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, 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 , 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 substandard troubled debt restructuring TDR) non-accrual 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 Pre- Post- Number of Pre- Post- 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 Pre- Post- Number of Pre- Post- 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 |