Loans and Allowance for Loan Losses | ( 4 ) LOANS AND ALLOWANCE FOR LOAN LOSSES The following is a schedule of loans outstanding by category: September 30, 2018 December 31, 2017 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 1,042,237 21.07 % $ 995,207 21.08 % Oil & gas production and equipment 98,324 1.99 95,574 2.02 Agriculture 127,904 2.59 141,249 2.99 State and political subdivisions: Taxable 79,832 1.61 73,827 1.56 Tax-exempt 41,368 0.84 48,626 1.03 Real estate: Construction 446,046 9.02 437,277 9.26 Farmland 217,191 4.38 195,162 4.13 One to four family residences 972,922 19.66 875,766 18.55 Multifamily residential properties 62,555 1.26 46,030 0.98 Commercial 1,497,894 30.28 1,487,927 31.51 Consumer 323,952 6.55 284,373 6.02 Other (not classified above) 37,303 0.75 40,977 0.87 Total loans $ 4,947,528 100.00 % $ 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 $62 million at September 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: September 30, December 31, 2018 2017 (Dollars in thousands) Past due 90 days or more and still accruing $ 4,073 $ 2,893 Nonaccrual 26,880 31,943 Restructured 13,557 4,720 Total nonperforming and restructured loans 44,510 39,556 Other real estate owned and repossessed assets 7,072 4,424 Total nonperforming and restructured assets $ 51,582 $ 43,980 Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.7 million for the nine months ended September 30, 2018 and approximately $1.3 million for the nine months ended September 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. September 30, 2018 December 31, 2017 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 1,526 $ 1,108 Non-residential real estate other 7,125 9,809 Residential real estate permanent mortgage 1,043 781 Residential real estate all other 4,911 3,980 Commercial and financial: Non-consumer non-real estate 6,032 7,785 Consumer non-real estate 416 250 Other loans 427 5,596 Acquired loans 5,400 2,634 Total $ 26,880 $ 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 September 30, 2018 Real estate: Non-residential real estate owner occupied $ 977 $ 1,106 $ 811 $ 2,894 $ 627,528 $ 630,422 $ 90 Non-residential real estate other 4,964 385 172 5,521 1,111,929 1,117,450 57 Residential real estate permanent mortgage 3,910 1,318 961 6,189 322,237 328,426 427 Residential real estate all other 2,034 2,790 2,333 7,157 810,727 817,884 845 Commercial and financial: Non-consumer non-real estate 2,573 1,469 2,222 6,264 1,263,816 1,270,080 1,070 Consumer non-real estate 1,721 530 552 2,803 317,629 320,432 345 Other loans 514 — 372 886 142,319 143,205 128 Acquired loans 2,927 2,175 4,164 9,266 310,363 319,629 1,111 Total $ 19,620 $ 9,773 $ 11,587 $ 40,980 $ 4,906,548 $ 4,947,528 $ 4,073 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 September 30, 2018 no material amount of interest income was recognized on impaired loans subsequent to their classification as impaired. During the period ended September 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 September 30, 2018 Real estate: Non-residential real estate owner occupied $ 8,187 $ 8,063 $ 353 $ 7,877 Non-residential real estate other 8,262 7,753 333 8,678 Residential real estate permanent mortgage 1,842 1,634 145 1,746 Residential real estate all other 6,762 6,507 2,310 6,678 Commercial and financial: Non-consumer non-real estate 19,458 12,065 2,234 13,359 Consumer non-real estate 897 825 108 818 Other loans 772 558 43 456 Acquired loans 10,784 7,745 4 7,442 Total $ 56,964 $ 45,150 $ 5,530 $ 47,054 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 September 30, 2018 Real estate: Non-residential real estate owner occupied $ 478,014 $ 131,597 $ 19,221 $ 1,590 $ — $ 630,422 Non-residential real estate other 913,259 181,829 15,238 7,124 — 1,117,450 Residential real estate permanent mortgage 280,194 38,452 8,093 1,687 — 328,426 Residential real estate all other 641,246 156,018 15,000 5,620 — 817,884 Commercial and financial: Non-consumer non-real estate 980,535 268,882 14,915 5,748 — 1,270,080 Consumer non-real estate 297,516 19,975 2,202 739 — 320,432 Other loans 137,705 5,304 157 39 — 143,205 Acquired