| LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES | LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES Loans receivable at March 31, 2016 and December 31, 2015 are summarized as follows (dollars in thousands): March 31, 2016 December 31, 2015 Amount Percent of Total Amount Percent of Total Commercial real estate: Owner-occupied $ 1,328,034 18.5 % $ 1,327,807 18.2 % Investment properties 1,805,243 25.1 1,765,353 24.1 Multifamily real estate 307,019 4.3 472,976 6.5 Commercial construction 87,711 1.2 72,103 1.0 Multifamily construction 79,737 1.1 63,846 0.9 One- to four-family construction 297,348 4.1 278,469 3.8 Land and land development: Residential 142,841 2.0 126,773 1.7 Commercial 24,493 0.3 33,179 0.5 Commercial business 1,224,915 17.1 1,207,944 16.5 Agricultural business, including secured by farmland 340,350 4.7 376,531 5.1 One- to four-family residential 910,719 12.7 952,633 13.0 Consumer: Consumer secured by one- to four-family 481,590 6.7 478,420 6.5 Consumer—other 155,999 2.2 158,470 2.2 Total loans outstanding 7,185,999 100.0 % 7,314,504 100.0 % Less allowance for loan losses (78,197 ) (78,008 ) Net loans $ 7,107,802 $ 7,236,496 Loan amounts are net of unearned loan fees in excess of unamortized costs of $2.8 million as of March 31, 2016 and $5.5 million as of December 31, 2015 . Net loans include net discounts on acquired loans of $42.3 million and $43.7 million as of March 31, 2016 and December 31, 2015 , respectively. Purchased credit-impaired loans and purchased non-credit-impaired loans. Purchased loans, including loans acquired in business combinations, are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The outstanding contractual unpaid principal balance of purchased credit-impaired loans, excluding acquisition accounting adjustments, was $76.6 million at March 31, 2016 and $83.4 million at December 31, 2015 . The carrying balance of purchased credit-impaired loans was $53.3 million at March 31, 2016 and $58.6 million at December 31, 2015 . The following table presents the changes in the accretable yield for purchased credit-impaired loans for the three months ended March 31, 2016 and 2015 (in thousands): Three Months Ended 2016 2015 Balance, beginning of period $ 10,375 $ — Additions — 2,239 Accretion to interest income (1,931 ) (35 ) Disposals (18 ) — Reclassifications from non-accretable difference 2,291 — Balance, end of period $ 10,717 $ 2,204 As of March 31, 2016 and December 31, 2015 , the non-accretable difference between the contractually required payments and cash flows expected to be collected were $25.3 million and $29.5 million , respectively. Impaired Loans and the Allowance for Loan Losses. A loan is considered impaired when, based on current information and circumstances, the Company determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Factors involved in determining impairment include, but are not limited to, the financial condition of the borrower, the value of the underlying collateral and the current status of the economy. Impaired loans are comprised of loans on nonaccrual, troubled debt restructures (TDRs) that are performing under their restructured terms, and loans that are 90 days or more past due, but are still on accrual. Purchased credit-impaired loans are considered performing within the scope of the purchased credit-impaired accounting guidance and are not included in the impaired loan tables. The following tables provide information on impaired loans, excluding purchased credit impaired loans, with and without allowance reserves at March 31, 2016 and December 31, 2015 . Recorded investment includes the unpaid principal balance or the carrying amount of loans less charge-offs and net deferred loan fees (in thousands): March 31, 2016 Unpaid Principal Balance Recorded Investment Related Allowance Without Allowance (1) With Allowance (2) Commercial real estate: Owner-occupied $ 1,985 $ — $ 1,737 $ 126 Investment properties 8,774 2,458 5,923 455 Multifamily real estate 357 — 355 68 Commercial construction — — — — One- to four-family construction 1,644 — 1,644 40 Land and land development: Residential 3,139 — 1,984 481 Commercial 1,628 1,027 — — Commercial business 2,314 928 1,191 152 Agricultural business/farmland 1,294 563 663 48 One- to four-family residential 16,170 1,344 13,775 564 Consumer: Consumer secured by one- to four-family 1,096 — 1,036 8 Consumer—other 526 9 427 7 $ 38,927 $ 6,329 $ 28,735 $ 1,949 December 31, 2015 Unpaid Principal Balance Recorded Investment Related Allowance Without Allowance (1) With