Loans | Note 4 Loans The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions. The tables below show the loan portfolio composition including carrying value by segment of originated and acquired loans and loans accounted for under ASC 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality September 30, 2019 Originated and ASC acquired loans 310-30 loans Total loans % of total Commercial $ 2,932,205 $ 16,262 $ 2,948,467 67.0% Commercial real estate non-owner occupied 606,720 34,460 641,180 14.6% Residential real estate 783,600 6,477 790,077 17.9% Consumer 22,193 — 22,193 0.5% Total $ 4,344,718 $ 57,199 $ 4,401,917 100.0% December 31, 2018 Originated and ASC acquired loans 310-30 loans Total loans % of total Commercial $ 2,624,173 $ 20,398 $ 2,644,571 64.6% Commercial real estate non-owner occupied 551,819 40,393 592,212 14.5% Residential real estate 820,820 9,995 830,815 20.3% Consumer 24,617 93 24,710 0.6% Total $ 4,021,429 $ 70,879 $ 4,092,308 100.0% Delinquency for originated and acquired loans is shown in the following tables at September 30, 2019 and December 31, 2018: September 30, 2019 Greater 30-89 days than 90 days Total past Total past due and past due and Non-accrual due and originated and accruing accruing loans non-accrual Current acquired loans Originated and acquired loans: Commercial: Commercial and industrial $ 4,842 $ 1,968 $ 9,880 $ 16,690 $ 2,187,999 $ 2,204,689 Owner occupied commercial real estate — — 4,001 4,001 442,628 446,629 Food and agriculture 111 — 358 469 234,116 234,585 Energy — — 915 915 45,387 46,302 Total commercial 4,953 1,968 15,154 22,075 2,910,130 2,932,205 Commercial real estate non-owner occupied: Construction — — 385 385 85,658 86,043 Acquisition/development 152 — 731 883 15,632 16,515 Multifamily — — — — 68,953 68,953 Non-owner occupied 100 — 379 479 434,730 435,209 Total commercial real estate 252 — 1,495 1,747 604,973 606,720 Residential real estate: Senior lien 1,054 — 7,828 8,882 678,509 687,391 Junior lien 349 — 867 1,216 94,993 96,209 Total residential real estate 1,403 — 8,695 10,098 773,502 783,600 Consumer 115 — 54 169 22,024 22,193 Total originated and acquired loans $ 6,723 $ 1,968 $ 25,398 $ 34,089 $ 4,310,629 $ 4,344,718 December 31, 2018 Greater 30-89 days than 90 days Total past Total past due and past due and Non-accrual due and originated and accruing accruing loans non-accrual Current acquired loans Originated and acquired loans: Commercial: Commercial and industrial $ 495 $ 74 $ 5,510 $ 6,079 $ 1,925,068 $ 1,931,147 Owner occupied commercial real estate 893 — 6,931 7,824 413,842 421,666 Food and agriculture 141 125 768 1,034 221,122 222,156 Energy — — 742 742 48,462 49,204 Total commercial 1,529 199 13,951 15,679 2,608,494 2,624,173 Commercial real estate non-owner occupied: Construction — — 1,208 1,208 93,646 94,854 Acquisition/development — — 121 121 19,529 19,650 Multifamily — — — — 56,685 56,685 Non-owner occupied 328 132 572 1,032 379,598 380,630 Total commercial real estate 328 132 1,901 2,361 549,458 551,819 Residential real estate: Senior lien 2,106 548 7,790 10,444 712,592 723,036 Junior lien 556 — 772 1,328 96,456 97,784 Total residential real estate 2,662 548 8,562 11,772 809,048 820,820 Consumer 91 16 42 149 24,468 24,617 Total originated and acquired loans $ 4,610 $ 895 $ 24,456 $ 29,961 $ 3,991,468 $ 4,021,429 Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Pooled loans accounted for under ASC 310-30 that are 90 days or more past due and still accreting are generally considered to be performing and therefore are not included in the tables above. Non-accrual loans include non-accrual loans and troubled debt restructurings on non-accrual status. Non-accrual originated and acquired loans totaled $25.4 million at September 30, 2019, increasing $0.9 million, or 3.9% from December 31, 2018. The Company’s internal risk rating system uses a series of grades which reflect our assessment of the credit quality of loans based on an analysis of the borrower's financial condition, liquidity and ability to meet contractual debt service requirements and are categorized as “Pass”, “Special mention”, “Substandard” and “Doubtful”. A description of the general characteristics of the risk grades is set forth in the Company’s 2018 Annual Report on Form 10-K Credit exposure for all loans as determined by the Company’s internal risk rating system