LOANS

The following table presents loans by class as of the dates indicated:



December 31,	2018		2017
Real estate loans:
Commercial	$	3,235.4	$	2,822.9
Construction:
Land acquisition & development	321.6		348.7
Residential	242.8		240.2
Commercial	274.3		119.4
Total construction loans	838.7		708.3
Residential	1,542.0		1,487.4
Agricultural	217.4		158.2
Total real estate loans	5,833.5		5,176.8
Consumer:
Indirect consumer	787.8		784.7
Other consumer	200.6		175.1
Credit card	81.8		74.6
Total consumer loans	1,070.2		1,034.4
Commercial	1,310.3		1,215.4
Agricultural	254.8		136.2
Other, including overdrafts	1.6		4.9
Loans held for investment	8,470.4		7,567.7
Mortgage loans held for sale	33.3		46.6
Total loans	$	8,503.7	$	7,614.3

The Company has lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and internally risk-classified loans.

Real estate loans include construction and permanent financing for both single-family and multi-unit properties, term loans for commercial, agricultural and industrial property and/or buildings and home equity loans and lines of credit secured by real estate. Longer-term residential real estate loans are generally sold in the secondary market. Those residential real estate loans not sold are typically secured by first liens on the financed property and generally mature in less than fifteen years. Home equity loans and lines of credit are typically secured by first or second liens on residential real estate and generally do not exceed a loan to value ratio of 80%. The Company had home equity loans and lines of credit of $409.5 million and $397.0 million as of December 31, 2018 and 2017, respectively, included in residential real estate loans. Commercial and agricultural real estate loans are generally secured by first liens on income-producing real estate and generally mature in less than 5 years.

Construction loans are primarily to commercial builders for residential lot development and the construction of single-family residences and commercial real estate properties. Construction loans are generally underwritten pursuant to pre-approved permanent financing. During the construction phase the borrower pays interest only.

Consumer loans include direct personal loans, credit card loans, lines of credit and indirect dealer loans for the purchase of automobiles, recreational vehicles, boats and other consumer goods. Personal loans and indirect dealer loans are generally secured by automobiles, boats and other types of personal property and are made on an installment basis. Credit cards are offered to individuals in our market areas. Lines of credit are generally floating rate loans that are unsecured or secured by personal property.

Commercial loans include a mix of variable and fixed rate loans made to small and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs and business expansions. Commercial loans generally include lines of credit, business credit cards and loans with maturities of five years or less. The loans are generally made with business operations as the primary source of repayment, but also include collateralization by inventory, accounts receivable, equipment and/or personal guarantees.

Agricultural loans generally consist of short and medium-term loans and lines of credit that are primarily used for crops, livestock, equipment and general operations. Agricultural loans are ordinarily secured by assets such as livestock or equipment and are repaid from the operations of the farm or ranch. Agricultural loans generally have maturities of five years or less, with operating lines for one production season.

Included in the loan table above, are loans acquired in business combinations including certain loans that had evidence of deterioration in credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The following table displays the outstanding unpaid principal balance and accrual status of loans acquired with credit impairment as of December 31, 2018 and 2017.



December 31,	2018		2017
Outstanding principal	$	43.4	$	38.2
Carrying value:
Loans on accrual status	30.2		24.9
Total carrying value	$	30.2	$	24.9

The following table summarizes changes in the accretable yield for loans acquired credit impaired for the years ended December 31, 2018, 2017, and 2016:



Year Ended December 31,	2018			2017			2016
Beginning balance	$	7.3		$	6.8		$	6.7
Acquisitions	3.2			1.9			1.1
Additions	0.6			0.1			—
Accretion income	(3.1		)	(2.9		)	(2.5		)
Reductions due to exit events	(1.1		)	(1.5		)	(1.1		)
Reclassifications from nonaccretable differences	2.0			2.9			2.6
Ending balance	$	8.9		$	7.3		$	6.8

