Loans | Note 7 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 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality, as of the dates shown. The carrying value of originated and acquired loans is net of discounts, fees, costs and fair value marks of $10.2 million and $4.3 million at December 31, 2018 and 2017, respectively. December 31, 2018 Originated and ASC acquired loans 310-30 loans Total loans % of total Commercial $ 2,624,173 $ 20,398 $ 2,644,571 Commercial real estate non-owner occupied 551,819 40,393 592,212 Residential real estate 820,820 9,995 830,815 Consumer 24,617 93 24,710 Total $ 4,021,429 $ 70,879 $ 4,092,308 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 December 31, 2018 and 2017: December 31, 2018 Greater 30-89 days than 90 days Total past past due and past due and Non-accrual due and accruing accruing loans non-accrual Current Total loans Originated and acquired loans: Commercial: Commercial and industrial $ 495 $ 74 $ 5,510 $ 6,079 $ 1,925,068 $ 1,931,147 Owner occupied commercial real estate 893 — 6,931 7,824 413,842 421,666 Food and agriculture 141 125 768 1,034 221,122 222,156 Energy — — 742 742 48,462 49,204 Total commercial 1,529 199 13,951 15,679 2,608,494 2,624,173 Commercial real estate non-owner occupied: Construction — — 1,208 1,208 93,646 94,854 Acquisition/development — — 121 121 19,529 19,650 Multifamily — — — — 56,685 56,685 Non-owner occupied 328 132 572 1,032 379,598 380,630 Total commercial real estate 328 132 1,901 2,361 549,458 551,819 Residential real estate: Senior lien 2,106 548 7,790 10,444 712,592 723,036 Junior lien 556 — 772 1,328 96,456 97,784 Total residential real estate 2,662 548 8,562 11,772 809,048 820,820 Consumer 91 16 42 149 24,468 24,617 Total originated and acquired loans $ 4,610 $ 895 $ 24,456 $ 29,961 $ 3,991,468 $ 4,021,429 December 31, 2017 Greater 30-89 days than 90 days Total past past due and past due and Non-accrual due and accruing accruing loans non-accrual Current Total loans Originated and acquired loans: Commercial: Commercial and industrial $ 671 $ 150 $ 7,767 $ 8,588 $ 1,367,434 $ 1,376,022 Owner occupied commercial real estate — — 3,479 3,479 269,274 272,753 Food and agriculture 537 — 2,003 2,540 136,355 138,895 Energy — — 1,645 1,645 55,815 57,460 Total commercial 1,208 150 14,894 16,252 1,828,878 1,845,130 Commercial real estate non-owner occupied: Construction — — 179 179 107,502 107,681 Acquisition/development 1,097 — — 1,097 13,318 14,415 Multifamily — — — — 26,947 26,947 Non-owner occupied 56 — 605 661 335,437 336,098 Total commercial real estate 1,153 — 784 1,937 483,204 485,141 Residential real estate: Senior lien 841 — 4,723 5,564 640,918 646,482 Junior lien 316 — 459 775 56,221 56,996 Total residential real estate 1,157 — 5,182 6,339 697,139 703,478 Consumer 163 — 140 303 24,272 24,575 Total originated and acquired loans $ 3,681 $ 150 $ 21,000 $ 24,831 $ 3,033,493 $ 3,058,324 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 $24.5 million at December 31, 2018, increasing $3.5 million, or 16.5% from December 31, 2017. Credit exposure for all loans as determined by the Company’s internal risk rating system was as follows at December 31, 2018 and 2017, respectively: December 31, 2018 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 1,890,710 $ 16,531 $ 22,919 $ 987 $ 1,931,147 Owner occupied commercial real estate 393,404 16,349 11,828 85 421,666 Food and agriculture 220,004 1,260 847 45 222,156 Energy 48,462 — 742 — 49,204 Total commercial 2,552,580 34,140 36,336 1,117 2,624,173 Commercial real estate non-owner occupied: Construction 92,731 915 1,208 — 94,854 Acquisition/development 19,529 — 121 — 19,650 Multifamily 56,685 — — — 56,685 Non-owner occupied 355,776 23,243 1,611 — 380,630 Total commercial real estate 524,721 24,158 2,940 — 551,819 Residential real estate: Senior lien 710,972 3,571 8,493 — 723,036 Junior lien 96,456 415 913 — 97,784 Total residential real estate 807,428 3,986 9,406 — 820,820 Consumer 24,575 — 42 — 24,617 Total originated and acquired loans $ 3,909,304 $ 62,284 $ 48,724 $ 1,117 $ 4,021,429 Loans accounted for under ASC 310-30: Commercial $ 17,579 $ 537 $ 2,282 $ — $ 20,398 Commercial real estate non-owner occupied 39,322 246 825 — 40,393 Residential real estate 7,484 908 1,598 — 9,990 Consumer — — 98 — 98 Total loans accounted for under ASC 310-30 $ 64,385 $ 1,691 $ 4,803 $ — $ 70,879 Total loans $ 3,973,689 $ 63,975 $ 53,527 $ 1,117 $ 4,092,308 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 Food and 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 December 31, 2018 and 2017, the Company’s recorded investment in impaired loans were $31.1 million and $30.9 million, respectively, of which $4.1 million and $8.5 million, respectively, were accruing TDRs. Impaired loans at December 31, 2018 were primarily comprised of six relationships totaling $12.1 million. Impaired loans had a collective related allowance for loan losses allocated to them of $1.2 million and $1.5 million at December 31, 2018 and 2017, respectively. Additional information regarding impaired loans at December 31, 2018 and 2017 is set forth in the table below: December 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 $ 4,374 $ 3,029 $ — $ 6,481 $ 5,055 $ — Owner occupied commercial real estate 7,130 6,609 — 4,186 3,934 — Food and agriculture 1,468 1,260 — 1,502 1,245 — Energy 5,366 742 — 8,661 3,861 — Total commercial 18,338 11,640 — 20,830 14,095 — Commercial real estate non-owner occupied: Construction 1,435 1,208 — 215 179 — Acquisition/development 378 121 — — — — Multifamily — — — 29 29 — Non-owner occupied 641 547 — 901 853 — Total commercial real estate 2,454 1,876 — 1,145 1,061 — Residential real estate: Senior lien 4,229 3,814 — 333 309 — Junior lien 409 341 — — — — Total residential real estate 4,638 4,155 — 333 309 — Consumer 46 42 — — — — Total impaired loans with no related allowance recorded $ 25,476 $ 17,713 $ — $ 22,308 $ 15,465 $ — With a related allowance recorded: Commercial: Commercial and industrial $ 7,252 $ 4,627 $ 996 $ 7,919 $ 5,339 $ 1,329 Owner occupied commercial real estate 1,362 1,169 90 873 713 4 Food and agriculture 883 845 46 2,122 2,083 133 Energy — — — — — — Total commercial 9,497 6,641 1,132 10,914 8,135 1,466 Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily — — — — — — Non-owner occupied 313 254 2 207 200 1 Total commercial real estate 313 254 2 207 200 1 Residential real estate: Senior lien 6,032 5,178 27 6,481 5,753 24 Junior lien 1,408 1,293 8 1,295 1,179 8 Total residential real estate 7,440 6,471 35 7,776 6,932 32 Consumer — — — 146 141 1 Total impaired loans with a related allowance recorded $ 17,250 $ 13,366 $ 1,169 $ 19,043 $ 15,408 $ 1,500 Total impaired loans $ 42,726 $ 31,079 $ 1,169 $ 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 years ended December 31, 2018 December 31, 2017 December 31, 2016 Average Interest Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 3,248 $ 168 $ 5,609 $ 152 $ 7,909 $ 252 Owner occupied commercial real estate 6,799 38 4,155 80 3,249 92 Food and agriculture 1,259 98 1,422 244 1,830 — Energy 884 — 8,004 156 12,565 — Total Commercial 12,190 304 19,190 632 25,553 344 Commercial real estate non-owner occupied: Construction 1,208 — — — — — Acquisition/development 606 — — — — — Multifamily — — — — — — Non-owner occupied 573 — 878 22 368 22 Total commercial real estate 2,387 — 878 22 368 22 Residential real estate: Senior lien 3,904 — 326 — 1,466 19 Junior lien 355 2 — — 54 2 Total residential real estate 4,259 2 326 — 1,520 21 Consumer 12 — — — 4 — Total impaired loans with no related allowance recorded $ 18,848 $ 306 $ 20,394 $ 654 $ 27,445 $ 387 With a related allowance recorded: Commercial: Commercial and industrial $ 4,677 $ — $ 7,331 $ — $ 3,545 $ 198 Owner occupied commercial real estate 1,220 19 747 20 703 20 Food and agriculture 862 5 2,092 5 162 5 Energy — — — — 10,008 — Total Commercial 6,759 23 10,170 25 14,418 223 Commercial real estate non-owner occupied: Construction — — 188 — — — Acquisition/development — — — — — — Multifamily — — 30 1 34 2 Non-owner occupied 288 16 213 9 268 13 Total commercial real estate 288 16 431 10 302 15 Residential real estate: Senior lien 5,412 57 5,986 67 5,200 88 Junior lien 1,331 43 1,225 42 1,600 56 Total residential real estate 6,743 100 7,211 109 6,800 144 Consumer 36 — 163 — 196 — Total impaired loans with a related allowance recorded $ 13,826 $ 140 $ 17,975 $ 144 $ 21,716 $ 382 Total impaired loans $ 32,674 $ 446 $ 38,369 $ 798 $ 49,161 $ 769 Interest income recognized on impaired loans noted in the tables above, primarily represents interest earned on accruing TDRs. Interest income recognized on impaired loans during the years ended December 31, 2018, 2017 and 2016 was $0.4 million, $0.8 million and $0.8 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 2018, the Company restructured ten loans with a recorded investment of $ 0.8 million at December 31, 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 December 31, 2018 and 2017: December 31, 2018 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 2,730 $ 2,827 $ 3,155 $ — Commercial real estate non-owner occupied 229 260 280 — Residential real estate 1,114 1,163 1,121 12 Consumer — — — — Total $ 4,073 $ 4,250 $ 4,556 $ 12 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 December 31, 2017 and 2016: December 31, 2018 December 31, 2017 Commercial $ 1,854 $ 5,808 Commercial real estate non-owner occupied — — Residential real estate 1,584 1,336 Consumer — 111 Total non-accruing TDRs $ 3,438 $ 7,255 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. The defaulted TDR was a residential loan totaling $0.1 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 $3.8 million from December 31, 2017 due to paydowns. 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 2017, the Company had three TDRs that had been modified within the prior twelve months that defaulted on their restructured terms. Loans accounted for under ASC 310-30 Loan pools accounted for under ASC Topic 310-30 are periodically remeasured to determine expected future cash flows. In determining the expected cash flows, the timing of cash flows and prepayment assumptions for smaller homogeneous loans are based on statistical models that take into account factors such as the loan interest rate, credit profile of the borrowers, the years in which the loans were originated, and whether the loans are fixed or variable rate loans. Prepayments may be assumed on loans if circumstances specific to that loan warrant a prepayment assumption. The re-measurement of loans accounted for under ASC 310-30 resulted in the following changes in the carrying amount of accretable yield during 2018 and 2017: December 31, 2018 December 31, 2017 Accretable yield beginning balance $ 46,568 $ 60,476 Reclassification from non-accretable difference 10,751 11,398 Reclassification to non-accretable difference (2,263) (2,801) Accretion (19,155) (22,505) Accretable yield ending balance $ 35,901 $ 46,568 Below is the composition of the net book value for loans accounted for under ASC 310-30 at December 31, 2018 and 2017: December 31, 2018 December 31, 2017 Contractual cash flows $ 420,994 $ 489,892 Non-accretable difference (314,214) (322,701) Accretable yield (35,901) (46,568) Loans accounted for under ASC 310-30 $ 70,879 $ 120,623 |