Note 4 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES

At September 30, 2015, the Company’s loan portfolio was $4.85 billion, compared to $2.74 billion at December 31, 2014.  The various categories of loans are summarized as follows:

(In thousands)	September 30, 2015		December 31, 2014
Consumer:
Credit cards	$	171,701	$	185,380
Other consumer		182,472		103,402
Total consumer		354,173		288,782
Real Estate:
Construction		253,761		181,968
Single family residential		623,089		455,563
Other commercial		1,037,559		714,797
Total real estate		1,914,409		1,352,328
Commercial:
Commercial		394,422		291,820
Agricultural		170,257		115,658
Total commercial		564,679		407,478
Other		6,017		5,133
Legacy loans		2,839,278		2,053,721
Loans acquired, not covered by FDIC loss share (net of discount and allowance) (1)		2,013,816		575,980
Loans acquired, covered by FDIC loss share (net of discount and allowance) (1)		-		106,933
Total loans	$	4,853,094	$	2,736,634

 (1) See Note 5, Loans Acquired, for segregation of loans acquired by loan class. In September 2015 the Company entered into an agreement with the FDIC to terminate all loss sharing agreements.

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, factors 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.  The Company no longer originates or services student 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 a one or three year balloon, 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)	September 30, 2015		December 31, 2014
Consumer:
Credit cards	$	231	$	197
Other consumer		334		405
Total consumer		565		602
Real estate:
Construction		4,625		4,863
Single family residential		4,912		4,010
Other commercial		3,349		1,522
Total real estate		12,886		10,395
Commercial:
Commercial		1,766		585
Agricultural		88		456
Total commercial		1,854		1,041
Total	$	15,305	$	12,038

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
September 30, 2015
Consumer:
Credit cards	$	765	$	231	$	996	$	170,705	$	171,701	$	-
Other consumer		1,411		699		2,110		180,362		182,472		327
Total consumer		2,176		930		3,106		351,067		354,173		327
Real estate:
Construction		3,772		1,979		5,751		248,010		253,761		239
Single family residential		3,922		3,066		6,988		616,101		623,089		388
Other commercial		3,162		2,085		5,247		1,032,312		1,037,559		-
Total real estate		10,856		7,130		17,986		1,896,423		1,914,409		627
Commercial:
Commercial		3,106		652		3,758		390,664		394,422		202
Agricultural		204		191		395		169,862		170,257		119
Total commercial		3,310		843		4,153		560,526		564,679		321
Other		-		-		-		6,017		6,017		-
Total	$	16,342	$	8,903	$	25,245	$	2,814,033	$	2,839,278	$	1,275
December 31, 2014
Consumer:
Credit cards	$	687	$	457	$	1,144	$	184,236	$	185,380	$	-
Other consumer		1,349		447		1,796		101,606		103,402		223
Total consumer		2,036		904		2,940		285,842		288,782		223
Real estate:
Construction		760		570		1,330		180,638		181,968		177
Single family residential		4,913		2,213		7,126		448,437		455,563		248
Other commercial		1,987		847		2,834		711,963		714,797		-
Total real estate		7,660		3,630		11,290		1,341,038		1,352,328		425
Commercial:
Commercial		381		354		735		291,085		291,820		-
Agricultural		119		109		228		115,430		115,658		40
Total commercial		500		463		963		406,515		407,478		40
Other		-		-		-		5,133		5,133		-
Total	$	10,196	$	4,997	$	15,193	$	2,038,528	$	2,053,721	$	688

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
September 30, 2015											Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
Consumer:
Credit cards	$	461	$	461	$	-	$	461	$	7	$	450	$	8	$	394	$	20
Other consumer		701		652		20		672		124		612		13		592		33
Total consumer		1,162		1,113		20		1,133		131		1,062		21		986		53
Real estate:
Construction		5,683		2,196		2,781		4,977		378		6,230		109		5,532		306
Single family residential		6,068		4,710		557		5,267		963		4,945		108		5,023		278
Other commercial		4,859		3,541		90		3,631		699		3,175		68		2,830		157
Total real estate		16,610		10,447		3,428		13,875		2,040		14,350		285		13,385		741
Commercial:
Commercial		2,883		1,145		873		2,018		588		1,488		39		1,673		93
Agricultural		207		218		-		218		38		180		5		252		14
Total commercial		3,090		1,363		873		2,236		626		1,668		44		1,925		107
Total	$	20,862	$	12,923	$	4,321	$	17,244	$	2,797	$	17,080	$	350	$	16,296	$	901

