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
$
1,765
$
2,644
$
2,305
$
6,714
$
1,673,659
$
1,680,373
$
40
$
5,545
Owner occupied commercial real estate
1,465
471
2,287
4,223
378,428
382,651
460
6,479
Agriculture
194
217
718
1,129
193,667
194,796
—
2,108
Energy
—
—
796
796
36,425
37,221
—
796
Total commercial
3,424
3,332
6,106
12,862
2,282,179
2,295,041
500
14,928
Commercial real estate non-owner occupied:
Construction
1,208
—
1,080
2,288
92,169
94,457
—
1,080
Acquisition/development
—
17
—
17
23,574
23,591
—
824
Multifamily
—
—
—
—
63,483
63,483
—
—
Non-owner occupied
19
332
142
493
412,716
413,209
142
597
Total commercial real estate
1,227
349
1,222
2,798
591,942
594,740
142
2,501
Residential real estate:
Senior lien
2,733
1,777
2,426
6,936
719,540
726,476
366
7,372
Junior lien
982
49
191
1,222
98,972
100,194
16
792
Total residential real estate
3,715
1,826
2,617
8,158
818,512
826,670
382
8,164
Consumer
278
94
98
470
25,680
26,150
80
42
Total originated and acquired loans
$
8,644
$
5,601
$
10,043
$
24,288
$
3,718,313
$
3,742,601
$
1,104
$
25,635
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 non-accrual loans and troubled debt restructurings on non-accrual status. Non-accrual originated and acquired loans totaled $25.6 million at June 30, 2018, increasing $4.6 million, or 22.1% from December 31, 2017, due to the Peoples acquisition.
The Company’s internal risk rating system uses a series of grades that reflect its 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 as of June 30, 2018 and December 31, 2017, respectively:
June 30, 2018
Special
Pass
mention
Substandard
Doubtful
Total
Originated and acquired loans:
Commercial:
Commercial and industrial
$
1,649,254
$
12,988
$
17,232
$
899
$
1,680,373
Owner occupied commercial real estate
346,325
26,910
9,341
75
382,651
Agriculture
189,923
2,765
1,890
218
194,796
Energy
36,425
—
796
—
37,221
Total commercial
2,221,927
42,663
29,259
1,192
2,295,041
Commercial real estate non-owner occupied:
Construction
93,377
—
1,080
—
94,457
Acquisition/development
22,767
—
824
—
23,591
Multifamily
63,483
—
—
—
63,483
Non-owner occupied
395,921
15,641
1,647
—
413,209
Total commercial real estate
575,548
15,641
3,551
—
594,740
Residential real estate:
Senior lien
713,175
5,338
7,963
—
726,476
Junior lien
98,623
504
1,067
—
100,194
Total residential real estate
811,798
5,842
9,030
—
826,670
Consumer
26,107
1
42
—
26,150
Total originated and acquired loans
$
3,635,380
$
64,147
$
41,882
$
1,192
$
3,742,601
Loans accounted for under ASC 310-30:
Commercial
$
18,610
$
1,051
$
3,417
$
—
$
23,078
Commercial real estate non-owner occupied
46,291
950
1,165
—
48,406
Residential real estate
8,860
947
1,558
—
11,365
Consumer
—
—
105
—
105
Total loans accounted for under ASC 310-30
$
73,761
$
2,948
$
6,245
$
—
$
82,954
Total loans
$
3,709,141
$
67,095
$
48,127
$
1,192
$
3,825,555
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
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 June 30, 2018, the Company measured $15.5 million of impaired loans based on the fair value of the collateral less selling costs and $2.1 million of impaired loans using discounted cash flows and the loan’s initial contractual effective interest rate. Impaired loans totaling $8.8 million, which 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 $8.4 million were marked to fair value at the date of acquisition.
At June 30, 2018 and December 31, 2017, the Company’s recorded investment in impaired loans were $34.8 million and $30.9 million, respectively, of which $6.9 million and $8.5 million, respectively, were accruing TDRs. Impaired loans at June 30, 2018 were primarily comprised of eight relationships totaling $14.3 million. Three of the relationships were in the commercial and industrial sector totaling $6.1 million, two of the relationships were in the owner-occupied commercial real estate sector totaling $4.8 million, one of the relationships was in the agricultural sector totaling $1.3 million, one of the relationships was in the energy sector totaling $1.1 million and one of the relationships was in the construction sector totaling $1.0 million. Impaired loans had a collective related allowance for loan losses allocated to them of $1.2 million and $1.5 million at June 30, 2018 and December 31, 2017, respectively.
