Loans Held for Investment and Allowance for Credit Losses on Loans | (5) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS Loans that were designated as Other and consisted mainly of Small Business Administration (“SBA”) loans were reclassified to their more descriptive portfolio segment during the year. Therefore, we no longer have an Other loan portfolio segment. Each loan segment is made up of loan categories possessing similar risk characteristics. 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, 2022 2021 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 906,461 $ 775,554 Commercial real estate non-owner occupied 1,385,307 1,095,324 Construction and development < 60 months 481,070 415,466 Construction residential real estate < 60 months 304,432 254,524 Residential real estate first lien 1,119,706 937,006 Residential real estate all other 199,005 161,018 Farmland 261,518 272,179 Commercial and agricultural non-real estate (2) 1,376,375 1,416,093 Consumer non-real estate 447,039 413,370 Oil and gas 462,650 428,908 Total loans (1) $ 6,943,563 $ 6,169,442 (1) Excludes accrued interest receivable of $ 30.6 million at December 31, 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 $ 1.1 million, net of unamortized processing fees of $ 0 at December 31, 2022 and $ 80.4 million, net of unamortized processing fees of $ 2.0 million at December 31, 2021. 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. The Company had processing fees, which were recognized as interest income related to the PPP loans totaling $ 2.1 million and $ 36.4 million during the years ended December 31, 2022 and 2021, respectively. The Company's loans are currently 82 % held by BancFirst and 18 % held by Pegasus and Worthington. In addition, approximately 67 % 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 allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. 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 9 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 14 Residential real estate all other 7 Farmland 13 Commercial and agricultural non-real estate 3 Consumer non-real estate 4 Oil and gas 2 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. 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. 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, 2022 2021 (Dollars in thousands) Troubled debt restructurings $ 2,234 $ 3,665 Other real estate owned and repossessed assets $ 36,936 $ 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 $ 29.4 million at December 31, 2022 and $ 29.5 million at December 31, 2021. Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income. Operating expense for this property is included in net expense from other real estate owned in the noninterest expense section on the consolidated statements of comprehensive income. This property had the following rental income and operating expenses for the periods presented. For the Twelve Months Ended December 31, 2022 2021 2020 (Dollars in thousands) Rental income $ 10,340 $ 9,975 $ — Operating expense $ 9,863 $ 8,727 $ — At December 31, 2021, other real estate owned also included $ 2.4 million related to the Company's previous headquarters. The previous headquarters was sold during the second quarter of 2022. During 2022, the Company sold property held in other real estate owned for a total gain of $ 4.2 million compared to gains of $ 618,000 in 2021 and $ 2.4 million in 2020. During 2022, the Company wrote down property held in other real estate owned for a total of $ 3.7 million compared to write downs of $ 538,000 in 2021 and $ 558,000 in 2020. Nonaccrual loans The Company did no t recognize any interest income on nonaccrual loans for any of the years ended December 31, 2022, 2021 or 2020. In addition, there were no nonaccrual loans for which there was no related allowance for credit losses at both December 31, 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 $ 1.3 million in 2022, $ 2.2 million in 2021 and $ 2.8 million in 2020. Nonaccrual loans guaranteed by government agencies totaled $ 4.7 million at December 31, 2022 and $ 3.3 million at December 31, 2021. The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment. December 