was as follows as of September 30, 2019 and December 31, 2018, respectively: September 30, 2019 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 2,165,513 $ 22,809 $ 14,893 $ 1,474 $ 2,204,689 Owner occupied commercial real estate 411,851 25,351 9,345 82 446,629 Food and agriculture 217,305 16,143 1,104 33 234,585 Energy 45,387 — 915 — 46,302 Total commercial 2,840,056 64,303 26,257 1,589 2,932,205 Commercial real estate non-owner occupied: Construction 85,658 — 385 — 86,043 Acquisition/development 15,744 — 771 — 16,515 Multifamily 68,459 — 494 — 68,953 Non-owner occupied 420,362 13,782 950 115 435,209 Total commercial real estate 590,223 13,782 2,600 115 606,720 Residential real estate: Senior lien 678,576 82 8,733 — 687,391 Junior lien 94,813 426 970 — 96,209 Total residential real estate 773,389 508 9,703 — 783,600 Consumer 22,139 — 54 — 22,193 Total originated and acquired loans $ 4,225,807 $ 78,593 $ 38,614 $ 1,704 $ 4,344,718 Loans accounted for under ASC 310-30: Commercial $ 13,722 $ 495 $ 2,045 $ — $ 16,262 Commercial real estate non-owner occupied 33,577 222 661 — 34,460 Residential real estate 4,851 368 1,258 — 6,477 Consumer — — — — — Total loans accounted for under ASC 310-30 $ 52,150 $ 1,085 $ 3,964 $ — $ 57,199 Total loans $ 4,277,957 $ 79,678 $ 42,578 $ 1,704 $ 4,401,917 December 31, 2018 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 1,890,710 $ 16,531 $ 22,919 $ 987 $ 1,931,147 Owner occupied commercial real estate 393,404 16,349 11,828 85 421,666 Food and agriculture 220,004 1,260 847 45 222,156 Energy 48,462 — 742 — 49,204 Total commercial 2,552,580 34,140 36,336 1,117 2,624,173 Commercial real estate non-owner occupied: Construction 92,731 915 1,208 — 94,854 Acquisition/development 19,529 — 121 — 19,650 Multifamily 56,685 — — — 56,685 Non-owner occupied 355,776 23,243 1,611 — 380,630 Total commercial real estate 524,721 24,158 2,940 — 551,819 Residential real estate: Senior lien 710,972 3,571 8,493 — 723,036 Junior lien 96,456 415 913 — 97,784 Total residential real estate 807,428 3,986 9,406 — 820,820 Consumer 24,575 — 42 — 24,617 Total originated and acquired loans $ 3,909,304 $ 62,284 $ 48,724 $ 1,117 $ 4,021,429 Loans accounted for under ASC 310-30: Commercial $ 17,579 $ 537 $ 2,282 $ — $ 20,398 Commercial real estate non-owner occupied 39,322 246 825 — 40,393 Residential real estate 7,484 908 1,603 — 9,995 Consumer — — 93 — 93 Total loans accounted for under ASC 310-30 $ 64,385 $ 1,691 $ 4,803 $ — $ 70,879 Total loans $ 3,973,689 $ 63,975 $ 53,527 $ 1,117 $ 4,092,308 Impaired Loans Loans are considered to be impaired when it is probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan agreement. Impaired loans are comprised of originated and acquired loans on non-accrual status, loans in bankruptcy and troubled debt restructurings (“TDRs”) described below. If a specific allowance is warranted based on the borrower’s overall financial condition, the specific allowance is calculated based on discounted cash flows using the loan’s initial contractual effective interest rate or the fair value of the collateral less selling costs for collateral dependent loans. At September 30, 2019 and December 31, 2018, the Company’s recorded investment in impaired loans was $37.0 million and $31.1 million, respectively, of which $7.4 million and $4.1 million, respectively, were accruing TDRs. Impaired loans had a collective related allowance for loan losses allocated to them of $1.8 million and $1.2 million at September 30, 2019 and December 31, 2018, respectively. Additional information regarding impaired loans at September 30, 2019 and December 31, 2018 is set forth in the table below: September 30, 2019 December 31, 2018 Allowance Allowance Unpaid for loan Unpaid for loan principal Recorded losses principal Recorded losses balance investment allocated balance investment allocated With no related allowance recorded: Commercial: Commercial and industrial $ 17,772 $ 10,982 $ — $ 4,374 $ 3,029 $ — Owner occupied commercial real estate 4,129 3,716 — 7,130 6,609 — Food and agriculture 1,468 1,220 — 1,468 1,260 — Energy 5,539 915 — 5,366 742 — Total commercial 28,908 16,833 — 18,338 11,640 — Commercial real estate non-owner occupied: Construction 389 385 — 1,435 1,208 — Acquisition/development 763 731 — 378 121 — Multifamily — — — — — — Non-owner occupied 90 26 — 641 547 — Total commercial real estate 1,242 1,142 — 2,454 1,876 — Residential real estate: Senior lien 4,660 4,339 — 4,229 3,814 — Junior lien 355 320 — 409 341 — Total residential real estate 5,015 4,659 — 4,638 4,155 — Consumer 60 54 — 46 42 — Total impaired loans with no related allowance recorded $ 35,225 $ 22,688 $ — $ 25,476 $ 17,713 $ — With a related allowance recorded: Commercial: Commercial and industrial $ 8,679 $ 5,959 $ 1,486 $ 7,252 $ 4,627 $ 996 Owner occupied commercial real estate 1,263 1,045 86 1,362 1,169 90 Food and agriculture 798 792 36 883 845 46 Energy — — — — — — Total commercial 10,740 7,796 1,608 9,497 6,641 1,132 Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily — — — — — — Non-owner occupied 590 525 117 313 254 2 Total commercial real estate 590 525 117 313 254 2 Residential real estate: Senior lien 5,900 4,974 24 6,032 5,178 27 Junior lien 1,153 1,019 7 1,408 1,293 8 Total residential real estate 7,053 5,993 31 7,440 6,471 35 Consumer — — — — — — Total impaired loans with a related allowance recorded $ 18,383 $ 14,314 $ 1,756 $ 17,250 $ 13,366 $ 1,169 Total impaired loans $ 53,608 $ 37,002 $ 1,756 $ 42,726 $ 31,079 $ 1,169 The tables below show additional information regarding the average recorded investment and interest income recognized on impaired loans for the periods presented: For the three months ended September 30, 2019 September 30, 2018 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 11,808 $ 41 $ 4,518 $ 68 Owner occupied commercial real estate 3,656 7 7,278 17 Food and agriculture 1,220 — 1,259 — Energy 909 — 2,044 15 Total commercial 17,593 48 15,099 100 Commercial real estate non-owner occupied: Construction 257 — 1,081 — Acquisition/development 491 — 590 — Multifamily — — — — Non-owner occupied 27 — 559 — Total commercial real estate 775 — 2,230 — Residential real estate: Senior lien 4,313 1 3,062 — Junior lien 323 1 316 1 Total residential real estate 4,636 2 3,378 1 Consumer 10 — 12 — Total impaired loans with no related allowance recorded $ 23,014 $ 50 $ 20,719 $ 101 With a related allowance recorded: Commercial: Commercial and industrial $ 5,908 $ — $ 5,015 $ — Owner occupied commercial real estate 1,060 6 1,205 5 Food and agriculture 799 3 853 1 Energy — — — — Total commercial 7,767 9 7,073 6 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily — — — — Non-owner occupied 528 2 277 4 Total commercial real estate 528 2 277 4 Residential real estate: Senior lien 5,004 15 5,351 17 Junior lien 1,029 7 1,250 16 Total residential real estate 6,033 22 6,601 33 Consumer 40 — 35 — Total impaired loans with a related allowance recorded $ 14,368 $ 33 $ 13,986 $ 44 Total impaired loans $ 37,382 $ 83 $ 34,705 $ 145 For the nine months ended September 30, 2019 September 30, 2018 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 6,569 $ 129 $ 5,206 $ 241 Owner occupied commercial real estate 3,345 20 7,415 52 Food and agriculture 1,348 — 1,259 6 Energy 839 — 2,080 52 Total Commercial 12,101 149 15,960 351 Commercial real estate non-owner occupied: Construction 86 — 1,081 — Acquisition/development 170 — 768 — Multifamily — — — — Non-owner occupied 29 — 580 — Total commercial real estate 285 — 2,429 — Residential real estate: Senior lien 3,677 1 3,118 — Junior lien 334 2 323 1 Total residential real estate 4,010 3 3,441 1 Consumer 11 — 13 — Total impaired loans with no related allowance recorded $ 16,408 $ 152 $ 21,843 $ 352 With a related allowance recorded: Commercial: Commercial and industrial $ 5,286 $ — $ 5,175 $ — Owner occupied commercial real estate 1,093 18 1,234 14 Food and agriculture 630 7 866 4 Energy — — — — Total Commercial 7,010 25 7,275 18 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily — — — — Non-owner occupied 511 11 297 14 Total commercial real estate 511 11 297 14 Residential real estate: Senior lien 4,813 43 5,503 43 Junior lien 1,009 22 1,273 35 Total residential real estate 5,822 65 6,776 78 Consumer 43 — 38 — Total impaired loans with a related allowance recorded $ 13,386 $ 101 $ 14,386 $ 109 Total impaired loans $ 29,794 $ 253 $ 36,229 $ 461 Interest income recognized on impaired loans noted in the tables above primarily represents interest earned on accruing TDRs. Interest income recognized on impaired loans during the three months ended September 30, 2019 and 2018 was $0.1 million and $0.1 million, respectively. Interest income recognized