Loans and reserve for credit losses

The composition of the loan portfolio at September 30, 2016 and December 31, 2015 was as follows (dollars in thousands):



	September 30, 2016					December 31, 2015
	Amount			Percent		Amount			Percent
Originated loans (a):
Commercial real estate:
Owner occupied	$	280,901		15.8	%	$	263,095		18.1	%
Non-owner occupied	486,689			27.6	%	431,379			29.7	%
Total commercial real estate loans	767,590			43.4	%	694,474			47.8	%
Construction	168,558			9.6	%	119,723			8.2	%
Residential real estate	406,374			23.1	%	237,084			16.3	%
Commercial and industrial	378,700			21.5	%	363,335			25.0	%
Consumer	41,502			2.4	%	38,362			2.7	%
Total loans	1,762,724			100.0	%	1,452,978			100.0	%

Less:
Deferred loan fees	(1,917		)			(1,419		)
Reserve for loan losses	(25,238		)			(24,415		)
Loans, net	$	1,735,569				$	1,427,144

Acquired loans (b):
Commercial real estate:
Owner occupied	$	95,102		31.8	%	$	45,236		19.3	%
Non-owner occupied	102,088			34.2	%	95,183			40.5	%
Total commercial real estate loans	197,190			66.0	%	140,419			59.8	%
Construction	14,423			4.8	%	10,629			4.5	%
Residential real estate	59,092			19.8	%	61,306			26.1	%
Commercial and industrial	26,569			8.9	%	21,109			9.0	%
Consumer	1,510			0.5	%	1,488			0.6	%
Total loans	$	298,784		100.0	%	$	234,951		100.0	%

Total loans:
Commercial real estate:
Owner occupied	$	376,003		18.1	%	$	308,331		18.3	%
Non-owner occupied	588,777			28.6	%	526,562			31.2	%



Total commercial real estate loans	964,780			46.7	%	834,893			49.5	%
Construction	182,981			8.9	%	130,352			7.7	%
Residential real estate	465,466			22.6	%	298,390			17.7	%
Commercial and industrial	405,269			19.7	%	384,444			22.8	%
Consumer	43,012			2.1	%	39,850			2.3	%
Total loans	2,061,508			100.0	%	1,687,929			100.0	%

Less:
Deferred loan fees	(1,917		)			(1,419		)
Reserve for loan losses	(25,238		)			(24,415		)
Loans, net	$	2,034,353				$	1,662,095

(a) Loans organically made through the Company’s normal and customary origination process, including adjustable rate mortgage (“ARM”) purchases.
(b) Loans acquired in the acquisition of Home and PPFS.

The following describes the distinction between originated and acquired loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the reserve for loan losses and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans. Interest is not accrued on loans where collectability is uncertain. Accrued interest on loans is presented in “Other assets” on the condensed consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan as an adjustment to the related loan yield.

Approximately 76.1% of the Bank’s originated loan portfolio at September 30, 2016 consisted of real estate-related loans, including construction and development loans, residential mortgage loans, and commercial loans secured by commercial real estate. At September 30, 2016, approximately 78.2% of the Bank’s total portfolio (inclusive of acquired loans) consisted of real estate-related loans as described above. The Bank’s results of operations and financial condition are affected by general economic trends and in particular, the strength of the local residential and commercial real estate markets in Central, Southern and Northwest Oregon, as well as the greater Boise/Treasure Valley, Idaho and Seattle, Washington metro areas. Real estate values could be affected by, among other things, a worsening of national and local economic conditions, an increase in foreclosures, a decline in home sale volumes, and an increase in interest rates. Furthermore, the Bank may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to the Bank in the event of a sustained downturn in business and economic conditions generally or specifically in the principal markets in which the Bank does business. An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of non-performing assets, net charge-offs, and loan loss provision. Management expects to diversify its commercial real estate (“CRE”) concentration over time, but real estate-related loans will remain a significant portfolio component due to the nature of the economies, businesses, and markets the Bank serves.

In the normal course of business, the Bank may participate portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At September 30, 2016 and December 31, 2015, the portion of loans participated to third parties (which are not included in the accompanying condensed consolidated financial statements) totaled $50.7 million and $44.2 million, respectively.

