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Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2014

Loans and Leases Receivable Disclosure [Abstract]

(2)

Loans and Allowance for Loan Losses

Loans

A summary of loans, by major class within the Company’s loan portfolio, at June 30, 2014 and December 31, 2013 is as follows:

	June 30,		December 31,
*(in thousands)*	2014		2013

Commercial, financial, and agricultural	$	136,772	$	133,717
Real estate construction - residential		23,608		21,008
Real estate construction – commercial		63,298		55,076
Real estate mortgage - residential		233,671		225,541
Real estate mortgage - commercial		381,024		382,550
Installment and other consumer		19,088		21,655

Total loans	$	857,461	$	839,547

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Clinton, Warsaw, Springfield, Branson and Lee’s Summit, Missouri. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of automotive vehicles. At June 30, 2014, loans with a carrying value of $385.4 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

Allowance for Loan Losses

The following is a summary of the allowance for loan losses during the periods indicated.

	Three Months Ended June 30, 2014
	Commercial,			Real Estate			Real Estate		Real Estate			Real Estate			Installment
	Financial, &			Construction -			Construction -		Mortgage -			Mortgage -			Loans to			Un-
*(in thousands)*	Agricultural			Residential			Commercial		Residential			Commercial			Individuals			allocated		Total

Balance at beginning of period	$	2,452		$	479		$	550	$	3,090		$	6,019		$	255		$	0	$	12,845
Additions:
Provision for loan losses		(566	)		(65	)		145		(624	)		1,037			64			9		0
Deductions:
Loans charged off		54			0			77		75			705			114			0		1,025
Less recoveries on loans		(111	)		(59	)		0		(14	)		(77	)		(69	)		0		(330	)
Net loans charged off		(57	)		(59	)		77		61			628			45			0		695

Balance at end of period	$	1,943		$	473		$	618	$	2,405		$	6,428		$	274		$	9	$	12,150

	Six Months Ended June 30, 2014
	Commercial,			Real Estate			Real Estate		Real Estate			Real Estate			Installment
	Financial, &			Construction -			Construction -		Mortgage -			Mortgage -			Loans to			Un-
*(in thousands)*	Agricultural			Residential			Commercial		Residential			Commercial			Individuals			allocated		Total

Balance at beginning of period	$	2,374		$	931		$	631	$	2,959		$	6,523		$	294		$	7	$	13,719
Additions:
Provision for loan losses		(472	)		(458	)		478		(486	)		885			51			2		0
Deductions:
Loans charged off		186			60			491		194			1,073			198			0		2,202
Less recoveries on loans		(227	)		(60	)		0		(126	)		(93	)		(127	)		0		(633	)
Net loans charged off		(41	)		0			491		68			980			71			0		1,569

Balance at end of period	$	1,943		$	473		$	618	$	2,405		$	6,428		$	274		$	9	$	12,150

	Three Months Ended June 30, 2013
	Commercial,			Real Estate		Real Estate			Real Estate			Real Estate			Installment
	Financial, &			Construction -		Construction -			Mortgage -			Mortgage -			Loans to			Un-
*(in thousands)*	Agricultural			Residential		Commercial			Residential			Commercial			Individuals			allocated			Total

Balance at beginning of period	$	1,828		$	899	$	1,811		$	2,921		$	6,840		$	243		$	3		$	14,545
Additions:
Provision for loan losses		370			33		389			(399	)		591			18			(2	)		1,000
Deductions:
Loans charged off		101			0		0			95			28			70			0			294
Less recoveries on loans		(22	)		0		(2	)		(29	)		(12	)		(42	)		0			(107	)
Net loans charged off		79			0		(2	)		66			16			28			0			187

Balance at end of period	$	2,119		$	932	$	2,202		$	2,456		$	7,415		$	233		$	1		$	15,358

	Six Months Ended June 30, 2013
	Commercial,			Real Estate		Real Estate			Real Estate			Real Estate			Installment
	Financial, &			Construction -		Construction -			Mortgage -			Mortgage -			Loans to			Un-
*(in thousands)*	Agricultural			Residential		Commercial			Residential			Commercial			Individuals			allocated			Total

Balance at beginning of period	$	1,937		$	732	$	1,711		$	3,387		$	6,834		$	239		$	2		$	14,842
Additions:
Provision for loan losses		279			320		489			(588	)		1,436			65			(1	)		2,000
Deductions:
Loans charged off		162			120		0			387			1,027			179			0			1,875
Less recoveries on loans		(65	)		0		(2	)		(44	)		(172	)		(108	)		0			(391	)
Net loans charged off		97			120		(2	)		343			855			71			0			1,484

Balance at end of period	$	2,119		$	932	$	2,202		$	2,456		$	7,415		$	233		$	1		$	15,358

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.

