3.	LOANS AND ALLOWANCE FOR LOAN LOSSES:

Loans held-for-investment by class of financing receivables are as follows (in thousands):


	December 31,
	2016		2015

Commercial	$	674,410	$	696,163

Agricultural		84,021		102,351

Real estate		2,189,844		2,136,233

Consumer		409,032		382,303


Total loans held-for-investment	$	3,357,307	$	3,317,050

Loans held-for-sale totaled $26,898,000 and $33,543,000 at December 31, 2016 and 2015, respectively, which are valued using the lower of cost or fair value.

The Company’s non-accrual loans, loan still accruing and past due 90 days or more and restructured loans are as follows (in thousands):


	December 31,
	2016		2015

Non-accrual loans*	$	27,371	$	28,601
Loans still accruing and past due 90 days or more		284		341
Troubled debt restructured loans**		701		199


Total	$	28,356	$	29,141

*	Includes $1,256,000 and $2,178,000, respectively, of purchased credit impaired loans as of December 31, 2016 and 2015.

**	Our troubled debt restructured loans of $6,863,000 and $6,113,000, whose interest collection, after considering economic and business conditions and collection efforts, is doubtful are included in non-accrual loans as of December 31, 2016 and 2015, respectively.

The Company’s recorded investment in impaired loans and the related valuation allowance are as follows (in thousands):


December 31, 2016				December 31, 2015
Recorded Investment		Valuation Allowance		Recorded Investment		Valuation Allowance

$	27,371	$	5,012	$	28,601	$	5,071

The Company had $29,000,000 and $29,768,000 in non-accrual, past due 90 days or more and still accruing, restructured loans and foreclosed assets at December 31, 2016 and 2015, respectively. Non-accrual loans totaled $27,371,000 and $28,601,000 at December 31, 2016 and 2015, respectively, and consisted of the following amounts by type (in thousands):


	December 31,
	2016		2015

Commercial	$	7,284	$	8,761
Agricultural		99		97
Real Estate		18,754		18,766
Consumer		1,234		977

Total	$	27,371	$	28,601

No significant additional funds are committed to be advanced in connection with impaired loans as of December 31, 2016.

The Company’s impaired loans and related allowance as of December 31, 2016 and 2015 are summarized in the following tables by class of financing receivables (in thousands). No interest income was recognized on impaired loans subsequent to their classification as impaired.


December 31, 2016	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance*		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		12 Month Average Recorded Investment
Commercial	$	13,389	$	1,148	$	6,136	$	7,284	$	2,128	$	4,921
Agricultural		103		—		99		99		25		50
Real Estate		23,466		6,229		12,525		18,754		2,428		16,170
Consumer		1,421		280		954		1,234		431		914


Total	$	38,379	$	7,657	$	19,714	$	27,371	$	5,012	$	22,055

*	Includes $1,256,000 of purchased credit impaired loans.


December 31, 2015	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance*		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		12 Month Average Recorded Investment
Commercial	$	10,056	$	608	$	8,153	$	8,761	$	2,030	$	5,812
Agricultural		97		—		97		97		70		48
Real Estate		23,710		5,314		13,452		18,766		2,827		15,211
Consumer		1,167		624		353		977		144		664


Total	$	35,030	$	6,546	$	22,055	$	28,601	$	5,071	$	21,735

*	Includes $2,178,000 of purchased credit impaired loans.

The Company recognized interest income on impaired loans prior to being recognized as impaired of approximately $829,000, $922,000 and $162,000 during the years ended December 31, 2016, 2015, and 2014, respectively.

From a credit risk standpoint, the Company rates its loans in one of four categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. Loans rated as loss are charged-off.

The ratings of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on our credits as part of our on-going monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.