Additional information regarding impaired loans at June 30, 2018 and December 31, 2017 is set forth in the table below:
June 30, 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
$
5,719
$
4,209
$
—
$
6,481
$
5,055
$
—
Owner occupied commercial real estate
7,063
6,698
—
4,186
3,934
—
Agriculture
1,508
1,259
—
1,502
1,245
—
Energy
6,642
1,923
—
8,661
3,861
—
Total commercial
20,932
14,089
—
20,830
14,095
—
Commercial real estate non-owner occupied:
Construction
1,307
1,082
—
215
179
—
Acquisition/development
1,065
824
—
—
—
—
Multifamily
—
—
—
29
29
—
Non-owner occupied
648
569
—
901
853
—
Total commercial real estate
3,020
2,475
—
1,145
1,061
—
Residential real estate:
Senior lien
3,075
2,781
—
333
309
—
Junior lien
414
353
—
—
—
—
Total residential real estate
3,489
3,134
—
333
309
—
Consumer
47
43
—
—
—
—
Total impaired loans with no related allowance recorded
$
27,488
$
19,741
$
—
$
22,308
$
15,465
$
—
With a related allowance recorded:
Commercial:
Commercial and industrial
$
7,147
$
4,539
$
907
$
7,919
$
5,339
$
1,329
Owner occupied commercial real estate
1,400
1,222
80
873
713
4
Agriculture
2,229
2,186
218
2,122
2,083
133
Energy
—
—
—
—
—
—
Total commercial
10,776
7,947
1,205
10,914
8,135
1,466
Commercial real estate non-owner occupied:
Construction
—
—
—
—
—
—
Acquisition/development
—
—
—
—
—
—
Multifamily
—
—
—
—
—
—
Non-owner occupied
347
293
2
207
200
1
Total commercial real estate
347
293
2
207
200
1
Residential real estate:
Senior lien
6,509
5,672
25
6,481
5,753
24
Junior lien
1,308
1,169
7
1,295
1,179
8
Total residential real estate
7,817
6,841
32
7,776
6,932
32
Consumer
—
—
—
146
141
1
Total impaired loans with a related allowance recorded
$
18,940
$
15,081
$
1,239
$
19,043
$
15,408
$
1,500
Total impaired loans
$
46,428
$
34,822
$
1,239
$
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
June 30, 2018
June 30, 2017
Average
Interest
Average
Interest
With no related allowance recorded:
Commercial:
Commercial and industrial
$
5,321
$
90
$
6,645
$
25
Owner occupied commercial real estate
6,723
17
3,789
23
Agriculture
1,259
—
1,454
—
Energy
1,843
17
5,680
—
Total commercial
15,147
124
17,568
48
Commercial real estate non-owner occupied:
Construction
1,081
—
—
—
Acquisition/development
827
—
—
—
Multifamily
—
—
—
—
Non-owner occupied
574
—
312
5
Total commercial real estate
2,481
—
312
5
Residential real estate:
Senior lien
2,818
—
330
—
Junior lien
354
—
—
—
Total residential real estate
3,172
—
330
—
Consumer
14
—
—
—
Total impaired loans with no related allowance recorded
$
20,815
$
124
$
18,210
$
53
With a related allowance recorded:
Commercial:
Commercial and industrial
$
4,607
$
—
$
4,643
$
—
Owner occupied commercial real estate
1,233
4
2,340
7
Agriculture
2,142
1
912
1
Energy
—
—
6,624
—
Total commercial
7,982
5
14,519
8
Commercial real estate non-owner occupied:
Construction
—
—
—
—
Acquisition/development
—
—
—
—
Multifamily
9
—
31
—
Non-owner occupied
297
5
216
2
Total commercial real estate
306
5
247
2
Residential real estate:
Senior lien
5,744
13
6,525
20
Junior lien
1,187
11
1,403
12
Total residential real estate
6,931
23
7,928
32
Consumer
31
—
169
—
Total impaired loans with a related allowance recorded
$
15,250
$
33
$
22,863
$
42
Total impaired loans
$
36,065
$
158
$
41,073
$
95
For the six months ended
June 30, 2018
June 30, 2017
Average
Interest
Average
Interest
With no related allowance recorded:
