Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

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, 2012					December 31, 2011					June 30, 2011
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and industrial	$	515,456		16.82	%	$	547,942		18.19	%	$	551,293		19.26	%
Oil & gas production & equipment		125,228		4.08			115,786		3.84			113,868		3.98
Agriculture		77,882		2.54			86,297		2.86			74,221		2.59
State and political subdivisions:
Taxable		6,520		0.21			6,939		0.23			7,281		0.25
Tax-exempt		13,853		0.45			17,070		0.57			11,920		0.42
Real estate:
Construction		197,168		6.43			207,953		6.90			236,660		8.27
Farmland		111,472		3.64			103,923		3.45			86,285		3.02
One to four family residences		674,577		22.01			655,134		21.74			618,428		21.61
Multifamily residential properties		46,866		1.53			37,734		1.25			34,040		1.19
Commercial		1,036,322		33.81			960,074		31.86			846,684		29.59
Consumer		239,156		7.80			252,331		8.37			255,975		8.94
Other (not classified above)		20,939		0.68			22,315		0.74			25,189		0.88
Total loans	$	3,065,439		100.00	%	$	3,013,498		100.00	%	$	2,861,844		100.00	%
Loans held for sale (included above)	$	16,612				$	12,126				$	11,258

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 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.

Accounting policies related to appraisals, nonaccruals and charge-offs are disclosed in Footnote (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Nonperforming and Restructured Assets

Nonaccrual loans, accruing loans past due 90 days or more, and restructured loans are shown in the table below. Had nonaccrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income of approximately $654,000 for the six months ended June 30, 2012 and approximately $562,000 for the six months ended June 30, 2011.

At June 30, 2012, troubled debt restructurings were primarily due to the principal deferral restructuring from one customer. This loan was evaluated by management and determined to be well collateralized. Additionally, none of the concessions granted involved a principal reduction or a change from the current market rate of interest. Collateral value will be monitored periodically to evaluate possible impairment. The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material.

The following is a summary of nonperforming and restructured assets:

	June 30,			December 31,			June 30,
	2012			2011			2011
	(Dollars in thousands)
Past due 90 days or more and still accruing	$	1,403		$	798		$	1,166
Nonaccrual		20,702			21,187			22,469
Restructured		18,089			1,041			344
Total nonperforming and restructured loans		40,194			23,026			23,979
Other real estate owned and repossessed assets		10,223			16,640			15,501
Total nonperforming and restructured assets	$	50,417		$	39,666		$	39,480
Nonperforming and restructured loans to total loans		1.31	%		0.76	%		0.84	%
Nonperforming and restructured assets to total assets		0.89	%		0.71	%		0.75	%

Loans are segregated into classes based upon the nature of the collateral and the borrower. These classes are used to estimate the credit risk component in 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, 2012		June 30, 2011
	(Dollars in thousands)
Non-residential real estate	$	9,711	$	9,235
Residential real estate		4,098		5,860
Non-consumer non-real estate		1,142		1,547
Consumer non-real estate		140		178
Other loans		1,918		4,285
Acquired loans		3,693		1,364
Total	$	20,702	$	22,469

The following table presents an age analysis of past due loans, segregated by class of loans:

	Age Analysis of Past Due Receivables
	30-89 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, 2012
Non-residential real estate	$	2,649	$	2,454	$	5,103	$	1,135,948	$	1,141,051	$	285
Residential real estate		4,240		1,288		5,528		715,621		721,149		478
Non-consumer non-real estate		1,285		244		1,529		695,887		697,416		16
Consumer non-real estate		2,002		183		2,185		198,242		200,427		122
Other loans		1,213		1,654		2,867		153,117		155,984		102
Acquired loans		3,134		1,352		4,486		144,926		149,412		400
Total	$	14,523	$	7,175	$	21,698	$	3,043,741	$	3,065,439	$	1,403
As of June 30, 2011
Non-residential real estate	$	1,720	$	573	$	2,293	$	978,409	$	980,702	$	1
Residential real estate		2,617		2,208		4,825		684,344		689,169		927
Non-consumer non-real estate		1,474		324		1,798		710,640		712,438		6
Consumer non-real estate		1,822		173		1,995		196,583		198,578		116
Other loans		3,489		3,766		7,255		152,982		160,237		89
Acquired loans		908		920		1,828		118,892		120,720		27
Total	$	12,030	$	7,964	$	19,994	$	2,841,850	$	2,861,844	$	1,166

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 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. When it is not deemed necessary to allocate a specific valuation allowance to an impaired loan, the loan nevertheless will have an allowance based on a historically adequate percentage determined for the class of loans.

