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ALLOWANCE FOR LOAN LOSSES | 12 Months Ended
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Dec. 31, 2017
ALLOWANCE FOR LOAN LOSSES |
ALLOWANCE FOR LOAN LOSSES | NOTE 6: ALLOWANCE FOR LOAN LOSSES For purposes of determining the allowance for loan losses, the Company considers the loans in its portfolio by segment, class and risk grade. Management uses judgment to determine the estimation method that fits the credit risk characteristics of each portfolio segment or class. To facilitate the assessment of risk, management reviews reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. The Company utilizes an independent third-party loan review service to review the credit risk assigned to loans on a periodic basis and the results are presented to management for review. The following tables present a detail of the activity in the allowance for loan losses segregated by loan class for the years ended December 31, 2017, 2016 and 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
|  |  |  |  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  |  |  | Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | and |  | Commercial |  | and |  | 1-4 family |  | Multi-family |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | industrial |  | real estate |  | development |  | residential |  | residential |  | Consumer |  | Agriculture |  | Other |  | Total
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 6,409 |  | $ | 10,770 |  | $ | 4,598 |  | $ | 1,286 |  | $ | 916 |  | $ | 353 |  | $ | 79 |  | $ | 595 |  | $ | 25,006
Provision (recapture) for loan loss |  |  | 642 |  |  | (284) |  |  | (1,116) |  |  | 35 |  |  | 503 |  |  | 263 |  |  | (63) |  |  | (318) |  |  | (338)
Charge-offs |  |  | (904) |  |  | (120) |  |  | — |  |  | (8) |  |  | — |  |  | (93) |  |  | — |  |  | — |  |  | (1,125)
Recoveries |  |  | 1,110 |  |  | 9 |  |  | — |  |  | 13 |  |  | — |  |  | 43 |  |  | 52 |  |  | 8 |  |  | 1,235
Net (charge-offs) recoveries |  |  | 206 |  |  | (111) |  |  | — |  |  | 5 |  |  | — |  |  | (50) |  |  | 52 |  |  | 8 |  |  | 110
Ending balance |  | $ | 7,257 |  | $ | 10,375 |  | $ | 3,482 |  | $ | 1,326 |  | $ | 1,419 |  | $ | 566 |  | $ | 68 |  | $ | 285 |  | $ | 24,778
Period-end amount allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Specific reserve |  | $ | 852 |  | $ | 64 |  | $ | — |  | $ | 119 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 1,035
General reserve |  |  | 6,405 |  |  | 10,311 |  |  | 3,482 |  |  | 1,207 |  |  | 1,419 |  |  | 566 |  |  | 68 |  |  | 285 |  |  | 23,743
Total |  | $ | 7,257 |  | $ | 10,375 |  | $ | 3,482 |  | $ | 1,326 |  | $ | 1,419 |  | $ | 566 |  | $ | 68 |  | $ | 285 |  | $ | 24,778
|  |  |  |  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  |  |  |  | Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | and |  | Commercial |  | and |  | 1-4 family |  | Multi-family |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | industrial |  | real estate |  | development |  | residential |  | residential |  | Consumer |  | Agriculture |  | Other |  | Total
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 4,746 |  | $ | 7,058 |  | $ | 4,504 |  | $ | 2,295 |  | $ | 762 |  | $ | 363 |  | $ | 93 |  | $ | 5,494 |  | $ | 25,315
Provision (recapture) for loan loss |  |  | 5,537 |  |  | 4,193 |  |  | 94 |  |  | (1,012) |  |  | 154 |  |  | 222 |  |  | 227 |  |  | (4,840) |  |  | 4,575
Charge-offs |  |  | (4,884) |  |  | (589) |  |  | — |  |  | (3) |  |  | — |  |  | (277) |  |  | (267) |  |  | (59) |  |  | (6,079)
Recoveries |  |  | 1,010 |  |  | 108 |  |  | — |  |  | 6 |  |  | — |  |  | 45 |  |  | 26 |  |  | — |  |  | 1,195
Net (charge-offs) recoveries |  |  | (3,874) |  |  | (481) |  |  | — |  |  | 3 |  |  | — |  |  | (232) |  |  | (241) |  |  | (59) |  |  | (4,884)
Ending balance |  | $ | 6,409 |  | $ | 10,770 |  | $ | 4,598 |  | $ | 1,286 |  | $ | 916 |  | $ | 353 |  | $ | 79 |  | $ | 595 |  | $ | 25,006
Period-end amount allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Specific reserve |  | $ | 462 |  | $ | 206 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 668
General reserve |  |  | 5,947 |  |  | 10,564 |  |  | 4,598 |  |  | 1,286 |  |  | 916 |  |  | 353 |  |  | 79 |  |  | 595 |  |  | 24,338
Total |  | $ | 6,409 |  | $ | 10,770 |  | $ | 4,598 |  | $ | 1,286 |  | $ | 916 |  | $ | 353 |  | $ | 79 |  | $ | 595 |  | $ | 25,006
|  |  |  |  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  |  |  |  | Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | and |  | Commercial |  | and |  | 1-4 family |  | Multi-family |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | industrial |  | real estate |  | development |  | residential |  | residential |  | Consumer |  | Agriculture |  | Other |  | Total
