Loans Held for Investment and Allowance for Credit Losses on Loans

3 Months Ended

Mar. 31, 2022

Receivables [Abstract]

Loans Held for Investment and Allowance for Credit Losses on Loans

(4) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

Loans held for investment are summarized by portfolio segment as follows:

	March 31, 2022		December 31, 2021
	(Dollars in thousands)
Real estate:
Commercial real estate owner occupied	$	784,619	$	684,739
Commercial real estate non-owner occupied		1,160,506		1,095,324
Construction and development < 60 months		458,859		415,466
Construction residential real estate < 60 months		282,027		254,524
Residential real estate first lien		1,032,732		937,006
Residential real estate all other		160,843		161,018
Farmland		276,465		272,179
Commercial and agricultural non-real estate		1,291,627		1,256,487
Consumer non-real estate		419,490		413,370
Oil and gas		427,792		428,908
Other loans (2)		199,380		250,421
Total (1)	$	6,494,340	$	6,169,442
(1) Excludes accrued interest receivable of $22.1 million at March 31, 2022 and $21.0 million at December 31, 2021, that is recorded in accrued interest receivable and other assets.
(2) Includes PPP loans held for investment of $30.6 million, net of unamortized processing fees of $394,000, at March 31, 2022 and $80.4 million, net of unamortized processing fees of $2.0 million, at December 31, 2021.

Other loans. Other loans consist of loans approved by the Small Business Administration (“SBA”), which include loans funded through the Paycheck Protection Program (“PPP”). Since PPP loans are fully guaranteed by the SBA, there is no expected credit loss related to these loans. In April 2020, the Company began originating loans to qualified small businesses under the PPP administered by the SBA. The Company had processing fees, which were recognized as interest income related to the PPP loans totaling $1.7 million and $9.8 million during the three months ended March 31, 2022 and 2021, respectively.

The Company's loans are currently 84% held by BancFirst and 16% held by Pegasus and Worthington. In addition, approximately 64% of the Company's 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.

Accounting policies related to appraisals, and charge-offs are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company's portfolio segment descriptions and the weighted average remaining life of portfolio segments are disclosed in Note (5) to the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Troubled Debt Restructurings, Other Real Estate Owned and Repossessed Assets and Held for Sale Assets

The following is a summary of troubled debt restructurings and other real estate owned and repossessed assets:

	March 31, 2022		December 31, 2021
	(Dollars in thousands)
Troubled debt restructurings	$	2,345	$	3,665
Other real estate owned and repossessed assets	$	39,729	$	39,553

The Company charges interest on principal balances outstanding on troubled debt restructurings during deferral periods. The current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings were not considered to be material.

Other real estate owned includes approximately $2.4 million related to the Company's previous headquarters. As of both March 31, 2022 and December 31, 2021, other real estate owned included a single commercial real estate property recorded at approximately $29.5 million.

During the three months ended March 31, 2022, the Company sold property held in other real estate owned for a total gain of $726,000, compared to a total loss of $55,000 in the three months ended March 31, 2021.

Nonaccrual loans

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $376,000 for the three months ended March 31, 2022 and approximately $521,000 for the three months ended March 31, 2021.

Nonaccrual loans guaranteed by government agencies totaled approximately $3.4 million at March 31, 2022 and approximately $3.3 million at December 31, 2021.

The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment.

	March 31, 2022		December 31, 2021
	(Dollars in thousands)
Real estate:
Commercial real estate owner occupied	$	3,112	$	2,900
Commercial real estate non-owner occupied		407		407
Construction and development < 60 months		104		80
Construction residential real estate < 60 months		—		—
Residential real estate first lien		2,391		2,763
Residential real estate all other		133		280
Farmland		4,059		4,224
Commercial and agricultural non-real estate		5,956		7,569
Consumer non-real estate		111		148
Oil and gas		—		1,070
Other loans		1,180		1,451
Total	$	17,453	$	20,892

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 the Company's loans held for investment:

