What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-09 · 578 added, 159 removed, 706 unchanged (51% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30,

Cash and due from banks

38 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

7 unchanged sentences

Net interest income

(Benefit from) provision for credit losses

Net interest income after (benefit from)/provision for credit losses

Provision for (benefit from) credit losses

Net interest income after provision for/(benefit from) credit losses

NONINTEREST INCOME

24 unchanged sentences

BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEM ENTS OF STOCKHOLDERS’

(Dollars in thousands)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Issued at beginning of period

19 unchanged sentences

Balance at end of period

Total stockholders’ equity

Total stockholders’

The accompanying Notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

7 unchanged sentences

Cash disbursements for loans originated for sale

Deferred income tax benefit

Deferred income tax provision/(benefit)

Gain on sale of other assets

Increase/(decrease) in interest receivable

Decrease in interest payable

Decrease/(increase) in interest receivable

Increase/(decrease) in interest payable

Amortization of stock-based compensation arrangements

19 unchanged sentences

Proceeds from long-term borrowings

Paydown of long-term borrowings

Proceeds from issuance of subordinated notes, net of debt issuance costs

17 unchanged sentences

BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATE D FINANCIAL STATEMENTS

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (U.S.

GAAP) and general practice within the banking industry.

A summary of significant accounting policies can be found in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Basis of Presentation

4 unchanged sentences

The accompanying unaudited interim consolidated financial statements and notes are presented in accordance with U.S.

GAAP for interim financial information and the instructions for Form 10-Q adopted by the Securities and Exchange Commission (“SEC”).

The information contained in the financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020, should be referred to in connection with these unaudited interim consolidated financial statements.

GAAP for interim financial information and the instructions for Form 10-Q adopted by the Securities and Exchange Commission (“SEC”).

Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

6 unchanged sentences

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $ 60 million aggregate principal amount of 3.50 % Fixed-to-Floating Rate Subordinated Notes due 2036 (the “Subordinated Notes”) to various institutional accredited investors.

See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated debt.

On May 20, 2021, the Company purchased approximately $ 284 million in total assets, which included $ 195 million in loans, and assumed approximately $ 256 million in deposits and certain other obligations, from The First National Bank and Trust Company of Vinita, Oklahoma for a purchase price of $ 21.0 million.

See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated debt.

On May 20, 2021, the Company purchased approximately $ 284 million in total assets, which included approximately $ 195 million in loans, and assumed approximately $ 256 million in deposits and certain other obligations, from The First National Bank and Trust Company of Vinita, Oklahoma for a purchase price of approximately $ 21 million.

The Company recorded a bargain purchase gain related to this purchase of approximately $ 4.8 million, which is included in other noninterest income on the statement of comprehensive income and other operating activities on the statement of cash flow.

3 unchanged sentences

The effect of this purchase was included in the consolidated financial statement of the Company from the date of purchase forward.

The purchase did not have a material effect on the Company’s consolidated financial statements.

The First National Bank and Trust Company of Vinita was a nationally chartered bank with two banking locations in Vinita and Grove, Oklahoma.

The preliminary purchase price assessment remains an ongoing process and is subject to change for up to one year subsequent to the closing date.

On January 22, 2021, the Company sold approximately $ 21 million in loans and approximately $ 38 million in deposits from its Hugo, Oklahoma branch to AmeriState Bank in Atoka, Oklahoma.

The Company recorded a gain on the transaction of $ 2.5 million, which is included in noninterest income.

(3) SECURITIES

The following table summarizes the amortized cost and estimated fair values of debt securities held for investment:

June 30, 2021

September 30, 2021

(Dollars in thousands)

7 unchanged sentences

The following table summarizes the amortized cost and estimated fair values of debt securities available for sale:

June 30, 2021

September 30, 2021

(Dollars in thousands)

12 unchanged sentences

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been presented at their contractual maturity.

June 30, 2021

September 30, 2021

December 31, 2020

13 unchanged sentences

Total debt securities

The following table is a summary of the Company’s book value of securities that were pledged as collateral for public funds on deposit, repurchase agreements and for other purposes as required or permitted by law:

June 30, 2021

September 30, 2021

December 31, 2020

3 unchanged sentences

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

June 30, 2021

September 30, 2021

December 31, 2020

9 unchanged sentences

Other loans (2)

(1) Excludes accrued interest receivable of $ 22.9 million at June 30, 2021 and $ 26.0 million at December 31, 2020, that is recorded in accrued interest receivable and other assets.

(2) Includes PPP loans held for investment of $ 368.6 million, net of unamortized processing fees of $ 16.6 million at June 30, 2021 and $ 652.7 million, net of unamortized processing fees of $ 14.5 million at December 31, 2020.

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.

(1) Excludes accrued interest receivable of $ 21.2 million at September 30, 2021 and $ 26.0 million at December 31, 2020, that is recorded in accrued interest receivable and other assets.

(2) Includes PPP loans held for investment of $ 201.2 million, net of unamortized processing fees of $ 6.7 million at September 30, 2021 and $ 652.7 million, net of unamortized processing fees of $ 14.5 million at December 31, 2020.

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.

T he Company had processing fees, which were recognized as interest income related to the PPP loans totaling $ 11.9 million and $ 3.7 million during the three months ended June 30, 2021 and 2020, respectively and $ 21.7 million and $ 3.7 million during the six months ended June 30, 2021 and 2020, respectively.

BancFirst’s loans are mostly to customers within Oklahoma and approximately 56 % of the loans are secured by real estate.

The Company had processing fees, which were recognized as interest income related to the PPP loans totaling $ 10.0 million and $ 3.8 million during the three months ended September 30, 2021 and 2020 , respectively and $ 31.7 million and $ 7.5 million during the nine months ended September 30, 2021 and 2020, respectively.

BancFirst’s loans are mostly to customers within Oklahoma and approximately 57 % 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.

Pegasus Bank’s loans are mostly to customers within Texas and approximately $ 297 million or 51 % of the loans are secured by real estate at June 30, 2021.

Pegasus Bank’s commercial and agricultural non-real estate loans were approximately $ 268 million at June 30, 2021 and approximately $ 262 million at December 31, 2020.

BancFirst and Pegasus Bank’s commercial and agricultural non-real estate and oil and gas loan categories include upstream and midstream energy loans, and loans to companies that provide ancillary services to the energy industry, such as transportation, wellsite preparation contractors and equipment manufacturers.

The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral.

Pegasus Bank’s loans are mostly to customers within Texas and approximately $ 339 million or 55 % of the loans are secured by real estate at September 30, 2021 .

Pegasus Bank’s commercial and agricultural non-real estate loans were approximately $ 257 million at September 30, 2021 and approximately $ 262 million at December 31, 2020.

Energy loans are summarized as follows:

June 30, 2021

September 30, 2021

December 31, 2020

4 unchanged sentences

Ancillary services

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, 2020.

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:

September 30,

(Dollars in thousands)

3 unchanged sentences

The current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings were not considered to be material.

During the first half of 2021, the Company completed the move to its new corporate headquarters and transferred approximately $ 2.4 million from premises and equipment to other real estate owned related to its previous headquarters.