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following tables present the contractual aging of the Company’s recorded investment in past due loans by class as of the period indicated:



							Total Loans
	30 - 59		60 - 89		> 90		30 or More
	Days		Days		Days		Days		Current		Non-accrual		Total
As of December 31, 2018	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Loans
Real estate
Commercial	$	10.4	$	1.0	$	0.8	$	12.2	$	3,214.0	$	9.2	$	3,235.4
Construction:
Land acquisition & development	1.6		0.1		0.2		1.9		316.0		3.7		321.6
Residential	1.0		0.4		—		1.4		240.4		1.0		242.8
Commercial	0.4		—		—		0.4		273.7		0.2		274.3
Total construction loans	3.0		0.5		0.2		3.7		830.1		4.9		838.7
Residential	8.8		1.1		0.2		10.1		1,525.3		6.6		1,542.0
Agricultural	2.2		—		—		2.2		202.6		12.6		217.4
Total real estate loans	24.4		2.6		1.2		28.2		5,772.0		33.3		5,833.5
Consumer:
Indirect consumer	6.8		2.1		0.4		9.3		776.8		1.7		787.8
Other consumer	1.4		0.5		0.1		2.0		198.1		0.5		200.6
Credit card	0.9		0.4		0.8		2.1		79.7		—		81.8
Total consumer loans	9.1		3.0		1.3		13.4		1,054.6		2.2		1,070.2
Commercial	8.3		1.2		1.3		10.8		1,283.7		15.8		1,310.3
Agricultural	2.1		0.3		—		2.4		249.4		3.0		254.8
Other, including overdrafts	—		—		—		—		1.6		—		1.6
Loans held for investment	43.9		7.1		3.8		54.8		8,361.3		54.3		8,470.4
Mortgage loans originated for sale	—		—		—		—		33.3		—		33.3
Total loans	$	43.9	$	7.1	$	3.8	$	54.8	$	8,394.6	$	54.3	$	8,503.7



							Total Loans
	30 - 59		60 - 89		> 90		30 or More
	Days		Days		Days		Days		Current		Non-accrual		Total
As of December 31, 2017	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Loans
Real estate
Commercial	$	2.9	$	0.5	$	0.3	$	3.7	$	2,792.4	$	26.8	$	2,822.9
Construction:
Land acquisition & development	7.3		0.3		0.3		7.9		337.8		3.0		348.7
Residential	2.1		—		—		2.1		236.4		1.7		240.2
Commercial	—		—		—		—		115.6		3.8		119.4
Total construction loans	9.4		0.3		0.3		10.0		689.8		8.5		708.3
Residential	13.3		1.4		0.4		15.1		1,464.1		8.2		1,487.4
Agricultural	0.3		—		0.2		0.5		154.3		3.4		158.2
Total real estate loans	25.9		2.2		1.2		29.3		5,100.6		46.9		5,176.8
Consumer:
Indirect consumer	7.8		2.1		0.4		10.3		772.6		1.8		784.7
Other consumer	1.6		0.5		0.1		2.2		172.6		0.3		175.1
Credit card	0.9		0.6		0.7		2.2		72.4		—		74.6
Total consumer loans	10.3		3.2		1.2		14.7		1,017.6		2.1		1,034.4
Commercial	3.9		1.7		0.7		6.3		1,189.5		19.6		1,215.4
Agricultural	1.8		0.1		—		1.9		133.5		0.8		136.2
Other, including overdrafts	—		—		—		—		4.9		—		4.9
Loans held for investment	41.9		7.2		3.1		52.2		7,446.1		69.4		7,567.7
Mortgage loans originated for sale	—		—		—		—		46.6		—		46.6
Total loans	$	41.9	$	7.2	$	3.1	$	52.2	$	7,492.7	$	69.4	$	7,614.3

Acquired loans that meet the criteria for non-accrual of interest prior to the acquisition were considered performing upon acquisition. If interest on non-accrual loans had been accrued, such income would have approximated $3.0 million, $3.5 million and $3.4 million during the years ended December 31, 2018, 2017, and 2016, respectively.

