What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 368 added, 402 removed, 882 unchanged (47% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30,

Cash and due from banks

Interest-bearing deposits with banks

Federal funds sold

Debt securities held for investment (fair value:

27 unchanged sentences

Retained earnings

Accumulated other comprehensive income, net of income tax of $ 1,533

Accumulated other comprehensive (loss) income, net of tax of $ 9,166

and $( 684 ), respectively

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

Loans, including fees

Debt securities:

Federal funds sold

Interest-bearing deposits with banks

5 unchanged sentences

Net interest income

Provision for (benefit from) credit losses

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

Provision for credit losses

Net interest income after provision for credit losses

NONINTEREST INCOME

1 unchanged sentence

Service charges on deposits

Securities transactions (includes no accumulated other comprehensive income reclassifications)

Securities transactions (includes accumulated other comprehensive loss reclassifications of $ 1,536 and $ 0 , respectively)

Income from sales of loans

8 unchanged sentences

Data processing services

Net loss/(income) from other real estate owned

Net expense from other real estate owned

Marketing and business promotion

5 unchanged sentences

OTHER COMPREHENSIVE (LOSS) GAIN

Unrealized (losses)/gains on debt securities, net of tax of $ 172 , $ 335 , $ 980 and $( 1,756 ) respectively

Unrealized losses on debt securities, net of tax of $ 10,219 and $ 336 , respectively

Reclassification adjustment for losses included in net income, net of tax of $( 369 ) and $ 0 , respectively

Other comprehensive loss, net of tax of $ 9,850 and $ 336 , respectively

Comprehensive income

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Issued at beginning of period

Shares issued for stock options

Shares acquired and canceled

Issued at end of period

7 unchanged sentences

Balance at beginning of period

Cumulative effect of change in accounting principle, net of tax of $ 925

Dividends on common stock ($ 0.36 and $ 0.34 per share, respectively)

Net cash settlement of options

Common stock acquired and canceled

Balance at end of period

8 unchanged sentences

(Dollars in thousands)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile to net cash provided by operating activities:

(Benefit from)/provision for credit losses

Provision for credit losses

Depreciation and amortization

Net amortization of securities premiums and discounts

Realized securities (gains)/losses

Realized securities losses/(gains)

Gain on sales of loans

1 unchanged sentence

Cash disbursements for loans originated for sale

Deferred income tax provision/(benefit)

Deferred income tax benefit

Gain on sale of other assets

Decrease/(increase) in interest receivable

Increase/(decrease) in interest receivable

Increase/(decrease) in interest payable

5 unchanged sentences

Net cash paid from sale of assets and liabilities, net of cash received

Net decrease in federal funds sold

Purchases of held for investment debt securities

Net increase in federal funds sold

Purchases of available for sale debt securities

1 unchanged sentence

Proceeds from maturities, calls and paydowns of available for sale debt securities

Proceeds from sales of available for sale securities

Purchase of equity securities

1 unchanged sentence

Net change in loans

Net payments on derivative asset contracts

Purchases of premises, equipment and computer software

Purchase of tax credits

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

FINANCING ACTIVITIES

1 unchanged sentence

Net change in short-term borrowings

Proceeds from long-term borrowings

Paydown of long-term borrowings

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

Issuance of common stock in connection with stock options, net

Common stock acquired

Net cash settlement of options

1 unchanged sentence

Net cash provided by financing activities

Net increase/(decrease) in cash, due from banks and interest-bearing deposits

Net increase in cash, due from banks and interest-bearing deposits

Cash, due from banks and interest-bearing deposits at the beginning of the period

16 unchanged sentences

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., Pegasus Bank and BancFirst and its subsidiaries.

The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BFTower, LLC, BFC-PNC LLC, and BancFirst Agency, Inc.

7 unchanged sentences

All such adjustments are of a normal and recurring nature.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation.

Such reclassifications had no effect on previously reported cash flows, stockholders’

equity or comprehensive income.

Use of Estimates in the Preparation of Financial Statements

2 unchanged sentences

Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.

Recent Accounting Pronouncements

Standards Not Yet Adopted:

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2022-02, “Financial Instruments –

Credit Losses (Topic 326).”

ASU 2022-02 eliminates the TDR recognition and measurement guidance and, instead, requires that the Company evaluate, based on the accounting for loan modifications, whether the modification represents a new loan or a continuation of an existing loan.

The Company has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings when adopted.

In addition, the update requires that the Company disclose current-period write-offs by year of origination for financing receivables.

The current-period write-off amendment should be applied prospectively.

The amendments are effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods.

Early adoption is permitted;

however the Company expects to adopt ASU 2022-02 on January 1, 2023.

2022-02 is not expected to have a significant impact on the Company’s financial statements.

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

On February 8, 2022, BancFirst Corporation acquired Worthington for an aggregate cash purchase price of $ 77.7 million.