Acquired loans

PPFS

Acquired loans include those loans purchased by the Company in its acquisition of PPFS, which was completed on August 1, 2016. These loans were recorded at estimated fair value at the PPFS Acquisition Date. The fair value estimates for acquired loans are based on expected prepayments, charge-offs and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the PPFS acquired loans at acquisition was a reduction of $2.3 million, representing a valuation adjustment for interest rate and credit which will be accreted over the life of the loans (approximately 10 years). As of September 30, 2016, the remaining net fair value adjustment to the PPFS acquired loans was $2.3 million.

Home

Acquired loans also include those loans purchased by the Company in its acquisition of Home Federal Bancorp, Inc. (“Home”), which was completed on May 16, 2014 (the “Home Acquisition Date”). These loans were recorded at estimated fair value at the Home Acquisition Date. The fair value estimates for acquired loans are based on expected prepayments, charge-offs and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the Home acquired loans at acquisition was a reduction of $6.0 million, representing a valuation adjustment for interest rate and credit which will be accreted over the life of the loans (approximately 10 years). As of September 30, 2016, the remaining net fair value adjustment was $1.9 million.

Of the PPFS and Home loans acquired on the PPFS Acquisition Date and Home Acquisition Date, as applicable, and still held at September 30, 2016, $9.8 million, or 3.3%, were graded substandard. With the amount of classified loans acquired being nominal, all loans acquired are treated in a manner consistent with originated loans for credit risk management and accounting purposes.

As of September 30, 2016, $22.3 million, or 7.5% of the $298.8 million in acquired loans were covered under loss sharing agreements with the FDIC (“covered loans”) that were entered into in September 2009 and September 2010 between the FDIC and Home. The loss sharing agreements have limited terms (10 years for net losses on single-family residential real estate loans, as defined by the FDIC, five years for losses on non-residential real estate loans, as defined by the FDIC, and an additional three years with respect to recoveries on non-residential real estate loans). After the expiration of the loss sharing agreements, the Company will not be indemnified for losses and related expenses on covered loans. When the loss sharing agreements expire, the Company’s and the Bank’s risk-based capital ratios will be reduced. While the agreements are in place, the covered loans receive a 20% risk-weighting. When the agreements expire, the risk-weighting for previously covered loans will most likely increase to 100%, based on current regulatory capital definitions. Nearly all of the assets remaining in the covered loans portfolio are non-single family covered loans. Therefore, most of the covered loans were no longer indemnified after September 30, 2014 or were no longer indemnified after September 30, 2015. With the amount of classified loans covered under these agreements being nominal, amounts that may be due to or due from the FDIC under loss sharing agreements will be accounted for on a cash basis.

A net loss share payable was recorded at the Home Acquisition Date that represents the estimated value of reimbursement the Company expects to pay to the FDIC for recoveries net of incurred losses on covered loans. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. Upon the determination of an incurred loss or recovery, the loss share receivable/payable will be changed by the amount due to or due from the FDIC.

Changes in the loss share payable associated with covered loans for the three and nine months ended September 30, 2016 were as follows (dollars in thousands):



	Three months ended			Nine months ended
	September 30, 2016
Balance at beginning of period	$	201		$	289
Paid to FDIC	(201		)	(857		)
Increase due to impairment	—			(53		)
FDIC reimbursement	396			1,077
Shared loss expenses	(28		)	(92		)
Adjustments from prior periods	—			4
Balance at end of period	$	368		$	368

Reserve for loan losses

The reserve for loan losses represents management’s estimate of known and inherent losses in the loan portfolio as of the condensed consolidated balance sheet date and is recorded as a reduction to loans. The reserve for loan losses is increased by charges to operating expense through the loan loss provision, and decreased by loans charged-off, net of recoveries. The reserve for loan losses requires complex subjective judgments as a result of the need to make estimates about matters that are uncertain. The reserve for loan losses is maintained at a level currently considered adequate to provide for potential loan losses based on management’s assessment of various factors affecting the loan portfolio.

