Loans and Leases Held for Investment and Allowance for Loan and Lease Losses | Note 5. Loans and Leases Held for Investment and Allowance for Loan and Lease Losses Loan and Lease Portfolio Segments The following describes the risk characteristics relevant to each of the portfolio segments. Each loan and lease category is assigned a risk grade during the origination and closing process based on criteria described later in this section. Commercial and Industrial Commercial and industrial loans (C&I) receive similar underwriting treatment as commercial real estate loans in that the repayment source is analyzed to determine its ability to meet cash flow coverage requirements as set forth by Bank policies. Repayment of the Bank’s C&I loans generally comes from the generation of cash flow as the result of the borrower’s business operations. This business cycle itself brings a certain level of risk to the portfolio. In some instances, these loans may carry a higher degree of risk due to a variety of reasons – illiquid collateral, specialized equipment, highly depreciable assets, uncollectable accounts receivable, revolving balances, or simply being unsecured. As a result of these characteristics, the SBA guarantee on these loans is an important factor in mitigating risk. Construction and Development Construction and development loans are for the purpose of acquisition and development of land to be improved through the construction of commercial buildings. Such loans are usually paid off through the conversion to permanent financing for the long-term benefit of the borrower’s ongoing operations. At the completion of the project, if the loan is converted to permanent financing or if scheduled loan amortization begins, it is then reclassified to the “Commercial Real Estate” segment. Underwriting of construction and development loans typically includes analysis of not only the borrower’s financial condition and ability to meet the required debt obligations, but also the general market conditions associated with the area and type of project being funded. Commercial Real Estate Commercial real estate loans are extensions of credit secured by owner occupied and non-owner occupied collateral. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies. Such repayment of commercial real estate loans is commonly derived from the successful ongoing operations of the business occupying the property. These typically include small businesses and professional practices. Commercial Land Commercial land loans are extensions of credit secured by farmland. Such loans are often for land improvements related to agricultural endeavors that may include construction of new specialized facilities. These loans are usually repaid through the conversion to permanent financing, or if scheduled loans amortization begins, for the long-term benefit of the borrower’s ongoing operations. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Bank policies. Each of the loan types referenced in the sections above is further segmented into verticals in which the Bank chooses to operate. The Bank chooses to finance businesses operating in specific industries because of certain similarities. The similarities range from historical default and loss characteristics to business operations. However, there are differences that create the necessity to underwrite these loans according to varying criteria and guidelines. When underwriting a loan, the Bank considers numerous factors such as cash flow coverage, the credit scores of the guarantors, revenue growth, practice ownership experience and debt service capacity. Minimum guidelines have been set with regard to these various factors and deviations from those guidelines require compensating strengths when considering a proposed loan. Loans and leases consist of the following: June 30, 2019 