Loans and Allowance for Loan Losses | (4) LOANS AND ALLOWANCE FOR LOAN LOSSES The following is a schedule of loans outstanding by category: March 31, 2016 December 31, 2015 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 790,156 18.48 % $ 795,803 18.80 % Oil & gas production and equipment 86,524 2.02 87,304 2.06 Agriculture 149,442 3.50 150,620 3.56 State and political subdivisions: Taxable 17,628 0.41 17,605 0.42 Tax-exempt 36,177 0.85 33,575 0.79 Real estate: Construction 401,330 9.39 403,664 9.54 Farmland 189,934 4.44 184,707 4.36 One to four family residences 825,357 19.31 821,251 19.41 Multifamily residential properties 62,189 1.45 65,477 1.55 Commercial 1,406,204 32.89 1,356,430 32.05 Consumer 276,463 6.47 283,636 6.70 Other (not classified above) 33,708 0.79 31,976 0.76 Total loans $ 4,275,112 100.00 % $ 4,232,048 100.00 % The Company’s loans are mostly to customers within Oklahoma and over 65% of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual 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. Accounting policies related to appraisals, nonaccruals and charge-offs are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Nonperforming and Restructured Assets The following is a summary of nonperforming and restructured assets: March 31, December 31, 2016 2015 (Dollars in thousands) Past due 90 days or more and still accruing $ 1,099 $ 1,841 Nonaccrual 31,040 30,096 Restructured 533 15,143 Total nonperforming and restructured loans 32,672 47,080 Other real estate owned and repossessed assets 4,245 8,214 Total nonperforming and restructured assets $ 36,917 $ 55,294 Nonaccrual loans, accruing loans past due 90 days or more, and restructured loans are shown in the table above. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $513,000 for the three months ended March 31, 2016 and approximately $310,000 for the three months ended March 31, 2015. Restructured loans consisted primarily of one relationship restructured in prior periods to defer certain principal payments. This relationship was re-evaluated and removed from restructured loans in 2016 due to sustained improvement in financial condition, performance and the commercially reasonable nature of its structure. The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material. Loans are segregated into classes based upon the nature of the collateral and the borrower. These classes are used to estimate the credit risk component in the allowance for loan losses. The following table is a summary of amounts included in nonaccrual loans, segregated by class of loans. Residential real estate refers to one-to-four family real estate. March 31, 2016 December 31, 2015 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 372 $ 261 Non-residential real estate other 3,952 3,957 Residential real estate permanent mortgage 800 656 Residential real estate all other 4,548 1,833 Commercial and financial: Non-consumer non-real estate 8,283 10,159 Consumer non-real estate 301 312 Other loans 9,343 9,381 Acquired loans 3,441 3,537 Total $ 31,040 $ 30,096 The following table presents an age analysis of past due loans, segregated by class of loans: Age Analysis of Past Due Loans 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Total Past Due Loans Current Loans Total Loans Accruing Loans 90 Days or More Past Due (Dollars in thousands) As of March 31, 2016 Real estate: Non-residential real estate owner occupied $ 1,130 $ 17 $ 254 $ 1,401 $ 510,687 $ 512,088 $ — Non-residential real estate other 3,563 — 285 3,848 1,135,560 1,139,408 238 Residential real estate permanent mortgage 3,076 632 1,003 4,711 325,107 329,818 445 Residential real estate all other 5,652 339 775 6,766 693,107 699,873 113 Commercial and financial: Non-consumer non-real estate 2,825 130 487 3,442 975,485 978,927 92 Consumer non-real estate 1,862 676 344 2,882 261,565 264,447 168 Other loans 1,023 347 7,934 9,304 153,567 162,871 12 Acquired loans 1,252 419 615 2,286 185,394 187,680 31 Total $ 20,383 $ 2,560 $ 11,697 $ 34,640 $ 4,240,472 $ 4,275,112 $ 1,099 As of December 31, 2015 Real estate: Non-residential real estate owner occupied $ 441 $ 179 $ 183 $ 803 $ 502,094 $ 502,897 $ — Non-residential real estate other 1,149 108 568 1,825 1,108,935 1,110,760 521 Residential real estate permanent mortgage 2,840 636 648 4,124 328,477 332,601 493 Residential real estate all other 2,842 609 824 4,275 672,414 676,689 193 Commercial and financial: Non-consumer non-real estate 2,278 161 187 2,626 982,136 984,762 152 Consumer non-real estate 