NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES

At June 30, 2016, the Company’s loan portfolio was $5.014 billion, compared to $4.919 billion at December 31, 2015. The various categories of loans are summarized as follows:

(In thousands)	June 30, 2016		December 31, 2015

Consumer:
Credit cards	$	171,468	$	177,288
Other consumer		248,018		208,380
Total consumer		419,486		385,668
Real Estate:
Construction		330,666		279,740
Single family residential		785,289		696,180
Other commercial		1,414,663		1,229,072
Total real estate		2,530,618		2,204,992
Commercial:
Commercial		577,771		500,116
Agricultural		187,047		148,563
Total commercial		764,818		648,679
Other		10,500		7,115
Loans		3,725,422		3,246,454
Loans acquired, net of discount and allowance (1)		1,288,435		1,672,901
Total loans	$	5,013,857	$	4,919,355

______________________

(1)

See Note 5, Loans Acquired, for segregation of loans acquired by loan class.

Loan Origination/Risk Management

– The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; providing an adequate allowance for loans losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Furthermore, a factor that influenced the Company’s judgment regarding the allowance for loan losses consists of a five-year historical loss average segregated by each primary loan sector. On an annual basis, historical loss rates are calculated for each sector.

Consumer

– The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to be impacted by economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

Real estate

– The real estate loan portfolio consists of construction loans, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within commercial real estate – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and length. The Company monitors these loans closely.

Commercial

– The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchase or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one or three year balloons, and the Company has recently instituted a pricing mechanism for commercial loans. It is standard practice to require personal guaranties on all commercial loans, particularly as they relate to closely-held or limited liability entities.

Nonaccrual and Past Due Loans

– Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Nonaccrual loans, excluding loans acquired, segregated by class of loans, are as follows:

(In thousands)	June 30, 2016		December 31, 2015

Consumer:
Credit cards	$	266	$	212
Other consumer		1,205		442
Total consumer		1,471		654
Real estate:
Construction		5,312		4,955
Single family residential		10,353		5,453
Other commercial		21,522		4,420
Total real estate		37,187		14,828
Commercial:
Commercial		2,985		1,968
Agricultural		1,662		264
Total commercial		4,647		2,232
Total	$	43,305	$	17,714

An age analysis of past due loans, excluding loans acquired, segregated by class of loans, is as follows:

(In thousands)	Gross 30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due & Accruing

June 30, 2016
Consumer:
Credit cards	$	631	$	434	$	1,065	$	170,403	$	171,468	$	168
Other consumer		1,529		800		2,329		245,689		248,018		36
Total consumer		2,160		1,234		3,394		416,092		419,486		204
Real estate:
Construction		761		2,413		3,174		327,492		330,666		-
Single family residential		5,034		5,430		10,464		774,825		785,289		23
Other commercial		3,267		3,441		6,708		1,407,955		1,414,663		-
Total real estate		9,062		11,284		20,346		2,510,272		2,530,618		23
Commercial:
Commercial		2,712		1,120		3,832		573,939		577,771		-
Agricultural		1,189		840		2,029		185,018		187,047		-
Total commercial		3,901		1,960		5,861		758,957		764,818		-
Other		-		-		-		10,500		10,500		-
Total	$	15,123	$	14,478	$	29,601	$	3,695,821	$	3,725,422	$	227

December 31, 2015
Consumer:
Credit cards	$	639	$	479	$	1,118	$	176,170	$	177,288	$	267
Other consumer		1,879		648		2,527		205,853		208,380		374
Total consumer		2,518		1,127		3,645		382,023		385,668		641
Real estate:
Construction		1,328		4,511		5,839		273,901		279,740		-
Single family residential		4,856		3,342		8,198		687,982		696,180		364
Other commercial		869		3,302		4,171		1,224,901		1,229,072		25
Total real estate		7,053		11,155		18,208		2,186,784		2,204,992		389
Commercial:
Commercial		3,427		637		4,064		496,052		500,116		90
Agricultural		285		243		528		148,035		148,563		56
Total commercial		3,712		880		4,592		644,087		648,679		146
Other		108		93		201		6,914		7,115		15
Total	$	13,391	$	13,255	$	26,646	$	3,219,808	$	3,246,454	$	1,191

Impaired Loans

– A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loans, including scheduled principal and interest payments. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of the collateral if the loan is collateral dependent.

Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

Impaired loans, net of government guarantees and excluding loans acquired, segregated by class of loans, are as follows:

(In thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
June 30, 2016											Three Months Ended June 30, 2016				Six Months Ended June 30, 2016
Consumer:
Credit cards	$	433	$	433	$	-	$	433	$	-	$	216	$	-	$	304	$	10
Other consumer		1,257		1,225		17		1,242		6		841		12		708		18
Total consumer		1,690		1,658		17		1,675		6		1,057		12		1,012		28
Real estate:
Construction		6,209		2,414		2,898		5,312		155		5,089		61		5,044		126
Single family residential		10,879		8,946		1,510		10,456		115		9,032		110		7,904		197
Other commercial		22,990		7,484		14,393		21,877		2,810		19,976		220		14,789		370
Total real estate		40,078		18,844		18,801		37,645		3,080		34,097		391		27,737		693
Commercial:
Commercial		4,116		2,477		369		2,846		63		2,539		31		2,355		59
Agricultural		2,634		1,625		-		1,625		-		1,084		15		810		20
Total commercial		6,750		4,102		369		4,471		63		3,623		46		3,165		79
Total	$	48,518	$	24,604	$	19,187	$	43,791	$	3,149	$	38,777	$	449	$	31,914	$	800

December 31, 2015												Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
Consumer:
Credit cards	$	479	$	479	$	-	$	479	$	7	$	459	$	7	$	372	$	12
Other consumer		459		423		19		442		85		538		11		565		19
Total consumer		938		902		19		921		92		997		18		937		31
Real estate:
Construction		5,678		1,636		3,318		4,954		441		5,066		107		5,717		197
Single family residential		5,938		4,702		945		5,647		1,034		5,251		93		4,942		170
Other commercial		5,688		4,328		88		4,416		832		3,104		48		2,563		88
Total real estate		17,304		10,666		4,351		15,017		2,307		13,421		248		13,222		455
Commercial:
Commercial		2,656		1,654		334		1,988		387		2,054		29		1,558		54
Agricultural		264		264		-		264		45		166		5		264		9
Total commercial		2,920		1,918		334		2,252		432		2,220		34		1,822		63
Total	$	21,162	$	13,486	$	4,704	$	18,190	$	2,831	$	16,638	$	300	$	15,981	$	549

At June 30, 2016, and December 31, 2015, impaired loans, net of government guarantees and excluding loans acquired, totaled $43.8 million and $18.2 million, respectively. Allocations of the allowance for loan losses relative to impaired loans were $3.1 million and $2.8 million at June 30, 2016 and December 31, 2015, respectively. Approximately $449,000 and $800,000 of interest income was recognized on average impaired loans of $38.8 million and $31.9 million for the three and six months ended June 30, 2016. Interest income recognized on impaired loans on a cash basis during the three and six months ended June 30, 2016 and 2015 was not material.

Included in certain impaired loan categories are troubled debt restructurings (“TDRs”). When the Company restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not otherwise consider, a “troubled debt restructuring” results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal.

Under ASC Topic 310-10-35 –

Subsequent Measurement

, a TDR is considered to be impaired, and an impairment analysis must be performed. The Company assesses the exposure for each modification, either by collateral discounting or by calculation of the present value of future cash flows, and determines if a specific allocation to the allowance for loan losses is needed.

Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. The Company returns TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months.

The following table presents a summary of troubled debt restructurings, excluding loans acquired, segregated by class of loans.

