Loans Held for Investment and Allowance for Credit Losses on Loans | (5) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS Certain loan segments were reclassified during the year. Each loan segment is made up of loan categories possessing similar risk characteristics. The Company’s re-alignment of the segments primarily consisted of reclassifying energy related loans that were previously included in consumer-related and commercial-related loans to the oil and gas categories. Management believes this accurately represents the risk profile of each loan segment. The prior period amounts have been revised to conform to the current period presentation. These reclassifications did not have a significant impact on the allowance for credit losses. Loans held for investment are summarized by portfolio segment as follows: December 31, 2021 2020 Amount Amount (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 684,739 $ 659,762 Commercial real estate non-owner occupied 1,095,324 1,050,739 Construction and development < 60 months 415,466 275,096 Construction residential real estate < 60 months 254,524 230,193 Residential real estate first lien 937,006 930,576 Residential real estate all other 161,018 172,883 Farmland 272,179 254,330 Commercial and agricultural non-real estate 1,256,487 1,193,719 Consumer non-real estate 413,370 376,264 Oil and gas 428,908 428,866 Other loans (2) 250,421 822,078 Total loans (1) $ 6,169,442 $ 6,394,506 (1) Excludes accrued interest receivable of $ 21.0 million at December 31, 2021 and $ 26.0 million at December 31, 2020, that is recorded in accrued interest receivable and other assets. (2) Includes PPP loans held for investment of $ 80.4 million, net of unamortized processing fees of $ 2.0 million at December 31, 2021 and $ 652.7 million, net of unamortized processing fees of $ 14.5 million at December 31, 2020. The Company's loans are mostly to customers within Oklahoma and approximately 62 % of loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual and related borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained, if any, to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. In connection with our adoption of ASC 326, changes were made to our primary portfolio segments to align with the methodology applied in determining the allowance for credit losses with and expected loss methodology ("CECL"). The Company has identified the following portfolio segments, which includes the applicable weighted average remaining life, and measures the allowance for credit losses using the vintage loss analysis adjusted for qualitative factors: Portfolio Segments Life (in years) Real estate: Commercial real estate owner occupied 8 Commercial real estate non-owner occupied 6 Construction and development < 60 months 3 Construction residential real estate < 60 months 1 Residential real estate first lien 13 Residential real estate all other 7 Farmland 12 Commercial and agricultural non-real estate 3 Consumer non-real estate 4 Oil and gas 2 Other loans 10 These portfolio segments are separately identified because they exhibit distinctive risk characteristics, such as financial asset types, loan purpose, collateral, and industry of the borrower. A summary of our primary portfolio segments is as follows: Commercial real estate owner occupied. Commercial real estate owner occupied are nonresidential property loans for which the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the entity, or an affiliate of the entity, who owns the property. This category includes, among other loans, loans secured by office buildings, garden office buildings, manufacturing facilities, warehouse and flex warehouse facilities, hospitals, and car washes unless the property is owned by an investor who leases the property to the operator who, in turn, is not related to or affiliated with the investor. Commercial real estate non-owner occupied. Commercial real estate non-owner occupied are nonresidential property loans where the primary source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent financing of the property. This category includes, among other loans, loans secured by shopping centers, office buildings, hotels/motels, nursing homes, assisted-living facilities, mini-storage warehouse facilities, and similar properties. Construction and development < 60 months . Residential development loans