LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES | LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES Loans receivable at March 31, 2018 and December 31, 2017 are summarized as follows (dollars in thousands): March 31, 2018 December 31, 2017 Amount Percent of Total Amount Percent of Total Commercial real estate: Owner-occupied $ 1,278,814 16.9 % $ 1,284,363 16.9 % Investment properties 1,876,937 24.8 1,937,423 25.5 Multifamily real estate 321,039 4.2 314,188 4.1 Commercial construction 163,314 2.2 148,435 2.0 Multifamily construction 159,108 2.1 154,662 2.0 One- to four-family construction 434,204 5.7 415,327 5.5 Land and land development: Residential 167,783 2.2 164,516 2.2 Commercial 24,331 0.3 24,583 0.3 Commercial business 1,296,691 17.2 1,279,894 16.8 Agricultural business, including secured by farmland 307,243 4.2 338,388 4.4 One- to four-family residential 833,598 11.0 848,289 11.2 Consumer: Consumer secured by one- to four-family 522,826 6.9 522,931 6.9 Consumer—other 170,158 2.3 165,885 2.2 Total loans 7,556,046 100.0 % 7,598,884 100.0 % Less allowance for loan losses (92,207 ) (89,028 ) Net loans $ 7,463,839 $ 7,509,856 Loan amounts are net of unearned loan fees in excess of unamortized costs of $731,000 as of March 31, 2018 and were net of unamortized costs of $158,000 as of December 31, 2017 . Net loans include net discounts on acquired loans of $19.4 million and $21.1 million as of March 31, 2018 and December 31, 2017 , 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 (PCI) 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 PCI loans, excluding acquisition accounting adjustments, was $29.8 million at March 31, 2018 and $32.5 million at December 31, 2017 . The carrying balance of PCI loans was $19.3 million at March 31, 2018 and $21.3 million at December 31, 2017 . The following table presents the changes in the accretable yield for PCI loans for the three months ended March 31, 2018 and 2017 (in thousands): Three Months Ended 2018 2017 Balance, beginning of period $ 6,520 $ 8,717 Accretion to interest income (1,097 ) (1,320 ) Disposals 58 — Reclassifications from non-accretable difference 807 1,273 Balance, end of period $ 6,288 $ 8,670 As of March 31, 2018 and December 31, 2017 , the non-accretable difference between the contractually required payments and cash flows expected to be collected were $9.9 million and $11.3 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 restructurings (TDRs) that are performing under their restructured terms, and loans that are 90 days or more past due, but are still on accrual. PCI 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 PCI loans, with and without allowance reserves at March 31, 2018 and December 31, 2017 . 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, 2018 Unpaid Principal Balance Recorded Investment Related Allowance Without Allowance (1) With Allowance (2) Commercial real estate: Owner-occupied $ 3,872 $ 3,444 $ 199 $ 20 Investment properties 9,346 3,433 5,699 264 One- to four-family construction 186 186 — — Land and land development: Residential 1,134 798 — — Commercial business 4,008 3,038 534 39 Agricultural business/farmland 9,598 6,440 3,031 201 One- to four-family residential 8,579 3,136 5,362 182 Consumer: Consumer secured by one- to four-family 1,346 1,168 138 7 Consumer—other 180 76 71 4 $ 38,249 $ 21,719 $ 15,034 $ 717 December 31, 2017 Unpaid Principal Balance Recorded Investment Related Allowance Without Allowance (1) With Allowance (2) Commercial real estate: Owner-occupied $ 7,807 $ 6,447 $ 199 $ 18 Investment properties 11,296 4,200 6,884 263 One- to four-family construction 298 298 — — Land and land development: Residential 1,134 798 — — Commercial business 4,441 3,424 555 50 Agricultural business/farmland 9,388 6,230 3,031 264 One- to four-family residential 9,547 3,709 5,775 178 Consumer: Consumer secured by one- to four-family 1,498 1,324 139 7 Consumer—other 134 58 73 2 $ 45,543 $ 26,488 $ 16,656 $ 782 (1) Includes loans without an allowance reserve that have been individually evaluated for impairment and that evaluation concluded that no reserve was needed, and $10.6 million of homogenous and small balance loans as of both March 31, 2018 and December 31, 2017 , that are collectively evaluated for impairment for which a general reserve has been established. (2) 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, 2018 and 2017 (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 $ 5,383 $ 3 $ 2,916 $ 2 Investment properties 9,972 83 8,893 49 Multifamily real estate — — 495 4 One- to four-family construction 605 4 1,180 20 Land and land development: Residential 798 — 1,899 17 Commercial — — 977 — Commercial business 4,007 7 4,504 7 Agricultural business/farmland 9,109 33 6,282 32 One- to four-family residential 8,892 101 10,404 83 Consumer: Consumer secured by one- to four-family 1,390 2 1,742 3 Consumer—other 149 1 268 3 $ 40,305 $ 234 $ 39,560 $ 220 Troubled Debt Restructurings. 