In addition, other real estate owned of approximately $ 2.5 million was purchased from the First National Bank and Trust Company of Vinita, Oklahoma.

During the first half of 2021, the Company sold property held in other real estate owned for a total loss of $ 105,000 , compared to a total gain of $ 2.3 million in the first half of 2020.

During the nine months ended September 30, 2021 , the Company completed the move to its new corporate headquarters and transferred approximately $ 2.4 million from premises and equipment related to its previous headquarters to other real estate owned.

During the nine months ended September 30, 2021 , the Company sold property held in other real estate owned for a total gain of $ 245,000 , compared to a total gain of $ 2.3 million in the nine months ended September 30, 2020.

Nonaccrual loans

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 1.2 million for the six months ended June 30, 2021 and approximately $ 983,000 for the six months ended June 30, 2020.

Nonaccrual loans guaranteed by government agencies totaled approximately $ 3.5 million at June 30, 2021 and approximately $ 7.8 million at December 31, 2020.

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, 2021 and approximately $ 2.1 million for the nine months ended September 30, 2020.

Nonaccrual loans guaranteed by government agencies totaled approximately $ 3.1 million at September 30, 2021 and approximately $ 7.8 million at December 31, 2020.

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

June 30, 2021

September 30, 2021

December 31, 2020

12 unchanged sentences

(Dollars in thousands)

As of June 30, 2021

As of September 30, 2021

Commercial real estate owner occupied

15 unchanged sentences

Consumer non-real estate

Due to the impacts of the COVID-19 pandemic, the Company had approximately $ 61.8 million in modified loans as of June 30, 2021 and $ 81.7 million in modified loans as of December 31, 2020, most of which were secured by commercial real estate.

Due to the impacts of the COVID-19 pandemic, the Company had approximately $ 58.4 million in modified loans as of September 30, 2021 and $ 81.7 million in modified loans as of December 31, 2020, most of which were secured by commercial real estate.

These modifications were undertaken in response to Section 4013 of the CARES Act and the regulatory intent outlined in the Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus and to provide businesses financial flexibility until the economy has time to recover to a more normal level of activity.

However, these modifications, which typically involve payment modifications and forbearance, also have the effect of delaying recognition of loans that may ultimately be permanently impaired.

The timing and extent of such consequences are difficult to ascertain at this time and are dependent on the duration of the COVID-19 pandemic, the level and success of the government’s economic stimulus, and further regulatory guidance.

These modified loans are included in Current Loans in the table above.

3 unchanged sentences

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 our gross loans held for investment by year of origination and internally assigned credit grades as of December 31, 2020, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

The following table summarizes our gross loans held for investment by year of origination and internally assigned credit grades as of June 30, 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 our gross loans held for investment by year of origination and internally assigned credit grades as of September 30, 2021:

Term Loans Amortized Cost Basis by Origination Year

1 unchanged sentence

(Dollars in thousands)

As of June 30, 2021

As of September 30, 2021

Commercial real estate owner occupied

23 unchanged sentences

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist by identifying by portfolio segments, the applicable weighted average life and measuring the allowance for credit losses using the vintage loss analysis adjusted for qualitative factors.

The weighted average lives of the Company’s loans segments are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The decrease in the allowance for credit loss during the second quarter of 2021 was primarily driven by a reversal of provision during the quarter based on sustained improvements in the economy, both nationally and in Oklahoma, which reduced the amount of expected credit loss within the loan portfolio.

The weighted average lives of the Company’s loans segments are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The decrease in the allowance for credit loss during 2021 was primarily driven by a reversal of provision during 2021 based on sustained improvements in the economy, both nationally and in Oklahoma, 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 purchased with credit deterioration.

6 unchanged sentences

(Dollars in thousands)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Commercial real estate owner occupied

6 unchanged sentences

Consumer non-real estate

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Commercial real estate owner occupied

11 unchanged sentences

(Dollars in thousands)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Commercial real estate owner occupied

6 unchanged sentences

Consumer non-real estate

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Commercial real estate owner occupied

8 unchanged sentences

The Company has previously purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The credit-deteriorated loans purchased during the six-month periods ended June 30, 2021 and June 30, 2020 were as follows:

The credit-deteriorated loans purchased during the nine months ended September 30, 2021 and 2020 were as follows:

Loans acquired

2 unchanged sentences

(Dollars in thousands)

For the period ended June 30, 2021

For the period ended September 30, 2021

Purchase price of loans at acquisition

1 unchanged sentence

Par value of acquired loans at acquisition

For the period ended June 30, 2020

For the period ended September 30, 2020

Purchase price of loans at acquisition

3 unchanged sentences

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 six months ended June 30, 2021 and 2020, no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent.

During the nine months ended September 30, 2021 and 2020 , 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:

4 unchanged sentences

(Dollars in thousands)

As of June 30, 2021

As of September 30, 2021

Commercial real estate owner occupied

25 unchanged sentences

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

Six Months Ended

Nine Months Ended September 30,

(Dollars in thousands)

2 unchanged sentences

(5) INTANGIBLE ASSETS AND GOODWILL

The following is a summary of intangible assets:

The following is a summary of intangible assets as of the date listed:

(Dollars in thousands)

As of June 30, 2021

September 30, 2021

Core deposit intangibles

Customer relationship intangibles

As of December 31, 2020

December 31, 2020

Core deposit intangibles

2 unchanged sentences

(Dollars in thousands)

Six months ended June 30, 2021

Nine months ended September 30, 2021

Balance at beginning and end of period

Additional information for intangible assets can be found in Note (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Additional information for intangible assets can be found in Note (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 .

The Company has operating leases, which primarily consist of office space in buildings, ATM locations, storage facilities, parking lots, equipment and land on which it owns certain buildings.

Rent expense for all operating leases, including those rented on a monthly or temporary basis, totaled approximately $ 462,000 and approximately $ 453,000 for the three months ended June 30, 2021 and June 30, 2020, respectively.

Rent expense for all operating leases, including those rented on a monthly or temporary basis, totaled approximately $ 966,000 and $ 916,000 for the six months ended June 30, 2021 and June 30, 2020, respectively.

As of June 30, 2021, right of use lease asset included in accrued interest receivable and other assets on the balance sheet totaled $ 3.8 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $ 3.7 million.

There have been no significant changes in our expected future minimum lease payments since December 31, 2020.

The future minimum lease payments are disclosed in Note (20) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As of June 30, 2021, our operating leases have a weighted-average remaining lease term of 3.3 years and a weighted-average discount rate of 2.8 percent.

The following table presents minimum future commitments by year for the Company’s operating leases.

The following table presents rent expense for all operating leases, including those rented on a monthly or temporary basis as of the periods indicated:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

Rental expense

As of September 30, 2021 , right of use lease asset included in accrued interest receivable and other assets on the balance sheet totaled $ 3.5 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $ 3.4 million.

As of September 30, 2021 , our operating leases have a weighted-average remaining lease term of 3.4 years and a weighted-average discount rate of 2.7 percent.