The Company considers impaired loans to include all originated loans, except consumer loans, that are risk rated as doubtful, or have been placed on non-accrual status or renegotiated in troubled debt restructurings, and all loans acquired with evidence of deterioration in credit quality and for which it was probable, at the acquisition, that the Company would be unable to collect all contractual amounts owed. The following tables present information on the Company’s recorded investment in impaired loans as of dates indicated:



	December 31, 2018
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate:
Commercial	$	22.2	$	8.6	$	7.7	$	16.3	$	0.7
Construction:
Land acquisition & development	10.0		0.4		3.5		3.9		0.2
Residential	1.1		0.6		0.4		1.0		0.1
Commercial	0.7		0.2		—		0.2		—
Total construction loans	11.8		1.2		3.9		5.1		0.3
Residential	8.8		5.7		2.0		7.7		0.3
Agricultural	12.9		12.5		0.2		12.7		—
Total real estate loans	55.7		28.0		13.8		41.8		1.3
Commercial	24.1		5.5		14.4		19.9		5.2
Agricultural	3.2		2.5		0.6		3.1		0.3
Total	$	83.0	$	36.0	$	28.8	$	64.8	$	6.8



	December 31, 2017
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate:
Commercial	$	45.6	$	20.9	$	14.1	$	35.0	$	3.9
Construction:
Land acquisition & development	10.0		3.4		0.5		3.9		—
Residential	1.8		1.7		—		1.7		—
Commercial	4.7		0.4		3.5		3.9		2.2
Total construction loans	16.5		5.5		4.0		9.5		2.2
Residential	11.5		8.2		2.0		10.2		0.1
Agricultural	3.7		3.6		—		3.6		—
Total real estate loans	77.3		38.2		20.1		58.3		6.2
Commercial	29.5		12.4		11.4		23.8		4.4
Agricultural	1.1		0.8		0.3		1.1		0.2
Total	$	107.9	$	51.4	$	31.8	$	83.2	$	10.8



	December 31, 2016
	Unpaid Total Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Real estate:
Commercial	$	57.0	$	24.4	$	21.4	$	45.8	$	2.8
Construction:
Land acquisition & development	12.1		4.3		1.8		6.1		0.8
Residential	1.6		0.2		0.6		0.8		—
Commercial	4.8		3.9		0.7		4.6		0.7
Total construction loans	18.5		8.4		3.1		11.5		1.5
Residential	8.2		4.1		2.5		6.6		0.3
Agricultural	5.1		4.5		0.2		4.7		—
Total real estate loans	88.8		41.4		27.2		68.6		4.6
Commercial	40.3		13.2		19.2		32.4		9.3
Agricultural	3.7		3.3		0.4		3.7		0.1
Total	$	132.8	$	57.9	$	46.8	$	104.7	$	14.0

The following tables present the average recorded investment in and income recognized on impaired loans for the periods indicated:



	Year Ended December 31,
	2018				2017				2016
	Average Recorded Investment		Income Recognized		Average Recorded Investment		Income Recognized		Average Recorded Investment		Income Recognized
Real estate	50.0		0.1		63.5		0.3		69.2		0.3
Commercial	21.9		0.2		28.1		0.2		30.1		0.3
Agricultural	2.1		—		2.4		—		1.8		—
Total	$	74.0	$	0.3	$	94.0	$	0.5	$	101.1	$	0.6

The amount of interest income recognized by the Company within the period that the loans were impaired was primarily related to loans modified in troubled debt restructurings that remained on accrual status. Interest payments received on non-accrual impaired loans are applied to principal. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. If interest on impaired loans had been accrued, interest income on impaired loans during 2018, 2017, and 2016 would have been approximately $3.0 million, $3.5 million and $4.2 million, respectively.

Collateral dependent impaired loans are recorded at the fair value less selling costs of the underlying collateral determined using discounted cash flows, independent appraisals and management estimates based upon current market conditions. For loans measured under the present value of cash flows method, the change in present value attributable to the passage of time, if applicable, is recognized in the provision for loan losses and thus no interest income is recognized.

Modifications of performing loans are made in the ordinary course of business and are completed on a case-by-case basis as negotiated with the borrower. Loan modifications typically include interest rate changes, interest only periods of less than twelve months, short-term payment deferrals and extension of amortization periods to provide payment relief. A loan modification is considered a troubled debt restructuring if the borrower is experiencing financial difficulties and the Company, for economic or legal reasons, grants a concession to the borrower that it would not otherwise consider. Certain troubled debt restructurings are on non-accrual status at the time of restructuring and may be returned to accrual status after considering the borrower’s sustained repayment performance in accordance with the restructuring agreement for a period of at least six months and management is reasonably assured of future performance. If the troubled debt restructuring meets these performance criteria and the interest rate granted at the modification is equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk, then the loan will return to performing status and the accrual of interest will resume, although they continue to be individually evaluated for impairment and disclosed as impaired loans.

The Company had loans renegotiated in troubled debt restructurings of $23.4 million as of December 31, 2018, of which $17.8 million were included in non-accrual loans and $5.6 million were on accrual status. The Company had loans renegotiated in troubled debt restructurings of $44.5 million as of December 31, 2017, of which $31.9 million were included in non-accrual loans and $12.6 million were on accrual status.

The following table presents information on the Company’s troubled debt restructurings that occurred during the periods indicated:



	Number of Notes	Type of Concession								Principal Balance at Restructure Date
Year Ended December 31, 2018	Number of Notes	Interest only period		Extension of terms or maturity		Interest rate adjustment		Other		Principal Balance at Restructure Date
Commercial real estate	3	$	3.6	$	—	$	—	$	—	$	3.6
Agriculture real estate	1	—		—		—		0.2		0.2
Consumer	1	—		—		—		0.3		0.3
Total loans restructured	5	$	3.6	$	—	$	—	$	0.5	$	4.1



	Number of Notes	Type of Concession								Principal Balance at Restructure Date
Year Ended December 31, 2017	Number of Notes	Interest only period		Extension of terms or maturity		Interest rate adjustment		Other		Principal Balance at Restructure Date
Commercial real estate	5	$	1.5	$	0.4	$	—	$	0.9	$	2.8
Agriculture real estate	1	—		0.8		—		—		0.8
Commercial	17	1.2		2.0		—		6.0		9.2
Agriculture	1	—		0.1		—		—		0.1
Total loans restructured	24	$	2.7	$	3.3	$	—	$	6.9	$	12.9



	Number of Notes	Type of Concession								Principal Balance at Restructure Date
Year Ended December 31, 2016	Number of Notes	Interest only period		Extension of terms or maturity		Interest rate adjustment		Other		Principal Balance at Restructure Date
Commercial real estate	18	$	0.4	$	5.5	$	0.2	$	1.8	$	7.9
Commercial construction	1	—		3.7		—		—		3.7
Residential real estate	1	—		0.1		—		—		0.1
Commercial	13	4.4		0.4		—		3.3		8.1
Agriculture	2	—		0.3		—		—		0.3
Total loans restructured	35	$	4.8	$	10.0	$	0.2	$	5.1	$	20.1

Other concessions include payment reductions or deferrals for a specified period of time or the extension of amortization schedules. A specific reserve may have been previously recorded for loans modified in troubled debt restructurings that were on non-accrual status or otherwise deemed impaired before the modification. In periods subsequent to modification, the Company continues to evaluate all loans modified in troubled debt restructurings for possible impairment, which is recognized through the allowance for loan losses. Financial effects of modifications may include principal loan forgiveness or other charge-offs directly related to the restructuring. The Company had no charge-offs directly related to loans modified in troubled debt restructurings taken at the time of restructuring during 2018, 2017, and 2016.

