Loans and Allowance for Loan Losses | LOANS AND ALLOWANCE FOR LOAN LOSSES At December 31, 2018 , the Company’s loan portfolio was $11.72 billion , compared to $10.78 billion at December 31, 2017 . The various categories of loans are summarized as follows: (In thousands) 2018 2017 Consumer: Credit cards $ 204,173 $ 185,422 Other consumer 201,297 280,094 Total consumer 405,470 465,516 Real estate: Construction 1,300,723 614,155 Single family residential 1,440,443 1,094,633 Other commercial 3,225,287 2,530,824 Total real estate 5,966,453 4,239,612 Commercial: Commercial 1,774,909 825,217 Agricultural 164,514 148,302 Total commercial 1,939,423 973,519 Other 119,042 26,962 Loans 8,430,388 5,705,609 Loans acquired, net of discount and allowance (1) 3,292,783 5,074,076 Total loans $ 11,723,171 $ 10,779,685 _________________________ (1) See Note 6, Loans Acquired, for segregation of loans acquired by loan class. Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; providing an adequate allowance for loans losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Furthermore, a factor that influenced the Company’s judgment regarding the allowance for loan losses consists of a nine-year historical loss average segregated by each primary loan sector. On an annual basis, historical loss rates are calculated for each sector. Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to be impacted by economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures. Real estate – The real estate loan portfolio consists of construction loans, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within commercial real estate – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and length. The Company monitors these loans closely. Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one or three year balloons, and the Company has instituted a pricing mechanism for commercial loans. It is standard practice to require personal guaranties on commercial loans for closely-held or limited liability entities. Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans, excluding loans acquired, at December 31, 2018 and 2017 , segregated by class of loans, are as follows: (In thousands) 2018 2017 Consumer: Credit cards $ 296 $ 170 Other consumer 2,159 4,605 Total consumer 2,455 4,775 Real estate: Construction 1,269 2,242 Single family residential 11,939 13,431 Other commercial 7,205 16,054 Total real estate 20,413 31,727 Commercial: Commercial 10,049 6,980 Agricultural 1,284 2,160 Total commercial 11,333 9,140 Total $ 34,201 $ 45,642 An age analysis of past due loans, excluding loans acquired, segregated by class of loans, is as follows: (In thousands) Gross 30-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans 90 Days Past Due & Accruing December 31, 2018 Consumer: Credit cards $ 1,033 $ 506 $ 1,539 $ 202,634 $ 204,173 $ 209 Other consumer 4,264 896 5,160 196,137 201,297 4 Total consumer 5,297 1,402 6,699 398,771 405,470 213 Real estate: Construction 533 308 841 1,299,882 1,300,723 — Single family residential 7,769 4,127 11,896 1,428,547 1,440,443 — Other commercial 3,379 2,773 6,152 3,219,135 3,225,287 — Total real estate 11,681 7,208 18,889 5,947,564 5,966,453 — Commercial: Commercial 4,472 5,105 9,577 1,765,332 1,774,909 11 Agricultural 467 1,055 1,522 162,992 164,514 — Total commercial 4,939 6,160 11,099 1,928,324 1,939,423 11 Other — — — 119,042 119,042 — Total $ 21,917 $ 14,770 $ 36,687 $ 8,393,701 $ 8,430,388 $ 224 December 31, 2017 Consumer: Credit cards $ 707 $ 672 $ 1,379 $ 184,043 $ 185,422 $ 332 Other consumer 5,009 3,298 8,307 271,787 280,094 10 Total consumer 5,716 3,970 9,686 455,830 465,516 342 Real estate: Construction 411 1,210 1,621 612,534 614,155 — Single family residential 8,071 6,460 14,531 1,080,102 1,094,633 1 Other commercial 2,388 8,031 10,419 2,520,405 2,530,824 — Total real estate 10,870 15,701 26,571 4,213,041 4,239,612 1 Commercial: Commercial 1,523 6,125 7,648 817,569 825,217 — Agricultural 50 2,120 2,170 146,132 148,302 — Total commercial 1,573 8,245 9,818 963,701 973,519 — Other — — — 26,962 26,962 — Total $ 18,159 $ 27,916 $ 46,075 $ 5,659,534 $ 5,705,609 $ 343 Impaired Loans – A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loans, including scheduled principal and interest payments. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of the collateral if the loan is collateral dependent. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. Impaired loans, net of government guarantees and excluding loans acquired, segregated by class of loans, are as follows: (In thousands) Unpaid Contractual Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Total Recorded Investment Related Allowance Average Investment in Impaired Loans Interest Income Recognized December 31, 2018 Consumer: Credit cards $ 296 $ 296 $ — $ 296 $ — $ 266 $ 85 Other consumer 2,311 2,159 — 2,159 — 3,719 112 Total consumer 2,607 2,455 — 2,455 — 3,985 197 Real estate: Construction 1,344 784 485 1,269 211 1,651 50 Single family residential 12,906 11,468 616 12,084 36 13,257 399 Other commercial 8,434 5,442 5,458 10,900 — 13,608 410 Total real estate 22,684 17,694 6,559 24,253 247 28,516 859 Commercial: Commercial 10,361 7,254 4,628 11,882 437 10,003 301 Agricultural 2,419 1,180 — 1,180 — 1,412 43 Total commercial 12,780 8,434 4,628 13,062 437 11,415 344 Total $ 38,071 $ 28,583 $ 11,187 $ 39,770 $ 684 $ 43,916 $ 1,400 December 31, 2017 Consumer: Credit cards $ 170 $ 170 $ — $ 170 $ — $ 268 $ 47 Other consumer 4,755 4,605 — 4,605 — 3,089 106 Total consumer 4,925 4,775 — 4,775 — 3,357 153 Real estate: Construction 2,522 1,347 895 2,242 249 2,711 93 Single family residential 14,347 12,725 706 13,431 53 12,904 443 Other commercial 22,308 6,732 9,133 15,865 36 18,624 639 Total real estate 39,177 20,804 10,734 31,538 338 34,239 1,175 Commercial: Commercial 9,954 4,306 2,269 6,575 — 11,670 400 Agricultural 3,278 1,035 — 1,035 — 1,522 52 Total commercial 13,232 5,341 2,269 7,610 — 13,192 452 Total $ 57,334 $ 30,920 $ 13,003 $ 43,923 $ 338 $ 50,788 $ 1,780 At December 31, 2018 and 2017 , impaired loans, net of government guarantees and excluding loans acquired, totaled $39.8 million and $43.9 million , respectively. Allocations of the allowance for loan losses relative to impaired loans were $684,000 and $338,000 at December 31, 2018 and 2017 , respectively. Approximately $1.4 million , $1.8 million and $1.6 million of interest income was recognized on average impaired loans of $43.9 million , $50.8 million and $36.0 million for 2018 , 2017 and 2016 , respectively. Interest recognized on impaired loans on a cash basis during 2018 , 2017 and 2016 was not material. Included in certain impaired loan categories are troubled debt restructurings (“TDRs”). When the Company restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not otherwise consider, a “troubled debt restructuring” results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. Under ASC Topic 310-10-35 – Subsequent Measurement , a TDR is considered to be impaired, and an impairment analysis must be performed. The Company assesses the exposure for each modification, either by collateral discounting or by calculation of the present value of future cash flows, and determines if a specific allocation to the allowance for loan losses is needed. Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. The Company returns TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months. The following table presents a summary of troubled debt restructurings, excluding loans acquired, segregated by class of loans. Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans (Dollars in thousands) Number Balance Number Balance Number Balance December 31, 2018 Real estate: Construction — $ — 3 $ 485 3 $ 485 Single-family residential 6 230 10 616 16 846 Other commercial 2 3,306 2 1,027 4 4,333 Total real estate 8 3,536 15 2,128 23 5,664 Commercial: Commercial 4 2,833 6 718 10 3,551 Total commercial 4 2,833 6 718 10 3,551 Total 12 $ 6,369 21 $ 2,846 33 $ 9,215 December 31, 2017 Real estate: Construction — $ — 1 $ 420 1 $ 420 Single-family residential 4 141 15 954 19 1,095 Other commercial 4 4,322 5 3,712 9 8,034 Total real estate 8 4,463 21 5,086 29 9,549 Commercial: Commercial 5 2,644 6 745 11 3,389 Total commercial 5 2,644 6 745 11 