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, 2018 December 31, 2017 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 1,083,958 21.65 % $ 995,207 21.08 % Oil & gas production and equipment 95,777 1.91 95,574 2.02 Agriculture 130,961 2.62 141,249 2.99 State and political subdivisions: Taxable 65,745 1.31 73,827 1.56 Tax-exempt 54,400 1.09 48,626 1.03 Real estate: Construction 456,062 9.11 437,277 9.26 Farmland 215,835 4.31 195,162 4.13 One to four family residences 978,196 19.53 875,766 18.55 Multifamily residential properties 66,488 1.33 46,030 0.98 Commercial 1,514,304 30.24 1,487,927 31.51 Consumer 309,011 6.17 284,373 6.02 Other (not classified above) 36,781 0.73 40,977 0.87 Total loans $ 5,007,518 100.00 % $ 4,721,995 100.00 % The Company’s loans are mostly to customers within Oklahoma and over 60% 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 $79 million at June 30, 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: June 30, December 31, 2018 2017 (Dollars in thousands) Past due 90 days or more and still accruing $ 2,916 $ 2,893 Nonaccrual 30,149 31,943 Restructured 14,527 4,720 Total nonperforming and restructured loans 47,592 39,556 Other real estate owned and repossessed assets 3,847 4,424 Total nonperforming and restructured assets $ 51,439 $ 43,980 Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.1 million for the six months ended June 30, 2018 and approximately $886,000 for the six months ended June 30, 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. June 30, 2018 December 31, 2017 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 1,225 $ 1,108 Non-residential real estate other 8,892 9,809 Residential real estate permanent mortgage 978 781 Residential real estate all other 5,121 3,980 Commercial and financial: Non-consumer non-real estate 7,357 7,785 Consumer non-real estate 362 250 Other loans 525 5,596 Acquired loans 5,689 2,634 Total $ 30,149 $ 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 June 30, 2018 Real estate: Non-residential real estate owner occupied $ 547 $ 824 $ 968 $ 2,339 $ 637,279 $ 639,618 $ 118 Non-residential real estate other 475 56 1,755 2,286 1,127,444 1,129,730 171 Residential real estate permanent mortgage 4,333 644 1,219 6,196 323,487 329,683 852 Residential real estate all other 2,414 754 2,649 5,817 788,538 794,355 1,129 Commercial and financial: Non-consumer non-real estate 1,768 1,659 2,650 6,077 1,298,337 1,304,414 198 Consumer non-real estate 1,549 359 421 2,329 298,798 301,127 331 Other loans 412 237 324 973 136,378 137,351 — Acquired loans 3,248 681 2,550 6,479 364,761 371,240 117 Total $ 14,746 $ 5,214 $ 12,536 $ 32,496 $ 4,975,022 $ 5,007,518 $ 2,916 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 June 30, 2018 no material amount of interest income was recognized on impaired loans subsequent to their classification as impaired. During the period ended June 30, 2017, $2.3 million 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, 2018 Real estate: Non-residential real estate owner occupied $ 7,718 $ 7,636 $ 301 $ 7,387 Non-residential real estate other 9,881 9,633 521 9,730 Residential real estate permanent mortgage 2,252 2,047 155 1,819 Residential real estate all other 7,724 7,417 2,445 6,920 Commercial and financial: Non-consumer non-real estate 20,876 13,639 2,662 13,048 Consumer non-real estate 794 755 136 780 Other loans 760 525 55 1,084 Acquired loans 11,065 8,075 4 6,870 Total $ 61,070 $ 49,727 $ 6,279 $ 47,638 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 June 30, 2018 Real estate: Non-residential real estate owner occupied $ 492,984 $ 126,220 $ 18,995 $ 1,419 $ — $ 639,618 Non-residential real estate other 929,230 181,759 9,701 9,040 — 1,129,730 Residential real estate permanent mortgage 282,347 37,534 7,350 2,452 — 329,683 Residential real estate all other 622,575 154,192 10,681 6,907 — 794,355 Commercial and financial: Non-consumer non-real estate 1,029,512 249,253 18,716 6,933 — 1,304,414 Consumer non-real estate 278,585 20,078 1,675 789 — 301,127 Other loans 131,903 5,054 336 58 — 137,351 Acquired loans 215,415 117,064 32,547 6,214 — 371,240 Total $ 3,982,551 $ 891,154 $ 100,001 $ 33,812 $ — $ 5,007,518 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 June 30, 2018 Real estate: Non-residential real estate owner occupied $ 6,650 $ — $ — $ — $ (224 ) $ 6,426 Non-residential real estate other 10,548 — — — 157 10,705 Residential real estate permanent mortgage 3,281 (6 ) 23 17 9 3,307 Residential real estate all other 9,831 (151 ) 3 (148 ) 440 10,123 Commercial and financial: Non-consumer non-real estate 14,785 (153 ) 10 (143 ) 427 15,069 Consumer non-real estate 2,699 (194 ) 44 (150 ) 290 2,839 Other loans 2,336 (2 ) 12 10 (18 ) 2,328 Acquired loans 1,420 (166 ) 5 (161 ) 144 1,403 Total $ 51,550 $ (672 ) $ 97 $ (575 ) $ 1,225 $ 52,200 Six Months Ended June 30, 2018 Real estate: Non-residential real estate owner occupied $ 6,195 $ (19 ) $ 1 $ (18 ) $ 249 $ 6,426 Non-residential real estate other 10,519 (1 ) 39 38 148 10,705 Residential real estate permanent mortgage 3,226 (62 ) 26 (36 ) 117 3,307 Residential real estate all other 9,672 (241 ) 6 (235 ) 686 10,123 Commercial and financial: Non-consumer non-real estate 15,334 (309 ) 23 (286 ) 21 15,069 Consumer non-real estate 2,793 (444 ) 124 (320 ) 366 2,839 Other loans 2,481 (2 ) 24 22 (175 ) 2,328 Acquired loans 1,446 (193 ) 23 (170 ) 127 1,403 Total $ 51,666 $ (1,271 ) $ 266 $ (1,005 ) $ 1,539 $ 52,200 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 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, 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. $ 841 $ 5,585 $ 656 $ 5,539 Non-residential real estate other 908 9,797 751 9,768 Residential real estate permanent mortgage 560 2,747 483 2,743 Residential real estate all other 3,138 6,985 2,761 6,911 Commercial and financial: Non-consumer non-real estate 4,076 10,993 4,651 10,683 Consumer non-real estate 349 2,490 429 2,364 Other loans 52 2,276 133 2,348 Acquired loans — 1,403 12 1,434 Total $ 9,924 $ 42,276 $ 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 June 30, 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 $ 20,414 $ 619,204 $ — $ 15,281 $ 626,337 $ — Non-residential real estate other 18,741 1,110,989 — 17,013 1,109,578 — Residential real estate permanent mortgage 9,802 319,881 — 8,100 322,234 — Residential real estate all other 17,588 776,767 — 15,052 770,603 — Commercial and financial: Non-consumer non-real estate 25,649 1,278,765 — 31,349 1,253,056 — Consumer non-real estate 2,692 298,435 — 2,600 286,320 — Other loans 302 137,049 — 764 143,681 — Acquired loans 31,009 332,479 7,752 14,464 100,106 5,457 Total $ 126,197 $ 4,873,569 $ 7,752 $ 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: Six Months Ended June 30, 2018 2017 (Dollars in thousands) Other real estate owned $ 1,123 $ 1,513 Repossessed assets 550 612 Total $ 1,673 $ 2,125 |