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, 2019 December 31, 2018 Amount Percent Amount Percent (Dollars in thousands) Commercial and financial: Commercial and industrial $ 1,062,527 20.86 % $ 1,032,787 20.76 % Oil & gas production and equipment 122,268 2.40 94,729 1.90 Agriculture 130,957 2.57 136,313 2.74 State and political subdivisions: Taxable 74,596 1.46 76,211 1.53 Tax-exempt 51,114 1.00 48,415 0.97 Real estate: Construction 450,525 8.84 451,224 9.07 Farmland 227,635 4.47 219,241 4.41 One to four family residences 990,377 19.44 979,170 19.68 Multifamily residential properties 68,743 1.35 65,949 1.33 Commercial 1,525,064 29.94 1,506,937 30.28 Consumer 345,783 6.79 328,069 6.59 Other (not classified above) 44,814 0.88 36,931 0.74 Total loans $ 5,094,403 100.00 % $ 4,975,976 100.00 % The Company’s loans are mostly to customers within Oklahoma and approximately % 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 $74 million at June 30, 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: June 30, December 31, 2019 2018 (Dollars in thousands) Past due 90 days or more and still accruing $ 2,663 $ 1,916 Nonaccrual 17,998 22,603 Restructured 16,486 13,188 Total nonperforming and restructured loans 37,147 37,707 Other real estate owned and repossessed assets 7,004 6,873 Total nonperforming and restructured assets $ 44,151 $ 44,580 Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.0 million for the six months ended June 30, 2019 and approximately $1.1 million for the six months ended June 30, 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. June 30, 2019 December 31, 2018 (Dollars in thousands) Real estate: Non-residential real estate owner occupied $ 1,127 $ 838 Non-residential real estate other 674 187 Residential real estate permanent mortgage 1,585 954 Residential real estate all other 5,327 5,488 Commercial and financial: Non-consumer non-real estate 2,958 5,682 Consumer non-real estate 394 437 Other loans 272 490 Acquired loans 5,661 8,527 Total $ 17,998 $ 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 June 30, 2019 Real estate: Non-residential real estate owner occupied $ 4,203 $ 852 $ 536 $ 5,591 $ 649,600 $ 655,191 $ 117 Non-residential real estate other 1,088 — 325 1,413 1,179,092 1,180,505 177 Residential real estate permanent mortgage 2,583 760 986 4,329 330,046 334,375 384 Residential real estate all other 2,218 340 4,908 7,466 849,448 856,914 150 Commercial and financial: Non-consumer non-real estate 1,652 918 2,099 4,669 1,360,458 1,365,127 454 Consumer non-real estate 1,846 540 470 2,856 342,684 345,540 232 Other loans 220 1,083 183 1,486 142,387 143,873 183 Acquired loans 2,583 882 3,592 7,057 205,821 212,878 966 Total $ 16,393 $ 5,375 $ 13,099 $ 34,867 $ 5,059,536 $ 5,094,403 $ 2,663 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 June 30, 2019 and June 30, 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 June 30, 2019 Real estate: Non-residential real estate owner occupied $ 8,051 $ 7,933 $ 239 $ 7,662 Non-residential real estate other 1,687 1,422 190 1,615 Residential real estate permanent mortgage 2,427 2,151 183 1,964 Residential real estate all other 6,629 6,350 3,081 6,529 Commercial and financial: Non-consumer non-real estate 18,389 10,842 931 10,944 Consumer non-real estate 781 672 149 691 Other loans 659 455 17 322 Acquired loans 9,553 7,244 2 8,863 Total $ 48,176 $ 37,069 $ 4,792 $ 38,590 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 