3,389 Total 13 $ 7,107 27 $ 5,831 40 $ 12,938 The following table presents loans that were restructured as TDRs during the years ended December 31, 2018 and 2017 , excluding loans acquired, segregated by class of loans. Modification Type (Dollars in thousands) Number of Loans Balance Prior to TDR Balance at December 31, Change in Maturity Date Change in Rate Financial Impact on Date of Restructure Year Ended December 31, 2018 Consumer: Other consumer 1 $ 91 $ 91 $ 91 $ — $ — Total consumer 1 91 91 91 — — Real estate: Construction 1 99 98 98 — — Single-family residential 1 61 62 62 — — Other commercial 2 392 390 390 — 212 Total real estate 4 552 550 550 — 212 Commercial: Commercial 3 2,363 2,358 2,358 — 190 Total commercial 3 2,363 2,358 2,358 — 190 Total 8 $ 3,006 $ 2,999 $ 2,999 $ — $ 402 Year Ended December 31, 2017 Real estate: Construction 1 $ 456 $ 456 $ 456 $ — $ — Single-family residential 1 139 130 130 — — Other commercial 3 7,715 7,715 7,715 — 33 Total real estate 5 8,310 8,301 8,301 — 33 Commercial: Commercial 11 2,691 2,604 2,565 39 — Total commercial 11 2,691 2,604 2,565 39 — Total 16 $ 11,001 $ 10,905 $ 10,866 $ 39 $ 33 During the year ended December 31, 2018 , the Company modified eight loans with a total recorded investment of $3.0 million prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity date and requiring interest only payments for a period of up to 12 months. A specific reserve was not determined necessary for these loans based on the fair value of the collateral. Also, there was $402,000 immediate financial impact from the restructuring of these loans due to specific loan loss reserves for these loans. During the year ended December 31, 2018 , seven of the previously restructured loans with prior balances of $655,000 were paid off. During year ended December 31, 2017 , the Company modified sixteen loans with a total recorded investment of $11.0 million prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity date and requiring interest only payments for a period of up to 12 months. Based on the fair value of the collateral, a specific reserve of $26,000 was determined necessary for these loans. Also, the financial impact from the restructuring of these loans was $33,000 . During the year ended December 31, 2017 , thirteen of the previously restructured loans with prior balances of $1.2 million were paid off. There were two commercial real estate loans for which a payment default occurred during the year ended December 31, 2018 , that had been modified as a TDR within 12 months or less of the payment default, excluding loans acquired. A charge off of approximately $92,400 was recorded for these loans and assets valued at $2,169,300 were transferred to OREO. Also, there was one single-family residential loan for which a payment default occurred during the year ended December 31, 2018 , that had been modified as a TDR within 12 months or less of the payment default, excluding loans acquired. A charge off of approximately $26,500 was recorded for this loan. The Company defines a payment default as a payment received more than 90 days after its due date. During the year ended December 31, 2017 , there was one commercial real estate loan for which a payment default occurred that had been modified as a TDR within 12 months or less of the payment default. A charge off of $440,000 was recorded for this loan. Also, there was one single-family residential loan for which a payment default occurred that had been modified as a TDR within 12 months or less of the payment default for which formal foreclosure proceedings were in process. In addition to the TDRs that occurred during the periods provided in the preceding tables, the Company had TDRs with pre-modification loan balances of $2,288,000 at December 31, 2018 for which OREO was received in full or partial satisfaction of the loans. There were no TDRs at December 31, 2017 for which OREO was received in full or partial satisfaction of the loans. At December 31, 2018 and 2017 , the Company had $3,899,000 and $5,057,000 , respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At December 31, 2018 and 