
	September 30, 2020		December 31, 2019

	(Dollars in thousands)
Commercial	$	1,291,572	$	1,356,817
Energy	384,181		408,573
Commercial real estate	1,195,631		1,024,041
Construction and land development	587,617		628,418
Residential real estate	618,082		398,695
Paycheck Protection Program (“PPP”)	369,260		—


Consumer	46,771		45,163
Gross loans	4,493,114		3,861,707
Less: Allowance for loan losses	76,035		56,896
Less: Net deferred loan fees and costs	15,305		9,463
Net loans	$	4,401,774	$	3,795,348

The ALLL 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 ALLL 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 ALLL consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers all loans on accrual and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process and loan categories. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

The Company evaluates the loan risk grading system definitions, portfolio segment definitions, and ALLL methodology on an ongoing basis. Starting with the quarter ended June 30, 2020, the Company distinguished between performing and nonperforming substandard loans, as previously discussed in “Note 1: Nature of Operations and Summary of Significant Accounting Policies”. In addition, the Company separated PPP loans that are 100% guaranteed by the Small Business Administration (“SBA”). No additional changes to loan definitions, segmentation, and ALLL methodology occurred during the third quarter of 2020.

The following tables summarize the activity in the ALLL 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		PPP		Consumer		Total
	(Dollars in thousands)
Three months ended September 30, 2020
Allowance for loan losses
Beginning balance	$	26,543	$	17,372	$	16,899	$	5,019	$	4,868	$	—	$	484	$	71,185
Provision charged to expense	7,439		2,168		908		(530)		882		—		8		10,875
Charge-offs	(5,781)		—		—		—		(256)		—		—		(6,037)
Recoveries	2		—		—		—		—		—		10		12
Ending balance	$	28,203	$	19,540	$	17,807	$	4,489	$	5,494	$	—	$	502	$	76,035


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
Three months ended September 30, 2019
Allowance for loan losses
Beginning balance	$	22,975	$	7,300	$	7,533	$	2,602	$	2,138	$	—	$	304	$	42,852
Provision charged to expense	3,535		1,077		(249)		414		82		—		(9)		4,850
Charge-offs	(1,700)		(3,000)		—		—		—		—		(8)		(4,708)
Recoveries	1		—		—		—		—		—		—		1
Ending balance	$	24,811	$	5,377	$	7,284	$	3,016	$	2,220	$	—	$	287	$	42,995


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
Nine months ended September 30, 2020
Allowance for loan losses
Beginning balance	$	35,864	$	6,565	$	8,085	$	3,516	$	2,546	$	—	$	320	$	56,896
Provision charged to expense	16,210		15,253		9,722		973		3,393		—		274		45,825
Charge-offs	(23,946)		(2,278)		—		—		(445)		—		(104)		(26,773)
Recoveries	75		—		—		—		—		—		12		87
Ending balance	$	28,203	$	19,540	$	17,807	$	4,489	$	5,494	$	—	$	502	$	76,035


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
Nine months ended September 30, 2019
Allowance for loan losses
Beginning balance	$	16,584	$	10,262	$	6,755	$	2,475	$	1,464	$	—	$	286	$	37,826
Provision charged to expense	11,166		(2,461)		529		541		756		—		$	19	10,550
Charge-offs	(2,954)		(3,000)		—		—		—		—		(19)		(5,973)
Recoveries	15		576		—		—		—		—		1		592
Ending balance	$	24,811	$	5,377	$	7,284	$	3,016	$	2,220	$	—	$	287	$	42,995


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
September 30, 2020
Period end allowance for loan losses allocated to:
Individually evaluated for impairment	$	2,432	$	2,540	$	1,525	$	—	$	—	$	—	$	—	$	6,497
Collectively evaluated for impairment	$	25,771	$	17,000	$	16,282	$	4,489	$	5,494	$	—	$	502	$	69,538
Ending balance	$	28,203	$	19,540	$	17,807	$	4,489	$	5,494	$	—	$	502	$	76,035

Allocated to loans:
Individually evaluated for impairment	$	38,589	$	21,318	$	17,035	$	—	$	6,406	$	—	$	246	$	83,594
Collectively evaluated for impairment	$	1,252,983	$	362,863	$	1,178,596	$	587,617	$	611,676	$	369,260	$	46,525	$	4,409,520
Ending balance	$	1,291,572	$	384,181	$	1,195,631	$	587,617	$	618,082	$	369,260	$	46,771	$	4,493,114