The following summarizes the Company’s internal ratings of its loans held-for-investment by class of financing receivables and portfolio segments, which classes are the same, at December 31, 2016 and 2015 (in thousands):


December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Total

Commercial	$	629,756	$	5,769	$	38,885	$	—	$	674,410
Agricultural		81,620		715		1,686		—		84,021
Real Estate		2,111,947		18,091		59,806		—		2,189,844
Consumer		406,182		212		2,638		—		409,032

Total	$	3,229,505	$	24,787	$	103,015	$	—	$	3,357,307


December 31, 2015	Pass		Special Mention		Substandard		Doubtful		Total

Commercial	$	633,083	$	9,762	$	53,318	$	—	$	696,163
Agricultural		99,862		1,398		1,091		—		102,351
Real Estate		2,054,738		29,000		52,458		37		2,136,233
Consumer		379,941		416		1,946		—		382,303

Total	$	3,167,624	$	40,576	$	108,813	$	37	$	3,317,050

At December 31, 2016 and 2015, the Company’s past due loans are as follows (in thousands):


December 31, 2016	15-59 Days Past Due*		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Total Current		Total Loans		Total 90 Days Past Due Still Accruing
Commercial	$	3,908	$	1,122	$	2,220	$	7,250	$	667,160	$	674,410	$	10
Agricultural		185		—		—		185		83,836		84,021		—
Real Estate		13,172		1,301		5,268		19,741		2,170,103		2,189,844		272
Consumer		1,845		368		122		2,335		406,697		409,032		2

Total	$	19,110	$	2,791	$	7,610	$	29,511	$	3,327,796	$	3,357,307	$	284


December 31, 2015	15-59 Days Past Due*		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Total Current		Total Loans		Total 90 Days Past Due Still Accruing
Commercial	$	3,099	$	3,652	$	1,024	$	7,775	$	688,388	$	696,163	$	54
Agricultural		348		83		—		431		101,920		102,351		—
Real Estate		12,247		2,226		2,874		17,347		2,118,886		2,136,233		217
Consumer		1,645		183		266		2,094		380,209		382,303		70

Total	$	17,339	$	6,144	$	4,164	$	27,647	$	3,289,403	$	3,317,050	$	341

*	The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are monitored after such loans are 30 days past due.

The following table details the allowance for loan losses at December 31, 2016 and 2015 by portfolio segment (in thousands). There were no allowances for purchased credit impaired loans at December 31, 2016 or 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


December 31, 2016	Commercial		Agricultural		Real Estate		Consumer		Total

Loans individually evaluated for impairment	$	2,128	$	25	$	2,428	$	431	$	5,012
Loan collectively evaluated for impairment		9,579		1,076		24,436		5,676		40,767

Total	$	11,707	$	1,101	$	26,864	$	6,107	$	45,779


December 31, 2015	Commercial		Agricultural		Real Estate		Consumer		Total

Loans individually evaluated for impairment	$	2,030	$	70	$	2,827	$	144	$	5,071
Loan collectively evaluated for impairment		10,614		1,121		21,548		3,523		36,806

Total	$	12,644	$	1,191	$	24,375	$	3,667	$	41,877

Changes in the allowance for loan losses for the years ended December 31, 2016 and 2015 are summarized as follows (in thousands):


December 31, 2016	Commercial			Agricultural			Real Estate			Consumer			Total

Beginning balance	$	12,644		$	1,191		$	24,375		$	3,667		$	41,877
Provision for loan losses		5,101			104			1,150			3,857			10,212
Recoveries		952			25			2,021			508			3,506
Charge-offs		(6,990	)		(219	)		(682	)		(1,925	)		(9,816	)

Ending balance	$	11,707		$	1,101		$	26,864		$	6,107		$	45,779


December 31, 2015	Commercial			Agricultural			Real Estate			Consumer			Total

Beginning balance	$	7,990		$	527		$	26,657		$	1,650		$	36,824
Provision for loan losses		8,044			773			(2,399	)		3,267			9,685
Recoveries		344			55			558			450			1,407
Charge-offs		(3,734	)		(164	)		(441	)		(1,700	)		(6,039	)

Ending balance	$	12,644		$	1,191		$	24,375		$	3,667		$	41,877

The Company’s recorded investment in loans as of December 31, 2016 and 2015 related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology was as follows (in thousands). Purchased credit impaired loans of $1,256,000 and $2,178,000, respectively, at December 31, 2016 and 2015 are included in loans individually evaluated for impairment.


