What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-08-04 · 285 added, 255 removed, 1145 unchanged (32% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30,

Cash and due from banks

39 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

33 unchanged sentences

OTHER COMPREHENSIVE (LOSS)/GAIN

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

Unrealized loss on debt securities, net of tax benefit of $ 1,919 , $ 11,033 , $ 1,765 and $ 26,492 , 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

Other comprehensive loss, net of tax benefit of $ 1,919 , $ 11,033 , $ 1,765 and $ 26,123 , respectively

Comprehensive income

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Issued at beginning of period

Shares issued for stock options

Shares acquired and canceled

Issued at end of period

7 unchanged sentences

Dividends on common stock ($ 0.43 , $ 0.40 , $ 1.23 and $ 1.12 per share, respectively)

Common stock acquired and canceled

Balance at end of period

8 unchanged sentences

(Dollars in thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

16 unchanged sentences

Net cash received from acquisitions, net of cash paid

Net (increase)/decrease in federal funds sold

Net increase in federal funds sold

Purchases of available for sale debt securities

5 unchanged sentences

Net change in loans

Net receipts/(payments) on derivative asset contracts

Net payments on derivative asset contracts

Purchases of premises, equipment and computer software

5 unchanged sentences

Issuance of common stock in connection with stock options, net

Common stock acquired

Cash dividends paid

7 unchanged sentences

Noncash investing and financing activities:

Cash consideration for acquisitions

Cash (received)/consideration for acquisitions

Fair value of assets acquired in acquisitions

29 unchanged sentences

Standards Adopted During the Current Period:

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

In March 2022, FASB issued ASU No.

2022-02, “Financial Instruments –

6 unchanged sentences

The Company adopted ASU 2022-02 on January 1, 2023 .

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

In March 2023, the FASB issued ASU No.

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

In March 2023, 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).

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

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

within those annual periods.

Early adoption is permitted for all entities in any interim period.

The Company adopted the amendment as of January 1, 2023 using the modified retrospective transition.

The Company has investments in New Markets Tax Credits ("NMTC") and Low-Income Housing Tax Credits ("LIHTC") that will be affected by ASU 2023-02.

The Company has investments in New Markets Tax Credits ("NMTC") and Low-Income Housing Tax Credits ("LIHTC") that were affected by ASU 2023-02.

Upon adoption of ASU No.

2 unchanged sentences

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

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.

BancFirst Corporation is regulated by the Federal Reserve System as a financial holding company.

On August 11, 2023, BancFirst become a Federal Reserve System member bank, which changed its primary regulator from the Federal Deposit Insurance Corporation (“FDIC”) to the Federal Reserve System.

Worthington became a Federal Reserve System member bank on September 1, 2023, and Pegasus became a Federal Reserve System member bank on October 12, 2023, which changed their primary regulator from the FDIC to the Federal Reserve System.

On July 20, 2023, BancFirst purchased approximately $ 2.5 million in total assets, which included $ 2.1 million in loans, and assumed $ 10.8 million in deposits and other obligations, from RCB Bank's Stroud, Oklahoma branch.

RCB Bank paid BancFirst $ 7.8 million as a result of this transaction.

In addition, the Company recorded a core deposit intangible of $ 252,280 and goodwill of $ 208,752 .

The Company did not incur a material amount of purchase-related expenses.

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

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

The purchase of this branch strengthens BancFirst's presence in the Stroud, Oklahoma community.

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:

June 30, 2023

September 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:

June 30, 2023

September 30, 2023

(Dollars in thousands)

11 unchanged sentences

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

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

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

1 unchanged sentence

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

June 30, 2023

September 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:

June 30, 2023

September 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:

For the Six Months

Ended June 30,

For the Nine Months

Ended September 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 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 %.

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 nine months ended September 30, 2023.

During the nine months ended September 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 June 30, 2023 and December 31, 2022 respectively:

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

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

Less than 12 Months

2 unchanged sentences

(Dollars in thousands)

June 30, 2023

September 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 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.

Furthermore, as of September 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 from 2022 have been reclassified to conform to the 2023 presentation.