Allowance (2) Commercial real estate: Owner-occupied $ 1,465 $ — $ 1,416 $ 70 Investment properties 8,740 2,503 5,846 602 Multifamily real estate 359 — 357 71 Commercial construction 1,141 1,069 — — One- to four-family construction 1,741 — 1,741 161 Land and land development: Residential 3,540 750 1,634 444 Commercial 1,628 1,027 — — Commercial business 2,266 538 1,184 150 Agricultural business/farmland 1,309 544 697 43 One- to four-family residential 17,897 2,206 14,418 736 Consumer: Consumer secured by one- to four-family 776 — 716 23 Consumer—other 433 — 351 7 $ 41,295 $ 8,637 $ 28,360 $ 2,307 (1) Loans without an allowance reserve have been individually evaluated for impairment and that evaluation concluded that no reserve was needed. (2) Includes general reserves for loans evaluated in pools of homogeneous loans and loans with a specific allowance reserve. Loans with a specific allowance reserve have been individually evaluated for impairment using either a discounted cash flow analysis or, for collateral dependent loans, current appraisals less costs to sell to establish realizable value. The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2016 and 2015 (in thousands): Three Months Ended Three Months Ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial real estate: Owner-occupied $ 2,116 $ 4 $ 2,698 $ 3 Investment properties 8,415 75 6,490 77 Multifamily real estate 356 4 975 11 Commercial construction — — — — One- to four-family construction 1,610 27 3,097 31 Land and land development: Residential 1,988 10 2,547 16 Commercial 1,027 — 1,624 — Commercial business 2,495 8 1,172 9 Agricultural business/farmland 1,215 5 2,317 5 One- to four-family residential 15,181 126 24,025 204 Consumer: Consumer secured by one- to four-family 1,042 3 1,209 3 Consumer—other 455 4 773 4 $ 35,900 $ 266 $ 46,927 $ 363 Troubled Debt Restructures (TDRs). Some of the Company’s loans are reported as TDRs. Loans are reported as TDRs when the bank grants one or more concessions to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include forgiveness of principal or accrued interest, extending the maturity date(s) or providing a lower interest rate than would be normally available for a transaction of similar risk. Our TDRs have generally not involved forgiveness of amounts due, but almost always include a modification of multiple factors; the most common combination includes interest rate, payment amount and maturity date. As a result of these concessions, restructured loans are impaired as the Company will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Loans identified as TDRs are accounted for in accordance with the Company's impaired loan accounting policies. The following tables present TDRs at March 31, 2016 and December 31, 2015 (in thousands): March 31, 2016 Accrual Status Nonaccrual Status Total TDRs Commercial real estate: Owner-occupied $ 181 $ 102 $ 283 Investment properties 5,792 6 5,798 Multifamily real estate 355 — 355 Commercial construction — — — One- to four-family construction 1,644 — 1,644 Land and land development: Residential 762 472 1,234 Commercial — — — Commercial business 561 — 561 Agricultural business, including secured by farmland 563 243 806 One- to four-family residential 9,277 1,401 10,678 Consumer: Consumer secured by one- to four-family 146 12 158 Consumer—other 169 — 169 $ 19,450 $ 2,236 $ 21,686 December 31, 2015 Accrual Status Nonaccrual Status Total TDRs Commercial real estate: Owner-occupied $ 181 $ 104 $ 285 Investment properties 5,834 13 5,847 Multifamily real estate 357 — 357 One- to four-family construction 1,741 — 1,741 Land and land development: Residential 1,151 483 1,634 Commercial business 624 — 624 Agricultural business, including secured by farmland 545 277 822 One- to four-family residential 11,025 1,428 12,453 Consumer: Consumer secured by one- to four-family 147 14 161 Consumer—other 172 — 172 $ 21,777 $ 2,319 $ 24,096 As of March 31, 2016 and December 31, 2015 , the Company had commitments to advance funds related to TDRs up to additional amounts of $197,000 and $237,000 , respectively. No new TDRs occurred during the three months ended March 31, 2016 . The following table presents new TDRs that occurred during the three months ended March 31, 2015 (dollars in thousands): Three Months Ended March 31, 2015 Number of Contracts Pre-modification Outstanding Recorded Investment Post-modification Outstanding Recorded Investment Recorded Investment (1) (2) One- to four-family construction 2 592 592 Agricultural business/farmland 2 288 288 4 $ 880 $ 880 (1) Since these loans were already considered classified and/or on nonaccrual status prior to restructuring, the modifications did not have a material effect on the Company’s determination of the allowance for loan losses. (2) The majority of these modifications do not fit into one separate type, such as rate, term, amount, interest-only or payment, but instead are a combination of multiple types of modifications; therefore, they are disclosed in aggregate. There were no TDRs which incurred a payment default within twelve months of the restructure date during the three -month periods ended March 31, 2016 and 2015 . A default on a TDR results in either a transfer to nonaccrual status or a partial charge-off, or both. Credit Quality Indicators : To appropriately and effectively manage the ongoing credit quality of the Company’s loan portfolio, management has implemented a risk-rating or loan grading system for its loans. The system is a tool to evaluate portfolio asset quality throughout each applicable loan’s life as an asset of the Company. Generally, loans and leases are risk rated on an aggregate borrower/relationship basis with individual loans sharing similar ratings. There are some instances when specific situations relating to individual loans will provide the basis for different risk ratings within the aggregate relationship. Loans are graded on a scale of 1 to 9. A description of the general characteristics of these categories is shown below: Overall Risk Rating Definitions : Risk-ratings contain both qualitative and quantitative measurements and take into account the financial strength of a borrower and the structure of the loan or lease. Consequently, the definitions are to be applied in the context of each lending transaction and judgment must also be used to determine the appropriate risk rating, as it is not unusual for a loan or lease to exhibit characteristics of more than one risk-rating category. Consideration for the final rating is centered in the borrower’s ability to repay, in a timely fashion, both principal and interest. There were no material changes in the risk-rating or loan grading system in the three months ended March 31, 2016 . Risk Rating 1: Exceptional A credit supported by exceptional financial strength, stability, and liquidity. The risk rating of 1 is reserved for the Company’s top quality loans, generally reserved for investment grade credits underwritten to the standards of institutional credit providers. Risk Rating 2: Excellent A credit supported by excellent financial strength, stability and liquidity. The risk rating of 2 is reserved for very strong and highly stable customers with ready access to alternative financing sources. Risk Rating 3: Strong A credit supported by good overall financial strength and stability. Collateral margins are strong; cash flow is stable although susceptible to cyclical market changes. Risk Rating 4: Acceptable A credit supported by the borrower’s adequate financial strength and stability. Assets and cash flow are reasonably sound and provide for orderly debt reduction. Access to alternative financing sources will be more difficult to obtain. Risk Rating 5: Watch A credit with the characteristics of an acceptable credit which requires, however, more than the normal level of supervision and warrants formal quarterly management reporting. Credits in this category are not yet criticized or classified, but due to adverse events or aspects of underwriting require closer than normal supervision. Generally, credits should be watch credits in most cases for six months or less as the impact of stress factors are analyzed. Risk Rating 6: Special Mention A credit with potential weaknesses that deserves management’s close attention is risk rated a 6. If left uncorrected, these potential weaknesses will result in deterioration in the capacity to repay debt. A key distinction between Special Mention and Substandard is that in a Special Mention credit, there are identified weaknesses that pose potential risk(s) to the repayment sources, versus well defined weaknesses that pose risk(s) to the repayment sources. Assets in this category are expected to be in this category no more than 9 - 12 months as the potential weaknesses in the credit are resolved. Risk Rating 7: Substandard A credit with well defined weaknesses that jeopardize the ability to repay in full is risk rated a 7. These credits are inadequately protected by either the sound net worth and payment capacity of the borrower or the value of pledged collateral. These