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

At acquisition, Worthington had approximately $ 484 million in total assets, $ 257 million in loans and $ 430 million in deposits.

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 earning assets.

As a result of the acquisition, the Company recorded a core deposit intangible of approximately $ 8.7 million and goodwill of approximately $ 26.6 million.

These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available.

The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward.

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

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.

1 unchanged sentence

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.

The Company recorded a bargain purchase gain related to this purchase of approximately $ 4.8 million, which was included in other noninterest income on the statement of comprehensive income and in other operating activities on the statement of cash flow during the second quarter of 2021.

The bargain purchase gain is a noncash item on the statement of cash flow.

In addition, the Company recorded expenses related to this purchase of approximately $ 4.8 million, which are included in noninterest expense.

In addition, the Company recorded expenses related to this purchase of approximately $ 4.8 million, which were included in noninterest expense during the second quarter of 2021.

As a result of the purchase, the Company recorded a core deposit intangible of approximately $ 1.7 million.

3 unchanged sentences

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.

The Company recorded a gain on the transaction of $ 2.5 million, which is included in noninterest income in the first quarter of 2021.

(3) SECURITIES

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

September 30, 2021

March 31, 2022

(Dollars in thousands)

7 unchanged sentences

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

September 30, 2021

March 31, 2022

(Dollars in thousands)

3 unchanged sentences

Asset backed securities

Other securities

December 31, 2021

3 unchanged sentences

Asset backed securities

Other securities

(1) Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S.

On January 10, 2022, the Company purchased United States Treasury Notes of $ 600 million par value with an average yield of 1.42 % and an average maturity of 53 months.

The maturities of debt securities held for investment and available for sale are summarized in the following table using contractual maturities.

1 unchanged sentence

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.

September 30, 2021

March 31, 2022

December 31, 2021

14 unchanged sentences

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:

September 30, 2021

March 31, 2022

December 31, 2021

1 unchanged sentence

Book value of pledged securities

The following is a detail of proceeds from sales and the realized losses on available for sale debt securities:

March 31, 2022

March 31, 2021

(Dollars in thousands)

Gross losses realized

During the three months ended March 31, 2022, the Company sold $ 226 million of debt securities with an average yield of 0.16 %, which were subsequently reinvested in $ 220 million of debt securities with an average yield of 1.86 %.

The Company used specific identification to reclassify the unrealized loss in other comprehensive income to a realized loss, as shown in the consolidated statements of comprehensive income.

There were no sales of debt securities and therefore no proceeds from sales or realized securities gains or losses on available for sale debt securities for the three months ended March 31, 2021.

Realized gains/losses on debt and equity securities are reported as securities transactions within the noninterest income section of the consolidated statement of comprehensive income.

The following table summarizes debt securities with unrealized losses, segregated by the duration of the unrealized loss, at March 31, 2022 and December 31, 2021 respectively:

Less than 12 Months

More than 12 Months

Number of investments

(Dollars in thousands)

March 31, 2022

Available for Sale

federal agencies

Mortgage backed securities

States and political subdivisions

Asset backed securities

Other securities

December 31, 2021

Available for Sale

federal agencies

Mortgage backed securities

States and political subdivisions

Other securities

The Company has the ability and intent to hold the debt securities classified as held for investment until they mature, at which time the Company will receive full value for the debt securities.

Furthermore, as of March 31, 2022 and December 31, 2021, the Company also had the ability and intent to hold the debt securities classified as available for sale for a period of time sufficient for a recovery of cost.

The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying debt securities were purchased.

The fair value of those debt securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline.

The Company has no intent or requirement to sell before the recovery of the unrealized loss;

therefore, no impairment loss was realized in the Company’s consolidated statement of comprehensive income.

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

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

September 30, 2021

March 31, 2022

December 31, 2021

9 unchanged sentences

Other loans (2)

(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.

(1) Excludes accrued interest receivable of $ 22.1 million at March 31, 2022 and $ 21.0 million at December 31, 2021, that is recorded in accrued interest receivable and other assets.

(2) Includes PPP loans held for investment of $ 30.6 million, net of unamortized processing fees of $ 394,000 , at March 31, 2022 and $ 80.4 million, net of unamortized processing fees of $ 2.0 million, at December 31, 2021.

Other loans 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.

Since PPP loans are fully guaranteed by the SBA, there is no expected credit loss related to these loans.

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

The Company had processing fees, which were recognized as interest income related to the PPP loans totaling $ 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.

The Company had processing fees, which were recognized as interest income related to the PPP loans totaling $ 1.7 milli on and $ 9.8 million during the three months ended March 31, 2022 and 2021, respectively.

The Company's loans are currently 84 % held by BancFirst and 16 % held by Pegasus and Worthington.

In addition, approximately 64 % of the Company's loans are secured by real estate.

