What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-09 · 388 added, 222 removed, 1012 unchanged (38% of the section changed)

44 unchanged sentences

Three Months Ended

Six Months Ended

INTEREST INCOME

33 unchanged sentences

OTHER COMPREHENSIVE (LOSS)/GAIN

Unrealized income/(losses) on debt securities, net of tax (expense)/benefit of $( 4,504 ) and $ 10,219 , respectively

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

Other comprehensive income/(loss), net of tax (expense)/benefit of $( 4,504 ) and $ 9,850 , respectively

Unrealized (loss)/income on debt securities, net of tax benefit/(expense) of $ 4,350 , $ 5,240 , $( 154 ) and $ 15,459 , respectively

Reclassification adjustment for loss included in net income, net of tax expense of $ 0 , $ 0 , $ 0 and $ 369 , respectively

Other comprehensive (loss)/income, net of tax benefit/(expense) of $ 4,350 , $ 5,240 , $( 154 ) and $ 15,090 , respectively

Comprehensive income

4 unchanged sentences

Three Months Ended

Six Months Ended

Issued at beginning of period

19 unchanged sentences

(Dollars in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

16 unchanged sentences

Net cash received from acquisitions, net of cash paid

Net decrease/(increase) in federal funds sold

Net (increase)/decrease in federal funds sold

Purchases of available for sale debt securities

45 unchanged sentences

Reclassifications

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’

Certain loan segments from 2022 have been reclassified to conform to the 2023 presentation.

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

equity or comprehensive income.

15 unchanged sentences

2022-02 did no t have a significant impact on the Company’s consolidated financial statements.

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

In March 2023, the FASB issued ASU No.

2023-02, "Investments - Equity Method and Joint Ventures (Topic 323)." ASU 2023-02 permits the election of accounting for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method, if certain conditions are met.

Using the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits

and other income tax benefits in the income statement as a component of income tax expense (benefit).

tax expense (benefit).

The amendments are effective for annual periods beginning after December 15, 2023, including interim periods within those annual periods.

6 unchanged sentences

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

On March 30, 2023, the Company took an advance of $ 200.0 million on its line of credit from the Federal Home Loan Bank (“FHLB”) of Topeka, Kansas, which was paid off on April 3, 2023.

On July 28, 2023, the Company's wholly-owned subsidiary BancFirst applied to become a Federal Reserve System member bank, which would change its primary regulator from the Federal Deposit Insurance Corporation (“FDIC”) to the Federal Reserve System.

The Company expects its other wholly-owned subsidiaries Pegasus and Worthington will also apply for Federal Reserve System membership.

The BancFirst application is pending approval from the Federal Reserve System.

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

10 unchanged sentences

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

March 31, 2023

June 30, 2023

(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, 2023

June 30, 2023

(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, 2023

June 30, 2023

December 31, 2022

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, 2023

June 30, 2023

December 31, 2022

2 unchanged sentences

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

March 31, 2023

March 31, 2022

For the Six Months

Ended June 30,

(Dollars in thousands)

Gross losses realized

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, 2023.

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

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, 2023.

During the six months ended June 30, 2022, the Company sold $ 226 million of debt securities with an average yield of 0.16 %, the proceeds of 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.

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, 2023 and December 31, 2022 respectively:

The following table summarizes debt securities with unrealized losses, segregated by the duration of the unrealized loss, at June 30, 2023 and December 31, 2022 respectively:

Less than 12 Months

2 unchanged sentences

(Dollars in thousands)

March 31, 2023

June 30, 2023

Available for Sale

12 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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, 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.

3 unchanged sentences

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

Certain loan segments were reclassified during the quarter.

Certain loan segments from 2022 have been reclassified to conform to the 2023 presentation.

Each loan segment is made up of loan categories possessing similar risk characteristics.

1 unchanged sentence

Management believes this accurately represents the risk profile of each loan segment.

The prior period amounts have been revised to conform to the current period presentation.

These reclassifications did not have a significant impact on the allowance for credit losses.

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

March 31, 2023

June 30, 2023

December 31, 2022

8 unchanged sentences

Consumer non-real estate

(1) Excludes accrued interest receivable of $ 30.9 million at March 31, 2023 and $ 30.6 million at December 31, 2022, that is recorded in accrued interest receivable and other assets.

(1) Excludes accrued interest receivable of $ 34.3 million at June 30, 2023 and $ 30.6 million at December 31, 2022, that is recorded in accrued interest receivable and other assets.

The Company's loans are currently 85 % held by BancFirst and 15 % held by Pegasus and Worthington.

7 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Other real estate owned and repossessed assets

As of both March 31, 2023 and December 31, 2022, other real estate owned included a commercial real estate property recorded at approximately $ 30.1 million and $ 29.4 million, respectively.

As of both June 30, 2023 and December 31, 2022, other real estate owned included a commercial real estate property recorded at approximately $ 32.9 million and $ 29.4 million, respectively.

Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income.

1 unchanged sentence

This property had the following rental income and operating expenses for the periods presented.

For the Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in thousands)

1 unchanged sentence

Operating expense

During the three months ended March 31, 2023, the Company sold property held in other real estate owned for a total gain of $ 98,000 , compared to a total gain of $ 726,000 in the three months ended March 31, 2022.

During the six months ended June 30, 2023, the Company sold property held in other real estate owned for a total gain of $ 266,000 , compared to a total gain of $ 3.8 million in the six months ended June 30, 2022.

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

The current and future financial effects of the recorded balance of loans considered to be modified during the period were not considered to be material.

The recorded balance of modified loans was approximately $ 9.7 million during the period ended June 30, 2023.

