Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2014

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, 2014 and December 31, 2013 is as follows:

	September 30,		December 31,
(in thousands)	2014		2013
Commercial, financial, and agricultural	$	150,733	$	141,845
Real estate construction - residential		19,935		21,008
Real estate construction - commercial		62,391		55,076
Real estate mortgage - residential		234,244		225,630
Real estate mortgage - commercial		374,909		375,686
Installment and other consumer		18,773		20,302
Total loans	$	860,985	$	839,547

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, 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, 2014, loans with a carrying value of $373.5 million 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, 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

	Three Months Ended September 30, 2013
	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	$	2,119		$	932	$	2,202		$	2,456		$	7,415		$	233		$	1	$	15,358
Additions:
Provision for loan losses		444			32		(216	)		4			(294	)		25			5		0
Deductions:
Loans charged off		654			0		135			368			178			91			0		1,426
Less recoveries on loans		(201	)		0		0			(39	)		(34	)		(48	)		0		(322	)
Net loans charged off		453			0		135			329			144			43			0		1,104
Balance at end of period	$	2,110		$	964	$	1,851		$	2,131		$	6,977		$	215		$	6	$	14,254

	Nine Months Ended September 30, 2013
	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	$	1,937		$	732	$	1,711		$	3,387		$	6,834		$	239		$	2	$	14,842
Additions:
Provision for loan losses		725			351		273			(586	)		1,142			91			4		2,000
Deductions:
Loans charged off		817			119		135			754			1,205			271			0		3,301
Less recoveries on loans		(265	)		0		(2	)		(84	)		(206	)		(156	)		0		(713	)
Net loans charged off		552			119		133			670			999			115			0		2,588
Balance at end of period	$	2,110		$	964	$	1,851		$	2,131		$	6,977		$	215		$	6	$	14,254

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, 2014 and December 31, 2013, 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, 2014
Allowance for loan losses:
Individually evaluated for impairment	$	663	$	273	$	0	$	1,728	$	1,942	$	55	$	0	$	4,661
Collectively evaluated for impairment		1,042		106		522		975		4,480		218		29		7,372
Total	$	1,705	$	379	$	522	$	2,703	$	6,422	$	273	$	29	$	12,033
Loans outstanding:
Individually evaluated for impairment	$	4,427	$	2,040	$	5,679	$	8,639	$	14,573	$	268	$	0	$	35,626
Collectively evaluated for impairment		146,306		17,895		56,712		225,605		360,336		18,505		0		825,359
Total	$	150,733	$	19,935	$	62,391	$	234,244	$	374,909	$	18,773	$	0	$	860,985
December 31, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	721	$	392	$	304	$	1,374	$	1,989	$	16	$	0	$	4,796
Collectively evaluated for impairment		1,653		539		327		1,585		4,534		278		7		8,923
Total	$	2,374	$	931	$	631	$	2,959	$	6,523	$	294	$	7	$	13,719
Loans outstanding:
Individually evaluated for impairment	$	4,015	$	2,204	$	6,615	$	6,517	$	15,422	$	43	$	0	$	34,816
Collectively evaluated for impairment		137,830		18,804		48,461		219,113		360,264		20,259		0		804,731
Total	$	141,845	$	21,008	$	55,076	$	225,630	$	375,686	$	20,302	$	0	$	839,547

Impaired Loans

Loans evaluated under the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 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 totaled $35.6 million and $35.1 million at September 30, 2014 and December 31, 2013, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings. Total impaired loans of $35.6 million at September 30, 2014 were individually evaluated for impairment compared to $34.8 million of impaired loans individually evaluated for impairment and $259,000 of non-accrual consumer loans that were collectively evaluated for impairment at December 31, 2013. Beginning in 2014, consumer non-accrual loans were included in the individually evaluated impairment calculations.

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 September 30, 2014 and December 31, 2013, $14.0 million and $21.8 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, 2014, $4.7 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $35.6 million compared to $4.8 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $35.1 million at December 31, 2013. Management determined that $20.9 million, or 59%, of total impaired loans required no reserve allocation at September 30, 2014 compared to $18.8 million, or 54%, at December 31, 2013 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

The categories of impaired loans at September 30, 2014 and December 31, 2013 are as follows:

	September 30,		December 31,
(in thousands)	2014		2013
Non-accrual loans	$	24,380	$	23,680
Troubled debt restructurings continuing to accrue interest		11,246		11,395
Total impaired loans	$	35,626	$	35,075

The following tables provide additional information about impaired loans at September 30, 2014 and December 31, 2013, 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, 2014
With no related allowance recorded:
Commercial, financial and agricultural	$	2,400	$	2,457	$	0
Real estate - construction residential		0		0		0
Real estate - construction commercial		5,679		6,403		0
Real estate – residential		3,116		3,568		0
Real estate – commercial		9,744		11,366		0
Total	$	20,939	$	23,794	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	2,027	$	2,086	$	663
Real estate - construction residential		2,040		2,260		273
Real estate - construction commercial		0		0		0
Real estate – residential		5,523		5,620		1,728
Real estate – commercial		4,829		5,004		1,942
Consumer		268		307		55
Total	$	14,687	$	15,277	$	4,661
Total impaired loans	$	35,626	$	39,071	$	4,661

			Unpaid
	Recorded		Principal		Specific
(in thousands)	Investment		Balance		Reserves
December 31, 2013
With no related allowance recorded:
Commercial, financial and agricultural	$	2,467	$	2,593	$	0
Real estate - construction residential		44		80		0
Real estate - construction commercial		6,101		7,148		0
Real estate - residential		2,121		2,654		0
Real estate - commercial		7,817		8,056		0
Consumer		259		282		0
Total	$	18,809	$	20,813	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	1,548	$	1,607	$	721
Real estate - construction residential		2,160		2,331		392
Real estate - construction commercial		514		514		304
Real estate - residential		4,396		4,570		1,374
Real estate - commercial		7,605		7,925		1,989
Consumer		43		45		16
Total	$	16,266	$	16,992	$	4,796
Total impaired loans	$	35,075	$	37,805	$	4,796

