Loans | 90
30-59
60-89
than 90
originated and
days past
days past
days past
days past
Total past
acquired
due and
Non-
due
due
due
due
Current
loans
still accruing
accrual
Originated and acquired loans:
Commercial:
Commercial and industrial
$
1,083
$
116
$
1,214
$
2,413
$
1,492,675
$
1,495,088
$
150
$
5,302
Owner occupied commercial real estate
440
534
2,790
3,764
380,483
384,247
535
7,202
Agriculture
151
—
734
885
160,764
161,649
16
2,103
Energy
—
—
923
923
39,290
40,213
—
923
Total commercial
1,674
650
5,661
7,985
2,073,212
2,081,197
701
15,530
Commercial real estate non-owner occupied:
Construction
465
941
642
2,048
110,038
112,086
642
—
Acquisition/development
—
—
51
51
23,058
23,109
51
833
Multifamily
—
—
29
29
51,712
51,741
—
29
Non-owner occupied
—
10
—
10
448,492
448,502
—
613
Total commercial real estate
465
951
722
2,138
633,300
635,438
693
1,475
Residential real estate:
Senior lien
2,535
309
1,517
4,361
744,083
748,444
238
5,918
Junior lien
1,002
238
40
1,280
97,431
98,711
—
710
Total residential real estate
3,537
547
1,557
5,641
841,514
847,155
238
6,628
Consumer
204
22
140
366
25,869
26,235
135
36
Total originated and acquired loans
$
5,880
$
2,170
$
8,080
$
16,130
$
3,573,895
$
3,590,025
$
1,767
$
23,669
December 31, 2017
Greater
Total
Loans > 90
30-59
60-89
than 90
originated and
days past
days past
days past
days past
Total past
acquired
due and
Non-
due
due
due
due
Current
loans
still accruing
accrual
Originated and acquired loans:
Commercial:
Commercial and industrial
$
554
$
117
$
1,389
$
2,060
$
1,373,962
$
1,376,022
$
150
$
7,767
Owner occupied commercial real estate
696
—
1,983
2,679
270,074
272,753
—
3,478
Agriculture
585
—
701
1,286
137,609
138,895
—
2,003
Energy
—
—
1,645
1,645
55,815
57,460
—
1,645
Total commercial
1,835
117
5,718
7,670
1,837,460
1,845,130
150
14,893
Commercial real estate non-owner occupied:
Construction
—
—
179
179
107,502
107,681
—
179
Acquisition/development
1,097
—
—
1,097
13,318
14,415
—
—
Multifamily
—
—
—
—
26,947
26,947
—
—
Non-owner occupied
56
—
574
630
335,468
336,098
—
605
Total commercial real estate
1,153
—
753
1,906
483,235
485,141
—
784
Residential real estate:
Senior lien
1,167
885
1,396
3,448
643,034
646,482
—
4,724
Junior lien
233
91
41
365
56,631
56,996
—
459
Total residential real estate
1,400
976
1,437
3,813
699,665
703,478
—
5,183
Consumer
157
6
5
168
24,407
24,575
—
140
Total originated and acquired loans
$
4,545
$
1,099
$
7,913
$
13,557
$
3,044,767
$
3,058,324
$
150
$
21,000
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 troubled debt restructurings on non-accrual status.
Non-accrual originated and acquired loans totaled $23.7 million at March 31, 2018, increasing $2.7 million, or 12.7% from December 31, 2017, due to acquired Peoples loans on non-accrual of $5.7 million, partially offset by one previously identified commercial and industrial loan of $2.3 million placed back on accrual during the first quarter of 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. Loans that are perceived to have acceptable risk are categorized as “Pass” loans. “Special mention” loans represent loans that have potential credit weaknesses that deserve close attention. Special mention loans include borrowers that have potential weaknesses or unwarranted risks that, unless corrected, may threaten the borrower's ability to meet debt service requirements. However, these borrowers are still believed to have the ability to respond to and resolve the financial issues that threaten their financial situation. Loans classified as “Substandard” have a well-defined credit weakness and are inadequately protected by the current paying capacity of the obligor or of the collateral pledged, if any. Although these loans are identified as potential problem loans, they may never become non-performing. Substandard loans have a distinct possibility of loss if the deficiencies are not corrected. “Doubtful” loans are loans that management believes the collection of payments in accordance with the terms of the loan agreement are highly questionable and improbable. Doubtful loans are deemed impaired and put on non-accrual status.