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

The Company’s re-alignment of the segments primarily consisted of reclassifying farmland and agriculture related loans that were previously included in consumer-related and commercial-related loans to the agriculture category.

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

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:

June 30, 2023

September 30, 2023

December 31, 2022

8 unchanged sentences

Consumer non-real estate

(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.

(1) Excludes accrued interest receivable of $ 37.8 million at September 30, 2023 and $ 30.6 million at December 31, 2022, that is recorded in accrued interest receivable and other assets.

Certain loan segments for 2022 were reclassified to conform to the 2023 presentation.

Each loan segment consists of loan categories possessing similar risk characteristics.

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

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

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:

June 30, 2023

September 30, 2023

December 31, 2022

1 unchanged sentence

Other real estate owned and repossessed assets

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.

As of both September 30, 2023 and December 31, 2022, other real estate owned included a commercial real estate property recorded at approximately $ 32.7 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.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

1 unchanged sentence

Operating expense

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.

During the nine months ended September 30, 2023, the Company sold property held in other real estate owned for a total gain of $ 342,000 , compared to a total gain of $ 4.0 million in the nine months ended September 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.

The recorded balance of modified loans was approximately $ 8.4 million during the period ended September 30, 2023.

Nonaccrual loans

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

In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both September 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 $ 1.1 million for the nine months ended September 30, 2023 and approximately $ 992,000 for the nine months ended September 30, 2022.

Nonaccrual loans guaranteed by government agencies totaled approximately $ 5.7 million at September 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.

June 30, 2023

September 30, 2023

December 31, 2022

12 unchanged sentences

(Dollars in thousands)

As of June 30, 2023

As of September 30, 2023

Commercial real estate owner occupied

27 unchanged sentences

Amortized Cost Basis

As of June 30, 2023

As of September 30, 2023

Commercial real estate owner occupied

22 unchanged sentences

Amortized Cost Basis

Three months ended June 30, 2023

Three months ended September 30, 2023

Commercial real estate owner occupied

21 unchanged sentences

Amortized Cost Basis

Six months ended June 30, 2023

Nine months ended September 30, 2023

Commercial real estate owner occupied

25 unchanged sentences

(Dollars in thousands)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Commercial real estate owner occupied

9 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Commercial real estate owner occupied

7 unchanged sentences

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 June 30, 2022

Three Months Ended September 30, 2022

Commercial real estate owner occupied

10 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30, 2022

Nine Months Ended September 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 six month period ended June 30, 2023.

The credit-deteriorated loans purchased during the six months ended June 30, 2022 were as follows:

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

The credit-deteriorated loans purchased during the nine months ended September 30, 2022 were as follows:

Loans acquired

2 unchanged sentences

(Dollars in thousands)

For the period ended June 30, 2022

For the period ended September 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 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.

During the nine months ended September 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 June 30, 2023

As of September 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:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands)

4 unchanged sentences

(Dollars in thousands)

June 30, 2023

September 30, 2023

Core deposit intangibles

9 unchanged sentences

(Dollars in thousands)

Six months ended June 30, 2023

Balance at beginning and end of period

Nine months ended September 30, 2023

Balance at beginning of period

Balance at end of period

The Company purchased a branch from RCB bank on July 20, 2023, which added goodwill as shown in the table above.

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

Additional information for intangible assets can be found in Note (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 .

15 unchanged sentences

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

The Company used the proceeds from the sale of the Subordinated Notes for general corporate purposes.

The Company used the proceeds from the sale of the Subordinated Notes for general

corporate purposes.

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

9 unchanged sentences

(7) STOCK-BASED COMPENSATION

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 .

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 will 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 September 30, 2023 there were 490,925 shares available for future grants.

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

The RSUs are settled and distributed as of each vesting date.

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

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

Nine Months Ended September 30, 2023

Nonvested at December 31, 2022

Nonvested at September 30, 2023

The Company has had the BancFirst Corporation Directors’

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

As of September 30, 2023 , there are 20,262 shares available for future issuance under the Deferred Stock Compensation Plan.