The following table presents minimum future commitments by year for the Company’s operating leases.

Such commitments are reflected as undiscounted values and are reconciled to the discounted present value recognized on the balance sheet.

June 30, 2021

September 30, 2021

(Dollars in thousands)

2021 (six months)

2021 (three months)

Total lease payments

3 unchanged sentences

These assets are classified on the balance sheet as premises and equipment.

The Company had operating lease revenue of $ 1.3 million and $ 1.4 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

The Company had operating lease revenue of $ 2.7 million and $ 2.8 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

The Company had operating lease revenue of $ 1.1 million and $ 1.3 million for the three months ended September 30, 2021 and 2020 , respectively.

The Company had operating lease revenue of $ 3.7 million and $ 4.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Lease revenue is included in occupancy, net on the consolidated statement of comprehensive income.

1 unchanged sentence

The following table presents the scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases:

June 30, 2021

September 30, 2021

(Dollars in thousands)

2021 (six months)

2021 (three months)

Total future minimum lease payments

(7) SUBORDINATED DEBT

In January 2004, the Company established BFC Capital Trust II (“BFC II”), a trust formed under the Delaware Business Trust Act.

The Company owns all of the common securities of BFC II.

In February 2004, BFC II issued $ 25 million of aggregate liquidation amount of 7.20 % Cumulative Trust Preferred Securities (the “Cumulative Trust Preferred Securities”) to other investors.

In March 2004, BFC II issued an additional $ 1 million in Cumulative Trust Preferred Securities through the execution of an over-allotment option.

6 unchanged sentences

The Cumulative Trust Preferred Securities were callable at par, in whole or in part, after March 31, 2009.

The sale of the Subordinated Notes was pursuant to a Subordinated Note Purchase Agreement entered into with each of the investors.

The Subordinated Notes have been structured to qualify as Tier 2 capital under bank regulatory guidelines.

The net proceeds to the Company from the sale of the Subordinated Notes was approximately $ 59.15 million after deducting commissions and offering expenses of $ 850,000 .

The Company expects to use the proceeds from the sale of the Subordinated Notes for general corporate purposes.

The net proceeds to the Company from the sale of the Subordinated Notes were approximately $ 59.15 million after deducting commissions and offering expenses of $ 850,000 .

The Company expects to use the proceeds from the sale of the Subordinated Notes for

general corporate purposes.

The Subordinated Notes will initially bear interest at a fixed rate of 3.50 % per annum, from and including June 17, 2021 to but excluding June 30, 2031, payable semi-annually in arrears on June 30 and December 31 of each year , commencing December 31, 2021 .

2 unchanged sentences

The Company may, at its option, beginning with the interest payment date of June 30, 2031, and on any scheduled interest payment date thereafter, redeem the Subordinated Notes, in whole or in part.

In addition, the Company may redeem all, but not less than all, of the Subordinated Notes at any time upon the occurrence of a “Tier 2 Capital Event,” a “Tax Event” or an “Investment Company Event” (each as defined in the Subordinated Notes).

In addition, the Company may redeem all, but not less than all, of the Subordinated Notes at any time upon the occurrence of a “Tier 2 Capital Event,”

a “Tax Event”

or an “Investment Company Event”

(each as defined in the Subordinated Notes).

Any such redemption is subject to obtaining the prior approval of the Board of Governors of the Federal Reserve System (or its designee).

1 unchanged sentence

(8) STOCK-BASED COMPENSATION

The Company has had a nonqualified incentive stock option plan the BancFirst Corporation Stock Option Plan (the “Employee Plan”) since May 1986.

At June 30, 2021, there were 275,000 shares available for future grants.

The Company has had a nonqualified incentive stock option plan, the BancFirst Corporation Stock Option Plan (the “Employee Plan”), since May 1986.

At September 30, 2021 , there were 186,000 shares available for future grants.

The Employee Plan will terminate on December 31, 2024 , if not extended.

2 unchanged sentences

The option price must be no less than 100 % of the fair value of the stock relating to such option at the date of grant.

The Company has had the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “Non-Employee Directors’ Plan”) since June 1999.

The Company has had the BancFirst Corporation Non-Employee Directors’

Stock Option Plan (the “Non-Employee Directors’

Plan”) since June 1999.

Each non-employee director is granted an option for 10,000 shares.

At June 30, 2021, there were 50,000 shares available for future grants.

The Non-Employee Directors’ Plan will terminate on December 31, 2024 , if not extended.

At September 30, 2021 , there were 40,000 shares available for future grants.

The Non-Employee Directors’

Plan will terminate on December 31, 2024 , if not extended.

The options vest and are exercisable beginning one year from the date of grant at the rate of 25 % per year for four years , and expire no later than the end of fifteen years from the date of grant.

The option price must be no less than 100 % of the fair value of the stock relating to such option at the date of grant.

The Company currently uses newly issued shares for stock option exercises, but reserves the right to use shares purchased under the Company’s Stock Repurchase Program (the “SRP”) in the future.

Although not required or expected, the Company may settle some options in cash on a limited basis at the discretion of the Company.

During the six months ended June 30, 2021, the Company had cash settlements for 121,330 shares for a total net cash settlement of options of $ 5.5 million that did not increase the outstanding shares of the Company.

The following table is a summary of the activity under both the Employee Plan and the Non-Employee Directors’ Plan:

During the nine months ended September 30, 2021 , the Company had cash settlements for 121,330 shares for a total net cash settlement of options of $ 5.5 million that did not increase the outstanding shares of the Company.

The following table is a summary of the activity under both the Employee Plan and the Non-Employee Directors’

(Dollars in thousands, except option data)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Outstanding at December 31, 2020

2 unchanged sentences

Options canceled, forfeited, or expired

Outstanding at June 30, 2021

Exercisable at June 30, 2021

The following table has additional information regarding options exercised under both the Employee Plan and the Non-Employee Directors’ Plan:

Outstanding at September 30, 2021

Exercisable at September 30, 2021

The following table has additional information regarding options exercised under both the Employee Plan and the Non-Employee Directors’

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

5 unchanged sentences

The fair value of each option is expensed over its vesting period.

The following table is a summary of the Company’s recorded stock-based compensation expense:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

4 unchanged sentences

The following table shows the unearned stock-based compensation expense:

June 30, 2021

September 30, 2021

(Dollars in thousands)

1 unchanged sentence

The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the periods presented:

Six Months Ended

Nine Months Ended

September 30,

Weighted average grant-date fair value per share of options granted

1 unchanged sentence

1.30 to 1.74 %

0.64 to 1.13 %

Dividend yield

6 unchanged sentences

The dividend yield is the expected yield for the expected term.

The stock price volatility is estimated from the recent historical volatility of the Company’s stock.

The expected term is estimated from the historical option exercise experience.

The Company accounts for forfeitures as they occur.

The Company has had the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “Deferred Stock Compensation Plan”) since May 1999.

As of June 30, 2021, there are 40,000 shares available for future issuance under the Deferred Stock Compensation Plan.

The Company has had the BancFirst Corporation Directors’

Deferred Stock Compensation Plan (the “Deferred Stock Compensation Plan”) since May 1999.