December 31, 2018 Commercial & Industrial Agriculture $ 6,305 $ 6,400 Funeral Home & Cemetery 22,709 17,378 Healthcare 46,344 51,082 Independent Pharmacies 110,956 108,783 Registered Investment Advisors 92,901 94,338 Veterinary Industry 47,744 45,604 Other Industries 402,962 295,163 Total 729,921 618,748 Construction & Development Agriculture 40,258 43,454 Funeral Home & Cemetery 10,840 9,874 Healthcare 92,296 81,619 Independent Pharmacies 1,193 2,149 Registered Investment Advisors 2,138 1,232 Veterinary Industry 22,694 14,094 Other Industries 155,313 96,482 Total 324,732 248,904 Commercial Real Estate Agriculture 49,532 53,085 Funeral Home & Cemetery 86,830 71,344 Healthcare 221,195 188,531 Independent Pharmacies 26,877 20,597 Registered Investment Advisors 8,152 7,905 Veterinary Industry 135,470 136,721 Other Industries 354,321 260,847 Total 882,377 739,030 Commercial Land Agriculture 288,467 243,798 Total 288,467 243,798 Total Loans 2,225,497 1,850,480 Net Deferred Costs 9,767 5,960 Discount on SBA 7(a) Unguaranteed (9,791 ) (13,021 ) Loans, Net of Unearned $ 2,225,473 $ 1,843,419 1 Total loans and leases include $498.8 million and $305.4 million of U.S. government guaranteed loans as of June 30, 2019 and December 31, 2018, respectively. 2 The Company measures the carrying value of the retained portion of loans sold at fair value under ASC Subtopic 825-10. The value of these retained loan balances is discounted based on the estimates derived from comparable unguaranteed loan sales. Credit Risk Profile The Bank uses internal loan and lease reviews to assess the performance of individual loans and leases by industry segment. An independent review of the loan and lease portfolio is performed annually by an external firm. The goal of the Bank’s annual review of select borrowers' financial performance is to validate the adequacy of the risk grade assigned. The Bank uses a grading system to rank the quality of each loan and lease. The grade is periodically evaluated and adjusted as performance dictates. Loan and lease grades 1 through 4 are passing grades and grade 5 is special mention. Collectively, grades 6 through 8 represent classified loans and leases in the Bank’s portfolio. The following guidelines govern the assignment of these risk grades: Exceptional (1 Rated): These loans and leases are of the highest quality, with strong, well-documented sources of repayment. These loans and leases will typically have multiple demonstrated sources of repayment with no significant identifiable risk to collection, exhibit well-qualified management, and have liquid financial statements relative to both direct and indirect obligations. Quality (2 Rated): These loans and leases are of very high credit quality, with strong, well-documented sources of repayment. These loans and leases exhibit very strong, well defined primary and secondary sources of repayment, with no significant identifiable risk of collection and have internally generated cash flow that more than adequately covers current maturities of long-term debt. Satisfactory (3 rated): These loans and leases exhibit satisfactory credit risk and have excellent sources of repayment, with no significant identifiable risk of collection. These loans and leases have documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources. They have adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Acceptable (4 rated): These loans and leases show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans and leases may have unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time. Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected performance. They may also contain marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor. Special mention (5 rated): These loans and leases show signs of weaknesses in either adequate sources of repayment or collateral. These loans and leases may contain underwriting guideline tolerances and/or exceptions with no mitigating factors; and/or instances where adverse economic conditions develop subsequent to origination that do not jeopardize liquidation of the debt but substantially increase the level of risk. Substandard (6 rated): Loans and leases graded Substandard are inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral. Loans and leases classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These loans and leases are consistently not meeting the repayment schedule. Doubtful (7 rated): Loans and leases graded Doubtful have all the weaknesses inherent in those classified as Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists. Once the loss position is determined, the amount is charged off. Loss (8 rated): Loss rated loans and leases are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this credit even though partial recovery may be affected in the future. The following tables summarize the risk grades of each category: Risk Grades 1 - 4 Risk Grade 5 Risk Grades 6 - 8 Total 1 June 30, 2019 Commercial & Industrial Agriculture $ 5,760 $ 545 $ — $ 6,305 Funeral Home & Cemetery 20,811 1,898 — 22,709 Healthcare 34,936 2,888 8,520 46,344 Independent Pharmacies 99,284 6,502 5,170 110,956 Registered Investment Advisors 88,782 2,050 2,069 92,901 Veterinary Industry 44,419 1,016 2,309 47,744 Other Industries 382,016 15,437 5,509 402,962 Total 676,008 30,336 23,577 729,921 Construction & Development Agriculture 40,258 — — 40,258 Funeral Home & Cemetery 10,840 — — 10,840 Healthcare 88,885 3,411 — 92,296 Independent Pharmacies 1,193 — — 1,193 Registered Investment Advisors 2,138 — — 2,138 Veterinary Industry 22,694 — — 22,694 Other Industries 142,116 13,197 — 155,313 Total 308,124 16,608 — 324,732 Commercial Real Estate Agriculture 46,841 466 2,225 49,532 Funeral Home & Cemetery 79,149 5,720 1,961 86,830 Healthcare 191,816 8,377 21,002 221,195 Independent Pharmacies 17,303 2,411 7,163 26,877 Registered Investment Advisors 8,114 38 — 8,152 Veterinary Industry 119,320 3,362 12,788 135,470 Other Industries 336,073 8,914 9,334 354,321 Total 798,616 29,288 54,473 882,377 Commercial Land Agriculture 263,961 10,749 13,757 288,467 Total 263,961 10,749 13,757 288,467 Total $ 2,046,709 $ 86,981 $ 91,807 $ 2,225,497 Risk Grades 1 - 4 Risk Grade 5 Risk Grades 6 - 8 Total 1 December 31, 2018 Commercial & Industrial Agriculture $ 6,187 $ 213 $ — $ 6,400 Funeral Home & Cemetery 17,085 287 6 17,378 Healthcare 38,908 2,502 9,672 51,082 Independent Pharmacies 93,976 5,734 9,073 108,783 Registered Investment Advisors 88,614 2,381 3,343 94,338 Veterinary Industry 42,175 1,190 2,239 45,604 Other Industries 272,771 18,463 3,929 295,163 Total 559,716 30,770 28,262 618,748 Construction & Development Agriculture 43,454 — — 43,454 Funeral Home & Cemetery 9,874 — — 9,874 Healthcare 79,814 1,805 — 81,619 Independent Pharmacies 2,149 — — 2,149 Registered Investment Advisors 1,232 — — 1,232 Veterinary Industry 14,094 — — 14,094 Other Industries 96,482 — — 96,482 Total 247,099 1,805 — 248,904 Commercial Real Estate Agriculture 52,518 567 — 53,085 Funeral Home & Cemetery 64,487 3,711 3,146 71,344 Healthcare 161,026 7,696 19,809 188,531 Independent Pharmacies 12,509 2,495 5,593 20,597 Registered Investment Advisors 7,780 125 — 7,905 Veterinary Industry 117,879 4,205 14,637 136,721 Other Industries 255,651 5,196 — 260,847 Total 671,850 23,995 43,185 739,030 Commercial Land Agriculture 223,826 8,914 11,058 243,798 Total 223,826 8,914 11,058 243,798 Total $ 1,702,491 $ 65,484 $ 82,505 $ 1,850,480 1 Total loans and leases include $498.8 million of U.S. government guaranteed loans as of June 30, 2019, segregated by risk grade as follows: Risk Grades 1 – 4 = $410.8 million, Risk Grade 5 = $24.6 million, Risk Grades 6 – 8 = $63.4 million. As of December 31, 2018, total loans and leases include $305.4 million of U.S. government guaranteed loans, segregated by risk grade as follows: Risk Grades 1 – 4 = $236.1 million, Risk Grade 5 = $10.1 million, Risk Grades 6 – 8 = $59.2 million. Past Due Loans and Leases Loans and leases are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans and leases less than 30 days past due and accruing are included within current loans and leases shown below. The following tables show an age analysis of past due loans and leases as of the dates presented. Less Than 30 Days Past Due & Not Accruing 30-89 Days Past Due & Accruing 30-89 Days Past Due & Not Accruing Greater Than 90 Days Past Due Total Not Accruing & Past Due Loans Current Loans Total Loans Loans 90 Days or More Past Due & Still Accruing June 30, 2019 Commercial & Industrial Agriculture $ — $ — $ — $ — $ — $ 6,305 $ 6,305 $ — Funeral Home & Cemetery — — — — — 22,709 22,709 — Healthcare 906 — 623 5,498 7,027 39,317 46,344 — Independent Pharmacies — — — 5,170 5,170 105,786 110,956 — Registered Investment Advisors 1,201 — 399 209 1,809 91,092 92,901 — Veterinary Industry — — 576 1,031 1,607 46,137 47,744 — Other Industries 557 1,192 2,804 2,148 6,701 396,261 402,962 — Total 2,664 1,192 4,402 14,056 22,314 707,607 729,921 — Construction & Development Agriculture — — — — — 40,258 40,258 — Funeral Home & Cemetery — — — — — 10,840 10,840 — Healthcare — — — — — 92,296 92,296 — Independent Pharmacies — — — — — 1,193 1,193 — Registered Investment Advisors — — — — — 2,138 2,138 — Veterinary Industry — — — — — 22,694 22,694 — Other Industries — — — — — 155,313 155,313 — Total — — — — — 324,732 324,732 — Commercial Real Estate Agriculture — — — 2,226 2,226 47,306 49,532 — Funeral Home & Cemetery 137 — — 1,824 1,961 84,869 86,830 — Healthcare — 1,034 — 7,076 8,110 213,085 221,195 — Independent Pharmacies — — — 5,831 5,831 21,046 26,877 — Registered Investment Advisors — — — — — 8,152 8,152 — Veterinary Industry 634 — 3,682 3,023 7,339 128,131 135,470 — Other Industries — — — 6,568 6,568 347,753 354,321 — Total 771 1,034 3,682 26,548 32,035 850,342 882,377 — Commercial Land Agriculture 10,010 714 3,340 — 14,064 274,403 288,467 — Total 10,010 714 3,340 — 14,064 274,403 288,467 — Total 1 $ 13,445 $ 2,940 $ 11,424 $ 40,604 $ 68,413 $ 2,157,084 $ 2,225,497 $ — Less Than 30 Days Past Due & Not Accruing 30-89 Days Past Due & Accruing 30-89 Days Past Due & Not Accruing Greater Than 90 Days Past Due Total Not Accruing & Past Due Loans Current Loans Total Loans Loans 90 Days or More Past Due & Still Accruing December 31, 2018 Commercial & Industrial Agriculture $ — $ — $ — $ — $ — $ 6,400 $ 6,400 $ — Funeral Home & Cemetery — — — — — 17,378 17,378 — Healthcare 41 1,027 665 6,821 8,554 42,528 51,082 — Independent Pharmacies 1,399 29 — 7,570 8,998 99,785 108,783 — Registered Investment Advisors — 232 320 2,741 3,293 91,045 94,338 — Veterinary Industry — — 600 906 1,506 44,098 45,604 — Other Industries 2,669 166 — 504 3,339 291,824 295,163 — Total 4,109 1,454 1,585 18,542 25,690 593,058 618,748 — Construction & Development Agriculture — — — — — 43,454 43,454 — Funeral Home & Cemetery — — — — — 9,874 9,874 — Healthcare — — — — — 81,619 81,619 — Independent Pharmacies — — — — — 2,149 2,149 — Registered Investment Advisors — — — — — 1,232 1,232 — Veterinary Industry — — — — — 14,094 14,094 — Other Industries — — — — — 96,482 96,482 — Total — — — — — 248,904 248,904 — Commercial Real Estate Agriculture — — — — — 53,085 53,085 — Funeral Home & Cemetery 248 — — 2,762 3,010 68,334 71,344 — Healthcare 42 1,668 — 7,417 9,127 179,404 188,531 — Independent Pharmacies — 3,400 — 2,193 5,593 15,004 20,597 — Registered Investment Advisors — — — — — 7,905 7,905 — Veterinary Industry 1,644 3,757 2,899 5,191 13,491 123,230 136,721 — Other Industries — 10,743 — — 10,743 250,104 260,847 — Total 1,934 19,568 2,899 17,563 41,964 697,066 739,030 — Commercial Land Agriculture 6,277 — — 4,781 11,058 232,740 243,798 — Total 6,277 — — 4,781 11,058 232,740 243,798 — Total 1 $ 12,320 $ 21,022 $ 4,484 $ 40,886 $ 78,712 $ 1,771,768 $ 1,850,480 $ — 1 Total loans and leases include $498.8 million of U.S. government guaranteed loans as of June 30, 2019, of which $30.5 million is greater than 90 days past due, $9.0 million is 30-89 days past due and $459.3 million is included in current loans and leases as presented above. As of December 31, 2018, total loans and leases include $305.4 million of U.S. government guaranteed loans, of which $33.4 million is greater than 90 days past due, $9.0 million is 30-89 days past due and $263.0 million is included in current loans and leases as presented above. Nonaccrual Loans and Leases Loans and leases that become 90 days delinquent, or in cases where there is evidence that the borrower’s ability to make the required payments is impaired, are placed in nonaccrual status and interest accrual is discontinued. If interest on nonaccrual loans and leases had been accrued in accordance with the original terms, interest income would have increased by approximately $1.1 million and $588 thousand for the three months ended June 30, 2019 and 2018, respectively, and for the six months ended June 30, 2019 and 2018 interest income would have increased approximately $2.2 million and $1.0 million, respectively. All nonaccrual loans and leases are included in the held for investment portfolio. Nonaccrual loans and leases as of June 30, 2019 and December 31, 2018 are as follows: June 30, 2019 Loan Balance Guaranteed Balance Unguaranteed Exposure Commercial & Industrial Healthcare $ 7,027 $ 6,097 $ 930 Independent Pharmacies 5,170 4,105 1,065 Registered Investment Advisors 1,809 1,409 400 Veterinary Industry 1,607 1,458 149 Other Industries 5,509 3,806 1,703 Total 21,122 16,875 4,247 Commercial Real Estate Agriculture 2,226 1,669 557 Funeral Home & Cemetery 1,961 1,368 593 Healthcare 7,076 4,708 2,368 Independent Pharmacies 5,831 5,084 747 Veterinary Industry 7,339 6,157 1,182 Other Industries 6,568 3,747 2,821 Total 31,001 22,733 8,268 Commercial Land Agriculture 13,350 7,513 5,837 Total 13,350 7,513 5,837 Total $ 65,473 $ 47,121 $ 18,352 December 31, 2018 Loan Balance Guaranteed Balance Unguaranteed Exposure Commercial & Industrial Healthcare $ 7,527 $ 6,517 $ 1,010 Independent Pharmacies 8,969 7,896 1,073 Registered Investment Advisors 3,061 2,427 634 Veterinary Industry 1,506 1,361 145 Other Industries 3,173 2,147 1,026 Total 24,236 20,348 3,888 Commercial Real Estate Funeral Home & Cemetery 3,010 2,260 750 Healthcare 7,459 4,963 2,496 Independent Pharmacies 2,193 1,863 330 Veterinary Industry 9,734 8,271 1,463 Total 22,396 17,357 5,039 Commercial Land Agriculture 11,058 5,497 5,561 Total 11,058 5,497 5,561 Total $ 57,690 $ 43,202 $ 14,488 Allowance for Loan and Lease Loss Methodology The methodology and the estimation process for calculating the Allowance for Loan and Lease Losses (“ALLL”) is described below: Estimated credit losses should meet the criteria for accrual of a loss contingency, i.e., a provision to the ALLL, set forth in GAAP. The Company’s methodology for determining the ALLL is based on the requirements of GAAP, the Interagency Policy Statement on the Allowance for Loan and Lease Losses and other regulatory and accounting pronouncements. The ALLL is determined by the sum of three separate components: (i) the impaired loan and lease component, which addresses specific reserves for impaired loans and leases; (ii) the general reserve component, which addresses reserves for pools of homogeneous loans and leases; and (iii) an unallocated reserve component (if any) based on management’s judgment and