Credit exposure for all loans as determined by the Company’s internal risk rating system was as follows at March 31, 2018 and December 31, 2017:
March 31, 2018
Special
Pass
mention
Substandard
Doubtful
Total
Originated and acquired loans:
Commercial:
Commercial and industrial
$
1,460,896
$
13,070
$
20,219
$
903
$
1,495,088
Owner occupied commercial real estate
348,533
25,493
10,148
73
384,247
Agriculture
156,059
3,487
1,902
201
161,649
Energy
39,290
—
923
—
40,213
Total commercial
2,004,778
42,050
33,192
1,177
2,081,197
Commercial real estate non-owner occupied:
Construction
110,850
—
1,236
—
112,086
Acquisition/development
22,276
—
833
—
23,109
Multifamily
49,605
—
2,136
—
51,741
Non-owner occupied
430,437
15,133
2,932
—
448,502
Total commercial real estate
613,168
15,133
7,137
—
635,438
Residential real estate:
Senior lien
736,336
5,720
6,388
—
748,444
Junior lien
97,103
547
1,061
—
98,711
Total residential real estate
833,439
6,267
7,449
—
847,155
Consumer
26,197
1
37
—
26,235
Total originated and acquired loans
$
3,477,582
$
63,451
$
47,815
$
1,177
$
3,590,025
Loans accounted for under ASC 310-30:
Commercial
$
19,846
$
1,073
$
3,783
$
—
$
24,702
Commercial real estate non-owner occupied
48,174
912
26,191
—
75,277
Residential real estate
9,306
1,074
1,620
—
12,000
Consumer
208
8
114
—
330
Total loans accounted for under ASC 310-30
$
77,534
$
3,067
$
31,708
$
—
$
112,309
Total loans
$
3,555,116
$
66,518
$
79,523
$
1,177
$
3,702,334
December 31, 2017
Special
Pass
mention
Substandard
Doubtful
Total
Originated and acquired loans:
Commercial:
Commercial and industrial
$
1,349,116
$
10,829
$
14,824
$
1,253
$
1,376,022
Owner occupied commercial real estate
250,224
17,030
5,424
75
272,753
Agriculture
118,068
18,824
1,870
133
138,895
Energy
55,814
—
1,646
—
57,460
Total commercial
1,773,222
46,683
23,764
1,461
1,845,130
Commercial real estate non-owner occupied:
Construction
107,502
—
179
—
107,681
Acquisition/development
14,415
—
—
—
14,415
Multifamily
24,817
—
2,130
—
26,947
Non-owner occupied
333,225
1,396
1,477
—
336,098
Total commercial real estate
479,959
1,396
3,786
—
485,141
Residential real estate:
Senior lien
641,294
91
5,097
—
646,482
Junior lien
56,172
—
824
—
56,996
Total residential real estate
697,466
91
5,921
—
703,478
Consumer
24,432
1
142
—
24,575
Total originated and acquired loans
$
2,975,079
$
48,171
$
33,613
$
1,461
$
3,058,324
Loans accounted for under ASC 310-30:
Commercial
$
23,954
$
1,070
$
4,451
$
—
$
29,475
Commercial real estate non-owner occupied
50,537
883
26,488
—
77,908
Residential real estate
10,072
1,055
1,632
—
12,759
Consumer
327
9
145
—
481
Total loans accounted for under ASC 310-30
$
84,890
$
3,017
$
32,716
$
—
$
120,623
Total loans
$
3,059,969
$
51,188
$
66,329
$
1,461
$
3,178,947
Originated and acquired special mention loans increased $15.3 million from December 31, 2017, primarily due to increases in commercial and industrial, owner occupied commercial real estate and non-owner occupied commercial real estate sectors from the Peoples acquisition, offset by upgrades to pass within the agriculture sector. Originated and acquired substandard loans increased $14.2 million from December 31, 2017, primarily due to increases in the commercial and industrial and owner occupied commercial real estate sectors from the Peoples acquisition.