Credit risk on loans is managed through limits on amounts loaned to individual and related borrowers, underwriting standards and loan monitoring procedures.

2 unchanged sentences

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.

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.

Energy loans are summarized as follows:

September 30, 2021

December 31, 2020

(Dollars in thousands)

BancFirst energy loans

Ancillary services

Pegasus Bank energy loans

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, 2021.

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

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

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

September 30,

March 31, 2022

December 31, 2021

(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 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.

Other real estate owned includes approximately $ 2.4 million related to the Company's previous headquarters.

As of both March 31, 2022 and December 31, 2021, other real estate owned included a single commercial real estate property recorded at approximately $ 29.5 million.

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

Nonaccrual loans

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 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.

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

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

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

September 30, 2021

March 31, 2022

December 31, 2021

9 unchanged sentences

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

The following table presents an age analysis of our loans held for investment:

The following table presents an age analysis of the Company's loans held for investment:

Age Analysis of Past Due Loans

(Dollars in thousands)

As of September 30, 2021

As of March 31, 2022

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 $ 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.

Credit Quality Indicators

The Company considers credit quality indicators to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical credit loss experience and economic conditions.

These indicators are reviewed and updated regularly throughout the year.

An internal risk grading system is used to indicate the credit risk of loans.

The loan grades used by the Company are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions.

The general characteristics of the risk grades and the table summarizing 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 general characteristics of the risk grades and the table summarizing the Company’s gross loans held for investment by year of origination and internally assigned credit grades as of December 31, 2021, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

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

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

Term Loans Amortized Cost Basis by Origination Year

1 unchanged sentence

(Dollars in thousands)

As of September 30, 2021

As of March 31, 2022

Commercial real estate owner occupied

Total commercial real estate owner occupied loans

Total commercial real estate owner occupied

Commercial real estate non-owner occupied

Total commercial real estate non-owner occupied loans

Total commercial real estate non-owner occupied

Construction and development < 60 months

13 unchanged sentences

Total other loans

Total Pegasus Bank

Total loans held for investment

Allowance for Credit Losses Methodology

On January 1, 2020, the Company adopted ASC 326, which replaces the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model.

Upon adoption, the allowance for credit losses was decreased by $ 3.2 million, with no impact to the consolidated statement of income.

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 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.

The Company determines its provision for credit losses and allowance for credit losses using the expected loss methodology that is referred to as the CECL model.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

The increase in allowance for credit loss during 2022 was primarily related to the purchase of loans without credit deterioration during the quarter.

The decrease in the allowance for credit loss during 2021 was driven by a reversal of a pandemic-related provision during 2021 based on sustained improvements in the economy, both nationally and in the Company's markets, which reduced the amount of expected credit loss within the loan portfolio.

This reduction was partially offset by additional allowance for credit loss required by newly acquired loans.

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

2 unchanged sentences

Initial allowance on loans purchased with credit deterioration

(Benefit from) /Provision

for credit losses on loans

Provision for /(benefit from) credit losses on loans

(Dollars in thousands)

Three Months Ended September 30, 2021

Commercial real estate owner occupied

Commercial real estate non-owner occupied

Construction and development < 60 months

Construction residential real estate < 60 months

Residential real estate first lien

Residential real estate all other

Commercial and agricultural non-real estate

Consumer non-real estate

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Commercial real estate owner occupied

7 unchanged sentences

Allowance for Credit Losses

Impact of CECL adoption

Initial allowance on loans purchased with credit deterioration

Provision for /(benefit from) credit losses on loans

(Dollars in thousands)

Three Months Ended September 30, 2020

Commercial real estate owner occupied

Commercial real estate non-owner occupied

Construction and development < 60 months

Construction residential real estate < 60 months

Residential real estate first lien

Residential real estate all other

Commercial and agricultural non-real estate

Consumer non-real estate

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Commercial real estate owner occupied

7 unchanged sentences

Purchased Credit Deteriorated Loans

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 nine months ended September 30, 2021 and 2020 were as follows:

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

The Company did not purchase credit-deteriorated loans during the three-month period ended March 31, 2021.

The credit-deteriorated loans purchased during the three months ended March 31, 2022 were as follows:

Loans acquired

2 unchanged sentences

(Dollars in thousands)

For the period ended September 30, 2021

Purchase price of loans at acquisition

Allowance for credit losses at acquisition

Par value of acquired loans at acquisition

For the period ended September 30, 2020

For the period ended March 31, 2022

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 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.

During the three months ended March 31, 2022 and 2021 , no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent.