	Accruing TDR Loans				Nonaccrual TDR Loans				Total TDR Loans
(Dollars in thousands)	Number		Balance		Number		Balance		Number		Balance

June 30, 2016
Consumer:
Other consumer		--	$	--		2	$	15		2	$	15
Total consumer		--		--		2		15		2		15
Real estate:
Construction		--		--		1		139		1		139
Single-family residential		3		184		18		1,870		21		2,054
Other commercial		25		10,302		2		1,769		27		12,071
Total real estate		28		10,486		21		3,778		49		14,264
Commercial:
Commercial		10		401		5		312		15		713
Total commercial		10		401		5		312		15		713
Total		38	$	10,887		28	$	4,105		66	$	14,992

December 31, 2015
Consumer:
Other consumer		--	$	--		1	$	13		1	$	13
Total consumer		--		--		1		13		1		13
Real estate:
Construction		--		--		1		253		1		253
Single-family residential		2		137		11		1,335		13		1,472
Other commercial		4		2,894		1		597		5		3,491
Total real estate		6		3,031		13		2,185		19		5,216
Commercial:
Commercial		--		--		5		332		5		332
Total commercial		--		--		5		332		5		332
Total		6	$	3,031		19	$	2,530		25	$	5,561

The following table presents loans that were restructured as TDRs during the three and six months ended June 30, 2016 and 2015, excluding loans acquired, segregated by class of loans.

							Modification Type
(Dollars in thousands)	Number of Loans		Balance Prior to TDR		Balance at June 30		Change in Maturity Date		Change in Rate		Financial Impact on Date of Restructure

Three Months Ended June 30, 2016
Consumer:
Other consumer		1	$	3	$	3	$	3	$	--	$	--
Total consumer		1		3		3		3		--		--
Real Estate:
Single-family residential		7		618		615		61		554		--
Other commercial		1		348		364		--		364		--
Total real estate		8		966		979		61		918		--
Commercial:
Commercial		9		426		399		399		--		--
Total commercial		9		426		399		399		--		--
Total		18	$	1,395	$	1,381	$	463	$	918	$	--

Three Months Ended June 30, 2015
Real Estate:
Single-family residential		4	$	361	$	361	$	361	$	--	$	--
Other commercial		1		19		19		19		--		--
Total real estate		5		380		380		380		--		--
Total		5	$	380	$	380	$	380	$	--	$	--

Six Months Ended June 30, 2016
Consumer:
Other consumer		1	$	3	$	3	$	3	$	--	$	--
Total consumer		1		3		3		3		--		--
Real estate:
Single-family residential		9		796		793		239		554		--
Other commercial		25		8,962		8,931		8,567		364		--
Total real estate		34		9,758		9,724		8,806		918		--
Commercial:
Commercial		11		600		572		572		--		--
Total commercial		11		600		572		572		--		--
Total		46	$	10,361	$	10,299	$	9,381	$	918	$	--

Six Months Ended June 30, 2015
Real estate:
Single-family residential		6	$	709	$	701	$	701	$	--	$	--
Other commercial		1		19		19		19		--		--
Total real estate		7		728		720		720		--		--
Total		7	$	728	$	720	$	720	$	--	$	--

During the three months ended June 30, 2016, the Company modified 18 loans with a recorded investment of $1.4 million prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity date, changing the interest rate and requiring interest only payments for a period of 12 months. Based on the fair value of the collateral, a specific reserve of $31,000 was determined necessary for these loans. Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During the six months ended June 30, 2016, the Company modified 46 loans with a recorded investment of $10.4 million prior to modification which was deemed troubled debt restructuring. The restructured loans were modified by deferring amortized principal payments, changing the maturity date, changing the interest rate and requiring interest only payments for a period of 12 months. Based on the fair value of the collateral, a specific reserve of $324,000 was determined necessary for these loans. Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.

During the three months ended June 30, 2015, the Company modified five loans with a recorded investment of $380,000 and during the six months ended June 30, 2015, the Company modified seven loans with a total recorded investment of $728,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by changing various terms, including changing the maturity date, deferring amortized principal payments and requiring interest only payments for a period of 12 months. Based on the fair value of the collateral, no specific reserve was determined necessary for these loans. Also, there was no immediate financial impact from the restructuring of these loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.

There were no loans for which a payment default occurred during the six months ended June 30, 2016 and 2015, and that had been modified as a TDR within 12 months or less of the payment default, excluding loans acquired. We define a payment default as a payment received more than 90 days after its due date.