As of September 30, 2021 , there are 37,269 shares available for future issuance under the Deferred Stock Compensation Plan.

The Deferred Stock Compensation Plan will terminate on December 31, 2024 , if not extended.

Under the plan, directors and members of the community advisory boards of the Company and its subsidiaries may defer up to 100 % of their board fees.

They are credited for each deferral with a number of stock units based on the current market price of the Company’s stock, which accumulate in an account until such time as the director or community board member terminates serving as a board member.

Shares of common stock of the Company are then distributed to the terminating director or community board member based upon the number of stock units accumulated in his or her account.

There were 2,161 and 1,307 shares of common stock distributed from the Deferred Stock Compensation Plan during the six months ended June 30, 2021 and June 30, 2020, respectively.

Shares of common stock of the Company are then distributed to the terminating director or community board member based upon the

number of stock units accumulated in his or her account.

There were 2,161 and 1,307 shares of common stock distributed from the Deferred Stock Compensation Plan during the nine months ended September 30, 2021 and 2020, respectively.

A summary of the accumulated stock units is as follows:

September 30,

Accumulated stock units

Average price

STOCKHOLDERS’ EQUITY

(9) STOCKHOLDERS’

In November 1999, the Company adopted the SRP.

2 unchanged sentences

All shares repurchased under the SRP have been retired and not held as treasury stock.

The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company’s Executive Committee.

During September 2021, the SRP was amended to permit the repurchase of an additional 650,000 shares.

The following table is a summary of the shares under the program:

Six Months Ended

Nine Months Ended

September 30,

Number of shares repurchased

1 unchanged sentence

Shares remaining to be repurchased

The Company, BancFirst and Pegasus Bank are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“FDIC”).

These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’s, BancFirst’s and Pegasus Bank’s assets, liabilities and certain off-balance-sheet items calculated under regulatory practices.

Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s financial statements.

Management believes that as of June 30, 2021, the Company, BancFirst and Pegasus Bank met all capital adequacy requirements to which they are subject.

Management believes that as of September 30, 2021 , the Company, BancFirst and Pegasus Bank met all capital adequacy requirements to which they are subject.

The actual and required capital amounts and ratios are shown in the following table:

4 unchanged sentences

(Dollars in thousands)

As of June 30, 2021:

As of September 30, 2021:

Total Capital

10 unchanged sentences

BancFirst Corporation

As of June 30, 2021, the most recent notification from the Federal Reserve Bank of Kansas City and the FDIC categorized BancFirst and Pegasus Bank as “well capitalized” under the prompt corrective action provisions.

As of September 30, 2021 , the most recent notification from the Federal Reserve Bank of Kansas City and the FDIC categorized BancFirst and Pegasus Bank as “well capitalized”

under the prompt corrective action provisions.

The Common Equity Tier 1 Capital of the Company, BancFirst and Pegasus Bank includes common stock and related paid-in capital and retained earnings.

1 unchanged sentence

Common Equity Tier 1 Capital for the Company, BancFirst and Pegasus Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities.

Company’s trust preferred securities have continued to be included in Tier 1 capital, as the Company’s total assets do not exceed $ 15 billion.

There are no conditions or events since the most recent notification of BancFirst and Pegasus Bank’s capital category that management believes would materially change its category under capital requirements existing as of the report date.

The Company’s trust preferred securities have continued to be included in Tier 1 capital, as the Company’s total assets do not exceed $ 15 billion.

In April 2020, the Company began originating loans to qualified small businesses under the PPP administered by the SBA.

Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules.

Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility are included.

The PPP loans the Company originated in 2020 and 2021 are included in the calculation of the Company’s leverage ratio as of June 30, 2021 as the Company did not utilize the PPP Facility for funding purposes.

The PPP loans the Company originated in 2020 and 2021 are included in the calculation of the Company’s leverage ratio as of September 30, 2021 as the Company did not utilize the PPP Facility for funding purposes.

On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $ 60 million aggregate principal amount of Subordinated Notes.

4 unchanged sentences

(Dollars in thousands, except per share data)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders plus assumed

exercises of stock options

Three Months Ended June 30, 2020

Income available to common stockholders plus

assumed exercises of stock options

Three Months Ended September 30, 2020

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders plus assumed

exercises of stock options

Six Months Ended June 30, 2021

Income available to common stockholders

plus assumed exercises of stock options

Nine Months Ended September 30, 2021

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders plus assumed

exercises of stock options

Six Months Ended June 30, 2020

Income available to common stockholders plus

assumed exercises of stock options

Nine Months Ended September 30, 2020

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders plus assumed

exercises of stock options

Income available to common stockholders plus

assumed exercises of stock options

The following table shows the number and average exercise price of options that were excluded from the computation of diluted net income per common share for each period because the options were anti-dilutive for the period:

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

Three Months Ended September 30, 2021

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2020

(11) FAIR VALUE MEASUREMENTS

Accounting standards define fair value as the price that would be received to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date.

FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

6 unchanged sentences

A description of the valuation methodologies and key inputs used to measure financial assets and financial liabilities at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

These valuation methodologies were applied to the following categories of the Company’s financial assets and financial liabilities.

Debt Securities Available for Sale

4 unchanged sentences

The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S.

Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The Company also invests in private label mortgage backed debt securities for which observable information is not readily available.

5 unchanged sentences

In general, the Company does not purchase investment portfolio debt securities that are esoteric or that have complicated structures.

The Company’s portfolio primarily consists of traditional investments including U.S.

Treasury obligations, federal agency mortgage pass-through debt securities, general obligation municipal bonds and a small amount of municipal revenue bonds.

8 unchanged sentences

(Dollars in thousands)

June 30, 2021

September 30, 2021

Debt securities available for sale:

10 unchanged sentences

The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows:

Six Months Ended

Nine Months Ended September 30,

Twelve Months Ended

4 unchanged sentences

Balance at the end of the period

The Company’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period.

During the six months ended June 30, 2021, the Company transferred debt securities from Level 3 to Level 2 due to a review of the pricing models that determined some asset backed debt securities to be Level 2.

The Company’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period.

During the nine months ended September 30, 2021, the Company transferred debt securities from Level 3 to Level 2 due to a review of the pricing models that determined some asset backed debt securities to be Level 2.

During the year ended December 31, 2020, the Company transferred debt securities from Level 2 to Level 3 due to a review of the pricing models that determined some state and political subdivisions bonds to be Level 3.

4 unchanged sentences

The Company invests in equity securities without readily determinable fair values and utilizes Level 3 inputs.

These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly

transactions for the identical or a similar investment of the same issuer.

These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income.

9 unchanged sentences

(Dollars in thousands)

As of and for the Year-to-date Period Ended June 30, 2021

As of and for the Year-to-date Period Ended September 30, 2021

Equity securities

24 unchanged sentences

Gains or losses recognized upon the sale of the loans are determined on a specific identification basis.

