Note 6 – 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, light manufacturing, retail, gaming, tourism, 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 any deferred fees or costs. Interest income on loans 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 level yield method.

The accrual of interest on commercial, agricultural, and residential real estate loans is typically discontinued at the time the loan is 90 days or more past due unless the credit is well-secured and in the process of collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

For loans that are placed on nonaccrual status or charged-off, 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 are typically returned to accrual status after six months of continuous performance. For impaired loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.

Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, farmland and agricultural production, and states and political subdivisions. Repayment of these loans is often dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of credit exposure to any one borrower to $12,500. Borrowers with credit needs of more than $12,500 are serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans generally require loan-to-value limits of less than 80%. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, and property and equipment. Personal guarantees are generally required from the owners of closely held corporations, partnerships, and sole proprietorships. In addition, we require annual financial statements, prepare cash flow analyses, and review credit reports as deemed necessary.

We offer adjustable rate mortgages, fixed rate balloon mortgages, construction loans, and fixed rate mortgage loans which typically have amortization periods up to a maximum of 30 years. Fixed rate loans with an amortization of greater than 15 years are generally sold upon origination to Freddie Mac. Fixed rate residential real estate loans with an amortization of 15 years or less may be held in our portfolio, held for future sale, or sold upon origination. We consider the direction of interest rates, the sensitivity of our balance sheet to changes in interest rates, and overall loan demand to determine whether or not to sell these loans to Freddie Mac.

Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 95% of the lower of the appraised value of the property or the purchase price, with the condition that private mortgage insurance is required on loans with loan-to-value ratios in excess of 80%. Substantially all loans upon origination have a loan to value ratio of less than 80%. Underwriting criteria for residential real estate loans include: evaluation of the borrower’s ability to make monthly payments, 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, all debt servicing does not exceed 36% of income, acceptable credit reports, verification of employment, income, and financial information. Appraisals are performed by independent appraisers and reviewed internally. All mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market automated underwriting system; loans in excess of $400 require the approval of our Internal Loan Committee, the Board of Directors’ Loan Committee, or the Board of Directors.

Consumer loans include automobile loans, secured and unsecured personal loans, and overdraft protection related loans. Loans are amortized generally for a period of up to 6 years. 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. Loan losses are charged against the ALLL when we believe the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the ALLL.

The ALLL is evaluated on a regular basis and is based upon a periodic review of the collectability of the loans in light of 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 net realizable value of the loan’s underlying collateral or the net present value of the projected payment stream and our recorded investment. Historical loss allocations were calculated at the loan class and segment levels based on a migration analysis of the loan portfolio over the preceding five years. An unallocated component is maintained to cover uncertainties that we believe affect our estimate of probable losses based on qualitative factors. 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.

A summary of changes in the ALLL and the recorded investment in loans by segments follows:



	Allowance for Loan Losses
	Three Months Ended September 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated			Total
July 1, 2013	$	6,472		$	335		$	3,676		$	647		$	570		$	11,700
Loans charged-off	(394		)	(12		)	(94		)	(102		)	—			(602		)
Recoveries	66			—			38			47			—			151
Provision for loan losses	69			108			127			74			(27		)	351
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543		$	11,600



	Allowance for Loan Losses
	Nine Months Ended September 30, 2013
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
January 1, 2013	$	6,862		$	407		$	3,627		$	666		$	374	$	11,936
Loans charged-off	(839		)	(12		)	(681		)	(311		)	—		(1,843		)
Recoveries	289			—			152			200			—		641
Provision for loan losses	(99		)	36			649			111			169		866
September 30, 2013	$	6,213		$	431		$	3,747		$	666		$	543	$	11,600



	Allowance for Loan Losses and Recorded Investment in Loans
	September 30, 2013
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	2,080	$	31	$	1,890	$	—	$	—	$	4,001
Collectively evaluated for impairment	4,133		400		1,857		666		543		7,599
Total	$	6,213	$	431	$	3,747	$	666	$	543	$	11,600
Loans
Individually evaluated for impairment	$	12,155	$	787	$	11,514	$	65			$	24,521
Collectively evaluated for impairment	376,818		92,140		280,311		34,059				783,328
Total	$	388,973	$	92,927	$	291,825	$	34,124			$	807,849