However, the reserve for loan losses is based on estimates and actual losses may vary from the current estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Therefore, management cannot provide assurance that, in any particular period, the Company will not have significant losses in relation to the amount reserved. The level of the reserve for loan losses is also determined after consideration of bank regulatory guidance and recommendations and is subject to review by such regulatory authorities who may require increases or decreases to the reserve based on their evaluation of the information available to them at the time of their examinations of the Bank.

For purposes of assessing the appropriate level of the reserve for loan losses, the Company analyzes loans and commitments to loan, and the amount of reserves allocated to loans and commitments to loan in each of the following reserve categories: pooled reserves, specifically identified reserves for impaired loans, and the unallocated reserve. Also, for purposes of analyzing loan portfolio credit quality and determining the appropriate level of reserve for loan losses, the Company identifies loan portfolio segments and classes based on the nature of the underlying loan collateral.

Risk ratings for individual shared national credits (“SNC”) are estimated using analysis of both public debt ratings and internal ratings. Expected loss rates are determined based upon historical published specific loss data for similar loans based on average losses and losses stratified by public debt ratings. Public ratings combined with internal risk rates are used to determine a minimum historical loss factor for each SNC loan. This amount may be increased for qualitative conditions including macroeconomic environment and observations by the Company’s SNC management group. The SNC lending strategy is intended to diversify the Company’s credit risk profile geographically and by industry. Additionally, such loans enhance the Company’s interest rate risk profile as they float with LIBOR rates.

The increase in the reserve for loan losses from December 31, 2015 to September 30, 2016 was related to net recoveries and loan portfolio growth during the period. Management believes the amount of ALLL is appropriate as of September 30, 2016. The unallocated reserve for loan losses at September 30, 2016 has decreased $0.6 million from the balance at December 31, 2015. Management believes that the amount of unallocated reserve for loan losses is appropriate and will continue to evaluate the amount going forward.

Acquired reserve for loan losses

The fair value estimates for acquired loans are based on expected prepayments, charge-offs, and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the acquired loans was $6.0 million and $2.3 million for Home and PPFS, respectively, at the time of acquisition representing a valuation adjustment for interest rate and credit quality. The credit portion of the fair value adjustment not accreted at any point in time represents the estimated reserve for loan losses for acquired loans. If the Company determines that this amount is insufficient, a provision to the reserve for loan losses will be made. As of September 30, 2016, the remaining net fair value adjustment was $1.9 million and $2.3 million for Home and PPFS, respectively, and no additional reserve for acquired loans was required.

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the three and nine months ended September 30, 2016 and 2015 were as follows (dollars in thousands):



	Commercial real estate		Construction		Residential real estate		Commercial and industrial			Consumer			Unallocated			Total
For the three months ended September 30, 2016
Allowance for Loan Losses
Balance at June 30, 2016	$	4,391	$	1,259	$	2,674	$	11,982		$	978		$	3,382		$	24,666
Loan loss provision (credit)	1,554		271		1,044		(1,766		)	441			(1,544		)	—
Recoveries	74		327		45		428			208			—			1,082
Loans charged off	—		—		—		(95		)	(415		)	—			(510		)
Balance at end of period	$	6,019	$	1,857	$	3,763	$	10,549		$	1,212		$	1,838		$	25,238

Reserve for unfunded lending commitments
Balance at June 30, 2016	$	48	$	268	$	25	$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—		—		—		—			—			—			—
Balance at end of period	$	48	$	268	$	25	$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	6,019	$	1,857	$	3,763	$	10,549		$	1,212		$	1,838		$	25,238
Reserve for unfunded lending commitments	48		268		25		75			24			—			440
Total reserve for credit losses	$	6,067	$	2,125	$	3,788	$	10,624		$	1,236		$	1,838		$	25,678



	Commercial real estate			Construction		Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
For the nine months ended September 30, 2016
Allowance for Loan Losses
Balance at December 31, 2015	$	3,934		$	1,044	$	2,075		$	13,969		$	917		$	2,476		$	24,415
Loan loss provision (credit)	(667		)	407		1,530			(1,554		)	922			(638		)	—
Recoveries	2,792			406		222			1,190			715			—			5,325
Loans charged off	(40		)	—		(64		)	(3,056		)	(1,342		)	—			(4,502		)
Balance at end of period	$	6,019		$	1,857	$	3,763		$	10,549		$	1,212		$	1,838		$	25,238