The following table summarizes collateral-dependent gross loans held for investment by collateral type and the related specific allocation as follows:

4 unchanged sentences

(Dollars in thousands)

As of September 30, 2021

As of March 31, 2022

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:

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands)

4 unchanged sentences

(Dollars in thousands)

September 30, 2021

March 31, 2022

Core deposit intangibles

4 unchanged sentences

The following is a summary of goodwill by business segment:

Metropolitan Banks

Community Banks

Other Financial Services

Executive, Operations & Support

(Dollars in thousands)

Nine months ended September 30, 2021

Three months ended March 31, 2022

Balance at beginning of period

Balance at beginning and end of period

The Company acquired Worthington on February 8, 2022, which added core deposit intangibles and goodwill shown in the tables above.

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

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, 2021 .

2 unchanged sentences

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.

As of March 31, 2022 , the right of use lease asset included in accrued interest receivable and other assets on the balance sheet totaled $ 5.0 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $ 4.9 million.

As of March 31, 2022 , the Company's operating leases have a weighted-average remaining lease term of 3.5 years and a weighted-average discount rate of 2.5 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.

September 30, 2021

March 31, 2022

(Dollars in thousands)

2021 (three months)

2022 (nine 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 $ 1.1 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.

The Company had operating lease revenue of $ 1.3 million and $ 1.4 million for the three months ended March 31, 2022 and 2021, 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:

September 30, 2021

March 31, 2022

(Dollars in thousands)

2021 (three months)

2022 (nine months)

Total future minimum lease payments

15 unchanged sentences

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 Company used 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

10 unchanged sentences

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.

At March 31, 2022 , there were 116,000 shares available for future grants.

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

6 unchanged sentences

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

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

At March 31, 2022 , there were 40,000 shares available for future grants.

The Non-Employee Directors’

4 unchanged sentences

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 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.

During the three months ended March 31, 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)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Outstanding at December 31, 2021

1 unchanged sentence

Options exercised

Options canceled, forfeited, or expired

Outstanding at September 30, 2021

Exercisable at September 30, 2021

Outstanding at March 31, 2022

Exercisable at March 31, 2022

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

Total intrinsic value of options exercised

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Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

Stock-based compensation expense

2 unchanged sentences

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

September 30, 2021

March 31, 2022

(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:

Nine Months Ended

September 30,

Three Months Ended

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

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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.

As of March 31, 2022 , there are 31,914 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.

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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 nine months ended September 30, 2021 and 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 6,177 and 2,161 shares of common stock distributed from the Deferred Stock Compensation Plan during the three months ended March 31, 2022 and 2021, respectively.

A summary of the accumulated stock units is as follows:

September 30,

Accumulated stock units

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

Nine Months Ended

September 30,

Three Months Ended

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.

BancFirst Corporation , BancFirst, Pegasus and Worthington 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 BancFirst Corporation’s, BancFirst’s, Pegasus’s and Worthington'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 September 30, 2021 , the Company, BancFirst and Pegasus Bank met all capital adequacy requirements to which they are subject.

The Company believes that as of March 31, 2022 , BancFirst Corporation, BancFirst, Pegasus and Worthington met all capital adequacy requirements to which they are subject.

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

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(Dollars in thousands)

As of September 30, 2021:

As of March 31, 2022:

Total Capital

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BancFirst Corporation

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”

As of March 31, 2022 , the most recent notifications from the Federal Reserve Bank of Kansas City, the FDIC and the Comptroller of the Currency, categorized BancFirst, Pegasus and Worthington 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.

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

In connection with the adoption of the Basel III Capital Rules, the election was made to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1 Capital.

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.

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

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.

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.

There are no conditions or events since the most recent notifications to BancFirst Corporation, BancFirst, Pegasus and Worthington of their capital category that management believes would materially change their category under capital requirements existing as of the report date.

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.

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

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

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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 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.

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

The PPP loans the Company originated in 2021 and 2020 are included in the calculation of the Company’s leverage ratio as of March 31, 2022 as the Company did not utilize the PPP Facility for funding purposes.

(10) NET INCOME PER COMMON SHARE

2 unchanged sentences

(Dollars in thousands, except per share data)

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 September 30, 2020

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders

plus assumed exercises of stock options

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders plus

assumed exercises of stock options

Nine Months Ended September 30, 2020

Income available to common stockholders plus assumed exercises of stock options

Three Months Ended March 31, 2021

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 September 30, 2021

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022

Three Months Ended March 31, 2021

(11) FAIR VALUE MEASUREMENTS

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Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

This category includes certain collaterally dependent loans, repossessed assets, other real estate owned, goodwill and other intangible assets.

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Periodically, the Company will validate prices supplied by the independent pricing service by comparison to prices obtained from third party sources.

Derivatives are reported at fair value utilizing Level 2 inputs.

The Company obtains dealer and market quotations to value its oil and gas swaps and options.

