 
$
19,793

 
$
37,396

 
$
1,146,030

 
$
1,183,426

 
$
728


 
Non-accrual loans are as follows (in thousands):
 
 
 
June 30, 2018
 
December 31, 2017
Commercial, financial, and agricultural
 
$
39,218

 
$
37,418

Real estate - construction
 
1,531

 
66

Real estate - commercial
 
29,916

 
11,128

Real estate - residential
 
2,808

 
618

Installment loans to individuals
 
65

 
48

 
 
$
73,538

 
$
49,278



The amount of interest that would have been recorded on non-accrual loans, had the loans not been classified as non-accrual, totaled approximately $3.4 million and $1.7 million for the six months ended June 30, 2018 and 2017, respectively.  Interest received on non-accrual loans subsequent to their transfer to non-accrual status totaled $176,000 and $195,000 for the six months ended June 30, 2018 and 2017, respectively.
 
Impaired Loans
 
Loans are considered impaired when, based upon current information, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans classified as special mention, substandard, or doubtful, based on credit risk rating factors, are reviewed to determine whether impairment testing is appropriate.  All loan relationships with an outstanding commitment balance above a specified threshold are evaluated for potential impairment. All loan relationships with an outstanding commitment balance below the specified threshold are assigned an allowance allocation percentage that is determined by management and adjusted periodically based on certain factors. An allowance for each impaired loan is calculated based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.  All impaired loans are reviewed, at a minimum, on a quarterly basis.  Existing valuations are reviewed to determine if additional discounts or new appraisals are required.  After this review, when comparing the resulting collateral valuation to the outstanding loan balance, if the discounted collateral value exceeds the loan balance, no specific allocation is reserved. 

The following table presents loans that are individually evaluated for impairment (in thousands). Interest income recognized represents interest on accruing loans modified in a troubled debt restructuring (TDR).
 
 
June 30, 2018
 
 
Recorded
Investment
 
Unpaid Principal Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial, financial, and agricultural
 
$
28,188

 
$
32,776

 
$
—

 
$
26,424

 
$
32

Real estate - construction
 
1,164

 
1,164

 
—

 
582

 
—

Real estate - commercial
 
29,020

 
30,242

 
—

 
19,745

 
—

Real estate - residential
 
1,599

 
1,599

 
—

 
950

 
—

Installment loans to individuals
 
24

 
24

 
—

 
12

 
—

Finance leases
 
—

 
—

 
—

 
—

 
—

Subtotal:
 
59,995

 
65,805

 
—

 
47,713

 
32

With an allowance recorded:
 
 

 
 

 
 

 
 

 
 

Commercial, financial, and agricultural
 
12,040

 
13,959

 
4,452

 
13,079

 
—

Real estate - construction
 
367

 
367

 
49

 
216

 
—

Real estate - commercial
 
897

 
1,028

 
126

 
777

 
—

Real estate - residential
 
1,210

 
1,897

 
198

 
763

 
—

Installment loans to individuals
 
41

 
41

 
13

 
45

 
—

Finance leases
 
—

 
—

 
—

 
—

 
—

Subtotal:
 
14,555

 
17,292

 
4,838

 
14,880

 
—

Totals:
 
 

 
 

 
 

 
 

 
 

Commercial
 
70,145

 
78,005

 
4,578

 
60,025

 
32

Construction
 
1,531

 
1,531

 
49

 
798

 
—

Residential
 
2,809

 
3,496

 
198

 
1,713

 
—

Consumer
 
65

 
65

 
13

 
57

 
—

Grand total:
 
$
74,550

 
$
83,097

 
$
4,838

 
$
62,593

 
$
32

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
 
Interest Income
Recognized
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial, financial, and agricultural
 
$
24,659

 
$
30,630

 
$
—

 
$
19,880

 
$
90

Real estate - construction
 
—

 
—

 
—

 
5

 
—

Real estate - commercial
 
10,471

 
11,965

 
—

 
11,590

 
—

Real estate - residential
 
302

 
302

 
—

 
602

 
—

Installment loans to individuals
 
—

 
—

 
—

 
37

 
—

Subtotal:
 