experience. The loan and lease pools and impaired loans and leases are mutually exclusive; any loan or lease that is impaired is excluded from its homogenous pool for purposes of that pool’s reserve calculation, regardless of the level of impairment. The ALLL policy for pooled loans and leases is governed in accordance with banking regulatory guidance for homogenous pools of non-impaired loans and leases that have similar risk characteristics. The Company follows a consistent and structured approach for assessing the need for reserves within each individual loan and lease pool. Loans and leases are considered impaired when, based on current information and events, it is probable that the creditor will be unable to collect all interest and principal payments due according to the originally contracted, or reasonably modified, terms of the loan or lease agreement. The Company has determined that loans and leases that meet the criteria defined below must be reviewed quarterly to determine if they are impaired. • All commercial loans and leases classified substandard or worse. • Any other delinquent loan or lease that is in a nonaccrual status, or any loan or lease that is delinquent 90 days or more and still accruing interest. • Any loan or lease which has been modified such that it meets the definition of a Troubled Debt Restructuring (TDR). The Company’s policy for impaired loan and lease accounting subjects all loans and leases to impairment recognition; however, loan and lease relationships with unguaranteed credit exposure of less than $100,000 are generally not evaluated on an individual basis for impairment and instead are evaluated collectively using a methodology based on historical specific reserves on similar sized loans and leases. Any loan or lease not meeting the above criteria and determined to be impaired is subjected to an impairment analysis, which is a calculation of the probable loss on the loan or lease. This portion is the loan's or lease’s “impairment,” and is established as a specific reserve against the loan or lease, or charged against the ALLL. Individual specific reserve amounts imply probability of loss and may not be carried in the reserve indefinitely. When the amount of the actual loss becomes reasonably quantifiable, the amount of the loss is charged off against the ALLL, whether or not all liquidation and recovery efforts have been completed. If the total amount of the individual specific reserve that will eventually be charged off cannot yet be sufficiently quantified but some portion of the impairment can be viewed as a confirmed loss, then the confirmed loss portion should be charged off against the ALLL and the individual specific reserve reduced by a corresponding amount. For impaired loans or leases, the reserve amount is calculated on a loan or lease-specific basis. The Company utilizes two methods of analyzing impaired loans and leases not guaranteed by the SBA: • The Fair Market Value of Collateral method utilizes the value at which the collateral could be sold considering the appraised value, appraisal discount rate, prior liens and selling costs. The amount of the reserve is the deficit of the estimated collateral value compared to the loan or lease balance. • The Present Value of Future Cash Flows method takes into account the amount and timing of cash flows and the effective interest rate used to discount the cash flows. The following table details activity in the allowance for loan and lease losses by portfolio segment allowance for the periods presented: Three Months Ended Construction & Development Commercial Real Estate Commercial & Industrial Commercial Land Total June 30, 2019 Beginning Balance $ 2,236 $ 10,623 $ 16,543 $ 5,709 $ 35,111 Charge offs — (1 ) (416 ) (178 ) (595 ) Recoveries — 13 56 — 69 Provision 688 1,954 724 97 3,463 Ending