The Company utilizes dealer quotes and observable market data inputs to substantiate internal valuation models.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

4 unchanged sentences

(Dollars in thousands)

September 30, 2021

March 31, 2022

Debt securities available for sale:

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Asset backed securities

Other debt securities

Derivative assets

Derivative liabilities

December 31, 2021

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Asset backed securities

Other debt securities

Derivative assets

Derivative liabilities

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

Nine Months Ended September 30,

Three Months Ended March 31,

Twelve Months Ended

1 unchanged sentence

Balance at the beginning of the year

Transfers (to)/from level 2

Total unrealized losses

Transfers to level 2

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 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.

During the three months ended March 31, 2022, the Company did not transfer any debt securities.

During the year ended December 31, 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.

Financial Assets and Financial Liabilities Measured at Fair Value on a Nonrecurring Basis

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Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is dependent on liquidation of the collateral.

When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

When the Company determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit

losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

In no case does the fair value of a collateral dependent loan exceed the fair value of the underlying collateral.

6 unchanged sentences

(Dollars in thousands)

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

As of and for the Year-to-date Period Ended March 31, 2022

Equity securities

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The carrying amount of these short-term instruments is based on a reasonable estimate of fair value.

Federal Funds Sold

The carrying amount of these short-term instruments is a reasonable estimate of fair value.

Debt Securities Held for Investment

7 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.

For certain homogeneous categories of loans, such as some residential mortgages, fair values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

For certain homogeneous categories of loans, such as some residential mortgages, fair

values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

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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)

2 unchanged sentences

Cash and cash equivalents

Federal funds sold

Debt securities held for investment

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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 September 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 March 31, 2022 or December 31, 2021 .

(12) DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into oil and gas swaps and options contracts to accommodate the business needs of its customers.

Upon the origination of an oil or gas swap or option contract with a customer, to mitigate the exposure to fluctuations in oil and gas prices, the Company simultaneously enters into an offsetting contract with a counterparty.

These derivatives are not designated as hedged instruments and are recorded on the Company's consolidated balance sheet at fair value and are included in other assets.

The Company's derivative financial instruments require a daily margin to be posted, which fluctuates with oil and gas prices.

These margins have increased during 2022 due to the current increase in oil and gas prices and customer activity.

These margins are included in other assets totaling $ 84.6 million at March 31, 2022 and $ 14.3 million at December 31, 2022.

The Company utilizes dealer quotations and observable market data inputs to substantiate internal valuation models.

The notional amounts and estimated fair values of oil and gas derivative positions outstanding are presented in the following table:

March 31, 2022

December 31, 2021

Oil and Natural Gas Swaps and Options

Notional Units

(Notional amounts and dollars in thousands)

Derivative assets

Derivative liabilities

Derivative assets

Derivative liabilities

Total Fair Value

Derivative assets

Derivative liabilities

Other liabilities

The following table is a summary of the Company's recognized income related to the activity, which was included in other noninterest income:

Three Months Ended March 31,

(Dollars in thousands)

Derivative income

The Company's credit exposure on oil and gas swaps and options varies based on the current market prices of oil and natural gas.

Other than credit risk, changes in the fair value of customer positions will be offset by equal and opposite changes in the counterparty positions.

The net positive fair value of the contracts represents the profit derived from the activity and is unaffected by the market price movements.

The Company's share of total profit is approximately 35 %.

Customer credit exposure is managed by strict position limits and is primarily offset by first liens on production while the remainder is offset by cash.

Counterparty credit exposure is managed by selecting highly rated counterparties (rated A- or better by Standard and Poor's) and monitoring market information.

The Company's net credit exposure relating to oil and gas swaps and options with bank counterparties was zero as of both March 31, 2022 and December 31, 2021.

Balance Sheet Offsetting

Derivatives may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements.

The Company's derivative transactions with upstream financial institution counterparties and bank customers are generally executed under International Swaps and Derivative Association ("ISDA") master agreements, which include "right of set-off" provisions.

In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis.

Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes.

(13) SEGMENT INFORMATION

The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis.

The five principal business units are metropolitan banks, community banks, Pegasus Bank, other financial services and executive, operations and support.

Metropolitan banks, community banks and Pegasus Bank offer traditional banking products such as commercial and retail lending and a full line of deposit accounts.

The six principal business units are metropolitan banks, community banks, Pegasus, Worthington, other financial services and executive, operations and support.

Metropolitan banks, community banks, Pegasus and Worthington offer traditional banking products such as commercial and retail lending and a full line of deposit accounts.

Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas.

Community banks consist of banking locations in communities throughout Oklahoma.

Pegasus Bank consists of banking locations in the Dallas metropolitan area.

Pegasus consists of banking locations in the Dallas metropolitan area.

Worthington consists of banking locations in the Fort Worth metropolitan area.

Other financial services are specialty product business units including guaranteed small business lending, residential mortgage lending, trust services, securities brokerage, electronic banking and insurance.

The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units.

