What changed in this filing

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Item 1. Financial Statements

2022-08-05 compared with 2022-05-06 · 337 added, 221 removed, 1029 unchanged (35% of the section changed)

44 unchanged sentences

Three Months Ended

Six Months Ended

INTEREST INCOME

9 unchanged sentences

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Provision for (benefit from) credit losses

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

NONINTEREST INCOME

12 unchanged sentences

Data processing services

Net expense from other real estate owned

Net (income) expense from other real estate owned

Marketing and business promotion

14 unchanged sentences

Three Months Ended

Six Months Ended

Issued at beginning of period

21 unchanged sentences

(Dollars in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile to net cash provided by operating activities:

Provision for credit losses

Provision for (benefit from) credit losses

Depreciation and amortization

6 unchanged sentences

Gain on sale of other assets

Increase/(decrease) in interest receivable

(Decrease)/increase in interest receivable

Increase/(decrease) in interest payable

6 unchanged sentences

Net increase in federal funds sold

Purchases of held for investment debt securities

Purchases of available for sale debt securities

12 unchanged sentences

Net change in short-term borrowings

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

Issuance of common stock in connection with stock options, net

27 unchanged sentences

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

The information contained in the financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, should be referred to in connection with these unaudited interim consolidated financial statements.

The information contained in the consolidated financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, should be referred to in connection with these unaudited interim consolidated financial statements.

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

2 unchanged sentences

Reclassifications

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

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

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

16 unchanged sentences

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.

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

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

2 unchanged sentences

At acquisition, Worthington had approximately $ 478 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.

Worthington will continue to operate under a separate 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.

2 unchanged sentences

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.

Pro forma information has not been presented because the acquisition did not have a material effect on the Company’s consolidated financial statements.

The acquisition of Worthington complements the Company by expanding it's Texas presence in the Dallas-Fort Worth market.

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 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 were included in noninterest expense during the second quarter of 2021.

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 consolidated statement of comprehensive income and in other operating activities on the consolidated statement of cash flow.

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

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

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

6 unchanged sentences

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

March 31, 2022

June 30, 2022

(Dollars in thousands)

7 unchanged sentences

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

March 31, 2022

June 30, 2022

(Dollars in thousands)

15 unchanged sentences

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

March 31, 2022

June 30, 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:

March 31, 2022

June 30, 2022

December 31, 2021

2 unchanged sentences

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

Six Months Ended June 30,

(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 %.

During the six months ended June 30, 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.

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 six months ended June 30, 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:

The following table summarizes debt securities with unrealized losses, segregated by the duration of the unrealized loss, at June 30, 2022 and December 31, 2021 respectively:

Less than 12 Months

2 unchanged sentences

(Dollars in thousands)

March 31, 2022

June 30, 2022

Available for Sale

11 unchanged sentences

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.

Furthermore, as of June 30, 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.

4 unchanged sentences

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

March 31, 2022

June 30, 2022

December 31, 2021

8 unchanged sentences

Consumer non-real estate

Other loans (2)

(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”).

(1) Excludes accrued interest receivable of $ 23.3 million at June 30, 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 $ 3.2 million, net of unamortized processing fees of $ 0 , at June 30, 2022 and $ 80.4 million, net of unamortized processing fees of $ 2.0 million, at December 31, 2021.

Loans that were designated as Other and consisted mainly of Small Business Administration (“SBA”) loans were moved to their more descriptive portfolio segment.

Therefore, we no longer have an Other loan portfolio segment.

In April 2020, the Company began originating loans to qualified small businesses under the Paycheck Protection Program (“PPP”) administered by the SBA.

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

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

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

T he Company had processing fees, which were recognized as interest income related to the PPP loans totaling approximately $ 400,000 and $ 11.9 million during the three months ended June 30, 2022 and 2021, respectively and $ 2.1 million and $ 21.7 million during the six months ended June 30, 2022 and 2021, respectively.

The Company's loans are currently 83 % held by BancFirst and 17 % held by Pegasus and Worthington.

4 unchanged sentences

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

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

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

1 unchanged sentence

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

March 31, 2022

June 30, 2022

December 31, 2021

4 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.

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.