In addition to the TDRs that occurred during the period provided in the preceding tables, the Company had TDRs with pre-modification loan balances of $166,500 and $4.8 million at June 30, 2016 and 2015, respectively, for which other real estate owned (“OREO”) was received in full or partial satisfaction of the loans. The majority of such TDRs were in commercial real estate and residential real estate. At June 30, 2016, the Company had $2,215,000 of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At June 30, 2016, the Company had $5,648,000 of OREO secured by residential real estate properties.

Credit Quality Indicators

– As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions in the States of Arkansas, Kansas, Missouri and Tennessee.

The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans are rated on a scale of 1 to 8. A description of the general characteristics of the 8 risk ratings is as follows:

Risk Rate 1 – Pass (Excellent)

– This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength.

Risk Rate 2 – Pass (Good)

- Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated "excellent”).

Risk Rate 3 – Pass (Acceptable – Average)

- Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters.

Risk Rate 4 – Pass (Monitor)

- Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent "red flags". These "red flags" require a higher level of supervision or monitoring than the normal "Pass" rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a harsher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability.

Risk Rate 5 – Special Mention

- A loan in this category has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special Mention loans are not adversely classified (although they are "criticized") and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent, or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices.

Risk Rate 6 – Substandard

- A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan.

Risk Rate 7 – Doubtful

– A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.

Risk Rate 8 – Loss

- Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible.

Loans acquired are evaluated using this internal grading system. Loans acquired are evaluated individually and include purchased credit impaired loans of $20.7 million and $23.5 million that are accounted for under ASC Topic 310-30 and are classified as substandard (Risk Rating 6) as of June 30, 2016 and December 31, 2015, respectively. Of the remaining loans acquired and accounted for under ASC Topic 310-20, $36.0 million and $49.9 million were classified (Risk Ratings 6, 7 and 8 – see classified loans discussion below) at June 30, 2016 and December 31, 2015, respectively.

Loans acquired, covered by loss share agreements, had additional protection provided by the FDIC prior to the termination of the loss share agreements. During the 2014 quarterly impairment testing on the estimated cash flows of the credit impaired loans, the Company established that some of the loans covered by loss share from our FDIC-assisted transactions had experienced material projected credit deterioration. As a result, the Company established a $954,000 allowance for loan losses on covered loans by recording a provision for loan losses of $0.4 million (net of FDIC-loss share adjustments) during the period ended December 31, 2014. There was no further projected credit deterioration and no addition to the allowance for covered loans during 2015. The $954,000 allowance was reclassified to allowance on acquired non-covered loans subsequent to the agreement with the FDIC to terminate the loss share agreements. See Note 5, Loans Acquired, for further discussion of the acquired loans and loss sharing agreements.

Purchased credit impaired loans are loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all amounts contractually owed. Their fair value was initially based on the estimate of cash flows, both principal and interest, expected to be collected or estimated collateral values if cash flows are not estimable, discounted at prevailing market rates of interest. The difference between the undiscounted cash flows expected at acquisition and the fair value at acquisition is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment.

Classified loans for the Company include loans in Risk Ratings 6, 7 and 8. Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. Loans rated 6 – 8 that fall under the threshold amount are not tested for impairment and therefore are not included in impaired loans. (2) Of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans. Total classified loans, excluding loans accounted for under ASC Topic 310-30, were $161.4 million and $153.7 million, as of June 30, 2016 and December 31, 2015, respectively.

The following table presents a summary of loans by credit risk rating as of June 30, 2016 and December 31, 2015, segregated by class of loans. Loans accounted for under ASC Topic 310-30 are all included in Risk Rate 1-4 in this table.

(In thousands)	Risk Rate 1-4		Risk Rate 5		Risk Rate 6		Risk Rate 7		Risk Rate 8		Total

June 30, 2016
Consumer:
Credit cards	$	171,035	$	--	$	433	$	--	$	--	$	171,468
Other consumer		246,491		44		1,463		20		--		248,018
Total consumer		417,526		44		1,896		20		--		419,486
Real estate:
Construction		319,592		103		10,955		16		--		330,666
Single family residential		761,813		3,605		19,707		164		--		785,289
Other commercial		1,351,541		7,127		55,995		--		--		1,414,663
Total real estate		2,432,946		10,835		86,657		180		--		2,530,618
Commercial:
Commercial		558,439		5,140		14,162		30		--		577,771
Agricultural		185,028		228		1,791		--		--		187,047
Total commercial		743,467		5,368		15,953		30		--		764,818
Other		10,500		--		--		--		--		10,500
Loans acquired		1,212,261		19,520		54,740		1,914		--		1,288,435
Total	$	4,816,700	$	35,767	$	159,246	$	2,144	$	--	$	5,013,857

