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Loans and Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
Loans and Allowance for Loan Losses Loans and Allowance for Credit Losses
Loans
Major classifications within the Company’s held for investment loan portfolio at March 31, 2023 and December 31, 2022 were as follows:
(in thousands)March 31, 2023December 31, 2022
Commercial, financial, and agricultural$227,992 $244,549 
Real estate construction − residential44,46732,095
Real estate construction − commercial157,860137,235
Real estate mortgage − residential363,634361,025
Real estate mortgage − commercial725,573722,729
Installment and other consumer22,54823,619
Total loans held for investment$1,542,074 $1,521,252 
The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, St. Louis, 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. Accrued interest on loans totaled $5.9 million and $6.4 million at March 31, 2023 and December 31, 2022, respectively, and is included in the accrued interest receivable on the Company's Consolidated Balance Sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. At March 31, 2023, loans of $598.1 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.
Allowance for Credit Losses
The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. The allowance for credit losses is a valuation account that is deducted from loans amortized cost basis to present the net amount expected to be collected on the instrument. Expected recoveries are included in the allowance and do not exceed the
aggregate of amounts previously charged-off and expected to be charged-off. Loans are charged off against the allowance for credit losses when management believes the balance has become uncollectible.
For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using relevant peer historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and the Company's outstanding loan balances during a lookback period. The Company chose to use relevant peer loan loss data due to statistical relevance concerns, low observation counts, historical data limitations, and the inability to secure loans through the cycle loan-level data. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a single path economic forecast of a single macroeconomic variable, which is the civilian unemployment rate. The adjustments are based on results from various regression models projecting the impact of the selected macroeconomic variable to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast adjusted loss rate is applied to the loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications. Credit cards and certain similar consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to outstanding balances. Agriculture loans also use the remaining life methodology for estimating life of loan losses. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company maintains a separate allowance for credit losses for off-balance-sheet credit exposures, including unfunded loan commitments, unless the associated obligation is unconditionally cancellable by the Company. This allowance is included in other liabilities on the consolidated balance sheets with associated expense recognized as a component of the provision for credit losses on the consolidated statements of income. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded.
Sensitivity in the Allowance for Credit Loss Model
The allowance for credit losses is an estimate that requires significant judgment, including projections of the macroeconomic environment. The forecasted macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.
The following table illustrates the changes in the allowance for credit losses by portfolio segment:
Three Months Ended March 31, 2023
(in thousands)Commercial, Financial, & AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
Balance at beginning of period$2,735 $157 $875 $3,329 $8,000 $326 $166 $15,588 
Adoption of ASU 2016-13(649)291 2,894 1,890 1,613 (80)(166)5,793 
Balance at January 1, 20232,086 448 3,769 5,219 9,613 246 — 21,381 
Provision for (release of ) credit losses (1)(144)18369541(123)6(8)650
Loans charged off30———558—93
Less recoveries on loans(9)——(2)(2)(28)—(41)
Net loan charge-offs (recoveries)21——(2)330—52
Balance at end of period$1,921 $631 $4,464 $5,262 $9,487 $222 $(8)$21,979 
Liability for Unfunded Commitments
Balance at beginning of period$— $— $— $— $— $— $— $— 
Adoption of ASU 2016-13104 341 569 107 150 1 — 1,272 
Balance at January 1, 2023104 341 569 107 150 1 — 1,272 
Provision for credit losses on unfunded commitments2048(7)3(8)—(26)30
Balance at end of period$124 $389 $562 $110 $142 $1 $(26)$1,302 
Allowance for credit losses on loans and liability for unfunded commitments$2,045 $1,020 $5,026 $5,372 $9,629 $223 $(34)$23,281 
Three Months Ended March 31, 2022
(in thousands)Commercial, Financial, & AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
Balance at beginning of period$2,717 $137 $588 $2,482 $10,662 $256 $61 $16,903 
Provision for (release of ) loan losses (1)128(77)7693(2,897)56121(2,500)
Loans charged off35———7556—166
Less recoveries on loans(20)——(3)(2)(17)—(42)
Net loan charge-offs (recoveries)15——(3)7339—124
Balance at end of period$2,830 $60 $664 $2,578 $7,692 $273 $182 $14,279 
(1) Beginning January 1, 2023, calculation is based on CECL methodology. Prior to January 1, 2023, calculation was based on probable incurred loss methodology.