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 table presents TDRs by accrual and nonaccrual status at March 31, 2018 and December 31, 2017 (in thousands): March 31, 2018 December 31, 2017 Accrual Status Nonaccrual Status Total TDRs Accrual Nonaccrual Total Commercial real estate: Owner-occupied $ 199 $ 85 $ 284 $ 199 $ 87 $ 286 Investment properties 5,699 — 5,699 6,884 — 6,884 Commercial business 534 — 534 555 — 555 Agricultural business, including secured by farmland 2,531 29 2,560 3,129 29 3,158 One- to four-family residential 5,092 457 5,549 5,136 801 5,937 Consumer: Consumer secured by one- to four-family 138 — 138 139 — 139 Consumer—other 71 — 71 73 — 73 $ 14,264 $ 571 $ 14,835 $ 16,115 $ 917 $ 17,032 As of both March 31, 2018 and December 31, 2017 , the Company had commitments to advance additional funds related to TDRs up to $45,000 . No new TDRs occurred during the three months ended March 31, 2018 or 2017 . There were no TDRs which incurred a payment default within twelve months of the restructure date during the three -month periods ended March 31, 2018 and 2017 . 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, 2018 . 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 tables present the Company’s portfolio of risk-rated loans and non-risk-rated loans by grade or other characteristics as of March 31, 2018 and December 31, 2017 (in thousands): March 31, 2018 By class: Pass (Risk Ratings 1-5) (1) Special Mention Substandard Doubtful Loss Total Loans Commercial real estate: Owner-occupied $ 1,244,007 $ 13,686 $ 21,121 $ — $ — $ 1,278,814 Investment properties 1,866,062 — 10,875 — — 1,876,937 Multifamily real estate 320,533 — 506 — — 321,039 Commercial construction 163,314 — — — — 163,314 Multifamily construction 159,108 — — — — 159,108 One- to four-family construction 429,172 — 5,032 — — 434,204 Land and land development: Residential 156,144 10,321 1,318 — — 167,783 Commercial 21,507 — 2,824 — — 24,331 Commercial business 1,228,831 16,599 51,152 109 — 1,296,691 Agricultural business, including secured by farmland 286,925 6,203 14,115 — — 307,243 One- to four-family residential 827,788 553 5,257 — — 833,598 Consumer: Consumer secured by one- to four-family 520,263 — 2,563 — — 522,826 Consumer—other 169,889 11 258 — — 170,158 Total $ 7,393,543 $ 47,373 $ 115,021 $ 109 $ — $ 7,556,046 December 31, 2017 By class: Pass (Risk Ratings 1-5) (1) Special Mention Substandard Doubtful Loss Total Loans Commercial real estate: Owner-occupied $ 1,246,125 $ 12,227 $ 26,011 $ — $ — $ 1,284,363 Investment properties 1,918,940 9,118 9,365 — — 1,937,423 Multifamily real estate 313,432 — 756 — — 314,188 Commercial construction 148,435 — — — — 148,435 Multifamily construction 154,662 — — — — 154,662 One- to four-family construction 411,802 — 3,525 — — 415,327 Land and land development: Residential 153,073 10,554 889 — — 164,516 Commercial 21,665 — 2,918 — — 24,583 Commercial business 1,213,365 12,135 54,282 112 — 1,279,894 Agricultural business, including secured by farmland 321,110 3,852 13,426 — — 338,388 One- to four-family residential 842,304 569 5,416 — — 848,289 Consumer: Consumer secured by one- to four-family 520,675 — 2,256 — — 522,931 Consumer—other 165,594 13 278 — — 165,885 Total $ 7,431,182 $ 48,468 $ 119,122 $ 112 $ — $ 7,598,884 (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, 2018 and December 31, 2017 , in the commercial business category, $535.0 million and $296.8 million , respectively, of credit-scored small business loans. As loans in these pools become non-performing, they are individually risk-rated. The following tables provide additional detail on the age analysis of the Company’s past due loans as of March 31, 2018 and December 31, 2017 (in thousands): March 31, 2018 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 $ 189 $ 169 $ 3,079 $ 3,437 $ 6,372 $ 1,269,005 $ 1,278,814 $ — $ 3,444 Investment properties 1,402 — 1,109 2,511 7,072 1,867,354 1,876,937 — 3,433 