	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 March 31, 2022
Real estate:
Commercial real estate owner occupied	$	731	$	4	$	1,621	$	2,356	$	782,263	$	784,619	$	—
Commercial real estate non-owner occupied		962		407		—		1,369		1,159,137		1,160,506		—
Construction and development < 60 months		106		—		—		106		458,753		458,859		—
Construction residential real estate < 60 months		97		—		—		97		281,930		282,027		—
Residential real estate first lien		3,815		744		2,177		6,736		1,025,996		1,032,732		1,369
Residential real estate all other		350		102		579		1,031		159,812		160,843		559
Farmland		595		433		3,245		4,273		272,192		276,465		37
Commercial and agricultural non-real estate		6,486		2,994		2,891		12,371		1,279,256		1,291,627		214
Consumer non-real estate		2,377		416		387		3,180		416,310		419,490		353
Oil and gas		1,068		83		—		1,151		426,641		427,792		—
Other loans		1,247		1,207		3,836		6,290		193,090		199,380		3,828
Total	$	17,834	$	6,390	$	14,736	$	38,960	$	6,455,380	$	6,494,340	$	6,360
As of December 31, 2021
Real estate:
Commercial real estate owner occupied	$	972	$	223	$	1,363	$	2,558	$	682,181	$	684,739	$	18
Commercial real estate non-owner occupied		7,244		—		—		7,244		1,088,080		1,095,324		—
Construction and development < 60 months		136		—		—		136		415,330		415,466		—
Construction residential real estate < 60 months		2,264		—		—		2,264		252,260		254,524		—
Residential real estate first lien		3,351		567		2,817		6,735		930,271		937,006		1,704
Residential real estate all other		293		30		451		774		160,244		161,018		431
Farmland		253		37		2,077		2,367		269,812		272,179		139
Commercial and agricultural non-real estate		1,807		199		4,574		6,580		1,249,907		1,256,487		124
Consumer non-real estate		1,873		321		272		2,466		410,904		413,370		254
Oil and gas		—		—		—		—		428,908		428,908		—
Other loans		1,773		347		2,646		4,766		245,655		250,421		2,294
Total	$	19,966	$	1,724	$	14,200	$	35,890	$	6,133,552	$	6,169,442	$	4,964

Credit Quality Indicators

The Company considers credit quality indicators to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical credit loss experience and economic conditions. These indicators are reviewed and updated regularly throughout the year. 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 and the table summarizing the Company’s gross loans held for investment by year of origination and internally assigned credit grades as of December 31, 2021, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The Company’s revolving loans that are converted to term loans are not material and therefore have not been presented.

The following table summarizes the Company’s gross loans held for investment by year of origination and internally assigned credit grades :

