Loans and reserve for credit losses

Loans receivable at December 31, 2016 and 2015 consisted of the following (dollars in thousands):



	2016					2015
	Amount			Percent		Amount			Percent
Originated loans (a):
Commercial real estate:
Owner occupied	$	298,721		16.4	%	$	263,095		18.1	%
Non-owner occupied	514,363			28.3	%	431,379			29.7	%
Total commercial real estate loans	813,084			44.7	%	694,474			47.8	%
Construction	200,654			11.0	%	119,723			8.2	%
Residential real estate	377,374			20.7	%	237,084			16.3	%
Commercial and industrial	386,150			21.2	%	363,335			25.0	%
Consumer	42,072			2.4	%	38,362			2.7	%
Total loans	1,819,334			100.0	%	1,452,978			100.0	%

Less:
Deferred loan fees, net	(1,764		)			(1,419		)
Reserve for loan losses	(25,290		)			(24,415		)
Loans, net	$	1,792,280				$	1,427,144

Acquired loans (b):
Commercial real estate:
Owner occupied	$	92,490		32.5	%	$	45,236		19.3	%
Non-owner occupied and other	98,034			34.4	%	95,183			40.5	%
Total commercial real estate loans	190,524			66.9	%	140,419			59.8	%
Construction	10,384			3.6	%	10,629			4.5	%
Residential real estate	54,468			19.1	%	61,306			26.1	%
Commercial and industrial	28,286			9.9	%	21,109			9.0	%
Consumer	1,416			0.5	%	1,488			0.6	%
Total loans	285,078			100.0	%	234,951			100.0	%

Total loans:
Commercial real estate:
Owner occupied	$	391,211		18.6	%	$	308,331		18.3	%
Non-owner occupied and other	612,397			29.1	%	526,562			31.2	%
Total commercial real estate loans	1,003,608			47.7	%	834,893			49.5	%
Construction	211,038			10.0	%	130,352			7.7	%
Residential real estate	431,842			20.5	%	298,390			17.7	%
Commercial and industrial	414,436			19.7	%	384,444			22.8	%
Consumer	43,488			2.1	%	39,850			2.3	%
Total loans	2,104,412			100.0	%	1,687,929			100.0	%

Less:
Deferred loan fees	(1,764		)			(1,419		)
Reserve for loan losses	(25,290		)			(24,415		)
Loans, net	$	2,077,358				$	1,662,095

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

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, net of any premium or discount, 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 consolidated balance sheets. 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 76.4% of the Bank’s originated loan portfolio at December 31, 2016 consisted of real estate-related loans including construction and development loans, residential mortgage loans, and commercial loans secured by commercial real estate. At December 31, 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 and the greater Boise/Treasure Valley, Idaho and Seattle, Washington 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 is targeting to reduce commercial real estate (“CRE”) concentration over the long term, but real estate-related loans will remain a significant portfolio component due to the nature of the economies, businesses, and markets we serve.

The Company originates C&I loans mainly to businesses in its footprint. Repayment of such loans is dependent upon future cash flows of the obligor businesses that are subject to various industry sector risk. In addition, the Company has purchased C&I participations typically referred to as SNCs. The SNC portfolio 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. C&I loans are subject to the variety of credit risks described above but they are not directly secured by real estate.

In the normal course of business, the Bank may buy or participate portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At December 31, 2016 and 2015, the portion of loans participated to third-parties (which are not included in the accompanying consolidated balance sheets) totaled $128.8 million and $44.2 million, respectively. At December 31, 2016 and 2015, purchased loan participations totaled $145.3 million and $179.2 million, respectively.

Acquired loans

PPFS

Acquired loans include those loans purchased by the Company in the PPFS merger. 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 $2.5 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 December 31, 2016, the remaining net fair value adjustment to the PPFS acquired loans was $1.7 million.

Home

Acquired loans also include those loans purchased by the Company in the Home merger. 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 acquired loans 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 December 31, 2016, the remaining net fair value adjustment was $1.6 million.

Of the PPFS and Home loans acquired on the PPFS Acquisition Date and Home Acquisition Date, as applicable, and still held at December 31, 2016, $8.0 million or 2.8% 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 December 31, 2016, $21.6 million, or 7.6%, of the $285.1 million in acquired loans were covered under loss sharing agreements with the FDIC. The agreements 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 in September 2014 and 2015, the Company is no longer indemnified for losses and related expenses on covered assets and the risk-based capital ratios have been reduced. While the agreements were in place, the covered assets received a 20% risk-weighting. After the agreements expired, the risk-weighting for previously covered assets most likely increases to 100%, based on current regulatory capital definitions. Nearly all of the assets remaining in the covered asset portfolios are non-single family covered assets. Therefore, most of the covered assets were no longer indemnified after September 2014 or September 2015. With the amount of 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 which 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 were recorded as part of covered loans in conjunction with the Home merger accounting. Upon the determination of an incurred loss or recovery, the loss share receivable/payable is changed by the amount due to or due from the FDIC.