The results of operations and selected financial information for the five business units are as follows:

The results of operations and selected financial information for the six business units are as follows:

(Dollars in thousands)

Three Months Ended September 30, 2021

Net interest income

Noninterest income

Income before taxes

Three Months Ended September 30, 2020

Net interest income

Noninterest income

Income before taxes

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Net interest income

1 unchanged sentence

Income before taxes

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Net interest income

2 unchanged sentences

Total Assets:

September 30, 2021

March 31, 2022

December 31, 2021

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.

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.

The following discussion and analysis of our financial condition as of March 31, 2022 and December 31, 2021 and results of operations for the three months ended March 31, 2022 should be read in conjunction with our consolidated financial statements and notes to the financial statements for the year ended December 31, 2021, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2021 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.

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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 probability the Durbin Amendment will impact non-interest income.

Political pressures could further limit our ability to charge for NSF and overdraft fees.

The effect of governments’

2 unchanged sentences

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.

Inflation, including wage 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.

The COVID-19 pandemic’s adverse effects on us and our customers, employees and third-party service providers, which may materially affect our business, financial position, operations and prospects.

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

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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.

The Company’s net income for the first quarter of 2022 was $35.9 million, compared to $42.5 million for the first quarter of 2021.

Diluted net income per common share was $1.08 and $1.27 for the first quarter of 2022 and 2021, respectively.

The Company’s net interest income for the first quarter of 2022 decreased to $75.5 million, compared to $77.2 million for the first quarter of 2021.

The decrease was due to the decline of PPP fee income of approximately $8.1 million, partially offset by the increase in interest income on debt securities of $2.0 million, an increase of $1.2 million related to interest-bearing deposits at the Federal Reserve and $1.7 million in net interest income related to the Worthington acquisition.

The net interest margin for the first quarter was 2.78%, compared to 3.36% a year ago.

The decrease in margin was due to lower PPP fees earned during the quarter and an increase in cash held at the Federal Reserve.

For the first quarter of 2022 a provision of $2.9 million was recorded, which was substantially related to acquired loans during the quarter, compared to no provision for credit losses recorded for March 31, 2021.

Noninterest income for the first quarter of 2022 totaled $43.7 million, compared to $39.9 million for the first quarter of 2021.

The increase in noninterest income was mostly attributable to $4.9 million of income resulting from the application of equity method accounting related to an equity interest received in the process of a loan collection, along with a $2.3 million increase in income from service charges on deposits and $1.4 million increase in insurance commissions.

The increase in non-interest income was partially offset by a loss of $4.0 million on bonds resulting from the sale of $226 million of low yielding debt securities, which were subsequently reinvested in higher yielding debt securities and a $2.6 million gain on sale of other assets in the first quarter last year.

Noninterest expense for the first quarter of 2022 increased to $72.5 million compared to $65.0 million for the first quarter of 2021 because of the increase in salaries and employee benefits of approximately $4.4 million and other expenses related to the Worthington acquisition.

The Company’s effective tax rate was 17.8% for the first quarter of 2022 compared to 18.5% for the first quarter of 2021.

The lower effective tax rate was driven by the exercising of stock options during the quarter and a lower state income tax rate.

At March 31, 2022, the Company’s total assets were $12.6 billion, an increase of $3.2 billion from December 31, 2021.

Debt securities of $1.2 billion were up $677.2 million from December 31, 2021.

Loans totaled $6.5 billion, an increase of $310.3 million from December 31, 2021.

Loans increased $257.4 million due to the acquisition of Worthington.

At March 31, 2022, the balance of the PPP loans was $30.6 million, compared to $80.4 million at December 31, 2021.

Deposits totaled $11.3 billion, an increase of $3.2 billion from the December 31, 2021 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 increase in assets and deposits from December 31, 2021 was primarily related to the return of off-balance sheet sweep accounts related to the Company’s year-end sweep program.

Off-balance sheet sweep accounts totaled $2.9 billion at March 31, 2022 compared to $5.1 billion at December 31, 2021.

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.

equity at March 31, 2022 was $1.2 billion, a decrease of $3.9 million over December 31, 2021.

The decrease in stockholders equity was due to unrealized losses included in other comprehensive income.

Nonaccrual loans represented 0.27% of total loans at March 31, 2022, down from 0.34% at December 31, 2021.

The allowance for credit losses to total loans was 1.34% at March 31, 2022 compared to 1.36% at December 31, 2021, and the allowance for credit losses to nonaccrual loans was approximately 500% at March 31, 2022 compared to 402% at December 31, 2021.

At March 31, 2022, the Company’s nonaccrual loans were $17.5 million compared to $20.9 million at year-end 2021.

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.

See Note (1) of the Notes to the Consolidated Financial Statements for disclosures regarding changes in the Company’s disclosures regarding recently issued accounting pronouncements since December 31, 2021, 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.

See Note (13) of the Notes to the 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.