31, 2022 December 31, 2021 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 1,795 $ 3,220 Commercial real estate non-owner occupied 667 407 Construction and development < 60 months 93 80 Construction residential real estate < 60 months 430 — Residential real estate first lien 1,947 2,763 Residential real estate all other 55 280 Farmland 1,462 4,224 Commercial and agricultural non-real estate 8,338 8,700 Consumer non-real estate 192 148 Oil and gas 320 1,070 Total $ 15,299 $ 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 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, 2022 Real estate: Commercial real estate owner occupied $ 1,314 $ 1,524 $ 4,580 $ 7,418 $ 899,043 $ 906,461 $ 4,580 Commercial real estate non-owner occupied 6,237 — 42 6,279 1,379,028 1,385,307 43 Construction and development < 60 months 535 40 114 689 480,381 481,070 81 Construction residential real estate < 60 months 1,321 282 148 1,751 302,681 304,432 — Residential real estate first lien 3,415 1,076 844 5,335 1,114,371 1,119,706 349 Residential real estate all other 265 37 185 487 198,518 199,005 166 Farmland 1,346 — 325 1,671 259,847 261,518 114 Commercial and agricultural non-real estate 3,500 2,176 4,712 10,388 1,365,987 1,376,375 1,285 Consumer non-real estate 2,591 648 585 3,824 443,215 447,039 467 Oil and gas 654 — — 654 461,996 462,650 — Total $ 21,178 $ 5,783 $ 11,535 $ 38,496 $ 6,905,067 $ 6,943,563 $ 7,085 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 Due to the impacts of the COVID-19 pandemic, the Company had $ 47.6 million in modified loans as of December 31, 2022 and $ 53.9 million in modified loans as of December 31, 2021, 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. 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 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total (Dollars in thousands) December 31, 2022 Commercial real estate owner occupied Grade 1 $ 171,615 $ 145,317 $ 106,803 $ 91,892 $ 44,086 $ 119,755 $ 53,026 $ 732,494 Grade 2 34,800 34,283 27,153 18,072 8,528 29,077 14,737 166,650 Grade 3 235 1,718 387 1,334 332 1,161 62 5,229 Grade 4 40 269 — 1,110 180 489 — 2,088 Total commercial real estate owner occupied 206,690 181,587 134,343 112,408 53,126 150,482 67,825 906,461 Commercial real estate non-owner occupied Grade 1 350,425 239,477 170,415 108,095 23,754 66,564 45,172 1,003,902 Grade 2 115,372 50,573 29,031 46,904 24,877 70,686 31,928 369,371 Grade 3 7,677 — 153 2,733 64 1,318 — 11,945 Grade 4 — — — — 42 47 — 89 Total commercial real estate non-owner occupied 473,474 290,050 199,599 157,732 48,737 138,615 77,100 1,385,307 Construction and development < 60 months Grade 1 169,189 92,988 40,187 5,721 3,467 5,071 40,474 357,097 Grade 2 36,042 20,273 1,513 14,368 1,648 774 47,988 122,606 Grade 3 967 — 141 — — 8 158 1,274 Grade 4 — — 33 47 — 13 — 93 Total construction and development < 60 months 206,198 113,261 41,874 20,136 5,115 5,866 88,620 481,070 Construction residential real estate < 60 months Grade 1 210,099 12,824 259 18 — 42 36,114 259,356 Grade 2 39,689 1,152 102 — — 400 2,091 43,434 Grade 3 1,212 — — — — — — 1,212 Grade 4 420 10 — — — — — 430 Total construction residential real estate < 60 months 251,420 13,986 361 18 — 442 38,205 304,432 Residential real estate first lien Grade 1 304,206 205,277 141,807 85,850 56,028 137,254 4,100 934,522 Grade 2 46,433 36,877 25,623 13,414 11,725 37,242 — 171,314 Grade 3 1,940 1,903 1,065 1,689 497 3,889 — 10,983 Grade 4 55 311 175 386 144 1,816 — 2,887 Total residential real estate first lien 352,634 244,368 168,670 101,339 68,394 180,201 4,100 1,119,706 Residential real estate all other Grade 1 31,762 11,012 10,696 5,458 3,607 11,198 42,629 116,362 Grade 2 5,657 1,887 1,744 1,589 1,237 2,574 64,231 78,919 Grade 3 381 186 71 50 201 786 1,828 3,503 Grade 4 — 18 28 32 39 53 51 221 Total residential real estate all other 37,800 13,103 12,539 7,129 5,084 14,611 108,739 199,005 Farmland Grade 1 47,211 33,771 29,454 18,693 10,038 29,724 6,126 175,017 Grade 2 16,140 14,294 6,536 8,855 5,428 14,373 11,281 76,907 Grade 3 2,196 111 2,090 63 141 2,023 1,926 8,550 Grade 4 660 37 55 — 81 211 — 1,044 Total farmland 