Loans | Note 4 Loans The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions. The tables below show the loan portfolio composition including carrying value by segment of originated and acquired loans and loans accounted for under ASC 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality , as of the dates shown. The carrying value of originated and acquired loans is net of discounts, fees, cost and fair value marks of $10.1 million and $10.2 million as of March 31, 2019 and December 31, 2018, respectively. March 31, 2019 Originated and ASC acquired loans 310-30 loans Total loans % of total Commercial $ 2,737,005 $ 19,139 $ 2,756,144 Commercial real estate non-owner occupied 609,076 36,878 645,954 Residential real estate 815,144 7,508 822,652 Consumer 22,189 2 22,191 Total $ 4,183,414 $ 63,527 $ 4,246,941 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 Delinquency for originated and acquired loans is shown in the following tables at March 31, 2019 and December 31, 2018: March 31, 2019 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 $ 3,388 $ 13 $ 6,136 $ 9,537 $ 2,010,349 $ 2,019,886 Owner occupied commercial real estate 124 530 6,710 7,364 421,359 428,723 Food and agriculture 288 — 759 1,047 231,981 233,028 Energy — — 804 804 54,564 55,368 Total commercial 3,800 543 14,409 18,752 2,718,253 2,737,005 Commercial real estate non-owner occupied: Construction 355 — 1,208 1,563 92,767 94,330 Acquisition/development 35 725 115 875 17,493 18,368 Multifamily — — — — 60,635 60,635 Non-owner occupied 199 — 897 1,096 434,647 435,743 Total commercial real estate 589 725 2,220 3,534 605,542 609,076 Residential real estate: Senior lien 1,398 91 8,768 10,257 707,162 717,419 Junior lien 416 — 832 1,248 96,477 97,725 Total residential real estate 1,814 91 9,600 11,505 803,639 815,144 Consumer 42 — 81 123 22,066 22,189 Total originated and acquired loans $ 6,245 $ 1,359 $ 26,310 $ 33,914 $ 4,149,500 $ 4,183,414 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 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 $26.3 million at March 31, 2019, increasing $1.9 million, or 7.6% from December 31, 2018. The Company’s internal risk rating system uses a series of grades which reflect our assessment of the credit quality of loans based on an analysis of the borrower's financial condition, liquidity and ability to meet contractual debt service requirements and are categorized as “Pass”, “Special mention”, “Substandard” and “Doubtful”. A description of the general characteristics of the risk grades is set forth in the Company’s 2018 Annual Report on Form 10-K Credit exposure for all loans as determined by the Company’s internal risk rating system was as follows at March 31, 2019 and December 31, 2018, respectively: March 31, 2019 Special Pass mention Substandard Doubtful Total Originated and acquired loans: Commercial: Commercial and industrial $ 1,980,564 $ 19,051 $ 18,934 $ 1,337 $ 2,019,886 Owner occupied commercial real estate 397,240 19,941 11,457 85 428,723 Food and agriculture 230,558 1,220 1,218 32 233,028 Energy 54,564 — 804 — 55,368 Total commercial 2,662,926 40,212 32,413 1,454 2,737,005 Commercial real estate non-owner occupied: Construction 92,690 432 1,208 — 94,330 Acquisition/development 17,486 767 115 — 18,368 Multifamily 60,119 516 — — 60,635 Non-owner occupied 419,021 15,122 1,563 37 435,743 Total commercial real estate 589,316 16,837 2,886 37 609,076 Residential real estate: Senior lien 704,303 3,455 9,661 — 717,419 Junior lien 96,343 417 965 — 97,725 Total residential real estate 800,646 3,872 10,626 — 815,144 Consumer 22,108 — 81 — 22,189 Total originated and acquired loans $ 4,074,996 $ 60,921 $ 46,006 $ 1,491 $ 4,183,414 Loans accounted for under ASC 310-30: Commercial $ 16,452 $ 518 $ 2,169 $ — $ 19,139 Commercial real estate non-owner occupied 35,839 242 797 — 36,878 Residential real estate 5,243 849 1,416 — 7,508 