Loans and Allowance for Loan Losses | (4) LOANS AND ALLOWANCE FOR LOAN LOSSES The following is a schedule of loans outstanding by category: June 30, 2017 December 31, 2016 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 927,616 20.26 % $ 828,260 18.82 % Oil & gas production and equipment 96,230 2.10 84,228 1.91 Agriculture 135,298 2.96 144,751 3.29 State and political subdivisions: Taxable 81,164 1.77 33,793 0.77 Tax-exempt 48,840 1.07 47,283 1.07 Real estate: Construction 412,367 9.01 420,884 9.57 Farmland 201,535 4.40 197,872 4.50 One to four family residences 859,980 18.78 846,360 19.24 Multifamily residential properties 46,995 1.03 57,806 1.31 Commercial 1,455,612 31.79 1,426,643 32.42 Consumer 280,345 6.12 279,704 6.36 Other (not classified above) 32,411 0.71 32,648 0.74 Total loans $ 4,578,393 100.00 % $ 4,400,232 100.00 % The Company’s commercial and industrial loan category includes a small percentage of loans to companies that provide ancillary services to the oil and gas industry, such as transportation, preparation contractors and equipment manufacturers. The balance of these loans was approximately $70 million at June 30, 2017 and approximately $56 million at December 31, 2016. 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 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. 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, 2016. Nonperforming and Restructured Assets The following is a summary of nonperforming and restructured assets: June 30, December 31, 2017 2016 (Dollars in thousands) Past due 90 days or more and still accruing $ 2,217 $ 1,962 Nonaccrual 19,607 31,798 Restructured 3,561 1,713 Total nonperforming and restructured loans 25,385 35,473 Other real estate owned and repossessed assets 4,211 3,866 Total nonperforming and restructured assets $ 29,596 $ 39,339 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 $886,000 for the six months ended June 30, 2017 and approximately $982,000 for the six months ended June 30, 2016. The Company charges interest on principal balances outstanding on restructured loans during deferral periods. 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. June 30, December 31, 2017 2016 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 641 $ 713 Non-residential real estate other 1,865 5,688 Residential real estate permanent mortgage 886 1,116 Residential real estate all other 4,829 5,089 Commercial and financial: Non-consumer non-real estate 3,542 4,464 Consumer non-real estate 271 265 Other loans 4,928 8,370 Acquired loans 2,645 6,093 Total $ 19,607 $ 31,798 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 June 30, 2017 Real estate: Non-residential real estate owner occupied $ 3,991 $ 145 $ 730 $ 4,866 $ 586,223 $ 591,089 $ 229 Non-residential real estate other 1,354 70 267 1,691 1,126,418 1,128,109 29 Residential real estate permanent mortgage 1,504 483 781 2,768 327,963 330,731 482 Residential real estate all other 4,872 294 1,011 6,177 751,940 758,117 287 Commercial and financial: Non-consumer non-real estate 4,133 671 1,771 6,575 1,201,751 1,208,326 564 Consumer non-real estate 1,562 505 554 2,621 281,536 284,157 388 Other loans 555 4,941 4,869 10,365 134,183 144,548 101 Acquired loans 728 113 416 1,257 132,059 133,316 137 Total $ 18,699 $ 7,222 $ 10,399 $ 36,320 $ 4,542,073 $ 4,578,393 $ 2,217 As of December 31, 2016 Real estate: Non-residential real estate owner occupied $ 2,255 $ 96 $ 150 $ 2,501 $ 569,130 $ 571,631 $ — Non-residential real estate other 611 16 418 1,045 1,122,351 1,123,396 — Residential real estate permanent mortgage 2,742 649 1,273 4,664 320,749 325,413 513 Residential real estate all other 2,559 531 1,416 4,506 743,723 748,229 369 Commercial and financial: Non-consumer non-real