66,207 48,213 38,135 27,611 15,688 46,331 19,333 261,518 Commercial and agricultural non-real estate Grade 1 303,340 215,247 72,246 53,808 15,410 42,842 316,942 1,019,835 Grade 2 100,010 54,656 20,423 12,914 16,187 3,832 126,503 334,525 Grade 3 6,332 826 1,682 816 1,745 797 5,070 17,268 Grade 4 240 599 1,099 825 410 1,111 199 4,483 Grade 5 — — — 264 — — — 264 Total commercial and agricultural non-real estate 409,922 271,328 95,450 68,627 33,752 48,582 448,714 1,376,375 Consumer non-real estate Grade 1 203,335 104,409 39,822 21,076 6,589 2,187 26,263 403,681 Grade 2 21,078 10,542 3,978 1,541 822 1,351 816 40,128 Grade 3 827 671 405 282 134 63 4 2,386 Grade 4 229 351 54 141 56 13 — 844 Total consumer non-real estate 225,469 115,973 44,259 23,040 7,601 3,614 27,083 447,039 Oil and gas Grade 1 24,938 125,209 16,482 682 1,678 246 199,610 368,845 Grade 2 7,610 10,668 766 23,040 3,167 327 45,240 90,818 Grade 3 2,117 47 5 — — — 498 2,667 Grade 4 — 320 — — — — — 320 Total oil and gas 34,665 136,244 17,253 23,722 4,845 573 245,348 462,650 Total loans held for investment $ 2,264,479 $ 1,428,113 $ 752,483 $ 541,762 $ 242,342 $ 589,317 $ 1,125,067 $ 6,943,563 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 $ 153,887 $ 130,835 $ 113,830 $ 59,163 $ 37,647 $ 102,438 $ 25,128 $ 622,928 Grade 2 35,475 33,198 21,570 8,397 9,936 29,191 9,152 146,919 Grade 3 — 275 605 261 465 1,071 62 2,739 Grade 4 337 600 890 445 — 371 325 2,968 Total commercial real estate owner occupied 189,699 164,908 136,895 68,266 48,048 133,071 34,667 775,554 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 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 Grade 5 — — — — — — — — 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 1 445,864 121,786 95,379 44,593 32,169 43,750 307,361 1,090,902 Grade 2 85,920 30,568 25,097 9,680 2,735 10,821 105,700 270,521 Grade 3 2,995 2,185 1,347 11,479 1,291 599 27,716 47,612 Grade 4 870 221 1,337 654 573 1,109 2,294 7,058 Total commercial and agricultural non-real estate 535,649 154,760 123,160 66,406 36,768 56,279 443,071 1,416,093 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 Total loans held for investment $ 2,297,658 $ 1,023,819 $ 747,672 $ 372,852 $ 233,568 $ 583,158 $ 910,715 $ 6,169,442 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 Company elected to utilize a methodology known as vintage loss analysis for BancFirst, Pegasus, and Worthington Bank. Vintage loss analysis measures impairment based on the age of the accounts and the historical asset performance of assets with similar risk characteristics. Vintage loss analysis determines expected losses by allowing the Company to calculate the cumulative loss rates of a given loan pool and in so doing, determine the loan pool’s lifetime expected loss experience relative to the appropriate type of financial assets that share similar risk characteristics. Vintage loss analysis uses different “vintages” analyzed by year of origination through the weighted average maturity of each loan pool. The key quantitative inputs used in the Company’s estimate of the allowance for credit losses include 1) all available loan data tracked by year of origination, 2) total charge-offs for each specific loan pool recorded since year of origination, 3) recovery rate calculated by the average recovery over the previous seven years across all loan pools, and 4) a weighting factor biased to more recent loss experience. The quantitative expected credit loss is calculated by dividing each year’s net charge-offs by the original balance. The respective vintage’s original balance remains the denominator in each annual calculation, as it references the specific vintage’s initial balance. The loss experience of this original balance is tracked annually and summed over the life of the loan for each separate loan pool, leaving a cumulative life of credit loss rate based on historic averages weighted towards more recent loss experience. These key quantitative inputs change from period to period as new loans are originated, and charge-offs and recoveries are recognized. The recovery rate is revised on an annual basis, taking into consideration the most recent