2,237 772 349 3,358 265,511 268,869 278 Other loans 3,565 295 1,761 5,621 156,995 162,616 132 Acquired loans 1,052 71 918 2,041 190,813 192,854 72 Total $ 16,404 $ 2,831 $ 5,438 $ 24,673 $ 4,207,375 $ 4,232,048 $ 1,841 Impaired Loans Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect the full amount of scheduled principal and interest payments in accordance with the original contractual terms of the loan agreement. If a loan is impaired, a specific valuation allowance may be allocated if necessary so that the loan is reported, net of allowance for loss, at the present value of future cash flows using the loan’s existing rate, or the fair value of collateral if repayment is expected solely from the collateral. The Company offers Small Business Administration (“SBA”) guaranteed loans through its Commercial Capital division to expand access to capital for creditworthy small businesses at reasonable terms. The SBA does not provide funds to the borrower, instead, the SBA guarantees a portion of the lender’s loan, which is conditional based on the lender following certain requirements established by the SBA. Typically, if the borrower defaults the SBA pays off the guaranteed portion of the remaining loan balance. However, if any of these requirements are not followed, the SBA can either deny a request for purchase of its guaranteed portion, or reduce the amount of its purchase by the amount of any loss. Because of the volume of SBA guaranteed loans, from time to time the Company may be in negotiation with the SBA regarding the amount of a guarantee that is collectable. If a request is denied, the Company could be required to record additional charge-offs of the previously guaranteed portion of the loan. As of the filing date, collectability on the guarantee for an SBA loan was uncertain; however, the amount of loss, if any, was not estimable. The following table presents impaired loans, segregated by class of loans. No material amount of interest income was recognized on impaired loans subsequent to their classification as impaired. Impaired Loans Unpaid Principal Balance Recorded Investment with Allowance Related Allowance Average Recorded Investment (Dollars in thousands) As of March 31, 2016 Real estate: Non-residential real estate owner occupied $ 615 $ 487 $ 15 $ 418 Non-residential real estate other 6,207 4,190 157 15,123 Residential real estate permanent mortgage 1,498 1,305 86 1,276 Residential real estate all other 5,101 4,823 1,382 2,781 Commercial and financial: Non-consumer non-real estate 12,762 8,375 2,017 9,190 Consumer non-real estate 652 609 120 745 Other loans 10,705 9,355 459 9,892 Acquired loans 6,276 3,745 — 3,977 Total $ 43,816 $ 32,889 $ 4,236 $ 43,402 As of December 31, 2015 Real estate: Non-residential real estate owner occupied $ 507 $ 383 $ 14 $ 446 Non-residential real estate other 21,068 19,052 357 19,655 Residential real estate permanent mortgage 1,401 1,209 81 1,125 Residential real estate all other 2,498 2,235 242 1,958 Commercial and financial: Non-consumer non-real estate 13,897 10,312 2,062 11,786 Consumer non-real estate 738 715 181 652 Other loans 10,722 9,513 331 10,335 Acquired loans 6,295 4,248 — 4,564 Total $ 57,126 $ 47,667 $ 3,268 $ 50,521 Credit Risk Monitoring and Loan Grading The Company considers various factors to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical loan loss experience and economic conditions. 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 disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The following table presents internal loan grading by class of loans: Internal Loan Grading Grade 1 2 3 4 5 Total (Dollars in thousands) As of March 31, 2016 Real estate: Non-residential real estate owner occupied $ 423,003 $ 77,243 $ 11,470 $ 372 $ — $ 512,088 Non-residential real estate other 966,113 163,932 5,379 3,984 — 1,139,408 Residential real estate permanent mortgage 290,540 30,941 7,043 1,294 — 329,818 Residential real estate all other 574,683 112,736 7,649 4,805 — 699,873 Commercial and financial: Non-consumer non-real estate 809,004 136,143 25,513 8,267 — 978,927 Consumer non-real estate 247,419 14,419 2,099 510 — 264,447 Other loans 153,486 5,629 1,336 2,420 — 162,871 Acquired loans 159,016 13,924 10,991 3,674 75 187,680 Total $ 3,623,264 $ 554,967 $ 71,480 $ 25,326 $ 75 $ 4,275,112 As of December 31, 2015 Real estate: Non-residential real estate owner occupied $ 417,529 $ 76,749 $ 8,304 $ 315 $ — $ 502,897 Non-residential real estate other 945,993 156,159 4,580 4,028 — 