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 March 31, 2018, the Company measured $17.9 million of impaired loans based on the fair value of the collateral less selling costs and $2.3 million of impaired loans using discounted cash flows and the loan’s initial contractual effective interest rate. Impaired loans totaling $8.7 million that individually were less than $250 thousand each, were measured through the general ALL reserves due to their relatively small size. Impaired loans acquired from Peoples totaling $5.8 million were marked to fair value at the date of acquisition.
At March 31, 2018 and December 31, 2017, the Company’s recorded investment in impaired loans were $34.7 million and $30.9 million, respectively, of which $8.7 million and $8.5 million, respectively, were accruing TDRs. Impaired loans at March 31, 2018 were primarily comprised of seven relationships totaling $14.9 million. Three of the relationships were in the commercial and industrial sector totaling $7.5 million, two of the relationships were in the owner occupied commercial real estate sector totaling $4.9 million, one of the relationships was in the energy sector totaling $1.3 million and one relationship was in the agricultural sector totaling $1.2 million. Impaired loans had a collective related allowance for loan losses allocated to them of $1.2 million and $1.5 million at March 31, 2018 and December 31, 2017, respectively.
Additional information regarding impaired loans at March 31, 2018 and December 31, 2017 is set forth in the table below:
March 31, 2018
December 31, 2017
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
$
7,036
$
5,562
$
—
$
6,481
$
5,055
$
—
Owner occupied commercial real estate
7,726
7,464
—
4,186
3,934
—
Agriculture
1,508
1,259
—
1,502
1,245
—
Energy
6,889
2,171
—
8,661
3,861
—
Total commercial
23,159
16,456
—
20,830
14,095
—
Commercial real estate non-owner occupied:
Construction
—
—
—
215
179
—
Acquisition/development
1,065
833
—
—
—
—
Multifamily
29
29
—
29
29
—
Non-owner occupied
962
845
—
901
853
—
Total commercial real estate
2,056
1,707
—
1,145
1,061
—
Residential real estate:
Senior lien
1,738
1,563
—
333
309
—
Junior lien
393
300
—
—
—
—
Total residential real estate
2,131
1,863
—
333
309
—
Consumer
42
39
—
—
—
—
Total impaired loans with no related allowance recorded
$
27,388
$
20,065
$
—
$
22,308
$
15,465
$
—
With a related allowance recorded:
Commercial:
Commercial and industrial
$
6,884
$
4,284
$
906
$
7,919
$
5,339
$
1,329
Owner occupied commercial real estate
1,421
1,253
78
873
713
4
Agriculture
2,225
2,182
201
2,122
2,083
133
Energy
—
—
—
—
—
—
Total commercial
10,530
7,719
1,185
10,914
8,135
1,466
Commercial real estate non-owner occupied:
Construction
—
—
—
—
—
—
Acquisition/development
—
—
—
—
—
—
Multifamily
—
—
—
—
—
—
Non-owner occupied
200
193
1
207
200
1
Total commercial real estate
200
193
1
207
200
1
Residential real estate:
Senior lien
6,329
5,553
24
6,481
5,753
24
Junior lien
1,262
1,142
7
1,295
1,179
8
Total residential real estate
7,591
6,695
31
7,776
6,932
32
Consumer
—
—
—
146
141
1
Total impaired loans with a related allowance recorded
$
18,321
$
14,607
$
1,217
$
19,043
$
15,408
$
1,500
Total impaired loans
