
	March 31, 2020		December 31, 2019

	(Dollars in thousands)
Commercial	$	1,355,723	$	1,356,817
Energy	398,797		408,573
Commercial real estate	1,084,684		1,024,041
Construction and land development	625,145		628,418
Residential real estate	503,702		398,695



Consumer	43,118		45,163
Gross loans	4,011,169		3,861,707
Less: Allowance for loan losses	51,458		56,896
Less: Net deferred loan fees and costs	8,718		9,463
Net loans	$	3,950,993	$	3,795,348

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the loan balance is not collectible. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of its ability to collect the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The following tables summarize the activity in the allowance for loan losses by portfolio segment and disaggregated based on the Company’s impairment methodology. The allocation in one portfolio segment does not preclude its availability to absorb losses in other segments:


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		Consumer		Total
	(Dollars in thousands)
Three months ended March 31, 2020
Allowance for loan losses
Beginning balance	$	35,864	$	6,565	$	8,085	$	3,516	$	2,546	320		$	56,896
Provision charged to expense	3,271		2,313		4,538		1,505		2,141		182		13,950
Charge-offs	(18,077)		(1,279)		—		—		—		(104)		(19,460)
Recoveries	71		—		—		—		—		1		72
Ending balance	$	21,129	$	7,599	$	12,623	$	5,021	$	4,687	$	399	$	51,458


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		Consumer		Total
	(Dollars in thousands)
Three months ended March 31, 2019
Allowance for loan losses
Beginning balance	$	16,584	$	10,262	$	6,755	$	2,475	$	1,464	$	286	$	37,826
Provision charged to expense	5,163		(3,748)		716		110		583		26		2,850
Charge-offs	(1,254)		—		—		—		—		(10)		(1,264)
Recoveries	13		576		—		—		—		—		589
Ending balance	$	20,506	$	7,090	$	7,471	$	2,585	$	2,047	$	302	$	40,001


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		Consumer		Total
	(Dollars in thousands)
March 31, 2020
Ending balance
Individually evaluated for impairment	$	3,228	$	1,224	$	1,449	$	—	$	189	$	—	$	6,090
Collectively evaluated for impairment	$	17,901	$	6,375	$	11,174	$	5,021	$	4,498	$	399	$	45,368


Allocated to loans:
Individually evaluated for impairment	$	71,983	$	15,703	$	14,840	$	—	$	5,654	$	254	$	108,434
Collectively evaluated for impairment	$	1,283,740	$	383,094	$	1,069,844	$	625,145	$	498,048	$	42,864	$	3,902,735
Ending balance	$	1,355,723	$	398,797	$	1,084,684	$	625,145	$	503,702	$	43,118	$	4,011,169

The Company analyzes its loan portfolio based on an internal rating category (grades 1 - 8), portfolio segment and payment activity. These categories are utilized to develop the associated allowance for loan losses. A description of the loan grades and segments follows:

•Pass & Watch (risk rating 1 - 4) - Considered satisfactory. Includes borrowers that generally maintain good liquidity and financial condition or the credit is currently protected with sales trends remaining flat or declining. Most ratios compare favorably with industry norms and Company policies. Debt is programmed and timely repayment is expected.

•Special Mention (risk rating 5) - Borrowers generally exhibit adverse trends in operations or an imbalanced position in their balance sheet that has not reached a point where repayment is jeopardized. Credits are currently protected but, if left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the credit or in the Company’s credit or lien position at a future date. These credits are not adversely classified and do not expose the Company to enough risk to warrant adverse classification.

•Substandard (risk rating 6) - Credits generally exhibit a well-defined weaknesses that jeopardize repayment. Credits are inadequately protected by the current worth and paying capacity of the obligor or of the collateral pledged. A distinct possibility exists that the Company will sustain some loss if deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard.

•Doubtful (risk rating 7) - Credits which exhibit weaknesses inherent in a substandard credit with the added characteristic that these weaknesses make collection or liquidation in full highly questionable and improbable based on existing facts, conditions and values. Because of reasonably specific pending factors, which may work to the advantage and strengthening of the assets, classification as a loss is deferred until its more exact status may be determined.