estate 1,269 1,628 741 3,638 1,047,547 1,051,185 608 Consumer non-real estate 2,046 760 419 3,225 280,652 283,877 274 Other loans 5,345 958 7,775 14,078 127,404 141,482 45 Acquired loans 825 310 408 1,543 153,476 155,019 153 Total $ 17,652 $ 4,948 $ 12,600 $ 35,200 $ 4,365,032 $ 4,400,232 $ 1,962 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 following table presents impaired loans, segregated by class of loans. During the six month period ended June 30, 2017, $2.3 million of interest income was recognized on impaired loans subsequent to their classification as impaired. During previous periods 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 June 30, 2017 Real estate: Non-residential real estate owner occupied $ 1,065 $ 958 $ 31 $ 1,060 Non-residential real estate other 1,967 1,894 184 2,057 Residential real estate permanent mortgage 1,623 1,418 104 1,483 Residential real estate all other 5,420 5,195 1,555 5,136 Commercial and financial: Non-consumer non-real estate 13,725 7,257 1,454 6,401 Consumer non-real estate 790 754 117 776 Other loans 6,471 5,030 689 5,523 Acquired loans 4,747 3,020 — 4,967 Total $ 35,808 $ 25,526 $ 4,134 $ 27,403 As of December 31, 2016 Real estate: Non-residential real estate owner occupied $ 894 $ 806 $ 101 $ 825 Non-residential real estate other 7,742 5,688 574 5,854 Residential real estate permanent mortgage 1,878 1,683 124 1,612 Residential real estate all other 5,871 5,614 1,538 5,445 Commercial and financial: Non-consumer non-real estate 12,015 6,272 1,457 6,478 Consumer non-real estate 686 650 133 788 Other loans 9,799 8,415 1,870 8,062 Acquired loans 8,780 6,581 — 6,041 Total $ 47,665 $ 35,709 $ 5,797 $ 35,105 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, 2016. 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 June 30, 2017 Real estate: Non-residential real estate owner occupied $ 474,155 $ 101,757 $ 14,536 $ 641 $ — $ 591,089 Non-residential real estate other 941,448 169,968 14,759 1,934 — 1,128,109 Residential real estate permanent mortgage 289,912 33,676 5,805 1,338 — 330,731 Residential real estate all other 607,861 134,189 10,918 5,149 — 758,117 Commercial and financial: Non-consumer non-real estate 947,575 234,258 22,652 3,841 — 1,208,326 Consumer non-real estate 263,875 17,473 2,093 716 — 284,157 Other loans 137,753 5,450 1,115 230 — 144,548 Acquired loans 76,955 34,875 18,390 3,096 — 133,316 Total $ 3,739,534 $ 731,646 $ 90,268 $ 16,945 $ — $ 4,578,393 As of December 31, 2016 Real estate: Non-residential real estate owner occupied $ 464,504 $ 89,978 $ 16,220 $ 929 $ — $ 571,631 Non-residential real estate other 933,743 169,561 14,404 5,688 — 1,123,396 Residential real estate permanent mortgage 284,893 32,889 5,987 1,644 — 325,413 Residential real estate all other 614,338 119,018 9,382 5,491 — 748,229 Commercial and financial: Non-consumer non-real estate 856,318 170,865 19,101 4,901 — 1,051,185 Consumer non-real estate 263,442 17,154 2,640 641 — 283,877 Other loans 132,254 5,376 1,514 2,338 — 141,482 Acquired loans 92,946 42,668 12,888 6,517 — 155,019 Total $ 3,642,438 $ 647,509 $ 82,136 $ 28,149 $ — $ 4,400,232 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, 2016. 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 June 30, 2017 Real estate: Non-residential real estate owner occupied $ 5,562 $ (40 ) $ 3 $ (37 ) $ 160 $ 5,685 Non-residential real estate other 10,788 (25 ) 1 (24 ) (284 ) 10,480 Residential real estate permanent mortgage 3,130 (36 ) 10 (26 ) 44 3,148 Residential real estate all other 8,659 (16 ) 6 (10 ) 263 8,912 Commercial and financial: Non-consumer non-real estate 12,810 (471 ) 61 (410 ) 1,243 13,643 Consumer non-real estate 2,725 (234 ) 32 (202 ) 183 2,706 Other loans 2,958 (56 ) 1 (55 ) 103 3,006 