Allowance for Loan Losses

6 Months Ended

Jun. 30, 2017

Provision for Loan and Lease Losses [Abstract]

Allowance for Loan Losses

Allowance for Loan Losses

The Company’s ALLL covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of the loan portfolio. The ALLL is prepared in accordance with the historical loss method, using the information provided by the Company’s credit review process together with data from peer institutions and economic information gathered from published sources.

The loan portfolio is segmented into groups of loans with similar risk characteristics. Each segment possesses varying degrees of risk based on, among other things, the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. An estimated loss rate calculated using the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The Company’s base ALLL factors are determined by management using the Bank’s annualized actual trailing charge-off data over a full credit cycle (replacing prior period's interval ranging from 8 to 87 months) with the loss emergence period extending from 1 year to 1.4 years. The aforementioned enhancements did not materially impact the allowance balance at June 30, 2017. Adjustments to those base factors are made for relevant internal and external factors. Those factors may include:

• Changes in national, regional and local economic conditions, including trends in real estate values and the interest rate environment,

• Changes in the nature and volume of the loan portfolio, including new types of lending,

• Changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, and

• The existence and effect of concentrations of credit, and changes in the level of such concentrations.

For loans risk graded as watch or worse, progressively higher potential loss factors are applied based on management’s judgment, taking into consideration the specific characteristics of the Bank’s portfolio and analysis of results from a select group of the Company’s peers.

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio as of and for the three and six months ended for the periods indicated:

	Three Months Ended June 30, 2017
	Commercial and industrial			Franchise		Commercial owner occupied			SBA			Agriculture		Commercial non-owner occupied			Multi-family			One-to-four family		Construction		Farmland		Land		Other loans		Total
	(dollars in thousands)
Balance, March 31, 2017	$	6,949		$	4,474	$	1,232		$	1,145		$	—	$	1,847		$	2,803		$	373	$	4,027	$	—	$	204	$	21	$	23,075
Charge-offs	(110		)	—		—			—			—		—			—			—		—		—		—		—		(110		)
Recoveries	33			—		70			81			—		—			—			1		—		—		—		1		186
Provisions for (reduction in) loan losses	772			893		(630		)	1,293			206		(643		)	(2,192		)	350		1,009		28		755		63		1,904
Balance, June 30, 2017	$	7,644		$	5,367	$	672		$	2,519		$	206	$	1,204		$	611		$	724	$	5,036	$	28	$	959	$	85	$	25,055
	Six Months Ended June 30, 2017
	Commercial and industrial			Franchise		Commercial owner occupied			SBA			Agriculture		Commercial non-owner occupied			Multi-family			One-to-four family		Construction		Farmland		Land		Other loans		Total
	(dollars in thousands)
Balance, December 31, 2016	$	6,362		$	3,845	$	1,193		$	1,039		$	—	$	1,715		$	2,927		$	365	$	3,632	$	—	$	198	$	20	$	21,296
Charge-offs	(862		)	—		—			(8		)	—		—			—			—		—		—		—		—		(870		)
Recoveries	55			—		82			83			—		—			—			2		—		—		—		1		223
Provisions for (reduction in) loan losses	2,089			1,522		(603		)	1,405			206		(511		)	(2,316		)	357		1,404		28		761		64		4,406
Balance, June 30, 2017	$	7,644		$	5,367	$	672		$	2,519		$	206	$	1,204		$	611		$	724	$	5,036	$	28	$	959	$	85	$	25,055
Amount of allowance attributed to:
Specifically evaluated impaired loans	$	—		$	—	$	—		$	—		$	—	$	—		$	—		$	—	$	—	$	—	$	—	$	—	$	—