Commercial:
Commercial and industrial
$
5,565
$
173
$
7,030
$
73
Owner occupied commercial real estate
6,793
35
3,834
41
Agriculture
1,259
6
1,531
—
Energy
2,098
37
5,889
—
Total Commercial
15,715
251
18,284
114
Commercial real estate non-owner occupied:
Construction
1,081
—
—
—
Acquisition/development
856
—
—
—
Multifamily
—
—
—
—
Non-owner occupied
591
—
320
12
Total commercial real estate
2,528
—
320
12
Residential real estate:
Senior lien
2,846
—
334
—
Junior lien
358
—
—
—
Total residential real estate
3,204
—
334
—
Consumer
14
—
—
—
Total impaired loans with no related allowance recorded
$
21,461
$
251
$
18,938
$
126
With a related allowance recorded:
Commercial:
Commercial and industrial
$
4,639
$
—
$
4,630
$
—
Owner occupied commercial real estate
1,249
9
2,349
11
Agriculture
2,084
2
914
3
Energy
—
—
6,602
—
Total Commercial
7,972
11
14,495
14
Commercial real estate non-owner occupied:
Construction
—
—
—
—
Acquisition/development
—
—
—
—
Multifamily
19
—
31
1
Non-owner occupied
308
9
220
5
Total commercial real estate
327
9
251
6
Residential real estate:
Senior lien
5,821
26
6,583
40
Junior lien
1,202
20
1,421
25
Total residential real estate
7,023
46
8,004
65
Consumer
32
—
175
—
Total impaired loans with a related allowance recorded
$
15,354
$
66
$
22,925
$
85
Total impaired loans
$
36,815
$
317
$
41,863
$
211
Interest income recognized on impaired loans noted in the table above primarily represents interest earned on accruing TDRs. Interest income recognized on impaired loans during the three months ended June 30, 2018 and 2017 was $0.2 million and $0.1 million, respectively. Interest income recognized on impaired loans during the six months ended June 30, 2018 and 2017 was $0.3 million and $0.2 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 six months ended June 30, 2018, the Company restructured four loans with a recorded investment of $0.9 million at June 30, 2018 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 June 30, 2018 and December 31, 2017:
June 30, 2018
Recorded
Average year-to-date
Unpaid
Unfunded commitments
investment
recorded investment
principal balance
to fund TDRs
Commercial
$
5,509
$
6,754
$
6,299
$
3,828
Commercial real estate non-owner occupied
266
278
311
—
Residential real estate
1,165
1,190
1,172
12
Consumer
—
—
—
—
Total
$
6,940
$
8,222
$
7,782
$
3,840
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 June 30, 2018 and December 31, 2017:
June 30, 2018
December 31, 2017
Commercial
$
2,698
$
5,808
Commercial real estate non-owner occupied
—
—
Residential real estate
1,264
1,336
Consumer
—
111
Total non-accruing TDRs
$
3,962
$
7,255
At June 30, 2018 and December 31, 2017, the Company had $6.9 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 previously 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 six months ended June 30, 2018. The defaulted TDR consisted of one commercial real estate non-owner occupied loan totaling $0.2 million. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. Non-accruing TDRs decreased $3.3 million from December 31, 2017 due to charge-offs within the commercial loan segment. 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.
During the three and six months ended June 30, 2017, the Company had three and five TDRs that had been modified within the past 12 months that defaulted on their restructured terms, respectively.