At December 31, 2020, the Company’s principal subsidiary bank, BancFirst, had approximately $ 21.6 million in loans held for sale at its Hugo, Oklahoma branch that were sold to AmeriState Bank in Atoka, Oklahoma in the first quarter of 2021.

To determine the fair value of loans, the Company uses an exit price calculation, which takes into account factors such as liquidity, credit and the nonperformance risk of loans.

10 unchanged sentences

The fair values of letters of credit are based on fees currently charged for similar agreements.

The estimated fair values of the Company’s financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:

September 30,

(Dollars in thousands)

18 unchanged sentences

These items are evaluated at least annually for impairment.

The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were no t considered to be significant to the Company at June 30, 2021 or December 31, 2020.

The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were no t considered to be significant to the Company at September 30, 2021 or December 31, 2020 .

(12) SEGMENT INFORMATION

9 unchanged sentences

(Dollars in thousands)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Net interest income

1 unchanged sentence

Income before taxes

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Net interest income

1 unchanged sentence

Income before taxes

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Net interest income

1 unchanged sentence

Income before taxes

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Net interest income

2 unchanged sentences

Total Assets:

June 30, 2021

September 30, 2021

December 31, 2020

3 unchanged sentences

Eliminations are adjustments to consolidate the business units and companies.

(13) SUBSEQUENT EVENT

On October 29, 2021, BancFirst Corporation entered into an agreement to acquire Worthington National Bank (“Worthington”).

Worthington is a national bank chartered by the Office of the Comptroller of the Currency (OCC) with one location in Arlington, Texas, one location in Colleyville, Texas and two Fort Worth, Texas locations.

As of September 30, 2021, Worthington had approximately $ 462.6 million in total assets, $ 269.0 million in loans and $ 421.5 million in deposits.

The acquisition is expected to be completed during the first quarter of 2022.

Upon acquisition, Worthington will continue to operate as “Worthington National Bank”

under a separate OCC charter and remain a separate subsidiary of BancFirst Corporation governed by its existing board of directors.

BancFirst Corporation intends to provide an appropriate amount of capital or other support to increase Worthington’s ability to approve larger loans and allow Worthington to continue to grow their assets.

Management’s Discussio n and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition as of September 30, 2021 and December 31, 2020 and results of operations for the three and nine months ended September 30, 2021 should be read in conjunction with our consolidated financial statements and notes to the financial statements for the year ended December 31, 2020, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K, and "Item 1A, Risk Factors" in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.

FORWARD LOOKING STATEMENTS

The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters.

Forward-looking statements include estimates and give management’s current expectations or forecasts of future events.

The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions;

the performance of financial markets and interest rates;

legislative and regulatory actions and reforms;

as well as other factors, all of which change over time.

Examples of forward-looking statements include, but are not limited to:

(i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items;

(ii) statements of plans, objectives and expectations, including those relating to products or services;

(iii) statements of future economic performance;

and (iv) statements of assumptions underlying such statements.

Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may”

and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements.

Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

The COVID-19 pandemic’s adverse effects on us and our customers, employees and third-party service providers;

the adverse impacts of the pandemic on our business, financial position, operations and prospects may be material.

It is not possible to accurately predict the extent, severity or duration of the pandemic or when normal economic and operation conditions will return.

The likelihood the Durbin Amendment will impact non-interest income.

The effect of governments’

stimulus programs.

Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.

Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.

Inflation, interest rates, energy prices, securities markets and monetary fluctuations.

The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company must comply.

Impairment of the Company’s goodwill or other intangible assets.

Changes in consumer spending, borrowing and savings habits.

Changes in the financial performance and/or condition of the Company’s borrowers.

Technological changes.

Acquisitions and integration of acquired businesses.

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

The Company’s success at managing the risks involved in the foregoing items.

Actual results may differ materially from forward-looking statements.

THE COVID-19 PANDEMIC

The COVID-19 pandemic and actions taken in response to it have negatively impacted the global economy and all financial markets since March 31, 2020.

Although the Company is not able to estimate the impact of the COVID-19 pandemic and the resultant economic circumstances on a long-term basis at this time, the COVID-19 pandemic could materially affect the Company’s financial and operational results.

The Company is closely monitoring its loan portfolio for effects related to COVID-19.

See Item 1.A.

Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for further discussion.

The Company’s net income for the third quarter of 2021 was $38.8 million, compared to $20.9 million for the third quarter of 2020.

Diluted net income per common share was $1.16 and $0.63 for the third quarter of 2021 and 2020, respectively.

The Company recorded a provision for credit losses of $1.5 million for the third quarter of 2021, compared to a provision for credit losses of $18.7 million for the third quarter of 2020.

Net income was $129.5 million, or $3.88 diluted earnings per share, for the nine months ended September 30, 2021, compared to net income of $64.2 million, or $1.94 diluted earnings per share, for the nine months ended September 30, 2020.

The Company recorded a net benefit from reversal of provisions for credit losses of $8.5 million for the nine months ended September 30, 2021 compared to a provision for credit losses of $57.7 million for the nine months ended September 30, 2020.

The Company’s net interest income for the third quarter of 2021 increased to $80.2 million, compared to $75.9 million for the third quarter of 2020, as a result of an increase of $6.2 million in fee income from Paycheck Protection Program (PPP) loan forgiveness.

The net interest margin for the third quarter was 3.09%, compared to 3.40% a year ago.

Noninterest income for the third quarter of 2021 totaled $39.8 million, compared to $34.6 million for the third quarter of 2020.

The increase in noninterest income was attributable to $2.9 million in rental income from other real estate property, a $2.1 million increase in income from debit card interchange fees and a $1.5 million increase in insurance commissions.

Noninterest expense for the third quarter of 2021 increased to $70.2 million, compared to $66.1 million for the third quarter of 2020, because of the increase in approximately $2.0 million related to other real estate property operating costs and $1.0 million in net occupancy and depreciation primarily from the Company’s move to its new corporate headquarters.

The Company’s effective tax rate was 19.7% for the third quarter of 2021 compared to 18.4% for the third quarter of 2020.

At September 30, 2021, the Company’s total assets were $11.3 billion, an increase of $2.1 billion from December 31, 2020.

Loans totaled $6.0 billion, a decrease of $410.3 million from December 31, 2020 stemming from a net decrease of approximately $451.5 million in PPP loans and the sale of approximately $21 million of loans from the Company’s Hugo, Oklahoma branch, along with pay downs on loans.

The decrease in loans were partially offset by the Company’s purchase of approximately $149 million in loans from the First National Bank and Trust Company of Vinita, Oklahoma.

Deposits totaled $10.0 billion, an increase of $1.9 billion from the December 31, 2020 total.

The increase in assets and deposits was predominantly related to PPP and other government stimulus payments.

At September 30, 2021, the Company had PPP loans held for investment of $201.2 million, net of unamortized processing fees of $6.7 million.

The Company’s total stockholders’

equity at September 30, 2021 was $1.1 billion, an increase of $79.0 million over December 31, 2020.

Off-balance sheet sweep accounts totaled $2.7 billion at September 30, 2021 compared to $2.8 billion at December 31, 2020.

