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, 2018 and December 31, 2017 is as follows: September 30, December 31, (in thousands) 2018 2017 Commercial, financial, and agricultural $ 203,485 $ 192,238 Real estate construction - residential 30,374 26,492 Real estate construction - commercial 95,806 98,340 Real estate mortgage - residential 246,334 246,754 Real estate mortgage - commercial 506,197 472,455 Installment and other consumer 33,569 32,153 Total loans $ 1,115,765 $ 1,068,432 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, 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, 2018, loans of $498.2 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, 2018 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 $ 3,943 $ 201 $ 905 $ 2,109 $ 3,630 $ 413 $ 11 $ 11,212 Additions: Provision for loan losses (420 ) 26 (159 ) 255 444 39 65 250 Deductions: Loans charged off 75 0 0 32 5 74 0 186 Less recoveries on loans (38 ) (13 ) 0 (9 ) (2 ) (20 ) 0 (82 ) Net loan charge-offs (recoveries) 37 (13 ) 0 23 3 54 0 104 Balance at end of period $ 3,486 $ 240 $ 746 $ 2,341 $ 4,071 $ 398 $ 76 $ 11,358 Nine Months Ended September 30, 2018 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 $ 3,325 $ 170 $ 807 $ 1,689 $ 4,437 345 $ 79 $ 10,852 Additions: Provision for loan losses 478 80 (31 ) 672 (366 ) 170 (3 ) 1,000 Deductions: Loans charged off 378 48 30 64 34 181 0 735 Less recoveries on loans (61 ) (38 ) 0 (44 ) (34 ) (64 ) 0 (241 ) Net loan charge-offs (recoveries) 317 10 30 20 0 117 0 494 Balance at end of period $ 3,486 $ 240 $ 746 $ 2,341 $ 4,071 $ 398 $ 76 $ 11,358 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 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. 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. Beginning with December 31, 2017, the Company has utilized a five-year look-back period. The following table provides the balance in the allowance for loan losses at September 30, 2018 and December 31, 2017, 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, 2018 Allowance for loan losses: Individually evaluated for impairment $ 381 $ 0 $ 0 $ 657 $ 166 $ 21 $ 0 $ 1,225 Collectively evaluated for impairment 3,105 240 746 1,684 3,905 377 76 10,133 Total $ 3,486 $ 240 $ 746 $ 2,341 $ 4,071 $ 398 $ 76 $ 11,358 Loans outstanding: Individually evaluated for impairment $ 2,731 $ 0 $ 158 $ 5,145 $ 1,028 $ 243 $ 0 $ 9,305 Collectively evaluated for impairment 200,754 30,374 95,648 241,189 505,169 33,326 0 1,106,460 Total $ 203,485 $ 30,374 $ 95,806 $ 246,334 $ 506,197 $ 33,569 $ 0 $ 1,115,765 December 31, 2017 Allowance for loan losses: Individually evaluated for impairment $ 500 $ 0 $ 48 $ 521 $ 243 $ 21 $ 0 $ 1,333 Collectively evaluated for impairment 2,825 170 759 1,168 4,194 324 79 9,519 Total $ 3,325 $ 170 $ 807 $ 1,689 $ 4,437 $ 345 $ 79 $ 10,852 Loans outstanding: Individually evaluated for impairment $ 3,007 $ 0 $ 97 $ 5,072 $ 2,004 $ 176 $ 0 $ 10,356 Collectively evaluated for impairment 189,231 26,492 98,243 241,682 470,451 31,977 0 1,058,076 Total $ 192,238 $ 26,492 $ 98,340 $ 246,754 $ 472,455 $ 32,153 $ 0 $ 1,068,432 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 $9.3 million and $10.4 million at September 30, 2018 and December 31, 2017, 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, 2018 and December 31, 2017, $4.2 million and $4.0 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, 2018, $1.2 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $9.3 million compared