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Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 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 September 30, 2015 and December 31, 2014 is as follows:

		September 30,				December 31,
(in thousands)		2015				2014
Commercial, financial, and agricultural		$	173,485			$	154,834
Real estate construction - residential			13,531				18,103
Real estate construction - commercial			32,560				48,822
Real estate mortgage - residential			249,512				247,117
Real estate mortgage - commercial			388,220				372,321
Installment and other consumer			22,166				20,016
Total loans		$	879,474			$	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 September 30, 2015, loans with a carrying value of $396.4 million, or $330.5 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 September 30, 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		$	3,124			$	17			$	414			$	2,332			$	3,870			$	185			$	44			$	9,986
Additions:
Provision for loan losses			439				(27	)			137				(233	)			(503	)			66				121				0
Deductions:
Loans charged off			591				0				0				87				126				80				0				884
Less recoveries on loans			(28	)			(28	)			0				(45	)			(5	)			(38	)			0				(144	)
Net loans charged off			563				(28	)			0				42				121				42				0				740
Balance at end of period		$	3,000			$	18			$	551			$	2,057			$	3,246			$	209			$	165			$	9,246

		Nine Months Ended September 30, 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			1,319				(475	)			90				(277	)			(598	)			66				125				250
Deductions:
Loans charged off			741				0				5				298				159				241				0				1,444
Less recoveries on loans			(643	)			(322	)			0				(105	)			(157	)			(114	)			0				(1,341	)
Net loans (recovered) charged off			98				(322	)			5				193				2				127				0				103
Balance at end of period		$	3,000			$	18			$	551			$	2,057			$	3,246			$	209			$	165			$	9,246

		Three Months Ended September 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		$	1,943			$	473			$	618			$	2,405			$	6,428			$	274			$	9			$	12,150
Additions:
Provision for loan losses			(188	)			(94	)			(96	)			313				7				38				20				0
Deductions:
Loans charged off			105				0				0				41				80				71				0				297
Less recoveries on loans			(55	)			0				0				(26	)			(67	)			(32	)			0				(180	)
Net loans charged off			50				0				0				15				13				39				0				117
Balance at end of period		$	1,705			$	379			$	522			$	2,703			$	6,422			$	273			$	29			$	12,033

		Nine Months Ended September 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			(660	)			(553	)			382				(171	)			891				89				22				0
Deductions:
Loans charged off			291				59				491				236				1,152				270				0				2,499
Less recoveries on loans			(282	)			(60	)			0				(151	)			(160	)			(160	)			0				(813	)
Net loans charged off			9				(1	)			491				85				992				110				0				1,686
Balance at end of period		$	1,705			$	379			$	522			$	2,703			$	6,422			$	273			$	29			$	12,033

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 September 30, 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
September 30, 2015
Allowance for loan losses:
Individually evaluated for impairment		$	305			$	0			$	8			$	1,178			$	459			$	20			$	0			$	1,970
Collectively evaluated for impairment			2,695				18				543				879				2,787				189				165				7,276
Total		$	3,000			$	18			$	551			$	2,057			$	3,246			$	209			$	165			$	9,246
Loans outstanding:
Individually evaluated for impairment		$	3,643			$	0			$	54			$	6,891			$	3,481			$	141			$	0			$	14,210
Collectively evaluated for impairment			169,842				13,531				32,506				242,621				384,739				22,025				0				865,264
Total		$	173,485			$	13,531			$	32,560			$	249,512			$	388,220			$	22,166			$	0			$	879,474

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 $14.2 million and $36.0 million at September 30, 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 (TDRs).

The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At September 30, 2015 and December 31, 2014, $11.9 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 September 30, 2015, $2.0 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $14.2 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 $7.4 million, or 52%, of total impaired loans required no reserve allocation at September 30, 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 September 30, 2015 and December 31, 2014 are as follows:

		September 30,				December 31,
(in thousands)		2015				2014
Non-accrual loans		$	8,957			$	18,243
Troubled debt restructurings continuing to accrue interest			5,253				17,720
Total impaired loans		$	14,210			$	35,963

The following tables provide additional information about impaired loans at September 30, 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
September 30, 2015
With no related allowance recorded:
Commercial, financial and agricultural		$	2,877			$	3,403			$	0
Real estate - construction residential			0				0				0
Real estate - construction commercial			0				0				0
Real estate - residential			2,095				2,532				0
Real estate - commercial			2,450				2,579				0
Total		$	7,422			$	8,514			$	0
With an allowance recorded:
Commercial, financial and agricultural		$	766			$	778			$	305
Real estate - construction commercial			54				56				8
Real estate - residential			4,796				4,928				1,178
Real estate - commercial			1,031				1,315				459
Consumer			141				176				20
Total		$	6,788			$	7,253			$	1,970
Total impaired loans		$	14,210			$	15,767			$	1,970

