(3)	LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

	March 31, 2017					December 31, 2016
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Commercial and financial:
Commercial and industrial	$	834,561		19.01	%	$	828,260		18.82	%
Oil & gas production and equipment		84,976		1.93			84,228		1.91
Agriculture		139,542		3.18			144,751		3.29
State and political subdivisions:
Taxable		32,597		0.74			33,793		0.77
Tax-exempt		48,313		1.10			47,283		1.07
Real estate:
Construction		417,148		9.50			420,884		9.57
Farmland		201,450		4.59			197,872		4.50
One to four family residences		843,731		19.22			846,360		19.24
Multifamily residential properties		48,302		1.10			57,806		1.31
Commercial		1,433,707		32.65			1,426,643		32.42
Consumer		272,637		6.21			279,704		6.36
Other (not classified above)		33,811		0.77			32,648		0.74
Total loans	$	4,390,775		100.00	%	$	4,400,232		100.00	%

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 $58 million at March 31, 2017 and approximately $56 million at December 31, 2016.

The Company’s loans are mostly to customers within Oklahoma and over 65% 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.

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, 2016.

Nonperforming and Restructured Assets

The following is a summary of nonperforming and restructured assets:

	March 31,		December 31,
	2017		2016
	(Dollars in thousands)
Past due 90 days or more and still accruing	$	2,024	$	1,962
Nonaccrual		23,694		31,798
Restructured		2,203		1,713
Total nonperforming and restructured loans		27,921		35,473
Other real estate owned and repossessed assets		4,404		3,866
Total nonperforming and restructured assets	$	32,325	$	39,339

Nonaccrual loans, accruing loans past due 90 days or more, and restructured loans are shown in the table above. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $499,000 for the three months ended March 31, 2017 and approximately $513,000 for the three months ended March 31, 2016.

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 credit risk component in 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.

	March 31, 2017		December 31, 2016
	(Dollars in thousands)
Real estate:
Non-residential real estate owner occupied	$	599	$	713
Non-residential real estate other		2,087		5,688
Residential real estate permanent mortgage		1,397		1,116
Residential real estate all other		4,726		5,089
Commercial and financial:
Non-consumer non-real estate		3,643		4,464
Consumer non-real estate		286		265
Other loans		5,033		8,370
Acquired loans		5,923		6,093
Total	$	23,694	$	31,798

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 March 31, 2017
Real estate:
Non-residential real estate owner occupied	$	1,183	$	526	$	1,034	$	2,743	$	573,970	$	576,713	$	983
Non-residential real estate other		1,985		29		250		2,264		1,125,063		1,127,327		—
Residential real estate permanent mortgage		1,900		756		1,085		3,741		319,986		323,727		232
Residential real estate all other		5,036		337		982		6,355		732,679		739,034		252
Commercial and financial:
Non-consumer non-real estate		3,837		1,722		272		5,831		1,053,489		1,059,320		108
Consumer non-real estate		1,954		595		502		3,051		273,007		276,058		384
Other loans		5,143		826		4,760		10,729		131,804		142,533		51
Acquired loans		1,104		20		2,537		3,661		142,402		146,063		14
Total	$	22,142	$	4,811	$	11,422	$	38,375	$	4,352,400	$	4,390,775	$	2,024
As of December 31, 2016
Real estate:
Non-residential real estate owner occupied	$	2,255	$	96	$	150	$	2,501	$	569,130	$	571,631	$	—
Non-residential real estate other		611		16		418		1,045		1,122,351		1,123,396		—
Residential real estate permanent mortgage		2,742		649		1,273		4,664		320,749		325,413		513
Residential real estate all other		2,559		531		1,416		4,506		743,723		748,229		369
Commercial and financial:
Non-consumer non-real estate		1,269		1,628		741		3,638		1,047,547		1,051,185		608
Consumer non-real estate		2,046		760		419		3,225		280,652		283,877		274
Other loans		5,345		958		7,775		14,078		127,404		141,482		45
Acquired loans		825		310		408		1,543		153,476		155,019		153
Total	$	17,652	$	4,948	$	12,600	$	35,200	$	4,365,032	$	4,400,232	$	1,962

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 March 31, 2017, $2.3 million of interest income was recognized on impaired loans subsequent to their classification as impaired. During previous periods 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 March 31, 2017
Real estate:
Non-residential real estate owner occupied	$	1,766	$	1,672	$	73	$	1,026
Non-residential real estate other		2,175		2,087		448		4,809
Residential real estate permanent mortgage		1,884		1,682		129		1,808
Residential real estate all other		5,364		5,123		1,513		5,388
Commercial and financial:
Non-consumer non-real estate		11,474		5,461		1,486		5,882
Consumer non-real estate		814		777		141		776
Other loans		6,606		5,084		673		5,276
Acquired loans		8,196		6,186		—		6,472
Total	$	38,279	$	28,072	$	4,463	$	31,437

As of December 31, 2016
Real estate:
Non-residential real estate owner occupied	$	894	$	806	$	101	$	825
Non-residential real estate other		7,742		5,688		574		5,854
Residential real estate permanent mortgage		1,878		1,683		124		1,612
Residential real estate all other		5,871		5,614		1,538		5,445
Commercial and financial:
Non-consumer non-real estate		12,015		6,272		1,457		6,478
Consumer non-real estate		686		650		133		788
Other loans		9,799		8,415		1,870		8,062
Acquired loans		8,780		6,581		—		6,041
Total	$	47,665	$	35,709	$	5,797	$	35,105

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, 2016.