December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 7,160 |  | $ | 6,985 |  | $ | 2,991 |  | $ | 1,843 |  | $ | 500 |  | $ | 423 |  | $ | 118 |  | $ | 4,932 |  | $ | 24,952
Provision (recapture) for loan loss |  |  | 4,272 |  |  | (189) |  |  | 1,513 |  |  | 573 |  |  | 262 |  |  | (18) |  |  | (25) |  |  | 562 |  |  | 6,950
Charge-offs |  |  | (7,210) |  |  | (27) |  |  | — |  |  | (263) |  |  | — |  |  | (102) |  |  | — |  |  | — |  |  | (7,602)
Recoveries |  |  | 524 |  |  | 289 |  |  | — |  |  | 142 |  |  | — |  |  | 60 |  |  | — |  |  | — |  |  | 1,015
Net (charge-offs) recoveries |  |  | (6,686) |  |  | 262 |  |  | — |  |  | (121) |  |  | — |  |  | (42) |  |  | — |  |  | — |  |  | (6,587)
Ending balance |  | $ | 4,746 |  | $ | 7,058 |  | $ | 4,504 |  | $ | 2,295 |  | $ | 762 |  | $ | 363 |  | $ | 93 |  | $ | 5,494 |  | $ | 25,315
Period-end amount allocated to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Specific reserve |  | $ | 357 |  | $ | — |  | $ | 26 |  | $ | — |  | $ | — |  | $ | 6 |  | $ | — |  | $ | — |  | $ | 389
General reserve |  |  | 4,389 |  |  | 7,058 |  |  | 4,478 |  |  | 2,295 |  |  | 762 |  |  | 357 |  |  | 93 |  |  | 5,494 |  |  | 24,926
Total |  | $ | 4,746 |  | $ | 7,058 |  | $ | 4,504 |  | $ | 2,295 |  | $ | 762 |  | $ | 363 |  | $ | 93 |  | $ | 5,494 |  | $ | 25,315
In addition to the amounts indicated in the table above, the Company has an accumulated reserve for loan losses on unfunded commitments of $378,000 and $366,000 recorded in other liabilities as of December 31, 2017 and 2016, respectively. Risk Grading As part of the on‑going monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for loan losses, management assigns and tracks loan grades to be used as credit quality indicators. The following is a general description of the loan grades used as of December 31, 2017 and 2016. Pass—Credits in this category are considered “pass” which indicates prudent underwriting and a normal amount of risk. The range of risk within these credits can vary from little to no risk with cash securing a credit, to a level of risk that requires a strong secondary source of repayment on the debt. Pass credits with a higher level of risk may be to borrowers that are higher leveraged, less well capitalized or in an industry or economic area that is known to carry a higher level of risk, volatility, or susceptibility to weaknesses in the economy. This higher risk grade may be assigned due to out of date credit information, as well as collateral information, which may need to be updated for current market value in order to allow a credit quality analysis of the credit. Special Mention—Credits in this category contain more than the normal amount of risk and are referred to as “special mention” in accordance with regulatory guidelines. These credits possess clearly identifiable temporary weaknesses or trends that, if not corrected or revised, may result in a condition that exposes the Company to higher level of risk of loss. Substandard—Credits in this category are “substandard” in accordance with regulatory guidelines and of unsatisfactory credit quality with well‑defined weaknesses or weaknesses that jeopardize the liquidation of the debt. Credits in this category are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. These credits are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Often, the assets in this category will have a valuation allowance representative of management’s estimated loss that is probable to be incurred. Substandard loans may also be placed on nonaccrual status as deemed appropriate by management. Loans substandard and on nonaccrual status are considered impaired and are evaluated for impairment. Doubtful—Credits in this category are considered “doubtful” in accordance with regulatory guidelines, are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near‑term event which lacks certainty. Generally, these credits will have a valuation allowance based upon management’s best estimate of the losses probable to occur in the liquidation of the debt. Loss—Credits in this category are considered “loss” in accordance with regulatory guidelines and are considered uncollectible and of such little value as to question their continued existence as assets on the Company’s financial statements. Such credits are to be charged off or charged down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. This category does not intend to imply that the debt or some portion of it will never be paid, nor does it in any way imply that the debt will be forgiven. The following tables present loans by risk grades and loan class at December 31, 2017 and 2016. The Company had no loans graded Loss or Doubtful at December 31, 2017 and 2016.