include loans to develop raw land into a residential development. Advances on the loans typically include land costs, hard costs (grading, utilities, roads, etc.), soft costs (engineering fees, development fees, entitlement fees, etc.) and carrying costs until the development is completed. Upon completion of the development, the loan is typically repaid through the sale of lots to homebuilders. Construction residential real estate < 60 months. Residential construction includes loans to builders for speculative or custom homes, as well as direct loans to individuals for construction of their personal residence. Custom construction and self-construction loans typically will have commitments in place for long-term financing at the completion of construction. Speculative construction loans generally will have periodic curtailment plans beginning after completion of construction and a reasonable time for sales to have occurred. Residential real estate first lien. Residential real estate first lien loans includes all closed-end loans secured by first liens on 1-to-4 family residential properties. This category includes property containing 1-to-4 dwelling units (including vacation homes) or more than four dwelling units if each is separated from other units by dividing walls that extend from ground to roof. This category also includes individual condominium dwelling units and loans secured by an interest in individual cooperative housing units, even if in a building with five or more dwelling units. Residential real estate all other. Residential real estate all other loans includes loans secured by junior (i.e., other than first) liens on 1-to-4 family residential properties. This category includes loans secured by junior liens even if the Company also holds a loan secured by a first lien on the same 1-to-4 family residential property. Farmland. This category includes loans secured by all land known to be used or usable for agricultural purposes, such as crop and livestock production. Farmland includes grazing or pasture land, whether tillable or not and whether wooded or not. Commercial and agricultural non-real estate. Commercial and agricultural non-real estate represent loans for working capital, facilities acquisition or expansion, purchase of equipment and other needs of commercial customers primarily located within Oklahoma. Loans in this category include commercial and industrial, agriculture and state and political subdivisions. Consumer non-real estate. Consumer loans are loans to individuals for household, family and other personal expenditures. Commonly, such loans are made to finance purchases of consumer goods, such as automobiles, boats, household goods, vacations and education. Oil and gas. Oil and gas loans represent loans for producing oil and gas properties and any other mineral interests that may be pumped, mined, quarried or otherwise extracted from the earth primarily located within Oklahoma. These loans also include upstream and midstream energy loans, and loans to companies that provide ancillary services to the energy industry, such as transportation, wellsite preparation contractors and equipment manufacturers. Other loans. Other loans consist of loans approved by the SBA, which include loans funded through the PPP. Since PPP loans are fully guaranteed by the SBA, there is no expected credit loss related to these loans. In April 2020, the Company began originating loans to qualified small businesses under the PPP administered by the SBA. The Company had processing fees, which were recognized as interest income related to the PPP loans totaling $ 36.4 million and $ 15.5 million during the years ended December 31, 2021 and 2020, respectively. Troubled Debt Restructurings, Other Real Estate Owned and Repossessed Assets and Held for Sale Assets The following is a summary of troubled debt restructurings and other real estate owned and repossessed assets: December 31, 2021 2020 (Dollars in thousands) Troubled debt restructurings $ 3,665 $ 7,784 Other real estate owned and repossessed assets $ 39,553 $ 32,480 The Company charges interest on principal balances outstanding on troubled debt restructurings during deferral periods. The current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings were not considered to be material. During the year ended December 31, 2021, the Company