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 March 31, 2017
Real estate:
Non-residential real estate owner occupied	$	469,833	$	91,517	$	14,764	$	599	$	—	$	576,713
Non-residential real estate other		931,160		179,042		15,038		2,087		—		1,127,327
Residential real estate permanent mortgage		281,991		33,986		6,121		1,629		—		323,727
Residential real estate all other		601,273		121,042		11,756		4,963		—		739,034
Commercial and financial:
Non-consumer non-real estate		830,209		203,922		21,216		3,973		—		1,059,320
Consumer non-real estate		255,874		17,116		2,367		701		—		276,058
Other loans		135,396		5,678		1,365		94		—		142,533
Acquired loans		87,373		39,256		13,310		6,124		—		146,063
Total	$	3,593,109	$	691,559	$	85,937	$	20,170	$	—	$	4,390,775

As of December 31, 2016
Real estate:
Non-residential real estate owner occupied	$	464,504	$	89,978	$	16,220	$	929	$	—	$	571,631
Non-residential real estate other		933,743		169,561		14,404		5,688		—		1,123,396
Residential real estate permanent mortgage		284,893		32,889		5,987		1,644		—		325,413
Residential real estate all other		614,338		119,018		9,382		5,491		—		748,229
Commercial and financial:
Non-consumer non-real estate		856,318		170,865		19,101		4,901		—		1,051,185
Consumer non-real estate		263,442		17,154		2,640		641		—		283,877
Other loans		132,254		5,376		1,514		2,338		—		141,482
Acquired loans		92,946		42,668		12,888		6,517		—		155,019
Total	$	3,642,438	$	647,509	$	82,136	$	28,149	$	—	$	4,400,232

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, 2016.

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 March 31, 2017
Real estate:
Non-residential real estate owner occupied	$	5,602	$	(32	)	$	1	$	(31	)	$	(9	)	$	5,562
Non-residential real estate other		10,793		(1	)		1		—			(5	)		10,788
Residential real estate permanent mortgage		3,129		(120	)		1		(119	)		120			3,130
Residential real estate all other		8,622		(57	)		11		(46	)		83			8,659
Commercial and financial:
Non-consumer non-real estate		12,421		(206	)		918		712			(323	)		12,810
Consumer non-real estate		2,804		(234	)		51		(183	)		104			2,725
Other loans		4,045		(1,218	)		4		(1,214	)		127			2,958
Acquired loans		1,277		(13	)		50		37			(25	)		1,289
Total	$	48,693	$	(1,881	)	$	1,037	$	(844	)	$	72		$	47,921

	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 March 31, 2016
Real estate:
Non-residential real estate owner occupied	$	4,661	$	(1	)	$	—	$	(1	)	$	172	$	4,832
Non-residential real estate other		9,921		(1	)		1		—			290		10,211
Residential real estate permanent mortgage		3,148		(50	)		17		(33	)		49		3,164
Residential real estate all other		6,725		(67	)		4		(63	)		1,327		7,989
Commercial and financial:
Non-consumer non-real estate		11,754		(803	)		11		(792	)		1,851		12,813
Consumer non-real estate		2,642		(221	)		38		(183	)		94		2,553
Other loans		2,648		(133	)		6		(127	)		269		2,790
Acquired loans		167		(4	)		5		1			51		219
Total	$	41,666	$	(1,280	)	$	82	$	(1,198	)	$	4,103	$	44,571

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
	March 31, 2017				December 31, 2016

	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.	$	614	$	4,948	$	716	$	4,886
Non-residential real estate other		1,011		9,777		1,119		9,674
Residential real estate permanent mortgage		433		2,697		422		2,707
Residential real estate all other		2,275		6,384		2,160		6,462
Commercial and financial:
Non-consumer non-real estate		3,517		9,293		3,317		9,104
Consumer non-real estate		459		2,266		478		2,326
Other loans		658		2,300		1,812		2,233
Acquired loans		10		1,279		495		782
Total	$	8,977	$	38,944	$	10,519	$	38,174

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
	March 31, 2017						December 31, 2016
	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	$	15,363	$	561,350	$	—	$	17,149	$	554,482	$	—
Non-residential real estate other		17,125		1,110,202		—		20,092		1,103,304		—
Residential real estate permanent mortgage		7,750		315,977		—		7,631		317,782		—
Residential real estate all other		16,719		722,315		—		14,873		733,356		—
Commercial and financial:
Non-consumer non-real estate		25,189		1,034,131		—		24,002		1,027,183		—
Consumer non-real estate		3,068		272,990		—		3,203		280,674		—
Other loans		2,338		140,195		—		2,254		139,228		—
Acquired loans		13,651		126,630		5,782		13,459		135,616		5,944
Total	$	101,203	$	4,283,790	$	5,782	$	102,663	$	4,291,625	$	5,944

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:

	Three Months Ended March 31,
	2017		2016
	(Dollars in thousands)
Other real estate owned	$	901	$	344
Repossessed assets		363		404
Total	$	1,264	$	748

During the quarter ended March 31, 2016, the Company had gains on the sale of other real estate owned totaling $1.2 million that is included in net expense from other real estate owned on the consolidated statements of comprehensive income.