|  |  |  |  | Special |  |  |  |  |  |
(Dollars in thousands) |  | Pass |  | Mention |  | Substandard |  | Total Loans
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 535,589 |  | $ | 8,403 |  | $ | 15,371 |  | $ | 559,363
Real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  | 722,503 |  |  | 2,951 |  |  | 12,839 |  |  | 738,293
Construction and development |  |  | 448,124 |  |  | 565 |  |  | 522 |  |  | 449,211
1-4 family residential |  |  | 252,317 |  |  | — |  |  | 6,267 |  |  | 258,584
Multi-family residential |  |  | 212,899 |  |  | 7,406 |  |  | — |  |  | 220,305
Consumer |  |  | 40,144 |  |  | 246 |  |  | 43 |  |  | 40,433
Agriculture |  |  | 11,223 |  |  | — |  |  | 33 |  |  | 11,256
Other |  |  | 33,109 |  |  | — |  |  | 7,235 |  |  | 40,344
Total loans |  | $ | 2,255,908 |  | $ | 19,571 |  | $ | 42,310 |  | $ | 2,317,789
|  |  |  |  | Special |  |  |  |  |  |
(Dollars in thousands) |  | Pass |  | Mention |  | Substandard |  | Total Loans
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 483,399 |  | $ | 2,207 |  | $ | 25,948 |  | $ | 511,554
Real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  | 674,445 |  |  | 7,731 |  |  | 15,618 |  |  | 697,794
Construction and development |  |  | 485,823 |  |  | 933 |  |  | 4,870 |  |  | 491,626
1-4 family residential |  |  | 234,473 |  |  | 797 |  |  | 1,612 |  |  | 236,882
Multi-family residential |  |  | 125,553 |  |  | 7,650 |  |  | 7 |  |  | 133,210
Consumer |  |  | 39,684 |  |  | 10 |  |  | — |  |  | 39,694
Agriculture |  |  | 11,033 |  |  | — |  |  | 73 |  |  | 11,106
Other |  |  | 29,335 |  |  | — |  |  | 8,845 |  |  | 38,180
Total loans |  | $ | 2,083,745 |  | $ | 19,328 |  | $ | 56,973 |  | $ | 2,160,046
Loan Impairment Assessment The Company’s recorded investment in impaired loans, as of December 31, 2017 and 2016, by loan class and disaggregated on the basis of the Company’s impairment methodology is as follows:
|  | Unpaid |  | Recorded |  |  |  |  |  |  |  |  |  |  | Average
|  | contractual |  | investment |  | Recorded |  | Total |  |  |  |  | recorded
|  | principal |  | with no |  | investment |  | recorded |  | Related |  | investment
(Dollars in thousands) |  | balance |  | allowance |  | with allowance |  | investment |  | allowance |  | year-to-date
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 11,921 |  | $ | 6,100 |  | $ | 1,192 |  | $ | 7,292 |  | $ | 852 |  | $ | 12,090
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  | 9,646 |  |  | 8,626 |  |  | 667 |  |  | 9,293 |  |  | 64 |  |  | 9,438
Construction and development |  |  | 296 |  |  | 251 |  |  | — |  |  | 251 |  |  | — |  |  | 323
1-4 family residential |  |  | 5,003 |  |  | 3,050 |  |  | 1,874 |  |  | 4,924 |  |  | 119 |  |  | 3,369
Multi-family residential |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2
Consumer |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 21
Agriculture |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1
Other |  |  | 7,152 |  |  | 7,152 |  |  | — |  |  | 7,152 |  |  | — |  |  | 7,616
Total loans |  | $ | 34,018 |  | $ | 25,179 |  | $ | 3,733 |  | $ | 28,912 |  | $ | 1,035 |  | $ | 32,860
|  | Unpaid |  | Recorded |  |  |  |  |  |  |  |  |  |  | Average
|  | contractual |  | investment |  | Recorded |  | Total |  |  |  |  | recorded
|  | principal |  | with no |  | investment |  | recorded |  | Related |  | investment
(Dollars in thousands) |  | balance |  | allowance |  | with allowance |  | investment |  | allowance |  | year-to-date
