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, 2018 December 31, 2017 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 1,045,706 20.98 % $ 995,207 21.08 % Oil & gas production and equipment 91,051 1.83 95,574 2.02 Agriculture 142,146 2.85 141,249 2.99 State and political subdivisions: Taxable 70,932 1.42 73,827 1.56 Tax-exempt 51,765 1.04 48,626 1.03 Real estate: Construction 445,744 8.94 437,277 9.26 Farmland 220,882 4.43 195,162 4.13 One to four family residences 966,006 19.38 875,766 18.55 Multifamily residential properties 59,469 1.19 46,030 0.98 Commercial 1,555,340 31.21 1,487,927 31.51 Consumer 295,148 5.92 284,373 6.02 Other (not classified above) 40,295 0.81 40,977 0.87 Total loans $ 4,984,484 100.00 % $ 4,721,995 100.00 % 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 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 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 $67 million at March 31, 2018 and approximately $81 million at December 31, 2017. 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, 2017. Nonperforming and Restructured Assets The following is a summary of nonperforming and restructured assets: March 31, December 31, 2018 2017 (Dollars in thousands) Past due 90 days or more and still accruing $ 3,900 $ 2,893 Nonaccrual 31,849 31,943 Restructured 12,945 4,720 Total nonperforming and restructured loans 48,694 39,556 Other real estate owned and repossessed assets 3,676 4,424 Total nonperforming and restructured assets $ 52,370 $ 43,980 Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $542,000 for the three months ended March 31, 2018 and approximately $499,000 for the three months ended March 31, 2017. 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 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, 2018 December 31, 2017 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 1,082 $ 1,108 Non-residential real estate other 9,131 9,809 Residential real estate permanent mortgage 986 781 Residential real estate all other 3,911 3,980 Commercial and financial: Non-consumer non-real estate 7,914 7,785 Consumer non-real estate 310 250 Other loans 2,467 5,596 Acquired loans 6,048 2,634 Total $ 31,849 $ 31,943 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 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, 2018 Real estate: Non-residential real estate owner occupied $ 1,072 $ 30 $ 872 $ 1,974 $ 670,610 $ 672,584 $ — Non-residential real estate other 1,957 32 2,148 4,137 1,108,882 1,113,019 239 Residential real estate permanent mortgage 2,599 661 1,027 4,287 326,763 331,050 711 Residential real estate all other 4,503 778 1,870 7,151 771,129 778,280 1,562 Commercial and financial: Non-consumer non-real estate 3,481 302 2,961 6,744 1,249,968 1,256,712 116 Consumer non-real estate 1,530 359 638 2,527 282,233 284,760 440 Other loans 779 107 2,148 3,034 135,643 138,677 141 Acquired loans 3,010 1,223 2,398 6,631 402,771 409,402 691 Total $ 18,931 $ 3,492 $ 14,062 $ 36,485 $ 4,947,999 $ 4,984,484 $ 3,900 As of December 31, 2017 Real estate: Non-residential real estate owner occupied $ 998 $ 68 $ 977 $ 2,043 $ 639,575 $ 641,618 $ 84 Non-residential real estate other 2,905 271 2,112 5,288 1,121,303 1,126,591 432 Residential real estate permanent mortgage 2,211 403 977 3,591 326,743 330,334 584 Residential real estate all other 1,739 749 1,377 3,865 781,790 785,655 973 Commercial and financial: Non-consumer non-real estate 2,210 706 1,785 4,701 1,279,704 1,284,405 403 Consumer non-real estate 2,085 670 293 3,048 285,872 288,920 194 Other loans 506 103 3,916 4,525 139,920 144,445 — Acquired loans 753 192 713 1,658 118,369 120,027 223 Total $ 13,407 $ 3,162 $ 12,150 $ 28,719 $ 4,693,276 $ 4,721,995 $ 2,893 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 period ended March 31, 2017, $2.3 million of interest income was recognized on impaired loans subsequent to their classification as impaired. During the period ended March 31, 2018 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, 2018 Real estate: Non-residential real estate owner occupied $ 7,580 $ 7,507 $ 296 $ 5,944 Non-residential real estate other 10,137 9,941 532 10,023 Residential real estate permanent mortgage 2,118 1,918 138 1,835 Residential real estate all other 6,906 6,611 2,372 6,241 Commercial and financial: Non-consumer non-real estate 19,526 12,407 2,448 11,705 Consumer non-real estate 850 817 134 783 Other loans 2,991 2,608 99 2,570 Acquired loans 9,454 6,492 4 5,086 Total $ 59,562 $ 48,301 $ 6,023 $ 44,187 As of December 31, 2017 Real estate: Non-residential real estate owner occupied $ 2,011 $ 1,945 $ 141 $ 1,858 Non-residential real estate other 10,323 10,240 496 3,975 Residential real estate permanent mortgage 1,745 1,542 146 1,440 Residential real estate all other 5,837 5,549 2,135 5,258 Commercial and financial: Non-consumer non-real estate 18,101 11,158 2,412 11,131 Consumer non-real estate 545 514 127 541 Other loans 6,092 5,595 178 7,439 Acquired loans 4,737 3,145 12 3,539 Total $ 49,391 $ 39,688 $ 5,647 $ 35,181 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, 2017. 