(4) Allowance for Probable Loan Losses

The allowance for probable loan losses primarily consists of the aggregate loan loss allowances of the bank subsidiaries. The allowances are established through charges to operations in the form of provisions for probable loan losses. Loan losses or recoveries are charged or credited directly to the allowances. The allowance for probable loan losses of each bank subsidiary is maintained at a level considered appropriate by management, based on estimated probable losses in the loan portfolio. The allowance for probable loan losses is derived from the following elements: (i) allowances established on specific impaired loans, which are based on a review of the individual characteristics of each loan, including the customer's ability to repay the loan, the underlying collateral values, and the industry in which the customer operates, (ii) allowances based on actual historical loss experience for similar types of loans in the Company's loan portfolio, and (iii) allowances based on general economic conditions, changes in the mix of loans, company resources, border risk and credit quality indicators, among other things. All segments of the loan portfolio continue to be impacted by the prolonged economic downturn. Loans secured by real estate could be impacted negatively by the continued economic environment and resulting decrease in collateral values. Consumer loans may be impacted by continued and prolonged unemployment rates.

The Company's management continually reviews the allowance for loan losses of the bank subsidiaries using the amounts determined from the allowances established on specific impaired loans, the allowance established on quantitative historical loss percentages, and the allowance based on qualitative data to establish an appropriate amount to maintain in the Company's allowance for loan losses. Should any of the factors considered by management in evaluating the adequacy of the allowance for probable loan losses change, the Company's estimate of probable loan losses could also change, which could affect the level of future provisions for probable loan losses. While the calculation of the allowance for probable loan losses utilizes management's best judgment and all information available, the adequacy of the allowance is dependent on a variety of factors beyond the Company's control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.

The loan loss provision is determined using the following methods. On a weekly basis, loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on the Company's internal classified report. Additionally, the Company's credit department reviews the majority of the Company's loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, the Company will determine if a loan should be placed on an internal classified report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.

While the Texas and Oklahoma economies are performing better than other parts of the country, Texas and Oklahoma are not completely immune to the problems associated with the U.S. economy. The increase in income and capital gains taxes on certain individuals, the increase in payroll taxes, the recent substantial decrease in oil prices, and the unprecedented debt and large deficit of the United States not yet resolved, add uncertainty to the possibility of robust economic growth and may create an adverse effect on the economies of Texas and Oklahoma. Thus, the risk of loss associated with all segments of the loan portfolio in these markets continues to be impacted by prolonged economic uncertainty. Economic risk factors are minimized by the underwriting standards of the bank subsidiaries. The general underwriting standards encompass the following principles: (i) the financial strength of the borrower including strong earnings, a high net worth, significant liquidity and an acceptable debt to worth ratio, (ii) managerial and business competence, (iii) the ability to repay, (iv) for a new business, projected cash flows, (v) loan to value, (vi) in the case of a secondary guarantor, a guarantor financial statement, and (vii) financial and/or other character references. Although the underwriting standards reduce the risk of loss, unique risk factors exist in each type of loan in which the bank subsidiaries invest.

Commercial and industrial loans are mostly secured by the collateral pledged by the borrower that are directly related to the business activities of the company such as accounts receivable and inventory. The ability of the borrower to collect accounts receivable, and to turn inventory into sales are risk factors in the repayment of the loan.

Construction and land development loans can carry risk of repayment when projects incur cost overruns, have an increase in the price of building materials, encounter zoning and environmental issues, or encounter other factors that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include the practice by the mortgage industry of more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing and excessive housing and lot inventory in the market.

Commercial real estate loans demonstrate a risk of repayment when market values deteriorate, the business experiences turnover in key management, the business has an inability to attract or keep occupancy levels stable, or when the market experiences an exit of a specific business industry that is significant to the local economy, such as a manufacturing plant.

First and second lien residential 1-4 family mortgage and consumer loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate.