seven years. The weighting factor percentages remain static, however, the most recent year receives the highest weighting percentage. The BancFirst Senior Loan Committee (“the SLC”) sets BancFirst qualitative adjustments. In setting the qualitative adjustments, they consider several factors, including external economic information, peer bank comparisons and experience with the loan portfolio. The SLC also considers Moody’s Analytics dataset. From this dataset, BancFirst selects a range of 3 probability scenarios from two economic forecasts. To determine the appropriate correlation to our loss experience, BancFirst compares the economic indicators over the past ten years of charge-off history to arrive at a correlation factor. BancFirst then applies the correlation factor to the change in the forecast of the aforementioned economic indicators over the next 18-24 months, which is driven by management’s judgment of a reasonable and supportable forecast period to arrive at a percentage range of qualitative loss adjustment attributable to economic forecasts. The SLC establishes a qualitative adjustment for each loan pool using these factors. For periods beyond which BancFirst is able to make or obtain reasonable and supportable forecasts of expected credit losses, BancFirst reverts to historical loss information. In some cases, management may determine a loan to be collateral dependent. A loan is considered collateral-dependent when the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company's assessment as of the reporting date. For collateral dependent loans, the standard allows institutions to use, as a practical expedient, the fair value of the collateral to measure expected credit losses on collateral-dependent financial assets. This amount is included in the allowance for credit losses. The increase in allowance for credit losses during 2022 was related to the purchase of loans without credit deterioration during the year along with loan growth. The decrease in the allowance for credit losses 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 losses within the loan portfolio. This reduction during 2021 was partially offset by additional allowance for credit losses required for newly acquired loans. The allowance for credit losses for the oil and gas category was reduced during 2021 due to the increases in oil and gas commodity prices contributing to a more stable and profitable energy industry; however this decrease was offset by an increase in allowance for credit losses 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 Balance at (Dollars in thousands) Year ended December 31, 2022 Real estate: Commercial real estate owner occupied $ 7,568 $ — $ ( 20 ) $ 507 $ 487 $ ( 1,643 ) $ 6,412 Commercial real estate non-owner occupied 16,987 — — — — 13,205 30,192 Construction and development < 60 months 3,490 — ( 93 ) 12 ( 81 ) 369 3,778 Construction residential real estate < 60 months 1,092 — — — — 2,184 3,276 Residential real estate first lien 3,076 2 ( 106 ) 87 ( 19 ) 1,039 4,098 Residential real estate all other 2,104 — ( 38 ) 405 367 ( 626 ) 1,845 Farmland 4,822 — — — — ( 1,312 ) 3,510 Commercial and agricultural non-real estate 28,085 44 ( 1,756 ) 222 ( 1,534 ) 716 27,311 Consumer non-real estate 3,734 25 ( 768 ) 193 ( 575 ) 951 4,135 Oil and gas 12,978 — — — — ( 4,807 ) 8,171 Total $ 83,936 $ 71 $ ( 2,781 ) $ 1,426 $ ( 1,355 ) $ 10,076 $ 92,728 Year ended December 31, 2021 Real estate: Commercial real estate owner occupied $ 8,470 $ 1,080 $ ( 38 ) $ 74 $ 36 $ ( 2,018 ) $ 7,568 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 34,643 5,663 ( 4,643 ) 219 ( 4,424 ) ( 7,797 ) 28,085 Consumer non-real estate 3,542 38 ( 864 ) 326 ( 538 ) 692 3,734 Oil and gas 20,733 — — — — ( 7,755 ) 12,978 Total $ 91,366 $ 8,299 $ ( 7,845 ) $ 806 $ ( 7,039 ) $ ( 8,690 ) $ 83,936 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, 2022 Purchase price of loans at acquisition $ 668 Allowance for credit losses at acquisition 71 Par value of acquired loans at acquisition $ 739 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 Collateral Dependent Loans A loan is considered collateral-dependent when the b |