	Commercial		Energy		Commercial Real Estate		Construction and Land Development		Residential Real Estate		PPP		Consumer		Total
	(Dollars in thousands)
December 31, 2019
Period end allowance for loan losses allocated to:
Individually evaluated for impairment	$	19,942	$	1,949	$	210	$	—	$	197	$	—	$	—	$	22,298
Collectively evaluated for impairment	$	15,922	$	4,616	$	7,875	$	3,516	$	2,349	$	—	$	320	$	34,598
Ending balance	$	35,864	$	6,565	$	8,085	$	3,516	$	2,546	$	—	$	320	$	56,896
Allocated to loans:
Individually evaluated for impairment	$	70,876	9,744		$	10,492	$	—	$	2,388	$	—	$	—	$	93,500
Collectively evaluated for impairment	$	1,285,941	$	398,829	$	1,013,549	$	628,418	$	396,307	$	—	$	45,163	$	3,768,207
Ending balance	$	1,356,817	$	408,573	$	1,024,041	$	628,418	$	398,695	$	—	$	45,163	$	3,861,707

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

•Pass (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 well-defined weakness(es) 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. Substandard loans include both performing and nonperforming loans and are broken out in the table below.

•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 or 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, 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.

•PPP - The loans were established by the CARES Act which authorized forgivable loans to small businesses to pay their employees during the COVID-19 pandemic. The program requires all loan terms to be the same for everyone. The loans

•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 internal rating categories (grades 1 - 8), portfolio segmentation, and payment activity:



	Pass		Special Mention		Substandard Performing		Substandard Nonperforming		Doubtful		Loss		Total
	(Dollars in thousands)
September 30, 2020
Commercial	$	1,106,338	$	71,746	$	75,714	$	34,528	$	3,246	$	—	$	1,291,572
Energy	186,881		58,726		117,389		17,435		3,750		—		384,181
Commercial real estate	1,114,802		41,030		26,624		12,377		798		—		1,195,631
Construction and land development	581,160		5,299		1,158		—		—		—		587,617
Residential real estate	610,909		527		3,467		3,179		—		—		618,082
PPP	369,260		—		—		—		—		—		369,260


Consumer	46,525		—		—		246		—		—		46,771
	$	4,015,875	$	177,328	$	224,352	$	67,765	$	7,794	$	—	$	4,493,114



	Pass		Special Mention		Substandard Performing		Substandard Nonperforming		Doubtful		Loss		Total
	(Dollars in thousands)
December 31, 2019
Commercial	$	1,258,952	$	27,069	$	38,666	$	32,130	$	—	$	—	$	1,356,817
Energy	392,233		9,460		2,340		—		4,540		—		408,573
Commercial real estate	1,007,921		9,311		5,746		120		943		—		1,024,041
Construction and land development	628,418		—		—		—		—		—		628,418
Residential real estate	394,495		1,789		469		1,942		—		—		398,695
PPP	—		—		—		—		—		—		—


Consumer	45,163		—		—		—		—		—		45,163
	$	3,727,182	$	47,629	$	47,221	$	34,192	$	5,483	$	—	$	3,861,707


	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)
September 30, 2020
Commercial	$	12,274	$	28,487	$	6,641	$	47,402	$	1,244,170	$	1,291,572	$	1,141
Energy	—		1,540		3,055		4,595		379,586		384,181		—
Commercial real estate	1,459		—		4,475		5,934		1,189,697		1,195,631		—
Construction and land development	—		—		—		—		587,617		587,617		—
Residential real estate	1,591		—		6,124		7,715		610,367		618,082		3,183
PPP	—		—		—		—		369,260		369,260		—


Consumer	—		—		—		—		46,771		46,771		—
	$	15,324	$	30,027	$	20,295	$	65,646	$	4,427,468	$	4,493,114	$	4,324


	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		—
PPP	—		—		—		—		—		—		—
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. The following tables present loans individually evaluated for impairment, including all restructured and formerly restructured loans, for the periods ended September 30, 2020 and December 31, 2019:


			Unpaid
	Recorded Balance		Principal Balance		Specific Allowance
	(Dollars in thousands)
September 30, 2020
Loans without a specific valuation
Commercial	$	29,439	$	35,220	$	—
Energy	—		—		—
Commercial real estate	4,628		4,628		—
Construction and land development	—		—		—
Residential real estate	6,406		6,662		—
PPP	—		—		—


Consumer	246		246		—
Loans with a specific valuation
Commercial	9,150		20,538		2,432
Energy	21,318		26,597		2,540
Commercial real estate	12,407		13,206		1,525
Construction and land development	—		—		—
Residential real estate	—		—		—
PPP	—		—		—


Consumer	—		—		—


Total
Commercial	38,589		55,758		2,432
Energy	21,318		26,597		2,540
Commercial real estate	17,035		17,834		1,525
Construction and land development	—		—		—
Residential real estate	6,406		6,662		—
PPP	—		—		—


Consumer	246		246		—
	$	83,594	$	107,097	$	6,497

The table below shows interest income recognized during the three and nine month periods ended September 30, 2020 and 2019 for impaired loans, including all restructured and formerly restructured loans, held at the end of each period:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(Dollars in thousands)
Commercial	$	12	$	386	$	841	$	862
Energy	2		98		257		324
Commercial real estate	58		200		346		613
Construction and land development	—		—		—		—
Residential real estate	36		8		108		17
PPP	—		—		—		—


Consumer	—		—		—		—
Total interest income recognized	$	108	$	692	$	1,552	$	1,816

The table below shows the three and nine month average balance of impaired loans for the periods ended September 30, 2020 and 2019 by loan category for impaired loans, including all restructured and formerly restructured loans, held at the end of each period:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(Dollars in thousands)
Commercial	$	45,482	$	54,410	$	49,538	$	49,265
Energy	21,396		13,623		23,220		15,091
Commercial real estate	17,937		16,690		18,132		16,528
Construction and land development	—		—		—		—
Residential real estate	6,419		2,538		6,304		2,354
PPP	—		—		—		—
Consumer	248		—		253		—
Total average impaired loans	$	91,482	$	87,261	$	97,447	$	83,238

Non-accrual loans are loans for which the Company does not record interest income. The accrual of interest on 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 September 30, 2020 and December 31, 2019:



	September 30, 2020		December 31, 2019
	(Dollars in thousands)
Commercial	$	37,774	$	32,130
Energy	21,185		4,540
Commercial real estate	13,176		1,063
Construction and land development	—		—
Residential real estate	3,179		1,942
PPP	—		—
Consumer	246		—
Total non-accrual loans	$	75,560	$	39,675

Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession, excluding loan modifications as a result of the COVID-19 pandemic. The modification of terms typically includes the extension of maturity, reduction or deferment of monthly payment, or reduction of the stated interest rate.

For the three and nine-month periods ended September 30, 2020, the modifications related to the TDRs below did not impact the ALLL because the loans were previously impaired and evaluated on an individual basis or enough collateral was obtained.

The table below presents loans restructured, excluding loans restructured as a result of the COVID-19 pandemic, during the three and nine months ended September 30, 2020 and 2019, including the post-modification outstanding balance and the type of concession made:


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2020		2019		2020		2019
	(Dollars in thousands)
Commercial
- Interest rate reduction	$	—	$	—	$	3,171	$	—
- Reduction of monthly payment	—		—		—		994
- Extension of maturity date	—		—		—		30,005
Energy
- Extension of maturity date	—		—		2,340		—
Commercial real estate

- Reduction of monthly payment	—		—		—		3,767


Residential real estate
- Payment deferral	—		—		65		—



Total troubled debt restructurings	$	—	$	—	$	5,576	$	34,766

The balance of restructured loans, excluding loans restructured as a result of the COVID-19 pandemic, is provided below as of September 30, 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 September 30, 2020 and December 31, 2019 is provided below:



	September 30, 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	$	7,895	$	3,762	7	$	31,770	$	831
Energy	3	3,373		2,713		2	2,864		—
Commercial real estate	3	4,683		—		3	4,909		—
Construction and land development	—	—		—		—	—		—
Residential real estate	2	3,247		45		—	—		—
PPP	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total troubled debt restructured loans	14	$	19,198	$	6,520	12	$	39,543	$	831
(1) Default is considered to mean 90 days or more past due as to interest or principal.