•Commercial - Includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. Repayment is primarily from the cash flow of a borrower’s principal business operation. Credit risk is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

•Energy - Includes loans to oil and natural gas customers for use in financing working capital needs, exploration and production activities, and acquisitions. The loans are repaid primarily from the conversion of crude oil and natural gas to cash. Credit risk is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations. Energy loans are typically collateralized with the underlying oil and gas reserves.

•Commercial Real Estate - Loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk may be impacted by the creditworthiness of a borrower, property values and the local economies in the borrower’s market areas.

•Construction and Land Development - Loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk may be impacted by the creditworthiness of a borrower, property values and the local economies in the borrower’s market areas.

•Residential Real Estate - The loans are generally secured by owner-occupied 1-4 family residences or multifamily properties. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers or underlying tenants. Credit risk in these loans can be impacted by economic conditions within or outside the borrower’s market areas that might impact either property values, a borrower’s personal income, or residents’ income.

•Consumer - The loan portfolio consists of revolving lines of credit and various term loans such as automobile loans and loans for other personal purposes. Repayment is primarily dependent on the personal income and credit rating of the borrowers. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the borrower’s market area) and the creditworthiness of a borrower.

The following tables present the credit risk profile of the Company’s loan portfolio based on an internal rating category (grades 1 - 8), portfolio segment and payment activity:


	Pass & Watch		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
March 31, 2020
Commercial	$	1,234,385	$	49,459	$	71,879	$	—	$	—	$	1,355,723
Energy	370,614		12,628		12,294		3,261		—		398,797
Commercial real estate	1,058,543		14,985		10,329		827		—		1,084,684
Construction and land development	625,145		—		—		—		—		625,145
Residential real estate	496,236		1,791		5,675		—		—		503,702



Consumer	42,864		—		254		—		—		43,118
	$	3,827,787	$	78,863	$	100,431	$	4,088	$	—	$	4,011,169


	Pass & Watch		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
December 31, 2019
Commercial	$	1,258,952	$	27,069	$	70,796	$	—	$	—	$	1,356,817
Energy	392,233		9,460		2,340		4,540		—		408,573
Commercial real estate	1,007,921		9,311		5,866		943		—		1,024,041
Construction and land development	628,418		—		—		—		—		628,418
Residential real estate	394,495		1,789		2,411		—		—		398,695



Consumer	45,163		—		—		—		—		45,163
	$	3,727,182	$	47,629	$	81,413	$	5,483	$	—	$	3,861,707

The Company evaluates the loan risk grading system definitions, portfolio segment definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made during the past year.


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Loans Receivable		Loans >= 90 Days and Accruing
	(Dollars in thousands)
March 31, 2020
Commercial	$	5,135	$	469	$	10,062	$	15,666	$	1,340,057	$	1,355,723	$	—
Energy	—		5,612		3,314		8,926		389,871		398,797		—
Commercial real estate	4,092		—		4,586		8,678		1,076,006		1,084,684		—
Construction and land development	—		—		—		—		625,145		625,145		—
Residential real estate	3,707		269		1,920		5,896		497,806		503,702		—



Consumer	—		254		—		254		42,864		43,118		—
	$	12,934	$	6,604	$	19,882	$	39,420	$	3,971,749	$	4,011,169	$	—


	30-59 Days Past Due		60-89 Days Past Due		90 Days or More		Total Past Due		Current		Total Loans Receivable		Loans >= 90 Days and Accruing
	(Dollars in thousands)
December 31, 2019
Commercial	$	1,091	$	276	$	30,911	$	32,278	$	1,324,539	$	1,356,817	$	37
Energy	2,340		—		4,593		6,933		401,640		408,573		53
Commercial real estate	316		—		4,589		4,905		1,019,136		1,024,041		4,501
Construction and land development	196		—		—		196		628,222		628,418		—
Residential real estate	2,347		—		1,919		4,266		394,429		398,695		—

Consumer	2		254		—		256		44,907		45,163		—
	$	6,292	$	530	$	42,012	$	48,834	$	3,812,873	$	3,861,707	$	4,591

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. The intent of concessions is to maximize collection.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.