Nonaccrual loans

The Company did no t recognize any interest income on nonaccrual loans for either the three months ended March 31, 2023 or 2022.

In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both March 31, 2023 and December 31, 2022.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 358,000 for the three months ended March 31, 2023 and approximately $ 376,000 for the three months ended March 31, 2022.

Nonaccrual loans guaranteed by government agencies totaled approximately $ 6.4 million at March 31, 2023 and approximately $ 4.7 million at December 31, 2022.

The Company did no t recognize any interest income on nonaccrual loans for either of the six months ended June 30, 2023 or 2022.

In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both June 30, 2023 and December 31, 2022.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 718,000 for the six months ended June 30, 2023 and approximately $ 653,000 for the six months ended June 30, 2022.

Nonaccrual loans guaranteed by government agencies totaled approximately $ 6.6 million at June 30, 2023 and approximately $ 4.7 million at December 31, 2022.

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

March 31, 2023

June 30, 2023

December 31, 2022

12 unchanged sentences

(Dollars in thousands)

As of March 31, 2023

As of June 30, 2023

Commercial real estate owner occupied

22 unchanged sentences

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

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

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

2 unchanged sentences

Amortized Cost Basis

As of March 31, 2023

As of June 30, 2023

Commercial real estate owner occupied

Total commercial real estate owner occupied

Current-period gross charge-offs

Commercial real estate non-owner occupied

Total commercial real estate non-owner occupied

Current-period gross charge-offs

Construction and development < 60 months

Total construction and development < 60 months

Current-period gross charge-offs

Construction residential real estate < 60 months

2 unchanged sentences

Total residential real estate first lien

Current-period gross charge-offs

Residential real estate all other

Total residential real estate all other

Current-period gross charge-offs

Total Agriculture

Current-period gross charge-offs

Commercial non-real estate

Total commercial non-real estate

Current-period gross charge-offs

Consumer non-real estate

Total consumer non-real estate

Current-period gross charge-offs

Total oil and gas

Total loans held for investment

The following tables summarize the Company’s gross charge-offs by year of origination for the periods indicated:

Term Loans Amortized Cost Basis by Origination Year

Revolving Loans

(Dollars in thousands)

Amortized Cost Basis

Three months ended June 30, 2023

Commercial real estate owner occupied

Current-period gross charge-offs

Commercial real estate non-owner occupied

Current-period gross charge-offs

Construction and development < 60 months

Current-period gross charge-offs

Construction residential real estate < 60 months

Current-period gross charge-offs

Residential real estate first lien

Current-period gross charge-offs

Residential real estate all other

Current-period gross charge-offs

Commercial non-real estate

Current-period gross charge-offs

Consumer non-real estate

Current-period gross charge-offs

Total current-period gross charge-offs

Term Loans Amortized Cost Basis by Origination Year

Revolving Loans

(Dollars in thousands)

Amortized Cost Basis

Six months ended June 30, 2023

Commercial real estate owner occupied

Current-period gross charge-offs

Commercial real estate non-owner occupied

Current-period gross charge-offs

Construction and development < 60 months

Current-period gross charge-offs

Construction residential real estate < 60 months

Current-period gross charge-offs

Residential real estate first lien

Current-period gross charge-offs

Residential real estate all other

Current-period gross charge-offs

Commercial non-real estate

Current-period gross charge-offs

Consumer non-real estate

Current-period gross charge-offs

Total current-period gross charge-offs

Allowance for Credit Losses Methodology

6 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Commercial real estate owner occupied

7 unchanged sentences

Allowance for Credit Losses

Provision for /(benefit from) credit losses on loans

(Dollars in thousands)

Six Months Ended June 30, 2023

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 non-real estate

Consumer non-real estate

Allowance for Credit Losses

Provision for /(benefit from) credit losses on loans

(Dollars in thousands)

Three 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 non-real estate

Consumer non-real estate

Allowance for Credit Losses

Initial allowance on loans purchased with credit deterioration

1 unchanged sentence

(Dollars in thousands)

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Commercial real estate owner occupied

8 unchanged sentences

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, 2023.

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

The Company did not purchase credit-deteriorated loans during the six month period ended June 30, 2023.

The credit-deteriorated loans purchased during the six months ended June 30, 2022 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

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 three months ended March 31, 2023 and 2022 , 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, 2023 and 2022 , 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, 2023

As of June 30, 2023

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, 2023

June 30, 2023

Core deposit intangibles

9 unchanged sentences

(Dollars in thousands)

Three months ended March 31, 2023

Six months ended June 30, 2023

Balance at beginning and end of period

9 unchanged sentences

The stated maturity date of the $ 26.8 million of 7.20 % Junior Subordinated Debentures is March 31, 2034 , but they are subject to mandatory redemption pursuant to optional prepayment terms.

The Cumulative Trust Preferred Securities

represent an undivided interest in the $ 26.8 million of 7.20 % Junior Subordinated Debentures and are guaranteed by the Company.

The Cumulative Trust Preferred Securities represent an undivided interest in the $ 26.8 million of 7.20 % Junior Subordinated Debentures and are guaranteed by the Company.

During any deferral period or during any event of default, the Company may not declare or pay any dividends on any of its capital stock.

16 unchanged sentences

(7) STOCK-BASED COMPENSATION

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

At March 31, 2023 , there were 42,500 shares available for future grants.

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

The options vest and are exercisable beginning four years from the date of grant at the rate of 25 % per year for four years .

Options expire no later than the end of fifteen years from the date of grant .

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

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

The Company had a nonqualified incentive stock option plan, the BancFirst Corporation Stock Option Plan (the “Employee Plan”), which was terminated on June 1, 2023 .