On January 1, 2023, the Company's adoption of the CECL methodology resulted in an increase to the allowance for credit losses of $5.8 million and a liability for unfunded commitments totaling $1.3 million. Under the CECL methodology, the Company recorded a $0.7 million provision for credit losses in the first quarter of 2023 compared to a $2.5 million release of provision for loan losses in the first quarter of 2022 under the incurred-loss method.
Collateral-Dependent loans
Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Under the CECL methodology, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance on the fair value of collateral.
The allowance is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and the loan’s amortized cost. If the fair value of the collateral exceeds the loan’s amortized cost, no allowance is necessary. The Company’s policy is to obtain appraisals on any significant pieces of collateral. Higher discounts are applied in determining fair value for real estate collateral in industries that are undergoing significant stress, or for properties that are specialized use or have limited marketability.
There have been no significant changes to the types of collateral securing the Company's collateral-dependent loans since December 31, 2022.

The amortized cost of collateral-dependent loans by class as of March 31, 2023 was as follows:
Collateral Type
(in thousands)Real EstateOtherAllowance Allocated
March 31, 2023
Commercial, financial, and agricultural$— $50 $— 
Real estate mortgage − residential149 — 63 
Real estate mortgage − commercial18,228 — — 
Total$18,377 $50 $63 
Impaired Loans
The following impaired loans disclosures were superseded by ASU 2016-13.
The following table illustrates the allowance for loan losses and recorded investment by portfolio segment based on the impairment method:
(in thousands)Commercial, Financial, and AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
December 31, 2022
Allowance for loan losses:
Individually evaluated for impairment$36 $— $11 $148 $62 $1 $— $258 
Collectively evaluated for impairment2,699 157 864 3,181 7,938 325 166 15,330 
Total$2,735 $157 $875 $3,329 $8,000 $326 $166 $15,588 
Loans outstanding:
Individually evaluated for impairment$295 $— $87 $1,863 $18,110 $6 $— $20,361 
Collectively evaluated for impairment244,254 32,095 137,148 359,162 704,619 23,613 — 1,500,891 
Total$244,549 $32,095 $137,235 $361,025 $722,729 $23,619 $— $1,521,252 
Loans evaluated under Accounting Standards Codification (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 $20.4 million at December 31, 2022, and were comprised of loans on non-accrual status and loans classified as TDRs.
The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals, internal evaluations, or by discounting the total expected future cash flows. At December 31, 2022, $17.7 million of impaired loans were evaluated based on the fair value less estimated selling costs of the loans' collateral.
The categories of impaired loans at December 31, 2022 were as follows:
(in thousands)December 31, 2022
Non-accrual loans$18,700 
Performing TDRs1,661
Total impaired loans$20,361 
The following tables presents loans individually evaluated for impairment at December 31, 2022, segregated between loans for which an allowance was provided and loans for which no allowance was provided.
(in thousands)Recorded InvestmentUnpaid Principal BalanceSpecific ReservesAverage Recorded Investment
December 31, 2022   
With no related allowance recorded:   
Real estate mortgage − residential$— $— $— $1 
Real estate mortgage − commercial17,664 18,975 — 16,230 
Total$17,664 $18,975 $— $16,231 
With an allowance recorded:
Commercial, financial and agricultural$295 $330 $36 $319 
Real estate construction − commercial87 127 11 93 
Real estate mortgage − residential1,863 2,080 148 2,189 
Real estate mortgage − commercial446 535 62 428 
Installment and other consumer6 6 1 90 
Total$2,697 $3,078 $258 $3,119 
Total impaired loans$20,361 $22,053 $258 $19,350 
Credit Quality
The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment.
•Pass - loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell in a timely manner, of any underlying collateral.
•Watch - loans which have one or more weaknesses identified that may result in the borrower being unable to meet repayment terms or when the Company’s credit position could deteriorate at some future date.
•Substandard - loans that 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.
•Doubtful - loans which have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
In the following tables, consumer loans are generally assigned a risk grade similar to the classifications described above; however, upon reaching 90 days and 120 days past due, they are generally downgraded to non-accrual status, in accordance with the Federal Financial Institutions Examination Counsel's Retail Credit Classification Policy.
The following table presents the recorded investment by risk categories at March 31, 2023:
Term Loans
Amortized Cost Basis by Origination Year and Risk Grades
(in thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost BasisTotal
March 31, 2023
Commercial, Financial, & Agricultural
Pass$19,920 $58,909 $38,221 $34,975 $5,761 $6,911 $49,034 $220 $213,951 
Watch— 2,744 82 724 123 348 3,567 — 7,588 
Substandard386 3,957 58 22 — — 1,864 — 6,287 
Non-accrual (1)— 50 — — 21 95 — — 166 
Total$20,306 $65,660 $38,361 $35,721 $5,905 $7,354 $54,465 $220 $227,992 
Real Estate Construction - Residential
Pass$12,681 $28,902 $965 $760 $444 $— $340 $— $44,092 
Watch375 — — — — — — — 375 
Substandard— — — — — — — — — 
Non-accrual (1)— — — — — — — — — 
Total$13,056 $28,902 $965 $760 $444 $— $340 $— $44,467 
Real Estate Construction - Commercial
Pass$12,835 $64,556 $72,260 $1,922 $73 $1,185 $1,498 $— $154,329 
Watch744 1,660 241 — — 14 103 — 2,762 
Substandard686 — — — — — — — 686 
Non-accrual (1)— — — — — 83 — — 83 
Total$14,265 $66,216 $72,501 $1,922 $73 $1,282 $1,601 $— $157,860 
Real Estate Mortgage - Residential
Pass$15,427 $141,707 $66,939 $52,760 $7,517 $30,034 $43,232 $— $357,616 
Watch— 212 425 1,294 137 2,292 224 — 4,584 
Substandard— — — — — 520 — — 520 
Non-accrual (1)— 56 — 241 — 357 260 — 914 
Total$15,427 $141,975 $67,364 $54,295 $7,654 $33,203 $43,716 $— $363,634 
Real Estate Mortgage - Commercial
Pass$36,871 $234,139 $194,254 $96,532 $29,834 $53,122 $12,725 $501 $657,978 
Watch85 13,298 12,854 16,706 1,113 1,650 287 — 45,993 
Substandard— 225 2,674 — 46 302 — — 3,247 
Non-accrual (1)1,789 2,775 13,522 233 — 36 — — 18,355 
Total$38,745 $250,437 $223,304 $113,471 $30,993 $55,110 $13,012 $501 $725,573 
Installment and other Consumer
Pass$2,116 $9,284 $4,512 $2,439 $1,709 $592 $1,816 $— $22,468 
Watch— — — — — — — — — 
Substandard— — — — — — — — — 
Non-accrual (1)— 76 4 — — — — — 80 
Total$2,116 $9,360 $4,516 $2,439 $1,709 $592 $1,816 $— $22,548 
Total Portfolio
Pass$99,850 $537,497 $377,151 $189,388 $45,338 $91,844 $108,645 $721 $1,450,434 
Watch1,204 17,914 13,602 18,724 1,373 4,304 4,181 — 61,302 
Substandard1,072 4,182 2,732 22 46 822 1,864 — 10,740 
Non-accrual (1)1,789 2,957 13,526 474 21 571 260 — 19,598 
Total$103,915 $562,550 $407,011 $208,608 $46,778 $97,541 $114,950 $721 $1,542,074 
(1) The majority of non-accrual loans have a substandard risk grade
The following table presents the risk categories by class at December 31, 2022 (superseded by ASU 2016-13)
(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, 2022
Pass$229,949 $32,095 $133,785 $353,121 $653,552 $23,613 $1,426,115 
Watch7,411 — 2,677 5,541 48,041 — 63,670 
Substandard6,894 — 686 500 3,026 — 11,106 
Performing TDRs (1)174 — — 1,178 309 — 1,661 
Non-accrual loans (1)121 — 87 685 17,801 6 18,700 
Total$244,549 $32,095 $137,235 $361,025 $722,729 $23,619 $1,521,252 
(1) The majority of non-accrual and performing TDRs loans have a substandard risk grade
Delinquent and Non-Accrual Loans
The delinquency status of loans is determined based on the contractual terms of the notes. Loans 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 status when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual status, 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. Subsequent interest payments received on non-accrual 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. 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 tables present the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2023 and December 31, 2022:
(in thousands)Non-accrual with no AllowanceNon-accrual with AllowanceTotal Non-accrual (1)90 Days Past Due And Still AccruingTotal Non-performing Loans
March 31, 2023
Commercial, Financial, and Agricultural$50 $116 $166 $— $166 
Real estate construction − commercial— 83 83 — 83 
Real estate mortgage − residential— 914 914 — 914 
Real estate mortgage − commercial18,226 129 18,355 — 18,355 
Installment and Other Consumer— 80 80 1 81 
Total$18,276 $1,322 $19,598 $1 $19,599 
December 31, 2022
Commercial, Financial, and Agricultural$— $121 $121 $— $121 
Real estate construction − commercial— 87 87 —87 
Real estate mortgage − residential— 685 685 —685 
Real estate mortgage − commercial17,664 137 17,801 —17,801 
Installment and Other Consumer— 6 6 1 7 
Total$17,664 $1,036 $18,700 $1 $18,701 
(1) Includes $0.3 million of restructured loans as of both March 31, 2023 and December 31, 2022.
