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Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2017

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 September 30, 2017 and December 31, 2016 is as follows:

	September 30,		December 31,
(in thousands)	2017		2016
Commercial, financial, and agricultural	$	184,868	$	182,881
Real estate construction - residential		22,723		18,907
Real estate construction - commercial		91,102		55,653
Real estate mortgage - residential		250,736		259,900
Real estate mortgage - commercial		461,988		426,470
Installment and other consumer		33,630		30,218
Total loans	$	1,045,047	$	974,029

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 automotive vehicles. At September 30, 2017, $490.8 million of loans 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, 2017
	Commercial,			Real Estate			Real Estate		Real Estate			Real Estate			Installment
	Financial, &			Construction -			Construction -		Mortgage -			Mortgage -			and Other			Un-
(in thousands)	Agricultural			Residential			Commercial		Residential			Commercial			Consumer			allocated			Total
Balance at beginning of period	$	2,578		$	70		$	615	$	1,854		$	4,882		$	376		$	170		$	10,545
Additions:
Provision for loan losses		853			64			91		100			(426	)		32			(159	)		555
Deductions:
Loans charged off		37			0			0		68			4			56			0			165
Less recoveries on loans		(12	)		(12	)		0		(11	)		(5	)		(25	)		0			(65	)
Net loan charge-offs (recoveries)		25			(12	)		0		57			(1	)		31			0			100
Balance at end of period	$	3,406		$	146		$	706	$	1,897		$	4,457		$	377		$	11		$	11,000

	Nine Months Ended September 30, 2017
	Commercial,			Real Estate			Real Estate		Real Estate			Real Estate			Installment
	Financial, &			Construction -			Construction -		Mortgage -			Mortgage -			and Other			Un-
(in thousands)	Agricultural			Residential			Commercial		Residential			Commercial			Consumer			allocated			Total
Balance at beginning of period	$	2,753		$	108		$	413	$	2,385		$	3,793			274		$	160		$	9,886
Additions:
Provision for loan losses		695			(49	)		293		(407	)		658			194			(149	)		1,235
Deductions:
Loans charged off		97			0			0		149			20			167			0			433
Less recoveries on loans		(55	)		(87	)		0		(68	)		(26	)		(76	)		0			(312	)
Net loan charge-offs (recoveries)		42			(87	)		0		81			(6	)		91			0			121
Balance at end of period	$	3,406		$	146		$	706	$	1,897		$	4,457		$	377		$	11		$	11,000

	Three Months Ended September 30, 2016
	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	$	2,996		$	63		$	249	$	2,293		$	3,411		$	284		$	96	$	9,392
Additions:
Provision for loan losses		(94	)		(4	)		44		(152	)		450			50			6		300
Deductions:
Loans charged off		157			0			0		92			27			86			0		362
Less recoveries on loans		(26	)		0			0		(31	)		(36	)		(47	)		0		(140	)
Net loans charged off		131			0			0		61			(9	)		39			0		222
Balance at end of period	$	2,771		$	59		$	293	$	2,080		$	3,870		$	295		$	102	$	9,470

	Nine Months Ended September 30, 2016
	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	$	2,153		$	59	$	644		$	2,439		$	2,935		$	273		$	101	$	8,604
Additions:
Provision for loan losses		710			0		(852	)		66			944			106			1		975
Deductions:
Loans charged off		295			0		1			474			137			209			0		1,116
Less recoveries on loans		(203	)		0		(502	)		(49	)		(128	)		(125	)		0		(1,007	)
Net loans charged off		92			0		(501	)		425			9			84			0		109
Balance at end of period	$	2,771		$	59	$	293		$	2,080		$	3,870		$	295		$	102	$	9,470

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.

Beginning in the first quarter of 2016, the Company began to lengthen its look-back period with the intent to increase such period from three to five years over the next two years. The Company believes that the five-year look-back period, which is consistent with the Company’s practices prior to the start of the economic recession in 2008, provides a representative historical loss period in the current economic environment.

The following table provides the balance in the allowance for loan losses at September 30, 2017 and December 31, 2016, and the related loan balance by impairment methodology.

	Commercial,		Real Estate		Real Estate		Real Estate		Real Estate		Installment
	Financial, and		Construction -		Construction -		Mortgage -		Mortgage -		and Other		Un-
(in thousands)	Agricultural		Residential		Commercial		Residential		Commercial		Consumer		allocated		Total
September 30, 2017
Allowance for loan losses:
Individually evaluated for impairment	$	929	$	0	$	0	$	528	$	258	$	23	$	0	$	1,738
Collectively evaluated for impairment		2,477		146		706		1,369		4,199		354		11		9,262
Total	$	3,406	$	146	$	706	$	1,897	$	4,457	$	377	$	11	$	11,000
Loans outstanding:
Individually evaluated for impairment	$	3,522	$	0	$	0	$	5,173	$	2,023	$	168	$	0	$	10,886
Collectively evaluated for impairment		181,346		22,723		91,102		245,563		459,965		33,462		0		1,034,161
Total	$	184,868	$	22,723	$	91,102	$	250,736	$	461,988	$	33,630	$	0	$	1,045,047

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

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 $10.9 million and $9.1 million at September 30, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, $7.1 million and $4.5 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, 2017, $1.7 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $10.9 million compared to $1.1 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $9.1 million at December 31, 2016. Management determined that $2.8 million, or 26%, of total impaired loans required no reserve allocation at September 30, 2017 compared to $2.1 million, or 23%, at December 31, 2016 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

The categories of impaired loans at September 30, 2017 and December 31, 2016 are as follows:

	September 30,		December 31,
(in thousands)	2017		2016
Non-accrual loans	$	6,210	$	3,429
Performing TDRs		4,676		5,715
Total impaired loans	$	10,886	$	9,144

The following tables provide additional information about impaired loans at September 30, 2017 and December 31, 2016, 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, 2017
With no related allowance recorded:
Commercial, financial and agricultural	$	1,442	$	1,473	$	0
Real estate - residential		1,024		1,049		0
Real estate - commercial		366		529		0
Total	$	2,832	$	3,051	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	2,080	$	2,288	$	929
Real estate - residential		4,149		4,220		528
Real estate - commercial		1,657		1,887		258
Installment and other consumer		168		185		23
Total	$	8,054	$	8,580	$	1,738
Total impaired loans	$	10,886	$	11,631	$	1,738

			Unpaid
	Recorded		Principal		Specific
(in thousands)	Investment		Balance		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
Installment and other consumer		89		116		8
Total	$	7,030	$	7,228	$	1,080
Total impaired loans	$	9,144	$	9,491	$	1,080

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,
	2017				2016				2017				2016
			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	$	481	$	0	$	460	$	-9	$	478	$	0	$	491	$	18
Real estate - residential		341		0		2,050		27		1,412		0		1,640		63
Real estate - commercial		77		3		1,167		17		221		9		1,769		17
Installment and other consumer		0		0		0		0		22		0		0		0
Total	$	899	$	3	$	3,677	$	35	$	2,133	$	9	$	3,900	$	98
With an allowance recorded:
Commercial, financial and agricultural	$	694	$	8	$	1,398	$	-13	$	1,667	$	24	$	924	$	9
Real estate - construction commercial		0		0		51		0		37		0		64		0
Real estate - residential		1,383		33		2,992		20		4,090		121		3,741		78
Real estate - commercial		597		17		811		14		1,772		46		717		61
Installment and other consumer		56		0		118		-1		70		0		123		0
Total	$	2,730	$	58	$	5,370	$	20	$	7,636	$	191	$	5,569	$	148
Total impaired loans	$	3,629	$	61	$	9,047	$	55	$	9,769	$	200	$	9,469	$	246

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 $61,000 and $200,000, for the three months and nine months ended September 30, 2017, respectively, compared to $55,000 and $246,000 for the three and nine months ended September 30, 2016, 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 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 nine months.

The following table provides aging information for the Company’s past due and non-accrual loans at September 30, 2017 and December 31, 2016.

	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, 2017
Commercial, Financial, and Agricultural	$	181,781	$	82	$	0	$	3,005	$	184,868
Real Estate Construction - Residential		22,723		0		0		0		22,723
Real Estate Construction - Commercial		91,005		97		0		0		91,102
Real Estate Mortgage - Residential		247,462		1,063		117		2,094		250,736
Real Estate Mortgage - Commercial		460,339		706		0		943		461,988
Installment and Other Consumer		33,224		177		61		168		33,630
Total	$	1,036,534	$	2,125	$	178	$	6,210	$	1,045,047
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

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, 2017 and December 31, 2016.

(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, 2017
Watch	$	9,830	$	1,236	$	1,281	$	10,330	$	48,773	$	0	$	71,450
Substandard		900		462		97		2,296		728		20		4,503
Performing TDRs		517		0		0		3,080		1,079		0		4,676
Non-accrual		3,005		0		0		2,094		943		168		6,210
Total	$	14,252	$	1,698	$	1,378	$	17,800	$	51,523	$	188	$	86,839
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

Troubled Debt Restructurings

At September 30, 2017, loans classified as TDRs totaled $5.7 million, of which $1.0 million were classified as nonperforming TDRs and included in non-accrual loans and $4.7 million were classified as performing TDRs. 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. 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 $531,000 and $410,000 related to TDRs were allocated to the allowance for loan losses at September 30, 2017 and December 31, 2016, respectively.

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

	Three Months Ended September 30,
	2017						2016
	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	$	32	$	32
Real estate mortgage - residential		1		14		14		4		298		296
Total		1	$	14	$	14		6	$	330	$	328

	Nine Months Ended September 30,
	2017						2016
	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	$	131	$	130		2	$	32	$	32
Real estate mortgage - residential		1		14		14		5		376		374
Real estate mortgage - commercial		1		56		52		0		0		0
Total		3	$	201	$	196		7	$	408	$	406

(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. There was one loan and three loans meeting the TDR criteria during the three and nine months ended September 30, 2017, respectively, compared to six loans and seven loans during the three and nine months ended September 30, 2016, respectively.

The Company considers a TDR to be in default when it is 90 days or more past due under the modified terms, a charge-off occurs, or it is the process of foreclosure. There were no loans modified as a TDR that defaulted during the three months ended September 30, 2017 and 2016, respectively, and within twelve months of their modification date. See Lending and Credit Management section for further information.

- 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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