Reserve for unfunded lending commitments
Balance at December 31, 2015	$	48		$	268	$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—		—			—			—			—			—
Balance at end of period	$	48		$	268	$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	6,019		$	1,857	$	3,763		$	10,549		$	1,212		$	1,838		$	25,238
Reserve for unfunded lending commitments	48			268		25			75			24			—			440
Total reserve for credit losses	$	6,067		$	2,125	$	3,788		$	10,624		$	1,236		$	1,838		$	25,678



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
For the three months ended September 30, 2015
Allowance for Loan Losses
Balance at June 30, 2015	$	5,032		$	1,356		$	2,463		$	11,355		$	1,001		$	2,294	$	23,501
Loan loss provision (credit)	(490		)	(293		)	(162		)	(2,245		)	99			3,091		—
Recoveries	408			155			162			2,885			179			—		3,789
Loans charged off	—			—			(50		)	(293		)	(324		)	—		(667		)
Balance at end of period	$	4,950		$	1,218		$	2,413		$	11,702		$	955		$	5,385	$	26,623

Reserve for unfunded lending commitments
Balance at June 30, 2015	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	4,950		$	1,218		$	2,413		$	11,702		$	955		$	5,385	$	26,623
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	4,998		$	1,486		$	2,438		$	11,777		$	979		$	5,385	$	27,063



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
For the nine months ended September 30, 2015
Allowance for Loan Losses
Balance at December 31, 2014	$	5,614		$	1,133		$	2,121		$	6,844		$	1,047		$	5,294	$	22,053
Loan loss provision (credit)	(4,397		)	(193		)	(60		)	2,024			535			91		(2,000		)
Recoveries	4,011			278			746			3,440			457			—		8,932
Loans charged off	(278		)	—			(394		)	(606		)	(1,084		)	—		(2,362		)
Balance at end of period	$	4,950		$	1,218		$	2,413		$	11,702		$	955		$	5,385	$	26,623

Reserve for unfunded lending commitments
Balance at December 31, 2014	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	4,950		$	1,218		$	2,413		$	11,702		$	955		$	5,385	$	26,623
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	4,998		$	1,486		$	2,438		$	11,777		$	979		$	5,385	$	27,063

An individual loan is impaired when, based on current information and events, management believes that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table presents the reserve for loan losses and the recorded investment in loans by portfolio segment and impairment evaluation method at September 30, 2016 and December 31, 2015 (dollars in thousands):



	Reserve for loan losses						Recorded investment in loans
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
September 30, 2016
Commercial real estate	$	74	$	5,945	$	6,019	$	4,329	$	960,451	$	964,780
Construction	—		1,857		1,857		—		182,981		182,981
Residential real estate	—		3,763		3,763		—		465,466		465,466
Commercial and industrial	25		10,524		10,549		7,471		397,798		405,269
Consumer	—		1,212		1,212		—		43,012		43,012
	$	99	$	23,301	23,400		$	11,800	$	2,049,708	$	2,061,508
Unallocated					1,838
					$	25,238

December 31, 2015
Commercial real estate	$	78	$	3,856	$	3,934	$	3,835	$	831,058	$	834,893
Construction	—		1,044		1,044		365		129,987		130,352
Residential real estate	—		2,075		2,075		18		298,372		298,390
Commercial and industrial	164		13,805		13,969		2,724		381,720		384,444
Consumer	—		917		917		—		39,850		39,850
	$	242	$	21,697	21,939		$	6,942	$	1,680,987	$	1,687,929
Unallocated					2,476
					$	24,415

The above reserve for loan losses includes an unallocated allowance of $1.8 million at September 30, 2016 and $2.5 million at December 31, 2015. The change in the unallocated allowance is due to the increase in qualitative factors impacting the reserve, partially offset by net recoveries.