to $1.3 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $10.4 million at December 31, 2017. Management determined that $3.0 million, or 32%, of total impaired loans required no reserve allocation at September 30, 2018 compared to $2.4 million, or 23%, at December 31, 2017, primarily due to adequate collateral values , The categories of impaired loans at September 30, 2018 and December 31, 2017 are as follows: September 30, December 31, (in thousands) 2018 2017 Non-accrual loans $ 6,045 $ 5,672 Performing TDRs 3,260 4,684 Total impaired loans $ 9,305 $ 10,356 The following tables provide additional information about impaired loans at September 30, 2018 and December 31, 2017, 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, 2018 With no related allowance recorded: Commercial, financial and agricultural $ 1,570 $ 1,910 $ 0 Real estate - construction commercial 158 183 0 Real estate - residential 1,142 1,206 0 Real estate - commercial 119 121 0 Total $ 2,989 $ 3,420 $ 0 With an allowance recorded: Commercial, financial and agricultural $ 1,161 $ 1,229 $ 381 Real estate - residential 4,003 4,089 657 Real estate - commercial 909 994 166 Installment and other consumer 243 269 21 Total $ 6,316 $ 6,581 $ 1,225 Total impaired loans $ 9,305 $ 10,001 $ 1,225 Unpaid Recorded Principal Specific (in thousands) Investment Balance Reserves December 31, 2017 With no related allowance recorded: Commercial, financial and agricultural $ 1,393 $ 1,445 $ 0 Real estate - residential 674 688 0 Real estate - commercial 366 395 0 Total $ 2,433 $ 2,528 $ 0 With an allowance recorded: Commercial, financial and agricultural $ 1,614 $ 1,834 $ 500 Real estate - construction commercial 97 97 48 Real estate - residential 4,398 4,500 521 Real estate - commercial 1,638 1,743 243 Consumer 176 196 21 Total $ 7,923 $ 8,370 $ 1,333 Total impaired loans $ 10,356 $ 10,898 $ 1,333 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, 2018 2017 2018 2017 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 $ 1,375 $ 0 $ 481 $ 0 $ 1,334 $ 1 $ 478 $ 0 Real estate - construction commercial 161 0 0 0 82 0 0 0 Real estate - residential 1,037 3 341 0 929 9 1,412 0 Real estate - commercial 120 3 77 3 30 22 221 9 Installment and other consumer 91 0 0 0 34 0 22 0 Total $ 2,784 $ 6 $ 899 $ 3 $ 2,409 $ 32 $ 2,133 $ 9 With an allowance recorded: Commercial, financial and agricultural $ 1,423 $ 8 $ 694 $ 8 $ 1,507 $ 23 $ 1,667 $ 24 Real estate - construction residential 0 0 0 0 15 0 0 0 Real estate - construction commercial 0 0 0 0 24 0 37 0 Real estate - residential 4,076 25 1,383 33 4,211 71 4,090 121 Real estate - commercial 1,443 13 597 17 1,649 24 1,772 46 Installment and other consumer 197 0 56 0 186 1 70 0 Total $ 7,139 $ 46 $ 2,730 $ 58 $ 7,592 $ 119 $ 7,636 $ 191 Total impaired loans $ 9,923 $ 52 $ 3,629 $ 61 $ 10,001 $ 151 $ 9,769 $ 200 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 $52,000 and $151,000, for the three months and nine months ended September 30, 2018, respectively compared to $61,000 and $200,000 for the three and nine months ended September 30, 2017, 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, 2018 and December 31, 2017. 