completed the move to its new corporate headquarters and transferred approximately $ 2.4 million from premises and equipment related to its previous headquarters to other real estate owned. During 2021, the Company sold property held in other real estate owned for a total gain of $ 618,000 compared to gains of $ 2.4 million in 2020 and $ 1.4 million in 2019. At December 31, 2020, the Company’s principal subsidiary bank, BancFirst, had approximately $ 21.6 million in loans at its Hugo, Oklahoma branch that it had entered into an agreement to sell to AmeriState Bank in Atoka, Oklahoma. Accordingly, as of December 31, 2020, the Company had transferred $ 21.6 million from loans held for investment (net of unearned interest) to loans held for sale. Nonaccrual loans Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 2.2 million in 2021, $ 2.8 million in 2020 and $ 1.7 million in 2019. Approximately $ 3.3 million of nonaccrual loans are guaranteed by government agencies as of December 31, 2021. The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment. December 31, 2021 December 31, 2020 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 2,900 $ 1,404 Commercial real estate non-owner occupied 407 4,719 Construction and development < 60 months 80 95 Construction residential real estate < 60 months — — Residential real estate first lien 2,763 3,615 Residential real estate all other 280 1,362 Farmland 4,224 7,901 Commercial and agricultural non-real estate 7,569 12,782 Consumer non-real estate 148 268 Oil and gas 1,070 — Other loans 1,451 5,399 Total $ 20,892 $ 37,545 Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents an age analysis of our loans held for investment: Age Analysis of Past Due Loans 30-59 60-89 90 Days Total Current Total Loans Accruing (Dollars in thousands) December 31, 2021 Real estate: Commercial real estate owner occupied $ 972 $ 223 $ 1,363 $ 2,558 $ 682,181 $ 684,739 $ 18 Commercial real estate non-owner occupied 7,244 — — 7,244 1,088,080 1,095,324 — Construction and development < 60 months 136 — — 136 415,330 415,466 — Construction residential real estate < 60 months 2,264 — — 2,264 252,260 254,524 — Residential real estate first lien 3,351 567 2,817 6,735 930,271 937,006 1,704 Residential real estate all other 293 30 451 774 160,244 161,018 431 Farmland 253 37 2,077 2,367 269,812 272,179 139 Commercial and agricultural non-real estate 1,807 199 4,574 6,580 1,249,907 1,256,487 124 Consumer non-real estate 1,873 321 272 2,466 410,904 413,370 254 Oil and gas — — — — 428,908 428,908 — Other loans 1,773 347 2,646 4,766 245,655 250,421 2,294 Total $ 19,966 $ 1,724 $ 14,200 $ 35,890 $ 6,133,552 $ 6,169,442 $ 4,964 December 31, 2020 Real estate: Commercial real estate owner occupied $ 1,096 $ 108 $ 1,164 $ 2,368 $ 657,394 $ 659,762 $ — Commercial real estate non-owner occupied 323 — 34 357 1,050,382 1,050,739 35 Construction and development < 60 months 511 86 — 597 274,499 275,096 — Construction residential real estate < 60 months 1,106 — 282 1,388 228,805 230,193 282 Residential real estate first lien 5,428 1,463 2,978 9,869 920,707 930,576 945 Residential real estate all other 520 55 1,606 2,181 170,702 172,883 384 Farmland 1,297 344 6,223 7,864 246,466 254,330 135 Commercial and agricultural non-real estate 2,788 1,794 4,345 8,927 1,184,792 1,193,719 465 Consumer non-real estate 2,154 501 534 3,189 373,075 376,264 386 Oil and gas — — — — 428,866 428,866 — Other loans 951 1,223 6,618 8,792 813,286 822,078 2,170 Total $ 16,174 $ 5,574 $ 23,784 $ 45,532 $ 6,348,974 $ 6,394,506 $ 4,802 Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications by Financial Institutions provides temporary relief from the accounting and reporting requirements for TDRs regarding certain loan modifications related to the Coronavirus Disease 2019 (“COVID-19”) that are offered by financial institutions. Sp ecifically, the CARES Act provides that a financial institution may elect to suspend (1) the requirements under U.S. GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. The modifications that would qualify for this exception include any modification involving a loan that was not more than 30 days past due as of December 31, 2019, that occurs during the “applicable period,” including any of the following: • A forbearance arrangement. • An interest rate modification. • A repayment plan. • Any other