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

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

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

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

There were 18,136 and 16,684 shares of common stock distributed from the Deferred Stock Compensation Plan during the nine months ended September 30, 2023 and 2022, respectively.

A summary of the accumulated stock units is as follows:

September 30,

Accumulated stock units

Average price

The Company had 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 .

3 unchanged sentences

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)

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Outstanding at December 31, 2022

Canceled, forfeited, or expired

Outstanding at June 30, 2023

Exercisable at June 30, 2023

Outstanding at September 30, 2023

Exercisable at September 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

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

11 unchanged sentences

The Company accounts for forfeitures as they occur.

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

No stock options were granted during the nine months ended September 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:

Six Months Ended

Nine Months Ended

September 30,

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

5 unchanged sentences

Expected term

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 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.

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

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:

Accumulated stock units

Average price

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 nine months ended September 30, 2023 or September 30, 2022.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

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

The Company will continue to amortize the unearned stock-based compensation expense over the remaining weighted average vesting period of approximately 5 years for unvested stock options and 6 years for unvested RSUs.

The following table shows the unearned stock-based compensation expense for unvested stock options and unvested RSUs:

September 30, 2023

(Dollars in thousands)

Unearned stock-based compensation expense

Unearned stock-based compensation expense for unvested stock options

Unearned stock-based compensation expense for unvested RSUs

(8) STOCKHOLDERS’

4 unchanged sentences

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

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

June 30, 2023

The following table is a summary of the shares purchased under the program during the period indicated and the shares remaining to be repurchased in the program:

For the Nine Months

Ended September 30,

Number of shares repurchased

Average price of shares repurchased

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 June 30, 2023 , BancFirst Corporation, BancFirst, Pegasus and Worthington met all capital adequacy requirements to which they are subject.

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

As of September 30, 2023:

Total Capital

10 unchanged sentences

BancFirst Corporation

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”

As of September 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.

7 unchanged sentences

Basic and diluted net income per common share are calculated as follows:

(Denominator)

Three Months Ended

September 30,

Nine Months Ended September 30,

(Dollars in thousands, except per share data)

Three 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

Three 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, 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 June 30, 2023

Three Months Ended June 30, 2022

Six Months Ended June 30, 2023

Six Months Ended June 30, 2022

(Denominator)

Weighted average shares outstanding for basic earnings per common share

Dilutive effect of stock compensation

Weighted-average shares outstanding for diluted earnings per common share

Basic earnings per share

Diluted earnings per share

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

Three Months Ended September 30, 2023

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2023

Nine Months Ended September 30, 2022

(10) FAIR VALUE MEASUREMENTS

38 unchanged sentences

(Dollars in thousands)

June 30, 2023

September 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:

Six Months Ended

Nine Months Ended

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

During the nine months ended September 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.

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

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

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

6 unchanged sentences

(Dollars in thousands)

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

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

September 30, 2023

December 31, 2022

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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 June 30, 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 September 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 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.

The Company had a margin asset included in other assets in the amount of $ 22.3 million at September 30, 2023 and $ 6.6 million at December 31, 2022.

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

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

June 30, 2023

September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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

June 30, 2023

September 30, 2023

December 31, 2022

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(Dollars in thousands)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Net interest income

1 unchanged sentence

Income before taxes

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Net interest income

1 unchanged sentence

Income before taxes

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Net interest income

1 unchanged sentence

Income before taxes

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Net interest income

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Total Assets:

June 30, 2023

September 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 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.

The following discussion and analysis of our financial condition as of September 30, 2023 and December 31, 2022 and results of operations for the three and nine months ended September 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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Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

The impact of the Durbin Amendment on noninterest income beginning July 1, 2023.

The impact of the Durbin Amendment of the Dodd-Frank Act ("Durbin Amendment") on noninterest income beginning July 1, 2023.

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 .

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

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.

The Company’s net income for the third quarter of 2023 was $51.0 million, compared to $55.4 million for the third quarter of 2022.