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, 2018 Real estate: Non-residential real estate owner occupied $ 530,979 $ 121,730 $ 18,485 $ 1,390 $ — $ 672,584 Non-residential real estate other 912,482 182,611 8,645 9,281 — 1,113,019 Residential real estate permanent mortgage 287,363 34,047 7,562 2,078 — 331,050 Residential real estate all other 611,885 151,133 9,587 5,675 — 778,280 Commercial and financial: Non-consumer non-real estate 982,927 244,432 22,054 7,270 29 1,256,712 Consumer non-real estate 263,827 18,099 1,939 895 — 284,760 Other loans 132,305 5,318 873 181 — 138,677 Acquired loans 237,669 124,669 40,793 6,271 — 409,402 Total $ 3,959,437 $ 882,039 $ 109,938 $ 33,041 $ 29 $ 4,984,484 As of December 31, 2017 Real estate: Non-residential real estate owner occupied $ 520,641 $ 105,696 $ 13,852 $ 1,429 $ — $ 641,618 Non-residential real estate other 931,295 178,282 14,290 2,724 — 1,126,591 Residential real estate permanent mortgage 289,200 33,033 6,352 1,749 — 330,334 Residential real estate all other 621,401 149,201 9,418 5,635 — 785,655 Commercial and financial: Non-consumer non-real estate 1,018,172 234,884 24,322 6,997 30 1,284,405 Consumer non-real estate 268,826 17,499 2,038 557 — 288,920 Other loans 136,617 5,668 1,203 957 — 144,445 Acquired loans 65,685 34,418 17,113 2,811 — 120,027 Total $ 3,851,837 $ 758,681 $ 88,588 $ 22,859 $ 30 $ 4,721,995 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, 2017. 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, 2018 Real estate: Non-residential real estate owner occupied $ 6,195 $ (19 ) $ 1 $ (18 ) $ 473 $ 6,650 Non-residential real estate other 10,519 (1 ) 39 38 (9 ) 10,548 Residential real estate permanent mortgage 3,226 (56 ) 3 (53 ) 108 3,281 Residential real estate all other 9,672 (90 ) 3 (87 ) 246 9,831 Commercial and financial: Non-consumer non-real estate 15,334 (156 ) 13 (143 ) (406 ) 14,785 Consumer non-real estate 2,793 (250 ) 80 (170 ) 76 2,699 Other loans 2,481 — 12 12 (157 ) 2,336 Acquired loans 1,446 (27 ) 18 (9 ) (17 ) 1,420 Total $ 51,666 $ (599 ) $ 169 $ (430 ) $ 314 $ 51,550 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, 2017 Real estate: Non-residential real estate owner occupied $ 5,602 $ (32 ) $ 1 $ (31 ) $ (9 ) $ 5,562 Non-residential real estate other 10,793 (1 ) 1 — (5 ) 10,788 Residential real estate permanent mortgage 3,129 (120 ) 1 (119 ) 120 3,130 Residential real estate all other 8,622 (57 ) 11 (46 ) 83 8,659 Commercial and financial: Non-consumer non-real estate 12,421 (206 ) 918 712 (323 ) 12,810 Consumer non-real estate 2,804 (234 ) 51 (183 ) 104 2,725 Other loans 4,045 (1,218 ) 4 (1,214 ) 127 2,958 Acquired loans 1,277 (13 ) 50 37 (25 ) 1,289 Total $ 48,693 $ (1,881 ) $ 1,037 $ (844 ) $ 72 $ 47,921 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, 2018 December 31, 2017 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. $ 820 $ 5,830 $ 656 $ 5,539 Non-residential real estate other 874 9,674 751 9,768 Residential real estate permanent mortgage 540 2,741 483 2,743 Residential real estate all other 2,971 6,860 2,761 6,911 Commercial and financial: Non-consumer non-real estate 4,257 10,528 4,651 10,683 Consumer non-real estate 361 2,338 429 2,364 Other loans 66 2,270 133 2,348 Acquired loans — 1,420 12 1,434 Total $ 9,889 $ 41,661 $ 9,876 $ 41,790 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, 2018 December 31, 2017 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 $ 19,875 $ 652,709 $ — $ 15,281 $ 626,337 $ — Non-residential real estate other 17,926 1,095,093 — 17,013 1,109,578 — Residential real estate permanent mortgage 9,640 321,410 — 8,100 322,234 — Residential real estate all other 15,262 763,018 — 15,052 770,603 — Commercial and financial: Non-consumer non-real estate 29,378 1,227,334 — 31,349 1,253,056 — Consumer non-real estate 2,838 281,922 — 2,600 286,320 — Other loans 198 138,479 — 764 143,681 — Acquired loans 39,207 362,338 7,857 14,464 100,106 5,457 Total $ 134,324 $ 4,842,303 $ 7,857 $ 104,623 $ 4,611,915 $ 5,457 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, 2018 2017 (Dollars in thousands) Other real estate owned $ 402 $ 901 Repossessed assets 220 363 Total $ 622 $ 1,264 |