loans 188,452 99,686 25,082 6,160 249 319,629 Total $ 3,916,921 $ 901,743 $ 99,908 $ 28,707 $ 249 $ 4,947,528 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 September 30, 2018 Real estate: Non-residential real estate owner occupied $ 6,426 $ (179 ) $ 15 $ (164 ) $ 164 $ 6,426 Non-residential real estate other 10,705 (8 ) — (8 ) (49 ) 10,648 Residential real estate permanent mortgage 3,307 (39 ) — (39 ) 43 3,311 Residential real estate all other 10,123 (71 ) 95 24 274 10,421 Commercial and financial: Non-consumer non-real estate 15,069 (343 ) 7 (336 ) (337 ) 14,396 Consumer non-real estate 2,839 (294 ) 70 (224 ) 298 2,913 Other loans 2,328 — 6 6 88 2,422 Acquired loans 1,403 (337 ) 6 (331 ) 266 1,338 Total $ 52,200 $ (1,271 ) $ 199 $ (1,072 ) $ 747 $ 51,875 Nine Months Ended September 30, 2018 Real estate: Non-residential real estate owner occupied $ 6,195 $ (198 ) $ 16 $ (182 ) $ 413 $ 6,426 Non-residential real estate other 10,519 (9 ) 39 30 99 10,648 Residential real estate permanent mortgage 3,226 (101 ) 26 (75 ) 160 3,311 Residential real estate all other 9,672 (312 ) 101 (211 ) 960 10,421 Commercial and financial: Non-consumer non-real estate 15,334 (652 ) 30 (622 ) (316 ) 14,396 Consumer non-real estate 2,793 (738 ) 194 (544 ) 664 2,913 Other loans 2,481 (2 ) 30 28 (87 ) 2,422 Acquired loans 1,446 (530 ) 29 (501 ) 393 1,338 Total $ 51,666 $ (2,542 ) $ 465 $ (2,077 ) $ 2,286 $ 51,875 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 September 30, 2017 Real estate: Non-residential real estate owner occupied $ 5,685 $ (2 ) $ 1 $ (1 ) $ 261 $ 5,945 Non-residential real estate other 10,480 — 1 1 70 10,551 Residential real estate permanent mortgage 3,148 (90 ) 9 (81 ) 91 3,158 Residential real estate all other 8,912 (89 ) 13 (76 ) 503 9,339 Commercial and financial: Non-consumer non-real estate 13,643 (538 ) 24 (514 ) 1,838 14,967 Consumer non-real estate 2,706 (238 ) 57 (181 ) 207 2,732 Other loans 3,006 (47 ) — (47 ) 153 3,112 Acquired loans 1,425 (134 ) 7 (127 ) 153 1,451 Total $ 49,005 $ (1,138 ) $ 112 $ (1,026 ) $ 3,276 $ 51,255 Nine Months Ended September 30, 2017 Real estate: Non-residential real estate owner occupied $ 5,602 $ (74 ) $ 5 $ (69 ) $ 412 $ 5,945 Non-residential real estate other 10,793 (26 ) 3 (23 ) (219 ) 10,551 Residential real estate permanent mortgage 3,129 (246 ) 20 (226 ) 255 3,158 Residential real estate all other 8,622 (162 ) 30 (132 ) 849 9,339 Commercial and financial: Non-consumer non-real estate 12,421 (1,215 ) 986 (229 ) 2,775 14,967 Consumer non-real estate 2,804 (706 ) 140 (566 ) 494 2,732 Other loans 4,045 (1,321 ) 22 (1,299 ) 366 3,112 Acquired loans 1,277 (148 ) 65 (83 ) 257 1,451 Total $ 48,693 $ (3,898 ) $ 1,271 $ (2,627 ) $ 5,189 $ 51,255 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 September 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. $ 891 $ 5,535 $ 656 $ 5,539 Non-residential real estate other 978 9,670 751 9,768 Residential real estate permanent mortgage 570 2,741 483 2,743 Residential real estate all other 3,263 7,158 2,761 6,911 Commercial and financial: Non-consumer non-real estate 3,486 10,910 4,651 10,683 Consumer non-real estate 346 2,567 429 2,364 Other loans 44 2,378 133 2,348 Acquired loans — 1,338 12 1,434 Total $ 9,578 $ 42,297 $ 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 September 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 $ 20,813 $ 609,609 $ — $ 15,281 $ 626,337 $ — Non-residential real estate other 22,363 1,095,087 — 17,013 1,109,578 — Residential real estate permanent mortgage 9,779 318,647 — 8,100 322,234 — Residential real estate all other 20,620 797,264 — 15,052 770,603 — Commercial and financial: Non-consumer non-real estate 20,664 1,249,416 — 31,349 1,253,056 — Consumer non-real estate 2,958 317,474 — 2,600 286,320 — Other loans 130 143,075 — 764 143,681 — Acquired loans 23,916 288,131 7,582 14,464 100,106 5,457 Total $ 121,243 $ 4,818,703 $ 7,582 $ 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: Nine Months Ended September 30, 2018 2017 (Dollars in thousands) Other real estate owned $ 2,944 $ 1,906 Repossessed assets 842 887 Total $ 3,786 $ 2,793 |