Diluted net income per common share was $1.52 and $1.65 for the third quarter of 2023 and 2022, respectively.

The Company’s net interest income for the third quarter of 2023 increased to $104.3 million, compared to $100.9 million for the third quarter of 2022.

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

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 net interest margin for the third quarter was 3.73%, compared to 3.48% a year ago.

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

Noninterest income for the third quarter of 2023 totaled $44.4 million, compared to $49.3 million for the third quarter of 2022.

The decrease in noninterest income was attributable to the reduction of interchange fees of approximately $5.4 million related to the impact of the Durbin Amendment as the Company exceeded $10 billion in total assets at December 31, 2022.

In addition, noninterest income for the third quarter of 2022 included $3.2 million 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.

Noninterest expense for the third quarter of 2023 increased to $81.2 million compared to $79.1 million for the third quarter of 2022.

Higher noninterest expense was primarily related to an increase in salaries and employee benefits of $2.5 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’s effective tax rate was 21.8% for the third quarter of 2023 compared to 19.0% for the third 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.

At September 30, 2023, the Company’s total assets were $12.1 billion, a decrease of $273.3 million from December 31, 2022.

Loans totaled $7.5 billion, an increase of $526.7 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.

Liquidity remained strong with cash at $2.3 billion and a quarterly average loan to deposit ratio of 70.6% at September 30, 2023 compared to 62.3% at year-end 2022.

Deposits totaled $10.5 billion, $440.1 million below December 31, 2022 as some large commercial deposits moved from demand accounts into the Company's off balance sheet sweep account product.

Sweep accounts totaled $4.0 billion at September 30, 2023, up $285.3 million from December 31, 2022.

The Company continues to fund itself with community-based deposits and does not use brokered or reciprocal deposits.

The Company’s total stockholders’

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.

equity at September 30, 2023 was $1.4 billion, an increase of $119.7 million above December 31, 2022.

At September 30, 2023, the Company’s nonaccrual loans were $16.7 million compared to $15.3 million at year-end 2022.

Asset quality remained strong with nonaccrual loans representing 0.22% of total loans at both September 30, 2023 and December 31, 2022.

The allowance for credit losses to total loans stood at 1.31% at September 30, 2023, compared to 1.33% at December 31, 2022.

Net charge-offs were 0.02% of average loans for the third quarter of 2023 compared to 0.00% for the third quarter of 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.

Although the percent of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets has decreased to 19.4% at September 30, 2023, compared to 25.6% at December 31, 2022, the Company is still highly liquid.

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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(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.

Loan fees included in interest income were $6.0 million for the three months ended September 30, 2023 compared to $5.7 million for the three months ended September 30, 2022.

Loan fees included in interest income were $17.3 million for the nine months ended September 30, 2023 compared to $19.4 million for the nine months ended September 30, 2022.

BANCFIRST CORPORATION

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(Dollars in thousands)

Three Months Ended June 30,

Three Months Ended September 30,

Earning assets:

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(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Earning assets:

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Income Statement Data

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Efficiency ratio

Net charge-offs to average loans

Net loan charge-offs

Net loan charge-offs to average loans

Net Interest Income

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.

For the three months ended September 30, 2023, net interest income, which is the Company’s principal source of operating revenue, increased $3.4 million or 3.3% compared to the three months ended September 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 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.

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

Net interest income for the nine months ended September 30, 2023 increased $56.1 million or 21.3% compared to the nine months ended September 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.

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

2 unchanged sentences

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

Net loan charge-offs were $1.5 million for the third quarter of 2023, compared to net loan charge-offs of $80,000 for the third 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.

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

Net loan charge-offs were $2.4 million for the nine months ended September 30, 2023, compared to $436,000 for the same period of the prior year.

Noninterest Income

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.

Noninterest income, as presented in the preceding table, decreased by $4.9 million for the third quarter of 2023 compared to the third quarter of 2022.

Sweep account fees increased $2.4 million for the third quarter of 2023 compared to the third quarter of 2022 due to higher sweep account balances.