Nonaccrual loans represent 0.44% of total loans at September 30, 2021, down from 0.58% at December 31, 2020.

Net charge-offs were 0.01% of average loans for the third quarter of 2021, compared to 0.03% in the third quarter of 2020.

The allowance for credit losses to total loans was 1.43% at September 30, 2021 compared to 1.42% at December 31, 2020.

The allowance for credit losses to nonaccrual loans was 324.96% at September 30, 2021 compared to 243.35% at December 31, 2020.

See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company’s recent developments, including mergers and acquisitions.

On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 (the “Subordinated Notes”) to various institutional accredited investors.

See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated notes.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

There have been no changes in the Company’s disclosures regarding recently issued accounting pronouncements since December 31, 2020, the date of its most recent annual report to stockholders.

SEGMENT INFORMATION

See Note (12) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.

RESULTS OF OPERATIONS

Average Balances, Income, Expenses and Rates

The following table presents, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities.

Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities.

Average balances are derived from daily averages.

BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

Taxable Equivalent Basis

(Dollars in thousands)

Three Months Ended September 30,

Earning assets:

Debt securities –

Federal funds sold and interest-bearing deposits with banks

Total earning assets

Nonearning assets:

Cash and due from banks

Interest receivable and other assets

Allowance for credit losses

Total nonearning assets

LIABILITIES AND STOCKHOLDERS’

Interest-bearing liabilities:

Transaction deposits

Savings deposits

Time deposits

Short-term borrowings

Long-term borrowings

Subordinated debt

Total interest-bearing liabilities

Interest-free funds:

Noninterest-bearing deposits

Interest payable and other liabilities

Stockholders’

Total interest free funds

Total liabilities and stockholders’

Net interest income

Net interest spread

Effect of interest free funds

Net interest margin

For these computations, information is shown on a taxable-equivalent basis assuming a 21% tax rate.

(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

Taxable Equivalent Basis

(Dollars in thousands)

Nine Months Ended September 30,

Earning assets:

Debt securities –

Federal funds sold and interest-bearing deposits with banks

Total earning assets

Nonearning assets:

Cash and due from banks

Interest receivable and other assets

Allowance for credit losses

Total nonearning assets

LIABILITIES AND STOCKHOLDERS’

Interest-bearing liabilities:

Transaction deposits

Savings deposits

Time deposits

Short-term borrowings

Long-term borrowings

Subordinated debt

Total interest-bearing liabilities

Interest-free funds:

Noninterest-bearing deposits

Interest payable and other liabilities

Stockholders’

Total interest free funds

Total liabilities and stockholders’

Net interest income

Net interest spread

Effect of interest free funds

Net interest margin

For these computations, information is shown on a taxable-equivalent basis assuming a 21% tax rate.

(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

Selected income statement data and other selected data for the comparable periods were as follows:

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Income Statement Data

Net interest income

Provision for/(benefit from) credit losses

Securities transactions

Total noninterest income

Salaries and employee benefits

Total noninterest expense

Per Common Share Data

Net income –

Cash dividends

Performance Data

Return on average assets

Return on average stockholders’

Cash dividend payout ratio

Net interest spread

Net interest margin

Efficiency ratio

Net charge-offs to average loans

Net Interest Income

For the three months ended September 30, 2021, net interest income, which is the Company’s principal source of operating revenue, increased $4.3 million or 5.7% compared to the three months ended September 30, 2020.

Net interest income increased for the third quarter of 2021, as a result of an increase of $6.2 million in fee income from PPP loan forgiveness.

Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period.

As shown in the preceding table, the Company’s net interest margin for the third quarter of 2021 decreased compared to the third quarter of 2020.

This decrease in margin was due to larger balances in interest-bearing deposits with banks during the quarter.

Net interest income for the nine months ended September 30, 2021 increased $12.6 million or 5.6% compared to the nine months ended September 30, 2020.

Net interest income increased for the nine months ended September 30, 2021, as a result of an increase of $24.2 million in fee income from PPP loan forgiveness and the drop in average interest rates on deposits.

As shown in the preceding table, the Company’s net interest margin for the nine months ended September 30, 2021 decreased compared to the nine months ended September 30, 2020, due to larger balances and lower average rates on interest-bearing deposits with banks during the period.

The Company’s net interest income and net interest margin have been, and the Company currently expects them to continue to be, impacted by the decreases in interest rates stemming from the Federal Reserve's response to the COVID-19 pandemic.

Our expectation is that interest rates will increase slightly in the upcoming year.

Benefit from and Provision for Credit Losses

For the third quarter of 2021, the Company recorded a provision for credit losses of $1.5 million, compared to a provision for credit losses of $18.7 million for the third quarter of 2020.

The Company’s provision for the third quarter of 2021 supported a stable reserve as COVID continues to impact some businesses in Oklahoma and Texas despite a decline in COVID cases.

The elevated provision during the third quarter of 2020 was based on the Company’s evaluation of the level of uncertainty and lack of clarity of the timing of an end to the COVID-19 pandemic, as well as the magnitude of the government’s stimulus response to it.

The Company establishes an allowance as an estimate of the expected credit losses in the loan portfolio at the balance sheet date.

Management believes the allowance for credit losses is appropriate based upon management’s best estimate of expected losses within the existing loan portfolio.

Should any of the factors considered by management in evaluating the appropriate level of the allowance for credit losses

change, the Company’s estimate of expected credit losses could also change, which could affect the amount of future provisions for credit losses.

Net loan charge-offs were $10,000 for the third quarter of 2021, compared to net loan charge-offs of $2.1 million for the third quarter of 2020.

The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a low level.

For the nine months ended September 30, 2021, the Company recorded a net benefit from reversal of provision for credit losses of $8.5 million compared to a provision for credit losses of $57.7 million for nine months ended September 30, 2020.

Net loan charge-offs were $4.7 million, compared to $3.1 million for the same period of the prior year.

The Company’s reversal of provision for the nine months ended September 30, 2021 was based on improvements in economic conditions and the Company’s outlook for certain economic indicators.

The elevated provision during the nine months ended September 30, 2020 was based on the Company’s evaluation of the level of uncertainty and lack of clarity of the timing of an end to the COVID-19 pandemic, as well as the magnitude of the government’s stimulus response to it.

Noninterest Income

Noninterest income, as presented in the preceding table, increased by $5.2 million for the third quarter of 2021 compared to the third quarter of 2020.

Noninterest income included non-sufficient funds fees totaling $6.8 million and $6.4 million for the three months ended September 30, 2021 and 2020, respectively.

This represents 17.2% and 18.6% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $11.7 million and $9.7 million during the three months ended September 30, 2021 and 2020, respectively.

This represents 29.5% and 27.9% of the Company’s noninterest income for the respective periods.

For the third quarter of 2021 compared to the third quarter of 2020, government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased both customer liquidity and interchange volume resulting in higher debit card interchange fees.

Noninterest income increased by $22.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in noninterest income was due to a purchase gain of $4.8 million associated with The First National Bank and Trust Company of Vinita, Oklahoma, a gain from the sale of the Company’s Hugo, Oklahoma branch of $2.5 million, a $7.3 million increase in income from debit card interchange fees, $7.5 million in rental income from other real estate property, and a $2.4 million increase in insurance commissions, which were partially offset by a $4.5 million decrease in income from sweep fees.