Other real estate owned included a commercial real estate property recorded at approximately $ 29.7 million at June 30, 2022 and $ 29.5 million at December 31, 2021.

At December 31, 2021, other real estate owned included approximately $ 2.4 million related to the Company's previous headquarters.

The previous headquarters was sold during the second quarter of 2022.

During the six months ended June 30, 2022, the Company sold property held in other real estate owned for a total gain of $ 3.8 million, compared to a total loss of $ 105,000 in the six months ended June 30, 2021.

Nonaccrual loans

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

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

The Company did no t recognize any interest income on nonaccrual loans for either of the six months ended June 30, 2022 or 2021.

In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both June 30, 2022 and December 31, 2021.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 653,000 for the six months ended June 30, 2022 and approximately $ 1.2 million for the six months ended June 30, 2021.

Nonaccrual loans guaranteed by government agencies totaled approximately $ 2.2 million at June 30, 2022 and approximately $ 3.3 million at December 31, 2021.

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

March 31, 2022

June 30, 2022

December 31, 2021

12 unchanged sentences

(Dollars in thousands)

As of March 31, 2022

As of June 30, 2022

Commercial real estate owner occupied

26 unchanged sentences

(Dollars in thousands)

As of March 31, 2022

As of June 30, 2022

Commercial real estate owner occupied

16 unchanged sentences

Total oil and gas

Total other loans

Total loans held for investment

2 unchanged sentences

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

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.

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

The allowance for credit loss for the oil and gas category was reduced due to the increases in oil and gas commodity prices contributing to a more stable and profitable energy industry;

however this decrease was entirely offset by an increase in allowance for credit loss for the commercial real estate non-owner occupied category due to ongoing uncertainty regarding the pandemic's long-term impact on the office and retail sectors.

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

4 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Commercial real estate owner occupied

6 unchanged sentences

Consumer non-real estate

Six Months Ended June 30, 2022

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

Allowance for Credit Losses

Initial allowance on loans purchased with credit deterioration

Provision for /(benefit from) credit losses on loans

(Dollars in thousands)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Commercial real estate owner occupied

6 unchanged sentences

Consumer non-real estate

Six Months Ended June 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

Purchased Credit Deteriorated Loans

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

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

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

The credit-deteriorated loans purchased during the six-month periods ended June 30, 2022 and June 30, 2021 were as follows:

Loans acquired

2 unchanged sentences

(Dollars in thousands)

For the period ended March 31, 2022

For the period ended June 30, 2022

Purchase price of loans at acquisition

1 unchanged sentence

Par value of acquired loans at acquisition

For the period ended June 30, 2021

Purchase price of loans at acquisition

Allowance for credit losses at acquisition

Par value of acquired loans at acquisition

Collateral Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

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

During the six months ended June 30, 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 March 31, 2022

As of June 30, 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:

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in thousands)

4 unchanged sentences

(Dollars in thousands)

March 31, 2022

June 30, 2022

Core deposit intangibles

9 unchanged sentences

(Dollars in thousands)

Three months ended March 31, 2022

Six months ended June 30, 2022

Balance at beginning of period

Balance at beginning and end of period

Balance at end of period

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

4 unchanged sentences

Three Months Ended

Six Months Ended

(Dollars in thousands)

Rental expense

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.

As of June 30, 2022 , the right of use lease asset included in accrued interest receivable and other assets on the consolidated balance sheet totaled $ 5.3 million, and a related lease liability included in accrued interest payable and other liabilities on the consolidated balance sheet totaled $ 5.2 million.

As of June 30, 2022 , the Company's operating leases have a weighted-average remaining lease term of 3.4 years and a weighted-average discount rate of 2.3 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.

March 31, 2022

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

June 30, 2022

(Dollars in thousands)

2022 (nine months)

2022 (six months)

Total lease payments

2 unchanged sentences

The Company is a lessor of operating leases, which primarily consist of office space in buildings and parking lots.

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

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

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

The Company had operating lease revenue of $ 1.4 million and $ 1.3 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

The Company had operating lease revenue of $ 2.7 million for both six months ended June 30, 2022 and June 30, 2021.

