(4)	LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

	September 30, 2018					December 31, 2017
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and financial:
Commercial and industrial	$	1,042,237		21.07	%	$	995,207		21.08	%
Oil & gas production and equipment		98,324		1.99			95,574		2.02
Agriculture		127,904		2.59			141,249		2.99
State and political subdivisions:
Taxable		79,832		1.61			73,827		1.56
Tax-exempt		41,368		0.84			48,626		1.03
Real estate:
Construction		446,046		9.02			437,277		9.26
Farmland		217,191		4.38			195,162		4.13
One to four family residences		972,922		19.66			875,766		18.55
Multifamily residential properties		62,555		1.26			46,030		0.98
Commercial		1,497,894		30.28			1,487,927		31.51
Consumer		323,952		6.55			284,373		6.02
Other (not classified above)		37,303		0.75			40,977		0.87
Total loans	$	4,947,528		100.00	%	$	4,721,995		100.00	%

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 and related 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.

The Company’s commercial and industrial loan category includes a small percentage of loans to companies that provide ancillary services to the oil and gas industry, such as transportation, preparation contractors and equipment manufacturers. The balance of these loans was approximately $62 million at September 30, 2018 and approximately $81 million at December 31, 2017.

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, 2017.

Nonperforming and Restructured Assets

The following is a summary of nonperforming and restructured assets:

	September 30,		December 31,
	2018		2017
	(Dollars in thousands)
Past due 90 days or more and still accruing	$	4,073	$	2,893
Nonaccrual		26,880		31,943
Restructured		13,557		4,720
Total nonperforming and restructured loans		44,510		39,556
Other real estate owned and repossessed assets		7,072		4,424
Total nonperforming and restructured assets	$	51,582	$	43,980

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.7 million for the nine months ended September 30, 2018 and approximately $1.3 million for the nine months ended September 30, 2017.

The Company charges interest on principal balances outstanding on restructured loans during deferral periods. 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.

	September 30, 2018		December 31, 2017
	(Dollars in thousands)
Real estate:
Non-residential real estate owner occupied	$	1,526	$	1,108
Non-residential real estate other		7,125		9,809
Residential real estate permanent mortgage		1,043		781
Residential real estate all other		4,911		3,980
Commercial and financial:
Non-consumer non-real estate		6,032		7,785
Consumer non-real estate		416		250
Other loans		427		5,596
Acquired loans		5,400		2,634
Total	$	26,880	$	31,943

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents an age analysis of past due loans, segregated by class of loans:

	Age Analysis of Past Due Loans
	30-59 Days Past Due		60-89 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, 2018
Real estate:
Non-residential real estate owner occupied	$	977	$	1,106	$	811	$	2,894	$	627,528	$	630,422	$	90
Non-residential real estate other		4,964		385		172		5,521		1,111,929		1,117,450		57
Residential real estate permanent mortgage		3,910		1,318		961		6,189		322,237		328,426		427
Residential real estate all other		2,034		2,790		2,333		7,157		810,727		817,884		845
Commercial and financial:
Non-consumer non-real estate		2,573		1,469		2,222		6,264		1,263,816		1,270,080		1,070
Consumer non-real estate		1,721		530		552		2,803		317,629		320,432		345
Other loans		514		—		372		886		142,319		143,205		128
Acquired loans		2,927		2,175		4,164		9,266		310,363		319,629		1,111
Total	$	19,620	$	9,773	$	11,587	$	40,980	$	4,906,548	$	4,947,528	$	4,073
As of December 31, 2017
Real estate:
Non-residential real estate owner occupied	$	998	$	68	$	977	$	2,043	$	639,575	$	641,618	$	84
Non-residential real estate other		2,905		271		2,112		5,288		1,121,303		1,126,591		432
Residential real estate permanent mortgage		2,211		403		977		3,591		326,743		330,334		584
Residential real estate all other		1,739		749		1,377		3,865		781,790		785,655		973
Commercial and financial:
Non-consumer non-real estate		2,210		706		1,785		4,701		1,279,704		1,284,405		403
Consumer non-real estate		2,085		670		293		3,048		285,872		288,920		194
Other loans		506		103		3,916		4,525		139,920		144,445		—
Acquired loans		753		192		713		1,658		118,369		120,027		223
Total	$	13,407	$	3,162	$	12,150	$	28,719	$	4,693,276	$	4,721,995	$	2,893