A summary of the changes in the allowance for probable loan losses by loan class is as follows:

	December 31, 2014
	Domestic																				Foreign
	Commercial			Commercial real estate: other construction & land development			Commercial real estate: farmland & commercial			Commercial real estate: multifamily		Residential: first lien			Residential: junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	22,433		$	12,541		$	24,467		$	776	$	3,812		$	4,249		$	750		$	1,133		$	70,161
Losses charge to allowance		(19,110	)		(680	)		(1,893	)		—		(351	)		(661	)		(719	)		(51	)		(23,465	)
Recoveries credited to allowance		2,979			72			107			—		49			242			210			50			3,709

Net losses charged to allowance		(16,131	)		(608	)		(1,786	)		—		(302	)		(419	)		(509	)		(1	)		(19,756	)
Provision (credit) charged to operations		16,050			1,022			(3,998	)		70		79			853			419			(72	)		14,423

Balance at December 31,	$	22,352		$	12,955		$	18,683		$	846	$	3,589		$	4,683		$	660		$	1,060		$	64,828

	December 31, 2013
	Domestic																					Foreign
	Commercial			Commercial real estate: other construction & land development			Commercial real estate: farmland & commercial			Commercial real estate: multifamily			Residential: first lien			Residential: junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	11,632		$	12,720		$	21,880		$	694		$	4,390		$	4,448		$	1,289		$	1,140		$	58,193
Losses charge to allowance		(11,737	)		(278	)		(600	)		(5	)		(632	)		(620	)		(561	)		(22	)		(14,455	)
Recoveries credited to allowance		2,690			87			152			—			61			298			162			5			3,455

Net losses charged to allowance		(9,047	)		(191	)		(448	)		(5	)		(571	)		(322	)		(399	)		(17	)		(11,000	)
Provision (credit) charged to operations		19,848			12			3,035			87			(7	)		123			(140	)		10			22,968

Balance at December 31,	$	22,433		$	12,541		$	24,467		$	776		$	3,812		$	4,249		$	750		$	1,133		$	70,161

	December 31, 2012
	Domestic																					Foreign
	Commercial			Commercial real estate: other construction & land development			Commercial real estate: farmland & commercial			Commercial real estate: multifamily			Residential: first lien			Residential: junior lien			Consumer			Foreign			Total
	(Dollars in Thousands)
Balance at December 31,	$	26,617		$	19,940		$	24,227		$	1,003		$	4,562		$	4,760		$	1,724		$	1,359		$	84,192
Losses charge to allowance		(34,721	)		(7,617	)		(13,724	)		—			(227	)		(1,190	)		(756	)		(111	)		(58,346	)
Recoveries credited to allowance		3,547			229			220			—			13			195			184			—			4,388

Net losses charged to allowance		(31,174	)		(7,388	)		(13,504	)		—			(214	)		(995	)		(572	)		(111	)		(53,958	)
Provision (credit) charged to operations		16,189			168			11,157			(309	)		42			683			137			(108	)		27,959

Balance at December 31,	$	11,632		$	12,720		$	21,880		$	694		$	4,390		$	4,448		$	1,289		$	1,140		$	58,193

The allowance for probable loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management's best estimate of probable loan losses when evaluating loans (i) individually or (ii) collectively. The Company's allowance for probable loan losses decreased for the year ended December 31, 2014 primarily due to a charge down of a relationship that is mainly secured by multiple pieces of transportation equipment. The relationship also contributed to a change in net losses charged against the allowance for probable loan losses for the same period.

The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class:

	December 31, 2014
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	Recorded Investment		Allowance		Recorded Investment		Allowance
	(Dollars in Thousands)
Domestic
Commercial	$	40,175	$	9,112	$	1,049,311	$	13,240
Commercial real estate: other construction & land development		10,876		1,890		1,404,101		11,065
Commercial real estate: farmland & commercial		14,166		1,219		1,887,233		17,464
Commercial real estate: multifamily		835		—		115,864		846
Residential: first lien		5,840		—		416,186		3,589
Residential: junior lien		2,895		—		485,405		4,683
Consumer		1,384		—		59,753		660
Foreign		—		—		185,221		1,060