are credits with a distinct possibility of loss. Loans headed for foreclosure and/or legal action due to deterioration are rated 7 or worse. Risk Rating 8: Doubtful A credit with an extremely high probability of loss is risk rated 8. These credits have all the same critical weaknesses that are found in a substandard loan; however, the weaknesses are elevated to the point that based upon current information, collection or liquidation in full is improbable. While some loss on doubtful credits is expected, pending events may strengthen a credit making the amount and timing of any loss indeterminable. In these situations taking the loss is inappropriate until it is clear that the pending event has failed to strengthen the credit and improve the capacity to repay debt. Risk Rating 9: Loss A credit that is considered to be currently uncollectible or of such little value that it is no longer a viable Bank asset is risk rated 9. Losses should be taken in the accounting period in which the credit is determined to be uncollectible. Taking a loss does not mean that a credit has absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off the credit, even though partial recovery may occur in the future. The following table shows the Company’s portfolio of risk-rated loans and non-risk-rated loans by grade or other characteristics as of March 31, 2016 and December 31, 2015 (in thousands): March 31, 2016 Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Total Loans Risk-rated loans: Pass (Risk Ratings 1-5) (1) $ 3,074,115 $ 303,562 $ 617,073 $ 1,182,263 $ 330,929 $ 902,335 $ 634,494 $ 7,044,771 Special mention 19,845 596 3,232 25,152 1,885 903 200 51,813 Substandard 39,317 2,861 11,825 17,500 7,536 7,481 2,886 89,406 Doubtful — — — — — — 9 9 Loss — — — — — — — — Total loans $ 3,133,277 $ 307,019 $ 632,130 $ 1,224,915 $ 340,350 $ 910,719 $ 637,589 $ 7,185,999 Performing loans $ 3,090,836 $ 305,337 $ 625,955 $ 1,216,322 $ 338,256 $ 904,590 $ 635,817 $ 7,117,113 Purchased credit-impaired loans 38,296 1,682 3,925 7,036 1,431 286 615 53,271 Non-performing loans (2) 4,145 — 2,250 1,557 663 5,843 1,157 15,615 Total loans $ 3,133,277 $ 307,019 $ 632,130 $ 1,224,915 $ 340,350 $ 910,719 $ 637,589 $ 7,185,999 December 31, 2015 Commercial Real Estate Multifamily Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Total Loans Risk-rated loans: Pass (Risk Ratings 1-5) (1) $ 3,022,281 $ 468,467 $ 558,425 $ 1,167,933 $ 354,760 $ 943,098 $ 633,734 $ 7,148,698 Special mention 30,928 138 2,386 25,286 17,526 1,346 22 77,632 Substandard 39,951 4,371 13,559 14,725 4,245 8,189 3,124 88,164 Doubtful — — — — — — 10 10 Loss — — — — — — — — Total loans $ 3,093,160 $ 472,976 $ 574,370 $ 1,207,944 $ 376,531 $ 952,633 $ 636,890 $ 7,314,504 Performing loans $ 3,048,424 $ 470,982 $ 566,460 $ 1,198,475 $ 374,305 $ 945,968 $ 636,068 $ 7,240,682 Purchased credit-impaired loans 40,985 1,994 5,650 7,302 1,529 1,066 74 58,600 Non-performing loans (2) 3,751 — 2,260 2,167 697 5,599 748 15,222 Total loans $ 3,093,160 $ 472,976 $ 574,370 $ 1,207,944 $ 376,531 $ 952,633 $ 636,890 $ 7,314,504 (1) The Pass category includes some performing loans that are part of homogenous pools which are not individually risk-rated. This includes all consumer loans, all one - to four -family residential loans and, as of March 31, 2016 and December 31, 2015 , in the commercial business category, $168.1 million and $150.0 million , respectively, of credit-scored small business loans. As loans in these pools become non-performing, they are individually risk-rated. (2) Non-performing loans include non-accrual loans and loans past due greater than 90 days and on accrual status. The following tables provide additional detail on the age analysis of the Company’s past due loans as of March 31, 2016 and December 31, 2015 (in thousands): March 31, 2016 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Purchased Credit-Impaired Current Total Loans Loans 90 Days or More Past Due and Accruing Non-accrual Commercial real estate: Owner-occupied $ 2,906 $ 362 $ 526 $ 3,794 $ 20,135 $ 1,304,105 $ 1,328,034 $ — $ 1,555 Investment properties 8,484 — 2,458 10,942 18,161 1,776,140 1,805,243 — 2,590 Multifamily real estate 324 — — 324 1,682 305,013 307,019 — — Commercial construction — — — — — 87,711 87,711 — — Multifamily construction — — — — — 79,737 79,737 — — One-to-four-family construction 3,457 — — 3,457 901 292,990 297,348 — — Land and land development: Residential — — 750 750 76 142,015 142,841 — 1,222 Commercial 1,027 — — 1,027 2,948 20,518 24,493 — 1,028 Commercial