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Loans and Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2015
Loans and Leases Receivable Disclosure [Abstract]  
Loans and Allowance for Loan Losses
(2) Loans and Allowance for Loan Losses

 

Loans

 

A summary of loans, by major class within the Company’s loan portfolio, at March 31, 2015 and December 31, 2014 is as follows:

 

    March 31,     December 31,  
(in thousands)   2015     2014  
             
Commercial, financial, and agricultural   $ 152,496     $ 154,834  
Real estate construction - residential     15,557       18,103  
Real estate construction - commercial     48,337       48,822  
Real estate mortgage - residential     249,956       247,117  
Real estate mortgage - commercial     376,566       372,321  
Installment and other consumer     20,255       20,016  
                 
Total loans   $ 863,167     $ 861,213  

 

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, 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 March 31, 2015, loans with a carrying value of $409.6 million, or $341.4 million fair value, 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 March 31, 2015  
    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   $ 1,779     $ 171     $ 466     $ 2,527     $ 3,846     $ 270     $ 40     $ 9,099  
Additions:                                                                
Provision for loan losses     (185 )     (300 )     (92 )     241       259       (67 )     144       0  
Deductions:                                                                
Loans charged off     28       0       0       71       24       48       0       171  
Less recoveries on loans     (575 )     (177 )     0       (12 )     (34 )     (35 )     0       (833 )
Net loans charged off     (547 )     (177 )     0       59       (10 )     13       0       (662 )
                                                                 
Balance at end of period   $ 2,141     $ 48     $ 374     $ 2,709     $ 4,115     $ 190     $ 184     $ 9,761  

 

    Three Months Ended March 31, 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     93       (392 )     333       139       (153 )     (13 )     (7 )     0  
Deductions:                                                                
Loans charged off     131       60       414       120       367       84       0       1,176  
Less recoveries on loans     (116 )     0       0       (112 )     (16 )     (58 )     0       (302 )
Net loans charged off     15       60       414       8       351       26       0       874  
                                                                 
Balance at end of period   $ 2,452     $ 479     $ 550     $ 3,090     $ 6,019     $ 255     $ 0     $ 12,845  

 

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 March 31, 2015 and December 31, 2014, 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  
                                                 
March 31, 2015                                                              
                                                                 
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 667     $ 0     $ 0     $ 1,284     $ 462     $ 27     $ 0     $ 2,440  
Collectively evaluated for impairment     1,474       48       374       1,425       3,653       163       184       7,321  
Total   $ 2,141     $ 48     $ 374     $ 2,709     $ 4,115     $ 190     $ 184     $ 9,761  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 7,116     $ 1,743     $ 2,096     $ 7,070     $ 10,263     $ 218     $ 0     $ 28,506  
Collectively evaluated for impairment     145,380       13,814       46,241       242,886       366,303       20,037       0       834,661  
Total   $ 152,496     $ 15,557     $ 48,337     $ 249,956     $ 376,566     $ 20,255     $ 0     $ 863,167  
                                                                 
December 31, 2014                                                                
                                                                 
Allowance for loan losses:                                                                
Individually evaluated for impairment   $ 134     $ 0     $ 0     $ 1,343     $ 246     $ 26     $ 0     $ 1,749  
Collectively evaluated for impairment     1,645       171       466       1,184       3,600       244       40       7,350  
Total   $ 1,779     $ 171     $ 466     $ 2,527     $ 3,846     $ 270     $ 40     $ 9,099  
Loans outstanding:                                                                
Individually evaluated for impairment   $ 7,541     $ 1,750     $ 2,096     $ 7,878     $ 16,464     $ 234     $ 0     $ 35,963  
Collectively evaluated for impairment     147,293       16,353       46,726       239,239       355,857       19,782       0       825,250  
Total   $ 154,834     $ 18,103     $ 48,822     $ 247,117     $ 372,321     $ 20,016     $ 0     $ 861,213  

 

Impaired Loans

 

Loans evaluated under ASC 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 individually evaluated for impairment totaled $28.5 million and $36.0 million at March 31, 2015 and December 31, 2014, respectively, and are comprised of loans on non-accrual status and loans, which have been classified as troubled debt restructurings.