	Allowance for Loan Losses
	Three Months Ended September 30, 2012
	Commercial			Agricultural		Residential Real Estate			Consumer			Unallocated			Total
July 1, 2012	$	6,008		$	433	$	3,669		$	667		$	1,541		$	12,318
Loans charged-off	(271		)	—		(213		)	(127		)	—			(611		)
Recoveries	40			—		34			81			—			155
Provision for loan losses	1,132			6		(356		)	91			(673		)	200
September 30, 2012	$	6,909		$	439	$	3,134		$	712		$	868		$	12,062



	Allowance for Loan Losses
	Nine Months Ended September 30, 2012
	Commercial			Agricultural			Residential Real Estate			Consumer			Unallocated			Total
January 1, 2012	$	6,284		$	1,003		$	2,980		$	633		$	1,475		$	12,375
Loans charged-off	(957		)	—			(566		)	(364		)	—			(1,887		)
Recoveries	168			—			95			211			—			474
Provision for loan losses	1,414			(564		)	625			232			(607		)	1,100
September 30, 2012	$	6,909		$	439		$	3,134		$	712		$	868		$	12,062



	Allowance for Loan Losses and Recorded Investment in Loans
	December 31, 2012
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
ALLL
Individually evaluated for impairment	$	2,050	$	91	$	1,796	$	—	$	—	$	3,937
Collectively evaluated for impairment	4,812		316		1,831		666		374		7,999
Total	$	6,862	$	407	$	3,627	$	666	$	374	$	11,936
Loans
Individually evaluated for impairment	$	14,456	$	723	$	10,704	$	75			$	25,958
Collectively evaluated for impairment	357,049		82,883		273,444		33,419				746,795
Total	$	371,505	$	83,606	$	284,148	$	33,494			$	772,753

The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit ratings as of:



	September 30, 2013
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	21,334	$	15,823	$	37,157	$	3,665	$	3,005	$	6,670
3 - High satisfactory	89,630		40,464		130,094		26,679		16,958		43,637
4 - Low satisfactory	141,646		45,022		186,668		25,564		11,672		37,236
5 - Special mention	13,246		1,256		14,502		1,917		1,027		2,944
6 - Substandard	17,532		1,497		19,029		805		1,387		2,192
7 - Vulnerable	1,085		186		1,271		—		248		248
8 - Doubtful	234		18		252		—		—		—
Total	$	284,707	$	104,266	$	388,973	$	58,630	$	34,297	$	92,927



	December 31, 2012
	Commercial						Agricultural
	Real Estate		Other		Total		Real Estate		Other		Total
Rating
2 - High quality	$	25,209	$	15,536	$	40,745	$	2,955	$	2,313	$	5,268
3 - High satisfactory	83,805		28,974		112,779		16,972		11,886		28,858
4 - Low satisfactory	127,423		45,143		172,566		27,291		15,437		42,728
5 - Special mention	16,046		1,692		17,738		1,008		3,191		4,199
6 - Substandard	20,029		2,224		22,253		1,167		1,217		2,384
7 - Vulnerable	1,512		2,294		3,806		—		—		—
8 - Doubtful	1,596		22		1,618		—		169		169
Total	$	275,620	$	95,885	$	371,505	$	49,393	$	34,213	$	83,606

Internally assigned 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 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 has 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.


•	Adequate cash flow to service debt, but coverage is low.

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 constitute 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.


•	Collateral or guaranty offers limited protection.


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

6. SUBSTANDARD – Classified

Credit where the borrower’s current net worth, paying capacity, and value of the collateral pledged is inadequate. There is a distinct possibility that we will implement collection procedures if the loan deficiencies are not corrected. 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.


•	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 on nonaccrual. 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.

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 as of:



	September 30, 2013
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual		Total Past Due and Nonaccrual		Current		Total
Commercial
Commercial real estate	$	343	$	889	$	167	$	1,266	$	2,665	$	282,042	$	284,707
Commercial other	867		32		—		239		1,138		103,128		104,266
Total commercial	1,210		921		167		1,505		3,803		385,170		388,973
Agricultural
Agricultural real estate	642		—		—		—		642		57,988		58,630
Agricultural other	214		450		—		262		926		33,371		34,297
Total agricultural	856		450		—		262		1,568		91,359		92,927
Residential real estate
Senior liens	2,549		898		290		1,957		5,694		232,710		238,404
Junior liens	166		—		—		68		234		13,649		13,883
Home equity lines of credit	347		64		—		—		411		39,127		39,538
Total residential real estate	3,062		962		290		2,025		6,339		285,486		291,825
Consumer
Secured	115		1		—		—		116		29,190		29,306
Unsecured	6		10		—		20		36		4,782		4,818
Total consumer	121		11		—		20		152		33,972		34,124
Total	$	5,249	$	2,344	$	457	$	3,812	$	11,862	$	795,987	$	807,849