In addition, the Company earned $5.7 million on the sale of loans for the nine months ended September 30, 2021 compared to $4.2 million for the nine months ended September 30, 2020.

The income from sales of loans increased due to the increase in volume of mortgage loans originated because of record low mortgage rates.

Noninterest income included non-sufficient fund fees totaling $18.0 million and $19.7 million during the nine months ended September 30, 2021 and 2020, respectively.

This represents 14.4% and 19.3% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $34.3 million and $27.0 million during the nine months ended September 30, 2021 and 2020, respectively.

This represents 27.6% and 26.5% of the Company’s noninterest income for the respective periods.

Government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased both customer liquidity and interchange volume.

This activity resulted in lower non-sufficient funds fees and higher debit card interchange fees for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Prior to the COVID-19 pandemic, there was minimal likelihood that the Company would surpass $10 billion in total assets for several years.

However, with the CARES Act, including PPP loans, stimulus payments to households, and artificially high household savings rates, our deposits and assets have grown dramatically beyond reasonably foreseeable levels.

To the extent the COVID-19 pandemic and the effects of the aforementioned stimulus programs continue, it is likely the Company will exceed $10 billion in total assets at December 31, 2021.

Pursuant to the Durbin Amendment of the Dodd-Frank Act, based on current run rates, this would trigger an approximate reduction of annual pretax income from debit card interchange fees of between $20 to $22 million beginning July 1, 2022.

The Company is undergoing efforts through the use of our existing sweep product to reduce total assets below $10 bill ion at December 31, 2021, but the success of these efforts is uncertain.

Noninterest Expense

Noninterest expense, as presented in the preceding table, increased by $4.1 million for third quarter of 2021 compared to the third quarter of 2020.

The increase in noninterest expenses was due to $2.0 million related to other real estate property operating costs and approximately $1.0 million in net occupancy and depreciation primarily from the Company’s move to its new corporate headquarters.

For the nine months ended September 30, 2021, noninterest expense increased by $17.1 million compared to the nine months ended September 30, 2020.

The increase in noninterest expenses was due to approximately $6.6 million related to other real estate

property operating costs, $4.0 million in acquisition related expenses, approximately $3.5 million in net occupancy and depreciation primarily from the Company’s move to its new corporate headquarters, and a $1.3 million increase in deposit insurance.

The nine months ended September 30, 2020 included a $2.3 million gain on the sale of other real estate owned, compared to approximately $245,000 for the nine months ended September 30, 2021, that reduced noninterest expense.

The Company’s effective tax rate was 19.7% for the third quarter of 2021, compared to 18.4% for the third quarter of 2020.

The lower effective tax rate for the third quarter of 2020 was due to a greater effect of tax credits on lower reported income.

The Company’s effective tax rate on income before taxes was 20.8% for the nine months ended September 30, 2021, compared to 18.9% for the nine months ended September 30, 2020.

The lower effective tax rate for the first nine months of 2020 was due to a greater effect of tax credits on lower reported income.

The reasons for the difference between the Company’s effective tax rate and the federal statutory rate were tax-exempt income, nondeductible amortization, federal and state tax credits and state tax expense.

FINANCIAL POSITION

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share data)

September 30,

Balance Sheet Data

Total loans (net of unearned interest)

Allowance for credit losses

Debt securities

Stockholders' equity

Book value per share

Tangible book value per share (non-GAAP)(1)

Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2)

Stockholders' equity

Less goodwill

Less intangible assets, net

Tangible stockholders' equity (non-GAAP)

Common shares outstanding

Tangible book value per share (non-GAAP)

Selected Financial Ratios

Balance Sheet Ratios:

Average loans to deposits (year-to-date)

Average earning assets to total assets (year-to-date)

Average stockholders’

equity to average assets (year-to-date)

Asset Quality Data

Loans past due 90 days and still accruing

Nonaccrual loans (3)

Restructured loans

Total nonperforming and restructured loans

Other real estate owned and repossessed assets

Total nonperforming and restructured assets

Asset Quality Ratios:

Nonaccrual loans to total loans

Nonperforming and restructured loans to total loans

Nonperforming and restructured assets to total assets

Allowance for credit losses to total loans

Allowance for credit losses to nonperforming and restructured loans

Allowance for credit losses to nonaccrual loans

(1) Refer to the “Reconciliation of Tangible Book Value per Common Share (non-GAAP)”

(2) Tangible book value per common share is stockholders’

equity less goodwill and intangible assets, net, divided by common shares outstanding.

This amount is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate the financial condition and capital strength of the Company.

This measure should not be considered a substitute for operating results determined in accordance with GAAP.

(3) Government Agencies guarantee approximately $3.1 million of nonaccrual loans at September 30, 2021.

Cash and Interest-Bearing Deposits with Banks

The aggregate of cash and due from banks and interest-bearing deposits with banks increased by $2.5 billion or 154.2% to $4.1 billion, from December 31, 2020 to September 30, 2021.

The increase was primarily related to the increase in deposits from PPP and other government stimulus payments.

At September 30, 2021, total debt securities decreased $25.7 million, or 4.6% compared to December 31, 2020.

The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management.

The net unrealized gain on debt securities available for sale, before taxes, was $6.4 million at September 30, 2021, compared to a net unrealized gain of $9.9 million at December 31, 2020.

These unrealized gains are included in the Company’s stockholders’

equity as accumulated other comprehensive income, net of income tax, in the amounts of a gain of $4.9 million at September 30, 2021 and a gain of $7.4 million at December 31, 2020.

See Note (3) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s Securities.

At September 30, 2021, total loans decreased $410.3 million or 6.4% compared to December 31, 2020.

The decrease in loans resulted from a net decrease of approximately $451.5 million in PPP loans and the sale of approximately $21 million of loans from the Company’s Hugo, Oklahoma branch along with pay downs on loans.

The decrease in loans were partially offset by the Company’s purchase of approximately $149 million in loans, from The First National Bank and Trust Company of Vinita, Oklahoma.

At September 30, 2021, the balance of total PPP loans was $201.2 million, net of unamortized processing fees of $6.7 million.

See Note (4) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s loan portfolio segments.

Allowance for Credit Losses

On January 1, 2020, the Company adopted ASC 326, which replaces the incurred loss methodology with an expected loss methodology that is referred to as CECL.

The decrease in the allowance for credit loss during 2021 was primarily driven by a reversal of provision during the second quarter of 2021, and a lower provision in the third quarter of 2021 based on sustained improvements in the economy, both nationally and in Oklahoma and Texas, 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 purchased with credit deterioration.

Nonaccrual and Restructured Assets

At September 30, 2021, nonperforming and restructured assets decreased $4.7 million to $77.9 million compared to December 31, 2020.

The Company’s level of nonperforming and restructured assets has continued to be relatively low, equating to 0.69% of total assets at September 30, 2021 and 0.90% of total assets at December 31, 2020.

