(4)

LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:


	March 31, 2014					December 31, 2013					March 31, 2013
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and industrial	$	676,084		19.09	%	$	605,672		17.88	%	$	518,438		16.10	%
Oil & gas production & equipment		99,382		2.80			96,907		2.86			154,392		4.79
Agriculture		109,570		3.09			111,323		3.29			96,094		2.98
State and political subdivisions:
Taxable		9,824		0.28			10,217		0.30			9,272		0.29
Tax-exempt		11,219		0.32			11,073		0.33			13,034		0.41
Real estate:
Construction		299,238		8.45			284,808		8.41			231,770		7.20
Farmland		141,059		3.98			132,512		3.91			124,347		3.86
One to four family residences		723,358		20.42			703,903		20.78			680,129		21.12
Multifamily residential properties		60,785		1.72			60,080		1.77			47,506		1.48
Commercial		1,134,384		32.02			1,097,484		32.40			1,084,864		33.69
Consumer		251,651		7.10			250,588		7.40			240,600		7.47
Other (not classified above)		25,716		0.73			22,579		0.67			19,521		0.61

Total loans	$	3,542,270		100.00	%	$	3,387,146		100.00	%	$	3,219,967		100.00	%

Loans held for sale (included above)	$	5,231				$	6,469				$	7,211

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 Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Nonperforming and Restructured Assets

The following is a summary of nonperforming and restructured assets:


	March 31,			December 31,			March 31,
	2014			2013			2013
	(Dollars in thousands)
Past due 90 days or more and still accruing	$	910		$	1,179		$	542
Nonaccrual		17,753			14,390			20,933
Restructured		17,468			17,624			17,792

Total nonperforming and restructured loans		36,131			33,193			39,267
Other real estate owned and repossessed assets		7,590			8,386			9,424

Total nonperforming and restructured assets	$	43,721		$	41,579		$	48,691

Nonperforming and restructured loans to total loans		1.02	%		0.98	%		1.22	%

Nonperforming and restructured assets to total assets		0.69	%		0.69	%		0.84	%

Nonaccrual loans, accruing loans past due 90 days or more, and restructured loans are shown in the table above. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $227,000 for the three months ended March 31, 2014 and approximately $301,000 for the three months ended March 31, 2013.

Restructured loans consisted primarily of one relationship restructured to defer principal payments. The relationship 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. The collateral value is 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.

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, 2014		March 31, 2013
	(Dollars in thousands)
Non-residential real estate owner occupied	$	448	$	382
Non-residential real estate other		5,779		9,284
Residential real estate permanent mortgage		689		619
Residential real estate all other		958		3,716
Non-consumer non-real estate		1,287		1,449
Consumer non-real estate		165		187
Other loans		1,198		3,052
Acquired loans		7,229		2,244

Total	$	17,753	$	20,933

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


	Age Analysis of Past Due Loans
	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 March 31, 2014
Non-residential real estate owner occupied	$	518	$	298	$	816	$	457,978	$	458,794	$	96
Non-residential real estate other		4,978		935		5,913		873,592		879,505		—
Residential real estate permanent mortgage		1,867		458		2,325		270,879		273,204		76
Residential real estate all other		1,274		543		1,817		565,930		567,747		86
Non-consumer non-real estate		2,749		929		3,678		824,361		828,039		18
Consumer non-real estate		2,151		260		2,411		223,551		225,962		218
Other loans		2,080		337		2,417		145,794		148,211		—
Acquired loans		3,053		4,608		7,661		153,147		160,808		416

Total	$	18,670	$	8,368	$	27,038	$	3,515,232	$	3,542,270	$	910

As of March 31, 2013
Non-residential real estate owner occupied	$	1,230	$	112	$	1,342	$	452,461	$	453,803	$	18
Non-residential real estate other		2,063		1,833		3,896		786,343		790,239		—
Residential real estate permanent mortgage		2,351		460		2,811		245,945		248,756		163
Residential real estate all other		2,087		408		2,495		522,542		525,037		105
Non-consumer non-real estate		2,100		214		2,314		748,287		750,601		74
Consumer non-real estate		1,994		184		2,178		209,142		211,320		126
Other loans		2,152		1,406		3,558		140,468		144,026		—
Acquired loans		1,993		328		2,321		93,864		96,185		56

Total	$	15,970	$	4,945	$	20,915	$	3,199,052	$	3,219,967	$	542

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. 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, 2014
Non-residential real estate owner occupied	$	688	$	601	$	29	$	642
Non-residential real estate other		24,355		22,680		1,734		22,915
Residential real estate permanent mortgage		1,068		836		88		918
Residential real estate all other		1,318		1,139		218		1,335
Non-consumer non-real estate		1,824		1,491		427		1,449
Consumer non-real estate		548		527		134		572
Other loans		1,215		1,198		207		1,278
Acquired loans		20,179		13,361		189		9,744

Total	$	51,195	$	41,833	$	3,026	$	38,853

As of March 31, 2013
Non-residential real estate owner occupied	$	580	$	517	$	19	$	732
Non-residential real estate other		27,369		25,900		2,166		26,082
Residential real estate permanent mortgage		1,448		1,226		61		1,007
Residential real estate all other		4,631		4,246		1,276		3,840
Non-consumer non-real estate		1,899		1,565		452		2,249
Consumer non-real estate		441		421		96		408
Other loans		3,736		3,094		267		2,648
Acquired loans		10,311		8,261		41		8,893

Total	$	50,415	$	45,230	$	4,378	$	45,859

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, 2013.