December 31, 2014											Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014
Consumer:
Credit cards	$	197	$	197	$	-	$	197	$	6	$	471	$	-	$	482	$	9
Other consumer		604		610		9		619		118		781		14		821		30
Total consumer		801		807		9		816		124		1,252		14		1,303		39
Real estate:
Construction		7,400		7,020		-		7,020		599		4,323		49		3,662		114
Single family residential		4,442		3,948		377		4,325		899		4,583		52		4,282		133
Other commercial		1,955		1,446		36		1,482		268		6,663		75		8,115		252
Total real estate		13,797		12,414		413		12,827		1,766		15,569		176		16,059		499
Commercial:
Commercial		1,227		566		-		566		102		654		7		646		20
Agricultural		501		460		-		466		83		274		3		178		6
Total commercial		1,728		1,026		-		1,026		185		928		10		824		26
Total	$	16,326	$	14,247	$	422	$	14,669	$	2,075	$	17,749	$	200	$	18,186	$	564

At September 30, 2015, and December 31, 2014, impaired loans, net of government guarantees and excluding loans acquired, totaled $17.2 million and $14.7 million, respectively.  Allocations of the allowance for loan losses relative to impaired loans were $2.8 million at September 30, 2015 and $2.1 million at December 31, 2014.  Approximately $350,000 and $900,000 of interest income was recognized on average impaired loans of $17.1 million and $16.3 million for the three and nine months ended September 30, 2015.  Interest income recognized on impaired loans on a cash basis during the three and nine months ended September 30, 2015 and 2014 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
September 30, 2015
Consumer:
Other consumer		-	$	-		1	$	13		1	$	13
Total consumer		-		-		1		13		1		13
Real estate:
Construction		-	$	-		1	$	256		1	$	256
Single-family residential		2		137		9		1,155		11		1,292
Other commercial		3		1,818		6		937		9		2,755
Total real estate		5		1,955		16		2,348		21		4,303
Total		5	$	1,955		17	$	2,361		22	$	4,316
December 31, 2014
Real estate:
Construction		-	$	-		1	$	391		1	$	391
Single-family residential		2		393		1		3		3		396
Other commercial		3		1,840		1		614		4		2,454
Total real estate		5		2,233		3		1,008		8		3,241
Total		5	$	2,233		3	$	1,008		8	$	3,241

The following table presents loans that were restructured as TDRs during the three and nine months ended September 30, 2015 and 2014, excluding loans acquired, segregated by class of loans.

							Modification Type
(Dollars in thousands)	Number of Loans		Balance Prior to TDR		Balance at September 30		Change in Maturity Date		Change in Rate		Financial Impact on Date of Restructure
Three Months Ended September 30, 2015
Consumer:
Other consumer		1	$	14	$	14	$	14	$	-	$	-
Total consumer		1		14		14		14		-		-
Real Estate:
Single-family residential		2		249		207		207	$	-	$	-
Other commercial		5		347		339		339		-		-
Total real estate		7		596		546		546		-		-
Total		8	$	610	$	560	$	560	$	-	$	-
Three Months Ended September 30, 2014
Commercial:
Commercial		-	$	-	$	-	$	-	$	-	$	-
Total commercial		-		-		-		-		-		-
Total		-	$	-	$	-	$	-	$	-	$	-
Nine Months Ended September 30, 2015
Consumer:
Other consumer		1	$	14	$	14	$	14	$	-	$	-
Total consumer		1		14		14		14		-		-
Real estate:
Single-family residential		8	$	958	$	914	$	914	$	-	$	-
Other commercial		6		366		339		339
Total real estate		14		1,324		1,253		1,253		-		-
Total		15	$	1,338	$	1,267	$	1,267	$	-	$	-
Nine Months Ended September 30, 2014
Real estate:
Single-family residential		1	$	1,031	$	1,031	$	-	$	1,031	$	-
Total real estate		1		1,031		1,031		-		1,031		-
Commercial:
Commercial		1		599		-		-		-		-
Total commercial		1		599		-		-		-		-
Total		2	$	1,630	$	1,031	$	-	$	1,031	$	-

During the three months ended September 30, 2015, the Company modified eight loans with a recorded investment of $610,000 prior to modification which were deemed troubled debt restructuring.  The restructured loans were modified by 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, a $113,000 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.

During the nine months ended September 30, 2015, the Company modified fifteen loans with a total recorded investment of $1,338,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by various terms, including changing the maturity date and deferring amortized principal payments. Based on the fair value of the collateral, a $113,000 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.