Consumer 2 — — — 2 Total loans accounted for under ASC 310-30 $ 57,536 $ 1,609 $ 4,382 $ — $ 63,527 Total loans $ 4,132,532 $ 62,530 $ 50,388 $ 1,491 $ 4,246,941 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 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, 2019 and December 31, 2018, the Company’s recorded investment in impaired loans were $32.7 million and $31.1 million, respectively, of which $2.2 million and $4.1 million, respectively, were accruing TDRs. Impaired loans had a collective related allowance for loan losses allocated to them of $1.5 million and $1.2 million at March 31, 2019 and December 31, 2018, respectively. Additional information regarding impaired loans at March 31, 2019 and December 31, 2018 is set forth in the table below: March 31, 2019 December 31, 2018 Allowance Allowance Unpaid for loan Unpaid for loan principal Recorded losses principal Recorded losses balance investment allocated balance investment allocated With no related allowance recorded: Commercial: Commercial and industrial $ 4,558 $ 3,173 $ — $ 4,374 $ 3,029 $ — Owner occupied commercial real estate 6,975 6,405 — 7,130 6,609 — Food and agriculture 1,468 1,220 — 1,468 1,260 — Energy 5,429 804 — 5,366 742 — Total commercial 18,430 11,602 — 18,338 11,640 — Commercial real estate non-owner occupied: Construction 1,435 1,208 — 1,435 1,208 — Acquisition/development 377 115 — 378 121 — Multifamily — — — — — — Non-owner occupied 642 546 — 641 547 — Total commercial real estate 2,454 1,869 — 2,454 1,876 — Residential real estate: Senior lien 4,667 4,310 — 4,229 3,814 — Junior lien 430 358 — 409 341 — Total residential real estate 5,097 4,668 — 4,638 4,155 — Consumer 86 81 — 46 42 — Total impaired loans with no related allowance recorded $ 26,067 $ 18,220 $ — $ 25,476 $ 17,713 $ — With a related allowance recorded: Commercial: Commercial and industrial $ 7,736 $ 5,109 $ 1,348 $ 7,252 $ 4,627 $ 996 Owner occupied commercial real estate 1,317 1,115 90 1,362 1,169 90 Food and agriculture 997 960 33 883 845 46 Energy — — — — — — Total commercial 10,050 7,184 1,471 9,497 6,641 1,132 Commercial real estate non-owner occupied: Construction — — — — — — Acquisition/development — — — — — — Multifamily — — — — — — Non-owner occupied 620 561 39 313 254 2 Total commercial real estate 620 561 39 313 254 2 Residential real estate: Senior lien 6,492 5,582 28 6,032 5,178 27 Junior lien 1,320 1,196 8 1,408 1,293 8 Total residential real estate 7,812 6,778 36 7,440 6,471 35 Consumer — — — — — — Total impaired loans with a related allowance recorded $ 18,482 $ 14,523 $ 1,546 $ 17,250 $ 13,366 $ 1,169 Total impaired loans $ 44,549 $ 32,743 $ 1,546 $ 42,726 $ 31,079 $ 1,169 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, 2019 March 31, 2018 Average Interest Average Interest With no related allowance recorded: Commercial: Commercial and industrial $ 3,189 $ 12 $ 5,534 $ 83 Owner occupied commercial real estate 6,425 3 7,487 18 Food and agriculture 1,220 1 1,259 6 Energy 777 — 2,353 20 Total commercial 11,611 16 16,633 127 Commercial real estate non-owner occupied: Construction 1,208 — — — Acquisition/development 117 — 886 — Multifamily — — — — Non-owner occupied 546 — 876 4 Total commercial real estate 1,871 — 1,762 4 Residential real estate: Senior lien 4,325 2 1,612 — Junior lien 363 — 305 — Total residential real estate 4,688 2 1,917 — Consumer 11 — 14 — Total impaired loans with no related allowance recorded $ 18,181 $ 18 $ 20,326 $ 131 With a related allowance recorded: Commercial: Commercial and industrial $ 5,113 $ — $ 4,339 $ — Owner occupied commercial real estate 1,125 4 1,265 5 Food and agriculture 961 — 2,126 1 Energy — — — — Total commercial 7,199 4 7,730 6 Commercial real estate non-owner occupied: Construction — — — — Acquisition/development — — — — Multifamily — — 29 — Non-owner occupied 566 9 196 2 Total commercial real estate 566 9 225 2 Residential