No material amount of interest income was recognized on non-accrual loans during the three months ended March 31, 2023.
The following table provides aging information for the Company’s past due and non-accrual loans at March 31, 2023 and December 31, 2022:
(in thousands)Current or Less Than 30 Days Past Due30 - 89 Days Past Due90 Days Past Due And Still AccruingNon-AccrualTotal
March 31, 2023
Commercial, Financial, and Agricultural$227,824 $2 $— $166 $227,992 
Real estate construction − residential44,467 — — — 44,467 
Real estate construction − commercial157,777 — — 83 157,860 
Real estate mortgage − residential361,087 1,633 — 914 363,634 
Real estate mortgage − commercial707,032 186 — 18,355 725,573 
Installment and Other Consumer22,375 92 1 80 22,548 
Total$1,520,562 $1,913 $1 $19,598 $1,542,074 
December 31, 2022
Commercial, Financial, and Agricultural$244,392 $36 $— $121 $244,549 
Real estate construction − residential32,095 — — — 32,095 
Real estate construction − commercial137,148 — — 87 137,235 
Real estate mortgage − residential359,672 668 — 685 361,025 
Real estate mortgage − commercial704,925 3 — 17,801 722,729 
Installment and Other Consumer23,506 106 1 6 23,619 
Total$1,501,738 $813 $1 $18,700 $1,521,252 
Loan Modifications for Borrowers Experiencing Financial Difficulty Subsequent to the Adoption of ASU 2022-02
In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long-term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral-dependent and evaluated as part of the allowance for credit losses as described above in the Allowance for Credit Losses section of this note.

For the three months ended March 31, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term. For the three-month period ended March 31, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty.
The following table presents information regarding modifications to borrowers experiencing financial difficulty as of March 31, 2023:
March 31, 2023
(Dollars in thousands)Number of contractsRecorded Investment% to Total Loans
Commercial, financial and agricultural2$1710.01%
Real estate mortgage − residential
91,3360.09%
Real estate mortgage − commercial
33270.02%
Total14$1,8340.12%
Troubled Debt Restructurings (TDRs) Prior to Adoption of ASU 2022-02
Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. See “Note 1 Summary of Significant Accounting Policies” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for more information on our TDR policy, and “Note 1, Summary of Significant Accounting Policies” in this report for more information on the adoption of ASU 2022-02.
At March 31, 2022, loans classified as TDRs totaled $2.2 million, of which $0.5 million were classified as non-performing TDRs and $1.7 million were classified as performing TDRs. Both performing and non-performing 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 $179,000 related to TDRs were allocated to the allowance for loan losses at March 31, 2022.
For the three months ended March 31, 2022, the Company had no new TDRs. For the three months ended March 31, 2022, the Company had no TDRs for which there was a payment default within the 12 months following the restructure date.
Loans Held for Sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale. These loans are initially measured at fair value under the fair value option election with subsequent changes in fair value recognized in mortgage banking income. The loans are primarily sold to Freddie Mac, Fannie Mae, PennyMac, and various other secondary market investors. At March 31, 2023, the carrying amount of these loans was $1.8 million compared to $0.6 million at December 31, 2022.