 

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 March 31, 2015 and December 31, 2014, $21.5 million and $15.6 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 March 31, 2015, $2.4 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $28.5 million compared to $1.7 million of the Company’s allowance for loan losses allocated to impaired loans totaling approximately $36.0 million at December 31, 2014. Management determined that $20.8 million, or 73%, of total impaired loans required no reserve allocation at March 31, 2015 compared to $28.5 million, or 79%, at December 31, 2014 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability. 

 

 

The categories of impaired loans at March 31, 2015 and December 31, 2014 are as follows:

 

    March 31,     December 31,  
(in thousands)   2015     2014  
Non-accrual loans   $ 17,152     $ 18,243  
Troubled debt restructurings continuing to accrue interest     11,354       17,720  
Total impaired loans   $ 28,506     $ 35,963  

 

The following tables provide additional information about impaired loans at March 31, 2015 and December 31, 2014, 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  
                   
March 31, 2015                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 5,319     $ 5,531     $ 0  
Real estate - construction residential     1,743       2,143       0  
Real estate - construction commercial     2,096       2,319       0  
Real estate - residential     2,617       3,057       0  
Real estate - commercial     8,983       11,119          
Consumer     17       17       0  
Total   $ 20,775     $ 24,186     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,797     $ 1,798     $ 667  
Real estate - construction residential     0       0       0  
Real estate - construction commercial     0       0       0  
Real estate - residential     4,453       4,516       1,284  
Real estate - commercial     1,280       1,385       462  
Consumer     201       244       27  
Total   $ 7,731     $ 7,943     $ 2,440  
Total impaired loans   $ 28,506     $ 32,129     $ 2,440  

 

 

          Unpaid        
    Recorded     Principal     Specific  
(in thousands)   Investment     Balance     Reserves  
                   
December 31, 2014                        
With no related allowance recorded:                        
Commercial, financial and agricultural   $ 6,021     $ 6,232     $ 0  
Real estate - construction residential     1,750       2,259       0  
Real estate - construction commercial     2,096       2,319       0  
Real estate - residential     3,213       3,270       0  
Real estate - commercial     15,409       18,950       0  
Consumer     36       36       0  
Total   $ 28,525     $ 33,066     $ 0  
With an allowance recorded:                        
Commercial, financial and agricultural   $ 1,520     $ 1,528     $ 134  
Real estate - construction residential     0       0       0  
Real estate - construction commercial     0       0       0  
Real estate - residential     4,665       3,546       1,343  
Real estate - commercial     1,055       1,171       246  
Consumer     198       237       26  
Total   $ 7,438     $ 6,482     $ 1,749  
Total impaired loans   $ 35,963     $ 39,548     $ 1,749  

 

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 March 31,  
    2015     2014  
          Interest           Interest  
    Average     Recognized     Average     Recognized  
    Recorded     For the     Recorded     For the  
(in thousands)   Investment     Period Ended     Investment     Period Ended  
With no related allowance recorded:                                
Commercial, financial and agricultural   $ 5,525     $ 20     $ 2,496     $ 21  
Real estate - construction residential     2,143       0       117       0  
Real estate - construction commercial     2,319       0       6,998       0  
Real estate - residential     3,180       12       2,901       6  
Real estate - commercial     10,899       65       11,809       66  
Consumer     28       0       25       0  
Total   $ 24,094     $ 97     $ 24,346     $ 93  
With an allowance recorded:                                
Commercial, financial and agricultural   $ 1,798     $ 6     $ 2,341     $ 8  
Real estate - construction residential     0       0       2,271       0  
Real estate - construction commercial     0       0       105       0  
Real estate - residential     4,457       26       5,479       40  
Real estate - commercial     1,286       0       4,594       0  
Consumer     237       0       343       0  
Total   $ 7,778     $ 32     $ 15,133     $ 48  
Total impaired loans   $ 31,872     $ 129     $ 39,479     $ 141  

 

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 $129,000 and $141,000, for the three months ended March 31, 2015 and 2014, 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 $241,000 and $289,000, for the three months ended March 31, 2015 and 2014, 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 March 31, 2015 and December 31, 2014.