35,432

 
42,897

 
—

 
32,114

 
90

With an allowance recorded:
 
 

 
 

 
 

 
 

 
 

Commercial, financial, and agricultural
 
14,119

 
14,150

 
7,197

 
15,245

 
1

Real estate - construction
 
66

 
136

 
23

 
33

 
—

Real estate - commercial
 
657

 
657

 
131

 
8,318

 
—

Real estate - residential
 
316

 
316

 
5

 
620

 
—

Installment loans to individuals
 
48

 
50

 
14

 
258

 
—

Subtotal:
 
15,206

 
15,309

 
7,370

 
24,474

 
1

Totals:
 
 

 
 

 
 

 
 

 
 

Commercial
 
49,906

 
57,402

 
7,328

 
55,033

 
91

Construction
 
66

 
136

 
23

 
38

 
—

Residential
 
618

 
618

 
5

 
1,222

 
—

Consumer
 
48

 
50

 
14

 
295

 
—

Grand total:
 
$
50,638

 
$
58,206

 
$
7,370

 
$
56,588

 
$
91



Credit Quality
 
The Company manages credit risk by observing written underwriting standards and the lending policy established by the Board of Directors and management to govern all lending activities.  The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan.  These efforts are supplemented by independent reviews performed by a loan review officer and other validations performed by the internal audit department.  The results of the reviews are reported directly to the Audit Committee of the Board of Directors.
 
Loans are categorized into risk categories based on relevant information about the ability of borrowers to serve their debt, such as: current financial information, historical payment experience, credit documentation, public information, current economic trends, and other factors. Loans are analyzed individually and classified according to their credit risk. This analysis is performed on a continuous basis. The following definitions are used for risk ratings:

Special Mention: Weakness exists that could cause future impairment, including the deterioration of financial ratios, past due status, and questionable management capabilities. Collateral values generally afford adequate coverage but may not be immediately marketable.

Substandard: Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. Currently the borrower maintains the capacity to service the debt. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

Doubtful: Specific weaknesses characterized as Substandard exist that are severe enough to make collection in full unlikely. There is no reliable secondary source of full repayment. Loans classified as Doubtful will usually be placed on non-accrual status. The probability of some loss is extremely high but because of certain important and reasonably specific factors, the amount of loss cannot be determined.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans.

The following tables present the classes of loans by risk rating (in thousands):
 
 
 
  
 
June 30, 2018
Commercial Credit Exposure
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by
Creditworthiness Category
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial,
financial, and
agricultural
 
Real estate - commercial
 
Total
 
% of Total
Pass
 
 
 
 
 
$
275,744

 
$
361,281

 
$
637,025

 
82.79
%
Special mention
 
 
 
 
 
21,320

 
9,985

 
31,305

 
4.07
%
Substandard
 
 
 
 
 
57,880

 
43,260

 
101,140

 
13.14
%
 
 
 
 
 
 
$
354,944

 
$
414,526

 
$
769,470

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction Credit Exposure
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by
Creditworthiness Category
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate - construction
 
% of Total
Pass
 
 
 
 
 
 
 
 
 
$
96,225

 
98.08
%
Special mention
 
 
 
 
 
 
 
 
 
85

 
0.09
%
Substandard
 
 
 
 
 
 
 
 
 
1,798

 
1.83
%
 
 
 
 
 
 
 
 
 
 
$
98,108

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Credit Exposure
 
 
 
 

 
 

 
 

 
 

 
 

Credit Risk Profile by
Creditworthiness Category
 
 
 
 

 
 

 
 

 
 

 
 

 
 
 
 
 

 
 
 
 
 
Real estate - residential
 
% of Total
Pass
 
 
 
 

 


 
 
 
$
134,952

 
95.64
%
Special mention
 
 
 
 

 


 
 
 
602

 
0.43
%
Substandard
 
 
 
 

 
 
 
 
 
5,550

 
3.93
%
 
 
 
 
 

 


 
 
 
$
141,104

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer and Other Credit Exposure
 
 
 
 

 
 

 
 

 
 

 
 