similar arrangement that defers or delays the payment of principal or interest. The exception does not apply to any adverse impact on the credit of a borrower that is not related to the COVID-19 pandemic. Furthermore, even when the exception is applied, an entity may determine that it is appropriate to place the loan on nonaccrual status. Due to the impacts of the COVID-19 pandemic, the Company had approximately $ 53.9 million in modified loans as of December 31, 2021 and $ 81.7 million in modified loans as of December 31, 2020, most of which were secured by commercial real estate. These modifications were undertaken in response to Section 4013 of the CARES Act and the regulatory intent outlined in the Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus and to provide businesses financial flexibility until the economy has time to recover to a more normal level of activity. However, these modifications, which typically involve payment modifications and forbearance, also have the effect of delaying recognition of loans that may ultimately be permanently impaired. The timing and extent of such consequences are difficult to ascertain at this time and are dependent on the duration of the COVID-19 pandemic, the level and success of the government’s economic stimulus, and further regulatory guidance. These modified loans are included in Current Loans in the table above. Credit Quality Indicators The Company considers credit quality indicators to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical credit loss experience and economic conditions. These indicators are reviewed and updated regularly throughout the year. An internal risk grading system is used to indicate the credit risk of loans. The loan grades used by the Company are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions. The general characteristics of the risk grades are as follows: Grade 1 – Acceptable - Loans graded 1 represent reasonable and satisfactory credit risk which requires normal attention and supervision. Capacity to repay through primary and/or secondary sources is not questioned. Grade 2 – Acceptable - Increased Attention - This category consists of loans that have credit characteristics deserving management’s close attention. These complexities or potential weaknesses could result in deterioration of the repayment prospects for the loan or the Company's credit position at some future date. Such credit characteristics include loans to highly leveraged borrowers in cyclical industries, adverse financial trends which could potentially weaken repayment capacity, loans that have fundamental structure complexity or deficiencies, loans lacking secondary sources of repayment where prudent, and loans with deficiencies in essential documentation, including financial information. Grade 3 – Loans with Problem Potential - This category consists of performing loans which are considered to exhibit problem potential. Loans in this category would generally include, but not be limited to, borrowers with a weakened financial condition or poor performance history, past dues, loans restructured to reduce payments to an amount that is below market standards and/or loans with severe documentation problems. In general, these loans have no identifiable loss potential in the near future, however; the possibility of a loss developing is heightened. Grade 4 - Problem Loans/Assets – Nonperforming - This category consists of nonperforming loans/assets which are considered to be problems. Nonperforming loans are described as being 90 days and over past due and still accruing, and loans that are nonaccrual. The government guaranteed portion of SBA loans is excluded. Grade 5 - Loss Potential - This category consists of loans/assets which are considered to possess loss potential. While the loss may not occur in the current year, management expects that loans/assets in this category will ultimately result in a loss, unless substantial improvement occurs. Grade 6 - Charge Off - This category consists of loans that are considered uncollectible and other assets with little or no value. The Company’s revolving loans that are converted to term loans are not material and therefore have not been presented. The following tables summarize our gross loans held for investment by year of origination and internally assigned credit grades as of the period indicated: Term Loans Amortized Cost Basis by Origination Year 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total (Dollars in thousands) December 31, 2021 Commercial real estate owner occupied Grade 1 $ 136,757 $ 112,106 $ 97,417 $ 49,642 $ 28,208 $ 94,015 $ 17,669 $ 535,814 Grade 2 35,192 33,198 21,570 8,397 7,871 28,395 8,682 143,305 Grade 3 — 275 606 261 465 1,028 62 2,697 Grade 4 337 600 890 445 — 326 325 2,923 Total commercial real estate owner occupied loans 172,286 146,179 120,483 58,745 36,544 123,764 26,738 684,739 Commercial real estate non-owner occupied Grade 1 252,718 204,892 114,429 51,440 37,305 118,264 29,257 808,305 Grade 2 53,548 51,206 50,912 38,850 19,466 36,808 24,335 275,125 Grade 3 7,095 — 3,254 121 234 656 — 11,360 Grade 4 407 — — 35 — 92 — 534 Total commercial real estate non-owner occupied loans 313,768 256,098 168,595 90,446 57,005 155,820 53,592 1,095,324 Construction and development < 60 months Grade 1 173,384 34,351 57,729 9,276 1,953 4,181 32,294 313,168 Grade 2 37,275 7,511 13,161 4,526 803 510 37,153 100,939 Grade 3 1,273 — — 6 — — — 1,279 Grade 4 — — 56 6 18 — — 80 Total construction and development < 60 months 211,932 41,862 70,946 13,814 2,774 4,691 69,447 415,466 Construction residential real estate < 60 months Grade 1 193,311 7,786 41 — 18 29 16,247 217,432 Grade 2 28,170 2,564 — — — 425 5,455 36,614 Grade 3 478 — — — — — — 478 Total construction residential real estate < 60 months 221,959 10,350 41 — 18 454 21,702 254,524 Residential real estate first lien Grade 1 256,834 174,718 99,082 64,949 45,211 128,898 3,928 773,620 Grade 2 44,080 26,073 15,719 12,612 10,926 38,230 — 147,640 Grade 3 1,151 1,266 2,054 1,930 1,155 3,523 — 11,079 Grade 4 64 489 479 1,247 915 1,473 — 4,667 Total residential real estate first lien 302,129 202,546 117,334 80,738 58,207 172,124 3,928 937,006 Residential real estate all other Grade 1 16,376 13,320 8,691 5,609 4,101 12,386 30,840 91,323 Grade 2 2,183 2,941 1,919 1,500 895 2,202 55,000 66,640 Grade 3 250 98 112 232 702 309 538 2,241 Grade 4 156 180 — 38 12 84 344 814 Total residential real estate all other 18,965 16,539 10,722 7,379 5,710 14,981 86,722 161,018 Farmland Grade 1 47,485 39,216 23,627 15,180 12,579 29,457 6,946 174,490 Grade 2 16,063 8,702 23,688 5,488 4,159 10,848 10,455 79,403 Grade 3 3,587 4,021 1,514 74 1,293 1,316 3,386 15,191 Grade 4 1,109 379 — 1,121 109 145 232 3,095 Total farmland 68,244 52,318 48,829 21,863 18,140 41,766 21,019 272,179 Commercial and agricultural non-real estate Grade 1 353,164 102,137 83,615 33,943 27,701 43,750 288,745 933,055 Grade 2 85,920 30,568 25,097 9,607 2,612 10,575 105,682 270,061 Grade 3 2,995 2,185 1,347 11,479 1,291 599 26,642 46,538 Grade 4 870 212 1,222 654 573 1,109 2,193 6,833 Total commercial and agricultural non-real estate 442,949 135,102 111,281 55,683 32,177 56,033 423,262 1,256,487 Consumer non-real estate Grade 1 201,893 80,616 43,793 17,587 5,723 2,048 20,600 372,260 Grade 2 19,349 7,551 6,119 2,167 816 1,342 996 38,340 Grade 3 1,146 307 551 203 86 31 4 2,328 Grade 4 62 90 199 69 14 8 — 442 Total consumer non-real estate 222,450 88,564 50,662 20,026 6,639 3,429 21,600 413,370 Oil and gas Grade 1 188,072 26,090 6,579 1,257 89 73 139,687 361,847 Grade 2 17,150 9,774 13,909 2,657 170 215 13,186 57,061 Grade 3 6,641 10 — — — 255 2,024 8,930 Grade 4 1,000 — — — — — 70 1,070 Total oil and gas 212,863 35,874 20,488 3,914 259 543 154,967 428,908 Other loans Grade 1 109,830 38,379 28,176 20,171 13,908 8,425 26,076 244,965 Grade 2 283 — — 73 2,187 1,041 488 4,072 Grade 3 — — — — — 43 1,073 1,116 Grade 4 — 8 115 — — 44 101 268 Total other loans 110,113 38,387 28,291 20,244 16,095 9,553 27,738 250,421 Total loans held for investment $ 2,297,658 $ 1,023,819 $ 747,672 $ 372,852 $ 233,568 $ 583,158 $ 910,715 $ 6,169,442 Term Loans Amortized Cost Basis by Origination Year 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total (Dollars in thousands) December 31, 2020 Commercial real estate owner occupied Grade 1 $ 136,638 $ 107,664 $ 75,262 $ 46,584 $ 37,857 $ 89,940 $ 18,941 $ 512,886 Grade 2 42,993 31,817 11,060 9,644 14,558 25,494 4,209 139,775 Grade 3 1,010 32 334 704 895 2,671 — 5,646 Grade 4 37 66 742 — 251 52 307 1,455 Total commercial real estate owner occupied loans 180,678 139,579 87,398 56,932 53,561 118,157 23,457 659,762 Commercial real estate non-owner occupied Grade 1 