Changes in the loss share payable (receivable) associated with covered loans for the year ended December 31, 2016 were as follows (dollars in thousands):



	Year ended
	December 31, 2016
Balance at beginning of period	$	289
Paid to FDIC	(1,224		)
Increase due to impairment	(53		)
FDIC reimbursement	1,156
Shared loss expenses	(96		)
Adjustments from prior periods	4
Balance at end of period	$	76

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 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.

The increase in the reserve for loan losses from December 31, 2015 to December 31, 2016 was related to net recoveries during the period. The unallocated reserve for loan losses at December 31, 2016 has decreased by $0.9 million from the balance at December 31, 2015. The Company has determined the level of unallocated reserve is appropriate based upon the lack of seasoning with respect to its methodology enhancements, including qualitative adjustments with respect to concentration risk and estimating reserves against certain loan pools and industries as opposed to reserving on a loan by loan basis for such loans. In addition, the unallocated reflects the lack of seasoning as to credit quality performance of its recently acquired PPFS, Home and SNCs portfolios. 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 $2.5 million for Home and PPFS, respectively, at the time of the applicable acquisition representing a valuation adjustment for interest rate and credit quality. The credit component 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.

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the years ended December 31, 2016, 2015 and 2014 were as follows (dollars in thousands):



	Commercial real estate			Construction		Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
2016
Reserve for loan losses
Balance at beginning of year	$	3,934		$	1,044	$	2,075		$	13,969		$	917		$	2,476		$	24,415
Loan loss provision (credit)	(530		)	784		1,072			(1,708		)	1,270			(888		)	—
Recoveries	2,957			368		288			1,470			920			—			6,003
Loans charged off	(40		)	—		(110		)	(3,074		)	(1,904		)	—			(5,128		)
Balance at end of year	$	6,321		$	2,196	$	3,325		$	10,657		$	1,203		$	1,588		$	25,290

Reserve for unfunded lending commitments
Balance at beginning of year	$	48		$	268	$	25		$	75		$	24		$	—		$	440
Provision (credit) for unfunded loan commitments	—			—		—			—			—			—			—
Balance at end of year	$	48		$	268	$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	6,321		$	2,196	$	3,325		$	10,657		$	1,203		$	1,588		$	25,290
Reserve for unfunded lending commitments	48			268		25			75			24			—			440
Total reserve for credit losses	$	6,369		$	2,464	$	3,350		$	10,732		$	1,227		$	1,588		$	25,730



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
2015
Reserve for loan losses
Balance at beginning of year	$	5,614		$	1,133		$	2,121		$	6,844		$	1,047		$	5,294		$	22,053
Loan loss provision (credit)	(5,552		)	(525		)	(494		)	4,682			707			(2,818		)	(4,000		)
Recoveries	4,150			436			850			3,820			618			—			9,874
Loans charged off	(278		)	—			(402		)	(1,377		)	(1,455		)	—			(3,512		)
Balance at end of year	$	3,934		$	1,044		$	2,075		$	13,969		$	917		$	2,476		$	24,415

Reserve for unfunded lending commitments
Balance at beginning of year	$	48		$	268		$	25		$	75		$	24		$	—		$	440
Provision (credit) for unfunded loan commitments	—			—			—			—			—			—			—
Balance at end of year	$	48		$	268		$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	3,934		$	1,044		$	2,075		$	13,969		$	917		$	2,476		$	24,415
Reserve for unfunded lending commitments	48			268			25			75			24			—			440
Total reserve for credit losses	$	3,982		$	1,312		$	2,100		$	14,044		$	941		$	2,476		$	24,855



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
2014
Reserve for loan losses
Balance at beginning of year	$	9,565		$	535		$	2,381		$	6,261		$	1,401		$	714	$	20,857
Loan loss provision (credit)	(4,484		)	(348		)	(315		)	(12		)	579			4,580		—
Recoveries	1,801			1,242			929			2,158			309			—		6,439
Loans charged off	(1,268		)	(296		)	(874		)	(1,563		)	(1,242		)	—		(5,243		)
Balance at end of year	$	5,614		$	1,133		$	2,121		$	6,844		$	1,047		$	5,294	$	22,053

Reserve for unfunded lending commitments
Balance at beginning of year	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision (credit) for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of year	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	5,614		$	1,133		$	2,121		$	6,844		$	1,047		$	5,294	$	22,053
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	5,662		$	1,401		$	2,146		$	6,919		$	1,071		$	5,294	$	22,493

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 December 31, 2016 and 2015 (dollars in thousands). As the acquired loan portfolio is covered by the valuation adjustment taken at the time of acquisition and as the original mark continues to be more than sufficient, impaired acquired loans are excluded from the individually evaluated for impairment amounts below.