	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
	(Dollars in thousands)
As of March 31, 2022
Commercial real estate owner occupied
Grade 1	$	53,454	$	130,071	$	115,334	$	94,782	$	49,997	$	120,371	$	24,862	$	588,871
Grade 2		39,504		39,029		33,297		22,802		9,986		35,244		10,657		190,519
Grade 3		—		42		459		601		258		541		212		2,113
Grade 4		—		303		591		870		200		845		307		3,116
Total commercial real estate owner occupied		92,958		169,445		149,681		119,055		60,441		157,001		36,038		784,619
Commercial real estate non-owner occupied
Grade 1		27,931		258,527		208,346		116,081		51,072		118,840		37,306		818,103
Grade 2		18,461		52,282		46,895		50,872		42,738		88,046		29,259		328,553
Grade 3		7,063		—		—		3,206		107		2,828		—		13,204
Grade 4		—		407		—		—		207		32		—		646
Total commercial real estate non-owner occupied		53,455		311,216		255,241		170,159		94,124		209,746		66,565		1,160,506
Construction and development < 60 months
Grade 1		53,028		162,575		39,428		42,116		3,719		6,572		35,506		342,944
Grade 2		14,386		32,079		4,323		13,028		1,825		1,314		44,553		111,508
Grade 3		1,198		3,000		105		—		—		—		—		4,303
Grade 4		—		—		33		54		—		17		—		104
Total construction and development < 60 months		68,612		197,654		43,889		55,198		5,544		7,903		80,059		458,859
Construction residential real estate < 60 months
Grade 1		54,418		159,373		4,522		33		—		46		26,274		244,666
Grade 2		8,528		23,471		473		—		—		419		3,957		36,848
Grade 3		410		103		—		—		—		—		—		513
Total construction residential real estate < 60 months		63,356		182,947		4,995		33		—		465		30,231		282,027
Residential real estate first lien
Grade 1		82,439		255,075		172,583		102,582		65,952		174,331		7,895		860,857
Grade 2		11,906		41,467		28,275		15,303		12,622		46,039		—		155,612
Grade 3		1,293		1,506		886		1,839		1,936		4,688		—		12,148
Grade 4		—		131		239		418		983		2,344		—		4,115
Total residential real estate first lien		95,638		298,179		201,983		120,142		81,493		227,402		7,895		1,032,732
Residential real estate all other
Grade 1		5,357		15,974		13,307		7,665		4,976		14,588		31,325		93,192
Grade 2		933		2,028		2,342		1,895		1,470		3,044		52,937		64,649
Grade 3		40		304		95		88		254		946		559		2,286
Grade 4		—		13		178		—		38		101		386		716
Total residential real estate all other		6,330		18,319		15,922		9,648		6,738		18,679		85,207		160,843
Farmland
Grade 1		15,574		44,160		35,899		23,593		12,282		36,405		5,763		173,676
Grade 2		4,505		16,679		7,874		22,007		6,381		16,671		13,102		87,219
Grade 3		1,346		2,896		1,862		1,873		70		2,704		1,880		12,631
Grade 4		—		1,125		379		—		979		224		232		2,939
Total farmland		21,425		64,860		46,014		47,473		19,712		56,004		20,977		276,465
Commercial and agricultural non-real estate
Grade 1		77,553		296,814		93,424		75,665		20,679		67,573		315,085		946,793
Grade 2		17,955		75,007		30,905		20,516		27,531		12,032		138,823		322,769
Grade 3		1,562		2,516		1,717		1,136		2,259		1,105		7,479		17,774
Grade 4		358		799		266		947		509		1,171		241		4,291
Total commercial and agricultural non-real estate		97,428		375,136		126,312		98,264		50,978		81,881		461,628		1,291,627
Consumer non-real estate
Grade 1		55,988		175,287		67,276		36,818		13,972		5,867		21,964		377,172
Grade 2		6,002		16,755		6,569		4,973		1,806		2,179		1,749		40,033
Grade 3		136		636		299		364		129		103		3		1,670
Grade 4		51		143		84		224		110		3		—		615
Total consumer non-real estate		62,177		192,821		74,228		42,379		16,017		8,152		23,716		419,490
Oil and gas
Grade 1		91,575		122,401		32,400		8,174		1,174		110		93,578		349,412
Grade 2		7,623		8,352		8,426		5,558		9,919		278		30,820		70,976
Grade 3		—		4,914		9		—		—		227		1,185		6,335
Grade 4		—		1,000		—		—		—		—		69		1,069
Total oil and gas		99,198		136,667		40,835		13,732		11,093		615		125,652		427,792
Other loans
Grade 1		5,658		60,549		38,097		26,158		18,786		14,429		30,235		193,912
Grade 2		—		296		—		—		65		2,933		471		3,765
Grade 3		—		—		—		—		140		82		1,052		1,274
Grade 4		—		—		17		109		169		52		82		429
Total other loans		5,658		60,845		38,114		26,267		19,160		17,496		31,840		199,380
Total loans held for investment	$	666,235	$	2,008,089	$	997,214	$	702,350	$	365,300	$	785,344	$	969,808	$	6,494,340

Allowance for Credit Losses Methodology

The Company determines its provision for credit losses and allowance for credit losses using the expected loss methodology that is referred to as the CECL model. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

The increase in allowance for credit loss during 2022 was primarily related to the purchase of loans without credit deterioration during the quarter. The decrease in the allowance for credit loss during 2021 was driven by a reversal of a pandemic-related provision during 2021 based on sustained improvements in the economy, both nationally and in the Company's markets, which reduced the amount of expected credit loss within the loan portfolio. This reduction was partially offset by additional allowance for credit loss required by newly acquired loans.

The following table details activity in the allowance for credit losses on 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.

	Allowance for Credit Losses
	Balance at beginning of period		Initial allowance on loans purchased with credit deterioration		Charge- offs			Recoveries		Net charge-offs			Provision for /(benefit from) credit losses on loans			Balance at end of period
	(Dollars in thousands)
Three Months Ended March 31, 2022
Real estate:
Commercial real estate owner occupied	$	6,410	$	—	$	(16	)	$	48	$	32		$	346		$	6,788
Commercial real estate non-owner occupied		16,987		—		—			—		—			3,687			20,674
Construction and development < 60 months		3,490		—		—			3		3			(184	)		3,309
Construction residential real estate < 60 months		1,092		—		—			—		—			1,072			2,164
Residential real estate first lien		3,076		2		(44	)		7		(37	)		380			3,421
Residential real estate all other		2,104		—		—			402		402			(399	)		2,107
Farmland		4,822		—		—			—		—			(439	)		4,383
Commercial and agricultural non-real estate		26,073		48		(171	)		113		(58	)		(77	)		25,986
Consumer non-real estate		3,734		28		(80	)		38		(42	)		51			3,771
Oil and gas		12,978		—		—			—		—			(1,573	)		11,405
Other loans		3,170		—		(11	)		—		(11	)		72			3,231
Total	$	83,936	$	78	$	(322	)	$	611	$	289		$	2,936		$	87,239