Nonaccrual loans totaled $26.6 million at September 30, 2021, compared to $37.5 million at December 31, 2020.

At September 30, 2021, the Company’s nonaccrual loans decreased $10.9 million from December 31, 2020, due to resolutions of several loans, which were offset by $7.2 million of nonaccrual loans acquired from The First National Bank and Trust Company of Vinita, Oklahoma.

The Company’s nonaccrual loans are primarily commercial and agricultural non-real estate and farmland.

Nonaccrual loans negatively impact the Company’s net interest margin.

A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of both interest and principal is in serious doubt.

Interest income is not recognized until the principal balance is fully collected.

However, if the full collection of the remaining principal balance is not in doubt, interest income is recognized on certain of these loans on a cash basis.

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, 2021 and $2.1 million for the nine months ended September 30, 2020.

Only a small amount of this interest is expected to be ultimately collected.

Approximately $3.1 million of nonaccrual loans were guaranteed by government agencies at September 30, 2021.

Restructured loans totaled $7.1 million at September 30, 2021 compared to $7.8 million at December 31, 2020.

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

As a result, the current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings whose terms were modified during the period were not considered to be material.

The classification of a loan as nonperforming does not necessarily indicate that loan principal and interest will ultimately be uncollectible;

although, in an economic downturn, the Company’s experience has been that the level of collections declines.

The above normal risk associated with nonperforming loans has been considered in the determination of the allowance for credit losses.

At September 30, 2021, the allowance for credit losses as a percentage of nonperforming and restructured loans was 222.46%, compared to 182.26%, at December 31, 2020.

The level of nonperforming loans and credit losses could rise over time as a result of adverse economic conditions.

Other real estate owned (OREO) and repossessed assets totaled $39.1 million at September 30, 2021, compared to $32.5 million at December 31, 2020.

Other real estate owned consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure and premises held for sale.

At September 30, 2021, the Company’s OREO increased $6.8 million from December 31, 2020, and included approximately $4.0 million from the repossession of one commercial real estate property, $2.4 million from the decommissioning of the Company’s previous headquarters, and approximately $600,000 acquired from The First National Bank and Trust Company of Vinita, Oklahoma.

As of both September 30, 2021 and December 31, 2020, other real estate owned included a commercial real estate property recorded at approximately $28 million.

Other real estate owned and repossessed assets are carried at the lower of the book values of the related loans or fair values based upon appraisals, less estimated costs to sell.

Write-downs arising at the time of reclassification of such properties from loans to other real estate owned are charged directly to the allowance for credit losses.

Any losses on bank premises designated to be sold are charged to operating expense at the time of transfer from premises to other

real estate owned.

Decreases in values of properties subsequent to their classification as other real estate owned are charged to operating expense.

Intangible Assets, Goodwill and Other Assets

Identifiable intangible assets and goodwill totaled $168.2 million and $168.9 million at September 30, 2021 and December 31, 2020, respectively.

On May 20, 2021, the Company recorded a core deposit intangible of approximately $1.7 million because of the purchase of assets and assumption of liabilities from The First National Bank and Trust Company of Vinita, Oklahoma.

See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company’s recent developments, including mergers and acquisitions.

Other assets includes the cash surrender value of key-man life insurance policies totaling $82.1 million at September 30, 2021 and $80.7 million at December 31, 2020.

Equity securities are reported in other assets on the balance sheet.

The Company invests in equity securities without readily determinable fair values.

The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income.

The balance of equity securities was $23.5 million at September 30, 2021 and $21.2 million at December 31, 2020.

The Company reviews its portfolio of equity securities for impairment at least quarterly.

The balance of these equity securities included equity interests of previous borrowers in the oil and gas industry, which were received through bankruptcy proceedings, which totaled approximately $13.1 million at September 30, 2021 and approximately $11.1 million at December 31, 2020.

Low Income Housing and New Market Tax Credit Investments

During 2021, there have not been any material changes in the Company’s low income housing tax credit investments and new market tax credit investments, which are included in other assets on the Company’s balance sheet.

See Note (6) of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for disclosures regarding these investments.

Liquidity and Funding

The Company’s principal source of liquidity and funding is its broad deposit base generated from customer relationships.

The availability of deposits is affected by economic conditions, competition with other financial institutions and alternative investments available to customers.

Through interest rates paid, service charge levels and services offered, the Company can affect its level of deposits to a limited extent.

The level and maturity of funding necessary to support the Company’s lending and investment functions is determined through the Company’s asset/liability management process.

The Company currently does not rely heavily on long-term borrowings and does not utilize brokered CDs.

The Company maintains federal funds lines of credit with other banks and could utilize the sale of loans, securities and liquidation of other assets as sources of liquidity and funding.

There have not been any other material changes from the liquidity and funding discussion included in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

At September 30, 2021, deposits totaled $10.0 billion, an increase of $1.9 billion or 23.9% from the December 31, 2020 total.

The increase in deposits was primarily related to deposits of proceeds from the PPP and other government stimulus payments.

The Company’s core deposits provide it with a stable, low-cost funding source.

The Company’s core deposits as a percentage of total deposits were 98.5% at September 30, 2021 and 98.2% at December 31, 2020.

Noninterest-bearing deposits to total deposits were 46.0% at September 30, 2021, compared to 47.0% at December 31, 2020.

Subordinated Debt

On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 to various institutional accredited investors.

See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated debt.

Short-Term Borrowings

Short-term borrowings, consisting primarily of federal funds purchased and repurchase agreements are another source of funds for the Company.

The level of these borrowings is determined by various factors, including customer demand and the Company’s ability to earn a favorable spread on the funds obtained.

Short-term borrowings were $3.5 million at September 30, 2021, compared to $1.1 million at December 31, 2020.

Long-Term Borrowings

The Company has a line of credit from the Federal Home Loan Bank (“FHLB”) of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed-rate loans.

The Company’s assets, including residential first mortgages of $862.4 million, are pledged as collateral for the borrowings under the line of credit.

As of September 30, 2021 and December 31, 2020, the Company had no advances outstanding under the line of credit from FHLB.

Capital Resources

Stockholders’

equity totaled $1.1 billion at both September 30, 2021 and December 31, 2020.

In addition to net income of $129.5 million, other changes in stockholders’

equity during the nine months ended September 30, 2021 included $1.7 million related to common stock issuances and $1.6 million related to stock-based compensation, that were partially offset by $34.1 million in dividends, $11.7 million from the repurchase of the Company's stock, $5.5 million from settlement of options in cash, and a $2.6 million decrease in other comprehensive income.

The Company’s leverage ratio and total risk-based capital ratios at September 30, 2021, were well in excess of the regulatory requirements.

See Note (9) of the Notes to Consolidated Financial Statements for a discussion of capital ratios and requirements.

Liquidity Risk and Off-Balance Sheet Arrangements

There have not been any material changes in the Company’s liquidity and off-balance sheet arrangements included in Management’s Discussion and Analysis which was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in the Company’s disclosures regarding market risk since December 31, 2020, the date of its most recent annual report to stockholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements