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 table below shows the loan portfolio composition including carrying value by segment of loans accounted for under ASC Topic 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality, and loans not accounted for under this guidance, which includes the Company’s originated loans. The carrying value of loans is net of discounts on loans excluded from ASC 310-30, and fees and costs of $5.4 million and $6.3 million as of March 31, 2017 and December 31, 2016, respectively. At March 31, 2017 and December 31, 2016, $13.9 million and $14.4 million, respectively, of non 310-30 loans were held-for-sale, most of which were in the residential real estate segment. March 31, 2017 ASC 310-30 loans Non 310-30 loans Total loans % of total Commercial $ 36,935 $ 1,604,661 $ 1,641,596 Commercial real estate non-owner occupied 86,842 451,151 537,993 Residential real estate 15,470 730,985 746,455 Consumer 817 26,794 27,611 Total $ 140,064 $ 2,813,591 $ 2,953,655 December 31, 2016 ASC 310-30 loans Non 310-30 loans Total loans % of total Commercial $ 39,280 $ 1,521,150 $ 1,560,430 Commercial real estate non-owner occupied 89,150 437,642 526,792 Residential real estate 16,524 728,361 744,885 Consumer 898 27,916 28,814 Total $ 145,852 $ 2,715,069 $ 2,860,921 Delinquency for loans excluded from ASC 310-30 is shown in the following tables at March 31, 2017 and December 31, 2016: March 31, 2017 Greater Total Loans > 90 30-59 60-89 than 90 non days past days past days past days past Total past 310-30 due and Non- due due due due Current loans still accruing accrual Loans excluded from ASC 310-30: Commercial: Commercial and industrial $ 216 $ 666 $ 7,932 $ 8,814 $ 1,141,874 $ 1,150,688 $ — $ 9,710 Owner occupied commercial real estate 1,441 720 1,772 3,933 232,402 236,335 — 2,786 Agriculture 491 — 2,043 2,534 125,613 128,147 — 2,659 Energy — — 6,621 6,621 82,870 89,491 — 12,697 Total commercial 2,148 1,386 18,368 21,902 1,582,759 1,604,661 — 27,852 Commercial real estate non-owner occupied: Construction — 215 — 215 115,288 115,503 — — Acquisition/development — — — — 15,577 15,577 — — Multifamily — — — — 25,278 25,278 — — Non-owner occupied 68 26 — 94 294,699 294,793 — 36 Total commercial real estate 68 241 — 309 450,842 451,151 — 36 Residential real estate: Senior lien 1,543 410 1,006 2,959 676,724 679,683 — 4,951 Junior lien 86 17 167 270 51,032 51,302 99 702 Total residential real estate 1,629 427 1,173 3,229 727,756 730,985 99 5,653 Consumer 119 11 6 136 26,658 26,794 6 175 Total loans excluded from ASC 310-30 $ 3,964 $ 2,065 $ 19,547 $ 25,576 $ 2,788,015 $ 2,813,591 $ 105 $ 33,716 December 31, 2016 Greater Total Loans > 90 30-59 60-89 than 90 non days past days past days past days past Total past 310-30 due and Non- due due due due Current loans still accruing accrual Loans excluded from ASC 310-30: Commercial: Commercial and industrial $ 3,134 $ 4,009 $ 1,078 $ 8,221 $ 1,066,475 $ 1,074,696 $ — $ 8,688 Owner occupied commercial real estate 583 216 56 855 220,689 221,544 — 2,056 Agriculture 501 — — 501 134,136 134,637 — 1,905 Energy 2 — 6,548 6,550 83,723 90,273 — 12,645 Total commercial 4,220 4,225 7,682 16,127 1,505,023 1,521,150 — 25,294 Commercial real estate non-owner occupied: Construction — — — — 90,314 90,314 — — Acquisition/development — — — — 13,306 13,306 — — Multifamily — — — — 24,954 24,954 — — Non-owner occupied — — 28 28 309,040 309,068 — 66 Total commercial real estate — — 28 28 437,614 437,642 — 66 Residential real estate: Senior lien 888 645 1,458 2,991 672,699 675,690 — 4,522 Junior lien 115 61 22 198 52,473 52,671 — 654 Total residential real estate 1,003 706 1,480 3,189 725,172 728,361 — 5,176 Consumer 83 8 — 91 27,825 27,916 — 181 Total loans excluded from ASC 310-30 $ 5,306 $ 4,939 $ 9,190 $ 19,435 $ 2,695,634 $ 2,715,069 $ — $ 30,717 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 are included in loans 90 days or more past due and still accruing. Non-accrual loans include troubled debt restructurings on non-accrual status. Non-accrual loans excluded from the scope of ASC 310-30 totaled $33.7 million at March 31, 2017, increasing $3.0 million, or 9.8% from December 31, 2016. The increase was driven primarily by two loan relationships totaling a combined $1.5 million at March 31, 2017 within the owner occupied commercial real estate and agriculture segments, and one existing non-accrual commercial and industrial loan which increased $1.3 million during the quarter. Credit exposure for all loans as determined by the Company’s internal risk rating system was as follows at March 31, 2017 and December 31, 2016: March 31, 2017 Special Pass mention Substandard Doubtful Total Loans excluded from ASC 310-30: Commercial: Commercial and industrial $ 1,120,420 $ 5,009 $ 24,768 $ 491 $ 1,150,688 Owner occupied commercial real estate 217,628 14,308 4,399 — 236,335 Agriculture 92,000 32,456 3,691 — 128,147 Energy 76,785 — 7,357 5,349 89,491 Total commercial 1,506,833 51,773 40,215 5,840 1,604,661 Commercial real estate non-owner occupied: Construction 115,288 — 215 — 115,503 Acquisition/development 13,064 2,513 — — 15,577 Multifamily 23,081 — 2,197 — 25,278 Non-owner occupied 291,608 1,577 1,608 — 294,793 Total commercial real estate 443,041 4,090 4,020 — 451,151 Residential real estate: Senior lien 673,769 253 5,650 11 679,683 Junior lien 50,023 — 1,279 — 51,302 Total residential real estate 723,792 253 6,929 11 730,985 Consumer 26,557 57 180 — 26,794 Total loans excluded from ASC 310-30 $ 2,700,223 $ 56,173 $ 51,344 $ 5,851 $ 2,813,591 Loans accounted for under ASC 310-30: Commercial $ 27,573 $ 1,132 $ 8,230 $ — $ 36,935 Commercial real estate non-owner occupied 53,228 954 32,660 — 86,842 Residential real estate 12,424 1,315 1,731 — 15,470 Consumer 629 16 172 — 817 Total loans accounted for under ASC 310-30 $ 93,854 $ 3,417 $ 42,793 $ — $ 140,064 Total loans $ 2,794,077 $ 59,590 $ 94,137 $ 5,851 $ 2,953,655 December 31, 2016 Special Pass mention Substandard Doubtful Total Loans excluded from ASC 310-30: Commercial: Commercial and industrial $ 1,041,326 $ 7,243 $ 25,636 $ 491 $ 1,074,696 Owner occupied commercial real estate 202,036 9,371 10,137 — 221,544 Agriculture 123,809 8,922 1,906 — 134,637 Energy 77,619 — 7,811 4,843 90,273 Total commercial 1,444,790 25,536 45,490 5,334 1,521,150 Commercial real estate non-owner occupied: Construction 90,099 — 215 — 90,314 Acquisition/development 10,758 2,548 — — 13,306 Multifamily 22,495 238 2,221 — 24,954 Non-owner occupied 300,922 5,895 2,251 — 309,068 Total commercial real estate 424,274 8,681 4,687 — 437,642 Residential real estate: Senior lien 669,148 1,215 5,316 11 675,690 Junior lien 51,250 178 1,243 — 52,671 Total residential real estate 720,398 1,393 6,559 11 728,361 Consumer 27,669 59 188 — 27,916 Total loans excluded from ASC 310-30 $ 2,617,131 $ 35,669 $ 56,924 $ 5,345 $ 2,715,069 Loans accounted for under ASC 310-30: Commercial $ 27,436 $ 610 $ 11,234 $ — $ 39,280 Commercial real estate non-owner occupied 38,895 967 45,520 3,768 89,150 Residential real estate 12,477 1,327 2,720 — 16,524 Consumer 721 17 160 — 898 Total loans accounted for under ASC 310-30 $ 79,529 $ 2,921 $ 59,634 $ 3,768 $ 145,852 Total loans $ 2,696,660 $ 38,590 $ 116,558 $ 9,113 $ 2,860,921 Non 310-30 special mention loans within the owner occupied commercial real estate sector increased from December 31, 2016, largely due to two loan relationship upgrades totaling $5.4 million from substandard to special mention in the first quarter of 2017. Non 310-30 special mention loans within the agriculture sector increased from December 31, 2016, due to two loan relationship downgrades to special mention totaling $23.5 million at March 31, 2017. Both relationships are current with respect to principal and interest payments. 