The Company uses credit risk ratings, which reflect the Bank’s assessment of a loan’s risk or loss potential, for purposes of assessing the appropriate level of reserve for loan losses. The Bank’s credit risk rating definitions along with applicable borrower characteristics for each credit risk rating are as follows:

Acceptable

The borrower is a reasonable credit risk and demonstrates the ability to repay the loan from normal business operations. Loans are generally made to companies operating in an economy and/or industry that is generally sound. The borrower tends to operate in regional or local markets and has achieved sufficient revenues for the business to be financially viable. The borrowers financial performance has been consistent in normal economic times and has been average or better than average for its industry.

A loan can also be considered Acceptable even though the borrower may have some vulnerability to downturns in the economy due to marginally satisfactory working capital and debt service cushion. Availability of alternate financing sources may be limited or nonexistent. In some cases, the borrower’s management may have limited depth or continuity but is still considered capable. An adequate primary source of repayment is identified while secondary sources may be illiquid, more speculative, less readily identified, or reliant upon collateral liquidation. Loan agreements will be well defined, including several financial performance covenants and detailed operating covenants. This category also includes commercial loans to individuals with average or better than average capacity to repay.

Pass-Watch

Loans are graded Pass-Watch when temporary situations increase the level of the Bank’s risk associated with the loan, and remain graded Pass-Watch until the situation has been corrected. These situations may involve one or more weaknesses in cash flow, collateral value or indebtedness that could, if not corrected within a reasonable period of time, jeopardize the full repayment of the debt. In general, loans in this category remain adequately protected by the borrower’s net worth and paying capacity, or pledged collateral.

Special Mention

A Special Mention credit has potential weaknesses that may, if not checked or corrected, weaken the loan or leave the Bank inadequately protected at some future date. Loans in this category are deemed by management of the Bank to be currently protected but reflect potential problems that warrant more than the usual management attention but do not justify a Substandard classification.

Substandard

Substandard loans are those inadequately protected by the net worth and paying capacity of the obligor and/or by the value of the pledged collateral, if any. Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision and borrowers are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants.

CRE and construction loans are classified Substandard when well-defined weaknesses are present which jeopardize the orderly liquidation of the loan. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, and/or the project’s failure to fulfill economic expectations. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Substandard loans also include impaired loans. Impaired loans bear the characteristics of Substandard loans as described above, and the Company has determined it does not expect timely payment of all contractually due interest and principal. Impaired loans may be adequately secured by collateral.

During the nine months ended September 30, 2016, the Bank saw relatively steady credit quality metrics. An improvement in Special Mention loans was partially offset by an increase in the Substandard portfolio. Increases in the Substandard loan balances were largely due to certain energy/mining sector SNCs included in commercial and industrial (“C&I”) loans. Aggregate portfolio exposure to the energy/mining sector is less than 1% of total loans outstanding.

The following table presents, by portfolio class, the recorded investment in loans by internally assigned grades at September 30, 2016 and December 31, 2015 (dollars in thousands):



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
September 30, 2016
Originated loans (a):
Commercial real estate:
Owner occupied	$	266,610	$	6,811	$	1,091	$	6,389	$	280,901
Non-owner occupied	479,207		1,589		4,520		1,373		486,689
Total commercial real estate loans	745,817		8,400		5,611		7,762		767,590
Construction	168,558		—		—		—		168,558
Residential real estate	405,923		—		—		451		406,374
Commercial and industrial	340,082		10,274		5,173		23,171		378,700
Consumer	41,476		—		—		26		41,502
	$	1,701,856	$	18,674	$	10,784	$	31,410	$	1,762,724

Acquired loans (b):
Commercial real estate:
Owner occupied	$	89,484	$	2,441	$	1,563	$	1,614	$	95,102
Non-owner occupied	82,873		3,851		8,995		6,369		102,088
Total commercial real estate loans	172,357		6,292		10,558		7,983		197,190
Construction	14,363		—		—		60		14,423
Residential real estate	56,461		1,550		—		1,081		59,092
Commercial and industrial	24,750		557		588		674		26,569
Consumer	1,510		—		—		—		1,510
	$	269,441	$	8,399	$	11,146	$	9,798	$	298,784

