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, 2019 December 31, 2018 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 1,043,848 20.70 % $ 1,032,787 20.76 % Oil & gas production and equipment 106,991 2.12 94,729 1.90 Agriculture 130,717 2.59 136,313 2.74 State and political subdivisions: Taxable 73,051 1.45 76,211 1.53 Tax-exempt 49,833 0.99 48,415 0.97 Real estate: Construction 469,826 9.32 451,224 9.07 Farmland 227,526 4.51 219,241 4.41 One to four family residences 982,605 19.49 979,170 19.68 Multifamily residential properties 68,412 1.36 65,949 1.33 Commercial 1,514,266 30.03 1,506,937 30.28 Consumer 326,002 6.46 328,069 6.59 Other (not classified above) 49,425 0.98 36,931 0.74 Total loans $ 5,042,502 100.00 % $ 4,975,976 100.00 % The Company’s loans are mostly to customers within Oklahoma and approximately 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 $61 million at March 31, 2019 and approximately $60 million at December 31, 2018. 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, 2018. Nonperforming and Restructured Assets The following is a summary of nonperforming and restructured assets: March 31, December 31, 2019 2018 (Dollars in thousands) Past due 90 days or more and still accruing $ 2,170 $ 1,916 Nonaccrual 21,594 22,603 Restructured 14,552 13,188 Total nonperforming and restructured loans 38,316 37,707 Other real estate owned and repossessed assets 6,433 6,873 Total nonperforming and restructured assets $ 44,749 $ 44,580 Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $544,000 for the three months ended March 31, 2019 and approximately $542,000 for the three months ended March 31, 2018. 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, 2019 December 31, 2018 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 769 $ 838 Non-residential real estate other 1,030 187 Residential real estate permanent mortgage 1,208 954 Residential real estate all other 5,729 5,488 Commercial and financial: Non-consumer non-real estate 5,132 5,682 Consumer non-real estate 422 437 Other loans 393 490 Acquired loans 6,911 8,527 Total $ 21,594 $ 22,603 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, 2019 Real estate: Non-residential real estate owner occupied $ 8,948 $ 30 $ 123 $ 9,101 $ 629,918 $ 639,019 $ 117 Non-residential real estate other 2,089 152 593 2,834 1,186,935 1,189,769 121 Residential real estate permanent mortgage 3,374 634 801 4,809 328,857 333,666 401 Residential real estate all other 2,239 4,002 2,327 8,568 832,865 841,433 247 Commercial and financial: Non-consumer non-real estate 3,226 999 2,164 6,389 1,320,215 1,326,604 453 Consumer non-real estate 1,498 548 311 2,357 324,649 327,006 173 Other loans 1,485 156 92 1,733 140,687 142,420 — Acquired loans 1,528 1,689 4,290 7,507 235,078 242,585 658 Total $ 24,387 $ 8,210 $ 10,701 $ 43,298 $ 4,999,204 $ 5,042,502 $ 2,170 As of December 31, 2018 Real estate: Non-residential real estate owner occupied $ 5,114 $ 810 $ 43 $ 5,967 $ 620,654 $ 626,621 $ — Non-residential real estate other 2,772 32 114 2,918 1,143,210 1,146,128 — Residential real estate permanent mortgage 2,448 653 693 3,794 324,908 328,702 430 Residential real estate all other 1,728 292 2,799 4,819 822,685 827,504 612 Commercial and financial: Non-consumer non-real estate 3,620 702 833 5,155 1,278,499 1,283,654 282 Consumer non-real estate 1,991 565 559 3,115 323,747 326,862 325 Other loans 322 158 178 658 141,251 141,909 — Acquired loans 5,240 1,669 4,936 11,845 282,751 294,596 267 Total $ 23,235 $ 4,881 $ 10,155 $ 38,271 $ 4,937,705 $ 4,975,976 $ 1,916 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, 2019 and 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, 2019 Real estate: Non-residential real estate owner occupied $ 7,730 $ 7,619 $ 228 $ 7,362 Non-residential real estate other 1,976 1,722 212 1,247 Residential real estate permanent mortgage 1,871 1,619 143 1,618 Residential real estate all other 7,153 6,854 2,478 7,024 Commercial and financial: Non-consumer non-real estate 18,769 11,120 857 10,976 Consumer non-real estate 767 660 133 724 Other loans 694 422 31 369 Acquired loans 12,764 10,228 2 11,078 Total $ 51,724 $ 40,244 $ 4,084 $ 40,398 As of December 31, 2018 Real estate: Non-residential real estate owner occupied $ 7,126 $ 6,933 $ 202 $ 7,739 Non-residential real estate other 949 757 50 6,057 Residential real estate permanent mortgage 1,789 1,545 127 1,650 Residential real estate all other 7,177 6,862 2,433 7,154 Commercial and financial: Non-consumer non-real estate 18,507 10,977 881 12,140 Consumer non-real estate 928 829 131 846 Other loans 710 490 35 481 Acquired loans 12,846 9,864 2 11,050 Total $ 50,032 $ 38,257 $ 3,861 $ 47,117 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, 2018. 