The following table presents, for the periods indicated, certain information related to the Company's average balance sheet, 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.

4 unchanged sentences

(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,

Three Months Ended March 31,

Earning assets:

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Short-term borrowings

Long-term borrowings

Subordinated debt

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Income Statement Data

Net interest income

Provision for/(benefit from) credit losses

Provision for credit losses

Securities transactions

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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.

For the three months ended March 31, 2022, net interest income, which is the Company’s principal source of operating revenue, decreased $1.7 million or 2.2% compared to the three months ended March 31, 2021.

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.

As shown in the preceding table, the Company’s net interest margin for the first quarter of 2022 decreased compared to the first quarter of 2021.

The decrease in margin was due to lower PPP fees earned during the quarter and an increase in cash held at the Federal Reserve.

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

However, the Company's expectation is that interest rates will increase during the year.

Provision for Credit Losses

For the first quarter of 2022, the Company recorded a provision for credit losses of $2.9 million, which was substantially related to acquired loans during the quarter, compared to no provision for credit losses recorded for the first quarter of 2021.

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.

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 $289,000 for the first quarter of 2022, compared to net loan charge-offs of $506,000 for the first quarter of 2021.

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.

Noninterest income, as presented in the preceding table, increased by $3.7 million for the first quarter of 2022 compared to the first quarter of 2021.

The increase in non-interest income was partially offset by a loss of $4.0 million on bonds resulting from the sale of $226 million of low yielding debt securities, which were subsequently reinvested in higher yielding debt securities, and a $2.6 million gain on sale of other assets in the first quarter last year.

Noninterest income included non-sufficient funds fees totaling $6.5 million and $5.5 million for the three months ended March 31, 2022 and 2021, respectively.

This represents 15.0% and 13.8% 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.

In addition, the Company had debit card interchange fees totaling $11.7 million and $10.7 million during the three months ended March 31, 2022 and 2021, respectively.

This represents 26.7% of the Company’s noninterest income for both periods.

The Company is subject to political pressures that could limit its ability to charge for non-sufficient funds (" NSF") and overdraft fees.

It is expected that recent changes to the Company's rates charged on NSF and overdraft fees will lower annual pretax income by $6 to $7 million.

It is probable the Company will exceed $10 billion in total assets at December 31, 2022.

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 $22 to $24 million beginning July 1, 2023.

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.

Noninterest expense, as presented in the preceding table, increased by $7.5 million for first quarter of 2022 compared to the first quarter of 2021.

The increase in noninterest expenses was due to the increase in salaries and employee benefits of approximately $4.4 million and other expenses related to the Worthington acquisition.

The Company’s effective tax rate was 17.8% for the first quarter of 2022, compared to 18.5% for the first quarter of 2021.

The lower effective tax rate was driven by the exercising of stock options during the first quarter of 2022 and a lower state income tax rate.

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.

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(Dollars in thousands, except per share data)

September 30,

Balance Sheet Data

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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.

(3) Government agencies guarantee approximately $3.4 million of nonaccrual loans at March 31, 2022.

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 aggregate of cash and due from banks and interest-bearing deposits with banks increased by $2.0 billion or 99.6% to $4.1 billion, from December 31, 2021 to March 31, 2022.

The increase was primarily related to the return of off-balance sheet sweep accounts related to the Company’s year-end sweep program, which was partially off-set by the purchase of higher yielding bonds described below.

At March 31, 2022, total debt securities increased $677.2 million, or 126.7% compared to December 31, 2021.

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.

The net unrealized loss on debt securities available for sale, before taxes, was $38.7 million at March 31, 2022, compared to a net unrealized gain of $2.8 million at December 31, 2021.

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

equity as accumulated other comprehensive income, net of income tax, in the amounts of a loss of $29.5 million at March 31, 2022 and a gain of $2.2 million at December 31, 2021.

During the quarter ended March 31, 2022, the Company had a loss of $4.0 million on bonds resulting from the sale

of $226 million of debt securities with an average yield of 0.16%, which were subsequently reinvested in $220 million of debt securities with an average yield of 1.86%.

On January 10, 2022, the Company purchased United States Treasury Notes of $600 million par value with an average yield of 1.42% and an average maturity of 53 months.

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.

At March 31, 2022, total loans increased $310.3 million or 5.0% compared to December 31, 2021.

Loans increased $257.4 million due to the acquisition of Worthington .

At March 31, 2022, the balance of total PPP loans was $30.6 million, net of unamortized processing fees of approximately $394,000 compared to $80.4 million, net of unamortized processing fees of $2.0 million at December 31, 2021.

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 increase in the allowance for credit loss during 2022 was substantially related to the additional allowance for credit loss required by newly acquired loans.

This reduction was partially offset by additional allowance for credit loss required by newly acquired loans.