Total loans:
Commercial real estate:
Owner occupied	$	356,094	$	9,252	$	2,654	$	8,003	$	376,003
Non-owner occupied	562,080		5,440		13,515		7,742		588,777
Total commercial real estate loans	918,174		14,692		16,169		15,745		964,780
Construction	182,921		—		—		60		182,981
Residential real estate	462,384		1,550		—		1,532		465,466
Commercial and industrial	364,832		10,831		5,761		23,845		405,269
Consumer	42,986		—		—		26		43,012
	$	1,971,297	$	27,073	$	21,930	$	41,208	$	2,061,508

(a) Loans organically made through the Company’s normal and customary origination process, including ARM purchases.
(b) Loans acquired in the acquisition of Home and PPFS.



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
December 31, 2015
Originated loans (a):
Commercial real estate:
Owner occupied	$	243,113	$	8,623	$	1,426	$	9,933	$	263,095
Non-owner occupied	411,137		9,825		4,522		5,895		431,379
Total commercial real estate loans	654,250		18,448		5,948		15,828		694,474
Construction	118,752		—		971		—		119,723
Residential real estate	236,574		—		—		510		237,084
Commercial and industrial	328,934		11,220		13,729		9,452		363,335
Consumer	38,350		—		—		12		38,362
	$	1,376,860	$	29,668	$	20,648	$	25,802	$	1,452,978

Acquired loans (b):
Commercial real estate:
Owner occupied	$	34,081	$	3,480	$	7,341	$	334	$	45,236
Non-owner occupied	71,334		2,751		9,386		11,712		95,183
Total commercial real estate loans	105,415		6,231		16,727		12,046		140,419
Construction	10,597		—		—		32		10,629
Residential real estate	60,151		—		—		1,155		61,306
Commercial and industrial	17,034		153		3,461		461		21,109
Consumer	1,485		—		—		3		1,488
	$	194,682	$	6,384	$	20,188	$	13,697	$	234,951

Total loans:
Commercial real estate:
Owner occupied	$	277,194	$	12,103	$	8,767	$	10,267	$	308,331
Non-owner occupied	482,471		12,576		13,908		17,607		526,562
Total commercial real estate loans	759,665		24,679		22,675		27,874		834,893
Construction	129,349		—		971		32		130,352
Residential real estate	296,725		—		—		1,665		298,390
Commercial and industrial	345,968		11,373		17,190		9,913		384,444
Consumer	39,835		—		—		15		39,850
	$	1,571,542	$	36,052	$	40,836	$	39,499	$	1,687,929

(a) Loans organically made through the Company’s normal and customary origination process, including ARM purchases.
(b) Loans acquired in the acquisition of Home and PPFS.

The following table presents, by portfolio class, an age analysis of past due loans, including loans placed on non-accrual at September 30, 2016 and December 31, 2015 (dollars in thousands):

30-89 days

past due

90 days

or more

past due

Total

past due

Current

Total

loans



September 30, 2016
Originated loans (a):
Commercial real estate:
Owner occupied	$	207	$	490	$	697	$	280,204	$	280,901
Non-owner occupied	—		—		—		486,689		486,689
Total commercial real estate loans	207		490		697		766,893		767,590
Construction	—		—		—		168,558		168,558
Residential real estate	2,625		—		2,625		403,749		406,374
Commercial and industrial	156		171		327		378,373		378,700
Consumer	203		26		229		41,273		41,502
	$	3,191	$	687	$	3,878	$	1,758,846	$	1,762,724

Acquired loans (b):
Commercial real estate:
Owner occupied	$	11	$	—	$	11	$	95,091	$	95,102
Non-owner occupied	—		—		—		102,088		102,088
Total commercial real estate loans	11		—		11		197,179		197,190
Construction	—		21		21		14,402		14,423
Residential real estate	1,172		586		1,758		57,334		59,092
Commercial and industrial	225		8		233		26,336		26,569
Consumer	28		—		28		1,482		1,510
	$	1,436	$	615	$	2,051	$	296,733	$	298,784