$
45,709
$
34,672
$
1,217
$
41,351
$
30,873
$
1,500
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, 2018
March 31, 2017
Average
Interest
Average
Interest
With no related allowance recorded:
Commercial:
Commercial and industrial
$
5,534
$
83
$
8,095
$
48
Owner occupied commercial real estate
7,487
18
3,885
18
Agriculture
1,259
6
2,588
—
Energy
2,353
20
6,098
—
Total commercial
16,633
127
20,666
66
Commercial real estate non-owner occupied:
Construction
—
—
—
—
Acquisition/development
886
—
—
—
Multifamily
—
—
—
—
Non-owner occupied
876
4
329
7
Total commercial real estate
1,762
4
329
7
Residential real estate:
Senior lien
1,612
—
1,047
3
Junior lien
305
—
—
—
Total residential real estate
1,917
—
1,047
3
Consumer
14
—
4
—
Total impaired loans with no related allowance recorded
$
20,326
$
131
$
22,046
$
76
With a related allowance recorded:
Commercial:
Commercial and industrial
$
4,339
$
—
$
3,445
$
—
Owner occupied commercial real estate
1,265
5
678
5
Agriculture
2,126
1
156
1
Energy
—
—
6,589
—
Total commercial
7,730
6
10,868
6
Commercial real estate non-owner occupied:
Construction
—
—
—
—
Acquisition/development
—
—
—
—
Multifamily
29
—
32
—
Non-owner occupied
196
2
223
3
Total commercial real estate
225
2
255
3
Residential real estate:
Senior lien
5,601
13
5,791
21
Junior lien
1,151
9
1,625
13
Total residential real estate
6,752
22
7,416
34
Consumer
24
—
181
—
Total impaired loans with a related allowance recorded
$
14,731
$
30
$
18,720
$
43
Total impaired loans
$
35,057
$
161
$
40,766
$
119
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 during the three months ended March 31, 2018 and 2017 was $0.2 million and $0.1 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 three months ended March 31, 2018, the Company restructured four loans with a recorded investment of $0.9 million to facilitate repayment. 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 tables below provide additional information related to accruing TDRs at March 31, 2018 and December 31, 2017:
March 31, 2018
Recorded
Average year-to-date
Unpaid
Unfunded commitments
investment
recorded investment
principal balance
to fund TDRs
Commercial
$
7,045
$
6,985
$
7,832
$
1,902
Commercial real estate non-owner occupied
426
431
471
—
Residential real estate
1,205
1,213
1,214
2
Consumer
—
—
—
—
Total
$
8,676
$
8,629
$
9,517
$
1,904
December 31, 2017
Recorded
Average year-to-date
Unpaid
Unfunded commitments
investment
recorded investment
principal balance
to fund TDRs
Commercial
$
6,595
$
7,308
$
7,171
$
2,041
Commercial real estate non-owner occupied
455
489
500
—
Residential real estate
1,409
1,461
1,420
2
Consumer
1
3
1
—
Total
$
8,460
$
9,261
$
9,092
$
2,043
The following table summarizes the Company’s carrying value of non-accrual TDRs as of March 31, 2018 and December 31, 2017:
March 31, 2018
December 31, 2017
Commercial
$
3,113
$
5,808
Commercial real estate non-owner occupied
29
—
Residential real estate
1,537
1,336
Consumer
—
111
Total non-accruing TDRs
$
4,679
$
7,255
At March 31, 2018 and December 31, 2017, the Company had $8.7 million and $8.5 million, respectively, of accruing TDRs that had been restructured from the original terms in order to facilitate repayment.