Nonperforming and Restructured Assets

At March 31, 2022, nonperforming and restructured assets decreased $3.2 million to $65.9 million compared to December 31, 2021.

The Company’s level of nonperforming and restructured assets has continued to be relatively low, equating to 0.52% of total assets at March 31, 2022 and 0.73% of total assets at December 31, 2021.

Nonaccrual loans totaled $17.5 million at March 31, 2022, compared to $20.9 million at December 31, 2021.

The Company’s nonaccrual loans decreased $3.4 million from December 31, 2021 due to resolutions of several loans.

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

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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.

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

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.

Approximately $3.4 million of nonaccrual loans were guaranteed by government agencies at March 31, 2022.

Restructured loans totaled $2.3 million at March 31, 2022 compared to $3.7 million at December 31, 2021.

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

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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.

At March 31, 2022, the allowance for credit losses as a percentage of nonperforming and restructured loans was 333.51%, compared to 284.33%, at December 31, 2021.

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 (OREO) and repossessed assets totaled $39.7 million at March 31, 2022, compared to $39.6 million at December 31, 2021.

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.

As of both March 31, 2022 and December 31, 2021, other real estate owned included a commercial real estate property recorded at approximately $29.5 million.

The Company's rental income from OREO was approximately $2.8 million for the three months ended March 31, 2022 compared to approximately $2.4 million for the three months ended March 31, 2021.

In addition, the Company's OREO holding expense was approximately $2.5 million for the three months ended March 31, 2022 compared to approximately $1.5 million for the three months ended March 31, 2021.

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.

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.

Identifiable intangible assets and goodwill totaled $202.0 million and $167.5 million at March 31, 2022 and December 31, 2021, respectively.

The increase in goodwill and intangible assets was due the acquisition of Worthington on February 8, 2022, which added approximately $8.7 million of core deposit intangibles and approximately $26.6 million of goodwill.

S ee 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 $81.0 million at March 31, 2022 and $81.4 million at December 31, 2021.

The Company's derivative financial instruments are included in other assets and totaled $62.7 million at March 31, 2022 and $8.9 million at December 31, 2022.

The derivative financial instruments have increased due to the increase in oil and gas prices and customer activity.

The Company's derivative financial instruments require a daily margin to be posted, which fluctuates with oil and gas prices.

These margins have increased during 2022 due to the current increase in oil and gas prices and customer activity.

These margins are included in other assets totaling $84.6 million at March 31, 2022 and $14.3 million at December 31, 2022.

S ee Note (12) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s derivative financial instruments.

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

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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 balance of equity securities was $10.2 million at March 31, 2022 and $10.6 million at December 31, 2021.

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

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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.

The Company maintains federal funds lines of credit with other banks and could also 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, 2021.

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.

At March 31, 2022, deposits totaled $11.3 billion, an increase of $3.2 billion or 39.0% from the December 31, 2021 total.

The increase in deposits was primarily related to the return of off-balance sheet sweep accounts related to the Company’s year-end sweep program.

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.

The Company’s core deposits as a percentage of total deposits were 98.5% at March 31, 2022 and 98.2% at December 31, 2021.

Noninterest-bearing deposits to total deposits were 46.4% at March 31, 2022, compared to 46.7% at December 31, 2021.

In addition, off-balance sheet sweep accounts totaled $2.9 billion at March 31, 2022 compared to $5.1 billion at December 31, 2021, which included a temporary sweep amount of approximately $2.3 billion.

The year-end sweep program affected the balances of both assets and deposits.

Subordinated Debt

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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.

Short-term borrowings were $3.3 million at March 31, 2022.

The Company did not have short-term borrowings at December 31, 2021.

Lines of Credit

BancFirst 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.

In addition, BancFirst has a $25.0 million line of credit with another financial institution that is an overnight federal funds facility.

As of March 31, 2022 and December 31, 2021, BancFirst had no advances outstanding under either line of credit.

Pegasus has a $20.0 million line of credit with another financial institution that is an overnight federal funds facility.

As of March 31, 2022 and December 31, 2021, Pegasus had no advances outstanding under its line of credit.

Worthington has an $8.5 million line of credit with another financial institution that is an overnight federal funds facility, and a line of credit from the FHLB of Dallas, Texas to use for liquidity or to match-fund certain long-term fixed rate loans.

Worthington had no advances outstanding as of March 31, 2022 under either line of credit.

Capital Resources

Stockholders’

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

equity totaled $1.2 billion at both March 31, 2022 and December 31, 2021.

In addition to net income of $35.9 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.

equity during the three months ended March 31, 2022 included $3.1 million related to common stock issuances for stock option exercises and $458,000 related to stock-based compensation, that were partially offset by $11.8 million in dividends and a $31.7 million decrease in accumulated other comprehensive income.

The Company’s leverage ratio and total risk-based capital ratios at March 31, 2022, 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.

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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