Multifamily real estate — — — — 167 320,872 321,039 — — Commercial construction — — — — — 163,314 163,314 — — Multifamily construction — — — — — 159,108 159,108 — — One-to-four-family construction 4,323 320 186 4,829 440 428,935 434,204 — 186 Land and land development: Residential — 784 798 1,582 — 166,201 167,783 — 798 Commercial — — — — 2,824 21,507 24,331 — — Commercial business 1,744 702 2,137 4,583 1,829 1,290,279 1,296,691 1 3,037 Agricultural business, including secured by farmland 1,580 — 6,507 8,087 415 298,741 307,243 820 6,120 One- to four-family residential 4,467 476 2,501 7,444 129 826,025 833,598 591 2,815 Consumer: Consumer secured by one- to four-family 1,412 82 584 2,078 — 520,748 522,826 — 1,168 Consumer—other 847 148 35 1,030 68 169,060 170,158 7 69 Total $ 15,964 $ 2,681 $ 16,936 $ 35,581 $ 19,316 $ 7,501,149 $ 7,556,046 $ 1,419 $ 21,070 December 31, 2017 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 $ 5,323 $ 76 $ 5,490 $ 10,889 $ 7,682 $ 1,265,792 $ 1,284,363 $ — $ 6,447 Investment properties 1,737 — 4,096 5,833 7,166 1,924,424 1,937,423 — 4,199 Multifamily real estate 105 — — 105 169 313,914 314,188 — — Commercial construction — — — — — 148,435 148,435 — — Multifamily construction 3,416 — — 3,416 — 151,246 154,662 — — One-to-four-family construction 4,892 725 298 5,915 446 408,966 415,327 298 — Land and land development: Residential — — 798 798 — 163,718 164,516 — 798 Commercial — — — — 2,919 21,664 24,583 — — Commercial business 1,574 404 2,577 4,555 2,159 1,273,180 1,279,894 18 3,406 Agricultural business, including secured by farmland 598 533 2,017 3,148 565 334,675 338,388 — 6,132 One-to four-family residential 4,475 1,241 2,715 8,431 136 839,722 848,289 1,085 3,264 Consumer: Consumer secured by one- to four-family 1,355 62 713 2,130 — 520,801 522,931 85 1,239 Consumer—other 609 136 15 760 68 165,057 165,885 — 58 Total $ 24,084 $ 3,177 $ 18,719 $ 45,980 $ 21,310 $ 7,531,594 $ 7,598,884 $ 1,486 $ 25,543 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, 2018 and 2017 (in thousands): For the Three Months Ended March 31, 2018 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 $ 22,824 $ 1,633 $ 27,568 $ 18,311 $ 4,053 $ 2,055 $ 3,866 $ 8,718 $ 89,028 Provision for loan losses (715 ) 959 1,024 1,923 (1,047 ) 1,450 1,913 (3,507 ) 2,000 Recoveries 1,352 — 174 170 — 290 112 — 2,098 Charge-offs — — — (519 ) (7 ) (16 ) (377 ) — (919 ) Ending balance $ 23,461 $ 2,592 $ 28,766 $ 19,885 $ 2,999 $ 3,779 $ 5,514 $ 5,211 $ 92,207 March 31, 2018 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 $ 284 $ — $ — $ 39 $ 201 $ 182 $ 11 $ — $ 717 Collectively evaluated for impairment 23,177 2,592 28,766 19,799 2,707 3,597 5,503 5,211 91,352 Purchased credit-impaired loans — — — 47 91 — — — 138 Total allowance for loan losses $ 23,461 $ 2,592 $ 28,766 $ 19,885 $ 2,999 $ 3,779 $ 5,514 $ 5,211 $ 92,207 Loan balances: Individually evaluated for impairment $ 11,607 $ — $ 750 $ 534 $ 7,943 $ 5,092 $ 208 $ — $ 26,134 Collectively evaluated for impairment 3,130,700 320,872 944,726 1,294,328 298,885 828,377 692,708 — 7,510,596 Purchased credit-impaired loans 13,444 167 3,264 1,829 415 129 68 — 19,316 Total loans $ 3,155,751 $ 321,039 $ 948,740 $ 1,296,691 $ 307,243 $ 833,598 $ 692,984 $ — $ 7,556,046 For the Three Months Ended March 31, 2017 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 $ 20,993 $ 1,360 $ 34,252 $ 16,533 $ 2,967 $ 2,238 $ 4,104 $ 3,550 $ 85,997 Provision for loan losses (591 ) 18 (4,871 ) 4,688 324 (409 ) 5 2,836 2,000 Recoveries 70 — 83 173 113 145 94 — 678 Charge-offs — — — (1,626 ) (159 ) — (363 ) — (2,148 ) Ending balance $ 20,472 $ 1,378 $ 29,464 $ 19,768 $ 3,245 $ 1,974 $ 3,840 $ 6,386 $ 86,527 March 31, 2017 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 $ 419 $ 62 $ 323 $ 62 $ 238 $ 229 $ 11 $ — $ 1,344 Collectively evaluated for impairment 20,053 1,316 29,122 19,706 3,007 1,745 3,829 6,386 85,164 Purchased credit-impaired loans — — 19 — — — — — 19 Total allowance for loan losses $ 20,472 $ 1,378 $ 29,464 $ 19,768 $ 3,245 $ 1,974 $ 3,840 $ 6,386 $ 86,527 Loan balances: Individually evaluated for impairment $ 9,506 $ 347 $ 4,006 $ 2,710 $ 3,815 $ 6,653 $ 220 $ — $ 27,257 Collectively evaluated for impairment 3,341,177 253,725 795,887 1,218,415 308,834 796,026 649,433 — 7,363,497 Purchased credit impaired loans 22,030 174 3,777 3,416 725 312 67 — 30,501 Total loans $ 3,372,713 $ 254,246 $ 803,670 $ 1,224,541 $ 313,374 $ 802,991 $ 649,720 $ — $ 7,421,255 |