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 probable incurred losses inherent in the remainder of the loan portfolio. The ALLL is prepared 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 with the loss emergence period extending from 1 year to 1.4 years. 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 migration analysis of risk grading and net charge-offs.

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, 2018
	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Agribusiness			Commercial non-owner occupied			Multi-family			One-to-four family			Construction			Farmland			Land			Consumer loans			Total
	(dollars in thousands)
Balance, March 31, 2018	$	9,492		$	6,095		$	791		$	2,814		$	2,105		$	1,337		$	592		$	745		$	5,075		$	234		$	1,172		$	50		$	30,502
Charge-offs	(246		)	—			—			(27		)	—			—			—			—			—			—			—			—			(273		)
Recoveries	138			—			16			9			—			—			—			1			—			—			—			1			165
Provisions for (reduction in) loan losses	780			86			330			(221		)	589			113			(29		)	(48		)	(266		)	171			(200		)	48			1,353
Balance, June 30, 2018	$	10,164		$	6,181		$	1,137		$	2,575		$	2,694		$	1,450		$	563		$	698		$	4,809		$	405		$	972		$	99		$	31,747

	Six Months Ended June 30, 2018
	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Agribusiness			Commercial non-owner occupied			Multi-family			One-to-four family			Construction			Farmland			Land			Consumer loans			Total
	(dollars in thousands)
Balance, December 31, 2017	$	9,721		$	5,797		$	767		$	2,890		$	1,291		$	1,266		$	607		$	803		$	4,569		$	137		$	993		$	95		$	28,936
Charge-offs	(911		)	—			—			(56		)	—			—			—			—			—			—			—			(52		)	(1,019		)
Recoveries	163			—			24			35			—			—			—			1			—			—			—			1			224
Provisions for (reduction in) loan losses	1,191			384			346			(294		)	1,403			184			(44		)	(106		)	240			268			(21		)	55			3,606
Balance, June 30, 2018	$	10,164		$	6,181		$	1,137		$	2,575		$	2,694		$	1,450		$	563		$	698		$	4,809		$	405		$	972		$	99		$	31,747

Amount of allowance attributed to:
Specifically evaluated impaired loans	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
General portfolio allocation	10,164			6,181			1,137			2,575			2,694			1,450			563			698			4,809			405			972			99			31,747
Loans individually evaluated for impairment	1,062			209			—			1,423			—			1,290			589			1,445			—			—			6			15			6,039
Specific reserves to total loans individually evaluated for impairment	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Loans collectively evaluated for impairment	$	1,101,524		$	708,748		$	1,310,722		$	175,273		$	136,962		$	1,218,457		$	804,905		$	248,050		$	321,423		$	136,548		$	30,240		$	81,958		$	6,274,810
General reserves to total loans collectively evaluated for impairment	0.92		%	0.87		%	0.09		%	1.47		%	1.97		%	0.12		%	0.07		%	0.28		%	1.50		%	0.30		%	3.21		%	0.12		%	0.51		%
Total gross loans held for investment	$	1,102,586		$	708,957		$	1,310,722		$	176,696		$	136,962		$	1,219,747		$	805,494		$	249,495		$	321,423		$	136,548		$	30,246		$	81,973		$	6,280,849
Total allowance to gross loans held for investment	0.92		%	0.87		%	0.09		%	1.46		%	1.97		%	0.12		%	0.07		%	0.28		%	1.50		%	0.30		%	3.21		%	0.12		%	0.51		%



	Three Months Ended June 30, 2017
	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Agribusiness			Commercial non-owner occupied			Multi-family			One-to-four family			Construction			Farmland			Land			Consumer 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			Agribusiness			Commercial non-owner occupied			Multi-family			One-to-four family			Construction			Farmland			Land			Consumer 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		%