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 six months ended June 30, 2018 and 2017:
June 30, 2018
June 30, 2017
Accretable yield beginning balance
$
46,568
$
60,476
Reclassification from non-accretable difference
8,053
7,732
Reclassification to non-accretable difference
(1,695)
(494)
Accretion
(10,224)
(12,051)
Accretable yield ending balance
$
42,702
$
55,663
Below is the composition of the net book value for loans accounted for under ASC 310-30 at June 30, 2018 and December 31, 2017:
June 30, 2018
December 31, 2017
Contractual cash flows
$
442,000
$
489,892
Non-accretable difference
(316,344)
(322,701)
Accretable yield
(42,702)
(46,568)
Loans accounted for under ASC 310-30
$
82,954
$
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 originated loans as well as 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 originated and acquired loans and loans accounted for under ASC Topic 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality , as of the dates shows. The carrying value of originated and acquired loans is net of discounts, fees, costs and fair value marks of $9.8 million and $4.3 million as of June 30, 2018 and December 31, 2017, respectively. June 30, 2018 Originated and ASC acquired loans 310-30 loans Total loans % of total Commercial $ 2,295,041 $ 23,078 $ 2,318,119 Commercial real estate non-owner occupied 594,740 48,411 643,151 Residential real estate 826,670 11,365 838,035 Consumer 26,150 100 26,250 Total $ 3,742,601 $ 82,954 $ 3,825,555 December 31, 2017 Originated and ASC acquired loans 310-30 loans Total loans % of total Commercial $ 1,845,130 $ 29,475 $ 1,874,605 Commercial real estate non-owner occupied 485,141 77,908 563,049 Residential real estate 703,478 12,759 716,237 Consumer 24,575 481 25,056 Total $ 3,058,324 $ 120,623 $ 3,178,947 Delinquency for originated and acquired loans is shown in the following tables at June 30, 2018 and December 31, 2017: June 30, 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 $ 1,765 $ 2,644 $ 2,305 $ 6,714 $ 1,673,659 $ 1,680,373 $ 40 $ 5,545 Owner occupied commercial real estate 1,465 471 2,287 4,223 378,428 382,651 460 6,479 Agriculture 194 217 718 1,129 193,667 194,796 — 2,108 Energy — — 796 796 36,425 37,221 — 796 Total commercial 3,424 3,332 6,106 12,862 2,282,179 2,295,041 500 14,928 Commercial real estate non-owner occupied: Construction 1,208 — 1,080 2,288 92,169 94,457 — 1,080 Acquisition/development — 17 — 17 23,574 23,591 — 824 Multifamily — — — — 63,483 63,483 — — Non-owner occupied 19 332 142 493 412,716 413,209 142 597 Total commercial real estate 1,227 349 1,222 2,798 591,942 594,740 142 2,501 Residential real estate: Senior lien 2,733 1,777 2,426 6,936 719,540 726,476 366 7,372 Junior lien 982 49 191 1,222 98,972 100,194 16 792 Total residential real estate 3,715 1,826 2,617 8,158 818,512 826,670 382 8,164 Consumer 278 94 98 470 25,680 26,150 80 42 Total originated and acquired loans $ 8,644 $ 5,601 $ 10,043 $ 24,288 $ 3,718,313 $ 3,742,601 $ 1,104 $ 25,635 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 non-accrual loans and troubled debt restructurings on non-accrual status. Non-accrual originated and acquired loans totaled $25.6 million at June 30, 2018, increasing $4.6 million, or 22.1% from December 31, 2017, due to the Peoples acquisition. The Company’s internal risk rating system uses a series of grades that reflect its 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 as of June 30, 2018 and December 31, 2017, respectively: June 30, 2018 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 1,649,254 $ 12,988 $ 17,232 $ 899 $ 1,680,373 Owner occupied commercial real estate 346,325 26,910 9,341 75 382,651 Agriculture 189,923 2,765 1,890 218 194,796 Energy 36,425 — 796 — 37,221 Total commercial 2,221,927 42,663 29,259 1,192 2,295,041 Commercial real estate non-owner occupied: Construction 93,377 — 1,080 — 94,457 Acquisition/development 22,767 — 824 — 23,591 Multifamily 63,483 — — — 63,483 Non-owner occupied 395,921 15,641 1,647 — 413,209 Total commercial real estate 575,548 15,641 3,551 — 594,740 Residential real estate: Senior lien 713,175 5,338 7,963 — 726,476 Junior lien 98,623 504 1,067 — 100,194 Total residential real estate 811,798 5,842 9,030 — 826,670 Consumer 26,107 1 42 — 26,150 Total originated and acquired loans $ 3,635,380 $ 64,147 $ 41,882 $ 1,192 $ 3,742,601 Loans accounted for under ASC 310-30: Commercial $ 18,610 $ 1,051 $ 