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:

March 31, 2022

June 30, 2022

(Dollars in thousands)

2022 (nine months)

2022 (six months)

Total future minimum lease payments

16 unchanged sentences

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

The Subordinated Notes will initially bear interest at a fixed rate of 3.50 % per annum, from and including June 17,

2021 to but excluding June 30, 2031, payable semi-annually in arrears on June 30 and December 31 of each year , commencing December 31, 2021 .

Then, from and including June 30, 2031, to but excluding the maturity date, the Subordinated Notes will bear interest at a floating rate equal to the benchmark (initially, three-month term SOFR), reset quarterly, plus a spread of 229 basis points, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year.

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

At June 30, 2022 , there were 133,500 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 March 31, 2022 , there were 40,000 shares available for future grants.

At June 30, 2022 , there were 65,000 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 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.

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

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

(Dollars in thousands, except option data)

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Outstanding at December 31, 2021

1 unchanged sentence

Options exercised

Outstanding at March 31, 2022

Exercisable at March 31, 2022

Options canceled, forfeited, or expired

Outstanding at June 30, 2022

Exercisable at June 30, 2022

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

Three Months Ended

Six Months Ended

(Dollars in thousands)

Total intrinsic value of options exercised

5 unchanged sentences

Three Months Ended

Six Months Ended

(Dollars in thousands)

Stock-based compensation expense

2 unchanged sentences

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

March 31, 2022

June 30, 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:

Three Months Ended

Six Months Ended June 30,

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

15 unchanged sentences

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

As of March 31, 2022 , there are 31,914 shares available for future issuance under the Deferred Stock Compensation Plan.

As of June 30, 2022 , there are 29,879 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.

2 unchanged sentences

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.

There were 13,288 and 2,161 shares of common stock distributed from the Deferred Stock Compensation Plan during the six months ended June 30, 2022 and 2021, respectively.

A summary of the accumulated stock units is as follows:

9 unchanged sentences

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

Three Months Ended

Six Months Ended

Number of shares repurchased

3 unchanged sentences

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.

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 Company believes that as of June 30, 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:

4 unchanged sentences

(Dollars in thousands)

As of March 31, 2022:

As of June 30, 2022:

Total Capital

10 unchanged sentences

BancFirst Corporation

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”

As of June 30, 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.

9 unchanged sentences

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 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.

The PPP loans the Company originated in 2021 and 2020 are included in the calculation of the Company’s leverage ratio as of June 30, 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 March 31, 2022

Three Months Ended June 30, 2022

Income available to common stockholders

1 unchanged sentence

Income available to common stockholders plus assumed exercises of stock options

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Income available to common stockholders

1 unchanged sentence

Income available to common stockholders plus assumed exercises of stock options

Six Months Ended June 30, 2022

Income available to common stockholders

Dilutive effect of stock options

Income available to common stockholders plus assumed exercises of stock options

Six Months Ended June 30, 2021

Income available to common stockholders

Dilutive effect 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 March 31, 2022

Three Months Ended March 31, 2021

Three Months Ended June 30, 2022

Three Months Ended June 30, 2021

Six Months Ended June 30, 2022

Six Months Ended June 30, 2021

(11) FAIR VALUE MEASUREMENTS

31 unchanged sentences

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

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)

March 31, 2022

June 30, 2022

Debt securities available for sale:

16 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

Twelve Months Ended

4 unchanged sentences

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

During the six months ended June 30, 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.

7 unchanged sentences

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

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.

3 unchanged sentences

The following table summarizes assets measured at fair value on a nonrecurring basis during the period presented.

The fair value represents end of period values, which approximate fair value measurements that occurred on various measurement dates throughout the period:

These nonrecurring fair values do not represent all assets, only those assets that have been adjusted during the reporting period:

Total Fair Value

(Dollars in thousands)

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

As of and for the Year-to-date Period Ended June 30, 2022

Equity securities

26 unchanged sentences

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

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.

Loans Held For Investment

To determine the fair value of loans held for investment, 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.

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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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 March 31, 2022 or December 31, 2021 .

The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were no t considered to be significant to the Company at June 30, 2022 or December 31, 2021 .

(12) DERIVATIVE FINANCIAL INSTRUMENTS

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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.

These margins are included in other assets totaling $ 98.7 million at June 30, 2022 and $ 14.3 million at December 31, 2021.

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

June 30, 2022

December 31, 2021

Oil and Natural Gas Swaps and Options

Oil and Gas Swaps and Options

Notional Units

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Derivative liabilities

Gas/Natural Gas Liquids

Derivative assets

MMBTUs/Gallons

Derivative liabilities

MMBTUs/Gallons

Total Fair Value

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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,

Three Months Ended

Six Months Ended June 30,

(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.

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

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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.

The Company's net credit exposure relating to oil and gas swaps and options with bank counterparties was zero as of both June 30, 2022 and December 31, 2021.

Balance Sheet Offsetting

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(Dollars in thousands)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Net interest income

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Income before taxes

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Net interest income

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Income before taxes

Six Months Ended June 30, 2022

Net interest income

Noninterest income

Income before taxes

Six Months Ended June 30, 2021

Net interest income

Noninterest income

Income before taxes

Total Assets:

March 31, 2022

June 30, 2022

December 31, 2021

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

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.

The following discussion and analysis of our financial condition as of June 30, 2022 and December 31, 2021 and results of operations for the three and six months ended June 30, 2022 should be read in conjunction with our consolidated financial statements and notes to the consolidated 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 probability the Durbin Amendment will impact non-interest income.

The likelihood the Durbin Amendment will impact non-interest income beginning July 1, 2023.

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

The effect of governments’

The lingering effect of governments’

stimulus programs.

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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.

The COVID-19 pandemic’s lingering 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 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 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 net income for the second quarter of 2022 was $44.7 million, compared to $48.2 million for the second quarter of 2021.

Diluted net income per common share was $1.34 and $1.45 for the second quarter of 2022 and 2021, respectively.

The Company’s net interest income for the second quarter of 2022 increased to $86.9 million, compared to $82.4 million for the second quarter of 2021.

Rising short term interest rates contributed to the increase.

The net interest margin for the second quarter was 3.05% and 3.32% or the second quarter of 2021.

The margin for the second quarter of 2021 was positively impacted by higher PPP fees, which were $11.9 million compared to approximately $400,000 for the current quarter.

For the second quarter of 2022 the Company recorded a provision for credit losses of $501,000 compared to a net benefit from reversal of provisions of $9.9 million for the quarter ended June 30, 2021.

Provisions for credit losses have stabilized in 2022 after the economic downturn and recovery from the effects of the COVID pandemic in prior years.

Noninterest income for the second quarter of 2022 totaled $42.6 million down from $44.6 million for the second quarter of 2021.

The decrease in noninterest income in 2022 was due to a purchase gain of $6.0 million that was included in the second quarter of 2021 related to the purchase and assumption transaction with The First National Bank and Trust Company of Vinita, Oklahoma.

Noninterest expense for the second quarter of 2022 was relatively flat at $73.7 million but included a gain of $3.1 million from the sale of the Company’s prior headquarters that was carried in other real estate owned, as well as a write down of an equity investment of $1.5 million.

The Company’s effective tax rate was 19.1% for the second quarter of 2022 compared to 23.4% for the second quarter of 2021.

The lower effective tax rate was driven by the exercise of stock options during the quarter that produced higher tax deductions for compensation, and a lower state income tax rate.

At June 30, 2022, the Company’s total assets were $12.5 billion compared to $9.4 billion at December 31, 2021.

Deposits totaled $11.1 billion, an increase of $3.1 billion from December 31, 2021.

The consolidated balance sheet growth was driven by the return of customer deposits from off-balance sheet sweep accounts, continued deposit growth and the acquisition of Worthington National Bank.

Loans totaled $6.6 billion compared to $6.2 billion at December 31, 2021.

Loan growth during the first two quarters of 2022, net of acquired loans and PPP loans, was $247 million, or 4%.

The Company’s total stockholders’

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.

equity was $1.2 billion, an increase of $14.0 million over December 31, 2021.

Asset quality remained strong as nonaccrual loans continued to decline, totaling $13.7 million, which represented 0.21% of total loans at June 30, 2022, down from 0.34% at year-end 2021.

The allowance for credit losses to total loans stood at 1.31% at June 30, 2022, down from 1.36% at the end of 2021.

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

FUTURE APPLICATION OF ACCOUNTING STANDARDS

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.

See Note (1) of the Notes to the Consolidated Financial Statements for 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

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Average Balances, Income, Expenses and Rates

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.

The following tables present, for the periods indicated, certain information related to the Company's consolidated 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.

Average balances are derived from daily averages.

For these computations:

(i) average balances are derived from daily averages, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, and (iii) nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

Loan fees included in interest income were $6.3 million for the three months ended June 30, 2022 compared to approximately $17.4 million for the three months ended June 30, 2021.

Loan fees included in interest income were $13.7 million for the six months ended June 30, 2022 compared to $31.4 million for the six months ended June 30, 2021.

BANCFIRST CORPORATION

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(Dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Earning assets:

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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)

Six Months Ended June 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

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

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

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Three Months Ended

Six Months Ended

Income Statement Data

Net interest income

Provision for credit losses

Provision for (benefit from) credit losses

Securities transactions

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Net Interest Income

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.

For the three months ended June 30, 2022, net interest income, which is the Company’s principal source of operating revenue, increased $4.5 million or 5.5% compared to the three months ended June 30, 2021.

Rising short term interest rates contributed to the increase along with net interest income related to the Worthington acquisition.

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 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.

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

The margin for the second quarter of 2021 was positively impacted by higher PPP fees, which were $11.9 million compared to approximately $400,000 for the current quarter.

Net interest income for the six months ended June 30, 2022 increased $2.8 million or 1.8% compared to the six months ended June 30, 2021.

Rising short term interest rates contributed to the increase along with net interest income related to the Worthington acquisition.

As shown in the preceding table, the Company’s net interest margin for the six months ended June 30, 2022 decreased compared to the six months ended June 30, 2021.

The margin for the six months ended June 30, 2021 was positively impacted by higher PPP fees, which were $21.7 million compared to approximately $2.1 million for the six months ended June 30, 2022.

During 2021, the Company’s net interest income and net interest margin had been impacted by the decreases in interest rates stemming from the Federal Reserve's response to the COVID-19 pandemic.

However, during 2022 the Federal Reserve began raising interest rates and the Company's expectation is that interest rates will continue to 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.

The Company’s reversal of provision for the second quarter of 2021 was based on improvements in economic conditions and the Company’s outlook for certain economic indicators.

Provisions for credit losses have stabilized in 2022 after the economic downturn and recovery from the effects of the COVID pandemic in prior years.

The Company establishes an allowance as an estimate of the expected credit losses in the loan portfolio at the consolidated 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 $289,000 for the first quarter of 2022, compared to net loan charge-offs of $506,000 for the first quarter of 2021.

Net loan charge-offs were $805,000 for the second quarter of 2022, compared to net loan charge-offs of $4.2 million for the second 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 six months ended June 30, 2022, the Company recorded a provision for credit losses of $3.4 million, which was substantially related to acquired loans, compared to a net benefit from reversal of provisions of $9.9 million for the six months ended June 30, 2021.

Net loan charge-offs were $516,000, compared to $4.7 million for the same period of the prior year.

Noninterest Income

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.

Noninterest income, as presented in the preceding table, decreased by $2.0 million for the second quarter of 2022 compared to the second quarter of 2021.

The decrease in noninterest income in 2022 was due to a purchase gain of $6.0 million that was included in the second quarter of 2021.

In addition, the Company earned $2.1 million on the sale of loans for second quarter of 2021 compared to $1.3 million for second quarter of 2022.

The income from sales of loans was higher in 2021 due to the increase in volume of mortgage loans originated because of record low mortgage rates.

The Company expects the volume of mortgage loans originated to decrease as interest rates increase.

Noninterest income included non-sufficient funds fees totaling $6.1 million and $5.6 million for the three months ended June 30, 2022 and 2021, respectively.

This represents 14.3% and 12.6% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $11.7 million and $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.

In addition, the Company had debit card interchange fees totaling $12.5 million and $11.9 million during the three months ended June 30, 2022 and 2021, respectively.

This represents 29.3% and 26.6% of the Company’s noninterest income for the respective periods.

Noninterest income increased by $1.7 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The increase in noninterest income was mostly attributable to $5.5 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 $3.4 million increase in income from service charges on deposits and increases in trust revenue, insurance commissions and cash management.