June 30, 2019 Real estate: Non-residential real estate owner occupied $ 457,211 $ 171,239 $ 25,491 $ 1,250 $ — $ 655,191 Non-residential real estate other 950,058 202,397 27,291 759 — 1,180,505 Residential real estate permanent mortgage 281,593 43,479 7,242 2,061 — 334,375 Residential real estate all other 669,269 167,518 14,375 5,752 — 856,914 Commercial and financial: Non-consumer non-real estate 1,077,429 252,175 33,630 1,893 — 1,365,127 Consumer non-real estate 320,278 21,955 2,707 565 35 345,540 Other loans 138,414 4,160 1,289 10 — 143,873 Acquired loans 124,437 71,790 9,751 6,603 297 212,878 Total $ 4,018,689 $ 934,713 $ 121,776 $ 18,893 $ 332 $ 5,094,403 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 June 30, 2019 Real estate: Non-residential real estate owner occupied $ 6,655 $ (3 ) $ — $ (3 ) $ 235 $ 6,887 Non-residential real estate other 11,362 (16 ) 1 (15 ) (60 ) 11,287 Residential real estate permanent mortgage 3,261 (4 ) 4 — 64 3,325 Residential real estate all other 11,046 (143 ) 25 (118 ) 793 11,721 Commercial and financial: Non-consumer non-real estate 14,409 (87 ) 85 (2 ) 825 15,232 Consumer non-real estate 3,072 (162 ) 38 (124 ) 286 3,234 Other loans 2,408 — 43 43 (2 ) 2,449 Acquired loans 702 (170 ) 149 (21 ) 292 973 Total $ 52,915 $ (585 ) $ 345 $ (240 ) $ 2,433 $ 55,108 Six Months Ended June 30, 2019 Real estate: Non-residential real estate owner occupied $ 6,328 $ (9 ) $ 1 $ (8 ) $ 567 $ 6,887 Non-residential real estate other 11,027 (22 ) 1 (21 ) 281 11,287 Residential real estate permanent mortgage 3,261 (67 ) 9 (58 ) 122 3,325 Residential real estate all other 10,673 (195 ) 27 (168 ) 1,216 11,721 Commercial and financial: Non-consumer non-real estate 13,151 (157 ) 152 (5 ) 2,086 15,232 Consumer non-real estate 3,065 (282 ) 109 (173 ) 342 3,234 Other loans 2,423 — 78 78 (52 ) 2,449 Acquired loans 1,461 (196 ) 153 (43 ) (445 ) 973 Total $ 51,389 $ (928 ) $ 530 $ (398 ) $ 4,117 $ 55,108 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 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, 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 $ 1,003 $ 5,884 $ 669 $ 5,659 Non-residential real estate other 1,055 10,232 1,119 9,908 Residential real estate permanent mortgage 508 2,817 505 2,756 Residential real estate all other 4,189 7,532 3,413 7,260 Commercial and financial: Non-consumer non-real estate 3,679 11,553 2,114 11,037 Consumer non-real estate 427 2,807 374 2,691 Other loans 10 2,439 65 2,358 Acquired loans — 973 — 1,461 Total $ 10,871 $ 44,237 $ 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 June 30, 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 $ 26,741 $ 628,450 $ — $ 17,846 $ 608,775 $ — Non-residential real estate other 28,050 1,152,455 — 25,333 1,120,795 — Residential real estate permanent mortgage 9,303 325,072 — 9,026 319,676 — Residential real estate all other 20,127 836,787 — 21,285 806,219 — Commercial and financial: Non-consumer non-real estate 35,523 1,329,604 — 19,432 1,264,222 — Consumer non-real estate 3,304 342,236 — 3,093 323,769 — Other loans 10 143,863 — 209 141,700 — Acquired loans 14,399 196,226 2,253 22,132 265,084 7,380 Total $ 137,457 $ 4,954,693 $ 2,253 $ 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. Such transfers during the periods presented, are summarized as follows: Six Months Ended June 30, 2019 2018 (Dollars in thousands) Other real estate owned $ 2,010 $ 1,123 Repossessed assets 627 550 Total $ 2,637 $ 1,673 |