Loans Held for Investment and Allowance for Credit Losses on Loans | (4) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS Loans held for investment are summarized by portfolio segment as follows: June 30, 2022 December 31, 2021 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 893,144 $ 775,554 Commercial real estate non-owner occupied 1,162,912 1,095,324 Construction and development < 60 months 436,658 415,466 Construction residential real estate < 60 months 285,090 254,524 Residential real estate first lien 1,072,564 937,006 Residential real estate all other 173,914 161,018 Farmland 266,790 272,179 Commercial and agricultural non-real estate (2) 1,399,702 1,416,093 Consumer non-real estate 439,723 413,370 Oil and gas 482,786 428,908 Total (1) $ 6,613,283 $ 6,169,442 (1) Excludes accrued interest receivable of $ 23.3 million at June 30, 2022 and $ 21.0 million at December 31, 2021, that is recorded in accrued interest receivable and other assets. (2) Includes PPP loans held for investment of $ 3.2 million, net of unamortized processing fees of $ 0 , at June 30, 2022 and $ 80.4 million, net of unamortized processing fees of $ 2.0 million, at December 31, 2021. Loans that were designated as Other and consisted mainly of Small Business Administration (“SBA”) loans were moved to their more descriptive portfolio segment. Therefore, we no longer have an Other loan portfolio segment. In April 2020, the Company began originating loans to qualified small businesses under the Paycheck Protection Program (“PPP”) administered by the SBA. Since PPP loans are fully guaranteed by the SBA, there is no expected credit loss related to these loans. T he Company had processing fees, which were recognized as interest income related to the PPP loans totaling approximately $ 400,000 and $ 11.9 million during the three months ended June 30, 2022 and 2021, respectively and $ 2.1 million and $ 21.7 million during the six months ended June 30, 2022 and 2021, respectively. The Company's loans are currently 83 % held by BancFirst and 17 % held by Pegasus and Worthington. In addition, approximately 65 % of the Company's 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 Company's portfolio segment descriptions and the weighted average remaining life of portfolio segments are disclosed in Note (5) to the Company's Annual Report on Form 10-K for the year ended December 31, 2021. 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: June 30, 2022 December 31, 2021 (Dollars in thousands) Troubled debt restructurings $ 2,174 $ 3,665 Other real estate owned and repossessed assets $ 39,209 $ 39,553 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. Other real estate owned included a commercial real estate property recorded at approximately $ 29.7 million at June 30, 2022 and $ 29.5 million at December 31, 2021. At December 31, 2021, other real estate owned included approximately $ 2.4 million related to the Company's previous headquarters. The previous headquarters was sold during the second quarter of 2022. During the six months ended June 30, 2022, the Company sold property held in other real estate owned for a total gain of $ 3.8 million, compared to a total loss of $ 105,000 in the six months ended June 30, 2021. Nonaccrual loans The Company did no t recognize any interest income on nonaccrual loans for either of the six months ended June 30, 2022 or 2021. In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both June 30, 2022 and December 31, 2021. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 653,000 for the six months ended June 30, 2022 and approximately $ 1.2 million for the six months ended June 30, 2021. Nonaccrual loans guaranteed by government agencies totaled approximately $ 2.2 million at June 30, 2022 and approximately $ 3.3 million at December 31, 2021. The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment. June 30, 2022 December 31, 2021 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 2,224 $ 4,351 Commercial real estate non-owner occupied — 407 Construction and development < 60 months 101 80 Construction residential real estate < 60 months 103 — Residential real estate first lien 2,537 2,763 