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, 2018. The defaulted TDR consisted of one commercial real estate non-owner occupied loan totaling $0.2 million. Non-accruing TDRs decreased $2.6 million from December 31, 2017 due to one previously identified commercial and industrial loan of $2.3 million placed back on accrual during the period. 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, 2017, the Company had one TDR that was modified within the past twelve months and had defaulted on its 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, 2018 and 2017:
March 31, 2018
March 31, 2017
Accretable yield beginning balance
$
46,568
$
60,476
Reclassification from non-accretable difference
5,409
5,385
Reclassification to non-accretable difference
(1,390)
(399)
Accretion
(5,394)
(5,871)
Accretable yield ending balance
$
45,193
$
59,591
Below is the composition of the net book value for loans accounted for under ASC 310-30 at March 31, 2018 and December 31, 2017:
March 31, 2018
December 31, 2017
Contractual cash flows
$
488,637
$
489,892
Non-accretable difference
(331,135)
(322,701)
Accretable yield
(45,193)
(46,568)
Loans accounted for under ASC 310-30
$
112,309
$
120,623" id="sjs-B4">Note 5 Loans The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions. Beginning in the first quarter 2018, loans previously referred to as "non 310-30 loans" are referred to as "originated and acquired loans," which include acquired loans not accounted for under ASC 310-30. No amounts were reclassified resulting from this change in terminology. The tables below show 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 originated and acquired loans, as of the dates shown. The carrying value of originated and acquired loans is net of discounts, fees, cost and fair value marks of $11.2 million and $4.3 million as of March 31, 2018 and December 31, 2017, respectively. March 31, 2018 ASC Originated and 310-30 loans acquired loans Total loans % of total Commercial $ 24,702 $ 2,081,197 $ 2,105,899 Commercial real estate non-owner occupied 75,277 635,438 710,715 Residential real estate 12,000 847,155 859,155 Consumer 330 26,235 26,565 Total $ 112,309 $ 3,590,025 $ 3,702,334 December 31, 2017 ASC Originated and 310-30 loans acquired loans Total loans % of total Commercial $ 29,475 $ 1,845,130 $ 1,874,605 Commercial real estate non-owner occupied 77,908 485,141 563,049 Residential real estate 12,759 703,478 716,237 Consumer 481 24,575 25,056 Total $ 120,623 $ 3,058,324 $ 3,178,947 Delinquency for originated and acquired loans is shown in the following tables at March 31, 2018 and December 31, 2017: March 31, 2018 Greater Total Loans > 90 30-59 60-89 than 90 originated and days past days past days past days past Total past acquired due and Non- due due due due Current loans still accruing accrual Originated and acquired loans: Commercial: Commercial and industrial $ 1,083 $ 116 $ 1,214 $ 2,413 $ 1,492,675 $ 1,495,088 $ 150 $ 5,302 Owner occupied commercial real estate 440 534 2,790 3,764 380,483 384,247 535 7,202 Agriculture 151 — 734 885 160,764 161,649 16 2,103 Energy — — 923 923 39,290 40,213 — 923 Total commercial 1,674 650 5,661 7,985 2,073,212 2,081,197 701 15,530 Commercial real estate non-owner occupied: Construction 465 941 642 2,048 110,038 112,086 642 — Acquisition/development — — 51 51 23,058 23,109 51 833 Multifamily — — 29 29 51,712 51,741 — 29 Non-owner occupied — 10 — 10 448,492 448,502 — 613 Total commercial real estate 465 951 722 2,138 633,300 635,438 693 1,475 Residential real estate: Senior lien 2,535 309 1,517 4,361 744,083 748,444 238 5,918 Junior lien 1,002 238 40 1,280 97,431 98,711 — 710 Total residential real estate 3,537 547 1,557 5,641 841,514 847,155 238 6,628 Consumer 204 22 140 366 25,869 26,235 135 36 Total originated and acquired loans $ 5,880 $ 2,170 $ 8,080 $ 16,130 $ 3,573,895 $ 3,590,025 $ 1,767 $ 23,669 December 31, 2017 Greater Total Loans > 90 30-59 60-89 than 90 originated and days past days past days past days past Total past acquired due and Non- due due due due Current loans still accruing accrual Originated and acquired loans: Commercial: Commercial and industrial $ 554 $ 117 $ 1,389 $ 2,060 $ 1,373,962 $ 1,376,022 $ 150 $ 7,767 Owner occupied commercial real estate 696 — 1,983 2,679 270,074 272,753 — 3,478 