The following table provides the balance in the allowance for loan losses at June 30, 2014 and December 31, 2013, and the related loan balance by impairment methodology.

	Commercial,		Real Estate		Real Estate		Real Estate		Real Estate		Installment
	Financial, and		Construction -		Construction -		Mortgage -		Mortgage -		Loans to		Un-
*(in thousands)*	Agricultural		Residential		Commercial		Residential		Commercial		Individuals		allocated		Total

June 30, 2014

Allowance for loan losses:
Individually evaluated for impairment	$	656	$	316	$	21	$	1,353	$	1,894	$	66	$	0	$	4,306
Collectively evaluated for impairment		1,287		157		597		1,052		4,534		208		9		7,844
Total	$	1,943	$	473	$	618	$	2,405	$	6,428	$	274	$	9	$	12,150
Loans outstanding:
Individually evaluated for impairment	$	4,500	$	2,088	$	5,832	$	7,875	$	16,217	$	287	$	0	$	36,799
Collectively evaluated for impairment		132,272		21,520		57,466		225,796		364,807		18,801		0		820,662
Total	$	136,772	$	23,608	$	63,298	$	233,671	$	381,024	$	19,088	$	0	$	857,461

December 31, 2013

Allowance for loan losses:
Individually evaluated for impairment	$	721	$	392	$	304	$	1,374	$	1,989	$	16	$	0	$	4,796
Collectively evaluated for impairment		1,653		539		327		1,585		4,534		278		7		8,923
Total	$	2,374	$	931	$	631	$	2,959	$	6,523	$	294	$	7	$	13,719
Loans outstanding:
Individually evaluated for impairment	$	4,015	$	2,204	$	6,615	$	6,517	$	15,422	$	43	$	0	$	34,816
Collectively evaluated for impairment		129,702		18,804		48,461		219,024		367,128		21,612		0		804,731
Total	$	133,717	$	21,008	$	55,076	$	225,541	$	382,550	$	21,655	$	0	$	839,547

Impaired Loans

Loans evaluated under the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans totaled $36.8 million and $35.1 million at June 30, 2014 and December 31, 2013, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings. Total impaired loans of $36.8 million at June 30, 2014 were individually evaluated for impairment compared to $34.8 million of impaired loans individually evaluated for impairment and $259,000 of non-accrual consumer loans that were collectively evaluated for impairment at December 31, 2013. Beginning in 2014, consumer non-accrual loans were included in the individually evaluated impairment calculations.

The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At June 30, 2014 and December 31, 2013, $12.5 million and $21.8 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated, a specific reserve allocation is recorded. At June 30, 2014, $4.3 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $36.8 million compared to $4.8 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $35.1 million at December 31, 2013. Management determined that $22.4 million, or 61%, of total impaired loans required no reserve allocation at June 30, 2014 compared to $18.8 million, or 54%, at December 31, 2013 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

The categories of impaired loans at June 30, 2014 and December 31, 2013 are as follows:

	June 30,		December 31,
*(in thousands)*	2014		2013
Non-accrual loans	$	25,685	$	23,680
Troubled debt restructurings continuing to accrue interest		11,114		11,395
Total impaired loans	$	36,799	$	35,075

The following tables provide additional information about impaired loans at June 30, 2014 and December 31, 2013, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

			Unpaid
	Recorded		Principal		Specific
*(in thousands)*	Investment		Balance		Reserves