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. During the period ended September 30, 2018 no material amount of interest income was recognized on impaired loans subsequent to their classification as impaired. During the period ended September 30, 2017, $2.3 million 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, 2018
Real estate:
Non-residential real estate owner occupied	$	8,187	$	8,063	$	353	$	7,877
Non-residential real estate other		8,262		7,753		333		8,678
Residential real estate permanent mortgage		1,842		1,634		145		1,746
Residential real estate all other		6,762		6,507		2,310		6,678
Commercial and financial:
Non-consumer non-real estate		19,458		12,065		2,234		13,359
Consumer non-real estate		897		825		108		818
Other loans		772		558		43		456
Acquired loans		10,784		7,745		4		7,442
Total	$	56,964	$	45,150	$	5,530	$	47,054

As of December 31, 2017
Real estate:
Non-residential real estate owner occupied	$	2,011	$	1,945	$	141	$	1,858
Non-residential real estate other		10,323		10,240		496		3,975
Residential real estate permanent mortgage		1,745		1,542		146		1,440
Residential real estate all other		5,837		5,549		2,135		5,258
Commercial and financial:
Non-consumer non-real estate		18,101		11,158		2,412		11,131
Consumer non-real estate		545		514		127		541
Other loans		6,092		5,595		178		7,439
Acquired loans		4,737		3,145		12		3,539
Total	$	49,391	$	39,688	$	5,647	$	35,181

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, 2017.

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, 2018
Real estate:
Non-residential real estate owner occupied	$	478,014	$	131,597	$	19,221	$	1,590	$	—	$	630,422
Non-residential real estate other		913,259		181,829		15,238		7,124		—		1,117,450
Residential real estate permanent mortgage		280,194		38,452		8,093		1,687		—		328,426
Residential real estate all other		641,246		156,018		15,000		5,620		—		817,884
Commercial and financial:
Non-consumer non-real estate		980,535		268,882		14,915		5,748		—		1,270,080
Consumer non-real estate		297,516		19,975		2,202		739		—		320,432
Other loans		137,705		5,304		157		39		—		143,205
Acquired loans		188,452		99,686		25,082		6,160		249		319,629
Total	$	3,916,921	$	901,743	$	99,908	$	28,707	$	249	$	4,947,528

As of December 31, 2017
Real estate:
Non-residential real estate owner occupied	$	520,641	$	105,696	$	13,852	$	1,429	$	—	$	641,618
Non-residential real estate other		931,295		178,282		14,290		2,724		—		1,126,591
Residential real estate permanent mortgage		289,200		33,033		6,352		1,749		—		330,334
Residential real estate all other		621,401		149,201		9,418		5,635		—		785,655
Commercial and financial:
Non-consumer non-real estate		1,018,172		234,884		24,322		6,997		30		1,284,405
Consumer non-real estate		268,826		17,499		2,038		557		—		288,920
Other loans		136,617		5,668		1,203		957		—		144,445
Acquired loans		65,685		34,418		17,113		2,811		—		120,027
Total	$	3,851,837	$	758,681	$	88,588	$	22,859	$	30	$	4,721,995

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, 2017.

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 September 30, 2018
Real estate:
Non-residential real estate owner occupied	$	6,426	$	(179	)	$	15	$	(164	)	$	164		$	6,426
Non-residential real estate other		10,705		(8	)		—		(8	)		(49	)		10,648
Residential real estate permanent mortgage		3,307		(39	)		—		(39	)		43			3,311
Residential real estate all other		10,123		(71	)		95		24			274			10,421
Commercial and financial:
Non-consumer non-real estate		15,069		(343	)		7		(336	)		(337	)		14,396
Consumer non-real estate		2,839		(294	)		70		(224	)		298			2,913
Other loans		2,328		—			6		6			88			2,422
Acquired loans		1,403		(337	)		6		(331	)		266			1,338
Total	$	52,200	$	(1,271	)	$	199	$	(1,072	)	$	747		$	51,875