real estate: Senior lien 5,629 25 5,601 13 Junior lien 1,205 40 1,151 9 Total residential real estate 6,834 65 6,752 22 Consumer 72 — 24 — Total impaired loans with a related allowance recorded $ 14,671 $ 78 $ 14,731 $ 30 Total impaired loans $ 32,852 $ 96 $ 35,057 $ 161 Interest income recognized on impaired loans noted in the tables above primarily represents interest earned on accruing TDRs. Interest income recognized on impaired loans during the three months ended March 31, 2019 and 2018 was $0.1 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 three months ended March 31, 2019, the Company restructured four loans with a recorded investment of $0.4 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, 2019 and December 31, 2018: March 31, 2019 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 941 $ 943 $ 1,061 $ 150 Commercial real estate non-owner occupied 195 198 240 — Residential real estate 1,071 1,079 1,078 12 Consumer — — — — Total $ 2,207 $ 2,220 $ 2,379 $ 162 December 31, 2018 Recorded Average year-to-date Unpaid Unfunded commitments investment recorded investment principal balance to fund TDRs Commercial $ 2,730 $ 2,827 $ 3,155 $ — Commercial real estate non-owner occupied 229 260 280 — Residential real estate 1,114 1,163 1,121 12 Consumer — — — — Total $ 4,073 $ 4,250 $ 4,556 $ 12 The following table summarizes the Company’s carrying value of non-accrual TDRs as of March 31, 2019 and December 31, 2018: March 31, 2019 December 31, 2018 Commercial $ 1,667 $ 1,854 Commercial real estate non-owner occupied — — Residential real estate 1,828 1,584 Consumer — — Total non-accruing TDRs $ 3,495 $ 3,438 At March 31, 2019 and December 31, 2018, the Company had $2.2 million and $4.1 million, respectively, of accruing TDRs that had been restructured from the original terms in order to facilitate repayment. Non-accruing TDRs totaled $3.5 million as of March 31, 2019 and increased $0.1 million from December 31, 2018. Accrual of interest is resumed on loans that were previously on non-accrual only after the loan has performed sufficiently for a period of time. The Company had two TDRs totaling $0.2 million that were modified within the past twelve months and had defaulted on their restructured terms during the three months ended March 31, 2019. During the three months ended March 31, 2018, 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. The allowance for loan losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as TDRs. Loans accounted for under ASC 310-30 Loan pools accounted for under ASC Topic 310-30 are periodically remeasured to determine expected future cash flows. In determining the expected cash flows, the timing of cash flows and prepayment assumptions for smaller homogeneous loans are based on statistical models that take into account factors such as the loan interest rate, credit profile of the borrowers, the years in which the loans were originated, and whether the loans are fixed or variable rate loans. Prepayments may be assumed on loans if circumstances specific to that loan warrant a prepayment assumption. The remeasurement of loans accounted for under ASC 310-30 resulted in the following changes in the carrying amount of accretable yield during the three months ended March 31, 2019 and 2018: March 31, 2019 March 31, 2018 Accretable yield beginning balance $ 35,901 $ 46,568 Reclassification from non-accretable difference 1,524 5,409 Reclassification to non-accretable difference (421) (1,390) Accretion (3,687) (5,394) Accretable yield ending balance $ 33,317 $ 45,193 Below is the composition of the net book value for loans accounted for under ASC 310-30 at March 31, 2019 and December 31, 2018: March 31, 2019 December 31, 2018 Contractual cash flows $ 409,942 $ 420,994 Non-accretable difference (313,098) (314,214) Accretable yield (33,317) (35,901) Loans accounted for under ASC 310-30 $ 63,527 $ 70,879 |