Noninterest income for the third quarter of 2022 included $3.2 million in income from an equity interest received from a prior loan settlement, which was sold during the second quarter of 2023 at no gain.

Noninterest income included non-sufficient funds ("NSF") and overdraft fees totaling $7.4 million and $6.7 million for the three months ended September 30, 2023 and 2022, respectively.

This represents 16.7% and 13.6% of the Company’s noninterest income for the respective periods.

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.

In addition, the Company had debit card interchange fees totaling $6.6 million and $12.6 million during the three months ended September 30, 2023 and 2022, respectively.

This represents 14.9% and 25.5% 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 decrease in debit card interchange fees was due to the aforementioned impact of the Durbin Amendment.

Noninterest income grew by $4.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The growth in noninterest income was mostly attributable to an increase in sweep account fees of $10.7 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.

In addition, the first nine 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 nine months ended September 30, 2022 included $8.8 million of income from an equity interest received from a prior loan settlement compared to $327,000 for nine months ended September 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.

The Company earned $2.1 million on the sale of loans for the nine months ended September 30, 2023 compared to $3.9 million for the nine months ended September 30, 2022.

Noninterest income included non-sufficient fund fees totaling $20.5 million and $19.4 million during the nine months ended September 30, 2023 and 2022, respectively.

This represents 14.6% and 14.3% 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.

In addition, the Company had debit card interchange fees totaling $31.0 million and $36.7 million during the nine months ended September 30, 2023 and 2022, respectively.

This represents 22.1% and 27.1% of the Company’s noninterest income for the respective periods.

The decrease in debit card interchange fees was due to the aforementioned impact of the Durbin Amendment.

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

1 unchanged sentence

The Company exceeded $10 billion in total assets at December 31, 2022.

Pursuant to the Durbin Amendment of the Dodd-Frank Act, which took effect on July 1, 2023, based on current run rates, annual pretax income from debit card interchange fees would be reduced by approximately $23 million.

Noninterest Expense

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.

Noninterest expense, as presented in the preceding table, increased by $2.1 million for third quarter of 2023 compared to the third quarter of 2022.

Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $2.5 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.

For the nine months ended September 30, 2023, noninterest expense increased by $17.3 million compared to the nine months ended September 30, 2022.

Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $12.3 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.

In addition, noninterest expense was lower in the nine months ended September 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 nine months ended September 30, 2022 also included a write down of an equity investment of $1.5 million.

The Company’s effective tax rate was 21.8% for the third quarter of 2023, compared to 19.0% for the third 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 $1.3 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 1.99%.

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 effective tax rate was 22.0% for the first nine months of 2023, compared to 18.7% for the first nine 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 $3.5 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 1.65%.

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(Dollars in thousands, except per share data)

June 30, 2023

September 30, 2023

December 31, 2022

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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 $6.6 million of nonaccrual loans at June 30, 2023.

(3) Government agencies guarantee approximately $5.7 million of nonaccrual loans at September 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 $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 aggregate of cash and due from banks, federal funds sold and interest-bearing deposits with banks decreased by $828.1 million or 26.1% to $2.3 billion, from December 31, 2022 to September 30, 2023.

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

Sweep accounts were $4.0 billion at September 30, 2023, up $285.3 million from December 31, 2022.

At September 30, 2023, total debt securities decreased $15.2 million, or 1.0% 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 $93.0 million at June 30, 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 $101.0 million at September 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 $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.

equity as accumulated other

comprehensive income, net of income tax, in the amounts of a loss of $77.2 million at September 30, 2023 and a loss of $71.6 million at December 31, 2022.

During the nine months ended September 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 nine months ended September 30, 2023.

During the nine months ended September 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%.

The Company also made two other purchases of debt securities in 2022.

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.

On August 25, 2022, the Company purchased United States Treasury Notes of $300 million par value with an average yield of 3.27% and an average maturity of 58 months.

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

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.

At September 30, 2023, total loans increased $526.7 million or 7.6% compared to December 31, 2022, as a result of internal loan growth.

Of the total increase in loans, oil and gas loans made up the largest increase with $109.6 million, or 20.8% of the increase, and construction and development loans increasing $100.4 million, or 19.1%.