	Allowance for Credit Losses
	Balance at beginning of period		Charge- offs			Recoveries		Net charge-offs			Provision for /(benefit from) credit losses on loans			Balance at end of period
	(Dollars in thousands)
Three Months Ended March 31, 2021
Real estate:
Commercial real estate owner occupied	$	6,911	$	—		$	—	$	—		$	(406	)	$	6,505
Commercial real estate non-owner occupied		12,318		(38	)		—		(38	)		5,219			17,499
Construction and development < 60 months		2,723		—			3		3			217			2,943
Construction residential real estate < 60 months		726		—			—		—			366			1,092
Residential real estate first lien		2,822		(43	)		15		(28	)		143			2,937
Residential real estate all other		2,236		(16	)		3		(13	)		(343	)		1,880
Farmland		3,153		—			—		—			(65	)		3,088
Commercial and agricultural non-real estate		33,020		(104	)		27		(77	)		922			33,865
Consumer non-real estate		3,542		(413	)		112		(301	)		180			3,421
Oil and gas		20,733		—			—		—			(6,293	)		14,440
Other loans		3,182		(52	)		—		(52	)		60			3,190
Total	$	91,366	$	(666	)	$	160	$	(506	)	$	—		$	90,860

Purchased Credit Deteriorated Loans

The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The Company did not purchase credit-deteriorated loans during the three-month period ended March 31, 2021. The credit-deteriorated loans purchased during the three months ended March 31, 2022 were as follows:

	Loans acquired with deteriorated credit quality
	(Dollars in thousands)
For the period ended March 31, 2022
Purchase price of loans at acquisition	$	661
Allowance for credit losses at acquisition		78
Par value of acquired loans at acquisition	$	739

Collateral Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. During the three months ended March 31, 2022 and 2021, no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent. The following table summarizes collateral-dependent gross loans held for investment by collateral type and the related specific allocation as follows:

	Collateral Type
	Real Estate		Business Assets		Energy Reserves		Other Assets		Total		Specific Allocation
	(Dollars in thousands)
As of March 31, 2022
Real estate:
Commercial real estate owner occupied	$	1,894	$	—	$	—	$	—	$	1,894	$	569
Commercial real estate non-owner occupied		1,563		—		—		—		1,563		282
Construction and development < 60 months		—		—		—		—		—		—
Construction residential real estate < 60 months		—		—		—		—		—		—
Residential real estate first lien		756		—		—		—		756		107
Residential real estate all other		55		—		—		—		55		35
Farmland		7,290		—		—		—		7,290		1,322
Commercial and agricultural non-real estate		—		5,072		—		5,777		10,849		4,451
Consumer non-real estate		—		—		—		85		85		57
Oil and gas		—		—		—		—		—		—
Other loans		—		110		—		—		110		72
Total collateral-dependent loans held for investment	$	11,558	$	5,182	$	—	$	5,862	$	22,602	$	6,895
	Collateral Type
	Real Estate		Business Assets		Energy Reserves		Other Assets		Total		Specific Allocation
	(Dollars in thousands)
As of December 31, 2021
Real estate:
Commercial real estate owner occupied	$	1,952	$	—	$	—	$	—	$	1,952	$	576
Commercial real estate non-owner occupied		1,404		—		—		—		1,404		263
Construction and development < 60 months		—		—		—		—		—		—
Construction residential real estate < 60 months		—		—		—		—		—		—
Residential real estate first lien		871		—		—		—		871		143
Residential real estate all other		199		—		—		—		199		178
Farmland		8,703		—		—		—		8,703		1,805
Commercial and agricultural non-real estate		—		6,363		—		5,202		11,565		4,867
Consumer non-real estate		—		—		—		54		54		20
Oil and gas		—		—		—		—		—		—
Other loans		—		109		—		—		109		71
Total collateral-dependent loans held for investment	$	13,129	$	6,472	$	—	$	5,256	$	24,857	$	7,923

Non-Cash Transfers from Loans and Premises and Equipment

Transfers from loans and premises and equipment 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 and premises and equipment to other real estate owned and repossessed assets during the periods presented are summarized as follows:

	Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Other real estate owned	$	2,153	$	357
Repossessed assets		277		220
Total	$	2,430	$	577