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,
	2014				2013				2014				2013
			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	$	2,618	$	22	$	2,598	$	22	$	2,592	$	69	$	2,643	$	71
Real estate - construction residential		16		2		139		0		65		2		242		0
Real estate - construction commercial		6,524		0		3,459		0		6,737		0		3,803		0
Real estate - residential		3,941		26		3,168		10		3,374		40		3,179		10
Real estate - commercial		12,578		84		4,346		29		12,334		255		4,348		86
Consumer		0		0		202		0		11		0		212		1
Total	$	25,677	$	134	$	13,912	$	61	$	25,113	$	366	$	14,427	$	168
With an allowance recorded:
Commercial, financial and agricultural	$	1,940	$	4	$	1,996	$	7	$	2,128	$	19	$	2,031	$	34
Real estate - construction residential		2,260		0		2,272		0		2,263		0		2,273		0
Real estate - construction commercial		0		0		4,240		0		56		0		4,240		0
Real estate - residential		5,458		0		2,920		2		5,384		93		2,947		38
Real estate - commercial		4,587		28		13,210		35		4,695		11		13,524		106
Consumer		310		11		44		0		324		0		44		0
Total	$	14,555	$	43	$	24,682	$	44	$	14,850	$	123	$	25,059	$	178
Total impaired loans	$	40,232	$	177	$	38,594	$	105	$	39,963	$	489	$	39,486	$	346

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 $134,000 and $366,000 for the three months and nine months ended September 30, 2014, respectively, compared to $61,000 and $168,000 for the three and nine months ended September 30, 2013, 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 $268,000 and $862,000 for the three and nine months ended September 30, 2014, respectively, compared to $269,000 and $929,000 for the three and nine months ended September 30, 2013, 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 September 30, 2014 and December 31, 2013.

	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, 2014
Commercial, Financial, and Agricultural	$	148,276	$	421	$	0	$	2,036	$	150,733
Real Estate Construction - Residential		17,895		0		0		2,040		19,935
Real Estate Construction - Commercial		56,657		0		56		5,678		62,391
Real Estate Mortgage - Residential		228,157		864		48		5,175		234,244
Real Estate Mortgage - Commercial		364,414		1,312		0		9,183		374,909
Installment and Other Consumer		18,206		298		1		268		18,773
Total	$	833,605	$	2,895	$	105	$	24,380	$	860,985
December 31, 2013
Commercial, Financial, and Agricultural	$	139,219	$	942	$	0	$	1,684	$	141,845
Real Estate Construction - Residential		18,738		66		0		2,204		21,008
Real Estate Construction - Commercial		48,230		595		0		6,251		55,076
Real Estate Mortgage - Residential		217,268		4,068		129		4,165		225,630
Real Estate Mortgage - Commercial		365,787		725		100		9,074		375,686
Installment and Other Consumer		19,695		291		14		302		20,302
Total	$	808,937	$	6,687	$	243	$	23,680	$	839,547

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 (1) one or more weaknesses that could jeopardize timely liquidation exits; or (2) the margin or liquidity of an asset is sufficiently tenuous that adverse trends could result in a collection problem. 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 September 30, 2014 and December 31, 2013.

(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, 2014
Watch	$	18,254		1,329	$	5,027	$	25,755	$	21,332	$	238	$	71,935
Substandard		5,197		91		1,190		7,545		9,965		170		24,158
Non-accrual		2,036		2,040		5,678		5,175		9,183		268		24,380
Total	$	25,487	$	3,460	$	11,895	$	38,475	$	40,480	$	676	$	120,473
At December 31, 2013
Watch	$	15,016	$	2,007	$	6,111	$	26,331	$	23,662	$	388	$	73,515
Substandard		7,553		92		1,403		8,579		14,510		281		32,418
Non-accrual		1,684		2,204		6,251		4,165		9,074		302		23,680
Total	$	24,253	$	4,303	$	13,765	$	39,075	$	47,246	$	971	$	129,613

Troubled Debt Restructurings

At September 30, 2014, loans classified as troubled debt restructurings (TDRs) totaled $20.6 million, of which $9.4 million were on non-accrual status and $11.2 million were on accrual status. At December 31, 2013, TDRs totaled $21.5 million, of which $10.1 million were on non-accrual status and $11.4 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 $1.5 million and $2.2 million related to TDRs were allocated to the allowance for loan losses at September 30, 2014 and December 31, 2013, respectively.

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

	Nine Months Ended September 30,
	2014						2013
	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	$	244	$	225		0	$	0	$	0
Real estate mortgage - residential		1		1,256		1,171		1		619		481
Total		4	$	1,500	$	1,396		1	$	619	$	481

(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 such as interest rates below the current market rate for the borrower given financial condition, deferring principal payments, and extending maturity dates. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, charged-off, or the collateral for the loan is foreclosed and sold. The Company considers a loan in TDR status in default when the borrower’s payment according to the modified terms is at least 90 days past due or has defaulted due to expiration of the loan’s maturity date. There were no modified loans that met the TDR criteria during the three months ended September 30, 2014 and 2013. During the nine months ended September 30, 2014, four loans meeting the TDR criteria were modified compared to one loan during the nine months ended September 30, 2013. There were no loans modified as a TDR that defaulted during the three and nine months ended September 30, 2014 and 2013, respectively, and within twelve months of their modification date. See Lending and Credit Management section for further information.