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, 2014
Non-residential real estate owner occupied	$	381,290	$	70,949	$	6,052	$	503	$	—	$	458,794
Non-residential real estate other		724,181		129,390		20,155		5,779		—		879,505
Residential real estate permanent mortgage		240,653		25,074		6,610		867		—		273,204
Residential real estate all other		474,152		86,033		6,495		1,067		—		567,747
Non-consumer non-real estate		673,757		147,625		5,350		1,307		—		828,039
Consumer non-real estate		212,492		11,388		1,655		427		—		225,962
Other loans		144,870		2,375		736		230		—		148,211
Acquired loans		92,581		48,073		12,091		7,917		146		160,808

Total	$	2,943,976	$	520,907	$	59,144	$	18,097	$	146	$	3,542,270

As of March 31, 2013
Non-residential real estate owner occupied	$	393,152	$	55,109	$	5,142	$	400	$	—	$	453,803
Non-residential real estate other		649,917		110,186		20,852		9,284		—		790,239
Residential real estate permanent mortgage		208,732		33,463		5,730		831		—		248,756
Residential real estate all other		461,620		51,181		8,410		3,826		—		525,037
Non-consumer non-real estate		647,162		97,110		4,800		1,529		—		750,601
Consumer non-real estate		198,107		10,912		1,923		374		4		211,320
Other loans		139,696		2,304		1,103		923		—		144,026
Acquired loans		74,939		14,936		4,009		2,301		—		96,185

Total	$	2,773,325	$	375,201	$	51,969	$	19,468	$	4	$	3,219,967

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, 2013.

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 catagories.


	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, 2014
Non-residential real estate owner occupied	$	4,827	$	(4	)	$	31	$	27		$	158		$	5,012
Non-residential real estate other		11,026		—			3		3			(344	)		10,685
Residential real estate permanent mortgage		2,825		(130	)		10		(120	)		532			3,237
Residential real estate all other		6,708		(49	)		4		(45	)		(178	)		6,485
Non-consumer non-real estate		8,977		(70	)		14		(56	)		782			9,703
Consumer non-real estate		2,556		(140	)		62		(78	)		95			2,573
Other loans		1,991		(64	)		17		(47	)		128			2,072
Acquired loans		124		(17	)		5		(12	)		45			157

Total	$	39,034	$	(474	)	$	146	$	(328	)	$	1,218		$	39,924


	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, 2013
Non-residential real estate owner occupied	$	5,104	$	—		$	15	$	15		$	(253	)	$	4,866
Non-residential real estate other		9,865		(18	)		4		(14	)		614			10,465
Residential real estate permanent mortgage		2,781		(56	)		11		(45	)		20			2,756
Residential real estate all other		7,034		(95	)		2		(93	)		224			7,165
Non-consumer non-real estate		9,385		(36	)		31		(5	)		(398	)		8,982
Consumer non-real estate		2,451		(140	)		76		(64	)		(3	)		2,384
Other loans		1,885		(139	)		—		(139	)		76			1,822
Acquired loans		220		(49	)		33		(16	)		20			224

Total	$	38,725	$	(533	)	$	172	$	(361	)	$	300		$	38,664

The following table details the amount of ALL by class of loans for the period presented, on the basis of the impairment methodology used by the Company.


	ALL
	March 31, 2014				March 31, 2013
	Individually evaluated for impairment		Collectively evaluated for impairment		Individually evaluated for impairment		Collectively evaluated for impairment
	(Dollars in thousands)
Non-residential real estate owner occupied	$	361	$	4,651	$	210	$	4,656
Non-residential real estate other		1,929		8,756		2,484		7,981
Residential real estate permanent mortgage		588		2,649		224		2,532
Residential real estate all other		733		5,752		1,899		5,266
Non-consumer non-real estate		1,133		8,570		1,211		7,771
Consumer non-real estate		389		2,184		290		2,094
Other loans		242		1,830		199		1,623
Acquired loans		—		157		—		224

Total	$	5,375	$	34,549	$	6,517	$	32,147

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, 2014						March 31, 2013
	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)
Non-residential real estate owner occupied	$	6,555	$	452,239	$	—	$	5,542	$	448,261	$	—
Non-residential real estate other		25,934		853,571		—		30,136		760,103		—
Residential real estate permanent mortgage		7,477		265,727		—		6,561		242,195		—
Residential real estate all other		7,562		560,185		—		12,236		512,801		—
Non-consumer non-real estate		6,657		821,382		—		6,329		744,272		—
Consumer non-real estate		2,082		223,880		—		2,301		209,019		—
Other loans		308		147,903		—		246		143,780		—
Acquired loans		—		140,654		20,154		—		89,875		6,310

Total	$	56,575	$	3,465,541	$	20,154	$	63,351	$	3,150,306	$	6,310

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:


	Three Months Ended March 31,
	2014		2013
	(Dollars in thousands)
Other real estate owned	$	66	$	436
Repossessed assets		327		209

Total	$	393	$	645