Total loans:
Commercial real estate:
Owner occupied	$	218	$	490	$	708	$	375,295	$	376,003
Non-owner occupied	—		—		—		588,777		588,777
Total commercial real estate loans	218		490		708		964,072		964,780
Construction	—		21		21		182,960		182,981
Residential real estate	3,797		586		4,383		461,083		465,466
Commercial and industrial	381		179		560		404,709		405,269
Consumer	231		26		257		42,755		43,012
	$	4,627	$	1,302	$	5,929	$	2,055,579	$	2,061,508

December 31, 2015
Originated loans (a):
Commercial real estate:
Owner occupied	$	1,020	$	719	$	1,739	$	261,356	$	263,095
Non-owner occupied	593		—		593		430,786		431,379
Total commercial real estate loans	1,613		719		2,332		692,142		694,474
Construction	—		—		—		119,723		119,723
Residential real estate	196		—		196		236,888		237,084
Commercial and industrial	346		239		585		362,750		363,335
Consumer	209		12		221		38,141		38,362
	$	2,364	$	970	$	3,334	$	1,449,644	$	1,452,978

Acquired loans (b):
Commercial real estate:



Owner occupied	$	—	$	—	$	—	$	45,236	$	45,236
Non-owner occupied	2,049		—		2,049		93,134		95,183
Total commercial real estate loans	2,049		—		2,049		138,370		140,419
Construction	46		—		46		10,583		10,629
Residential real estate	748		534		1,282		60,024		61,306
Commercial and industrial	6		5		11		21,098		21,109
Consumer	53		—		53		1,435		1,488
	$	2,902	$	539	$	3,441	$	231,510	$	234,951

Total loans:
Commercial real estate:
Owner occupied	$	1,020	$	719	$	1,739	$	306,592	$	308,331
Non-owner occupied	2,642		—		2,642		523,920		526,562
Total commercial real estate loans	3,662		719		4,381		830,512		834,893
Construction	46		—		46		130,306		130,352
Residential real estate	944		534		1,478		296,912		298,390
Commercial and industrial	352		244		596		383,848		384,444
Consumer	262		12		274		39,576		39,850
	$	5,266	$	1,509	$	6,775	$	1,681,154	$	1,687,929

(a) Loans organically made through the Company’s normal and customary origination process, including ARM purchases.
(b) Loans acquired in the acquisition of Home and PPFS.

Loans contractually past due 90 days or more on which the Company continued to accrue interest were $0.06 million and $0.07 million at September 30, 2016 and December 31, 2015, respectively.

The following table presents information related to impaired loans, by portfolio class, at September 30, 2016 and December 31, 2015 (dollars in thousands):



	Impaired loans
	With a related allowance		Without a related allowance		Total recorded balance		Unpaid principal balance		Related allowance
September 30, 2016
Commercial real estate:
Owner occupied	$	815	$	1,004	$	1,819	$	2,437	$	54
Non-owner occupied	632		1,878		2,510		2,511		20
Total commercial real estate loans	1,447		2,882		4,329		4,948		74
Construction	—		—		—		—		—
Residential real estate	—		—		—		—		—
Commercial and industrial	76		7,395		7,471		11,119		25
Consumer	—		—		—		—		—
	$	1,523	$	10,277	$	11,800	$	16,067	$	99

December 31, 2015
Commercial real estate:
Owner occupied	$	1,032	$	2,157	$	3,189	$	4,285	$	73
Non-owner occupied	646		—		646		646		5
Total commercial real estate loans	1,678		2,157		3,835		4,931		78
Construction	—		365		365		365		—
Residential real estate	—		18		18		18		—
Commercial and industrial	2,539		185		2,724		3,366		164
Consumer	—		—		—		—		—
	$	4,217	$	2,725	$	6,942	$	8,680	$	242

The increase in impaired C&I loans relates to energy/mining SNCs. Aggregate portfolio exposure to the energy/mining sector is less than 1% of total loans outstanding. At September 30, 2016 and December 31, 2015, the total recorded balance of impaired loans in the above table included $0.6 million and $0.8 million, respectively, of troubled debt restructuring (“TDR”) loans which were not on non-accrual status.