General portfolio allocation	7,644			5,367			672			2,519			206			1,204			611			724			5,036			28			959			85			25,055
Loans individually evaluated for impairment	—			—			206			73			—			—			—			104			—			—			12			—			395
Specific reserves to total loans individually evaluated for impairment	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Loans collectively evaluated for impairment	$	733,852		$	565,415		$	729,270		$	101,311		$	98,842		$	1,095,184		$	746,547		$	321,944		$	289,600		$	136,587		$	31,787		$	7,309		$	4,857,648
General reserves to total loans collectively evaluated for impairment	1.04		%	0.95		%	0.09		%	2.49		%	0.21		%	0.11		%	0.08		%	0.22		%	1.74		%	0.02		%	3.02		%	1.16		%	0.52		%
Total gross loans held for investment	$	733,852		$	565,415		$	729,476		$	101,384		$	98,842		$	1,095,184		$	746,547		$	322,048		$	289,600		$	136,587		$	31,799		$	7,309		$	4,858,043
Total allowance to gross loans held for investment	1.04		%	0.95		%	0.09		%	2.48		%	0.21		%	0.11		%	0.08		%	0.22		%	1.74		%	0.02		%	3.02		%	1.16		%	0.52		%

	Three Months Ended June 30, 2016
	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Warehouse Facilities			Commercial non-owner occupied		Multi-family			One-to-four family			Construction			Land		Other loans			Total
	(dollars in thousands)
Balance, March 31, 2016	$	3,023		$	3,568		$	1,965		$	1,628		$	7		$	1,897	$	2,932		$	705		$	2,504		$	204	$	22		$	18,455
Charge-offs	(710		)	(169		)	(329		)	(5		)	—			—		—			(7		)	—			—		—			(1,220		)
Recoveries	40			—			—			82			—			—		—			5			—			—		4			131
Provisions for (reduction in) loan losses	2,132			(147		)	505			(146		)	(7		)	207		(598		)	(96		)	(259		)	—		(2		)	1,589
Balance, June 30, 2016	$	4,485		$	3,252		$	2,141		$	1,559		$	—		$	2,104	$	2,334		$	607		$	2,245		$	204	$	24		$	18,955
	Six Months Ended June 30, 2016
	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Warehouse Facilities			Commercial non-owner occupied		Multi-family			One-to-four family			Construction			Land		Other loans			Total
	(dollars in thousands)
Balance, December 31, 2015	$	3,449		$	3,124		$	1,870		$	1,500		$	759		$	2,048	$	1,583		$	698		$	2,030		$	233	$	23		$	17,317
Charge-offs	(710		)	(169		)	(329		)	(5		)	—			—		—			(7		)	—			—		—			(1,220		)

Recoveries	54			—			—			85			—			—			—			6			—			—			4			149
Provisions for (reduction in) loan losses	1,692			297			600			(21		)	(759		)	56			751			(90		)	215			(29		)	(3		)	2,709
Balance, June 30, 2016	$	4,485		$	3,252		$	2,141		$	1,559		$	—		$	2,104		$	2,334		$	607		$	2,245		$	204		$	24		$	18,955
Amount of allowance attributed to:
Specifically evaluated impaired loans	$	—		$	731		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	731
General portfolio allocation	4,485			2,521			2,141			1,559			—			2,104			2,334			607			2,245			204			24			18,224
Loans individually evaluated for impairment	1,051			1,461			486			328			—			—			—			137			—			18			—			3,481
Specific reserves to total loans individually evaluated for impairment	—		%	50.03		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	21.00		%
Loans collectively evaluated for impairment	$	507,090		$	402,394		$	442,574		$	85,748		$	—		$	526,362		$	613,573		$	106,401		$	215,786		$	18,323		$	5,822		$	2,924,073
General reserves to total loans collectively evaluated for impairment	0.88		%	0.63		%	0.48		%	1.82		%	—		%	0.40		%	0.38		%	0.57		%	1.04		%	1.11		%	0.41		%	0.62		%
Total gross loans held for investment	$	508,141		$	403,855		$	443,060		$	86,076		$	—		$	526,362		$	613,573		$	106,538		$	215,786		$	18,341		$	5,822		$	2,927,554
Total allowance to gross loans held for investment	0.88		%	0.81		%	0.48		%	1.81		%	—		%	0.40		%	0.38		%	0.57		%	1.04		%	1.11		%	0.41		%	0.65		%