Residential real estate all other 111 280 Farmland 2,540 4,224 Commercial and agricultural non-real estate 5,998 7,569 Consumer non-real estate 98 148 Oil and gas — 1,070 Total $ 13,712 $ 20,892 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 the Company's loans held for investment: Age Analysis of Past Due Loans 30-59 60-89 90 Days Total Current Total Loans Accruing (Dollars in thousands) As of June 30, 2022 Real estate: Commercial real estate owner occupied $ 1,578 $ 132 $ 726 $ 2,436 $ 890,708 $ 893,144 $ 374 Commercial real estate non-owner occupied — — 36 36 1,162,876 1,162,912 36 Construction and development < 60 months 2,890 113 33 3,036 433,622 436,658 — Construction residential real estate < 60 months — — 103 103 284,987 285,090 — Residential real estate first lien 3,688 1,038 2,231 6,957 1,065,607 1,072,564 1,600 Residential real estate all other 644 65 637 1,346 172,568 173,914 618 Farmland 600 281 2,246 3,127 263,663 266,790 1,052 Commercial and agricultural non-real estate 4,029 654 3,522 8,205 1,391,497 1,399,702 496 Consumer non-real estate 2,542 561 526 3,629 436,094 439,723 512 Oil and gas — 159 83 242 482,544 482,786 83 Total $ 15,971 $ 3,003 $ 10,143 $ 29,117 $ 6,584,166 $ 6,613,283 $ 4,771 As of December 31, 2021 Real estate: Commercial real estate owner occupied $ 2,046 $ 223 $ 1,465 $ 3,734 $ 771,820 $ 775,554 $ 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 2,506 546 7,118 10,170 1,405,923 1,416,093 2,418 Consumer non-real estate 1,873 321 272 2,466 410,904 413,370 254 Oil and gas — — — — 428,908 428,908 — Total $ 19,966 $ 1,724 $ 14,200 $ 35,890 $ 6,133,552 $ 6,169,442 $ 4,964 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 and the table summarizing the Company’s gross loans held for investment by year of origination and internally assigned credit grades as of December 31, 2021, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s revolving loans that are converted to term loans are not material and therefore have not been presented. The following table summarizes the Company’s gross loans held for investment by year of origination and internally assigned credit grades : Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total (Dollars in thousands) As of June 30, 2022 Commercial real estate owner occupied Grade 1 $ 98,837 $ 153,898 $ 119,189 $ 98,981 $ 49,907 $ 138,353 $ 47,977 $ 707,142 Grade 2 25,774 33,972 32,759 21,243 10,083 33,359 23,049 180,239 Grade 3 — 42 452 936 341 1,606 212 3,589 Grade 4 — 303 — 851 193 520 307 2,174 Total commercial real estate owner occupied 124,611 188,215 152,400 122,011 60,524 173,838 71,545 893,144 Commercial real estate non-owner occupied Grade 1 86,546 238,973 183,794 112,077 38,979 104,280 28,735 793,384 Grade 2 58,327 54,276 45,985 49,899 32,181 86,252 29,344 356,264 Grade 3 6,996 — — 3,158 93 2,814 — 13,061 Grade 4 — — — — 203 — — 203 Total commercial real estate non-owner occupied 151,869 293,249 229,779 165,134 71,456 193,346 58,079 1,162,912 Construction and development < 60 months Grade 1 60,042 136,104 42,114 37,833 3,629 5,887 40,046 325,655 Grade 2 18,223 28,205 1,799 14,816 1,733 1,277 43,436 109,489 Grade 3 1,198 — 103 — — 2 111 1,414 Grade 4 — — 33 52 — 15 — 100 Total construction and development < 60 months 79,463 164,309 44,049 52,701 5,362 7,181 83,593 436,658 Construction residential real estate < 60 months Grade 1 119,503 94,469 3,821 26 — 44 31,831 249,694 Grade 2 18,089 14,076 347 — — 413 1,855 34,780 Grade 3 513 — — — — — — 513 Grade 4 — 103 — — — — — 103 Total construction residential real estate < 60 months 138,105 108,648 4,168 26 — 457 33,686 285,090 Residential real estate first lien Grade 1 181,536 234,262 162,322 94,607 61,203 157,490 6,396 897,816 Grade 2 23,461 39,031 25,983 14,136 12,264 44,323 — 159,198 Grade 3 1,521 1,492 1,050 1,701 1,826 3,800 — 11,390 Grade 4 — 199 184 525 987 2,265 — 4,160 Total residential real estate first lien 206,518 274,984 189,539 110,969 76,280 207,878 6,396 1,072,564 Residential real estate all other Grade 1 16,908 13,021 12,762 6,836 4,343 13,031 33,925 100,826 Grade 2 1,990 1,849 1,944 1,761 1,206 2,820 58,388 69,958 Grade 3 185 211 91 67 243 890 589 2,276 Grade 4 — 31 177 — 