During the three months ended September 30, 2014, the Company did not modify any loans and during the nine months ended September 30, 2014, the Company modified two loans with a total recorded investment of $1,630,000 prior to modification which were deemed troubled debt restructuring. The restructured loans were modified by changing various terms, including changing the maturity date and deferring amortized principal payments. 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 nine months ended September 30, 2015 and 2014, 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 $167,000 and $5,719,000 at September 30, 2015 and 2014, 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 September 30, 2015, the Company had $1,481,000 of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At September 30, 2015, the Company had $5,092,000 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 $39.9 million and $22.3 million that are accounted for under ASC Topic 310-30 and are classified as substandard (Risk Rating 6) as of September 30, 2015 and December 31, 2014, respectively. Of the remaining loans acquired and accounted for under ASC Topic 310-20, $53.3 million and $16.6 million were classified (Risk Ratings 6, 7 and 8 – see classified loans discussion below) at September 30, 2015 and December 31, 2014, 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 $116.4 million and $82.1 million, as of September 30, 2015 and December 31, 2014, respectively.

The following table presents a summary of loans by credit risk rating as of September 30, 2015 and December 31, 2014, 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
September 30, 2015
Consumer:
Credit cards	$	171,239	$	-	$	462	$	-	$	-	$	171,701
Other consumer		181,551		-		883		38		-		182,472
Total consumer		352,790		-		1,345		38		-		354,173
Real estate:
Construction		247,457		476		5,812		16		-		253,761
Single family residential		610,347		2,064		10,505		173		-		623,089
Other commercial		996,692		4,869		34,815		1,183		-		1,037,559
Total real estate		1,854,496		7,409		51,132		1,372		-		1,914,409
Commercial:
Commercial		384,393		1,483		8,538		8		-		394,422
Agricultural		169,615		-		642		-		-		170,257
Total commercial		554,008		2,074		9,180		8		-		564,679
Other		6,017		-		-		-		-		6,017
Loans acquired, not covered by FDIC loss share		1,952,157		8,372		51,175		2,108		4		2,013,816
Loans acquired, covered by FDIC loss share		-		-		-		-		-		-
Total	$	4,719,468	$	17,264	$	112,832	$	3,526	$	4	$	4,853,094

(In thousands)	Risk Rate 1-4		Risk Rate 5		Risk Rate 6		Risk Rate 7		Risk Rate 8		Total
December 31, 2014
Consumer:
Credit cards	$	184,923	$	-	$	457	$	-	$	-	$	185,380
Other consumer		102,515		5		839		43		-		103,402
Total consumer		287,438		5		1,296		43		-		288,782
Real estate:
Construction		176,825		84		5,059		-		-		181,968
Single family residential		446,040		1,776		7,665		82		-		455,563
Other commercial		698,329		7,074		9,394		-		-		714,797
Total real estate		1,321,194		8,934		22,118		82		-		1,352,328
Commercial:
Commercial		271,017		1,544		19,248		11		-		291,820
Agricultural		115,106		20		532		-		-		115,658
Total commercial		386,123		1,564		19,780		11		-		407,478
Other		5,133		-		-		-		-		5,133
Loans acquired, not covered by FDIC loss share		535,728		1,435		36,958		1,854		5		575,980
Loans acquired, covered by FDIC loss share		106,933		-		-		-		-		106,933
Total	$	2,642,549	$	11,938	$	80,152	$	1,990	$	5	$	2,736,634

Net (charge-offs)/recoveries for the three and nine months ended September 30, 2015 and 2014, excluding loans acquired, segregated by class of loans, were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2015			2014			2015			2014
Consumer:
Credit cards	$	(550	)	$	(598	)	$	(1,683	)	$	(1,653	)
Student loans		-			(9	)		-			(38	)
Other consumer		(519	)		(517	)		(785	)		(806	)
Total consumer		(1,069	)		(1,124	)		(2,468	)		(2,497	)
Real estate:
Construction		(15	)		30			(44	)		(424	)
Single-family residential		(43	)		(31	)		(368	)		(389	)
Other commercial		(26	)		(154	)		(240	)		(161	)
Total real estate		(84	)		(155	)		(652	)		(974	)
Commercial:
Commercial		(466	)		(308	)		(542	)		(520	)
Agriculture		(50	)		5			(41	)		(13	)
Total commercial		(516	)		(303	)		(583	)		(533	)
Total	$	(1,669	)	$	(1,582	)	$	(3,703	)	$	(4,004	)