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 loans excluded from ASC 310-30 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 March 31, 2017, the Company measured $30.6 million of impaired loans based on the fair value of the collateral less selling costs and $2.6 million of impaired loans using discounted cash flows and the loan’s initial contractual effective interest rate. Impaired loans totaling $7.9 million that individually were less than $250 thousand each, were measured through the general ALL reserves due to their relatively small size. At March 31, 2017 and December 31, 2016, the Company’s recorded investments in impaired loans was $41.1 million and $38.3 million, respectively. Impaired loans at March 31, 2017 were primarily comprised of seven relationships totaling $25.5 million. Three of the relationships were in the commercial and industrial sector, three of the relationships were in the energy sector and one relationship was in the agricultural sector. Impaired loans had a collective related allowance for loan losses allocated to them of $2.9 million and $2.4 million at March 31, 2017 and December 31, 2016, respectively. Additional information regarding impaired loans at March 31, 2017 and December 31, 2016 is set forth in the table below: March 31, 2017 December 31, 2016 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 $ 9,676 $ 8,507 $ — $ 8,671 $ 7,495 $ — Owner occupied commercial real estate 4,027 3,877 — 3,350 3,197 — Agriculture 2,798 2,740 — 2,044 1,987 — Energy 17,157 6,085 — 17,142 6,105 — Total commercial 33,658 21,209 — 31,207 18,784 — Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily 32 32 — 33 33 — Non-owner occupied 373 322 — 394 343 — Total commercial real estate 405 354 — 427 376 — Residential real estate: Senior lien 1,100 1,042 — 1,551 1,426 — Junior lien — — — 54 51 — Total residential real estate 1,100 1,042 — 1,605 1,477 — Consumer 4 4 — 4 4 — Total impaired loans with no related allowance recorded $ 35,167 $ 22,609 $ — $ 33,243 $ 20,641 $ — With a related allowance recorded: Commercial: Commercial and industrial $ 3,476 $ 3,443 $ 491 $ 3,495 $ 3,464 $ 492 Owner occupied commercial real estate 932 673 3 957 642 2 Agriculture — — — — — — Energy 11,288 6,621 2,372 11,216 6,548 1,866 Total commercial 15,696 10,737 2,866 15,668 10,654 2,360 Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily — — — — — — Non-owner occupied 226 220 1 261 255 1 Total commercial real estate 226 220 1 261 255 1 Residential real estate: Senior lien 6,418 5,748 33 5,646 5,016 31 Junior lien 1,854 1,613 14 1,781 1,532 14 Total residential real estate 8,272 7,361 47 7,427 6,548 45 Consumer 180 176 2 188 184 2 Total impaired loans with a related allowance recorded $ 24,374 $ 18,494 $ 2,916 $ 23,544 $ 17,641 $ 2,408 Total impaired loans $ 59,541 $ 41,103 $ 2,916 $ 56,787 $ 38,282 $ 2,408 The table below shows additional information regarding the average recorded investment and interest income recognized on impaired loans for the periods presented: For the three months ended March 31, 2017 March 31, 2016 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 8,095 $ 48 $ 4,919 $ 68 Owner occupied commercial real estate 3,885 18 1,912 29 Agriculture 2,588 — 1,758 — Energy 6,098 — — — Total commercial 20,666 66 8,589 97 Commercial real estate non-owner occupied: Construction — — 189 — Acquisition/development — — — — Multifamily — — — — Non-owner occupied 329 7 719 — Total commercial real estate 329 7 908 — Residential real estate: Senior lien 1,047 3 1,376 4 Junior lien — — 289 — Total residential real estate 1,047 3 1,665 4 Consumer 4 — — — Total impaired loans with no related allowance recorded $ 22,046 $ 76 $ 11,162 $ 101 With a related allowance recorded: Commercial: Commercial and industrial $ 3,445 $ — $ 4,479 $ — Owner occupied commercial real estate 678 5 889 4 Agriculture 156 1 180 1 Energy 6,589 — 32,068 — Total commercial 10,868 6 37,616 5 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily 32 — 36 — Non-owner occupied 223 3 833 15 