Agriculture 585 — 701 1,286 137,609 138,895 — 2,003 Energy — — 1,645 1,645 55,815 57,460 — 1,645 Total commercial 1,835 117 5,718 7,670 1,837,460 1,845,130 150 14,893 Commercial real estate non-owner occupied: Construction — — 179 179 107,502 107,681 — 179 Acquisition/development 1,097 — — 1,097 13,318 14,415 — — Multifamily — — — — 26,947 26,947 — — Non-owner occupied 56 — 574 630 335,468 336,098 — 605 Total commercial real estate 1,153 — 753 1,906 483,235 485,141 — 784 Residential real estate: Senior lien 1,167 885 1,396 3,448 643,034 646,482 — 4,724 Junior lien 233 91 41 365 56,631 56,996 — 459 Total residential real estate 1,400 976 1,437 3,813 699,665 703,478 — 5,183 Consumer 157 6 5 168 24,407 24,575 — 140 Total originated and acquired loans $ 4,545 $ 1,099 $ 7,913 $ 13,557 $ 3,044,767 $ 3,058,324 $ 150 $ 21,000 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 troubled debt restructurings on non-accrual status. Non-accrual originated and acquired loans totaled $23.7 million at March 31, 2018, increasing $2.7 million, or 12.7% from December 31, 2017, due to acquired Peoples loans on non-accrual of $5.7 million, partially offset by one previously identified commercial and industrial loan of $2.3 million placed back on accrual during the first quarter of 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. Loans that are perceived to have acceptable risk are categorized as “Pass” loans. “Special mention” loans represent loans that have potential credit weaknesses that deserve close attention. Special mention loans include borrowers that have potential weaknesses or unwarranted risks that, unless corrected, may threaten the borrower's ability to meet debt service requirements. However, these borrowers are still believed to have the ability to respond to and resolve the financial issues that threaten their financial situation. Loans classified as “Substandard” have a well-defined credit weakness and are inadequately protected by the current paying capacity of the obligor or of the collateral pledged, if any. Although these loans are identified as potential problem loans, they may never become non-performing. Substandard loans have a distinct possibility of loss if the deficiencies are not corrected. “Doubtful” loans are loans that management believes the collection of payments in accordance with the terms of the loan agreement are highly questionable and improbable. Doubtful loans are deemed impaired and put on non-accrual status. Credit exposure for all loans as determined by the Company’s internal risk rating system was as follows at March 31, 2018 and December 31, 2017: March 31, 2018 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 1,460,896 $ 13,070 $ 20,219 $ 903 $ 1,495,088 Owner occupied commercial real estate 348,533 25,493 10,148 73 384,247 Agriculture 156,059 3,487 1,902 201 161,649 Energy 39,290 — 923 — 40,213 Total commercial 2,004,778 42,050 33,192 1,177 2,081,197 Commercial real estate non-owner occupied: Construction 110,850 — 1,236 — 112,086 Acquisition/development 22,276 — 833 — 23,109 Multifamily 49,605 — 2,136 — 51,741 Non-owner occupied 430,437 15,133 2,932 — 448,502 Total commercial real estate 613,168 15,133 7,137 — 635,438 Residential real estate: Senior lien 736,336 5,720 6,388 — 748,444 Junior lien 97,103 547 1,061 — 98,711 Total residential real estate 833,439 6,267 7,449 — 847,155 Consumer 26,197 1 37 — 26,235 Total originated and acquired loans $ 3,477,582 $ 63,451 $ 47,815 $ 1,177 $ 3,590,025 Loans accounted for under ASC 310-30: Commercial $ 19,846 $ 1,073 $ 3,783 $ — $ 24,702 Commercial real estate non-owner occupied 48,174 912 26,191 — 75,277 Residential real estate 9,306 1,074 1,620 — 12,000 Consumer 208 8 114 — 330 Total loans accounted for under ASC 310-30 $ 77,534 $ 3,067 $ 31,708 $ — $ 112,309 Total loans $ 3,555,116 $ 66,518 $ 79,523 $ 1,177 $ 3,702,334 December 31, 2017 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 1,349,116 $ 10,829 $ 14,824 $ 1,253 $ 1,376,022 Owner occupied commercial real estate 250,224 17,030 5,424 75 272,753 Agriculture 118,068 18,824 1,870 133 138,895 Energy 55,814 — 1,646 — 57,460 Total commercial 1,773,222 46,683 23,764 1,461 1,845,130 Commercial real estate non-owner occupied: Construction 107,502 — 179 — 107,681 Acquisition/development 14,415 — — — 14,415 