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

The Company had the BancFirst Corporation Non-Employee Directors’

Stock Option Plan (the “Non-Employee Directors’

Plan”) since June 1999.

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

At March 31, 2023 , there were 45,000 shares available for future grants.

The Non-Employee Directors’

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

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

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

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

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

The Company had no cash settlements during the three months ended March 31, 2023 or March 31, 2022.

Plan”), which was terminated on June 1, 2023 .

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

On May 25, 2023, the shareholders of the Company adopted the BancFirst Corporation 2023 Restricted Stock Unit Plan (the "RSU Plan").

The RSU Plan was effective as of June 1, 2023 and for a period of ten years thereafter.

The RSU Plan shall continue in effect after such ten-year period until all matters relating to the payment of awards and administration of the RSU Plan have been settled.

At June 30, 2023 there were 497,375 shares available for future grants.

The restricted stock units ("RSU") vest beginning two years from the date of grant at the rate of 20 % per year for five years .

The fair value of each RSU granted is equal to the market price of the Company’s stock at date of grant.

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

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

The Company had no cash settlements during the six months ended June 30, 2023 or June 30, 2022.

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, 2023

Six Months Ended June 30, 2023

Outstanding at December 31, 2022

Options exercised

Options canceled, forfeited, or expired

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Canceled, forfeited, or expired

Outstanding at June 30, 2023

Exercisable at June 30, 2023

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

3 unchanged sentences

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

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

Three Months Ended

(Dollars in thousands)

Stock-based compensation expense

Stock-based compensation expense, net of tax

The Company will continue to amortize the unearned stock-based compensation expense over the remaining vesting period of approximately seven years .

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

March 31, 2023

(Dollars in thousands)

Unearned stock-based compensation expense

No stock options were granted during the three months ended March 31, 2023.

The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S.

Treasury security with a maturity similar to the expected term of the options.

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

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

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

The Company accounts for forfeitures as they occur.

No stock options were granted during the six months ended June 30, 2023.

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

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

5 unchanged sentences

Expected term

The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S.

Treasury security with a maturity similar to the expected term of the options.

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

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

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

The Company accounts for forfeitures as they occur.

The following table is a summary of the activity under the Company's RSU plan.

Six Months Ended June 30, 2023

Nonvested at December 31, 2022

Nonvested at June 30, 2023

The Company has had the BancFirst Corporation Directors’

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

As of March 31, 2023 , there are 24,435 shares available for future issuance under the Deferred Stock Compensation Plan.

As of June 30, 2023 , there are 22,252 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.

1 unchanged sentence

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 17,392 and 6,177 shares of common stock distributed from the Deferred Stock Compensation Plan during the three months ended March 31, 2023 and 2022, 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 17,797 and 13,288 shares of common stock distributed from the Deferred Stock Compensation Plan during the six months ended June 30, 2023 and 2022, respectively.

A summary of the accumulated stock units is as follows:

1 unchanged sentence

Average price

Stock-based compensation expense is charged to salaries and benefits expense on the Consolidated Statements of Comprehensive Income.

The components of stock-based compensation expense for all share-based compensation plans and related tax benefits are as follows:

Three Months Ended

Six Months Ended

(Dollars in thousands)

Stock-based compensation expense

Stock-based compensation expense, net of tax

The Company will continue to amortize the unearned stock-based compensation expense over the remaining vesting period of approximately seven years .

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

June 30, 2023

(Dollars in thousands)

Unearned stock-based compensation expense

(8) STOCKHOLDERS’

5 unchanged sentences

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

Three Months Ended

June 30, 2023

Shares remaining to be repurchased

2 unchanged sentences

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 consolidated financial statements.

The Company believes that as of March 31, 2023 , BancFirst Corporation, BancFirst, Pegasus and Worthington met all capital adequacy requirements to which they are subject.

The Company believes that as of June 30, 2023 , 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, 2023:

As of June 30, 2023:

Total Capital

8 unchanged sentences

Tier 1 Capital

(to Total Assets)-

(to Quarterly Average Assets)-

BancFirst Corporation

As of March 31, 2023 , 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, 2023 , 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.

3 unchanged sentences

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.

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

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.

(9) NET INCOME PER COMMON SHARE

2 unchanged sentences

(Dollars in thousands, except per share data)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Income available to common stockholders

1 unchanged sentence

Income available to common stockholders plus assumed exercises of stock options

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

Six Months Ended June 30, 2023

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, 2022

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 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, 2023

Three Months Ended March 31, 2022

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Six Months Ended June 30, 2023

Six Months Ended June 30, 2022

(10) FAIR VALUE MEASUREMENTS

38 unchanged sentences

(Dollars in thousands)

March 31, 2023

June 30, 2023

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

Twelve Months Ended

1 unchanged sentence

Balance at the beginning of the year

Transfers to level 2

Total unrealized gain

1 unchanged sentence

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, 2023, the Company did not transfer any debt securities.

During the six months ended June 30, 2023, the Company did not transfer any debt securities.

In addition, during the year ended December 31, 2022, the Company did not transfer any debt securities.

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.

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.

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 March 31, 2023

As of and for the Year-to-date Period Ended June 30, 2023

Equity securities

28 unchanged sentences

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.

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:

June 30, 2023

December 31, 2022

(Dollars in thousands)

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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, 2023 or December 31, 2022 .

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, 2023 or December 31, 2022 .

(11) DERIVATIVE FINANCIAL INSTRUMENTS

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

At March 31, 2023 , the Company had a margin liability included in other liabilities in the amount of $ 4.6 million.

At June 30, 2023 , the Company had a margin liability included in other liabilities in the amount of $ 5.5 million.

At December 31, 2022 , the Company had a margin asset included in other assets in the amount of $ 6.6 million.