282,985 166,369 88,717 72,117 86,190 81,749 31,747 809,874 Grade 2 62,688 56,026 27,188 20,416 8,755 41,492 5,890 222,455 Grade 3 7,718 3,137 472 1,937 40 148 150 13,602 Grade 4 4,719 89 — — — — — 4,808 Total commercial real estate non-owner occupied loans 358,110 225,621 116,377 94,470 94,985 123,389 37,787 1,050,739 Construction and development < 60 months Grade 1 121,699 62,722 12,821 4,655 2,334 3,824 22,288 230,343 Grade 2 13,433 11,142 3,973 764 157 540 10,798 40,807 Grade 3 3,842 — 9 — — — — 3,851 Grade 4 — 64 9 22 — — — 95 Total construction and development < 60 months 138,974 73,928 16,812 5,441 2,491 4,364 33,086 275,096 Construction residential real estate < 60 months Grade 1 159,432 4,214 69 21 33 23 25,918 189,710 Grade 2 27,400 580 — — — 468 10,030 38,478 Grade 3 1,885 120 — — — — — 2,005 Total construction residential real estate < 60 months 188,717 4,914 69 21 33 491 35,948 230,193 Residential real estate first lien Grade 1 281,908 140,246 87,317 70,541 50,419 138,772 3,362 772,565 Grade 2 35,924 20,492 21,965 13,447 12,254 34,312 — 138,394 Grade 3 2,754 2,029 1,375 2,073 1,213 5,194 — 14,638 Grade 4 731 733 478 210 1,186 1,590 — 4,928 Grade 5 — — — — 51 — — 51 Total residential real estate first lien 321,317 163,500 111,135 86,271 65,123 179,868 3,362 930,576 Residential real estate all other Grade 1 21,492 15,461 11,010 6,717 5,381 11,037 29,851 100,949 Grade 2 3,694 1,675 1,268 1,809 450 2,793 56,295 67,984 Grade 3 384 461 328 116 119 221 494 2,123 Grade 4 204 217 570 65 34 715 22 1,827 Total residential real estate all other 25,774 17,814 13,176 8,707 5,984 14,766 86,662 172,883 Farmland Grade 1 51,284 27,116 18,993 13,821 13,517 27,100 8,185 160,016 Grade 2 15,737 30,684 6,639 6,391 4,763 8,916 7,140 80,270 Grade 3 3,681 290 152 1,055 703 551 1,955 8,387 Grade 4 414 14 4,058 296 340 223 312 5,657 Total farmland 71,116 58,104 29,842 21,563 19,323 36,790 17,592 254,330 Commercial and agricultural non-real estate Grade 1 225,207 146,263 118,571 77,547 46,687 37,767 256,282 908,324 Grade 2 64,187 40,901 29,787 6,590 7,054 22,710 73,134 244,363 Grade 3 18,922 1,400 1,402 723 271 327 12,659 35,704 Grade 4 584 1,607 652 241 1,139 146 959 5,328 Total commercial and agricultural non-real estate 308,900 190,171 150,412 85,101 55,151 60,950 343,034 1,193,719 Consumer non-real estate Grade 1 168,544 94,375 41,715 13,157 6,831 1,768 18,132 344,522 Grade 2 13,444 9,123 4,104 842 507 266 574 28,860 Grade 3 568 840 450 175 75 63 2 2,173 Grade 4 89 287 144 95 47 40 7 709 Total consumer non-real estate 182,645 104,625 46,413 14,269 7,460 2,137 18,715 376,264 Oil and gas Grade 1 151,000 19,288 15,589 464 25 4,777 92,123 283,266 Grade 2 73,882 11,996 6,217 396 169 81 34,210 126,951 Grade 3 9,010 111 64 66 364 — 2,418 12,033 Grade 4 6,600 — — — — 16 — 6,616 Total oil and gas 240,492 31,395 21,870 926 558 4,874 128,751 428,866 Other loans Grade 1 685,426 32,392 25,707 20,638 16,378 10,341 22,976 813,858 Grade 2 — — 17 2,936 1,126 2,179 692 6,950 Grade 3 — — 78 — 53 67 36 234 Grade 4 — — — 124 208 33 671 1,036 Total other loans 685,426 32,392 25,802 23,698 17,765 12,620 24,375 822,078 Total loans held for investment $ 2,702,149 $ 1,042,043 $ 619,306 $ 397,399 $ 322,434 $ 558,406 $ 752,769 $ 6,394,506 Allowance for Credit Losses Methodology On January 1, 2020, the Company adopted ASC 326, which replaces the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Upon adoption, the allowance for credit losses was decreased by $ 3.2 million, with no impact to the consolidated statement of income. Subsequent to the adoption of ASC 326, the Company recorded a $ 62.6 million provision for credit losses for year ended December 31, 2020 utilizing the newly adopted CECL methodology, a significant increase from the year ended December 31, 2019. The increase resulted primarily from the anticipated impact on our loan portfolio resulting from the economic outlook related to the COVID-19 pandemic and the decline in energy prices and to a lesser degree, loan growth during 2020. The decrease in the allowance for credit loss during 2021 was driven by a reversal of provision during 2021 based on sustained improvements in the economy, both nationally and in the Company's markets, which reduced the amount of expected credit loss within the loan portfolio. This reduction was partially offset by additional allowance for credit