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, 2019 Real estate: Non-residential real estate owner occupied $ 459,381 $ 153,357 $ 25,456 $ 825 $ — $ 639,019 Non-residential real estate other 956,483 206,591 25,665 1,030 — 1,189,769 Residential real estate permanent mortgage 283,951 41,010 7,080 1,625 — 333,666 Residential real estate all other 659,846 159,703 15,943 5,941 — 841,433 Commercial and financial: Non-consumer non-real estate 1,033,690 264,192 24,726 3,996 — 1,326,604 Consumer non-real estate 302,263 21,860 2,246 637 — 327,006 Other loans 136,737 4,317 1,348 18 — 142,420 Acquired loans 127,474 94,135 13,455 7,206 315 242,585 Total $ 3,959,825 $ 945,165 $ 115,919 $ 21,278 $ 315 $ 5,042,502 As of December 31, 2018 Real estate: Non-residential real estate owner occupied $ 451,059 $ 157,715 $ 16,949 $ 898 $ — $ 626,621 Non-residential real estate other 932,454 188,341 25,146 187 — 1,146,128 Residential real estate permanent mortgage 279,870 39,806 7,401 1,625 — 328,702 Residential real estate all other 644,217 162,003 15,232 6,052 — 827,504 Commercial and financial: Non-consumer non-real estate 1,000,089 264,134 15,128 4,303 — 1,283,654 Consumer non-real estate 302,217 21,600 2,255 790 — 326,862 Other loans 136,132 5,542 116 119 — 141,909 Acquired loans 156,008 109,075 20,884 8,284 345 294,596 Total $ 3,902,046 $ 948,216 $ 103,111 $ 22,258 $ 345 $ 4,975,976 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, 2018. 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, 2019 Real estate: Non-residential real estate owner occupied $ 6,328 $ (6 ) $ 1 $ (5 ) $ 332 $ 6,655 Non-residential real estate other 11,027 (6 ) — (6 ) 341 11,362 Residential real estate permanent mortgage 3,261 (63 ) 5 (58 ) 58 3,261 Residential real estate all other 10,673 (52 ) 2 (50 ) 423 11,046 Commercial and financial: Non-consumer non-real estate 13,151 (70 ) 67 (3 ) 1,261 14,409 Consumer non-real estate 3,065 (120 ) 71 (49 ) 56 3,072 Other loans 2,423 — 35 35 (50 ) 2,408 Acquired loans 1,461 (26 ) 4 (22 ) (737 ) 702 Total $ 51,389 $ (343 ) $ 185 $ (158 ) $ 1,684 $ 52,915 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 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, 2019 December 31, 2018 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. $ 986 $ 5,669 $ 669 $ 5,659 Non-residential real estate other 1,024 10,338 1,119 9,908 Residential real estate permanent mortgage 457 2,804 505 2,756 Residential real estate all other 3,691 7,355 3,413 7,260 Commercial and financial: Non-consumer non-real estate 3,069 11,340 2,114 11,037 Consumer non-real estate 375 2,697 374 2,691 Other loans 26 2,382 65 2,358 Acquired loans — 702 — 1,461 Total $ 9,628 $ 43,287 $ 8,259 $ 43,130 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, 2019 December 31, 2018 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 $ 26,281 $ 612,738 $ — $ 17,846 $ 608,775 $ — Non-residential real estate other 26,695 1,163,074 — 25,333 1,120,795 — Residential real estate permanent mortgage 8,705 324,961 — 9,026 319,676 — Residential real estate all other 21,883 819,550 — 21,285 806,219 — Commercial and financial: Non-consumer non-real estate 28,722 1,297,882 — 19,432 1,264,222 — Consumer non-real estate 2,875 324,131 — 3,093 323,769 — Other loans 26 142,394 — 209 141,700 — Acquired loans 14,057 221,608 6,920 22,132 265,084 7,380 Total $ 129,244 $ 4,906,338 $ 6,920 $ 118,356 $ 4,850,240 $ 7,380 Non-Cash Transfers from Loans and Premises and Equipment Transfers from loans and premises and equipment 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 and premises and equipment to other real estate owned and repossessed assets during the periods presented, are summarized as follows: Three Months Ended March 31, 2019 2018 (Dollars in thousands) Other real estate owned $ 591 $ 402 Repossessed assets 301 220 Total $ 892 $ 622 |