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 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 an approximate average loss emergence period of1.4 years. Potential adjustments to those base factors are made for relevant internal and external factors. Those factors may include:


•	Changes in lending policies and procedures, including underwriting standards and collection, charge-offs, and recovery practices;


•	Changes in the nature and volume of the loan portfolio , as well as new types of lending;


•	Changes in the experience, ability, and depth of lending management and other relevant staff that may have an impact on our loan portfolio;


•	Changes in the volume and severity of adversely classified or graded loans;


•	Changes in the quality of our loan review system and the management oversight;


•	The existence and effect of any concentrations of credit and changes in the level of such concentrations;


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


•	Changes in the value of the underlying collateral for collateral-dependent loans; and

The effect of external factors, such as competition, legal developments and regulatory requirements on the level of estimated credit losses in our current loan portfolio

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 allowance as well as the activity in the allowance attributed to various segments in the loan portfolio as of and for the periods indicated:



	Commercial and Industrial			Franchise			Commercial Owner Occupied			SBA			Agribusiness			Warehouse Facilities			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	(1,411		)	—			(33		)	(102		)	—			—			—			—			—			—			—			—			(409		)	(1,955		)
Recoveries	698			—			47			169			—			—			—			—			13			—			—			—			8			935
Provisions for (reduction in) loan losses	1,813			703			605			1,331			1,992			—			338			118			(11		)	597			366			(221		)	525			8,156
Balance, December 31, 2018	$	10,821		$	6,500		$	1,386		$	4,288		$	3,283		$	—		$	1,604		$	725		$	805		$	5,166		$	503		$	772		$	219		$	36,072
Amount of allowance attributed to:
Specifically evaluated impaired loans	$	118		$	—		$	—		$	466		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	584
General portfolio allocation	10,703			6,500			1,386			3,822			3,283			—			1,604			725			805			5,166			503			772			219			35,488
Loans individually evaluated for impairment	1,023			189			599			2,739			7,500			—			—			—			408			—			—			—			—			12,458
Specific reserves to total loans individually evaluated for impairment	11.53		%	—		%	—		%	17.01		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	4.69		%
Loans collectively evaluated for impairment	$	1,363,400		$	765,227		$	1,678,523		$	191,143		$	131,019		$	—		$	2,003,174		$	1,535,289		$	355,856		$	523,643		$	150,502		$	46,628		$	89,424		$	8,833,828
General reserves to total loans collectively evaluated for impairment	0.79		%	0.85		%	0.08		%	2.00		%	2.51		%	—		%	0.08		%	0.05		%	0.23		%	0.99		%	0.33		%	1.66		%	0.24		%	0.40		%
Total gross loans	$	1,364,423		$	765,416		$	1,679,122		$	193,882		$	138,519		$	—		$	2,003,174		$	1,535,289		$	356,264		$	523,643		$	150,502		$	46,628		$	89,424		$	8,846,286
Total allowance to gross loans	0.79		%	0.85		%	0.08		%	2.21		%	2.37		%	—		%	0.08		%	0.05		%	0.23		%	0.99		%	0.33		%	1.66		%	0.24		%	0.41		%



	Commercial and Industrial			Franchise			Commercial Owner Occupied			SBA			Agribusiness			Warehouse Facilities			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	(1,344		)	—			—			(8		)	—			—			—			—			(10		)	—			—			—			—			(1,362		)
Recoveries	94			—			105			127			—			—			—			—			35			—			—			—			1			362
Provisions for (reduction in) loan losses	4,609			1,952			(531		)	1,732			1,291			—			(449		)	(2,320		)	413			937			137			795			74			8,640
Balance, December 31, 2017	$	9,721		$	5,797		$	767		$	2,890		$	1,291		$	—		$	1,266		$	607		$	803		$	4,569		$	137		$	993		$	95		$	28,936
Amount of allowance attributed to:
Specifically evaluated impaired loans	$	—		$	—		$	55		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	55
General portfolio allocation	9,721			5,797			712			2,890			1,291			—			1,266			607			803			4,569			137			993			95			28,881
Loans individually evaluated for impairment	1,160			—			97			1,201			—			—			—			—			817			—			—			9			—			3,284
Specific reserves to total loans individually evaluated for impairment	—		%	—		%	56.70		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	1.67		%
Loans collectively evaluated for impairment	$	1,085,499		$	660,414		$	1,289,116		$	184,313		$	116,066		$	—		$	1,243,115		$	794,384		$	270,077		$	282,811		$	145,393		$	31,224		$	92,931		$	6,195,343
General reserves to total loans collectively evaluated for impairment	0.90		%	0.88		%	0.06		%	1.57		%	1.11		%	—		%	0.10		%	0.08		%	0.30		%	1.62		%	0.09		%	3.18		%	0.10		%	0.47		%
Total gross loans	$	1,086,659		$	660,414		$	1,289,213		$	185,514		$	116,066		$	—		$	1,243,115		$	794,384		$	270,894		$	282,811		$	145,393		$	31,233		$	92,931		$	6,198,627
Total allowance to gross loans	0.89		%	0.88		%	0.06		%	1.56		%	1.11		%	—		%	0.10		%	0.08		%	0.30		%	1.62		%	0.09		%	3.18		%	0.10		%	0.47		%



	Commercial and Industrial			Franchise			Commercial Owner Occupied			SBA			Agribusiness			Warehouse Facilities			Commercial Non-owner Occupied			Multi-family			One-to-four Family			Construction			Farmland			Land			Consumer Loans			Total

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	(2,802		)	(980		)	(329		)	(980		)	—			—			—			—			(151		)	—			—			—			—			(5,242		)
Recoveries	177			—			25			193			—			—			21			—			25			—			—			—			4			445
Provisions for (reduction in) loan losses	5,538			1,701			(373		)	326			—			(759		)	(354		)	1,344			(207		)	1,602			—			(35		)	(7		)	8,776
Balance, December 31, 2016	$	6,362		$	3,845		$	1,193		$	1,039		$	—		$	—		$	1,715		$	2,927		$	365		$	3,632		$	—		$	198		$	20		$	21,296
Amount of allowance attributed to:
Specifically evaluated impaired loans	$	250		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	250
General portfolio allocation	6,112			3,845			1,193			1,039			—			—			1,715			2,927			365			3,632			—			198			20			21,046
Loans individually evaluated for impairment	250			—			436			316			—			—			—			—			124			—			—			15			—			1,141
Specific reserves to total loans individually evaluated for impairment	100.00		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	21.91		%
Loans collectively evaluated for impairment	$	562,919		$	459,421		$	454,482		$	88,678		$	—		$	—		$	586,975		$	690,955		$	100,327		$	269,159		$	—		$	19,814		$	4,112		$	3,236,842
General reserves to total loans collectively evaluated for impairment	1.09		%	0.84		%	0.26		%	1.17		%	—		%	—		%	0.29		%	0.42		%	0.36		%	1.35		%	—		%	1.00		%	0.49		%	0.65		%
Total gross loans	$	563,169		$	459,421		$	454,918		$	88,994		$	—		$	—		$	586,975		$	690,955		$	100,451		$	269,159		$	—		$	19,829		$	4,112		$	3,237,983
Total allowance to gross loans	1.13		%	0.84		%	0.26		%	1.17		%	—		%	—		%	0.29		%	0.42		%	0.36		%	1.35		%	—		%	1.00		%	0.49		%	0.66		%