3,417 $ — $ 23,078 Commercial real estate non-owner occupied 46,291 950 1,165 — 48,406 Residential real estate 8,860 947 1,558 — 11,365 Consumer — — 105 — 105 Total loans accounted for under ASC 310-30 $ 73,761 $ 2,948 $ 6,245 $ — $ 82,954 Total loans $ 3,709,141 $ 67,095 $ 48,127 $ 1,192 $ 3,825,555 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 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 June 30, 2018, the Company measured $15.5 million of impaired loans based on the fair value of the collateral less selling costs and $2.1 million of impaired loans using discounted cash flows and the loan’s initial contractual effective interest rate. Impaired loans totaling $8.8 million, which 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 $8.4 million were marked to fair value at the date of acquisition. At June 30, 2018 and December 31, 2017, the Company’s recorded investment in impaired loans were $34.8 million and $30.9 million, respectively, of which $6.9 million and $8.5 million, respectively, were accruing TDRs. Impaired loans at June 30, 2018 were primarily comprised of eight relationships totaling $14.3 million. Three of the relationships were in the commercial and industrial sector totaling $6.1 million, two of the relationships were in the owner-occupied commercial real estate sector totaling $4.8 million, one of the relationships was in the agricultural sector totaling $1.3 million, one of the relationships was in the energy sector totaling $1.1 million and one of the relationships was in the construction sector totaling $1.0 million. Impaired loans had a collective related allowance for loan losses allocated to them of $1.2 million and $1.5 million at June 30, 2018 and December 31, 2017, respectively. Additional information regarding impaired loans at June 30, 2018 and December 31, 2017 is set forth in the table below: June 30, 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 $ 5,719 $ 4,209 $ — $ 6,481 $ 5,055 $ — Owner occupied commercial real estate 7,063 6,698 — 4,186 3,934 — Agriculture 1,508 1,259 — 1,502 1,245 — Energy 6,642 1,923 — 8,661 3,861 — Total commercial 20,932 14,089 — 20,830 14,095 — Commercial real estate non-owner occupied: Construction 1,307 1,082 — 215 179 — Acquisition/development 1,065 824 — — — — Multifamily — — — 29 29 — Non-owner occupied 648 569 — 901 853 — Total commercial real estate 3,020 2,475 — 1,145 1,061 — Residential real estate: Senior lien 3,075 2,781 — 333 309 — Junior lien 414 353 — — — — Total residential real estate 3,489 3,134 — 333 309 — Consumer 47 43 — — — — Total impaired loans with no related allowance recorded $ 27,488 $ 19,741 $ — $ 22,308 $ 15,465 $ — With a related allowance recorded: Commercial: Commercial and industrial $ 7,147 $ 4,539 $ 907 $ 7,919 $ 5,339 $ 1,329 Owner occupied commercial real estate 1,400 1,222 80 873 713 4 Agriculture 2,229 2,186 218 2,122 2,083 133 Energy — — — — — — Total commercial 10,776 7,947 1,205 10,914 8,135 1,466 Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily — — — — — — Non-owner occupied 347 293 2 207 200 1 Total commercial real estate 347 293 2 207 200 1 Residential real estate: Senior lien 6,509 5,672 25 6,481 5,753 24 Junior lien 1,308 1,169 7 1,295 1,179 8 Total residential real estate 7,817 6,841 32 7,776 6,932 32 Consumer — — — 146 141 1 Total impaired loans with a related allowance recorded $ 18,940 $ 15,081 $ 1,239 $ 19,043 $ 15,408 $ 1,500 Total impaired loans $ 46,428 $ 34,822 $ 1,239 $ 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 June 30, 2018 June 30, 2017 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 5,321 $ 90 $ 6,645 $ 25 Owner occupied commercial real estate 6,723 17 3,789 23 Agriculture 1,259 — 1,454 — Energy 1,843 17 5,680 — Total commercial 15,147 124 17,568 48 Commercial real estate non-owner occupied: Construction 1,081 — — — Acquisition/development 827 — — — Multifamily — — — — Non-owner occupied 574 — 312 5 Total commercial real estate 2,481 — 312 5 Residential real estate: Senior lien 2,818 — 330 — Junior lien 354 — — — Total residential real estate 3,172 — 330 — Consumer 14 — — — Total impaired loans with no related allowance recorded $ 20,815 $ 124 $ 18,210 $ 53 With a related allowance recorded: Commercial: Commercial and industrial $ 4,607 $ — $ 4,643 $ — Owner occupied commercial real estate 1,233 4 2,340 7 Agriculture 2,142 1 912 1 Energy — — 6,624 — Total commercial 7,982 5 14,519 8 