2017 , the Company had $3,530,000 and $3,828,000 , respectively, of OREO secured by residential real estate properties. Credit Quality Indicators – As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions in the States of Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas. The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 8. A description of the general characteristics of the 8 risk ratings is as follows: • Risk Rate 1 – Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength. • Risk Rate 2 – Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”). • Risk Rate 3 – Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters. • Risk Rate 4 – Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability. • Risk Rate 5 – Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent, or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices. • Risk Rate 6 – Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan. • Risk Rate 7 – Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status. • Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible. Loans acquired are evaluated using this internal grading system. Loans acquired are evaluated individually and include purchased credit impaired loans of $4.1 million and $17.1 million that are accounted for under ASC Topic 310-30 and are classified as substandard (Risk Rating 6) as of December 31, 2018 and 2017 , respectively. Of the remaining loans acquired and accounted for under ASC Topic 310-20, $50.4 million and $76.3 million were classified (Risk Ratings 6, 7 and 8 – see classified loans discussion below) at December 31, 2018 and 2017 , respectively. Purchased credit impaired loans are loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all amounts contractually owed. Their fair value was initially based on the estimate of cash flows, both principal and interest, expected to be collected or estimated collateral values if cash flows are not estimable, discounted at prevailing market rates of interest. The difference between the undiscounted cash flows expected at acquisition and the fair value at acquisition is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Classified loans for the Company include loans in Risk Ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. Loans rated 6 – 8 that fall under the threshold amount are not tested for impairment and therefore are not included in impaired loans. (2) Of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans. Total classified loans, excluding loans accounted for under ASC Topic 310-30, were $119.0 million and $175.6 million as of December 31, 2018 and 2017 , respectively. The following table presents a summary of loans by credit risk rating, segregated by class of loans. (In thousands) Risk Rate 1-4 Risk Rate 5 Risk Rate 6 Risk Rate 7 Risk Rate 8 Total December 31, 2018 Consumer: Credit cards $ 203,667 $ — $ 506 $ — $ — $ 204,173 Other consumer 198,840 — 2,457 — — 201,297 Total consumer 402,507 — 2,963 — — 405,470 Real estate: Construction 1,296,988 1,910 1,825 — — 1,300,723 Single family residential 1,420,052 1,628 18,528 235 — 1,440,443 Other commercial 3,193,289 17,169 14,829 — — 3,225,287 Total real estate 5,910,329 20,707 35,182 235 — 5,966,453 Commercial: Commercial 1,742,002 8,357 24,550 — — 1,774,909 Agricultural 162,824 75 1,615 — — 164,514 Total commercial 1,904,826 8,432 26,165 — — 1,939,423 Other 119,042 — — — — 119,042 Loans acquired 3,187,083 51,255 54,097 348 — 3,292,783 Total $ 11,523,787 $ 80,394 $ 118,407 $ 583 $ — $ 11,723,171 (In thousands) Risk Rate 1-4 Risk Rate 5 Risk Rate 6 Risk Rate 7 Risk Rate 8 Total December 31, 2017 Consumer: Credit cards $ 184,920 $ — $ 502 $ — $ — $ 185,422 Other consumer 275,160 — 4,934 — — 280,094 Total consumer 460,080 — 5,436 — — 465,516 Real estate: Construction 603,126 5,795 5,218 16 — 614,155 Single family residential 1,066,902 3,954 23,490 287 — 1,094,633 Other commercial 2,480,293 19,581 30,950 — — 2,530,824 Total real estate 4,150,321 29,330 59,658 303 — 4,239,612 Commercial: Commercial 736,377 74,254 14,402 50 134 825,217 Agricultural 146,065 24 2,190 23 — 148,302 Total commercial 882,442 74,278 16,592 