(4)

LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:


	September 30, 2013					December 31, 2012					September 30, 2012
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and industrial	$	566,670		16.87	%	$	559,274		17.25	%	$	541,130		17.37	%
Oil & gas production & equipment		139,605		4.16			154,380		4.76			131,642		4.22
Agriculture		89,258		2.66			93,274		2.88			83,146		2.67
State and political subdivisions:
Taxable		10,248		0.31			9,412		0.29			7,786		0.25
Tax-exempt		12,232		0.36			13,194		0.41			13,749		0.44
Real estate:
Construction		283,468		8.44			226,102		6.97			211,505		6.79
Farmland		133,397		3.97			125,033		3.86			114,043		3.66
One to four family residences		696,651		20.74			669,230		20.64			674,457		21.64
Multifamily residential properties		57,825		1.72			50,721		1.56			50,659		1.63
Commercial		1,100,544		32.76			1,068,445		32.95			1,026,097		32.93
Consumer		248,025		7.38			253,002		7.80			241,864		7.76
Other (not classified above)		21,015		0.63			20,360		0.63			20,018		0.64

Total loans	$	3,358,938		100.00	%	$	3,242,427		100.00	%	$	3,116,096		100.00	%

Loans held for sale (included above)	$	4,934				$	11,257				$	13,384

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, 2012.

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 contractual terms, the Company would have recognized additional interest income of approximately $1.3 million for the nine months ended September 30, 2013 and approximately $1.0 million for the nine months ended September 30, 2012.

At September 30, 2013 and 2012, restructured loans consisted primarily of one loan restructured to defer principal payments. The 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. The 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:


	September 30,			December 31,			September 30,
	2013			2012			2012
	(Dollars in thousands)
Past due 90 days or more and still accruing	$	1,266		$	537		$	731
Nonaccrual		15,094			20,549			22,101
Restructured		18,028			17,866			17,784

Total nonperforming and restructured loans		34,388			38,952			40,616
Other real estate owned and repossessed assets		8,428			9,566			9,796

Total nonperforming and restructured assets	$	42,816		$	48,518		$	50,412

Nonperforming and restructured loans to total loans		1.02	%		1.20	%		1.30	%

Nonperforming and restructured assets to total assets		0.72	%		0.81	%		0.86	%

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.


	September 30, 2013		September 30, 2012
	(Dollars in thousands)
Non-residential real estate owner occupied	$	551	$	5,605
Non-residential real estate other		6,784		3,719
Residential real estate permanent mortgage		714		585
Residential real estate all other		1,865		3,594
Non-consumer non-real estate		1,280		2,527
Consumer non-real estate		124		138
Other loans		1,446		2,221
Acquired loans		2,330		3,712

Total	$	15,094	$	22,101

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 September 30, 2013
Non-residential real estate owner occupied	$	779	$	326	$	1,105	$	458,241	$	459,346	$	308
Non-residential real estate other		6,046		1,925		7,971		869,531		877,502		51
Residential real estate permanent mortgage		2,017		492		2,509		253,708		256,217		217
Residential real estate all other		1,900		1,401		3,301		547,849		551,150		32
Non-consumer non-real estate		889		1,013		1,902		776,576		778,478		138
Consumer non-real estate		2,179		194		2,373		222,122		224,495		187
Other loans		1,531		1,275		2,806		136,060		138,866		236
Acquired loans		1,194		473		1,667		71,217		72,884		97

Total	$	16,535	$	7,099	$	23,634	$	3,335,304	$	3,358,938	$	1,266

As of September 30, 2012
Non-residential real estate owner occupied	$	915	$	466	$	1,381	$	480,319	$	481,700	$	349
Non-residential real estate other		646		1,959		2,605		665,265		667,870		—
Residential real estate permanent mortgage		2,058		399		2,457		242,209		244,666		12
Residential real estate all other		1,635		771		2,406		490,726		493,132		86
Non-consumer non-real estate		4,233		135		4,368		729,538		733,906		7
Consumer non-real estate		2,050		230		2,280		205,463		207,743		170
Other loans		1,706		1,447		3,153		147,329		150,482		43
Acquired loans		1,219		1,061		2,280		134,317		136,597		64