The following table presents impaired loans, segregated by class of loans. 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, 2012
Non-residential real estate	$	28,184	$	27,165	$	2,122	$	27,397
Residential real estate		5,839		5,384		1,468		5,547
Non-consumer non-real estate		1,792		1,163		302		1,512
Consumer non-real estate		349		325		59		389
Other loans		2,255		2,020		212		2,158
Acquired loans		13,648		11,522		291		13,263
Total	$	52,067	$	47,579	$	4,454	$	50,266
As of June 30, 2011
Non-residential real estate	$	9,723	$	9,235	$	978	$	10,223
Residential real estate		6,466		5,860		1,520		6,511
Non-consumer non-real estate		1,873		1,547		358		1,806
Consumer non-real estate		211		178		47		212
Other loans		4,418		4,285		193		4,312
Acquired loans		1,529		1,364		92		1,339
Total	$	24,220	$	22,469	$	3,188	$	24,403

Credit Risk Monitoring and Loan Grading

The Company employs several means to monitor the 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.

Loans are subject to an internal risk grading system which indicates the risk and acceptability of that loan. 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 as follows:

Grade 1—Acceptable—Loans graded 1 represent reasonable and satisfactory credit risk which requires normal attention and supervision. Capacity to repay through primary and/or secondary sources is not questioned.

Grade 2—Acceptable—Increased Attention—This category consists of loans that have credit characteristics deserving management’s close attention. These potential weaknesses could result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date. Such credit characteristics include loans to highly leveraged borrowers in cyclical industries, adverse financial trends which could potentially weaken repayment capacity, loans that have fundamental structure deficiencies, loans lacking secondary sources of repayment where prudent, and loans with deficiencies in essential documentation, including financial information.

Grade 3—Loans with Problem Potential—This category consists of performing loans which are considered to exhibit problem potential. Loans in this category would generally include, but not be limited to, borrowers with a weakened financial condition or poor performance history, past dues, loans restructured to reduce payments to an amount that is below market standards and/or loans with severe documentation problems. In general, these loans have no identifiable loss potential in the near future, however, the possibility of a loss developing is heightened.

Grade 4—Problem Loans/Assets—Nonperforming—This category consists of nonperforming loans/assets which are considered to be problems. Nonperforming loans are described as being 90 days and over past due and still accruing, and loans that are nonaccrual. The government guaranteed portion of SBA loans is excluded.

Grade 5—Loss Potential—This category consists of loans/assets which are considered to possess loss potential. While the loss may not occur in the current year, management expects that loans/assets in this category will ultimately result in a loss, unless substantial improvement occurs.

Grade 6—Charge Off—This category consists of loans that are considered uncollectible and other assets with little or no value.

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, 2012
Non-residential real estate	$	983,946	$	118,825	$	28,514	$	9,766	$	—	$	1,141,051
Residential real estate		619,115		81,324		15,920		4,790		—		721,149
Non-consumer non-real estate		610,214		78,825		7,211		1,166		—		697,416
Consumer non-real estate		187,768		10,204		2,122		333		—		200,427
Other loans		151,330		2,917		1,027		710		—		155,984
Acquired loans		110,506		27,002		7,898		4,006		—		149,412
Total	$	2,662,879	$	319,097	$	62,692	$	20,771	$	—	$	3,065,439
As of June 30, 2011
Non-residential real estate	$	834,857	$	103,359	$	33,446	$	9,040	$	—	$	980,702
Residential real estate		601,469		68,651		12,970		6,079		—		689,169
Non-consumer non-real estate		638,872		61,481		10,710		1,375		—		712,438
Consumer non-real estate		189,220		6,891		2,172		295		—		198,578
Other loans		153,104		2,463		2,050		2,620		—		160,237
Acquired loans		84,482		26,475		8,398		1,267		98		120,720
Total	$	2,502,004	$	269,320	$	69,746	$	20,676	$	98	$	2,861,844

Allowance for Loan Losses Methodology

The allowance for loan losses (“ALLL”) is determined by a calculation based on segmenting the loans into the following categories: (1) adversely graded loans [Grades 3, 4, and 5] that have a specific reserve allocation; (2) loans without a specific reserve segmented by loans secured by real estate other than 1-4 family residential property, loans secured by 1-4 family residential property, commercial, industrial, and agricultural loans not secured by real estate, consumer purpose loans not secured by real estate, and loans over 60 days past due that are not otherwise Grade 3, 4, or 5; (3) Grade 2 loans; (4) Grade 1 loans; and (5) loans held for sale which are excluded.

The ALLL is calculated as the sum of the following: (1) the total dollar amount of specific reserve allocations; (2) the dollar amount derived by multiplying each segment of adversely graded loans without a specific reserve allocation times its respective reserve factor; (3) the dollar amount derived by multiplying Grade 2 loans and Grade 1 loans (less exclusions) times the respective reserve factor; and (4) other adjustments as deemed appropriate and documented by the Senior Loan Committee or Board of Directors.

The amount of the ALLL is an estimate based upon factors which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated ALLL in the near term.

The following table details activity in the ALLL 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.

