(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:


	June 30, 2014					December 31, 2013					June 30, 2013
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and industrial	$	677,425		18.48	%	$	605,672		17.88	%	$	529,253		16.31	%
Oil & gas production & equipment		110,913		3.03			96,907		2.86			145,735		4.49
Agriculture		102,693		2.80			111,323		3.29			94,337		2.91
State and political subdivisions:
Taxable		9,346		0.25			10,217		0.30			9,202		0.28
Tax-exempt		10,803		0.29			11,073		0.33			12,392		0.38
Real estate:
Construction		355,526		9.70			284,808		8.41			247,827		7.64
Farmland		144,519		3.94			132,512		3.91			126,233		3.89
One to four family residences		748,228		20.41			703,903		20.78			697,927		21.51
Multifamily residential properties		60,430		1.65			60,080		1.77			48,128		1.48
Commercial		1,160,079		31.65			1,097,484		32.40			1,070,807		33.00
Consumer		258,745		7.06			250,588		7.40			243,799		7.51
Other (not classified above)		27,201		0.74			22,579		0.67			19,444		0.60

Total loans	$	3,665,908		100.00	%	$	3,387,146		100.00	%	$	3,245,084		100.00	%

Loans held for sale (included above)	$	9,519				$	6,469				$	10,367

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 (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:


	June 30,			December 31,			June 30,
	2014			2013			2013
	(Dollars in thousands)
Past due 90 days or more and still accruing	$	1,789		$	1,179		$	850
Nonaccrual		17,268			14,390			18,946
Restructured		20,615			17,624			17,903

Total nonperforming and restructured loans		39,672			33,193			37,699
Other real estate owned and repossessed assets		6,406			8,386			8,503

Total nonperforming and restructured assets	$	46,078		$	41,579		$	46,202

Nonperforming and restructured loans to total loans		1.08	%		0.98	%		1.16	%

Nonperforming and restructured assets to total assets		0.72	%		0.69	%		0.80	%

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 $481,000 for the six months ended June 30, 2014 and approximately $978,000 for the six months ended June 30, 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 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, 2014		June 30, 2013
	(Dollars in thousands)
Non-residential real estate owner occupied	$	323	$	516
Non-residential real estate other		5,436		9,195
Residential real estate permanent mortgage		741		741
Residential real estate all other		951		2,837
Non-consumer non-real estate		1,265		1,268
Consumer non-real estate		189		216
Other loans		880		1,938
Acquired loans		7,483		2,235

Total	$	17,268	$	18,946

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 June 30, 2014
Non-residential real estate owner occupied	$	477	$	264	$	741	$	482,081	$	482,822	$	60
Non-residential real estate other		5,065		825		5,890		920,264		926,154		—
Residential real estate permanent mortgage		2,224		656		2,880		282,749		285,629		180
Residential real estate all other		1,545		892		2,437		598,454		600,891		538
Non-consumer non-real estate		2,059		985		3,044		859,012		862,056		46
Consumer non-real estate		2,256		313		2,569		230,774		233,343		219
Other loans		1,695		356		2,051		146,218		148,269		—
Acquired loans		3,506		4,989		8,495		118,249		126,744		746

Total	$	18,827	$	9,280	$	28,107	$	3,637,801	$	3,665,908	$	1,789

As of June 30, 2013
Non-residential real estate owner occupied	$	1,848	$	138	$	1,986	$	444,231	$	446,217	$	120
Non-residential real estate other		230		3,056		3,286		801,821		805,107		51
Residential real estate permanent mortgage		1,496		566		2,062		249,671		251,733		102
Residential real estate all other		1,494		251		1,745		539,276		541,021		49
Non-consumer non-real estate		3,519		816		4,335		745,327		749,662		32
Consumer non-real estate		2,382		213		2,595		214,785		217,380		176
Other loans		1,850		1,520		3,370		144,135		147,505		—
Acquired loans		375		593		968		85,491		86,459		320

Total	$	13,194	$	7,153	$	20,347	$	3,224,737	$	3,245,084	$	850

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 June 30, 2014
Non-residential real estate owner occupied	$	542	$	476	$	22	$	547
Non-residential real estate other		23,886		22,122		1,710		22,305
Residential real estate permanent mortgage		1,117		951		86		931
Residential real estate all other		1,768		1,581		215		1,310
Non-consumer non-real estate		4,407		4,082		512		2,151
Consumer non-real estate		568		553		141		542
Other loans		1,048		880		153		1,000
Acquired loans		19,347		12,872		88		13,152

Total	$	52,683	$	43,517	$	2,927	$	41,938

As of June 30, 2013
Non-residential real estate owner occupied	$	814	$	748	$	28	$	623
Non-residential real estate other		27,297		25,859		2,363		25,885
Residential real estate permanent mortgage		1,510		1,287		64		1,277
Residential real estate all other		3,694		3,294		1,189		3,985
Non-consumer non-real estate		1,816		1,481		390		1,536
Consumer non-real estate		517		495		79		419
Other loans		2,253		2,090		278		2,648
Acquired loans		10,359		8,230		58		8,511

Total	$	48,260	$	43,484	$	4,449	$	44,884

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 June 30, 2014
Non-residential real estate owner occupied	$	406,862	$	69,202	$	6,375	$	383	$	—	$	482,822
Non-residential real estate other		736,119		165,012		19,587		5,436		—		926,154
Residential real estate permanent mortgage		253,932		24,765		5,967		965		—		285,629
Residential real estate all other		501,090		91,707		6,859		1,235		—		600,891
Non-consumer non-real estate		704,671		115,925		40,135		1,325		—		862,056
Consumer non-real estate		220,053		11,160		1,637		493		—		233,343
Other loans		145,004		2,373		615		87		190		148,269
Acquired loans		66,721		42,798		8,679		8,137		409		126,744