	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
2016
Commercial real estate	$	—	$	6,321	$	6,321	$	640	$	1,002,968	$	1,003,608
Construction	—		2,196		2,196		—		211,038		211,038
Residential real estate	—		3,325		3,325		—		431,842		431,842
Commercial and industrial	2,000		8,657		10,657		7,034		407,402		414,436
Consumer	—		1,203		1,203		—		43,488		43,488
	$	2,000	$	21,702	23,702		$	7,674	$	2,096,738	$	2,104,412
Unallocated					1,588
					$	25,290

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 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.

In addition, 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 year ended December 31, 2016 the Bank reduced loans classified as special mention and substandard in the originated portfolio by $10.2 million, while total loans classified as special mention and substandard decreased $26.5 million. Remediation on the originated portfolio was accomplished through credit upgrades mainly owing to improved obligor cash flows as well as payoffs/paydowns, and/or sales. Work began on the acquired loan portfolio at the PPFS and Home Acquisition Dates.

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



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
2016
Originated loans (a):
Commercial real estate:
Owner occupied	$	282,438	$	9,007	$	1,302	$	5,974	$	298,721
Non-owner occupied	506,946		2,234		4,180		1,003		514,363
Total commercial real estate loans	789,384		11,241		5,482		6,977		813,084
Construction	200,278		—		—		376		200,654
Residential real estate	376,713		—		—		661		377,374
Commercial and industrial	351,914		11,472		5,452		17,312		386,150
Consumer	42,060		—		—		12		42,072
	$	1,760,349	$	22,713	$	10,934	$	25,338	$	1,819,334
Acquired loans (b):
Commercial real estate:
Owner occupied	$	85,868	$	3,222	$	1,663	$	1,737	$	92,490
Non-owner occupied	81,494		3,967		7,962		4,611		98,034
Total commercial real estate loans	167,362		7,189		9,625		6,348		190,524
Construction	10,331		—		—		53		10,384
Residential real estate	51,489		1,988		—		991		54,468
Commercial and industrial	27,636		64		—		586		28,286



Consumer	1,416		—		—		—		1,416
	$	258,234	$	9,241	$	9,625	$	7,978	$	285,078
Total loans:
Commercial real estate:
Owner occupied	$	368,306	$	12,229	$	2,965	$	7,711	$	391,211
Non-owner occupied	588,440		6,201		12,142		5,614		612,397
Total commercial real estate loans	956,746		18,430		15,107		13,325		1,003,608
Construction	210,609		—		—		429		211,038
Residential real estate	428,202		1,988		—		1,652		431,842
Commercial and industrial	379,550		11,536		5,452		17,898		414,436
Consumer	43,476		—		—		12		43,488
	$	2,018,583	$	31,954	$	20,559	$	33,316	$	2,104,412

2015
Originated (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 Home merger and PPFS merger.

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



	30-89 days past due		90 days or more past due		Total past due		Current		Total loans
2016
Originated loans (a):
Commercial real estate:
Owner occupied	$	205	$	490	$	695	$	298,026	$	298,721
Non-owner occupied	100		—		100		514,263		514,363
Total commercial real estate loans	305		490		795		812,289		813,084
Construction	97		376		473		200,181		200,654
Residential real estate	1,488		—		1,488		375,886		377,374
Commercial and industrial	290		338		628		385,522		386,150
Consumer	322		12		334		41,738		42,072
	$	2,502	$	1,216	$	3,718	$	1,815,616	$	1,819,334

Acquired loans (b):
Commercial real estate:
Owner occupied	$	317	$	—	$	317	$	92,173	$	92,490
Non-owner occupied	—		—		—		98,034		98,034
Total commercial real estate loans	317		—		317		190,207		190,524
Construction	—		17		17		10,367		10,384
Residential real estate	2,053		543		2,596		51,872		54,468
Commercial and industrial	257		—		257		28,029		28,286
Consumer	9		—		9		1,407		1,416
	$	2,636	$	560	$	3,196	$	281,882	$	285,078

Total loans:
Commercial real estate:
Owner occupied	$	522	$	490	$	1,012	$	390,199	$	391,211
Non-owner occupied	100		—		100		612,297		612,397
Total commercial real estate loans	622		490		1,112		1,002,496		1,003,608
Construction	97		393		490		210,548		211,038
Residential real estate	3,541		543		4,084		427,758		431,842
Commercial and industrial	547		338		885		413,551		414,436
Consumer	331		12		343		43,145		43,488
	$	5,138	$	1,776	$	6,914	$	2,097,498	$	2,104,412

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 Home merger and PPFS merger.