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, 2018 Commercial, Financial, and Agricultural $ 200,893 $ 288 $ 8 $ 2,296 $ 203,485 Real Estate Construction - Residential 30,374 0 0 0 30,374 Real Estate Construction - Commercial 95,548 100 0 158 95,806 Real Estate Mortgage - Residential 242,165 1,189 212 2,768 246,334 Real Estate Mortgage - Commercial 505,087 513 0 597 506,197 Installment and Other Consumer 33,111 217 15 226 33,569 Total $ 1,107,178 $ 2,307 $ 235 $ 6,045 $ 1,115,765 December 31, 2017 Commercial, Financial, and Agricultural $ 189,537 $ 192 $ 2 $ 2,507 $ 192,238 Real Estate Construction - Residential 25,930 287 275 0 26,492 Real Estate Construction - Commercial 98,243 0 0 97 98,340 Real Estate Mortgage - Residential 242,597 2,173 28 1,956 246,754 Real Estate Mortgage - Commercial 471,476 43 0 936 472,455 Installment and Other Consumer 31,715 239 23 176 32,153 Total $ 1,059,498 $ 2,934 $ 328 $ 5,672 $ 1,068,432 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, 2018 and December 31, 2017. (in thousands) Commercial, Real Estate Real Estate Real Estate Real Estate Installment Total At September 30, 2018 Watch $ 7,116 $ 593 $ 3,735 $ 13,114 $ 35,753 $ 9 $ 60,320 Substandard 57 0 0 1,532 708 5 2,302 Performing TDRs 434 0 0 2,377 431 18 3,260 Non-accrual 2,296 0 158 2,768 597 226 6,045 Total $ 9,903 $ 593 $ 3,893 $ 19,791 $ 37,489 $ 258 $ 71,927 At December 31, 2017 Watch $ 9,868 $ 1,459 $ 1,284 $ 9,978 $ 49,197 $ 0 $ 71,786 Substandard 658 462 0 2,262 723 16 4,121 Performing TDRs 500 0 0 3,116 1,068 0 4,684 Non-accrual 2,507 0 97 1,956 936 176 5,672 Total $ 13,533 $ 1,921 $ 1,381 $ 17,312 $ 51,924 $ 192 $ 86,263 Troubled Debt Restructurings At September 30, 2018, loans classified as TDRs totaled $5.4 million, of which $2.2 million were classified as nonperforming TDRs and included in non-accrual loans and $3.2 million were classified as performing TDRs. At December 31, 2017, loans classified as TDRs totaled $6.4 million, of which $1.7 million were classified as nonperforming TDRs and included in non-accrual loans and $4.7 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 $569,000 and $577,000 related to TDRs were allocated to the allowance for loan losses at September 30, 2018 and December 31, 2017, respectively. The following table summarizes loans that were modified as TDRs during the periods indicated. Three Months Ended September 30, 2018 2017 Recorded Investment (1) Recorded Investment (1) (in thousands) Number of Pre- Post- Number of Pre- Post- Troubled Debt Restructurings Commercial, financial and agricultural 2 $ 353 $ 353 0 $ 0 $ 0 Real estate mortgage - commercial 0 0 0 1 14 14 Consumer 1 112 53 0 0 0 Total 3 $ 465 $ 406 1 $ 14 $ 14 Nine Months Ended September 30, 2018 2017 Recorded Investment (1) Recorded Investment (1) (in thousands) Number of Pre- Post- Number of Pre- Post- Troubled Debt Restructurings Commercial, financial and agricultural 2 $ 353 $ 353 1 $ 131 $ 130 Real estate mortgage - residential 1 75 74 1 14 14 Real estate mortgage - commercial 0 0 0 1 56 52 Consumer 5 160 93 0 0 0 Total 8 $ 588 $ 520 3 $ 201 $ 196 (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 were three loans and eight loans meeting the TDR criteria that were modified during the three and nine months ended September 30, 2018, respectively, compared to one loan and three loans during the three and nine months ended September 30, 2017, 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 any of the three and nine months ended September 30, 2018 and 2017, respectively, and within twelve months of their modification date. During 2018, one real estate mortgage loan went to foreclosure totaling $48,000 and one commercial real estate loan totaling $366,000 was sold at foreclosure. See Lending and Credit Management |