The following table presents, by portfolio class, the average recorded investment in impaired loans for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Commercial real estate:
Owner occupied	$	1,912	$	3,063	$	2,129	$	3,225
Non-owner occupied	2,525		1,072		2,540		8,297
Total commercial real estate loans	4,437		4,135		4,669		11,522
Construction	—		443		—		543
Residential real estate	—		28		—		66
Commercial and industrial	7,462		2,712		7,534		2,815
Consumer	—		—		—		—
	$	11,899	$	7,318	$	12,203	$	14,946

Interest income recognized for cash payments received on impaired loans for the three and nine months ended September 30, 2016 was $0.5 million and $1.1 million, respectively.

Information with respect to the Company’s non-performing loans, by portfolio class, at September 30, 2016 and December 31, 2015 is as follows (dollars in thousands):



	September 30, 2016		December 31, 2015
Commercial real estate:
Owner occupied	$	1,353	$	2,742
Non-owner occupied	2,711		434
Total commercial real estate loans	4,064		3,176
Construction	39		—
Residential real estate	1,443		1,427
Commercial and industrial	6,937		447
Consumer	—		3
Total non-accrual loans	$	12,483	$	5,053

Accruing loans which are contractually past due 90 days or more:
Construction	21		—
Commercial and industrial	12		56
Consumer	26		12
Total accruing loans which are contractually past due 90 days or more	$	59	$	68

TDRs

The Company allocated no specific reserves to customers whose loan terms had been modified in TDRs as of September 30, 2016 and December 31, 2015. TDRs involve the restructuring of loan terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow. As indicated above, TDRs may also include loans to borrowers experiencing financial distress that renewed at existing contractual rates, but below market rates for comparable credit quality. The Company has been actively utilizing these programs and working with its customers to improve obligor cash flow and related prospects for repayment. Concessions may include, but are not limited to, interest rate reductions, principal forgiveness, deferral of interest payments, extension of the maturity date, and other actions intended to minimize potential losses to the Company. For each commercial loan restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the new structure can be successful and whether cash flows will be sufficient to support the restructured debt. Generally, if the loan is on accrual status at the time of restructuring, it will remain on accrual status after the restructuring. After six consecutive payments under the restructured terms, a non-accrual restructured loan is reviewed for possible upgrade to accrual status.

Typically, once a loan is identified as a TDR it will retain that designation until it is paid off, because restructured loans generally are not at market rates following restructuring. Under certain circumstances, a TDR may be removed from TDR status if it is determined to no longer be impaired and the loan is at a competitive interest rate. Under such circumstances, allowance allocations for loans removed from TDR status would be based on the historical allocation for the applicable loan grade and loan class.

There were no loans modified and recorded as TDRs during the three months ended September 30, 2016 and 2015.

The following table presents, by portfolio segment, the information with respect to the Company’s loans that were modified and recorded as TDRs during the nine months ended September 30, 2016 and 2015 (dollars in thousands).



	Nine months ended September 30,
	2016			2015
	Number of loans	TDR outstanding recorded investment		Number of loans	TDR outstanding recorded investment
Commercial real estate	—	$	—	—	$	—
Construction	—	—		—	—
Residential real estate	—	—		—	—
Commercial and industrial	1	22		—	—
Consumer	—	—		—	—
	1	$	22	—	$	—

At both September 30, 2016 and 2015, the Company had no remaining commitments to lend on loans accounted for as TDRs.

The following table presents, by portfolio segment, the post modification recorded investment for TDRs restructured during the nine months ended September 30, 2016.



Nine months ended September 30, 2016	Rate reduction		Term extension		Rate reduction and term extension		Total
Commercial real estate	$	—	$	—	$	—	$	—
Construction	—		—		—		—
Residential real estate	—		—		—		—
Commercial and industrial	—		22		—		22
Consumer	—		—		—		—
	$	—	$	22	$	—	$	22

There were no TDRs that had payment defaults during the nine months ended September 30, 2016 or 2015 that had been previously restructured within the twelve months prior to September 30, 2016 or 2015.