There was a $2.7 million gain on sale of other assets in the first six months of 2021, compared to $175,000 for 2022.

In addition, there was an acquisition purchase gain of $6.0 million and a gain from the sale of the Company's Hugo, Oklahoma branch of $2.5 million in the first six months of 2021.

The Company earned $4.1 million on the sale of loans for the six months ended June 30, 2021 compared to $2.9 million for the six months ended June 30, 2022.

Noninterest income included non-sufficient fund fees totaling $12.6 million and $11.1 million during the six months ended June 30, 2022 and 2021, respectively.

This represents 14.7% and 13.2% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $24.1 million and $22.5 million during the six months ended June 30, 2022 and 2021, respectively.

This represents 28.0% and 26.6% 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 higher debit card interchange fees for the six months ending June 30, 2021.

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.

As of April 1, 2022, the Company lowered the rates charged on NSF and overdraft fees.

To the extent that increased volume doesn’t overcome these rate changes, the Company could experience lower annual pretax income.

It is likely 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.

Noninterest Expense

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.

Noninterest expense, as presented in the preceding table, was relatively flat for second quarter of 2022 compared to the second quarter of 2021, but included a gain of $3.1 million from the sale of the Company’s prior headquarters that was carried in other real estate owned, as well as a write down of an equity investment of $1.5 million.

For the six months ended June 30, 2022, noninterest expense increased by $7.2 million compared to the six months ended June 30, 2021.

The increase in noninterest expenses was due to the increase in salaries and employee benefits and other expenses related to the Worthington acquisition.

In addition, the six months ended June 30, 2022 included a gain of $3.1 million from the sale of the Company’s prior headquarters that was carried in other real estate owned, as well as a write down of an equity investment of $1.5 million.

The six months ended June 30, 2021 included approximately $4.0 million in acquisition related expenses.

The Company’s effective tax rate was 19.1% for the second quarter of 2022, compared to 23.4% for the second quarter of 2021.

The lower effective tax rate was driven by the exercising of stock options during the second quarter of 2022 that provided higher tax deductions for compensation and a lower state income tax rate.

The Company’s effective tax rate on income before taxes was 18.5% for the first six months of 2022, compared to 21.2% for the first six months of 2021.

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)

Balance Sheet Data

Consolidated Balance Sheet Data

Total loans (net of unearned interest)

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Selected Financial Ratios

Balance Sheet Ratios:

Consolidated Balance Sheet Ratios:

Average loans to deposits (year-to-date)

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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 $3.4 million of nonaccrual loans at March 31, 2022.

(3) Government agencies guarantee approximately $2.2 million of nonaccrual loans at June 30, 2022.

Cash and Interest-Bearing Deposits with Banks

The aggregate of cash and due from banks and interest-bearing deposits with banks increased by $2.0 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 aggregate of cash and due from banks and interest-bearing deposits with banks increased by $1.8 billion, or 89.2%, to $3.9 billion, from December 31, 2021 to June 30, 2022.

The increase was primarily related to the return of deposits from 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 June 30, 2022, total debt securities increased $671.4 million, or 125.6% 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 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.

The net unrealized loss on debt securities available for sale, before taxes, was $60.9 million at June 30, 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.

equity as accumulated other

comprehensive income, net of income tax, in the amounts of a loss of $46.5 million at June 30, 2022 and a gain of $2.2 million at December 31, 2021.

During the six months ended June 30, 2022, the Company had a loss of $4.0 million resulting from the sale of $226 million of debt securities with an average yield of 0.16%, which was 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 with $600 million par value at 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 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.

At June 30, 2022, total loans increased $426.4 million or 6.9% compared to December 31, 2021.

Loan growth during the first two quarters of 2022, net of acquired loans and PPP loans, was approximately $247 million, or 4%.

At June 30, 2022, the balance of total PPP loans was $3.2 million, with no unamortized processing fees, 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

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.

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

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

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

At June 30, 2022, nonperforming and restructured assets decreased $9.2 million to $59.9 million compared to December 31, 2021.

The Company’s level of nonperforming and restructured assets has continued to be relatively low, equating to 0.48% of total assets at June 30, 2022 and 0.73% of total assets at December 31, 2021.