38 218 390 854 Total residential real estate all other 19,083 15,112 14,974 8,664 5,830 16,959 93,292 173,914 Farmland Grade 1 26,555 40,429 32,947 21,399 11,001 32,232 6,702 171,265 Grade 2 8,434 16,653 7,470 13,116 6,084 17,368 12,121 81,246 Grade 3 2,267 1,954 1,862 1,778 70 2,409 1,923 12,263 Grade 4 — 1,125 379 — 58 222 232 2,016 Total farmland 37,256 60,161 42,658 36,293 17,213 52,231 20,978 266,790 Commercial and agricultural non-real estate Grade 1 160,548 271,247 100,081 71,623 22,808 71,498 337,631 1,035,436 Grade 2 46,899 69,950 28,657 17,177 26,250 7,737 145,827 342,497 Grade 3 2,368 2,451 2,144 1,219 1,937 806 7,019 17,944 Grade 4 — 679 234 907 499 1,237 269 3,825 Total commercial and agricultural non-real estate 209,815 344,327 131,116 90,926 51,494 81,278 490,746 1,399,702 Consumer non-real estate Grade 1 112,598 141,806 55,814 30,229 10,829 3,970 35,949 391,195 Grade 2 13,357 14,002 5,298 4,529 1,395 2,042 5,233 45,856 Grade 3 296 767 405 294 127 97 2 1,988 Grade 4 64 286 87 182 64 1 — 684 Total consumer non-real estate 126,315 156,861 61,604 35,234 12,415 6,110 41,184 439,723 Oil and gas Grade 1 115,020 101,947 18,040 4,468 1,798 326 152,151 393,750 Grade 2 9,301 5,414 3,681 13,581 17,777 250 30,898 80,902 Grade 3 45 4,733 8 — — 199 2,080 7,065 Grade 4 — 1,000 — — — — 69 1,069 Total oil and gas 124,366 113,094 21,729 18,049 19,575 775 185,198 482,786 Total loans held for investment $ 1,217,401 $ 1,718,960 $ 892,016 $ 640,007 $ 320,149 $ 740,053 $ 1,084,697 $ 6,613,283 Allowance for Credit Losses Methodology The Company determines its provision for credit losses and allowance for credit losses using the 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. The increase in allowance for credit loss during 2022 was primarily related to the purchase of loans without credit deterioration during the year. The decrease in the allowance for credit loss during 2021 was driven by a reversal of a pandemic-related 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 for newly acquired loans. The allowance for credit loss for the oil and gas category was reduced due to the increases in oil and gas commodity prices contributing to a more stable and profitable energy industry; however this decrease was entirely offset by an increase in allowance for credit loss for the commercial real estate non-owner occupied category due to ongoing uncertainty regarding the pandemic's long-term impact on the office and retail sectors. 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 Initial allowance on loans purchased with credit deterioration Charge- Recoveries Net Provision for /(benefit from) credit losses on loans Balance at (Dollars in thousands) Three Months Ended June 30, 2022 Real estate: Commercial real estate owner occupied $ 8,281 $ — $ ( 4 ) $ 30 $ 26 $ ( 1,362 ) $ 6,945 Commercial real estate non-owner occupied 20,674 — — — — 2,263 22,937 Construction and development < 60 months 3,309 — — 2 2 417 3,728 Construction residential real estate < 60 months 2,164 — — — — 128 2,292 Residential real estate first lien 3,421 — ( 5 ) 6 1 ( 39 ) 3,383 Residential real estate all other 2,107 — ( 36 ) — ( 36 ) ( 20 ) 2,051 Farmland 4,383 — — — — ( 18 ) 4,365 Commercial and agricultural non-real estate 27,724 — ( 717 ) 30 ( 687 ) 796 27,833 Consumer non-real estate 3,771 — ( 153 ) 42 ( 111 ) 434 4,094 Oil and gas 11,405 — — — — ( 2,098 ) 9,307 Total $ 87,239 $ — $ ( 915 ) $ 110 $ ( 805 ) $ 501 $ 86,935 Six Months Ended June 30, 2022 Real estate: Commercial real estate owner occupied $ 7,568 $ — $ ( 20 ) $ 78 $ 58 $ ( 681 ) $ 6,945 Commercial real estate non-owner occupied 16,987 — — — — 5,950 22,937 Construction and development < 60 months 3,490 — — 5 5 233 3,728 Construction residential real estate < 60 months 1,092 — — — — 1,200 2,292 Residential real estate first lien 3,076 2 ( 49 ) 13 ( 36 ) 341 3,383 Residential real estate all other 2,104 — ( 36 ) 402 366 ( 419 ) 2,051 Farmland 4,822 — — — — ( 457 ) 4,365 Commercial and agricultural non-real estate 28,085 48 ( 899 ) 143 ( 756 ) 456 27,833 Consumer non-real estate 3,734 28 ( 233 ) 80 ( 153 ) 485 4,094 Oil and gas 12,978 — — — — ( 3,671 ) 9,307 Total $ 83,936 $ 78 $ ( 