	December 31, 2012
	Accruing Interest and Past Due:								Total Past Due and Nonaccrual
	30-59 Days		60-89 Days		90 Days or More		Nonaccrual		Total Past Due and Nonaccrual		Current		Total
Commercial
Commercial real estate	$	1,304	$	161	$	63	$	2,544	$	4,072	$	271,548	$	275,620
Commercial other	606		—		40		2,294		2,940		92,945		95,885
Total commercial	1,910		161		103		4,838		7,012		364,493		371,505
Agricultural
Agricultural real estate	—		—		—		—		—		49,393		49,393
Agricultural other	90		—		—		169		259		33,954		34,213
Total agricultural	90		—		—		169		259		83,347		83,606
Residential real estate
Senior liens	2,000		346		320		2,064		4,730		223,532		228,262
Junior liens	232		—		—		50		282		16,207		16,489
Home equity lines of credit	237		—		—		182		419		38,978		39,397
Total residential real estate	2,469		346		320		2,296		5,431		278,717		284,148
Consumer
Secured	127		33		4		—		164		28,118		28,282
Unsecured	31		3		1		—		35		5,177		5,212
Total consumer	158		36		5		—		199		33,295		33,494
Total	$	4,627	$	543	$	428	$	7,303	$	12,901	$	759,852	$	772,753

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, the loan’s obtainable market price, or the fair value of the collateral, less cost to sell, if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Impairment is measured on a loan-by-loan basis for residential real estate and consumer 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.

We do not recognize interest income on impaired loans in nonaccrual status. For impaired loans not in nonaccrual status, interest income is recognized daily, as earned, according to the terms of the loan agreement. The following is a summary of information pertaining to impaired loans as of, and for the periods ended:



	September 30, 2013						December 31, 2012
	Outstanding Balance		Unpaid Principal Balance		Valuation Allowance		Outstanding Balance		Unpaid Principal Balance		Valuation Allowance
Impaired loans with a valuation allowance
Commercial real estate	$	6,023	$	6,161	$	1,818	$	7,295	$	7,536	$	1,653
Commercial other	658		658		262		2,140		2,140		397
Agricultural real estate	90		90		31		91		91		32
Agricultural other	—		—		—		420		420		59
Residential real estate senior liens	11,254		12,525		1,873		10,450		11,672		1,783
Residential real estate junior liens	88		135		17		72		118		13
Total impaired loans with a valuation allowance	$	18,113	$	19,569	$	4,001	$	20,468	$	21,977	$	3,937
Impaired loans without a valuation allowance
Commercial real estate	$	4,656	$	5,494			$	3,749	$	4,408
Commercial other	818		928				1,272		1,433
Agricultural real estate	329		329				—		—
Agricultural other	368		488				212		332
Home equity lines of credit	172		472				182		482
Consumer secured	65		72				75		84
Total impaired loans without a valuation allowance	$	6,408	$	7,783			$	5,490	$	6,739
Impaired loans
Commercial	$	12,155	$	13,241	$	2,080	$	14,456	$	15,517	$	2,050
Agricultural	787		907		31		723		843		91
Residential real estate	11,514		13,132		1,890		10,704		12,272		1,796
Consumer	65		72		—		75		84		—
Total impaired loans	$	24,521	$	27,352	$	4,001	$	25,958	$	28,716	$	3,937



	Three Months Ended September 30, 2013				Nine Months Ended September 30, 2013
	Average Outstanding Balance		Interest Income Recognized		Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,471	$	157	$	7,546	$	378
Commercial other	1,063		29		976		67
Agricultural real estate	91		2		91		4
Agricultural other	—		—		70		—
Residential real estate senior liens	10,865		230		10,595		439
Residential real estate junior liens	80		4		84		5
Total impaired loans with a valuation allowance	$	18,570	$	422	$	19,362	$	893
Impaired loans without a valuation allowance
Commercial real estate	$	4,531	$	169	$	4,037	$	327
Commercial other	833		29		1,029		88
Agricultural real estate	231		15		144		19
Agricultural other	361		2		402		(2		)
Home equity lines of credit	173		8		178		17
Consumer secured	60		1		66		3
Total impaired loans without a valuation allowance	$	6,189	$	224	$	5,856	$	452
Impaired loans
Commercial	$	12,898	$	384	$	13,588	$	860
Agricultural	683		19		707		21
Residential real estate	11,118		242		10,857		461
Consumer	60		1		66		3
Total impaired loans	$	24,759	$	646	$	25,218	$	1,345



	Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
	Average Outstanding Balance		Interest Income Recognized		Average Outstanding Balance		Interest Income Recognized
Impaired loans with a valuation allowance
Commercial real estate	$	6,260	$	106	$	6,197	$	287
Commercial other	1,996		67		1,183		95
Agricultural real estate	—		—		—		—
Agricultural other	1,023		—		1,878		73
Residential real estate senior liens	7,994		88		7,803		263
Residential real estate junior liens	158		3		174		7
Total impaired loans with a valuation allowance	$	17,431	$	264	$	17,235	$	725
Impaired loans without a valuation allowance
Commercial real estate	$	5,651	$	72	$	6,749	$	251
Commercial other	2,026		15		1,860		80
Agricultural real estate	179		—		214		—
Agricultural other	1,417		34		869		41
Home equity lines of credit	188		6		194		14
Consumer secured	81		2		90		5
Total impaired loans without a valuation allowance	$	9,542	$	129	$	9,976	$	391
Impaired loans
Commercial	$	15,933	$	260	$	15,989	$	713
Agricultural	2,619		34		2,961		114
Residential real estate	8,340		97		8,171		284
Consumer	81		2		90		5
Total impaired loans	$	26,973	$	393	$	27,211	$	1,116

As of September 30, 2013 and December 31, 2012, we had committed to advance $88 and $9, respectively, in connection with impaired loans, which include TDRs.

Troubled Debt Restructurings

Loan modifications are considered to be TDRs 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:


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


2.	Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics.


3.	Forbearance of principal.


4.	Forbearance of accrued interest.

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


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


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


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


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


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

The following is a summary of information pertaining to TDRs granted in the periods ended:



	Three Months Ended September 30, 2013					Nine Months Ended September 30, 2013
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial other	3	$	159	$	159	10	$	3,313	$	3,116
Agricultural other	1	198		198		2	332		332
Residential real estate senior liens	15	1,176		1,176		30	2,611		2,595
Residential real estate junior liens	1	20		20		1	20		20
Consumer unsecured	2	34		34		2	34		34
Total	22	$	1,587	$	1,587	45	$	6,310	$	6,097



	Three Months Ended September 30, 2012					Nine Months Ended September 30, 2012
	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	$	178	$	178	27	$	5,069	$	5,069
Agricultural other	—	—		—		6	561		561
Residential real estate senior liens	—	—		—		12	1,405		1,405
Residential real estate junior liens	1	22		22		1	22		22
Total	2	$	200	$	200	46	$	7,057	$	7,057



	Three Months Ended September 30, 2013						Nine Months Ended September 30, 2013
	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	3	$	159	—	$	—	6	$	1,517	4	$	1,796
Agricultural other	1	198		—	—		2	332		—	—
Residential real estate senior liens	10	924		5	252		17	1,548		13	1,063
Residential real estate junior liens	—	—		1	20		—	—		1	20
Consumer unsecured	1	16		1	18		1	16		1	18
Total	15	$	1,297	7	$	290	26	$	3,413	19	$	2,897



	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	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	$	178	—	$	—	25	$	4,924	2	$	145
Agricultural other	—	—		—	—		6	561		—	—
Residential real estate senior liens	—	—		—	—		4	324		8	1,081
Residential real estate junior liens	—	—		1	22		—	—		1	22
Total	1	$	178	1	$	22	35	$	5,809	11	$	1,248

We did not restructure any loans through the forbearance of principal or accrued interest in the three and nine month periods ended September 30, 2013 or 2012.

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 nine month periods ended September 30, 2013, which were modified within 12 months prior to the default date.

Following is a summary of loans that defaulted in the three and nine month periods ended September 30, 2012, which were modified within 12 months prior to the default date:



	Three Months Ended September 30, 2012							Nine Months Ended September 30, 2012
	Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment		Number of Loans	Pre- Default Recorded Investment		Charge-Off Recorded Upon Default		Post- Default Recorded Investment
Commercial other	2	$	50	$	25	$	25	3	$	132	$	66	$	66
Residential real estate senior liens	—	—		—		—		1	47		43		4
Consumer secured	1	8		8		—		1	8		8		—
Total	3	$	58	$	33	$	25	5	$	187	$	117	$	70

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



	September 30 2013		December 31 2012
TDRs	$	20,337	$	19,355