Allowance for Loan Losses

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, excluding loans acquired, by portfolio segment for the three and nine months ended September 30, 2015.  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 September 30, 2015
Balance, beginning of period (2)	$	5,310		$	18,577		$	5,318		$	1,362		$	30,567
Provision for loan losses (1)		725			794			(835	)		798			1,482
Charge-offs		(516	)		(109	)		(763	)		(597	)		(1,985	)
Recoveries		-			25			213			78			316
Net recoveries (charge-offs)		(516	)		(84	)		(550	)		(519	)		(1,669	)
Balance, September 30, 2015 (2)	$	5,519		$	19,287		$	3,933		$	1,641		$	30,380
Nine Months Ended September 30, 2015
Balance, beginning of period (2)	$	6,962		$	15,161		$	5,445		$	1,460		$	29,028
Provision for loan losses (1)		(860	)		4,778			171			966			5,055
Charge-offs		(761	)		(735	)		(2,350	)		(1,183	)		(5,029	)
Recoveries		178			83			667			398			1,326
Net charge-offs		(583	)		(652	)		(1,683	)		(785	)		(3,703	)
Balance, September 30, 2015 (2)	$	5,519		$	19,287		$	3,933		$	1,641		$	30,380
Period-end amount allocated to:
Loans individually evaluated for impairment	$	626		$	2,040		$	7		$	124		$	2,797
Loans collectively evaluated for impairment		4,893			17,247			3,926			1,517			27,583
Balance, September 30, 2015 (2)	$	5,519		$	19,287		$	3,933		$	1,641		$	30,380

(1) Provision for loan losses of $133,000 and $737,000 attributable to loans acquired was excluded from this table for the three and nine months ended September 30, 2015 (total provision for loan losses for the three and nine months ended September 30, 2015 was $1,615,000 and $5,792,000). The $133,000 and $737,000 were subsequently charged-off, resulting in no increase to the ending balance in the allowance related to loans acquired.

(2) Allowance for loan losses at September 30, 2015, June 30, 2015 and December 31, 2014 includes $954,000 allowance for loans acquired (not shown in the table above). The total allowance for loan losses at September 30, 2015, June 30, 2015 and December 31, 2014 was $31,334,000, $31,521,000 and $29,982,000, respectively.

Activity in the allowance for loan losses, excluding allowance on loans acquired, for the three and nine months ended September 30, 2014 was as follows:

(In thousands)	Commercial			Real Estate			Credit Card			Other Consumer and Other			Total
Three Months Ended September 30, 2014
Balance, beginning of period	$	3,951		$	16,169		$	5,510		$	1,900		$	27,530
Provision for loan losses		994			(419	)		576			(23	)		1,128
Charge-offs		(474	)		(534	)		(788	)		(648	)		(2,444	)
Recoveries		171			379			190			122			862
Net charge-offs		(303	)		(155	)		(598	)		(526	)		(1,582	)
Balance, September 30, 2014	$	4,642		$	15,595		$	5,488		$	1,351		$	27,076
Nine Months Ended September 30, 2014
Balance, beginning of period	$	3,205		$	16,885		$	5,430		$	1,922		$	27,442
Provision for loan losses		1,970			(316	)		1,711			273			3,638
Charge-offs		(734	)		(2,484	)		(2,329	)		(1,220	)		(6,767	)
Recoveries		201			1,510			676			376			2,763
Net charge-offs		(533	)		(974	)		(1,653	)		(844	)		(4,004	)
Balance, September 30, 2014	$	4,642		$	15,595		$	5,488		$	1,351		$	27,076
Period-end amount allocated to:
Loans individually evaluated for impairment	$	-		$	478		$	-		$	28		$	506
Loans collectively evaluated for impairment		4,642			15,117			5,488			1,323			26,570
Balance, September 30, 2014	$	4,462		$	15,595		$	5,488		$	1,351		$	27,076
Period-end amount allocated to:
Loans individually evaluated for impairment	$	185		$	1,766		$	6		$	118		$	2,075
Loans collectively evaluated for impairment		6,777			13,395			5,439			1,342			26,953
Balance, December 31, 2014 (1)	$	6,962		$	15,161		$	5,445		$	1,460		$	29,028

(1) Allowance for loan losses at December 31, 2014 includes $954,000 allowance for loans acquired, covered by loss share (not shown in the table above). The total allowance for loan losses at December 31, 2014 was $29,982,000.

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
September 30, 2015
Loans individually evaluated for impairment	$	2,236	$	13,875	$	461	$	672	$	17,244
Loans collectively evaluated for impairment		562,443		1,900,534		171,240		187,817		2,822,034
Balance, end of period	$	564,679	$	1,914,409	$	171,701	$	188,489	$	2,839,278
December 31, 2014
Loans individually evaluated for impairment	$	1,026	$	12,827	$	197	$	619	$	14,669
Loans collectively evaluated for impairment		406,452		1,339,501		185,183		107,916		2,039,052
Balance, end of period	$	407,478	$	1,352,328	$	185,380	$	108,535	$	2,053,721