1 unchanged sentence

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

March 31, 2023

June 30, 2023

December 31, 2022

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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 June 30,

Six Months Ended June 30,

(Dollars in thousands)

Derivative income

6 unchanged sentences

The following table is a summary of the Company's net credit exposure relating to oil and gas swaps and options with bank counterparties:

March 31, 2023

June 30, 2023

December 31, 2022

21 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Net interest income

1 unchanged sentence

Income before taxes

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Net interest income

1 unchanged sentence

Income before taxes

Six Months Ended June 30, 2023

Net interest income

Noninterest income

Income before taxes

Six Months Ended June 30, 2022

Net interest income

Noninterest income

Income before taxes

Total Assets:

March 31, 2023

June 30, 2023

December 31, 2022

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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, 2023 and December 31, 2022 and results of operations for the three months ended March 31, 2023 should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2022, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The following discussion and analysis of our financial condition as of June 30, 2023 and December 31, 2022 and results of operations for the three and six months ended June 30, 2023 should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2022, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2022 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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Potential impacts of the recent adverse developments in the banking industry driven by high-profile bank failures, including impacts on customer confidence, demand deposit outflows and the regulatory response thereto .

Recent deterioration in the market for commercial office property could have an adverse effect on the value of the Company's other real estate owned as well as the collateral for the Company's commercial real estate loans.

Recent deterioration in the market for commercial office property could have an adverse effect on the value of the Company's other real estate owned as well as commercial office collateral for the Company's commercial real estate loans.

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

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The increased time, effort and non-interest expense related to ongoing and increased regulations from the Federal Reserve, Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau and the Securities and Exchange Commission (requirements related to environmental, social and governance (ESG) issues and climate disclosure).

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

Local, regional, national and international economic conditions and the impact they may have on the Company and its customers.

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

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

Actual results may differ materially from forward-looking statements.

The Company’s net income for the first quarter of 2023 was $57.5 million, compared to $35.9 million for the first quarter of 2022.

Diluted net income per common share was $1.72 and $1.08 for the first quarter of 2023 and 2022, respectively.

The Company’s net interest income for the first quarter of 2023 increased to $109.2 million, compared to $75.5 million for the first quarter of 2022.

The Company’s net income for the second quarter of 2023 was $55.0 million, compared to $44.7 million for the second quarter of 2022.

Diluted net income per common share was $1.64 and $1.34 for the second quarter of 2023 and 2022, respectively.

The Company’s net interest income for the second quarter of 2023 increased to $105.9 million, compared to $86.9 million for the second quarter of 2022.

Rising short-term interest rates and loan growth drove the increase.

The net interest margin for the first quarter was 3.89%, compared to 2.78% a year ago.

For the first quarter of 2023, the Company recorded a provision for credit losses of $2.3 million, compared to a provision for credit losses of $2.9 million for the first quarter of 2022.

Noninterest income for the first quarter of 2023 totaled $47.8 million, compared to $43.7 million for the first quarter of 2022.

The increase in noninterest income was mostly attributable to an increase in sweep account fees due to rising interest rates and higher volume, along with a $1.3 million increase in insurance commissions.

Noninterest income for the first quarter of 2023 included $327,000 of income from an equity interest received from a prior loan settlement compared to $4.9 million of income from the same source in the first quarter of 2022.

In addition, the first quarter of 2022 included a loss of $4.0 million on the sale of $226 million of low yielding debt securities, which were subsequently reinvested at higher yielding debt securities.

Noninterest expense for the first quarter of 2023 increased to $80.3 million compared to $72.5 million for the first quarter of 2022.

The increase in noninterest expense was primarily related to an increase in salaries and employee benefits of approximately $5.3 million.

The first quarter of 2022 included a gain on sale of OREO which reduced noninterest expense by $726,000.

The Company’s effective tax rate was 22.6% for the first quarter of 2023 compared to 17.8% for the first quarter of 2022.

During the quarter, the Company adopted Accounting Standard Update ("ASU") 2023-02 and amortized $977,000 of New Market Tax Credits ("NMTC") to income tax expense during the period that would have previously been recorded to other expense.

Exercises of stock options and a lower state tax rate contributed to the lower effective tax rate in 2022.

At March 31, 2023, the Company’s total assets were $12.3 billion, a decrease of $55.8 million from December 31, 2022.

The net interest margin for the second quarter was 3.87%, compared to 3.05% a year ago.

For the second quarter of 2023, the Company recorded a provision for credit losses of $2.8 million, compared to a provision for credit losses of $501,000 for the second quarter of 2022.

Noninterest income for the second quarter of 2023 totaled $48.0 million, compared to $42.6 million for the second quarter of 2022.

The growth in noninterest income was mostly attributable to increased sweep account balances.

Noninterest income for the second quarter of 2022 included $578,000 of income from an equity interest received from a prior loan settlement.

The equity interest was sold during the second quarter of 2023 at no gain.

The Company exceeded $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 will cause a reduction of annual pretax income from debit card interchange fees of approximately $23 million beginning July 1, 2023.

Noninterest expense for the second quarter of 2023 increased to $81.1 million compared to $73.7 million for the second quarter of 2022.

Higher noninterest expense was primarily related to an increase in salaries and employee benefits of $4.5 million.

In addition, noninterest expense was lower in the second quarter of 2022 due to a gain from sale of the Company's prior headquarters that was netted against expenses.

The Company’s effective tax rate was 21.4% for the second quarter of 2023 compared to 19.1% for the second quarter of 2022.

The Company adopted Accounting Standard Update ("ASU") 2023-02 on January 1, 2023, which increased income tax expenses.

Exercises of stock options contributed to the lower effective tax rate in 2022.

