Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2016

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 December 31, 2016 and 2015 is as follows:

(in thousands)	2016			2015
Commercial, financial, and agricultural		$	182,881		$	149,091
Real estate construction - residential			18,907			16,895
Real estate construction - commercial			55,653			33,943
Real estate mortgage - residential			259,900			256,086
Real estate mortgage - commercial			426,470			385,869
Installment and other consumer			30,218			23,196
Total loans		$	974,029		$	865,080

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 the greater Kansas City metropolitan area. 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 vehicles. At December 31, 2016, loans with a carrying value of $491.1 million, or $403.6 million fair value, were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

The following is a summary of loans to directors and executive officers or to entities in which such individuals had a beneficial interest of the Company, are summarized as follows:

(in thousands)
Balance at December 31, 2015	$	3,376
New loans		64
Amounts collected		(167)
Balance at December 31, 2016	$	3,273

Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the same time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present unfavorable features.

Allowance for loan losses

The following is a summary of the allowance for loan losses for the years ended December 31, 2016, 2015, and 2014:

(in thousands)	Commercial, Financial, & Agricultural			Real Estate Construction - Residential			Real Estate Construction - Commercial			Real Estate Mortgage - Residential			Real Estate Mortgage - Commercial			Installment Loans to Individuals			Un- allocated			Total
Balance at December 31, 2013		$	2,374		$	931		$	631		$	2,959		$	6,523		$	294		$	7		$	13,719
Additions:
Provision for loan losses			371			(592)			326			(226)			(107)			195			33			0
Deductions:
Loans charged off			1,285			349			491			408			2,890			405			0			5,828
Less recoveries on loans			(319)			(181)			0			(202)			(320)			(186)			0			(1,208)
Net loans charged off			966			168			491			206			2,570			219			0			4,620
Balance at December 31, 2014		$	1,779		$	171		$	466		$	2,527		$	3,846		$	270		$	40		$	9,099
Additions:
Provision for loan losses			833			(434)			193			153			(713)			157			61			250
Deductions:
Loans charged off			1,131			0			15			379			363			302			0			2,190
Less recoveries on loans			(672)			(322)			0			(138)			(165)			(148)			0			(1,445)
Net loans charged off			459			(322)			15			241			198			154			0			745
Balance at December 31, 2015		$	2,153		$	59		$	644		$	2,439		$	2,935		$	273		$	101		$	8,604
Additions:
Provision for loan losses			690			49			(732)			381			865			113			59			1,425
Deductions:
Loans charged off			389			0			1			495			147			258			0			1,290
Less recoveries on loans			(299)			0			(502)			(60)			(140)			(146)			0			(1,147)
Net loans charged off			90			0			(501)			435			7			112			0			143
Balance at December 31, 2016		$	2,753		$	108		$	413		$	2,385		$	3,793		$	274		$	160		$	9,886

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 December 31, 2016 and 2015, and the related loan balance by impairment methodology.

(in thousands)	Commercial, Financial, and Agricultural			Real Estate Construction - Residential			Real Estate Construction - Commercial			Real Estate Mortgage - Residential			Real Estate Mortgage - Commercial			Installment Loans to Individuals			Un- allocated			Total
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment		$	469		$	0		$	7		$	319		$	277		$	8		$	0		$	1,080
Collectively evaluated for impairment			2,284			108			406			2,066			3,516			266			160			8,806
Total		$	2,753		$	108		$	413		$	2,385		$	3,793		$	274		$	160		$	9,886
Loans outstanding:
Individually evaluated for impairment		$	1,617		$	0		$	49		$	5,471		$	1,918		$	89		$	0		$	9,144
Collectively evaluated for impairment			181,264			18,907			55,604			254,429			424,552			30,129			0			964,885
Total		$	182,881		$	18,907		$	55,653		$	259,900		$	426,470		$	30,218		$	0		$	974,029

December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment		$	285		$	0		$	15		$	955		$	266		$	19		$	0		$	1,540
Collectively evaluated for impairment			1,868			59			629			1,484			2,669			254			101			7,064
Total		$	2,153		$	59		$	644		$	2,439		$	2,935		$	273		$	101		$	8,604
Loans outstanding:
Individually evaluated for impairment		$	1,005		$	0		$	102		$	5,936		$	3,081		$	144		$	0		$	10,268
Collectively evaluated for impairment			148,086			16,895			33,841			250,150			382,788			23,052			0			854,812
Total		$	149,091		$	16,895		$	33,943		$	256,086		$	385,869		$	23,196		$	0		$	865,080

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 $9.1 million and $10.3 million at December 31, 2016 and 2015, 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 December 31, 2016 and 2015, $4.5 million and $6.4 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 December 31, 2016, $1.1 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $9.1 million compared to $1.5 million of the Company’s allowance for loan losses allocated to impaired loans totaling approximately $10.3 million at December 31, 2015. Management determined that $2.1 million, or 23%, of total impaired loans required no reserve allocation at December 31, 2016 compared to $4.5 million, or 44%, at December 31, 2015 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

The categories of impaired loans at December 31, 2016 and 2015 are as follows:

(in thousands)	2016			2015
Non-accrual loans		$	3,429		$	4,418
Performing TDRs			5,715			5,850
Total impaired loans		$	9,144		$	10,268

The following tables provide additional information about impaired loans at December 31, 2016 and 2015, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

