(5) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:


	March 31, 2012					December 31, 2011					March 31, 2011
	Amount		Percent			Amount		Percent			Amount		Percent
						(Dollars in thousands)
Commercial and industrial	$	526,028		17.25	%	$	547,942		18.19	%	$	535,881		19.16	%
Oil & gas production & equipment		129,710		4.25			115,786		3.84			100,565		3.60
Agriculture		90,659		2.97			86,297		2.86			77,745		2.78
State and political subdivisions:
Taxable		7,332		0.24			6,939		0.23			9,380		0.34
Tax-exempt		15,810		0.52			17,070		0.57			10,736		0.38
Real estate:
Construction		200,609		6.58			207,953		6.90			228,340		8.17
Farmland		107,751		3.53			103,923		3.45			91,907		3.29
One to four family residences		660,725		21.67			655,134		21.74			600,547		21.48
Multifamily residential properties		40,164		1.32			37,734		1.25			31,937		1.14
Commercial		1,004,596		32.94			960,074		31.86			824,105		29.47
Consumer		244,171		8.01			252,331		8.37			260,067		9.30
Other		21,821		0.72			22,315		0.74			25,180		0.89

Total loans	$	3,049,376		100.00	%	$	3,013,498		100.00	%	$	2,796,390		100.00	%

Loans held for sale (included above)	$	15,585				$	12,126				$	7,143

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.

Appraisal Policy

An updated appraisal of the collateral is obtained when a loan is first identified as a problem loan. Appraisals are reviewed annually and are updated as needed, or are updated more frequently if significant changes are believed to have occurred in the collateral or market conditions. Other real estate owned appraisals are consistent with this policy.

Nonaccrual Policy

The Company does not accrue interest on (1) any loan upon which a default of principal or interest has existed for a period of ninety (90) days or over unless the collateral margin or guarantor support are such that full collection of principal and interest are not in doubt, and an orderly plan for collection is in process; and (2) any other loan for which it is expected full collection of principal and interest is not probable.

A nonaccrual loan may be restored to an accrual status when none of its principal and interest is past due and unpaid or otherwise becomes well secured and in the process of collection and when prospects for future contractual payments are no longer in doubt. With the exception of a formal debt forgiveness agreement, no loan which has had principal charged-off shall be restored to accrual status unless the charged-off principal has been recovered.

Charge-off Policy

When a loan deteriorates to the point that the account officer or the Loan Committee concludes it no longer represents a viable asset, it will be charged off. Similarly, any portion of a loan that is deemed to no longer be a viable asset will be charged off. A loan will not be charged off unless such action has been approved by the branch President.

Nonperforming and Restructured Assets

Nonaccrual loans, accruing loans past due more than 90 days, 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 $338,000 for the three months ended March 31, 2012 and approximately $264,000 for the three months ended March 31, 2011.

The following is a summary of nonperforming and restructured assets:


	March 31,			December 31,			March 31,
	2012			2011			2011
	(Dollars in thousands)
Past due over 90 days and still accruing	$	1,150			$ 798		$	3,016
Nonaccrual		20,721			21,187			24,391
Restructured		18,483			1,041			316

Total nonperforming and restructured loans		40,354			23,026			27,723
Other real estate owned and repossessed assets		12,408			16,640			15,974

Total nonperforming and restructured assets	$	52,762			$39,666		$	43,697

Nonperforming and restructured loans to total loans		1.32	%		0.76	%		0.99	%

Nonperforming and restructured assets to total assets		0.92	%		0.71	%		0.83	%

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.


	March 31, 2012		March 31, 2011
	(Dollars in thousands)
Non-residential real estate	$	9,768	$	10,091
Residential real estate		4,754		6,639
Non-consumer non-real estate		1,425		2,186
Consumer non-real estate		143		160
Other loans		1,464		4,530
Acquired loans		3,167		785

Total	$	20,721	$	24,391

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		Greater than 90 Days		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 Days or More Past Due
	(Dollars in thousands)
As of March 31, 2012
Non-residential real estate	$	3,924	$	849	$	4,773	$	1,097,141	$	1,101,914	$	192
Residential real estate		3,218		1,915		5,133		690,937		696,070		436
Non-consumer non-real estate		1,311		633		1,944		723,144		725,088		132
Consumer non-real estate		1,767		220		1,987		198,221		200,208		195
Other loans		1,414		1,352		2,766		160,722		163,488		59
Acquired loans		2,707		934		3,641		158,967		162,608		136

Total	$	14,341	$	5,903	$	20,244	$	3,029,132	$	3,049,376	$	1,150

As of March 31, 2011
Non-residential real estate	$	1,654	$	1,272	$	2,926	$	944,336	$	947,262	$	712
Residential real estate		3,727		1,637		5,364		667,141		672,505		202
Non-consumer non-real estate		3,780		1,643		5,423		671,979		677,402		1,231
Consumer non-real estate		1,840		187		2,027		194,412		196,439		166
Other loans		3,507		3,577		7,084		152,877		159,961		508
Acquired loans		2,258		866		3,124		139,697		142,821		197

Total	$	16,766	$	9,182	$	25,948	$	2,770,442	$	2,796,390	$	3,016

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 March 31, 2012
Non-residential real estate	$	28,420		$27,558	$	2,235		$22,887
Residential real estate		6,185		5,695		1,432		5,557
Non-consumer non-real estate		2,062		1,748		605		1,664
Consumer non-real estate		567		477		65		452
Other loans		1,880		1,524		320		2,666
Acquired loans		16,850		14,173		275		15,780