Loans contractually past due 90 days or more on which the Company continued to accrue interest were $0.02 million and $0.07 million at December 31, 2016 and 2015, respectively.

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



	Impaired loans
	With a related allowance		Without a related allowance		Total recorded balance		Unpaid principal balance		Related allowance
2016
Commercial real estate:
Owner occupied	$	—	$	640	$	640	$	1,077	$	—
Non-owner occupied	—		—		—		—		—
Total commercial real estate loans	—		640		640		1,077		—
Construction	—		—		—		—		—
Residential real estate	—		—		—		—		—
Commercial and industrial	6,701		333		7,034		10,359		2,000
Consumer	—		—		—		—		—
	$	6,701	$	973	$	7,674	$	11,436	$	2,000

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

At December 31, 2016, the total recorded balance of impaired loans in the above table included no TDR loans which were not on non-accrual status and at December 31, 2015, the total recorded balance of impaired loans in the above table included $0.8 million 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 years ended December 31, 2016, 2015 and 2014 (dollars in thousands):



	Year ended
	2016		2015		2014
Commercial real estate:
Owner occupied	$	1,757	$	3,216	$	6,115
Non-owner occupied	1,905		6,384		22,699
Total commercial real estate loans	3,662		9,600		28,814
Construction	—		499		1,157
Residential real estate	—		54		381
Commercial and industrial	7,409		2,793		4,015
Consumer	—		—		—
	$	11,071	$	12,946	$	34,367

Interest income recognized for cash payments received on impaired loans for the years ended December 31, 2016 and 2015 was $1.1 million and $0.6 million, respectively, and for the year ended December 31, 2014 was insignificant.

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



	2016		2015
Commercial real estate:
Owner occupied	$	1,739	$	2,742
Non-owner occupied	2,659		434
Total commercial real estate loans	4,398		3,176
Construction	429		—
Residential real estate	1,598		1,427
Commercial and industrial	7,270		447
Consumer	—		3
Total non-accrual loans	$	13,695	$	5,053

Accruing loans which are contractually past due 90 days or more:
Commercial and industrial	5		56
Consumer	12		12
Total accruing loans which are contractually past due 90 days or more	$	17	$	68

TDRs

The Company allocated no specific reserves to customers whose loan terms have been modified in TDRs as of December 31, 2016 and as of December 31, 2015. TDRs involve the restructuring of 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 prospect 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 at the time of restructuring, it will remain on accrual after the restructuring. After six consecutive payments under the restructured terms, a nonaccrual 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. Consistent with accounting principles, acquired loans previously identified by Home as TDRs were marked to fair value at the Home Acquisition Date and accordingly are not included as TDRs on the Company’s books.

The following table presents, by portfolio segment, information with respect to the Company’s loans that were modified and recorded as TDRs during the years ended December 31, 2016, 2015 and 2014 (dollars in thousands):



	2016			2015			2014
	Number of loans	TDR outstanding recorded investment		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		1	25		—	—
Consumer	—	—		—	—		—	—
	1	$	22	1	$	25	—	$	—

There were no loans modified and recorded as TDRs during the year ended December 31, 2014. There was no change in the pre- and post-TDR outstanding recorded investment for loans restructured during the years ended December 31, 2016, 2015 and 2014.

At December 31, 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 years ended December 31, 2016 and 2015, and by the primary type of concession granted (dollars in thousands). There were no restructured TDRs in 2014.



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

2015	Rate reduction		Term extension		Rate reduction and term extension		Total
Commercial real estate	$	—	$	—	$	—	$	—
Construction	—		—		—		—
Residential real estate	—		—		—		—
Commercial and industrial	—		25		—		25
Consumer	—		—		—		—
	$	—	$	25	$	—	$	25

There were no TDRs which had payment defaults during the year ended December 31, 2016, 2015, and 2014 that had been previously restructured within the last twelve months prior to December 31, 2016 and 2015, and 2014.