Total	$	76,171	$	12,221	$	5,603,074	$	52,607

	December 31, 2013
	Loans individually evaluated for impairment				Loans collectively evaluated for impairment
	Recorded Investment		Allowance		Recorded Investment		Allowance
	(Dollars in Thousands)
Domestic
Commercial	$	34,183	$	12,234	$	1,008,459	$	10,199
Commercial real estate: other construction & land development		13,976		852		1,194,532		11,689
Commercial real estate: farmland & commercial		16,038		2,916		1,734,001		21,551
Commercial real estate: multifamily		295		—		101,803		776
Residential: first lien		6,153		—		432,309		3,812
Residential: junior lien		3,206		—		406,024		4,249
Consumer		1,606		—		64,808		750
Foreign		436		—		181,406		1,133

Total	$	75,893	$	16,002	$	5,123,342	$	54,159

Loans accounted for on a non-accrual basis at December 31, 2014, 2013 and 2012 amounted to $63,559,000, $62,823,000 and $71,768,000, respectively. The effect of such non-accrual loans reduced interest income by $4,013,000, $4,088,000 and $2,549,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Amounts received on non-accruals are applied, for financial accounting purposes, first to principal and then to interest after all principal has been collected. Accruing loans contractually past due 90 days or more as to principal or interest payments at December 31, 2014, 2013 and 2012 amounted to $9,988,000, $7,197,000 and $15,033,000, respectively.

The table below provides additional information on loans accounted for on a non-accrual basis by loan class:

	December 31,
	2014		2013
	(Dollars in Thousands)
Domestic
Commercial	$	40,121	$	34,110
Commercial real estate: other construction & land development		8,621		11,726
Commercial real estate: farmland & commercial		11,903		13,775
Commercial real estate: multifamily		835		295
Residential: first lien		527		1,266
Residential: junior lien		1,523		1,576
Consumer		29		75
Foreign		—		—

Total non-accrual loans	$	63,559	$	62,823

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate; (2) the loan's observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's impaired loans are measured at the fair value of the collateral. In limited cases the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent. The increase in commercial non-accrual loans at December 31, 2014 compared to December 31, 2013 is mainly due to the addition of a relationship secured by accounts receivables.

The following tables detail key information regarding the Company's impaired loans by loan class for the year ended December 31, 2014:

	December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	19,944	$	20,026	$	9,112	$	19,313	$	—
Commercial real estate: other construction & land development		6,714		6,949		1,890		7,183		—
Commercial real estate: farmland & commercial		5,107		5,257		1,219		6,790		92

Total impaired loans with related allowance	$	31,765	$	32,232	$	12,221	$	33,286	$	92

	December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	20,231	$	20,260	$	18,563	$	4
Commercial real estate: other construction & land development		4,162		4,270		4,882		74
Commercial real estate: farmland & commercial		9,059		10,562		8,664		—
Commercial real estate: multifamily		835		835		363		—
Residential: first lien		5,840		6,034		6,293		273
Residential: junior lien		2,895		2,915		3,035		90
Consumer		1,384		1,386		1,402		3
Foreign		—		—		—		—

Total impaired loans with no related allowance	$	44,406	$	46,262	$	43,202	$	444

The following tables detail key information regarding the Company's impaired loans by loan class for the year ended December 31, 2013:

	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with Related Allowance
Domestic
Commercial	$	17,178	$	17,177	$	12,234	$	18,019	$	38
Commercial real estate: other construction & land development		6,818		6,825		852		6,058		—
Commercial real estate: farmland & commercial		7,259		10,697		2,916		7,167		92

Total impaired loans with related allowance	$	31,255	$	34,699	$	16,002	$	31,244	$	130

	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Average Recorded Investment		Interest Recognized
	(Dollars in Thousands)
Loans with No Related Allowance
Domestic
Commercial	$	17,005	$	17,023	$	16,778	$	2
Commercial real estate: other construction & land development		7,158		7,187		18,164		74
Commercial real estate: farmland & commercial		8,779		9,949		7,313		—
Commercial real estate: multifamily		295		295		322		—
Residential: first lien		6,153		6,258		4,860		179
Residential: junior lien		3,206		3,226		2,347		99
Consumer		1,606		1,612		1,380		1
Foreign		436		436		452		19

Total impaired loans with no related allowance	$	44,638	$	45,986	$	51,616	$	374

A portion of the impaired loans have adequate collateral and credit enhancements not requiring a related allowance for loan loss. The level of impaired loans is reflective of the economic weakness that has been created by the financial crisis and the subsequent economic downturn. Management is confident the Company's loss exposure regarding these credits will be significantly reduced due to the Company's long-standing practices that emphasize secured lending with strong collateral positions and guarantor support. Management is likewise confident the reserve for probable loan losses is adequate. The Company has no direct exposure to sub-prime loans in its loan portfolio, but the sub-prime crisis has affected the credit markets on a national level, and as a result, the Company has experienced an increasing amount of impaired loans; however, management's decision to place loans in this category does not necessarily mean that the Company will experience significant losses from these loans or significant increases in impaired loans from these levels.