Total commercial real estate 255 3 869 15 Residential real estate: Senior lien 5,791 21 4,799 19 Junior lien 1,625 13 1,937 13 Total residential real estate 7,416 34 6,736 32 Consumer 181 — 64 — Total impaired loans with a related allowance recorded $ 18,720 $ 43 $ 45,285 $ 52 Total impaired loans $ 40,766 $ 119 $ 56,447 $ 153 Interest income recognized on impaired loans noted in the table above primarily represents interest earned on accruing troubled debt restructurings. Interest income recognized on impaired loans using the cash-basis method of accounting during the three months ended March 31, 2017 and 2016 was $0.1 million. Troubled debt restructurings It is the Company’s policy to review each prospective credit in order 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. At March 31, 2017 and December 31, 2016, the Company had $5.6 million and $5.8 million, respectively, of accruing TDRs that had been restructured from the original terms in order to facilitate repayment. Non-accruing TDRs at March 31, 2017 and December 31, 2016 totaled $25.1 million and $16.7 million, respectively. During the three months ended March 31, 2017, the Company restructured five loans with a recorded investment of $6.9 million to facilitate repayment. Substantially all of the 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 table below provides additional information related to accruing TDRs at March 31, 2017 and December 31, 2016: March 31, 2017 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investments principal balance to fund TDRs Commercial $ 3,273 $ 3,284 $ 3,430 $ 100 Commercial real estate non-owner occupied 512 521 564 — Residential real estate 1,799 1,814 1,848 2 Consumer 5 6 5 — Total $ 5,589 $ 5,625 $ 5,847 $ 102 December 31, 2016 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investments principal balance to fund TDRs Commercial $ 3,302 $ 3,440 $ 3,464 $ 100 Commercial real estate non-owner occupied 538 572 590 — Residential real estate 1,920 1,996 1,969 2 Consumer 7 9 7 — Total $ 5,767 $ 6,017 $ 6,030 $ 102 The following table summarizes the Company’s carrying value of non-accrual TDRs as of March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Commercial $ 23,577 $ 15,265 Commercial real estate non-owner occupied — — Residential real estate 1,368 1,301 Consumer 134 142 Total non-accruing TDRs $ 25,079 $ 16,708 Accrual of interest is resumed on loans that were on non-accrual only after the loan has performed sufficiently. The Company had one TDR that was modified within the past twelve months and had defaulted on its restructured terms during the three months ended March 31, 2017. The defaulted TDR consisted of one agriculture sector loan totaling $1.6 million. 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 troubled debt restructurings. During the three months ended March 31, 2016, the Company had five TDRs that had been modified within the past 12 months that 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. Loans accounted for under ASC 310-30 Loan pools accounted for under ASC Topic 310-30 are periodically re-measured 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 re-measurement of loans accounted for under ASC 310-30 resulted in the following changes in the carrying amount of accretable yield during the three months ended March 31, 2017 and 2016: March 31, 2017 March 31, 2016 Accretable yield beginning balance $ 60,476 $ 84,194 Reclassification from non-accretable difference 5,385 3,184 Reclassification to non-accretable difference (399) (2,077) Accretion (5,871) (10,294) Accretable yield ending balance $ 59,591 $ 75,007 Below is the composition of the net book value for loans accounted for under ASC 310-30 at March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Contractual cash flows $ 525,952 $ 537,611 Non-accretable difference (326,297) (331,283) Accretable yield (59,591) (60,476) Loans accounted for under ASC 310-30 $ 140,064 $ 145,852 |