Total	$	3,034,452	$	522,942	$	89,854	$	18,061	$	599	$	3,665,908

As of June 30, 2013
Non-residential real estate owner occupied	$	381,580	$	58,923	$	5,077	$	637	$	—	$	446,217
Non-residential real estate other		650,422		124,831		20,609		9,245		—		805,107
Residential real estate permanent mortgage		212,230		33,024		5,593		886		—		251,733
Residential real estate all other		454,987		74,982		8,123		2,929		—		541,021
Non-consumer non-real estate		649,542		94,045		4,737		1,338		—		749,662
Consumer non-real estate		203,408		11,767		1,860		342		3		217,380
Other loans		143,653		2,642		864		346		—		147,505
Acquired loans		66,234		13,774		3,894		2,557		—		86,459

Total	$	2,762,056	$	413,988	$	50,757	$	18,280	$	3	$	3,245,084

Allowance for Loan Losses Methodology

The allowance for loan losses (“ALL”) methodology is disclosed in Footnote (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 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, 2014
Non-residential real estate owner occupied	$	5,012	$	(18	)	$	34	$	16		$	213		$	5,241
Non-residential real estate other		10,685		—			—		—			553			11,238
Residential real estate permanent mortgage		3,237		(32	)		31		(1	)		74			3,310
Residential real estate all other		6,485		(44	)		10		(34	)		364			6,815
Non-consumer non-real estate		9,703		(61	)		16		(45	)		2,309			11,967
Consumer non-real estate		2,573		(190	)		46		(144	)		216			2,645
Other loans		2,072		(188	)		110		(78	)		(1	)		1,993
Acquired loans		157		(148	)		678		530			(599	)		88

Total	$	39,924	$	(681	)	$	925	$	244		$	3,129		$	43,297

Six Months Ended June 30, 2014
Non-residential real estate owner occupied	$	4,827	$	(22	)	$	65	$	43		$	371		$	5,241
Non-residential real estate other		11,026		—			3		3			209			11,238
Residential real estate permanent mortgage		2,825		(162	)		41		(121	)		606			3,310
Residential real estate all other		6,708		(93	)		14		(79	)		186			6,815
Non-consumer non-real estate		8,977		(131	)		30		(101	)		3,091			11,967
Consumer non-real estate		2,556		(331	)		108		(223	)		312			2,645
Other loans		1,991		(251	)		127		(124	)		126			1,993
Acquired loans		124		(165	)		683		518			(554	)		88

Total	$	39,034	$	(1,155	)	$	1,071	$	(84	)	$	4,347		$	43,297


	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, 2013
Allowance for loan losses:
Non-residential real estate owner occupied	$	4,866	$	(2	)	$	1	$	(1	)	$	(151	)	$	4,714
Non-residential real estate other		10,465		(1	)		6		5			396			10,866
Residential real estate permanent mortgage		2,756		(40	)		4		(36	)		13			2,733
Residential real estate all other		7,165		(59	)		25		(34	)		218			7,349
Non-consumer non-real estate		8,982		(69	)		18		(51	)		(180	)		8,751
Consumer non-real estate		2,384		(155	)		61		(94	)		99			2,389
Other loans		1,822		(20	)		31		11			128			1,961
Acquired loans		224		(1	)		3		2			(7	)		219

Total	$	38,664	$	(347	)	$	149	$	(198	)	$	516		$	38,982

Six Months Ended June 30, 2013
Non-residential real estate owner occupied	$	5,104	$	(2	)	$	16	$	14		$	(404	)	$	4,714
Non-residential real estate other		9,865		(19	)		10		(9	)		1,010			10,866
Residential real estate permanent mortgage		2,781		(96	)		15		(81	)		33			2,733
Residential real estate all other		7,034		(154	)		27		(127	)		442			7,349
Non-consumer non-real estate		9,385		(105	)		49		(56	)		(578	)		8,751
Consumer non-real estate		2,451		(295	)		137		(158	)		96			2,389
Other loans		1,885		(159	)		31		(128	)		204			1,961
Acquired loans		220		(50	)		36		(14	)		13			219

Total	$	38,725	$	(880	)	$	321	$	(559	)	$	816		$	38,982

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, 2014				June 30, 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	$	372	$	4,869	$	217	$	4,497
Non-residential real estate other		1,881		9,357		2,663		8,203
Residential real estate permanent mortgage		539		2,771		222		2,511
Residential real estate all other		736		6,079		1,794		5,555
Non-consumer non-real estate		3,567		8,400		1,124		7,627
Consumer non-real estate		417		2,228		265		2,124
Other loans		190		1,803		231		1,730
Acquired loans		—		88		—		219

Total	$	7,702	$	35,595	$	6,516	$	32,466

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, 2014						June 30, 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	$	6,758	$	476,064	$	—	$	5,713	$	440,503	$	—
Non-residential real estate other		25,023		901,131		—		29,855		775,253		—
Residential real estate permanent mortgage		6,932		278,697		—		6,479		245,254		—
Residential real estate all other		8,094		592,797		—		11,052		529,969		—
Non-consumer non-real estate		41,460		820,596		—		6,075		743,587		—
Consumer non-real estate		2,130		231,213		—		2,205		215,175		—
Other loans		324		147,945		—		280		147,225		—
Acquired loans		—		109,519		17,225		—		80,008		6,451

Total	$	90,721	$	3,557,962	$	17,225	$	61,659	$	3,176,974	$	6,451

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,
	2014		2013
	(Dollars in thousands)
Other real estate owned	$	525	$	896
Repossessed assets		722		594

Total	$	1,247	$	1,490