Total	$	14,462	$	6,468	$	20,930	$	3,095,166	$	3,116,096	$	731

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 September 30, 2013
Non-residential real estate owner occupied	$	993	$	924	$	34	$	700
Non-residential real estate other		25,724		24,216		2,240		25,871
Residential real estate permanent mortgage		1,263		1,068		57		1,298
Residential real estate all other		2,423		2,020		381		3,668
Non-consumer non-real estate		1,931		1,599		396		1,508
Consumer non-real estate		413		394		67		444
Other loans		1,905		1,782		300		1,911
Acquired loans		9,879		7,853		95		8,109

Total	$	44,531	$	39,856	$	3,570	$	43,509

As of September 30, 2012
Non-residential real estate owner occupied	$	7,058	$	6,094	$	232	$	6,237
Non-residential real estate other		20,535		20,340		1,581		20,496
Residential real estate permanent mortgage		1,299		1,089		30		1,184
Residential real estate all other		4,365		4,047		1,344		4,149
Non-consumer non-real estate		3,144		2,539		677		1,745
Consumer non-real estate		447		424		77		364
Other loans		2,420		2,265		264		1,975
Acquired loans		12,872		10,684		71		11,451

Total	$	52,140	$	47,482	$	4,276	$	47,601

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, 2012.

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 September 30, 2013
Non-residential real estate owner occupied	$	388,923	$	64,418	$	5,189	$	816	$	—	$	459,346
Non-residential real estate other		714,670		134,760		21,237		6,835		—		877,502
Residential real estate permanent mortgage		224,518		25,091		5,574		1,034		—		256,217
Residential real estate all other		457,649		82,827		8,721		1,953		—		551,150
Non-consumer non-real estate		681,695		91,108		4,254		1,421		—		778,478
Consumer non-real estate		210,285		11,760		2,047		403		—		224,495
Other loans		135,169		2,646		738		313		—		138,866
Acquired loans		53,364		12,707		4,207		2,606		—		72,884

Total	$	2,866,273	$	425,317	$	51,967	$	15,381	$	—	$	3,358,938

As of September 30, 2012
Non-residential real estate owner occupied	$	420,426	$	49,131	$	6,189	$	5,954	$	—	$	481,700
Non-residential real estate other		564,180		78,637		21,334		3,719		—		667,870
Residential real estate permanent mortgage		206,702		31,558		5,547		859		—		244,666
Residential real estate all other		429,862		50,412		9,120		3,738		—		493,132
Non-consumer non-real estate		644,066		80,863		6,500		2,477		—		733,906
Consumer non-real estate		195,242		10,185		1,965		349		2		207,743
Other loans		146,037		2,726		887		832		—		150,482
Acquired loans		103,411		24,243		5,006		3,898		39		136,597

Total	$	2,709,926	$	327,755	$	56,548	$	21,826	$	41	$	3,116,096

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, 2012.

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 class of loans does not preclude its availability to absorb losses in other classes.


	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 September 30, 2013
Non-residential real estate owner occupied	$	4,714	$	(1	)	$	—	$	(1	)	$	144		$	4,857
Non-residential real estate other		10,866		—			2		2			404			11,272
Residential real estate permanent mortgage		2,733		(30	)		12		(18	)		7			2,722
Residential real estate all other		7,349		(23	)		3		(20	)		(722	)		6,607
Non-consumer non-real estate		8,751		(34	)		110		76			36			8,863
Consumer non-real estate		2,389		(163	)		65		(98	)		207			2,498
Other loans		1,961		(76	)		24		(52	)		36			1,945
Acquired loans		219		(3	)		3		—			(124	)		95