loss required by newly acquired loans. The following table details activity in the allowance for credit losses on loans for the period presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Allowance for Credit Losses Balance at Impact of CECL adoption Initial allowance on loans purchased with credit deterioration Charge- Recoveries Net Provision Balance at (Dollars in thousands) Year ended December 31, 2021 Real estate: Commercial real estate owner occupied $ 6,911 $ — $ 1,080 $ ( 38 ) $ 74 $ 36 $ ( 1,617 ) $ 6,410 Commercial real estate non-owner occupied 12,318 — 824 ( 803 ) 67 ( 736 ) 4,581 16,987 Construction and development < 60 months 2,723 — 173 — 12 12 582 3,490 Construction residential real estate < 60 months 726 — — — — — 366 1,092 Residential real estate first lien 2,822 — 126 ( 87 ) 55 ( 32 ) 160 3,076 Residential real estate all other 2,236 — — ( 521 ) 52 ( 469 ) 337 2,104 Farmland 3,153 — 395 ( 889 ) 1 ( 888 ) 2,162 4,822 Commercial and agricultural non-real estate 33,020 — 5,663 ( 4,509 ) 218 ( 4,291 ) ( 8,319 ) 26,073 Consumer non-real estate 3,542 — 38 ( 864 ) 326 ( 538 ) 692 3,734 Oil and gas 20,733 — — — — — ( 7,755 ) 12,978 Other loans 3,182 — — ( 134 ) 1 ( 133 ) 121 3,170 Total $ 91,366 $ — $ 8,299 $ ( 7,845 ) $ 806 $ ( 7,039 ) $ ( 8,690 ) $ 83,936 Balance at Impact of CECL adoption Initial allowance on loans purchased with credit deterioration Charge- Recoveries Net Provision Balance at Year ended December 31, 2020 Real estate: Commercial real estate owner occupied $ 5,600 $ ( 2,704 ) $ 432 $ ( 773 ) $ 10 $ ( 763 ) $ 4,346 $ 6,911 Commercial real estate non-owner occupied 8,459 ( 5,265 ) — ( 3,609 ) — ( 3,609 ) 12,733 12,318 Construction and development < 60 months 2,276 ( 916 ) — ( 59 ) 123 64 1,299 2,723 Construction residential real estate < 60 months 1,960 ( 690 ) — ( 29 ) — ( 29 ) ( 515 ) 726 Residential real estate first lien 8,781 ( 3,052 ) 7 ( 465 ) 44 ( 421 ) ( 2,493 ) 2,822 Residential real estate all other 2,763 ( 1,383 ) — ( 126 ) 54 ( 72 ) 928 2,236 Farmland 2,818 ( 1,402 ) 1 ( 2,055 ) — ( 2,055 ) 3,791 3,153 Commercial and agricultural non-real estate 12,310 13,949 62 ( 4,161 ) 540 ( 3,621 ) 10,320 33,020 Consumer non-real estate 3,284 ( 548 ) — ( 1,142 ) 224 ( 918 ) 1,724 3,542 Oil and gas 3,355 ( 1,068 ) — ( 11,245 ) — ( 11,245 ) 29,691 20,733 Other loans 2,632 ( 116 ) — ( 168 ) 10 ( 158 ) 824 3,182 Total $ 54,238 $ ( 3,195 ) $ 502 $ ( 23,832 ) $ 1,005 $ ( 22,827 ) $ 62,648 $ 91,366 Purchased Credit Deteriorated Loans The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The purchased credit deteriorated loans for the period are as follows: Loans acquired with deteriorated credit quality (Dollars in thousands) For the year ended December 31, 2021 Purchase price of loans at acquisition $ 39,284 Allowance for credit losses at acquisition 8,299 Par value of acquired loans at acquisition $ 47,583 For the year ended December 31, 2020 Purchase price of loans at acquisition $ 1,761 Allowance for credit losses at acquisition 502 Par value of acquired loans at acquisition $ 2,263 Collateral Dependent Loans A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. During the years ended December 31, 2021 and 2020, no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent. The following table summarizes collateral-dependent gross loans held for investment by collateral type and the related specific allocation as follows: Collateral Type Real Estate Business Assets Energy Reserves Other Assets Total Specific Allocation As of December 31, 2021 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 1,952 $ — $ — $ — $ 1,952 $ 576 Commercial real estate non-owner occupied 1,404 — — — 1,404 263 Construction and development < 60 months — — — — — — Construction residential real estate < 60 months — — — — — — Residential real estate first lien 871 — — — 871 143 Residential real estate all other 199 — — — 199 178 Farmland 8,703 — — — 8,703 1,805 Commercial and agricultural non-real estate — 6,363 — 5,202 11,565 4,867 Consumer non-real estate — — — 54 54 20 Oil and gas — — — — — — Other loans — 109 — — 109 71 Total collateral-dependent loans held for investment $ 13,129 $ 6,472 $ — $ 5,256 $ 24,857 $ 7,923 Collateral Type Real Estate Business Assets Energy Reserves Other Assets Total Specific Allocation As of December 31, 2020 (Dollars in thousands) Real estate: Commercial real e |