business 864 469 1,251 2,584 7,036 1,215,295 1,224,915 — 1,558 Agricultural business, including secured by farmland 4,238 972 663 5,873 1,431 333,046 340,350 — 663 One- to four-family residential 2,920 27 4,485 7,432 286 903,001 910,719 1,039 4,803 Consumer: Consumer secured by one- to four-family 1,436 115 271 1,822 229 479,539 481,590 147 743 Consumer—other 718 166 179 1,063 386 154,550 155,999 104 163 Total $ 26,374 $ 2,111 $ 10,583 $ 39,068 $ 53,271 $ 7,093,660 $ 7,185,999 $ 1,290 $ 14,325 December 31, 2015 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Purchased Credit-Impaired Current Total Loans Loans 90 Days or More Past Due and Accruing Non-accrual Commercial real estate: Owner-occupied $ 3,981 $ 139 $ 885 $ 5,005 $ 24,261 $ 1,298,541 $ 1,327,807 $ — $ 1,235 Investment properties 1,763 132 2,503 4,398 16,724 1,744,231 1,765,353 — 2,516 Multifamily real estate 4 — — 4 1,994 470,978 472,976 — — Commercial construction — — — — — 72,103 72,103 — — Multifamily construction 771 13 — 784 — 63,062 63,846 — — One-to-four-family construction 2,466 220 — 2,686 905 274,878 278,469 — 1,233 Land and land development: Residential — — 747 747 77 125,949 126,773 — 1,027 Commercial — 96 — 96 4,668 28,415 33,179 — — Commercial business 1,844 174 1,024 3,042 7,302 1,197,600 1,207,944 8 2,159 Agricultural business, including secured by farmland 323 729 278 1,330 1,529 373,672 376,531 — 697 One-to four-family residential 620 873 3,811 5,304 1,066 946,263 952,633 899 4,700 Consumer: Consumer secured by one- to four-family 465 60 38 563 40 477,817 478,420 4 565 Consumer—other 488 155 131 774 34 157,662 158,470 41 138 Total $ 12,725 $ 2,591 $ 9,417 $ 24,733 $ 58,600 $ 7,231,171 $ 7,314,504 $ 952 $ 14,270 The following tables provide additional information on the allowance for loan losses and loan balances individually and collectively evaluated for impairment at or for the three months ended March 31, 2016 and 2015 (in thousands): For the Three Months Ended March 31, 2016 Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total Allowance for loan losses: Beginning balance $ 20,716 $ 4,195 $ 27,131 $ 13,856 $ 3,645 $ 4,732 $ 902 $ 2,831 $ 78,008 Provision for loan losses (842 ) (1,342 ) 1,716 681 1,187 (2,574 ) 2,822 (1,648 ) — Recoveries 38 — 471 720 17 12 207 — 1,465 Charge-offs (180 ) — — (139 ) (567 ) — (390 ) — (1,276 ) Ending balance $ 19,732 $ 2,853 $ 29,318 $ 15,118 $ 4,282 $ 2,170 $ 3,541 $ 1,183 $ 78,197 March 31, 2016 Commercial Real Estate Multifamily Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 578 $ 68 $ 382 $ 60 $ — $ 557 $ 9 $ — $ 1,654 Collectively evaluated for impairment 19,144 2,784 28,881 15,058 4,282 1,613 3,529 1,183 76,474 Purchased credit-impaired loans 10 1 55 — — — 3 — 69 Total allowance for loan losses $ 19,732 $ 2,853 $ 29,318 $ 15,118 $ 4,282 $ 2,170 $ 3,541 $ 1,183 $ 78,197 Loan balances: Individually evaluated for impairment $ 8,432 $ 355 $ 4,183 $ 1,402 $ 563 $ 9,277 $ 402 $ — $ 24,614 Collectively evaluated for impairment 3,086,549 304,982 624,022 1,216,477 338,356 901,156 636,572 — 7,108,114 Purchased credit-impaired loans 38,296 1,682 3,925 7,036 1,431 286 615 — 53,271 Total loans $ 3,133,277 $ 307,019 $ 632,130 $ 1,224,915 $ 340,350 $ 910,719 $ 637,589 $ — $ 7,185,999 For the Three Months Ended March 31, 2015 Commercial Real Estate Multifamily Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total Allowance for loan losses: Beginning balance $ 18,784 $ 4,562 $ 23,545 $ 12,043 $ 2,821 $ 8,447 $ 483 $ 5,222 $ 75,907 Provision for loan losses 305 (161 ) 745 778 1,434 (237 ) 245 (3,109 ) — Recoveries 14 — 108 178 295 6 46 — 647 Charge-offs — — — (107 ) (818 ) (75 ) (189 ) — (1,189 ) Ending balance $ 19,103 $ 4,401 $ 24,398 $ 12,892 $ 3,732 $ 8,141 $ 585 $ 2,113 $ 75,365 March 31, 2015 Commercial Real Estate Multifamily Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 643 $ 84 $ 808 $ 78 $ 3 $ 925 $ 65 $ — $ 2,606 Collectively evaluated for impairment 18,460 4,317 23,590 12,814 3,729 7,216 520 2,113 72,759 Purchased credit-impaired loans — — — — — — — — — Total allowance for loan losses $ 19,103 $ 4,401 $ 24,398 $ 12,892 $ 3,732 $ 8,141 $ 585 $ 2,113 $ 75,365 Loan balances: Individually evaluated for impairment $ 8,958 $ 1,359 $ 11,573 $ 725 $ 289 $ 16,036 $ 1,145 $ — $ 40,085 Collectively evaluated for impairment 1,550,691 207,328 419,390 775,854 208,346 525,876 372,155 — 4,059,640 Purchased credit impaired loans 4,575 — — — — 1,092 7 — 5,674 Total loans $ 1,564,224 $ 208,687 $ 430,963 $ 776,579 $ 208,635 $ 543,004 $ 373,307 $ — $ 4,105,399 |