June 30, 2014
With no related allowance recorded:
Commercial, financial and agricultural	$	2,432	$	2,557	$	0
Real estate - construction residential		23		57		0
Real estate - construction commercial		5,772		6,524		0
Real estate - residential		2,824		3,242		0
Real estate - commercial		11,350		12,613		0
Total	$	22,401	$	24,993	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	2,068	$	2,124	$	656
Real estate - construction residential		2,065		2,260		316
Real estate - construction commercial		60		62		21
Real estate - residential		5,051		5,196		1,353
Real estate - commercial		4,867		5,062		1,894
Consumer		287		321		66
Total	$	14,398	$	15,025	$	4,306
Total impaired loans	$	36,799	$	40,018	$	4,306

			Unpaid
	Recorded		Principal		Specific
*(in thousands)*	Investment		Balance		Reserves
December 31, 2013
With no related allowance recorded:
Commercial, financial and agricultural	$	2,467	$	2,593	$	0
Real estate - construction residential		44		80		0
Real estate - construction commercial		6,101		7,148		0
Real estate - residential		2,121		2,654		0
Real estate - commercial		7,817		8,056		0
Consumer		259		282		0
Total	$	18,809	$	20,813	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	1,548	$	1,607	$	721
Real estate - construction residential		2,160		2,331		392
Real estate - construction commercial		514		514		304
Real estate - residential		4,396		4,570		1,374
Real estate - commercial		7,605		7,925		1,989
Consumer		43		45		16
Total	$	16,266	$	16,992	$	4,796
Total impaired loans	$	35,075	$	37,805	$	4,796

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans during the periods indicated.

	Three Months Ended June 30,								Six Months Ended June 30,
	2014				2013				2014				2013
			Interest				Interest				Interest				Interest
	Average		Recognized		Average		Recognized		Average		Recognized		Average		Recognized
	Recorded		For the		Recorded		For the		Recorded		For the		Recorded		For the
*(in thousands)*	Investment		Period Ended		Investment		Period Ended		Investment		Period Ended		Investment		Period Ended
With no related allowance recorded:
Commercial, financial and agricultural	$	2,663	$	26	$	2,434	$	23	$	2,579	$	47	$	2,449	$	47
Real estate - construction residential		64		0		216		0		90		0		293		0
Real estate - construction commercial		6,688		0		3,227		0		6,844		0		3,242		1
Real estate - residential		3,281		8		2,084		0		3,091		14		2,087		0
Real estate - commercial		12,614		106		3,628		28		12,212		172		3,701		57
Consumer		8		0		248		1		16		0		254		2
Total	$	25,318	$	140	$	11,837	$	52	$	24,832	$	233	$	12,026	$	107
With an allowance recorded:
Commercial, financial and agricultural	$	2,103	$	7	$	2,042	$	20	$	2,222	$	15	$	2,049	$	32
Real estate - construction residential		2,260		0		2,273		0		2,265		0		2,273		0
Real estate - construction commercial		62		0		5,327		0		84		0		5,558		0
Real estate - residential		5,215		25		4,331		16		5,347		65		4,354		39
Real estate - commercial		4,904		0		16,143		46		4,749		0		16,506		96
Consumer		318		0		44		0		330		0		44		0
Total	$	14,862	$	32	$	30,160	$	82	$	14,997	$	80	$	30,784	$	167
Total impaired loans	$	40,180	$	172	$	41,997	$	134	$	39,829	$	313	$	42,810	$	274

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $172,000 and $313,000 for the three months and six months ended June 30, 2014, respectively, compared to $134,000 and $274,000 for the three and six months ended June 30, 2013, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported. Contractual interest lost on loans in non-accrual status was $304,000 and $594,000 for the three and six months ended June 30, 2014, respectively, compared to $297,000 and $660,000 for the three and six months ended June 30, 2013, respectively.

Delinquent and Non-Accrual Loans

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due.

The following table provides aging information for the Company’s past due and non-accrual loans at June 30, 2014 and December 31, 2013.