Multifamily 24,817 — 2,130 — 26,947 Non-owner occupied 333,225 1,396 1,477 — 336,098 Total commercial real estate 479,959 1,396 3,786 — 485,141 Residential real estate: Senior lien 641,294 91 5,097 — 646,482 Junior lien 56,172 — 824 — 56,996 Total residential real estate 697,466 91 5,921 — 703,478 Consumer 24,432 1 142 — 24,575 Total originated and acquired loans $ 2,975,079 $ 48,171 $ 33,613 $ 1,461 $ 3,058,324 Loans accounted for under ASC 310-30: Commercial $ 23,954 $ 1,070 $ 4,451 $ — $ 29,475 Commercial real estate non-owner occupied 50,537 883 26,488 — 77,908 Residential real estate 10,072 1,055 1,632 — 12,759 Consumer 327 9 145 — 481 Total loans accounted for under ASC 310-30 $ 84,890 $ 3,017 $ 32,716 $ — $ 120,623 Total loans $ 3,059,969 $ 51,188 $ 66,329 $ 1,461 $ 3,178,947 Originated and acquired special mention loans increased $15.3 million from December 31, 2017, primarily due to increases in commercial and industrial, owner occupied commercial real estate and non-owner occupied commercial real estate sectors from the Peoples acquisition, offset by upgrades to pass within the agriculture sector. Originated and acquired substandard loans increased $14.2 million from December 31, 2017, primarily due to increases in the commercial and industrial and owner occupied commercial real estate sectors from the Peoples acquisition. 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 March 31, 2018, the Company measured $17.9 million of impaired loans based on the fair value of the collateral less selling costs and $2.3 million of impaired loans using discounted cash flows and the loan’s initial contractual effective interest rate. Impaired loans totaling $8.7 million that individually were less than $250 thousand each, were measured through the general ALL reserves due to their relatively small size. Impaired loans acquired from Peoples totaling $5.8 million were marked to fair value at the date of acquisition. At March 31, 2018 and December 31, 2017, the Company’s recorded investment in impaired loans were $34.7 million and $30.9 million, respectively, of which $8.7 million and $8.5 million, respectively, were accruing TDRs. Impaired loans at March 31, 2018 were primarily comprised of seven relationships totaling $14.9 million. Three of the relationships were in the commercial and industrial sector totaling $7.5 million, two of the relationships were in the owner occupied commercial real estate sector totaling $4.9 million, one of the relationships was in the energy sector totaling $1.3 million and one relationship was in the agricultural sector totaling $1.2 million. Impaired loans had a collective related allowance for loan losses allocated to them of $1.2 million and $1.5 million at March 31, 2018 and December 31, 2017, respectively. Additional information regarding impaired loans at March 31, 2018 and December 31, 2017 is set forth in the table below: March 31, 2018 December 31, 2017 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 $ 7,036 $ 5,562 $ — $ 6,481 $ 5,055 $ — Owner occupied commercial real estate 7,726 7,464 — 4,186 3,934 — Agriculture 1,508 1,259 — 1,502 1,245 — Energy 6,889 2,171 — 8,661 3,861 — Total commercial 23,159 16,456 — 20,830 14,095 — Commercial real estate non-owner occupied: Construction — — — 215 179 — Acquisition/development 1,065 833 — — — — Multifamily 29 29 — 29 29 — Non-owner occupied 962 845 — 901 853 — Total commercial real estate 2,056 1,707 — 1,145 1,061 — Residential real estate: Senior lien 1,738 1,563 — 333 309 — Junior lien 393 300 — — — — Total residential real estate 2,131 1,863 — 333 309 — Consumer 42 39 — — — — Total impaired loans with no related allowance recorded $ 27,388 $ 20,065 $ — $ 22,308 $ 15,465 $ — With a related allowance recorded: Commercial: Commercial and industrial $ 6,884 $ 4,284 $ 906 $ 7,919 $ 5,339 $ 1,329 Owner occupied commercial real estate 1,421 1,253 78 873 713 4 Agriculture 2,225 2,182 201 2,122 2,083 133 Energy — — — — — — Total commercial 10,530 7,719 1,185 10,914 8,135 1,466 Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily — — — — — — Non-owner occupied 200 193 1 207 200 1 Total commercial real estate 200 193 1 207 200 1 Residential real estate: Senior lien 6,329 5,553 24 6,481 5,753 24 Junior lien 1,262 1,142 7 1,295 1,179 8 Total residential real