(In thousands)	Risk Rate 1-4		Risk Rate 5		Risk Rate 6		Risk Rate 7		Risk Rate 8		Total

December 31, 2015
Consumer:
Credit cards	$	176,809	$	--	$	479	$	--	$	--	$	177,288
Other consumer		207,069		--		1,262		49		--		208,380
Total consumer		383,878		--		1,741		49		--		385,668
Real estate:
Construction		270,386		319		9,019		16		--		279,740
Single family residential		679,484		2,701		13,824		171		--		696,180
Other commercial		1,178,817		5,404		44,261		590		--		1,229,072
Total real estate		2,128,687		8,424		67,104		777		--		2,204,992
Commercial:
Commercial		487,563		2,760		9,787		6		--		500,116
Agricultural		147,788		--		775		--		--		148,563
Total commercial		635,351		2,760		10,562		6		--		648,679
Other		7,022		--		93		--		--		7,115
Loans acquired		1,590,384		9,150		69,219		3,689		459		1,672,901
Total	$	4,745,322	$	20,334	$	148,719	$	4,521	$	459	$	4,919,355

Allowance for Loan Losses

– The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310-10,

Receivables

, and allowance allocations calculated in accordance with ASC Topic 450-20,

Loss Contingencies

. Accordingly, the methodology is based on the Company’s internal grading system, specific impairment analysis, qualitative and quantitative factors.

As mentioned above, allocations to the allowance for loan losses are categorized as either specific allocations or general allocations.

A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan, including scheduled principal and interest payments. For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for loan losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.

The general allocation is calculated monthly based on management’s assessment of several factors such as (1) historical loss experience based on volumes and types, (2) volume and trends in delinquencies and nonaccruals, (3) lending policies and procedures including those for loan losses, collections and recoveries, (4) national, state and local economic trends and conditions, (5) concentrations of credit within the loan portfolio, (6) the experience, ability and depth of lending management and staff and (7) other factors and trends that will affect specific loans and categories of loans. The Company establishes general allocations for each major loan category. This category also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans.

The following table details activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2016. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

(In thousands)	Commercial			Real Estate			Credit Card			Other Consumer and Other			Total

Three Months Ended June 30, 2016
Balance, beginning of period (2)	$	7,083		$	19,925		$	3,757		$	1,916		$	32,681
Provision for loan losses (1)		2,714			423			440			732			4,309
Charge-offs		(2,283	)		(824	)		(702	)		(489	)		(4,298	)
Recoveries		318			111			253			149			831
Net recoveries (charge-offs)		(1,965	)		(713	)		(449	)		(340	)		(3,467	)
Balance, June 30, 2016 (2)	$	7,832		$	19,635		$	3,748		$	2,308		$	33,523

Six Months Ended June 30, 2016
Balance, beginning of period (2)	$	5,985		$	19,522		$	3,893		$	1,951		$	31,351
Provision for loan losses (1)		4,281			943			921			987			7,132
Charge-offs		(2,759	)		(1,053	)		(1,561	)		(882	)		(6,255	)
Recoveries		325			223			495			252			1,295
Net charge-offs		(2,434	)		(830	)		(1,066	)		(630	)		(4,960	)
Balance, June 30, 2016 (2)	$	7,832		$	19,635		$	3,748		$	2,308		$	33,523

Period-end amount allocated to:
Loans individually evaluated for impairment	$	63		$	3,080		$	--		$	6		$	3,149
Loans collectively evaluated for impairment		7,769			16,555			3,748			2,302			30,374
Balance, June 30, 2016 (2)	$	7,832		$	19,635		$	3,748		$	2,308		$	33,523

________________________________________

(1)

Provision for loan losses of $307,000 attributable to loans acquired was excluded from this table for the three and six months ended June 30, 2016 (total provision for loan losses for the three and six months ended June 30, 2016 was $4,616,000 and $7,439,000). The $307,000 was subsequently charged-off, resulting in no ending balance in the allowance related to loans acquired.