	Current or				90 Days
	Less Than				Past Due
	30 Days		30 - 89 Days		And Still
*(in thousands)*	Past Due		Past Due		Accruing		Non-Accrual		Total

June 30, 2014
Commercial, Financial, and Agricultural	$	133,981	$	440	$	79	$	2,272	$	136,772
Real Estate Construction - Residential		21,015		439		66		2,088		23,608
Real Estate Construction - Commercial		57,327		83		56		5,832		63,298
Real Estate Mortgage - Residential		226,321		2,606		355		4,389		233,671
Real Estate Mortgage - Commercial		368,599		1,608		0		10,817		381,024
Installment and Other Consumer		18,607		194		0		287		19,088
Total	$	825,850	$	5,370	$	556	$	25,685	$	857,461

December 31, 2013
Commercial, Financial, and Agricultural	$	131,091	$	942	$	0	$	1,684	$	133,717
Real Estate Construction - Residential		18,738		66		0		2,204		21,008
Real Estate Construction - Commercial		48,230		595		0		6,251		55,076
Real Estate Mortgage - Residential		217,179		4,068		129		4,165		225,541
Real Estate Mortgage - Commercial		372,651		725		100		9,074		382,550
Installment and Other Consumer		21,048		291		14		302		21,655
Total	$	808,937	$	6,687	$	243	$	23,680	$	839,547

Credit Quality

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when (1) one or more weaknesses that could jeopardize timely liquidation exits; or (2) the margin or liquidity of an asset is sufficiently tenuous that adverse trends could result in a collection problem. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. It is the Company's policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

The following table presents the risk categories by class at June 30, 2014 and December 31, 2013.

*(in thousands)*	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and other Consumer		Total

At June 30, 2014
Watch	$	17,633		1,178	$	5,437	$	27,151	$	22,844	$	250	$	74,493
Substandard		5,546		91		1,020		9,226		10,850		194		26,927
Non-accrual		2,272		2,088		5,832		4,389		10,817		287		25,685
Total	$	25,451	$	3,357	$	12,289	$	40,766	$	44,511	$	731	$	127,105

At December 31, 2013
Watch	$	15,016	$	2,007	$	6,111	$	26,331	$	23,662	$	388	$	73,515
Substandard		7,553		92		1,403		8,579		14,510		281		32,418
Non-accrual		1,684		2,204		6,251		4,165		9,074		302		23,680
Total	$	24,253	$	4,303	$	13,765	$	39,075	$	47,246	$	971	$	129,613

Troubled Debt Restructurings

At June 30, 2014, loans classified as troubled debt restructurings (TDRs) totaled $21.4 million, of which $10.3 million were on non-accrual status and $11.1 million were on accrual status. At December 31, 2013, TDRs totaled $21.5 million, of which $10.1 million were on non-accrual status and $11.4 million were on accrual status. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $1.6 million and $2.2 million related to TDRs were allocated to the allowance for loan losses at June 30, 2014 and December 31, 2013, respectively.

The following table summarizes loans that were modified as TDRs during the periods indicated.

	Three Months Ended June 30,
	2014						2013
	Recorded Investment (1)						Recorded Investment (1)
*(in thousands)*	Number of Contracts		Pre- Modification		Post- Modification		Number of Contracts		Pre- Modification		Post- Modification
Troubled Debt Restructurings
Commercial, financial and agricultural		1	$	72	$	72		0	$	0	$	0
Total		1	$	72	$	72		0	$	0	$	0

	Six Months Ended June 30,
	2014						2013
	Recorded Investment (1)						Recorded Investment (1)
*(in thousands)*	Number of Contracts		Pre- Modification		Post- Modification		Number of Contracts		Pre- Modification		Post- Modification
Troubled Debt Restructurings
Commercial, financial and agricultural		3	$	244	$	244		0	$	0	$	0
Real estate mortgage - residential		1		1,256		1,185		1		619		619
Total		4	$	1,500	$	1,429		1	$	619	$	619

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon during the period ended are not reported.

The Company’s portfolio of loans classified as TDRs include concessions such as interest rates below the current market rate for the borrower given financial condition, deferring principal payments, and extending maturity dates. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, charged-off, or the collateral for the loan is foreclosed and sold. The Company considers a loan in TDR status in default when the borrower’s payment according to the modified terms is at least 90 days past due or has defaulted due to expiration of the loan’s maturity date. During the three months ended June 30, 2014 one loan meeting the TDR criteria was modified compared to no loans during the three months ended June 30, 2013. During the six months ended June 30, 2014, four loans meeting the TDR criteria were modified compared to one loan during the six months ended June 30, 2013. There were no loans modified as a TDR that defaulted during the three and six months ended June 30, 2014 and 2013, respectively, and within twelve months of their modification date.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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