Total	$	55,964		$51,175	$	4,932		$49,006

As of March 31, 2011
Non-residential real estate	$	10,491		$10,091	$	873		$10,717
Residential real estate		7,178		6,639		1,633		6,836
Non-consumer non-real estate		2,440		2,186		566		1,886
Consumer non-real estate		195		160		46		228
Other loans		4,871		4,530		143		4,552
Acquired loans		795		785		56		1,326

Total	$	25,970		$24,391	$	3,317		$25,545

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 March 31, 2012
Non-residential real estate	$	951,016	$	112,408	$	28,721	$	9,769	$	—	$	1,101,914
Residential real estate		591,818		83,250		15,579		5,423		—		696,070
Non-consumer non-real estate		636,582		79,548		7,480		1,478		—		725,088
Consumer non-real estate		187,999		9,690		2,132		387		—		200,208
Other loans		158,729		2,775		1,725		259		—		163,488
Acquired loans		119,165		31,319		8,901		3,223		—		162,608

Total	$	2,645,309	$	318,990	$	64,538	$	20,539	$	—	$	3,049,376


As of March 31, 2011
Non-residential real estate	$	799,790	$	107,120	$	30,599	$	9,753	$	—	$	947,262
Residential real estate		582,923		70,233		12,490		6,859		—		672,505
Non-consumer non-real estate		590,490		76,218		8,677		1,722		295		677,402
Consumer non-real estate		186,306		7,704		2,211		218		—		196,439
Other loans		152,750		2,477		1,879		2,854		—		159,960
Acquired loans		112,593		22,710		6,733		635		151		142,822

Total	$	2,424,852	$	286,462	$	62,589	$	22,041	$	446	$	2,796,390

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.

Changes in the ALLL are summarized as follows:


	Three Months Ended March 31,
	2012			2011
	(Dollars in thousands)
Balance at beginning of period	$	37,656		$	35,745

Charge-offs		(532	)		(561	)
Recoveries		336			164

Net charge-offs		(196	)		(397	)

Provisions charged to operations		173			788

Balance at end of period	$	37,633		$	36,136

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 March 31, 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		(121	)		(36	)		(17	)		(114	)		(180	)		(64	)		(532	)
Recoveries		37			96			98			84			19			2			336

Net charge-offs		(84	)		60			81			(30	)		(161	)		(62	)		(196	)

Provisions charged to operations		245			(62	)		(39	)		(2	)		125			(94	)		173

Balance at March 31, 2012	$	14,109		$	9,762		$	9,198		$	2,283		$	1,850		$	431		$	37,633

Ending balances:
Individually evaluated for impairment	$	3,085		$	2,692		$	1,741		$	300		$	183		$	—		$	8,001
Collectively evaluated for impairment		11,024			7,070			7,457			1,983			1,667			431			29,632

Balance at March 31, 2012	$	14,109		$	9,762		$	9,198		$	2,283		$	1,850		$	431		$	37,633

Loans-Ending balances:
Individually evaluated for impairment	$	38,489		$	21,002		$	8,958		$	2,519		$	147		$	—		$	71,115
Collectively evaluated for impairment		1,063,425			675,068			716,130			197,689			163,341			150,484			2,966,137
Loans acquired with deteriorated credit quality		—			—			—			—			—			12,124			12,124

Balance at March 31, 2012	$	1,101,914		$	696,070		$	725,088		$	200,208		$	163,488		$	162,608		$	3,049,376


Three Months Ended March 31, 2011
Allowance for credit losses:
Balance at December 31, 2010	$	13,142		$	8,957		$	9,587		$	2,301		$	1,758		$	—		$	35,745

Charge-offs		(133	)		(189	)		(5	)		(105	)		(100	)		(29	)		(561	)
Recoveries		9			56			55			32			2			10			164

Net charge-offs		(124	)		(133	)		50			(73	)		(98	)		(19	)		(397	)

Provisions charged to operations		(39	)		788			(472	)		30			39			442			788

Balance at March 31, 2011	$	12,979		$	9,612		$	9,165		$	2,258		$	1,699		$	423		$	36,136

Ending balances:
Individually evaluated for impairment	$	3,198		$	2,631		$	1,966		$	311		$	250		$	—		$	8,356
Collectively evaluated for impairment		9,781			6,981			7,199			1,947			1,449			423			27,780

Balance at March 31, 2011	$	12,979		$	9,612		$	9,165		$	2,258		$	1,699		$	423		$	36,136

Loans-Ending balances:
Individually evaluated for impairment	$	40,352		$	19,349		$	10,694		$	2,429		$	552		$	—		$	73,376
Collectively evaluated for impairment		906,910			653,156			666,708			194,010			159,409			135,303			2,715,496
Loans acquired with deteriorated credit quality		—			—			—			—			—			7,518			7,518

Balance at March 31, 2011	$	947,262		$	672,505		$	677,402		$	196,439		$	159,961		$	142,821		$	2,796,390

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 are summarized as follows:


	Three Months Ended March 31,
	2012		2011
	(Dollars in thousands)
Other real estate owned	$	659	$	2,182
Repossessed assets		180		478

Total	$	839	$	2,660