on impaired loans during the nine months ended September 30, 2019 and 2018 was $0.3 million and $0.5 million, respectively. Troubled debt restructurings The Company’s policy is to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default the Company seeks recovery in compliance with lending laws, the respective loan agreements and credit monitoring and remediation procedures that may include restructuring a loan to provide a concession by the Company to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Additionally, if a borrower’s repayment obligation has been discharged by a court, and that debt has not been reaffirmed by the borrower, regardless of past due status, the loan is considered to be a TDR. During the nine months ended September 30, 2019, the Company restructured 15 loans with a recorded investment of $8.2 million at September 30, 2019 to facilitate repayment. Loan modifications were a reduction of the principal payment, a reduction in interest rate, or an extension of term. Loan modifications to loans accounted for under ASC 310-30 are not considered TDRs. The tables below provide additional information related to accruing TDRs at September 30, 2019 and December 31, 2018: September 30, 2019 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 6,085 $ 1,738 $ 6,207 $ 151 Commercial real estate non-owner occupied 159 181 210 — Residential real estate 1,140 1,124 1,172 12 Consumer — — — — Total $ 7,384 $ 3,043 $ 7,589 $ 163 December 31, 2018 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 2,730 $ 2,827 $ 3,155 $ — Commercial real estate non-owner occupied 229 260 280 — Residential real estate 1,114 1,163 1,121 12 Consumer — — — — Total $ 4,073 $ 4,250 $ 4,556 $ 12 The following table summarizes the Company’s carrying value of non-accrual TDRs as of September 30, 2019 and December 31, 2018: September 30, 2019 December 31, 2018 Commercial $ 2,392 $ 1,854 Commercial real estate non-owner occupied 1,109 — Residential real estate 2,630 1,584 Consumer — — Total non-accruing TDRs $ 6,131 $ 3,438 At September 30, 2019 and December 31, 2018, the Company had $7.4 million and $4.1 million, respectively, of accruing TDRs that had been restructured from the original terms in order to facilitate repayment. Non-accruing TDRs totaled $6.1 million as of September 30, 2019 and increased $2.7 million from December 31, 2018. Accrual of interest is resumed on loans that were previously on non-accrual only after the loan has performed sufficiently for a period of time. The Company had no TDRs modified within the past 12 months that had defaulted on their restructured terms during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Company had three TDRs totaling $0.4 million that were modified within the past 12 months and had defaulted on their restructured terms. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for loan losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as TDRs. Loans accounted for under ASC 310-30 Loan pools accounted for under ASC Topic 310-30 are periodically remeasured to determine expected future cash flows. In determining the expected cash flows, the timing of cash flows and prepayment assumptions for smaller homogeneous loans are based on statistical models that take into account factors such as the loan interest rate, credit profile of the borrowers, the years in which the loans were originated and whether the loans are fixed or variable rate loans. Prepayments may be assumed on loans if circumstances specific to that loan warrant a prepayment assumption. The remeasurement of loans accounted for under ASC 310-30 resulted in the following changes in the carrying amount of accretable yield during the nine months ended September 30, 2019 and 2018: September 30, 2019 September 30, 2018 Accretable yield beginning balance $ 35,901 $ 46,568 Reclassification from non-accretable difference 6,195 10,070 Reclassification to non-accretable difference (921) (1,929) Accretion (10,232) (15,009) Accretable yield ending balance $ 30,943 $ 39,700 Below is the composition of the net book value for loans accounted for under ASC 310-30 at September 30, 2019 and December 31, 2018: September 30, 2019 December 31, 2018 Contractual cash flows $ 397,081 $ 420,994 Non-accretable difference (308,939) (314,214) Accretable yield (30,943) (35,901) Loans accounted for under ASC 310-30 $ 57,199 $ 70,879 |