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 16,483 |  | $ | 8,088 |  | $ | 4,227 |  | $ | 12,315 |  | $ | 462 |  | $ | 15,550
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  | 6,454 |  |  | 4,398 |  |  | 1,866 |  |  | 6,264 |  |  | 206 |  |  | 5,903
Construction and development |  |  | 506 |  |  | 476 |  |  | — |  |  | 476 |  |  | — |  |  | 754
1-4 family residential |  |  | 1,781 |  |  | 1,712 |  |  | — |  |  | 1,712 |  |  | — |  |  | 1,403
Multi-family residential |  |  | 13 |  |  | 7 |  |  | — |  |  | 7 |  |  | — |  |  | 10
Consumer |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8
Agriculture |  |  | 307 |  |  | 36 |  |  | — |  |  | 36 |  |  | — |  |  | 34
Other |  |  | 8,849 |  |  | 8,845 |  |  | — |  |  | 8,845 |  |  | — |  |  | 5,540
Total loans |  | $ | 34,393 |  | $ | 23,562 |  | $ | 6,093 |  | $ | 29,655 |  | $ | 668 |  | $ | 29,202
Interest income earned on impaired loans was $1.1 million, $648,000 and $201,000 for the years ended December 31, 2017, 2016 and 2015, respectively. The Company’s recorded investment in loans as of December 31, 2017 and 2016 by loan class and the basis of the Company’s impairment methodology is as follows:
|  |  |  |  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial |  |  |  |  | Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | and |  | Commercial |  | and |  | 1-4 family |  | Multi-family |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | industrial |  | real estate |  | development |  | residential |  | residential |  | Consumer |  | Agriculture |  | Other |  | Total
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 7,292 |  | $ | 9,293 |  | $ | 251 |  | $ | 4,924 |  | $ | — |  | $ | — |  | $ | — |  | $ | 7,152 |  | $ | 28,912
Loans collectively evaluated for impairment |  |  | 552,071 |  |  | 729,000 |  |  | 448,960 |  |  | 253,660 |  |  | 220,305 |  |  | 40,433 |  |  | 11,256 |  |  | 33,192 |  |  | 2,288,877
Total |  | $ | 559,363 |  | $ | 738,293 |  | $ | 449,211 |  | $ | 258,584 |  | $ | 220,305 |  | $ | 40,433 |  | $ | 11,256 |  | $ | 40,344 |  | $ | 2,317,789
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  | $ | 12,315 |  | $ | 6,264 |  | $ | 476 |  | $ | 1,712 |  | $ | 7 |  | $ | — |  | $ | 36 |  | $ | 8,845 |  | $ | 29,655
Loans collectively evaluated for impairment |  |  | 499,239 |  |  | 691,530 |  |  | 491,150 |  |  | 235,170 |  |  | 133,203 |  |  | 39,694 |  |  | 11,070 |  |  | 29,335 |  |  | 2,130,391
Total |  | $ | 511,554 |  | $ | 697,794 |  | $ | 491,626 |  | $ | 236,882 |  | $ | 133,210 |  | $ | 39,694 |  | $ | 11,106 |  | $ | 38,180 |  | $ | 2,160,046
An impairment analysis is performed for all loans graded substandard and placed on nonaccrual status. If management determines a loan is impaired, the loan is written down to its estimated realizable value through a charge to the allowance for loan losses. At December 31, 2017 and 2016, the allowance allocated to specific reserves for loans individually evaluated for impairment was $1.0 million and $668,000, respectively.

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- Definition The entire disclosure for claims held for amounts due a company, excluding disclosure for allowance for credit losses. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Also excludes disclosure for financing receivables. + References No definition available. + Details
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