Acquired loans 1,289 (1 ) 8 7 129 1,425 Total $ 47,921 $ (879 ) $ 122 $ (757 ) $ 1,841 $ 49,005 Six Months Ended June 30, 2017 Real estate: Non-residential real estate owner occupied $ 5,602 $ (72 ) $ 4 $ (68 ) $ 151 $ 5,685 Non-residential real estate other 10,793 (26 ) 2 (24 ) (289 ) 10,480 Residential real estate permanent mortgage 3,129 (156 ) 11 (145 ) 164 3,148 Residential real estate all other 8,622 (73 ) 17 (56 ) 346 8,912 Commercial and financial: Non-consumer non-real estate 12,421 (677 ) 979 302 920 13,643 Consumer non-real estate 2,804 (468 ) 83 (385 ) 287 2,706 Other loans 4,045 (1,274 ) 5 (1,269 ) 230 3,006 Acquired loans 1,277 (14 ) 58 44 104 1,425 Total $ 48,693 $ (2,760 ) $ 1,159 $ (1,601 ) $ 1,913 $ 49,005 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 June 30, 2016 Real estate: Non-residential real estate owner occupied $ 4,832 $ (9 ) $ — $ (9 ) $ 73 $ 4,896 Non-residential real estate other 10,211 (3 ) 1 (2 ) 93 10,302 Residential real estate permanent mortgage 3,164 (49 ) 21 (28 ) 67 3,203 Residential real estate all other 7,989 (70 ) 7 (63 ) 367 8,293 Commercial and financial: Non-consumer non-real estate 12,813 (502 ) 35 (467 ) 1,095 13,441 Consumer non-real estate 2,553 (134 ) 38 (96 ) 292 2,749 Other loans 2,790 (149 ) 7 (142 ) 729 3,377 Acquired loans 219 (13 ) 11 (2 ) 88 305 Total $ 44,571 $ (929 ) $ 120 $ (809 ) $ 2,804 $ 46,566 Six Months Ended June 30, 2016 Real estate: Non-residential real estate owner occupied $ 4,661 $ (10 ) $ — $ (10 ) $ 245 $ 4,896 Non-residential real estate other 9,921 (4 ) 2 (2 ) 383 10,302 Residential real estate permanent mortgage 3,148 (99 ) 38 (61 ) 116 3,203 Residential real estate all other 6,725 (137 ) 11 (126 ) 1,694 8,293 Commercial and financial: Non-consumer non-real estate 11,754 (1,305 ) 46 (1,259 ) 2,946 13,441 Consumer non-real estate 2,642 (355 ) 76 (279 ) 386 2,749 Other loans 2,648 (282 ) 13 (269 ) 998 3,377 Acquired loans 167 (17 ) 16 (1 ) 139 305 Total $ 41,666 $ (2,209 ) $ 202 $ (2,007 ) $ 6,907 $ 46,566 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 June 30, 2017 December 31, 2016 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. $ 569 $ 5,116 $ 716 $ 4,886 Non-residential real estate other 739 9,741 1,119 9,674 Residential real estate permanent mortgage 391 2,757 422 2,707 Residential real estate all other 2,305 6,607 2,160 6,462 Commercial and financial: Non-consumer non-real estate 3,517 10,126 3,317 9,104 Consumer non-real estate 400 2,306 478 2,326 Other loans 656 2,350 1,812 2,233 Acquired loans 12 1,413 495 782 Total $ 8,589 $ 40,416 $ 10,519 $ 38,174 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 June 30, 2017 December 31, 2016 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 $ 15,177 $ 575,912 $ — $ 17,149 $ 554,482 $ — Non-residential real estate other 16,692 1,111,417 — 20,092 1,103,304 — Residential real estate permanent mortgage 7,144 323,587 — 7,631 317,782 — Residential real estate all other 16,067 742,050 — 14,873 733,356 — Commercial and financial: Non-consumer non-real estate 26,194 1,182,132 — 24,002 1,027,183 — Consumer non-real estate 2,809 281,348 — 3,203 280,674 — Other loans 572 143,976 — 2,254 139,228 — Acquired loans 15,834 111,830 5,652 13,459 135,616 5,944 Total $ 100,489 $ 4,472,252 $ 5,652 $ 102,663 $ 4,291,625 $ 5,944 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: Six Months Ended June 30, 2017 2016 (Dollars in thousands) Other real estate owned $ 1,513 $ 1,210 Repossessed assets 612 750 Total $ 2,125 $ 1,960 During the six months ended June 30, 2016, the Company had gains on the sale of other real estate owned totaling $1.3 million that is included in net expense from other real estate owned on the consolidated statements of comprehensive income. |