Management of the Company recognizes the risks associated with these impaired loans. However, management's decision to place loans in this category does not necessarily mean that losses will occur. In the current environment, troubled loan management can be protracted because of the legal and process problems that delay the collection of an otherwise collectable loan. Additionally, management believes that the collateral related to these impaired loans and/or the secondary support from guarantors mitigates the potential for losses from impaired loans.

The following table details loans accounted for as "troubled debt restructuring," segregated by loan class. Loans accounted for as troubled debt restructuring are included in impaired loans.

	December 31, 2014		December 31, 2013
	(Dollars in Thousands)
Domestic
Commercial	$	2,500	$	150
Commercial real estate: other construction & land development		2,254		8,860
Commercial real estate: farmland & commercial		2,861		2,863
Residential: first lien		5,313		4,887
Residential: junior lien		1,371		1,631
Consumer		1,354		1,531
Foreign		—		436

Total troubled debt restructuring	$	15,653	$	20,358

The bank subsidiaries charge off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a "loss" by bank examiners. Commercial and industrial or real estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower's financial condition and general economic conditions in the borrower's industry. Generally, unsecured consumer loans are charged-off when 90 days past due.

While management of the Company considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses. The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment. Similarly, the determination of the adequacy of the allowance for probable loan losses can be made only on a subjective basis. It is the judgment of the Company's management that the allowance for probable loan losses at December 31, 2014 was adequate to absorb probable losses from loans in the portfolio at that date.

The following table presents information regarding the aging of past due loans by loan class:

	December 31, 2014
	30 - 59 Days		60 - 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,103	$	2,665	$	40,665	$	2,890	$	47,433	$	1,042,053	$	1,089,486
Commercial real estate: other construction & land development		596		10		8,707		439		9,313		1,405,664		1,414,977
Commercial real estate: farmland & commercial		2,905		7,131		10,724		1,711		20,760		1,880,639		1,901,399
Commercial real estate: multifamily		351		—		856		21		1,207		115,492		116,699
Residential: first lien		5,895		1,864		4,267		3,901		12,026		410,000		422,026
Residential: junior lien		899		231		1,931		431		3,061		485,239		488,300
Consumer		896		216		507		482		1,619		59,518		61,137
Foreign		1,616		98		113		113		1,827		183,394		185,221

Total past due loans	$	17,261	$	12,215	$	67,770	$	9,988	$	97,246	$	5,581,999	$	5,679,245

The increase in loans past due 60 - 89 days at December 31, 2014 compared to December 31, 2013 is primarily due to one loan secured by farmland that was delinquent at year end.

	December 31, 2013
	30 - 59 Days		60 - 89 Days		90 Days or Greater		90 Days or greater & still accruing		Total Past due		Current		Total Portfolio
	(Dollars in Thousands)
Domestic
Commercial	$	4,240	$	538	$	36,066	$	2,051	$	40,844	$	1,001,798	$	1,042,642
Commercial real estate: other construction & land development		1,042		—		9,942		62		10,984		1,197,524		1,208,508
Commercial real estate: farmland & commercial		6,216		520		6,990		417		13,726		1,736,313		1,750,039
Commercial real estate: multifamily		39		142		295		—		476		101,622		102,098
Residential: first lien		4,758		3,046		4,541		3,518		12,345		426,117		438,462
Residential: junior lien		606		198		1,900		368		2,704		406,526		409,230
Consumer		1,523		469		803		781		2,795		63,619		66,414
Foreign		1,467		417		—		—		1,884		179,958		181,842