(2)

Allowance for loan losses at June 30, 2016, March 31, 2016 and December 31, 2015 includes $954,000 allowance for loans acquired. The total allowance for loan losses at June 30, 2016, March 31, 2016 and December 31, 2015 was $34,477,000, $33,635,000 and $32,305,000, respectively.

Activity in the allowance for loan losses for the three and six months ended June 30, 2015 was as follows:

(In thousands)	Commercial			Real Estate			Credit Card			Other Consumer and Other			Total

Three Months Ended June 30, 2015
Balance, beginning of period (4)	$	6,870		$	15,553		$	5,527		$	1,233		$	29,183
Provision for loan losses (3)		(1,569	)		3,311			352			308			2,402
Charge-offs		--			(333	)		(802	)		(366	)		(1,501	)
Recoveries		9			46			241			187			483
Net charge-offs		9			(287	)		(561	)		(179	)		(1,018	)
Balance, June 30, 2015 (4)	$	5,310		$	18,577		$	5,318		$	1,362		$	30,567

Six Months Ended June 30, 2015
Balance, beginning of period (4)	$	6,962		$	15,161		$	5,445		$	1,460		$	29,028
Provision for loan losses (3)		(1,585	)		3,984			1,006			168			3,573
Charge-offs		(245	)		(626	)		(1,587	)		(586	)		(3,044	)
Recoveries		178			58			454			320			1,010
Net charge-offs		(67	)		(568	)		(1,133	)		(266	)		(2,034	)
Balance, June 30, 2015 (4)	$	5,310		$	18,577		$	5,318		$	1,362		$	30,567

Period-end amount allocated to:
Loans individually evaluated for impairment	$	396		$	1,513		$	14		$	89		$	2,012
Loans collectively evaluated for impairment		4,914			17,064			5,304			1,273			28,555
Balance, June 30, 2015 (4)	$	5,310		$	18,577		$	5,318		$	1,362		$	30,567

Period-end amount allocated to:
Loans individually evaluated for impairment	$	432		$	2,307		$	7		$	85		$	2,831
Loans collectively evaluated for impairment		5,553			17,215			3,886			1,866			28,520
Balance, December 31, 2015 (5)	$	5,985		$	19,522		$	3,893		$	1,951		$	31,351

___________________________________________

(3)

Provision for loan losses of $604,000 attributable to loans acquired, not covered by loss share, was excluded from this table for the three and six months ended June 30, 2015 (total provision for loan losses for the three and six months ended June 30, 2015 was $3,006,000 and $4,177,000). The $604,000 was subsequently charged-off, resulting in no ending balance in the allowance related to loans acquired.

(4)

Allowance for loan losses at June 30, 2015, March 31, 2015 and December 31, 2014 includes $954,000 allowance for loans acquired, covered by loss share. The total allowance for loan losses at June 30, 2015, March 31, 2015 and December 31, 2014 was $31,521,000, $30,137,000 and $29,982,000, respectively.

(5)

Allowance for loan losses at December 31, 2015 includes $954,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses December 31, 2015 was $32,305,000.

The Company’s recorded investment in loans, excluding loans acquired, related to each balance in the allowance for loan losses by portfolio segment on the basis of the Company’s impairment methodology was as follows:

(In thousands)	Commercial		Real Estate		Credit Card		Other Consumer and Other		Total

June 30, 2016
Loans individually evaluated for impairment	$	4,471	$	37,645	$	433	$	1,242	$	43,791
Loans collectively evaluated for impairment		760,347		2,492,973		171,035		257,276		3,681,631
Balance, end of period	$	764,818	$	2,530,618	$	171,468	$	258,518	$	3,725,422

December 31, 2015
Loans individually evaluated for impairment	$	2,252	$	15,017	$	479	$	442	$	18,190
Loans collectively evaluated for impairment		646,427		2,189,975		176,809		215,053		3,228,264
Balance, end of period	$	648,679	$	2,204,992	$	177,288	$	215,495	$	3,246,454