(in thousands)	Recorded Investment			Unpaid Principal Balance			Specific Reserves
December 31, 2016
With no related allowance recorded:
Commercial, financial and agricultural		$	564		$	706		$	0
Real estate - residential			1,550			1,557			0
Total		$	2,114		$	2,263		$	0
With an allowance recorded:
Commercial, financial and agricultural		$	1,053		$	1,078		$	469
Real estate - construction commercial			49			56			7
Real estate - residential			3,921			3,990			319
Real estate - commercial			1,918			1,988			277
Consumer			89			116			8
Total		$	7,030		$	7,228		$	1,080
Total impaired loans		$	9,144		$	9,491		$	1,080

(in thousands)	Recorded Investment			Unpaid Principal Balance			Specific Reserves
December 31, 2015
With no related allowance recorded:
Commercial, financial and agricultural		$	448		$	450		$	0
Real estate - residential			1,645			1,712			0
Real estate - commercial			2,446			2,572			0
Total		$	4,539		$	4,734		$	0
With an allowance recorded:
Commercial, financial and agricultural		$	557		$	572		$	285
Real estate - construction commercial			102			115			15
Real estate - residential			4,291			4,320			955
Real estate - commercial			635			884			266
Consumer			144			182			19
Total		$	5,729		$	6,073		$	1,540
Total impaired loans		$	10,268		$	10,807		$	1,540

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2016 and 2015:

	2016						2015
(in thousands)	Average Recorded Investment			Interest Recognized For the Period Ended			Average Recorded Investment			Interest Recognized For the Period Ended
With no related allowance recorded:
Commercial, financial and agricultural		$	669		$	13		$	2,949		$	39
Real estate - construction residential			0			0			536			0
Real estate - construction commercial			0			0			1,105			0
Real estate - residential			1,713			52			2,331			37
Real estate - commercial			353			0			5,169			119
Consumer			0			0			7			1
Total		$	2,735		$	65		$	12,097		$	196
With an allowance recorded:
Commercial, financial and agricultural		$	899		$	23		$	1,356		$	22
Real estate - construction commercial			51			0			52			0
Real estate - residential			3,553			114			4,625			110
Real estate - commercial			1,842			83			1,161			0
Consumer			109			0			183			0
Total		$	6,454		$	220		$	7,377		$	132
Total impaired loans		$	9,189		$	285		$	19,474		$	328

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 $285,000 and $328,000, for the years ended December 31, 2016 and 2015, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the years 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 collectability 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 collectability 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 December 31, 2016 and 2015.

(in thousands)	Current or Less Than 30 Days Past Due			30-89 Days Past Due			90 Days Past Due And Still Accruing			Non-Accrual			Total
December 31, 2016
Commercial, Financial, and Agricultural		$	181,609		$	290		$	0		$	982		$	182,881
Real Estate Construction - Residential			18,681			226			0			0			18,907
Real Estate Construction - Commercial			55,603			0			0			50			55,653
Real Estate Mortgage - Residential			254,758			3,200			54			1,888			259,900
Real Estate Mortgage - Commercial			425,260			790			0			420			426,470
Installment and Other Consumer			29,920			198			11			89			30,218
Total		$	965,831		$	4,704		$	65		$	3,429		$	974,029
December 31, 2015
Commercial, Financial, and Agricultural		$	148,597		$	185		$	1		$	308		$	149,091
Real Estate Construction - Residential			16,895			0			0			0			16,895
Real Estate Construction - Commercial			33,776			65			0			102			33,943
Real Estate Mortgage - Residential			251,253			2,511			0			2,322			256,086
Real Estate Mortgage - Commercial			383,684			643			0			1,542			385,869
Installment and Other Consumer			22,840			207			5			144			23,196
Total		$	857,045		$	3,611		$	6		$	4,418		$	865,080

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 December 31, 2016 and 2015.

(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 December 31, 2016
Watch		$	10,295		$	665		$	1,113		$	16,577		$	44,611		$	0		$	73,261
Substandard			798			640			0			2,159			426			24			4,047
Performing TDRs			635			0			0			3,582			1,498			0			5,715
Non-accrual			982			0			50			1,888			420			89			3,429
Total		$	12,710		$	1,305		$	1,163		$	24,206		$	46,955		$	113		$	86,452
At December 31, 2015
Watch		$	8,663		$	1,267		$	1,296		$	22,191		$	24,303		$	186		$	57,906
Substandard			421			0			37			3,737			1,485			36			5,716
Performing TDRs			697			0			0			3,615			1,538			0			5,850
Non-accrual			308			0			102			2,322			1,542			144			4,418
Total		$	10,089		$	1,267		$	1,435		$	31,865		$	28,868		$	366		$	73,890

Troubled Debt Restructurings

At December 31, 2016, loans classified as TDRs totaled $6.3 million, of which $619,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.7 million were classified as performing TDRs. At December 31, 2015, TDRs totaled $6.4 million, of which $527,000 were classified as nonperforming TDRs included in non-accrual loans and $5.9 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 $410,000 and $1.0 million related to TDRs were allocated to the allowance for loan losses at December 31, 2016 and 2015, respectively.

The following table summarizes loans that were modified as TDRs during the years ended December 31, 2016 and 2015.

	2016								2015
	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		0		$	0		$	0		2		$	250		$	229
Real estate mortgage - residential		7			536			536		1			519			374
Real estate mortgage - commercial		0			0			0		4			1,273			1,249
Total		7		$	536		$	536		7		$	2,042		$	1,852

(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. During the year ended December 31, 2016, seven loans meeting the TDR criteria were modified compared to seven loans during the year ended December 31, 2015.

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 three TDRs that defaulted during the year ended December 31, 2016 within twelve months of its modification date compared to no loans during the year ended December 31, 2015. Two of the loans have been charged off and one is in the process of an insurance settlement.

- 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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