1,110,760 Residential real estate permanent mortgage 295,265 29,793 6,315 1,228 — 332,601 Residential real estate all other 554,007 111,879 9,109 1,694 — 676,689 Commercial and financial: Non-consumer non-real estate 821,394 140,384 12,687 10,297 — 984,762 Consumer non-real estate 251,994 14,433 1,779 662 1 268,869 Other loans 153,416 5,851 872 2,477 — 162,616 Acquired loans 165,305 12,566 11,049 3,858 76 192,854 Total $ 3,604,903 $ 547,814 $ 54,695 $ 24,559 $ 77 $ 4,232,048 Allowance for Loan Losses Methodology The allowance for loan losses (“ALL”) methodology is disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The following table details activity in the ALL by class of 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. ALL Balance at beginning of period Charge- offs Recoveries Net charge-offs Provisions charged to operations Balance at end of period (Dollars in thousands) Three Months Ended March 31, 2016 Real estate: Non-residential real estate owner occupied $ 4,661 $ (1 ) $ — $ (1 ) $ 172 $ 4,832 Non-residential real estate other 9,921 (1 ) 1 — 290 10,211 Residential real estate permanent mortgage 3,148 (50 ) 17 (33 ) 49 3,164 Residential real estate all other 6,725 (67 ) 4 (63 ) 1,327 7,989 Commercial and financial: Non-consumer non-real estate 11,754 (803 ) 11 (792 ) 1,851 12,813 Consumer non-real estate 2,642 (221 ) 38 (183 ) 94 2,553 Other loans 2,648 (133 ) 6 (127 ) 269 2,790 Acquired loans 167 (4 ) 5 1 51 219 Total $ 41,666 $ (1,280 ) $ 82 $ (1,198 ) $ 4,103 $ 44,571 ALL Balance at beginning of period Charge- offs Recoveries Net charge-offs Provisions charged to operations Balance at end of period (Dollars in thousands) Three Months Ended March 31, 2015 Real estate: Non-residential real estate owner occupied $ 4,406 $ (1 ) $ 1 $ — $ 55 $ 4,461 Non-residential real estate other 9,616 — — — 282 9,898 Residential real estate permanent mortgage 2,948 (40 ) 9 (31 ) 67 2,984 Residential real estate all other 6,269 (68 ) 5 (63 ) 372 6,578 Commercial and financial: Non-consumer non-real estate 12,771 (153 ) 31 (122 ) 419 13,068 Consumer non-real estate 2,404 (127 ) 15 (112 ) 35 2,327 Other loans 2,359 (213 ) 9 (204 ) 86 2,241 Acquired loans 116 (160 ) 26 (134 ) 18 — Total $ 40,889 $ (762 ) $ 96 $ (666 ) $ 1,334 $ 41,557 The following table details the amount of ALL by class of loans for the period presented, detailed on the basis of the impairment methodology used by the Company. ALL March 31, 2016 December 31, 2015 Individually evaluated for impairment Collectively evaluated for impairment Individually evaluated for impairment Collectively evaluated for impairment (Dollars in thousands) Real estate: Non-residential real estate owner occupied. $ 444 $ 4,388 $ 323 $ 4,338 Non-residential real estate other 351 9,860 323 9,598 Residential real estate permanent mortgage 438 2,726 399 2,749 Residential real estate all other 1,926 6,063 839 5,886 Commercial and financial: Non-consumer non-real estate 4,539 8,274 3,365 8,389 Consumer non-real estate 396 2,157 445 2,197 Other loans 413 2,377 291 2,357 Acquired loans — 219 — 167 Total $ 8,507 $ 36,064 $ 5,985 $ 35,681 The following table details the loans outstanding by class of loans for the period presented, on the basis of the impairment methodology used by the Company. Loans March 31, 2016 December 31, 2015 Individually evaluated for impairment Collectively evaluated for impairment Loans acquired with deteriorated credit quality Individually evaluated for impairment Collectively evaluated for impairment Loans acquired with deteriorated credit quality (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 11,843 $ 500,245 $ — $ 8,619 $ 494,278 $ — Non-residential real estate other 9,363 1,130,045 — 8,608 1,102,152 — Residential real estate permanent mortgage 8,337 321,481 — 7,543 325,058 — Residential real estate all other 12,453 687,420 — 10,803 665,886 — Commercial and financial: Non-consumer non-real estate 33,780 945,147 — 22,983 961,779 — Consumer non-real estate 2,596 261,851 — 2,416 266,453 — Other loans 2,216 160,655 — 2,323 160,293 — Acquired loans — 172,940 14,740 — 177,871 14,983 Total $ 80,588 $ 4,179,784 $ 14,740 $ 63,295 $ 4,153,770 $ 14,983 Transfers from Loans Transfers from loans 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 to other real estate owned and repossessed assets during the periods presented, are summarized as follows: Three Months Ended March 31, 2016 2015 (Dollars in thousands) Other real estate owned $ 344 $ 260 Repossessed assets 404 220 Total $ 748 $ 480 |