Total	$	38,982	$	(330	)	$	219	$	(111	)	$	(12	)	$	38,859

Nine Months Ended September 30, 2013
Non-residential real estate owner occupied	$	5,104	$	(3	)	$	16	$	13		$	(260	)	$	4,857
Non-residential real estate other		9,865		(19	)		12		(7	)		1,414			11,272
Residential real estate permanent mortgage		2,781		(126	)		27		(99	)		40			2,722
Residential real estate all other		7,034		(177	)		30		(147	)		(280	)		6,607
Non-consumer non-real estate		9,385		(139	)		159		20			(542	)		8,863
Consumer non-real estate		2,451		(458	)		202		(256	)		303			2,498
Other loans		1,885		(235	)		55		(180	)		240			1,945
Acquired loans		220		(53	)		39		(14	)		(111	)		95

Total	$	38,725	$	(1,210	)	$	540	$	(670	)	$	804		$	38,859


	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 September 30, 2012
Non-residential real estate owner occupied	$	5,783	$	(30	)	$	2	$	(28	)	$	(469	)	$	5,286
Non-residential real estate other		8,566		—			15		15			16			8,597
Residential real estate permanent mortgage		3,002		(50	)		4		(46	)		(258	)		2,698
Residential real estate all other		7,004		(107	)		5		(102	)		121			7,023
Non-consumer non-real estate		8,558		(119	)		19		(100	)		712			9,170
Consumer non-real estate		2,282		(117	)		42		(75	)		162			2,369
Other loans		1,854		(24	)		2		(22	)		6			1,838
Acquired loans		387		(53	)		—		(53	)		(57	)		277

Total	$	37,436	$	(500	)	$	89	$	(411	)	$	233		$	37,258

Nine Months Ended September 30, 2012
Non-residential real estate owner occupied	$	5,300	$	(87	)	$	2	$	(85	)	$	71		$	5,286
Non-residential real estate other		8,648		(71	)		46		(25	)		(26	)		8,597
Residential real estate permanent mortgage		2,734		(119	)		84		(35	)		(1	)		2,698
Residential real estate all other		7,030		(169	)		34		(135	)		128			7,023
Non-consumer non-real estate		9,156		(449	)		144		(305	)		319			9,170
Consumer non-real estate		2,315		(308	)		157		(151	)		205			2,369
Other loans		1,886		(231	)		33		(198	)		150			1,838
Acquired loans		587		(129	)		11		(118	)		(192	)		277

Total	$	37,656	$	(1,563	)	$	511	$	(1,052	)	$	654		$	37,258

The following table details the amount of ALL by class of loans based on the impairment methodology used by the Company.


	ALL
	September 30, 2013				September 30, 2012
	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	$	228	$	4,629	$	462	$	4,824
Non-residential real estate other		2,529		8,743		1,934		6,663
Residential real estate permanent mortgage		226		2,496		218		2,480
Residential real estate all other		1,058		5,549		2,087		4,936
Non-consumer non-real estate		1,052		7,811		1,692		7,478
Consumer non-real estate		314		2,184		315		2,054
Other loans		2460		1,6998		220		1,6188
Acquired loans		—		957		—		2777

Total	$	5,653	$	33,206	$	6,928	$	30,330

The following table details the loans outstanding by class of loans based on the impairment methodology used by the Company.


	Loans
	September 30, 2013						September 30, 2012
	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	$	6,005	$	453,341	$	—	$	12,142	$	469,558	$	—
Non-residential real estate other		28,072		849,430		—		25,053		642,817		—
Residential real estate permanent mortgage		6,609		249,609		—		6,406		238,260		—
Residential real estate all other		10,674		540,476		—		12,858		480,274		—
Non-consumer non-real estate		5,675		772,803		—		8,976		724,930		—
Consumer non-real estate		2,448		222,045		—		2,316		205,427		—
Other loans		292		138,575		—		264		150,218		—
Acquired loans		—		66,071		6,813		—		127,654		8,943

Total	$	59,775	$	3,292,350	$	6,813	$	68,015	$	3,039,138	$	8,943

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:


	Nine Months Ended September 30,
	2013		2012
	(Dollars in thousands)
Other real estate owned	$	1,287	$	1,633
Repossessed assets		946		664

Total	$	2,233	$	2,297