 

    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  
                               
March 31, 2015                                        
Commercial, Financial, and Agricultural   $ 147,407     $ 372     $ 37     $ 4,680     $ 152,496  
Real Estate Construction - Residential     13,622       192       0       1,743       15,557  
Real Estate Construction - Commercial     46,185       56       0       2,096       48,337  
Real Estate Mortgage - Residential     243,279       3,189       14       3,474       249,956  
Real Estate Mortgage - Commercial     370,796       238       592       4,940       376,566  
Installment and Other Consumer     19,891       143       2       219       20,255  
Total   $ 841,180     $ 4,190     $ 645     $ 17,152     $ 863,167  
                                         
December 31, 2014                                        
Commercial, Financial, and Agricultural   $ 149,366     $ 189     $ 0     $ 5,279     $ 154,834  
Real Estate Construction - Residential     16,352       0       0       1,751       18,103  
Real Estate Construction - Commercial     46,670       0       56       2,096       48,822  
Real Estate Mortgage - Residential     239,469       3,229       0       4,419       247,117  
Real Estate Mortgage - Commercial     366,653       1,203       0       4,465       372,321  
Installment and Other Consumer     19,551       230       2       233       20,016  
Total   $ 838,061     $ 4,851     $ 58     $ 18,243     $ 861,213  

 

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 one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. 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 March 31, 2015 and December 31, 2014.

 

(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  March 31, 2015                                                        
Watch   $ 11,290       196     $ 4,645     $ 26,907     $ 23,464     $ 205     $ 66,707  
Substandard     3,359       90       156       6,692       9,139       121       19,557  
Non-accrual     4,680       1,743       2,096       3,474       4,940       219       17,152  
Total   $ 19,329     $ 2,029     $ 6,897     $ 37,073     $ 37,543     $ 545     $ 103,416  
                                                         
At December 31, 2014                                                        
Watch   $ 13,651     $ 1,103     $ 4,757     $ 27,172     $ 18,191     $ 199     $ 65,073  
Substandard     3,188       90       1,211       6,583       16,101       139       27,312  
Non-accrual     5,279       1,751       2,096       4,419       4,465       233       18,243  
Total   $ 22,118     $ 2,944     $ 8,064     $ 38,174     $ 38,757     $ 571     $ 110,628  

 

Troubled Debt Restructurings

 

At March 31, 2015, loans classified as troubled debt restructurings (TDRs) totaled $13.4 million, of which $2.0 million were on non-accrual status and $11.4 million were on accrual status. At December 31, 2014, TDRs totaled $19.3 million, of which $1.6 million were on non-accrual status and $17.7 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 $1.3 million and $1.0 million related to TDRs were allocated to the allowance for loan losses at March 31, 2015 and December 31, 2014, respectively.

 

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

 

    Three Months Ended March 31,  
    2015     2014  
    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     $ 250     $ 250       2     $ 244     $ 244  
Real estate mortgage - residential     2       144       144       1       1,256       1,185  
Real estate mortgage - commercial     3       473       473       0       0       0  
Total     8     $ 867     $ 867       3     $ 1,500     $ 1,429  

 

(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 for the borrower given financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. During the three months ended March 31, 2015, eight loans meeting the TDR criteria were modified compared to three loans during the three months ended March 31, 2014. There were no loans modified as a TDR that defaulted during the three months ended March 31, 2015 and 2014, respectively, and within twelve months of their modification date. See Lending and Credit Management section for further information.