At June 30, 2023, the Company’s total assets were $12.0 billion, a decrease of $367.6 million from December 31, 2022.

Debt securities of $1.6 billion were up $30.0 million from December 31, 2022.

Loans totaled $7.3 billion, an increase of $357.7 million from December 31, 2022.

Deposits totaled $10.6 billion, a decrease of $364.1 million from December 31, 2022 as demand deposits moved into the Company's off balance sheet sweep product.

Sweep accounts totaled $4.1 billion at March 31, 2023 up $394.9 million from December 31, 2022.

Deposits totaled $10.5 billion, a decrease of $499.0 million from December 31, 2022 as deposits generally flowed from demand deposits into the Company's off balance sheet sweep account product.

Sweep accounts totaled $4.3 billion at June 30, 2023 up $567.7 million from December 31, 2022.

The Company’s total stockholders’

equity at March 31, 2023 was $1.3 billion, an increase of $60.0 million over December 31, 2022.

At March 31, 2023, the Company’s nonaccrual loans were $17.6 million compared to $15.3 million at year-end 2022.

Nonaccrual loans represented 0.25% of total loans at March 31, 2023, compared to 0.22% at December 31, 2022.

The allowance for credit losses to total loans was 1.33% at both March 31, 2023 and December 31, 2022.

Net charge-offs were minimal for both the first quarter of 2023 and 2022.

equity at June 30, 2023 was $1.3 billion, an increase of $90.0 million over December 31, 2022.

At June 30, 2023, the Company’s nonaccrual loans were $18.0 million compared to $15.3 million at year-end 2022.

Nonaccrual loans represented 0.25% of total loans at June 30, 2023, compared to 0.22% at December 31, 2022.

The allowance for credit losses to total loans was 1.33% at both June 30, 2023 and December 31, 2022.

Net charge-offs were 0.01% of average loans for the second quarter and year-to-date of both 2023 and 2022.

Competition for deposits has recently increased and available yields have similarly increased, causing non-interest bearing deposits to move to interest bearing deposits and off balance sheet sweep account products.

Although the percent of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets has decreased to 20.1% at June, 30.

2023, compared to 25.6% at December 31, 2022, the Company is still highly liquid.

The Company expects its net interest income to decrease for the last half of 2023 due to the decrease and change in mix of its deposits.

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

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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 consolidated average balance sheet, average yields on assets and average costs of liabilities.

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

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 $5.6 million for the three months ended March 31, 2023 compared to $7.3 million for the three months ended March 31, 2022.

(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 $5.7 million for the three months ended June 30, 2023 compared to $6.3 million for the three months ended June 30, 2022.

Loan fees included in interest income were $11.3 million for the six months ended June 30, 2023 compared to $13.7 million for the six months ended June 30, 2022.

BANCFIRST CORPORATION

2 unchanged sentences

(Dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Earning assets:

26 unchanged sentences

Net interest margin

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:

3 unchanged sentences

Three Months Ended

Six Months Ended

Income Statement Data

18 unchanged sentences

Net Interest Income

For the three months ended March 31, 2023, net interest income, which is the Company’s principal source of operating revenue, increased $33.6 million or 44.6% compared to the three months ended March 31, 2022.

For the three months ended June 30, 2023, net interest income, which is the Company’s principal source of operating revenue, increased $19.1 million or 21.9% compared to the three months ended June 30, 2022.

The increase was due to rising short-term interest rates and loan growth.

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 2023 increased compared to the first quarter of 2022.

During 2022, the Federal Reserve began raising interest rates to help slow inflation in the economy.

As shown in the preceding table, the Company’s net interest margin for the second quarter of 2023 increased compared to the second quarter of 2022.

Net interest income for the six months ended June 30, 2023 increased $52.7 million or 32.5% compared to the six months ended June 30, 2022.

Rising short term interest rates and loan growth contributed to the increase.

As shown in the preceding table, the Company’s net interest margin for the six months ended June 30, 2023 increased compared to the six months ended June 30, 2022.

In March of 2022, the Federal Reserve began raising the federal funds rate in an effort to reduce inflation and slow the economy.

The Company’s net interest income and net interest margin were impacted by the increases in interest rates.

Our expectation is that interest rates will continue to increase in the near term.

Provision for Credit Losses

The provision for credit losses is presented in the preceding table.

The increase in the provision for the three months ended June 30, 2023 compared to 2022 was driven by loan growth.

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

1 unchanged sentence

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 $290,000 for the first quarter of 2023, compared to net loan recoveries of $289,000 for the first quarter of 2022.

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

Net loan charge-offs were $664,000 for the second quarter of 2023, compared to net loan charge-offs of $805,000 for the second quarter of 2022.

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

The increased provision for credit losses for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was due to loan growth.

Net loan charge-offs were $954,000 for the six months ended June 30, 2023, compared to $516,000 for the same period of the prior year.

Noninterest Income

Noninterest income, as presented in the preceding table, increased by $4.2 million for the first quarter of 2023 compared to the first quarter of 2022.

Noninterest income for the first quarter of 2023 included $327,000 of income from an equity interest received from a prior loan settlement compared to $4.9 million of income

from the same source in the first quarter of 2022.

Noninterest income included non-sufficient funds ("NSF") and overdraft fees totaling $6.4 million and $6.5 million for the three months ended March 31, 2023 and 2022, respectively.

Noninterest income, as presented in the preceding table, grew by $5.4 million for the second quarter of 2023 compared to the second quarter of 2022.

The growth in noninterest income was mostly attributable to an increase in sweep account fees due to increased sweep account balances.

Noninterest income for the second quarter of 2022 included $578,000 of income from an equity interest received from a prior loan settlement.