73 134 973,519 Other 26,962 — — — — 26,962 Loans acquired 4,918,570 62,128 93,378 — — 5,074,076 Total $ 10,438,375 $ 165,736 $ 175,064 $ 376 $ 134 $ 10,779,685 Net (charge-offs)/recoveries for the years ended December 31, 2018 and 2017 , excluding loans acquired, segregated by class of loans, were as follows: (In thousands) 2018 2017 Consumer: Credit cards $ (3,046 ) $ (2,884 ) Other consumer (6,080 ) (1,528 ) Total consumer (9,126 ) (4,412 ) Real estate: Construction (1,775 ) 100 Single family residential (494 ) (1,045 ) Other commercial (2,645 ) (6,054 ) Total real estate (4,914 ) (6,999 ) Commercial: Commercial (5,878 ) (7,734 ) Agricultural — — Total commercial (5,878 ) (7,734 ) Total $ (19,918 ) $ (19,145 ) Allowance for Loan Losses Allowance for Loan Losses – The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310-10, Receivables , and allowance allocations calculated in accordance with ASC Topic 450-20, Loss Contingencies . Accordingly, the methodology is based on the Company’s internal grading system, specific impairment analysis, qualitative and quantitative factors. As mentioned above, allocations to the allowance for loan losses are categorized as either specific allocations or general allocations. A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan, including scheduled principal and interest payments. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for loan losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan. The general allocation is calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) external factors and pressure from competition, (6)the experience, ability and depth of lending management and staff, (7) seasoning of new products obtained and new markets entered through acquisition and (8) other factors and trends that will affect specific loans and categories of loans. The Company establishes general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2018 and 2017 . Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. (In thousands) Commercial Real Estate Credit Card Other Consumer and Other Total December 31, 2018 Balance, beginning of year (2) $ 7,007 $ 27,281 $ 3,784 $ 3,596 $ 41,668 Provision for loan losses (1) 19,385 7,376 3,185 4,903 34,849 Charge-offs (6,623 ) (5,905 ) (4,051 ) (6,637 ) (23,216 ) Recoveries 745 991 1,005 557 3,298 Net charge-offs (5,878 ) (4,914 ) (3,046 ) (6,080 ) (19,918 ) Balance, end of year (2) $ 20,514 $ 29,743 $ 3,923 $ 2,419 $ 56,599 Period-end amount allocated to: Loans individually evaluated for impairment $ 437 $ 247 $ — $ — $ 684 Loans collectively evaluated for impairment 20,077 29,496 3,923 2,419 55,915 Balance, end of year (2) $ 20,514 $ 29,743 $ 3,923 $ 2,419 $ 56,599 December 31, 2017 Balance, beginning of year (2) $ 7,739 $ 21,817 $ 3,779 $ 2,951 $ 36,286 Provision for loan losses (1) 7,002 12,463 2,889 2,173 24,527 Charge-offs (7,837 ) (7,989 ) (3,905 ) (3,767 ) (23,498 ) Recoveries 103 990 1,021 2,239 4,353 Net charge-offs (7,734 ) (6,999 ) (2,884 ) (1,528 ) (19,145 ) Balance, end of year (2) $ 7,007 $ 27,281 $ 3,784 $ 3,596 $ 41,668 Period-end amount allocated to: Loans individually evaluated for impairment $ — $ 338 $ — $ — $ 338 Loans collectively evaluated for impairment 7,007 26,943 3,784 3,596 41,330 Balance, end of year (2) $ 7,007 $ 27,281 $ 3,784 $ 3,596 $ 41,668 _________________________ (1) Provision for loan losses of $3,299,000 attributable to loans acquired was excluded from this table for the year ended December 31, 2018 (total provision for loan losses for the year ended December 31, 2018 was $38,148,000 ). There were $3,622,000 in charge-offs for loans acquired during the year ended December 31, 2018 resulting in an ending balance in the allowance related to loans acquired of $95,000 . Provision for loan losses of $1,866,000 attributable to loans acquired was excluded from this table for the year ended December 31, 2017 (total provision for loan losses for the year ended December 31, 2017 was $26,393,000 ). There were $2,400,000 in charge-offs for loans acquired during the year ended December 31, 2017 resulting in an ending balance in the allowance related to loans |