Balance $ 2,924 $ 12,589 $ 16,907 $ 5,628 $ 38,048 June 30, 2018 Beginning Balance $ 2,428 $ 11,244 $ 12,201 $ 2,177 $ 28,050 Charge offs — (419 ) (549 ) — (968 ) Recoveries — 29 152 — 181 Provision (201 ) 554 1,573 161 2,087 Ending Balance $ 2,227 $ 11,408 $ 13,377 $ 2,338 $ 29,350 Six Months Ended Construction & Development Commercial Real Estate Commercial & Industrial Commercial Land Total June 30, 2019 Beginning Balance $ 2,042 $ 11,044 $ 14,562 $ 4,786 $ 32,434 Charge offs — (1 ) (638 ) (178 ) (817 ) Recoveries — 23 198 5 226 Provision 882 1,523 2,785 1,015 6,205 Ending Balance $ 2,924 $ 12,589 $ 16,907 $ 5,628 $ 38,048 June 30, 2018 Beginning Balance $ 2,030 $ 9,180 $ 10,751 $ 2,229 $ 24,190 Charge offs — (419 ) (1,221 ) — (1,640 ) Recoveries — 33 288 — 321 Provision 197 2,614 3,559 109 6,479 Ending Balance $ 2,227 $ 11,408 $ 13,377 $ 2,338 $ 29,350 The following tables detail the recorded allowance for loan and lease losses and the investment in loans and leases related to each portfolio segment, disaggregated on the basis of impairment evaluation methodology: June 30, 2019 Construction & Development Commercial Real Estate Commercial & Industrial Commercial Land Total Allowance for loan and lease losses: Loans and leases individually evaluated for impairment $ — $ 3,610 $ 3,128 $ 4,721 $ 11,459 Loans and leases collectively evaluated for impairment 2,924 8,979 13,779 907 26,589 Total allowance for loan and lease losses $ 2,924 $ 12,589 $ 16,907 $ 5,628 $ 38,048 Loans and leases receivable 1 Loans and leases individually evaluated for impairment $ — $ 57,444 $ 24,473 $ 35,192 $ 117,109 Loans and leases collectively evaluated for impairment 324,732 824,933 705,448 253,275 2,108,388 Total loans and leases receivable $ 324,732 $ 882,377 $ 729,921 $ 288,467 $ 2,225,497 December 31, 2018 Construction & Development Commercial Real Estate Commercial & Industrial Commercial Land Total Allowance for loan and lease losses: Loans and leases individually evaluated for impairment $ 118 $ 2,424 $ 2,598 $ 3,951 $ 9,091 Loans and leases collectively evaluated for impairment 1,924 8,620 11,964 835 23,343 Total allowance for loan and lease losses $ 2,042 $ 11,044 $ 14,562 $ 4,786 $ 32,434 Loans and leases receivable 1 Loans and leases individually evaluated for impairment $ 5,027 $ 46,731 $ 28,659 $ 21,997 $ 102,414 Loans and leases collectively evaluated for impairment 243,877 692,299 590,089 221,801 1,748,066 Total loans and leases receivable $ 248,904 $ 739,030 $ 618,748 $ 243,798 $ 1,850,480 1 Loans and leases receivable includes $498.8 million of U.S. government guaranteed loans as of June 30, 2019, of which $79.3 million are impaired. As of December 31, 2018, loans and leases receivable includes $305.4 million of U.S. government guaranteed loans, of which $72.4 million are considered impaired. Loans and leases classified as impaired as of the dates presented are summarized in the following tables. June 30, 2019 Recorded Investment Guaranteed Balance Unguaranteed Exposure Commercial & Industrial Agriculture $ 7 $ — $ 7 Healthcare 9,096 6,530 2,566 Independent Pharmacies 5,457 4,105 1,352 Registered Investment Advisors 2,076 1,409 667 Veterinary Industry 2,357 1,876 481 Other Industries 5,480 3,806 1,674 Total 24,473 17,726 6,747 Commercial Real Estate Agriculture 2,226 1,669 557 Funeral Home & Cemetery 1,958 1,368 590 Healthcare 22,879 14,206 8,673 Independent Pharmacies 7,168 6,082 1,086 Veterinary Industry 13,846 9,466 4,380 Other Industries 9,367 5,821 3,546 Total 57,444 38,612 18,832 Commercial Land Agriculture 35,192 22,980 12,212 Total 35,192 22,980 12,212 Total $ 117,109 $ 79,318 $ 37,791 December 31, 2018 Recorded Investment Guaranteed Balance Unguaranteed Exposure Commercial & Industrial Agriculture $ 7 $ — $ 7 Funeral Home & Cemetery 6 — 6 Healthcare 9,668 7,229 2,439 Independent