The equity interest was sold during the second quarter of 2023 at no gain.

Noninterest income included non-sufficient funds ("NSF") and overdraft fees totaling $6.6 million and $6.1 million for the three months ended June 30, 2023 and 2022, respectively.

This represents 13.8% and 14.3% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $12.0 million and $11.7 million during the three months ended March 31, 2023 and 2022, respectively.

In addition, the Company had debit card interchange fees totaling $12.4 million and $12.5 million during the three months ended June 30, 2023 and 2022, respectively.

This represents 25.9% and 29.3% of the Company’s noninterest income for the respective periods.

Noninterest income grew by $9.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The growth in noninterest income was mostly attributable to an increase in sweep account fees of $8.3 million due to increased sweep account balances, along with an increase in trust revenue and insurance commissions.

In addition, the first six months of 2022 included a loss of $4.0 million on the sale of $226 million of low yielding debt securities, which were subsequently reinvested at higher yielding debt securities.

Noninterest income for the six months ended June 30, 2022 included $5.5 million of income from an equity interest received from a prior loan settlement compared to $327,000 for six months ended June 30, 2023.

The equity interest was sold during the second quarter of 2023 at no gain.

The Company earned $1.4 million on the sale of loans for the six months ended June 30, 2023 compared to $2.9 million for the six months ended June 30, 2022.

Noninterest income included non-sufficient fund fees totaling $13.1 million and $12.6 million during the six months ended June 30, 2023 and 2022, respectively.

This represents 13.7% and 14.7% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $24.4 million and $24.1 million during the six months ended June 30, 2023 and 2022, respectively.

This represents 25.5% and 28.0% of the Company’s noninterest income for the respective periods.

The Company is subject to political pressures that could limit our ability to charge for NSF and overdraft fees.

3 unchanged sentences

Noninterest Expense

Noninterest expense, as presented in the preceding table, increased by $7.8 million for first quarter of 2023 compared to the first quarter of 2022.

The increase in noninterest expenses was primarily related to an increase in salaries and employee benefits of $5.3 million.

The first quarter of 2022 included a gain on sale of OREO which reduced noninterest expense by $726,000.

The Company’s effective tax rate was 22.6% for the first quarter of 2023, compared to 17.8% for the first quarter of 2022.

During the quarter, the Company adopted ASU 2023-02 and amortized $977,000 of NMTC to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 1.31%.

Exercises of stock options and a lower state tax rate contributed to the lower effective tax rate in 2022.

Noninterest expense, as presented in the preceding table, increased by $7.4 million for second quarter of 2023 compared to the second quarter of 2022.

Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $4.5 million.

In addition, noninterest expense was lower in the second quarter of 2022 due to a gain from the sale of the Company’s prior headquarters that was carried in other real estate owned which reduced noninterest expense by $3.1 million.

For the six months ended June 30, 2023, noninterest expense increased by $15.2 million compared to the six months ended June 30, 2022.

Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $9.8 million.

In addition, noninterest expense was lower in the six months ended June 30, 2022 due to a gain from the sale of the Company’s prior headquarters that was carried in other real estate owned which reduced noninterest expense by $3.1 million.

The Company’s effective tax rate was 21.4% for the second quarter of 2023, compared to 19.1% for the second quarter of 2022.

The Company's adoption of ASU 2023-02 in the first quarter of 2023 increased income tax expense due to the amortization of $1.2 million of New Markets Tax Credits ("NMTC") to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 1.69%.

The lower effective tax rate in 2022 was also driven by the exercising of stock options during the quarter.

The Company’s effective tax rate was 22.0% for the first six months of 2023, compared to 18.5% for the first six months of 2022.

The Company's adoption of ASU 2023-02 in the first quarter of 2023 increased income tax expense due to the amortization of $2.2 million of NMTC to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 1.50%.

Exercises of stock options contributed to the lower effective tax rate in 2022.

The primary 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.

3 unchanged sentences

(Dollars in thousands, except per share data)

June 30, 2023

December 31, 2022

Balance Sheet Data

31 unchanged sentences

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

(3) Government agencies guarantee approximately $6.4 million of nonaccrual loans at March 31, 2023.

(3) Government agencies guarantee approximately $6.6 million of nonaccrual loans at June 30, 2023.

Cash and Due from Banks, Federal Funds Sold and Interest-Bearing Deposits with Banks

The aggregate of cash and due from banks, federal funds sold and interest-bearing deposits with banks decreased by $334.3 million or 10.5% to $2.8 billion, from December 31, 2022 to March 31, 2023.

The decrease was related to demand deposits that were moved into the Company's off-balance sheet sweep product.

Sweep accounts were $4.1 billion at March 31, 2023, up $394.9 million from December 31, 2022.

At March 31, 2023, total debt securities increased $77.6 million, or 5.0% compared to December 31, 2022.

The aggregate of cash and due from banks, federal funds sold and interest-bearing deposits with banks decreased by $758.1 million or 23.9% to $2.4 billion, from December 31, 2022 to June 30, 2023.

The decrease was primarily due to the movement of demand deposits into the Company's off-balance sheet sweep account product and loan growth.

Sweep accounts were $4.3 billion at June 30, 2023, up $567.7 million from December 31, 2022.

At June 30, 2023, total debt securities increased $30.0 million, or 1.9% compared to December 31, 2022.

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 $74.5 million at March 31, 2023, compared to a net unrealized loss of $93.7 million at December 31, 2022.

The net unrealized loss on debt securities available for sale, before taxes, was $93.0 million at June 30, 2023, compared to a net unrealized loss of $93.7 million at December 31, 2022.

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

equity as accumulated other comprehensive income, net of income tax, in the amounts of a loss of $56.9 million at March 31, 2023 and a loss of $71.6 million at December 31, 2022.

During the quarter ended March 31, 2023, the Company purchased debt securities as shown in the consolidated statements of cash flow.

The Company did not have any sales of debt securities during the quarter ended March 31, 2023.

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

equity as accumulated other comprehensive income, net of income tax, in the amounts of a loss of $71.0 million at June 30, 2023 and a loss of $71.6 million at December 31, 2022.

During the six months ended June 30, 2023, the Company purchased debt securities as shown in the consolidated statements of cash flow.

The Company did not have any sales of debt securities during the six months ended June 30, 2023.

During the six months ended June 30, 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%, the proceeds of 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 March 31, 2023, total loans increased $175.0 million or 2.5% compared to December 31, 2022, as a result of internal loan growth.

At June 30, 2023, total loans increased $357.7 million or 5.1% compared to December 31, 2022, as a result of internal loan growth.

The increase of internal loan growth was 71% from the Company's Oklahoma subsidiary BancFirst and 29% from the Company's Texas subsidiaries Pegasus and Worthington.

1 unchanged sentence

Allowance for Credit Losses

The allowance for credit losses to total loans was 1.33% at both March 31, 2023 and December 31, 2022.

The allowance for credit losses to total loans was 1.33% at both June 30, 2023 and December 31, 2022.

The overall credit quality of the Company's loan portfolio has remained strong.

1 unchanged sentence

Nonaccrual Loans

Nonaccrual loans totaled $17.6 million at March 31, 2023, compared to $15.3 million at December 31, 2022.

Nonaccrual loans totaled $18.0 million at June 30, 2023, compared to $15.3 million at December 31, 2022.

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

3 unchanged sentences

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 $358,000 for the three months ended March 31, 2023 and $376,000 for the three months ended March 31, 2022.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $718,000 for the six months ended June 30, 2023 and $653,000 for the six months ended June 30, 2022.

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

Approximately $6.4 million of nonaccrual loans were guaranteed by government agencies at March 31, 2023.

Approximately $6.6 million of nonaccrual loans were guaranteed by government agencies at June 30, 2023.

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

4 unchanged sentences

Modified Loans

As of January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No.

As of January 1, 2023, the Company adopted ASU No.

2022-02, which eliminates the Troubled Debt Restructurings (“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 when a borrower is experiencing financial difficulty.

The current and future financial effects of the recorded balance of loans considered to be modified during the period were not considered to be material.

The recorded balance of modified loans was approximately $9.7 million during the period ended June 30, 2023.

Other Real Estate Owned and Repossessed Assets

Other real estate owned (OREO) and repossessed assets totaled $38.9 million at March 31, 2023, compared to $36.9 million at December 31, 2022.

Other real estate owned (OREO) and repossessed assets totaled $41.6 million at June 30, 2023, compared to $36.9 million at December 31, 2022.

The Company has spent $4.4 million on OREO tenant improvement during the six months ended June 30, 2023, which is the contributing factor to the increase.

OREO consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure and premises held for sale.

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Decreases in values of properties subsequent to their classification as OREO are charged to operating expense.

OREO included a commercial real estate property recorded at $30.1 million at March 31, 2023 and $29.4 million at December 31, 2022.

OREO included a commercial real estate property recorded at $32.9 million at June 30, 2023 and $29.4 million at December 31, 2022.

Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income.

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This property had the following rental income and operating expenses for the periods presented.

For the Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Operating expense

The Company's total rental income from OREO was approximately $2.8 million for the three months ended March 31, 2023 and for the three months ended March 31, 2022.

In addition, the Company's total OREO holding expense was approximately $2.6 million for the three months ended March 31, 2023 compared to approximately $2.5 million for the three months ended March 31, 2022.

The Company's total rental income and operating expenses from OREO are presented in the following table:

Three Months Ended

Six Months Ended

(Dollars in thousands)

Rental income

Operating expense

Intangible Assets, Goodwill and Other Assets

Identifiable intangible assets and goodwill totaled $201.2 million and $202.0 million at March 31, 2023 and December 31, 2022, respectively.

Other assets includes the cash surrender value of key-man life insurance policies totaling $83.3 million at March 31, 2023 and $82.7 million at December 31, 2022.

Derivative financial instruments consisting of oil and gas swaps and option contracts are included in other assets and totaled $26.0 million at March 31, 2023 and $20.7 million at December 31, 2022.

Identifiable intangible assets and goodwill totaled $200.3 million and $202.0 million at June 30, 2023 and December 31, 2022, respectively.

Other assets includes the cash surrender value of key-man life insurance policies totaling $83.4 million at June 30, 2023 and $82.7 million at December 31, 2022.

Derivative financial instruments consisting of oil and gas swaps and option contracts are included in other assets and totaled $23.3 million at June 30, 2023 and $20.7 million at December 31, 2022.

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 and customer activity.

At March 31, 2023, the Company had a margin liability included in other liabilities in the amount of $4.6 million.

At June 30, 2023, the Company had a margin liability included in other liabilities in the amount of $5.5 million.

At December 31, 2022, the Company had a margin asset included in other assets in the amount of $6.6 million.

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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 $15.0 million at March 31, 2023 and $15.5 million at December 31, 2022.

The balance of equity securities was $15.2 million at June 30, 2023 and $15.5 million at December 31, 2022.

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

The balance of other assets included equity interests of previous borrowers in the oil and gas industry that were received through bankruptcy proceedings, which totaled $20.3 million at March 31, 2023 and $21.4 million at December 31, 2022.

The balance of other assets included equity interests of previous borrowers in the oil and gas industry that were received through bankruptcy proceedings, which totaled $21.4 million at December 31, 2022.