Nine Months Ended September 30, 2018
Real estate:
Non-residential real estate owner occupied	$	6,195	$	(198	)	$	16	$	(182	)	$	413		$	6,426
Non-residential real estate other		10,519		(9	)		39		30			99			10,648
Residential real estate permanent mortgage		3,226		(101	)		26		(75	)		160			3,311
Residential real estate all other		9,672		(312	)		101		(211	)		960			10,421
Commercial and financial:
Non-consumer non-real estate		15,334		(652	)		30		(622	)		(316	)		14,396
Consumer non-real estate		2,793		(738	)		194		(544	)		664			2,913
Other loans		2,481		(2	)		30		28			(87	)		2,422
Acquired loans		1,446		(530	)		29		(501	)		393			1,338
Total	$	51,666	$	(2,542	)	$	465	$	(2,077	)	$	2,286		$	51,875

	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, 2017
Real estate:
Non-residential real estate owner occupied	$	5,685	$	(2	)	$	1	$	(1	)	$	261		$	5,945
Non-residential real estate other		10,480		—			1		1			70			10,551
Residential real estate permanent mortgage		3,148		(90	)		9		(81	)		91			3,158
Residential real estate all other		8,912		(89	)		13		(76	)		503			9,339
Commercial and financial:
Non-consumer non-real estate		13,643		(538	)		24		(514	)		1,838			14,967
Consumer non-real estate		2,706		(238	)		57		(181	)		207			2,732
Other loans		3,006		(47	)		—		(47	)		153			3,112
Acquired loans		1,425		(134	)		7		(127	)		153			1,451
Total	$	49,005	$	(1,138	)	$	112	$	(1,026	)	$	3,276		$	51,255


Nine Months Ended September 30, 2017
Real estate:
Non-residential real estate owner occupied	$	5,602	$	(74	)	$	5	$	(69	)	$	412		$	5,945
Non-residential real estate other		10,793		(26	)		3		(23	)		(219	)		10,551
Residential real estate permanent mortgage		3,129		(246	)		20		(226	)		255			3,158
Residential real estate all other		8,622		(162	)		30		(132	)		849			9,339
Commercial and financial:
Non-consumer non-real estate		12,421		(1,215	)		986		(229	)		2,775			14,967
Consumer non-real estate		2,804		(706	)		140		(566	)		494			2,732
Other loans		4,045		(1,321	)		22		(1,299	)		366			3,112
Acquired loans		1,277		(148	)		65		(83	)		257			1,451
Total	$	48,693	$	(3,898	)	$	1,271	$	(2,627	)	$	5,189		$	51,255

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
	September 30, 2018				December 31, 2017

	Individually evaluated for impairment		Collectively evaluated for impairment		Individually evaluated for impairment		Collectively evaluated for impairment
	(Dollars in thousands)
Real estate:
Non-residential real estate owner occupied.	$	891	$	5,535	$	656	$	5,539
Non-residential real estate other		978		9,670		751		9,768
Residential real estate permanent mortgage		570		2,741		483		2,743
Residential real estate all other		3,263		7,158		2,761		6,911
Commercial and financial:
Non-consumer non-real estate		3,486		10,910		4,651		10,683
Consumer non-real estate		346		2,567		429		2,364
Other loans		44		2,378		133		2,348
Acquired loans		—		1,338		12		1,434
Total	$	9,578	$	42,297	$	9,876	$	41,790

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
	September 30, 2018						December 31, 2017
	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)
Real estate:
Non-residential real estate owner occupied	$	20,813	$	609,609	$	—	$	15,281	$	626,337	$	—
Non-residential real estate other		22,363		1,095,087		—		17,013		1,109,578		—
Residential real estate permanent mortgage		9,779		318,647		—		8,100		322,234		—
Residential real estate all other		20,620		797,264		—		15,052		770,603		—
Commercial and financial:
Non-consumer non-real estate		20,664		1,249,416		—		31,349		1,253,056		—
Consumer non-real estate		2,958		317,474		—		2,600		286,320		—
Other loans		130		143,075		—		764		143,681		—
Acquired loans		23,916		288,131		7,582		14,464		100,106		5,457
Total	$	121,243	$	4,818,703	$	7,582	$	104,623	$	4,611,915	$	5,457

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,
	2018		2017
	(Dollars in thousands)
Other real estate owned	$	2,944	$	1,906
Repossessed assets		842		887
Total	$	3,786	$	2,793