The Company considers a payment default to occur on loans modified in troubled debt restructurings when the loan is 90 days or more past due or was placed on non-accrual status after the modification. The Company’s loans modified in troubled debt restructurings within the previous 12 months for which there was a payment default during the period were not significant as of December 31, 2018 and December 31, 2016. As of December 31, 2017, the Company had one $1.3 million commercial loan modified in troubled debt restructurings within the previous 12 months for which there was a payment default during the period. As of December 31, 2018, 2017, and 2016 all of the loans modified in troubled debt restructurings with payment defaults during the previous twelve months were on non-accrual status.

At December 31, 2018, there were no material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.

As part of the on-going and continuous monitoring of the credit quality of the Company’s loan portfolio, management tracks internally assigned risk classifications of loans. The Company adheres to a Uniform Classification System developed jointly by the various bank regulatory agencies to internally risk rate loans. The Uniform Classification System defines three broad categories of criticized assets, which the Company uses as credit quality indicators:

Other Assets Especially Mentioned — includes loans that exhibit weaknesses in financial condition, loan structure or documentation, which if not promptly corrected, may lead to the development of abnormal risk elements.

Substandard — includes loans that are inadequately protected by the current sound worth and paying capacity of the borrower. Although the primary source of repayment for a Substandard is not currently sufficient, collateral or other sources of repayment are sufficient to satisfy the debt. Continuance of a Substandard loan is not warranted unless positive steps are taken to improve the worthiness of the credit.

Doubtful — includes loans that exhibit pronounced weaknesses to a point where collection or liquidation in full, on the basis of currently existing facts, conditions and values, is highly questionable and improbable. Doubtful loans are required to be placed on non-accrual status and are assigned specific loss exposure.

The following tables present the Company’s recorded investment in criticized loans by class and credit quality indicator based on the most recent analysis performed as of the dates indicated:



As of December 31, 2018	Other Assets Especially Mentioned		Substandard		Doubtful		Total Criticized Loans
Real estate:
Commercial	$	102.5	$	87.4	$	2.9	$	192.8
Construction:
Land acquisition & development	5.0		7.0		3.3		15.3
Residential	2.8		2.0		0.4		5.2
Commercial	1.7		3.9		—		5.6
Total construction loans	9.5		12.9		3.7		26.1
Residential	3.0		10.8		0.7		14.5
Agricultural	9.0		24.0		0.1		33.1
Total real estate loans	124.0		135.1		7.4		266.5
Consumer:
Indirect consumer	0.7		2.1		0.1		2.9
Direct consumer	0.3		0.8		0.1		1.2
Total consumer loans	1.0		2.9		0.2		4.1
Commercial	39.4		45.8		11.8		97.0
Agricultural	14.4		17.8		1.5		33.7
Total	$	178.8	$	201.6	$	20.9	$	401.3



As of December 31, 2017	Other Assets Especially Mentioned		Substandard		Doubtful		Total Criticized Loans
Real estate:
Commercial	$	78.0	$	96.4	$	10.3	$	184.7
Construction:
Land acquisition & development	3.2		16.4		—		19.6
Residential	2.3		1.7		0.5		4.5
Commercial	2.4		3.6		3.5		9.5
Total construction loans	7.9		21.7		4.0		33.6
Residential	3.9		12.5		1.9		18.3
Agricultural	4.3		19.1		—		23.4
Total real estate loans	94.1		149.7		16.2		260.0
Consumer:
Indirect consumer	0.8		2.2		0.3		3.3
Direct consumer	0.4		0.7		0.2		1.3
Total consumer loans	1.2		2.9		0.5		4.6
Commercial	54.7		56.3		11.1		122.1
Agricultural	5.1		8.3		0.4		13.8
Total	$	155.1	$	217.2	$	28.2	$	400.5

The Company maintains a credit review function, which is independent of the credit approval process, to assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all categories of criticized loans.