This equity interest was sold during the second quarter of 2023 resulting in a zero balance at June 30, 2023.

Under the equity method, the carrying value of a bank’s investment in an investee is originally recorded at cost but is adjusted periodically to record as income the bank’s proportionate share of the investee’s earnings or losses and decreased by the amount of cash dividends or similar distributions received from the investee.

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During 2023, there have not been any material changes in the Company’s low income housing tax credit ("LIHTC") investments and NMTC investments, which are included in other assets on the Company’s consolidated balance sheet.

During the quarter the Company adopted ASU 2023-02 and recorded $21.8 million in other assets and other liabilities on the consolidated balance sheet for unfunded LIHTC commitments and amortized $977,000 of NMTC investments to income tax expense during the period that would have previously been recorded to other expense.

The Company adopted ASU 2023-02 on January 1, 2023 and as of June 30, 2023 have recorded $26.7 million in other assets and other liabilities on the consolidated balance sheet for unfunded LIHTC commitments and have amortized $2.2 million of NMTC investments to income tax expense for the six months ended June 30, 2023 that would have previously been recorded to other expense.

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, 2022, for disclosures regarding these investments.

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The Company maintains lines of credit from the Federal Home Loan Bank (“FHLB”), 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.

The Company is highly liquid with 23% of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets.

Although the percent of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets has decreased to 20.1% at June, 30.

2023, compared to 25.6% at December 31, 2022, the Company is still highly liquid.

The decrease was primarily due to the movement of demand deposits into the Company's off-balance sheet sweep account product and loan growth.

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, 2022.

At March 31, 2023, deposits totaled $10.6 billion, a decrease of $364.1 million from December 31, 2022 as demand deposits moved into the Company's off balance sheet sweep product.

At June 30, 2023, deposits totaled $10.5 billion, a decrease of $499.0 million from December 31, 2022 as demand deposits moved into the Company's off balance sheet sweep account product.

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 97.8% at March 31, 2023 and 98.1% at December 31, 2022.

Noninterest-bearing deposits to total deposits were 42.8% at March 31, 2023, compared to 45.1% at December 31, 2022.

Off-balance sheet sweep accounts totaled $4.1 billion at March 31, 2023 compared to $3.7 billion at December 31, 2022.

The Company's sweep accounts affected the balances of both assets and deposits.

The Company’s core deposits as a percentage of total deposits were 97.6% at June 30, 2023 and 98.1% at December 31, 2022.

Noninterest-bearing deposits to total deposits were 40.9% at June 30, 2023, compared to 45.1% at December 31, 2022.

Off-balance sheet sweep accounts totaled $4.3 billion at June 30, 2023 compared to $3.7 billion at December 31, 2022.

The Company's sweep accounts affected the balances of both cash 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 $203.5 million at March 31, 2023, compared to $300,000 at December 31, 2022.

The increase in short-term borrowings was due to BancFirst taking a $200.0 million advance on its line of credit from the Federal Home Loan Bank (“FHLB”) of Topeka, Kansas, which was paid off on April 3, 2023.

Short-term borrowings were $3.9 million at June 30, 2023, compared to $300,000 at December 31, 2022.

The Company has several lines of credit it can use.

At March 31, 2023, BancFirst had $560.3 million available on its line of credit from the FHLB of Topeka, Kansas and a $25.0 million line of credit with another financial institution that is an overnight federal funds facility.

Pegasus has a federal funds line of credit with BancFirst for $50.0 million.

Worthington has a $25.0 million federal funds line of credit with BancFirst, a $10.5 million line of credit with another financial institution that is an overnight federal funds facility, a federal reserve discount window capacity of $28.2 million and a $69.9 million line of credit from the FHLB of Dallas, Texas.

At June 30, 2023, BancFirst had $769.6 million available on its line of credit from the FHLB of Topeka, Kansas and a $25.0 million line of credit with another financial institution that is an overnight federal funds facility.

Worthington has a $10.5 million line of credit with another financial institution that is an overnight federal funds facility, a federal reserve discount window capacity of $26.8 million and a $74.2 million line of credit from the FHLB of Dallas, Texas.

Capital Resources

Stockholders’

equity totaled $1.3 billion at March 31, 2023 an increase of $60.0 million from December 31, 2022.

equity totaled $1.3 billion at June 30, 2023 an increase of $90.0 million from December 31, 2022.

In addition to net income of $112.5 million, other changes in stockholders’

equity during the three months ended March 31, 2023 included $642,000 related to common stock issuances for stock option exercises, $382,000 related to stock-based compensation and a $14.6 million increase in accumulated other comprehensive income that were partially offset by $13.2 million in dividends.

The Company’s leverage ratio and total risk-based capital ratios at March 31, 2023, were well in excess of the regulatory requirements.

equity during the six months ended June 30, 2023 included $2.0 million related to common stock issuances for stock option exercises, $1.2 million related to stock-based compensation and a $558,000 increase in accumulated other comprehensive income that were partially offset by $26.3 million in dividends.

The Company’s leverage ratio and total risk-based capital ratios at June 30, 2023, were well in excess of the regulatory requirements.

See Note (8) of the Notes to Consolidated Financial Statements for a discussion of capital ratios and requirements.

Liquidity Risk and Off-Balance Sheet Arrangements

There have not been any material changes in the Company’s liquidity risk and off-balance sheet arrangements included in Management’s Discussion and Analysis which was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Other than changes in the Company's liquidity elsewhere disclosed in this discussion, there have not been any material changes in the Company’s liquidity risk and off-balance sheet arrangements included in Management’s Discussion and Analysis which was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Quantitative and Qualitative Disclosures About Market Risk.

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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