1,237 ) $ 721 $ ( 516 ) $ 3,437 $ 86,935 Allowance for Credit Losses Balance at Initial allowance on loans purchased with credit deterioration Charge- Recoveries Net Provision for /(benefit from) credit losses on loans Balance at (Dollars in thousands) Three Months Ended June 30, 2021 Real estate: Commercial real estate owner occupied $ 6,505 $ 987 $ — $ 1 $ 1 $ 805 $ 8,298 Commercial real estate non-owner occupied 19,115 633 ( 758 ) — ( 758 ) ( 3,952 ) 15,038 Construction and development < 60 months 2,943 173 — 2 2 ( 23 ) 3,095 Construction residential real estate < 60 months 1,092 — — — — ( 94 ) 998 Residential real estate first lien 2,937 117 ( 9 ) 12 3 ( 136 ) 2,921 Residential real estate all other 1,880 — ( 30 ) 1 ( 29 ) 112 1,963 Farmland 3,088 643 — 1 1 ( 5 ) 3,727 Commercial and agricultural non-real estate 35,439 4,711 ( 3,442 ) 125 ( 3,317 ) ( 2,523 ) 34,310 Consumer non-real estate 3,421 8 ( 209 ) 86 ( 123 ) 175 3,481 Oil and gas 14,440 — — — — ( 4,308 ) 10,132 Total $ 90,860 $ 7,272 $ ( 4,448 ) $ 228 $ ( 4,220 ) $ ( 9,949 ) $ 83,963 Six Months Ended June 30, 2021 Real estate: Commercial real estate owner occupied $ 8,470 $ 987 $ — $ 1 $ 1 $ ( 1,160 ) $ 8,298 Commercial real estate non-owner occupied 12,318 633 ( 796 ) — ( 796 ) 2,883 15,038 Construction and development < 60 months 2,723 173 — 5 5 194 3,095 Construction residential real estate < 60 months 726 — — — — 272 998 Residential real estate first lien 2,822 117 ( 52 ) 27 ( 25 ) 7 2,921 Residential real estate all other 2,236 — ( 46 ) 4 ( 42 ) ( 231 ) 1,963 Farmland 3,153 643 — 1 1 ( 70 ) 3,727 Commercial and agricultural non-real estate 34,643 4,711 ( 3,598 ) 152 ( 3,446 ) ( 1,598 ) 34,310 Consumer non-real estate 3,542 8 ( 622 ) 198 ( 424 ) 355 3,481 Oil and gas 20,733 — — — — ( 10,601 ) 10,132 Total $ 91,366 $ 7,272 $ ( 5,114 ) $ 388 $ ( 4,726 ) $ ( 9,949 ) $ 83,963 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 credit-deteriorated loans purchased during the six-month periods ended June 30, 2022 and June 30, 2021 were as follows: Loans acquired (Dollars in thousands) For the period ended June 30, 2022 Purchase price of loans at acquisition $ 661 Allowance for credit losses at acquisition 78 Par value of acquired loans at acquisition $ 739 For the period ended June 30, 2021 Purchase price of loans at acquisition $ 26,779 Allowance for credit losses at acquisition 7,272 Par value of acquired loans at acquisition $ 34,051 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 six months ended June 30, 2022 and 2021 , 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 (Dollars in thousands) As of June 30, 2022 Real estate: Commercial real estate owner occupied $ 1,671 $ — $ — $ — $ 1,671 $ 555 Commercial real estate non-owner occupied 1,146 — — — 1,146 214 Construction and development < 60 months — — — — — — Construction residential real estate < 60 months — — — — — — Residential real estate first lien 734 — — — 734 107 Residential real estate all other 34 — — — 34 15 Farmland 6,341 — — — 6,341 1,157 Commercial and agricultural non-real estate — 4,441 — 5,344 9,785 3,837 Consumer non-real estate — — — 39 39 35 Oil and gas — — — — — — Total collateral-dependent loans held for investment $ 9,926 $ 4,441 $ — $ 5,383 $ 19,750 $ 5,920 Collateral Type Real Estate Business Assets Energy Reserves Other Assets Total Specific Allocation (Dollars in thousands) As of December 31, 2021 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 — 6,472 — 5,202 11,674 4,938 Consumer non-real estate — — — 54 54 20 Oil and gas — — — — — — Total collateral-dependent loans held for investment $ 13,129 $ 6,472 $ — $ 5,256 $ 24,857 $ 7,923 Non-Cash Transfers from Loans and Premises and Equipment Transfers from loans and premises and equipment to other real estate owned and repossessed assets are non-cash transactions, and are not included in the statements of cash flow. Transfers from loans and premises and equipment to other real estate owned and repossessed assets during the periods presented are summarized as follows: Six Months Ended June 30, 2022 2021 (Dollars in thousands) Other real estate owned $ 4,065 $ 9,438 Repossessed assets 503 427 Total $ 4,568 $ 9,865 |