Nonaccrual loans totaled $13.7 million at June 30, 2022, compared to $20.9 million at December 31, 2021.

The Company’s nonaccrual loans decreased $7.2 million from December 31, 2021 due to resolutions of several loans.

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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 $376,000 for the three months ended March 31, 2022 and $521,000 for the three months ended March 31, 2021.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $653,000 for the six months ended June 30, 2022 and $1.2 million for the six months ended June 30, 2021.

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

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.

Approximately $2.2 million of nonaccrual loans were guaranteed by government agencies at June 30, 2022.

Restructured loans totaled $2.2 million at June 30, 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 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.

At June 30, 2022, the allowance for credit losses as a percentage of nonperforming and restructured loans was 420.84%, 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 $39.7 million at March 31, 2022, compared to $39.6 million at December 31, 2021.

Other real estate owned (OREO) and repossessed assets totaled $39.2 million at June 30, 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.

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 included a commercial real estate property recorded at $29.7 million at June 30, 2022 and $29.5 million at December 31, 2021.

The Company's rental income from OREO was $2.8 million for the three months ended June 30, 2022 compared to $2.2 million for the three months ended June 30, 2021.

The Company's rental income from OREO was $5.6 million for the six months ended June 30, 2022 compared to $4.6 million for the six months ended June 30, 2021.

In addition, the Company's OREO holding expense was $2.6 million for the three months ended June 30, 2022 compared to $3.1 million for the three months ended June 30, 2021.

The Company's OREO holding expense was $5.1 million for the six months ended June 30,

2022 compared to $4.6 million for the six months ended June 30, 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.

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.

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Intangible Assets, Goodwill and Other Assets

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.

Identifiable intangible assets and goodwill totaled $205.4 million and $167.5 million at June 30, 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 $5.9 million of core deposit intangibles and $33.7 million of goodwill.

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 $81.6 million at June 30, 2022 and $81.4 million at December 31, 2021.

Derivative financial instruments consisting of oil and gas swaps and option contracts are included in other assets and totaled $55.2 million at June 31, 2022 and $8.9 million at December 31, 2021.

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

They require a daily margin to be posted, which fluctuates with oil and gas prices.

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

The margins are included in other assets totaling $98.7 million at June 30, 2022 and $14.3 million at December 31, 2021.

See 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 consolidated balance sheet.

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

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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 $10.2 million at March 31, 2022 and $10.6 million at December 31, 2021.

The balance of equity securities was $10.2 million at June 30, 2022 and $10.6 million at December 31, 2021.

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

Low Income Housing and New Market Tax Credit Investments

During 2022, there have not been any material changes in the Company’s low income housing tax credit investments and new market tax credit investments, which are included in other assets on the Company’s balance sheet.

See Note (6) of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for disclosures regarding these investments.

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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 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.

At June 30, 2022, deposits totaled $11.1 billion, an increase of $3.1 billion or 37.7% from the December 31, 2021 total.

The increase in deposits was primarily related to the return of funds from 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 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.

Core deposits as a percentage of total deposits were 98.4% at June 30, 2022 and 98.2% at December 31, 2021.

Noninterest-bearing deposits to total deposits were 46.9% at June 30, 2022, compared to 46.7% at December 31, 2021.

Off-balance sheet sweep accounts totaled $2.9 billion at June 30, 2022 compared to $5.1 billion at December 31, 2021, which included a temporary sweep amount of $2.3 billion.

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 $3.3 million at March 31, 2022.

Short-term borrowings were $6.1 million at June 30, 2022.

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

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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.

As of June 30, 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.

As of June 30, 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.

Worthington had no advances outstanding as of June 30, 2022 under either line of credit.

Capital Resources

Stockholders’

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

equity totaled $1.2 billion at both June 30, 2022 and December 31, 2021.

In addition to net income of $80.6 million, other changes in stockholders’

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.

equity during the six months ended June 30, 2022 included $4.6 million related to common stock issuances for stock option exercises and $918,000 related to stock-based compensation, that were partially offset by $23.6 million in dividends and a $48.6 million decrease in accumulated other comprehensive income.

The Company’s leverage ratio and total risk-based capital ratios at June 30, 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