Pharmacies 9,356 7,896 1,460 Registered Investment Advisors 3,347 2,427 920 Veterinary Industry 2,326 1,819 507 Other Industries 3,949 2,304 1,645 Total 28,659 21,675 6,984 Construction & Development Agriculture 5,027 3,704 1,323 Total 5,027 3,704 1,323 Commercial Real Estate Agriculture 1,798 1,299 499 Funeral Home & Cemetery 3,143 2,261 882 Healthcare 20,442 14,559 5,883 Independent Pharmacies 5,633 4,079 1,554 Veterinary Industry 15,715 11,613 4,102 Total 46,731 33,811 12,920 Commercial Land Agriculture 21,997 13,177 8,820 Total 21,997 13,177 8,820 Total $ 102,414 $ 72,367 $ 30,047 The following table presents evaluated balances of loans and leases classified as impaired at the dates presented that carried an associated reserve as compared to those with no reserve. The recorded investment includes accrued interest and net deferred loan and lease fees or costs. June 30, 2019 Recorded Investment With a Recorded Allowance With No Recorded Allowance Total Unpaid Principal Balance Related Allowance Recorded Commercial & Industrial Agriculture $ 7 $ — $ 7 $ 6 $ 7 Funeral Home & Cemetery — — — — — Healthcare 9,039 57 9,096 9,827 870 Independent Pharmacies 5,161 296 5,457 5,763 833 Registered Investment Advisors 2,076 — 2,076 2,138 432 Veterinary Industry 2,180 177 2,357 2,667 57 Other Industries 5,480 — 5,480 5,655 929 Total 23,943 530 24,473 26,056 3,128 Commercial Real Estate Agriculture 2,226 — 2,226 2,226 13 Funeral Home & Cemetery 1,821 137 1,958 1,961 87 Healthcare 20,754 2,125 22,879 22,873 1,266 Independent Pharmacies 7,168 — 7,168 7,453 43 Veterinary Industry 13,146 700 13,846 14,650 1,277 Other Industries 9,367 — 9,367 9,334 924 Total 54,482 2,962 57,444 58,497 3,610 Commercial Land Agriculture 35,192 — 35,192 34,988 4,721 Total 35,192 — 35,192 34,988 4,721 Total Impaired Loans and Leases $ 113,617 $ 3,492 $ 117,109 $ 119,541 $ 11,459 December 31, 2018 Recorded Investment With a Recorded Allowance With No Recorded Allowance Total Unpaid Principal Balance Related Allowance Recorded Commercial & Industrial Agriculture $ — $ 7 $ 7 $ 6 $ — Funeral Home & Cemetery — 6 6 6 — Healthcare 9,604 64 9,668 10,432 827 Independent Pharmacies 9,032 324 9,356 10,564 478 Registered Investment Advisors 3,347 — 3,347 3,839 811 Veterinary Industry 2,160 166 2,326 2,593 65 Other Industries 3,496 453 3,949 4,097 417 Total 27,639 1,020 28,659 31,537 2,598 Construction & Development Agriculture 5,027 — 5,027 4,939 118 Total 5,027 — 5,027 4,939 118 Commercial Real Estate Agriculture 1,798 — 1,798 1,732 93 Funeral Home & Cemetery 2,859 284 3,143 3,281 30 Healthcare 20,211 231 20,442 20,461 1,145 Independent Pharmacies 5,184 449 5,633 5,884 220 Veterinary Industry 15,606 109 15,715 16,677 936 Total 45,658 1,073 46,731 48,035 2,424 Commercial Land Agriculture 21,997 — 21,997 22,147 3,951 Total 21,997 — 21,997 22,147 3,951 Total Impaired Loans and Leases $ 100,321 $ 2,093 $ 102,414 $ 106,658 $ 9,091 The following table presents the average recorded investment of impaired loans and leases for each period presented and interest income recognized during the period in which the loans and leases were considered impaired. Three Months Ended June 30, 2019 Three Months Ended June 30, 2018 Average Balance Interest Income Recognized Average Balance Interest Income Recognized Commercial & Industrial Agriculture $ 6 $ — $ — $ — Funeral Home & Cemetery — — 7 — Healthcare 9,280 34 5,094 19 Independent Pharmacies 5,459 5 7,978 7 Registered Investment Advisors 2,083 5 2,818 12 Veterinary Industry 2,394 13 2,930 18 Other Industries 5,904 7 1,373 5 Total 25,126 64 20,200 61 Construction & Development Agriculture — — 2,526 — Healthcare — — 1,799 28 Total — — 4,325 28 Commercial Real Estate Agriculture 2,228 — — — Funeral Home & Cemetery 1,967 — 3,122 27 Healthcare 23,057 259 12,852 64 Independent Pharmacies 7,198 25 |