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily 9 — 31 — Non-owner occupied 297 5 216 2 Total commercial real estate 306 5 247 2 Residential real estate: Senior lien 5,744 13 6,525 20 Junior lien 1,187 11 1,403 12 Total residential real estate 6,931 23 7,928 32 Consumer 31 — 169 — Total impaired loans with a related allowance recorded $ 15,250 $ 33 $ 22,863 $ 42 Total impaired loans $ 36,065 $ 158 $ 41,073 $ 95 For the six months ended June 30, 2018 June 30, 2017 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 5,565 $ 173 $ 7,030 $ 73 Owner occupied commercial real estate 6,793 35 3,834 41 Agriculture 1,259 6 1,531 — Energy 2,098 37 5,889 — Total Commercial 15,715 251 18,284 114 Commercial real estate non-owner occupied: Construction 1,081 — — — Acquisition/development 856 — — — Multifamily — — — — Non-owner occupied 591 — 320 12 Total commercial real estate 2,528 — 320 12 Residential real estate: Senior lien 2,846 — 334 — Junior lien 358 — — — Total residential real estate 3,204 — 334 — Consumer 14 — — — Total impaired loans with no related allowance recorded $ 21,461 $ 251 $ 18,938 $ 126 With a related allowance recorded: Commercial: Commercial and industrial $ 4,639 $ — $ 4,630 $ — Owner occupied commercial real estate 1,249 9 2,349 11 Agriculture 2,084 2 914 3 Energy — — 6,602 — Total Commercial 7,972 11 14,495 14 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily 19 — 31 1 Non-owner occupied 308 9 220 5 Total commercial real estate 327 9 251 6 Residential real estate: Senior lien 5,821 26 6,583 40 Junior lien 1,202 20 1,421 25 Total residential real estate 7,023 46 8,004 65 Consumer 32 — 175 — Total impaired loans with a related allowance recorded $ 15,354 $ 66 $ 22,925 $ 85 Total impaired loans $ 36,815 $ 317 $ 41,863 $ 211 Interest income recognized on impaired loans noted in the table above primarily represents interest earned on accruing TDRs. Interest income recognized on impaired loans during the three months ended June 30, 2018 and 2017 was $0.2 million and $0.1 million, respectively. Interest income recognized on impaired loans during the six months ended June 30, 2018 and 2017 was $0.3 million and $0.2 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 six months ended June 30, 2018, the Company restructured four loans with a recorded investment of $0.9 million at June 30, 2018 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 June 30, 2018 and December 31, 2017: June 30, 2018 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 5,509 $ 6,754 $ 6,299 $ 3,828 Commercial real estate non-owner occupied 266 278 311 — Residential real estate 1,165 1,190 1,172 12 Consumer — — — — Total $ 6,940 $ 8,222 $ 7,782 $ 3,840 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 June 30, 2018 and December 31, 2017: June 30, 2018 December 31, 2017 Commercial $ 2,698 $ 5,808 Commercial real estate non-owner occupied — — Residential real estate 1,264 1,336 Consumer — 111 Total non-accruing TDRs $ 3,962 $ 7,255 At June 30, 2018 and December 31, 2017, the Company had $6.9 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 previously 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 six months ended June 30, 2018. The defaulted TDR consisted of one commercial real estate non-owner occupied loan totaling $0.2 million. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. Non-accruing TDRs decreased $3.3 million from December 31, 2017 due to charge-offs within the commercial loan segment. 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. During the three and six months ended June 30, 2017, the Company had three and five TDRs that had been modified within the past 12 months that defaulted on their restructured terms, respectively. 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 six months ended June 30, 2018 and 2017: June 30, 2018 June 30, 2017 Accretable yield beginning balance $ 46,568 $ 60,476 Reclassification from non-accretable difference 8,053 7,732 Reclassification to non-accretable difference (1,695) (494) Accretion (10,224) (12,051) Accretable yield ending balance $ 42,702 $ 55,663 Below is the composition of the net book value for loans accounted for under ASC 310-30 at June 30, 2018 and December 31, 2017: June 30, 2018 December 31, 2017 Contractual cash flows $ 442,000 $ 489,892 Non-accretable difference (316,344) (322,701) Accretable yield (42,702) (46,568) Loans accounted for under ASC 310-30 $ 82,954 $ 120,623 |