			Unpaid
	Recorded Balance		Principal Balance		Specific Allowance
	(Dollars in thousands)
March 31, 2020
Loans without a specific valuation
Commercial	$	60,048	$	60,077	$	—
Energy	3,462		7,741		—
Commercial real estate	8,492		8,622		—
Construction and land development	—		—		—
Residential real estate	5,409		5,430		—



Consumer	254		254		—
Loans with a specific valuation
Commercial	11,935		23,341		3,228
Energy	12,241		12,241		1,224
Commercial real estate	6,348		6,474		1,449
Construction and land development	—		—		—
Residential real estate	245		244		189



Consumer	—		—		—


Total
Commercial	71,983		83,418		3,228
Energy	15,703		19,982		1,224
Commercial real estate	14,840		15,096		1,449
Construction and land development	—		—		—
Residential real estate	5,654		5,674		189



Consumer	254		254		—
	$	108,434	$	124,424	$	6,090

The table below shows interest income recognized during the three month periods ended March 31, 2020 and March 31, 2019 for impaired loans held at the end of each period:


	Three months ended
	March 31,
	2020		2019
	(Dollars in thousands)
Commercial	$	910	$	1,285
Energy	122		152
Commercial real estate	123		254
Construction and land development	—		—
Residential real estate	40		11



Consumer	—		—
Total interest income recognized	$	1,195	$	1,702

The table below shows the three month average balance of impaired loans as of March 31, 2020 and 2019 by loan category for impaired loans held at the end of each period:


	Three months ended
	March 31,
	2020		2019
	(Dollars in thousands)
Commercial	$	86,626	$	77,698
Energy	16,976		15,986
Commercial real estate	14,927		14,073
Construction and land development	—		—
Residential real estate	5,230		2,157

Consumer	254		—
Total average impaired loans	$	124,013	$	109,914

Nonperforming loans are loans for which the Company does not record interest income. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date, if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following table presents the Company’s non-accrual loans by loan category at March 31, 2020 and December 31, 2019:



	March 31, 2020		December 31, 2019
	(Dollars in thousands)

Commercial	$	10,352	$	32,130
Energy	8,265		4,540
Commercial real estate	5,443		1,063
Construction and land development	—		—
Residential real estate	1,941		1,942

Consumer	254		—
Total non-accrual loans	$	26,255	$	39,675

Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. The modification of terms typically includes the extension of maturity, reduction or deferment of monthly payment, or reduction of the stated interest rate.

The table below presents loans restructured, excluding loans restructured as a result of the COVID-19 pandemic, during the three months ended March 31, 2020 and 2019, including the post-modification outstanding balance and the type of concession made:


	Three Months Ended
	March 31, 2020		March 31, 2019
	(Dollars in thousands)
Commercial
- Interest rate reduction	$	3,171	$	—
- Reduction of monthly payment	—		4,761

Energy
- Extension of maturity date	2,340		—









Total troubled debt restructurings	$	5,511	$	4,761

As of March 31, 2020 and December 31, 2019, the Company had $556 thousand and $934 thousand, respectively, in unfunded commitments to borrowers whose terms have been modified in troubled debt restructurings. As of March 31, 2020, the modifications related to the troubled debt restructurings above did not impact the allowance for loan losses because the loans were previously impaired and evaluated on an individual basis or enough collateral was obtained to provide an additional commitment.

The balance of restructured loans, excluding loans restructured as a result of the COVID-19 pandemic, is provided below as of March 31, 2020 and December 31, 2019. In addition, the balance of those loans that are in default at any time during the past twelve months at March 31, 2020 and December 31, 2019 is provided below:



	March 31, 2020								December 31, 2019
	Number of Loans	Outstanding Balance		Balance 90 days past due at any time during previous 12 months⁽¹⁾		Number of Loans	Outstanding Balance		Balance 90 days past due at any time during previous 12 months⁽¹⁾
	(Dollars in thousands)
Commercial	6	$	9,966	$	842	7	$	31,770	$	831
Energy	3	5,100		—		2	2,864		—
Commercial real estate	3	4,772		—		3	4,909		—
Construction and land development	—	—		—		—	—		—
Residential real estate	1	3,000		—		—	—		—

Consumer	—	—		—		—	—		—
Total restructured loans	13	$	22,838	$	842	12	$	39,543	$	831
⁽¹⁾ Default is considered to mean 90 days or more past due as to interest or principal.