						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 September 30,																Nine Months Ended September 30,
		2015								2014								2015								2014
						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		$	3,416			$	6			$	2,618			$	22			$	4,033			$	33			$	2,592			$	69
Real estate - construction residential			0				0				16				2				1,101				0				65				2
Real estate - construction commercial			0				0				6,524				0				2,002				0				6,737				0
Real estate - residential			2,326				5				3,941				26				2,924				26				3,374				40
Real estate - commercial			2,958				17				12,578				84				8,978				103				12,334				255
Consumer			0				0				0				0				10				1				11				0
Total		$	8,700			$	28			$	25,677			$	134			$	19,048			$	163			$	25,113			$	366
With an allowance recorded:
Commercial, financial and agricultural		$	787			$	5			$	1,940			$	4			$	1,389			$	18			$	2,128			$	19
Real estate - construction residential			0				0				2,260				0				0				0				2,263				0
Real estate - construction commercial			55				0				0				0				28				0				56				93
Real estate - residential			4,850				30				5,458				0				4,713				80				5,384				11
Real estate - commercial			1,228				0				4,587				28				1,216				0				4,695				0
Consumer			162				0				310				11				209				0				324				0
Total		$	7,082			$	35			$	14,555			$	43			$	7,555			$	98			$	14,850			$	123
Total impaired loans		$	15,782			$	63			$	40,232			$	177			$	26,603			$	261			$	39,963			$	489

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 $63,000 and $261,000, for the three months and nine months ended September 30, 2015, respectively, compared to $177,000 and $489,000 for the three and nine months ended September 30, 2014, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported.

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 Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectibility of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

The following table provides aging information for the Company’s past due and non-accrual loans at September 30, 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
September 30, 2015
Commercial, Financial, and Agricultural		$	170,230			$	424			$	0			$	2,831			$	173,485
Real Estate Construction - Residential			13,459				72				0				0				13,531
Real Estate Construction - Commercial			32,447				59				0				54				32,560
Real Estate Mortgage - Residential			244,144				1,431				348				3,589				249,512
Real Estate Mortgage - Commercial			385,253				625				0				2,342				388,220
Installment and Other Consumer			21,794				230				1				141				22,166
Total		$	867,327			$	2,841			$	349			$	8,957			$	879,474
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. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. 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 September 30, 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 September 30, 2015
Watch		$	12,500				1,249			$	1,146			$	27,451			$	28,987			$	193			$	71,526
Substandard			332				0				98				2,841				2,577				38				5,886
Performing TDRs			812				0				0				3,302				1,139				0				5,253
Non-accrual			2,831				0				54				3,589				2,342				141				8,957
Total		$	16,475			$	1,249			$	1,298			$	37,183			$	35,045			$	372			$	91,622
At December 31, 2014
Watch		$	13,651			$	1,103			$	4,757			$	27,172			$	18,191			$	199			$	65,073
Substandard			926				90				1,211				3,124				4,102				139				9,592
Performing TDRs			2,262				0				0				3,459				11,999				0				17,720
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 September 30, 2015, loans classified as TDRs totaled $6.7 million, of which $1.4 million were classified as nonperforming TDRs and included in non-accrual loans and $5.3 million were classified as performing TDRs. At December 31, 2014, TDRs totaled $19.3 million, of which $1.6 million were classified as nonperforming TDRs included in non-accrual loans and $17.7 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. 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 $1.2 million and $1.0 million related to TDRs were allocated to the allowance for loan losses at September 30, 2015 and December 31, 2014, respectively.

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

		Nine Months Ended September 30,
		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			$	240				3			$	244			$	225
Real estate mortgage - residential			3				510				352				1				1,256				1,171
Real estate mortgage - commercial			4				1,273				1,263				0				0				0
Total			10			$	2,033			$	1,855				4			$	1,500			$	1,396

(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 due to deteriorated financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. There were no modified loans that met the TDR criteria during the three months ended September 30, 2015 and 2014. During the nine months ended September 30, 2015, ten loans meeting the TDR criteria were modified compared to four loans during the nine months ended September 30, 2014.

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses, provided for as a specific reserve within the allowance for loan losses, or in the process of foreclosure. There were no TDRs that defaulted within twelve months of its modification date during the three and nine months ended September 30, 2015 and 2014, respectively.