Total past due loans	$	19,891	$	5,330	$	60,537	$	7,197	$	85,758	$	5,113,477	$	5,199,235

The Company's internal classified report is segregated into the following categories: (i) "Special Review Credits," (ii) "Watch List—Pass Credits," or (iii) "Watch List—Substandard Credits." The loans placed in the "Special Review Credits" category reflect the Company's opinion that the loans reflect potential weakness which require monitoring on a more frequent basis. The "Special Review Credits" are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the "Watch List—Pass Credits" category reflect the Company's opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant "extra attention." The "Watch List—Pass Credits" are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the "Watch List—Substandard Credits" classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and interest. Furthermore, there is the possibility that some future loss could be sustained by the Company if such weaknesses are not corrected. For loans that are classified as impaired, management evaluates these credits in accordance with the provisions of ASC 310-10, "Receivables," and, if deemed necessary, a specific reserve is allocated to the credit. The specific reserve allocated under ASC 310-10, is based on (i) the present value of expected future cash flows discounted at the loan's effective interest rate; (ii) the loan's observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's loans evaluated as impaired under ASC 310-10 are measured using the fair value of collateral method. In limited cases, the Company may use other methods to determine the specific reserve of a loan under ASC 310-10 if such loan is not collateral dependent.

The allowance based on historical loss experience on the Company's remaining loan portfolio, which includes the "Special Review Credits," "Watch List—Pass Credits," and "Watch List—Substandard Credits" is determined by segregating the remaining loan portfolio into certain categories such as commercial loans, installment loans, international loans, loan concentrations and overdrafts. Installment loans are then further segregated by number of days past due. A historical loss percentage, adjusted for (i) management's evaluation of changes in lending policies and procedures, (ii) current economic conditions in the market area served by the Company, (iii) other risk factors, (iv) the effectiveness of the internal loan review function, (v) changes in loan portfolios, and (vi) the composition and concentration of credit volume is applied to each category. Each category is then added together to determine the allowance allocated under ASC 450-20.

As discussed above and in line with its customary loan review process, the Company identified and re-classified a loan relationship in the commercial category to Special Review, causing an increase in that category at December 31, 2014 compared to December 31, 2013. Additionally, there was a decrease in the commercial real estate farmland and commercial Special Review category at December 31, 2014 compared to December 31, 2013 due to a relationship being reclassified to the Watch List-Substandard category during 2014. A construction and land development loan within the relationship was classified as Watch List-Substandard from pass during the same period. The decrease in commercial construction and land development Special Review credits at December 31, 2014 compared to December 31, 2013 can be attributed to a relationship that was paid off in 2014.

A summary of the loan portfolio by credit quality indicator by loan class is as follows:

			December 31, 2014
	Pass		Special Review		Watch List—Pass		Watch List— Substandard		Watch List— Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	961,490	$	38,382	$	3,793	$	45,646	$	40,175
Commercial real estate: other construction & land development		1,353,971		1,005		10,428		38,697		10,876
Commercial real estate: farmland & commercial		1,754,741		11,674		23,453		97,365		14,166
Commercial real estate: multifamily		115,729		—		—		135		835
Residential: first lien		412,668		3,500		—		18		5,840
Residential: junior lien		484,968		—		—		437		2,895
Consumer		59,622		—		—		131		1,384
Foreign		185,221		—		—		—		—

Total	$	5,328,410	$	54,561	$	37,674	$	182,429	$	76,171

			December 31, 2013
	Pass		Special Review		Watch List—Pass		Watch List— Substandard		Watch List— Impaired
			(Dollars in Thousands)
Domestic
Commercial	$	955,522	$	2,270	$	4,389	$	46,278	$	34,183
Commercial real estate: other construction & land development		1,167,295		14,247		9,318		3,672		13,976
Commercial real estate: farmland & commercial		1,635,179		56,438		21,912		20,472		16,038
Commercial real estate: multifamily		100,948		—		—		855		295
Residential: first lien		432,067		122		—		120		6,153
Residential: junior lien		405,731		—		—		293		3,206
Consumer		64,808		—		—		—		1,606
Foreign		180,837		—		—		569		436

Total	$	4,942,387	$	73,077	$	35,619	$	72,259	$	75,893