estate 7,591 6,695 31 7,776 6,932 32 Consumer — — — 146 141 1 Total impaired loans with a related allowance recorded $ 18,321 $ 14,607 $ 1,217 $ 19,043 $ 15,408 $ 1,500 Total impaired loans $ 45,709 $ 34,672 $ 1,217 $ 41,351 $ 30,873 $ 1,500 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, 2018 March 31, 2017 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 5,534 $ 83 $ 8,095 $ 48 Owner occupied commercial real estate 7,487 18 3,885 18 Agriculture 1,259 6 2,588 — Energy 2,353 20 6,098 — Total commercial 16,633 127 20,666 66 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development 886 — — — Multifamily — — — — Non-owner occupied 876 4 329 7 Total commercial real estate 1,762 4 329 7 Residential real estate: Senior lien 1,612 — 1,047 3 Junior lien 305 — — — Total residential real estate 1,917 — 1,047 3 Consumer 14 — 4 — Total impaired loans with no related allowance recorded $ 20,326 $ 131 $ 22,046 $ 76 With a related allowance recorded: Commercial: Commercial and industrial $ 4,339 $ — $ 3,445 $ — Owner occupied commercial real estate 1,265 5 678 5 Agriculture 2,126 1 156 1 Energy — — 6,589 — Total commercial 7,730 6 10,868 6 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily 29 — 32 — Non-owner occupied 196 2 223 3 Total commercial real estate 225 2 255 3 Residential real estate: Senior lien 5,601 13 5,791 21 Junior lien 1,151 9 1,625 13 Total residential real estate 6,752 22 7,416 34 Consumer 24 — 181 — Total impaired loans with a related allowance recorded $ 14,731 $ 30 $ 18,720 $ 43 Total impaired loans $ 35,057 $ 161 $ 40,766 $ 119 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 during the three months ended March 31, 2018 and 2017 was $0.2 million and $0.1 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 three months ended March 31, 2018, the Company restructured four loans with a recorded investment of $0.9 million to facilitate repayment. 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 tables below provide additional information related to accruing TDRs at March 31, 2018 and December 31, 2017: March 31, 2018 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 7,045 $ 6,985 $ 7,832 $ 1,902 Commercial real estate non-owner occupied 426 431 471 — Residential real estate 1,205 1,213 1,214 2 Consumer — — — — Total $ 8,676 $ 8,629 $ 9,517 $ 1,904 December 31, 2017 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 6,595 $ 7,308 $ 7,171 $ 2,041 Commercial real estate non-owner occupied 455 489 500 — Residential real estate 1,409 1,461 1,420 2 Consumer 1 3 1 — Total $ 8,460 $ 9,261 $ 9,092 $ 2,043 The following table summarizes the Company’s carrying value of non-accrual TDRs as of March 31, 2018 and December 31, 2017: March 31, 2018 December 31, 2017 Commercial $ 3,113 $ 5,808 Commercial real estate non-owner occupied 29 — Residential real estate 1,537 1,336 Consumer — 111 Total non-accruing TDRs $ 4,679 $ 7,255 At March 31, 2018 and December 31, 2017, the Company had $8.7 million and $8.5 million, respectively, of accruing TDRs that had been restructured from the original terms in order to facilitate repayment. 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, 2018. The defaulted TDR consisted of one commercial real estate non-owner occupied loan totaling $0.2 million. Non-accruing TDRs decreased $2.6 million from December 31, 2017 due to one previously identified commercial and industrial loan of $2.3 million placed back on accrual during the period. 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, 2017, the Company had one TDR that was modified within the past twelve months and had defaulted on its 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, 2018 and 2017: March 31, 2018 March 31, 2017 Accretable yield beginning balance $ 46,568 $ 60,476 Reclassification from non-accretable difference 5,409 5,385 Reclassification to non-accretable difference (1,390) (399) Accretion (5,394) (5,871) Accretable yield ending balance $ 45,193 $ 59,591 Below is the composition of the net book value for loans accounted for under ASC 310-30 at March 31, 2018 and December 31, 2017: March 31, 2018 December 31, 2017 Contractual cash flows $ 488,637 $ 489,892 Non-accretable difference (331,135) (322,701) Accretable yield (45,193) (46,568) Loans accounted for under ASC 310-30 $ 112,309 $ 120,623 |