ALLL
	Non-Residential Real Estate			Residential Real Estate			Non- Consumer Non-Real Estate			Consumer Non-Real Estate			Other Loans			Acquired Loans			Total
	(Dollars in thousands)
Three Months Ended June 30, 2012
Allowance for credit losses:
Balance at March 31, 2012	$	14,109		$	9,762		$	9,198		$	2,283		$	1,850		$	431		$	37,633
Charge-offs		(7	)		(95	)		(313	)		(77	)		(27	)		(12	)		(531	)
Recoveries		(6	)		13			26			32			12			9			86
Net charge-offs		(13	)		(82	)		(287	)		(45	)		(15	)		(3	)		(445	)
Provisions charged to operations		253			326			(353	)		44			19			(41	)		248
Balance at June 30, 2012	$	14,349		$	10,006		$	8,558		$	2,282		$	1,854		$	387		$	37,436
Six Months Ended June 30, 2012
Allowance for credit losses:
Balance at December 31, 2011	$	13,948		$	9,764		$	9,156		$	2,315		$	1,886		$	587		$	37,656
Charge-offs		(128	)		(131	)		(330	)		(191	)		(207	)		(76	)		(1,063	)
Recoveries		31			109			124			116			31			11			422
Net charge-offs		(97	)		(22	)		(206	)		(75	)		(176	)		(65	)		(641	)
Provisions charged to operations		498			264			(392	)		42			144			(135	)		421
Balance at June 30, 2012	$	14,349		$	10,006		$	8,558		$	2,282		$	1,854		$	387		$	37,436
Ending balances:
Individually evaluated for impairment	$	2,986		$	2,760		$	1,436		$	302		$	196		$	—		$	7,680
Collectively evaluated for impairment		11,363			7,246			7,122			1,980			1,658			387			29,756
Balance at June 30, 2012	$	14,349		$	10,006		$	8,558		$	2,282		$	1,854		$	387		$	37,436
Loans-Ending balances:
Individually evaluated for impairment	$	38,278		$	20,710		$	8,377		$	2,455		$	109		$	—		$	69,929
Collectively evaluated for impairment		1,102,773			700,439			689,039			197,972			155,875			137,508			2,983,606
Loans acquired with deteriorated credit quality		—			—			—			—			—			11,904			11,904
Balance at June 30, 2012	$	1,141,051		$	721,149		$	697,416		$	200,427		$	155,984		$	149,412		$	3,065,439

ALLL
	Non-Residential Real Estate			Residential Real Estate			Non- Consumer Non-Real Estate			Consumer Non-Real Estate			Other Loans			Acquired Loans			Total
	(Dollars in thousands)
Three Months Ended June 30, 2011
Allowance for credit losses:
Balance at March 31, 2011	$	12,979		$	9,612		$	9,165		$	2,258		$	1,699		$	423		$	36,136
Charge-offs		(136	)		(312	)		(179	)		(223	)		(22	)		(302	)		(1,174	)
Recoveries		7			39			29			36			5			1			117
Net charge-offs		(129	)		(273	)		(150	)		(187	)		(17	)		(301	)		(1,057	)
Provisions charged to operations		801			41			319			166			30			656			2,013
Balance at June 30, 2011	$	13,651		$	9,380		$	9,334		$	2,237		$	1,712		$	778		$	37,092
Six Months Ended June 30, 2011
Allowance for credit losses:
Balance at December 31, 2010	$	13,142		$	8,957		$	9,587		$	2,301		$	1 ,758		$	—		$	35,745
Charge-offs		(269	)		(501	)		(184	)		(328	)		(122	)		(331	)		(1,735	)
Recoveries		16			95			84			68			7			11			281
Net charge-offs		(253	)		(406	)		(100	)		(260	)		(115	)		(320	)		(1,454	)
Provisions charged to operations		762			829			(153	)		196			69			1,098			2,801
Balance at June 30, 2011	$	13,651		$	9,380		$	9,334		$	2,237		$	1,712		$	778		$	37,092
Ending balances:
Individually evaluated for impairment	$	3,694		$	2,314		$	2,021		$	297		$	285		$	—		$	8,611
Collectively evaluated for impairment		9,957			7,066			7,313			1,940			1,427			778			28,481
Balance at June 30, 2011	$	13,651		$	9,380		$	9,334		$	2,237		$	1,712		$	778		$	37,092
Loans-Ending balances:
Individually evaluated for impairment	$	42,486		$	19,049		$	12,085		$	2,467		$	413		$	—		$	76,500
Collectively evaluated for impairment		938,216			670,120			700,353			196,111			159,824			110,957			2,775,581
Loans acquired with deteriorated credit quality		—			—			—			—			—			9,763			9,763
Balance at June 30, 2011	$	980,702		$	689,169		$	712,438		$	198,578		$	160,237		$	120,720		$	2,861,844

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,
	2012		2011
	(Dollars in thousands)
Other real estate owned	$	1,284	$	3,145
Repossessed assets		295		913
Total	$	1,579	$	4,058