December 31, 2016	Commercial		Agricultural		Real Estate		Consumer		Total

Loans individually evaluated for impairment	$	7,284	$	99	$	18,754	$	1,234	$	27,371
Loan collectively evaluated for impairment		667,126		83,922		2,171,090		407,798		3,329,936

Total	$	674,410	$	84,021	$	2,189,844	$	409,032	$	3,357,307


December 31, 2015	Commercial		Agricultural		Real Estate		Consumer		Total

Loans individually evaluated for impairment	$	8,761	$	97	$	18,766	$	977	$	28,601
Loan collectively evaluated for impairment		687,402		102,254		2,117,467		381,326		3,288,449

Total	$	696,163	$	102,351	$	2,136,233	$	382,303	$	3,317,050

The Company’s loans that were modified in the years ended December 31, 2016 and 2015, and considered troubled debt restructurings are as follows (in thousands):


	Year Ended December 31, 2016						Year Ended December 31, 2015
	Number		Pre-Modification Recorded Investment		Post- Modification Recorded Investment		Number		Pre-Modification Recorded Investment		Post- Modification Recorded Investment
Commercial		15	$	3,208	$	3,208		8	$	447	$	447
Agricultural		—		—		—		3		128		128
Real Estate		6		1,460		1,460		5		598		598
Consumer		7		189		189		7		255		255

Total		28	$	4,857	$	4,857		23	$	1,428	$	1,428

The balances below provide information as to how the loans were modified as troubled debt restructured loans during the years ended December 31, 2016 and 2015 (in thousands):


	Year Ended December 31, 2016						Year Ended December 31, 2015
	Adjusted Interest Rate		Extended Maturity		Combined Rate and Maturity		Adjusted Interest Rate		Extended Maturity		Combined Rate and Maturity
Commercial	$	—	$	2,560	$	648	$	—	$	182	$	265
Agricultural		—		—		—		—		128		—
Real Estate		—		298		1,162		15		150		433
Consumer		—		70		119		—		56		199

Total	$	—	$	2,928	$	1,929	$	15	$	516	$	897

During the years ended December 31, 2016 and 2015, certain loans were modified as a troubled debt restructured loans within the previous 12 months and for which there was a payment default. A default for purposes of this disclosure is a troubled debt restructured loan in which the borrower is 90 days past or more due or results in the foreclosure and repossession of the applicable collateral. The loans with payment default are as follows (dollars in thousands):


	Year Ended December 31, 2016				Year Ended December 31, 2015
	Number		Balance		Number		Balance
Commercial		4	$	1,690		1	$	66
Agriculture		—		—		—		—
Real Estate		3		921		1		15
Consumer		—		—		2		32

Total		7	$	2,611		4	$	113

As of December 31, 2016, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings.

An analysis of the changes in loans to officers, directors, principal shareholders, or associates of such persons for the year ended December 31, 2016 (determined as of each respective year-end) follows (in thousands):


	Beginning Balance		Additional Loans		Payments		Ending Balance

Year ended December 31, 2016	$	65,729	$	49,674	$	70,974	$	44,429

In the opinion of management, those loans are on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unaffiliated persons.

Our subsidiary bank has established a line of credit with the Federal Home Loan Bank of Dallas (FHLB) to provide liquidity and meet pledging requirements for those customers eligible to have securities pledged to secure certain uninsured deposits. At December 31, 2016, $2,081,615,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit. At December 31, 2016, $75,000,000 in advances were outstanding under this line of credit.