At September 30, 2023, oil and gas loans comprise 7.7% of loans compared to 6.7% at December 31, 2022.

The increase of internal loan growth was 79% from the Company's Oklahoma subsidiary BancFirst and 21% 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 June 30, 2023 and December 31, 2022.

The allowance for credit losses to total loans was 1.31% at September 30, 2023, compared to 1.33% at December 31, 2022.

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

1 unchanged sentence

Nonaccrual Loans

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

Nonaccrual loans totaled $16.7 million at September 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.

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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 $718,000 for the six months ended June 30, 2023 and $653,000 for the six months ended June 30, 2022.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.1 million for the nine months ended September 30, 2023 and $992,000 for the nine months ended September 30, 2022.

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

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

Approximately $5.7 million of nonaccrual loans were guaranteed by government agencies at September 30, 2023.

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

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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.

The recorded balance of modified loans was approximately $8.4 million during the period ended September 30, 2023.

Other Real Estate Owned and Repossessed Assets

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.

Other real estate owned (OREO) and repossessed assets totaled $42.8 million at September 30, 2023, compared to $36.9 million at December 31, 2022.

The Company has spent $4.2 million on OREO tenant improvement during the nine months ended September 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.

These properties 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 OREO are charged directly to the allowance for credit losses.

Write-downs arising at the time of reclassification of such

properties from loans to OREO 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 OREO.

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 $32.9 million at June 30, 2023 and $29.4 million at December 31, 2022.

OREO included a commercial real estate property recorded at $32.7 million at September 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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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Intangible Assets, Goodwill and Other Assets

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.

Identifiable intangible assets and goodwill totaled $199.9 million and $202.0 million at September 30, 2023 and December 31, 2022, respectively.

Other assets includes the cash surrender value of key-man life insurance policies totaling $84.0 million at September 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 $21.7 million at September 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 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.

The Company had a margin asset included in other assets in the amount of $22.3 million at September 30, 2023 and $6.6 million at December 31, 2022.

See Note (11) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s derivative financial instruments.

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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 $15.2 million at June 30, 2023 and $15.5 million at December 31, 2022.

The balance of equity securities was $14.8 million at September 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 $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.

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

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.

The Company adopted ASU 2023-02 on January 1, 2023 and as of September 30, 2023 have recorded $26.1 million in other assets and other liabilities on the

consolidated balance sheet for unfunded LIHTC commitments.

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.

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.

Although the percent of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets has decreased to 19.4% at September, 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.

The decrease was primarily due to the movement of some large commercial 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 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.

At September 30, 2023, deposits totaled $10.5 billion, a decrease of $440.1 million from December 31, 2022 as some large commercial 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 97.6% 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.

The Company’s core deposits as a percentage of total deposits were 97.3% at September 30, 2023 and 98.1% at December 31, 2022.

Noninterest-bearing deposits to total deposits were 39.6% at September 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.

Off-balance sheet sweep accounts totaled $4.0 billion at September 30, 2023 compared to $3.7 billion at December 31, 2022.

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

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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 $3.9 million at June 30, 2023, compared to $300,000 at December 31, 2022.

Short-term borrowings were $4.0 million at September 30, 2023, compared to $300,000 at December 31, 2022.

The Company has several lines of credit it can use.

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.

At September 30, 2023, BancFirst had $793.2 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 $27.5 million and a $76.4 million line of credit from the FHLB of Dallas, Texas.

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Stockholders’

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

equity totaled $1.4 billion at September 30, 2023, an increase of $119.7 million above December 31, 2022.

In addition to net income of $163.5 million, other changes in stockholders’

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.

equity during the nine months ended September 30, 2023 included $2.1 million related to common stock issuances for stock option exercises and $2.1 million related to stock-based compensation that were partially offset by $40.5 million in dividends, $1.8 million in the repurchase of company stock and a $5.6 million decrease in accumulated other comprehensive income.

The Company’s leverage ratio and total risk-based capital ratios at September 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.

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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