Credit Risk Profile Based on
Payment Activity
 
 
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Installment loans to individuals
 
Lease
financing
receivable
 
Other
 
Total
 
% of Total
Performing
 
 
 
$
47,355

 
$
632

 
$
1,243

 
$
49,230

 
99.90
%
Nonperforming
 

 
51

 
—

 
—

 
51

 
0.10
%
 
 

 
$
47,406

 
$
632

 
$
1,243

 
$
49,281

 
100.00
%
 
 
December 31, 2017
Commercial Credit Exposure
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by
Creditworthiness Category
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial,
financial, and
agricultural
 
Real estate - commercial
 
Total
 
%
of Total
Pass
 
 
 
 
 
$
358,373

 
$
411,280

 
$
769,653

 
87.10
%
Special mention
 
 
 
 
 
9,687

 
3,823

 
13,510

 
1.53
%
Substandard
 
 
 
 
 
67,147

 
33,303

 
100,450

 
11.37
%
 
 
 
 
 
 
$
435,207

 
$
448,406

 
$
883,613

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction Credit Exposure
 
 
 
 
 
 
 
 
 
 
 
 
Credit Risk Profile by
Creditworthiness Category
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate - construction
 
%
of Total
Pass
 
 
 
 
 
 
 
 
 
$
89,323

 
98.93
%
Special mention
 
 
 
 
 
 
 
 
 
600

 
0.67
%
Substandard
 
 
 
 
 
 
 
 
 
364

 
0.40
%
 
 
 
 
 
 
 
 
 
 
$
90,287

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Credit Exposure
 
 
 
 

 
 

 
 

 
 

 
 

Credit Risk Profile by
Creditworthiness Category
 
 
 
 

 
 

 
 

 
 

 
 

 
 
 
 
 

 
 
 
 
 
Real estate - residential
 
%
of Total
Pass
 
 
 
 

 
 
 


 
$
144,250

 
98.30
%
Special mention
 
 
 
 

 
 
 


 
1,233

 
0.84
%
Substandard
 
 
 
 

 
 
 


 
1,268

 
0.86
%
 
 
 
 
 

 
 
 


 
$
146,751

 
100.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer and Other Credit Exposure
 
 
 
 

 
 

 
 

 
 

 
 

Credit Risk Profile Based on
Payment Activity
 
 
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Installment loans to individuals
 
Lease
financing
receivable
 
Other
 
Total
 
%
of Total
Performing
 

 
$
56,041

 
$
699

 
$
5,645

 
$
62,385

 
99.38
%
Nonperforming
 

 
357

 
33

 
—

 
390

 
0.62
%
 
 

 
$
56,398

 
$
732

 
$
5,645

 
$
62,775

 
100.00
%


Troubled Debt Restructurings
 
A TDR is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider. The Company grants the concession in an attempt to protect as much of its investment as possible.
 
The following tables present information about TDRs that were modified during the periods presented by portfolio segment (in thousands):
 
 
Three months ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Number of loans
 
Pre-modification recorded investment
 
Number of loans
 
Pre-modification recorded investment
Commercial, financial and agricultural
 
—

 
$
—

 
—

 
$
—



 
 
Six months ended
 
 
June 30, 2018
 
June 30, 2017
 
 
Number of loans
 
Pre-modification recorded investment
 
Number of loans
 
Pre-modification recorded investment
Commercial, financial and agricultural
 
—

 
$
—

 
1

 
$
1,984



During the three month periods ending June 30, 2018 and 2017, there were no defaults on any loans that were modified as TDRs during the preceding twelve months. During the six months ended June 30, 2018 there were no defaults on any loans that were modified as TDRs during the preceding twelve months. During the six months ended June 30, 2017, there was one loan relationship with a pre-modification balance of $2.0 million identified as a TDR after a reduction in payments. There were no defaults on any loans that were modified as TDRs during the preceding twelve months. The Company defines a payment default as any loan that is greater than 30 days past due or was past due greater than 30 days at any point during the reporting period, or since the date of modification, whichever is shorter.

For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology.  If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans.  As of June 30, 2018, there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs.