BANCFIRST CORP /OK/ 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis presents factors that the Company believes are relevant to an assessment and understanding of the Company’s financial position and results of operations for the three years ended December 31, 2023. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto and the selected consolidated financial data included herein. FORWARD-LOOKING STATEMENTS The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management’s current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: • The 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 . • 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 NSF and overdraft fees. • A continuing shift in deposit mix could negatively impact net interest margin. • Changes in interest rates. • The increased time, effort and non-interest expense related to ongoing and increased regulations from the Federal Reserve, the Consumer Financial Protection Bureau and the Securities and Exchange Commission (requirements related to environmental, social and governance issues and climate disclosure). • 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. • Inflation, including wage inflation, energy prices, securities markets and monetary fluctuations. • Impairment of the Company’s goodwill or other intangible assets. • Changes in consumer spending, borrowing and savings habits. • Changes in the financial performance and/or condition of the Company’s borrowers, including the impact of rising interest rates. • Technological changes. • Cyber threats 28 Table of Contents • The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters. • The Company’s success at managing the risks involved in the foregoing items. Actual results may differ materially from forward-looking statements. SUMMARY The Company’s net income for 2023 was $212.5 million, or $6.34 per diluted share, compared to $193.1 million, or $5.77 per diluted share for 2022. In 2023, net interest income increased to $424.5 million, compared to $373.7 million in 2022. Rising short-term interest rates and loan growth contributed to the increase in net interest income in 2023. The Company’s net interest margin increased to 3.79% for 2023, compared to 3.29% for 2022. The Company recorded a provision for credit losses of $7.5 million in 2023 compared to a provision for credit losses of $10.1 million in 2022. The Company's provision for credit losses decreased in 2023 due to improving economic forecasts. Noninterest income totaled $185.4 million in 2023 compared to $183.7 million in 2022. The increase in noninterest income in 2023 was mostly attributable the increase in sweep fees of $12.2 million, partially offset by the reduction of interchange fees of approximately $10.9 million related to the impact of the Durbin Amendment since its application to the Company on July 1, 2023. Noninterest expense was $332.5 million in 2023 compared to $309.9 million in 2022. Higher noninterest expenses in 2023 were primarily related to growth in salaries and employee benefits of $15.0 million related to both annual merit increases and new hires needed to comply with the increased regulatory burden associated with exceeding $10 billion in assets. In addition, 2023 included an expense from other real estate owned of $15.9 million compared to $9.9 million during 2022. The Company’s effective tax rate in 2023 was 21.29% compared to 18.67% for 2022. During the first quarter of 2023, the Company adopted accounting standards update ("ASU") 2023-02, which increased income tax expense. The effective tax rate for 2023 was higher than the statutory rate due to the adoption of ASU 2023-02 and state tax expense. The effective tax rate for 2022 was lower than the statutory tax rate due to the recognition of certain tax credits. The Company’s assets at year-end 2023 totaled $12.4 billion, virtually unchanged from December 31, 2022. Off-balance sheet sweep accounts totaled $4.3 billion at December 31, 2023 compared to $3.7 billion at December 31, 2022. Loans totaled $7.7 billion an increase of $710.3 million from year-end 2022. Deposits totaled $10.7 billion at December 31, 2023 a decrease of $274.1 million from December 31, 2022. The Company’s total stockholders’ equity was $1.4 billion, an increase of $183.1 million from December 31, 2022. Asset quality remained strong with nonaccrual loans of $24.6 million, representing 0.32% of total loans at December 31, 2023. Nonaccrual loans were $15.3 million or 0.22% of total loans at December 31, 2022. The allowance for credit losses to total loans stood at 1.26% at December 31, 2023, compared to 1.33% at December 31, 2022. Net charge-offs were $3.4 million for the year or 0.05% of average loans, compared to $1.4 million or 0.02% of average loans for the year ended December 31, 2022. See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company’s recent developments, including mergers and acquisitions. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s significant accounting policies are described in Note (1) to the consolidated financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions, which affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the allowance for credit losses, income taxes, intangible assets and the fair value of financial instruments. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported. The following is a summary of the accounting policies and estimates that management believes are the most critical. 29 Table of Contents Allowance for Credit losses On January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) 326, which replaced the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as current expected credit loss ("CECL"). The allowance for credit losses is management’s estimate of the current expected credit losses on financial assets measured at amortized cost. The allowance for credit losses is increased by provisions charged to operating expense and is reduced by net loan charge-offs. The amount of the allowance for credit losses is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A loan is considered collateral-dependent when the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company's assessment as of the reporting date. For collateral dependent loans, the standard allows institutions to use, as a practical expedient, the fair value of the collateral to measure current expected credit losses on collateral-dependent financial assets. This amount is included in the allowance for credit losses. To estimate expected losses using historical loss information, the Company elected to utilize a methodology known as vintage loss analysis for BancFirst, Pegasus, and Worthington Bank. Vintage loss analysis measures impairment based on the age of the accounts and the historical performance of assets with similar risk characteristics. Vintage loss analysis determines expected losses by allowing the Company to calculate the cumulative loss rates of a given loan pool and, in so doing, determine the loan pool’s lifetime expected loss experience relative to the appropriate type of financial assets that share similar risk characteristics. Vintage loss analysis uses different “vintages” analyzed by year of origination through the weighted average maturity of each loan pool. The key quantitative inputs used in the Company’s estimate of the allowance for credit losses include 1) all available loan data tracked by year of origination, 2) total charge-offs for each specific loan pool recorded since year of origination, 3) recovery rate calculated by the average recovery over the previous seven years across all loan pools, and 4) a weighting factor biased to more recent loss experience. The quantitative current expected credit loss is calculated by dividing each year’s net charge-offs by the original balance. The respective vintage’s original balance remains the denominator in each annual calculation, referencing the specific vintage’s initial balance. The loss experience of this original balance is tracked annually and summed over the life of the loan for each separate loan pool, leaving a cumulative life of credit loss rate based on historic averages weighted towards more recent loss experience. These key quantitative inputs change from period to period as new loans are originated, and charge-offs and recoveries are recognized. The recovery rate is revised on an annual basis, taking into consideration the most recent seven years. The weighting factor percentages remain static; however, the most recent year receives the highest weighting percentage. The BancFirst Senior Loan Committee (“the SLC”) establishes BancFirst qualitative adjustments. In setting the qualitative adjustments, they consider several factors, including external economic information, peer bank comparisons, and experience with the loan portfolio. The SLC also considers a Moody’s Analytics dataset in which BancFirst selects a range from three probability scenarios from two economic forecasts. To determine the appropriate correlation to the loss experience, economic indicators are compared to the prior ten years of charge-off history to arrive at a correlation factor. BancFirst then applies the correlation factor to the change in the forecast of the aforementioned economic indicators over the next 18-24 months, which is driven by management’s judgment of a reasonable and supportable forecast period to arrive at a percentage range of qualitative loss adjustment attributable to economic forecasts. The SLC establishes a qualitative adjustment for each loan pool using these factors. For periods beyond which BancFirst can make or obtain reasonable and supportable forecasts of current expected credit losses, BancFirst reverts to historical loss information. Each quarter the SLC reviews aggregate allowance for BancFirst and adjusts the appropriateness of the allowance. In addition, annually or more frequently as needed, the SLC evaluates the qualitative adjustments used in the BancFirst allowance based on the information described above. To facilitate the SLC’s evaluation, the Asset Quality Department performs periodic reviews of business units and reports on the adequacy of management’s identification of collateral-dependent and adversely classified loans and their adherence to loan policies and procedures. The process of evaluating the appropriateness of the allowance for credit losses necessarily involves the exercise of judgment and consideration of numerous subjective factors and, accordingly, there can be no assurance that the estimate of expected losses will not change in light of future developments and economic conditions. Changes in assumptions and conditions could result in a materially different amount for the allowance for credit losses. Income Taxes The Company files a consolidated income tax return. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized. 30 Table of Contents The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are reported as tax expense or benefits, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax laws and regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors. Management performs an analysis of the Company’s tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years. Intangible Assets and Goodwill Core deposit intangibles are amortized on a straight-line basis over the estimated useful lives of seven to ten years and customer relationship intangibles are amortized on a straight-line basis over the estimated useful life of three to eighteen years. Goodwill is not amortized, but is evaluated at a reporting unit level at least annually for impairment or more frequently if other indicators of impairment are present. At least annually in the fourth quarter, intangible assets, are evaluated for possible impairment. Impairment losses are measured by comparing the fair values of the intangible assets with their recorded amounts. Any impairment losses are reported in the consolidated statements of comprehensive income. The evaluation of remaining core deposit intangibles for possible impairment involves reassessing the useful lives and the recoverability of the intangible assets. The evaluation of the useful lives is performed by reviewing the levels of core deposits of the respective branches acquired. The actual life of a core deposit base may be longer than originally estimated due to more successful retention of customers, or may be shorter due to more rapid runoff. Amortization of core deposit intangibles would be adjusted, if necessary, to amortize the remaining net book values over the remaining lives of the core deposits. The evaluation for recoverability is only performed if events or changes in circumstances indicate that the carrying amount of the intangibles may not be recoverable. The evaluation of goodwill for possible impairment is performed by comparing the fair values of the related reporting units with their carrying amounts including goodwill. The fair values of the related business units are estimated using market data for prices of recent acquisitions of banks and branches. The evaluation of intangible assets and goodwill for the year ended December 31, 2023 and 2022 resulted in no impairments. Fair Value of Financial Instruments Debt securities that are being held for indefinite periods of time, or that may be sold as part of the Company’s asset/liability management strategy, to provide liquidity or for other reasons, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity, net of income tax. The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to sell, the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the performance of any underlying collateral and adverse conditions specifically related to the security. At December 31, 2023 and December 31, 2022, 98% of the available for sale debt securities held by the Company were issued by the U.S. Treasury, or U.S. government-sponsored entities and agencies. The Company does not consider the unrealized position of these securities to be the result of credit factors, because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company has not recorded an allowance for credit losses against its debt securities portfolio, as the credit risk is not material. The estimates of fair values of debt securities and other financial instruments are based on a variety of factors. In some cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future. 31 Table of Contents Future Application of Accounting Standards See Note (1) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements and their expected impact on the Company’s consolidated financial statements. Segment Information See Note (23) of the Notes to Consolidated Financial Statements for disclosure regarding the Company’s operating business segments. RESULTS OF OPERATIONS The following discussion and analysis presents the more significant factors that affected the Company's financial condition as of December 31, 2023 and 2022 and results of operations for each of the years then ended. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 24, 2023 (the “2022 Form 10-K”) for a discussion and analysis of the more significant factors that affected periods prior to 2022, which the Company incorporates by reference. Certain reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report. From time to time, the Company has engaged in acquisitions. None of these acquisitions had a significant impact on the Company's consolidated financial statements. The Company accounts for acquisitions using the acquisition method, and as such, the results of operations of acquired companies are included from the date of acquisition forward. 32 Table of Contents Average Balances, Income Expenses and Rates The following tables present, for the periods indicated, certain information related to the Company's consolidated average balance sheet, average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. 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 $21.9 million for the year ended December 31, 2023 compared to $24.1 million for the year ended December 31, 2022 and $55.5 million for the year ended December 31, 2021. CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS Taxable Equivalent Basis (Dollars in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ASSETS Earning assets: Loans (1) $ 7,292,871 $ 467,951 6.42 % $ 6,611,617 $ 336,739 5.09 % $ 6,220,192 $ 316,618 5.09 % Debt securities – taxable 1,565,697 36,838 2.35 1,295,762 24,456 1.89 538,157 6,327 1.18 Debt securities – tax exempt 3,339 91 2.71 3,877 118 3.03 11,372 258 2.27 Federal funds sold and interest-bearing deposits with banks 2,343,182 119,486 5.10 3,450,093 58,931 1.71 3,268,443 4,366 0.13 Total earning assets 11,205,089 624,366 5.57 11,361,349 420,244 3.70 10,038,164 327,569 3.26 Nonearning assets: Cash and due from banks 204,394 260,028 271,004 Interest receivable and other assets 814,419 865,744 694,191 Allowance for credit losses (96,154 ) (87,567 ) (88,028 ) Total nonearning assets 922,659 1,038,205 877,167 Total assets $ 12,127,748 $ 12,399,554 $ 10,915,331 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities: Money market and interest-bearing checking deposits $ 4,361,001 $ 142,275 3.26 % $ 4,090,098 $ 31,245 0.76 % $ 3,566,394 $ 4,147 0.12 % Savings deposits 1,087,642 29,575 2.72 1,147,673 6,402 0.56 1,019,042 542 0.05 Time deposits 797,179 23,196 2.91 672,179 4,318 0.64 654,801 3,543 0.54 Short-term borrowings 6,432 312 4.84 4,333 60 1.39 2,608 2 0.08 Subordinated debt 86,070 4,122 4.79 86,013 4,122 4.79 56,793 3,130 5.51 Total interest-bearing liabilities 6,338,324 199,480 3.15 6,000,296 46,147 0.77 5,299,638 11,364 0.21 Interest-free funds: Noninterest-bearing deposits 4,343,646 5,097,813 4,437,352 Interest payable and other liabilities 108,438 102,691 52,069 Stockholders’ equity 1,337,340 1,198,754 1,126,272 Total interest free funds 5,789,424 6,399,258 5,615,693 Total liabilities and stockholders’ equity $ 12,127,748 $ 12,399,554 $ 10,915,331 Net interest income $ 424,886 $ 374,097 $ 316,205 Net interest spread 2.42 % 2.93 % 3.05 % Effect of interest free funds 1.37 % 0.36 % 0.10 % Net interest margin 3.79 % 3.29 % 3.15 % 33 Table of Contents The following table depicts, for the periods indicated, selected income statement data and other selected data: BANCFIRST CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share data) At and for the Year Ended December 31, 2023 2022 2021 Income Statement Data Net interest income $ 424,456 $ 373,673 $ 315,657 Provision for (benefit from) credit losses 7,458 10,076 (8,690 ) Noninterest income 185,408 183,747 170,032 Noninterest expense 332,458 309,912 285,981 Net income 212,465 193,100 167,630 Per Common Share Data Net income – basic $ 6.45 $ 5.89 $ 5.12 Net income – diluted 6.34 5.77 5.03 Cash dividends 1.66 1.52 1.40 Selected Financial Ratios Performance ratios: Return on average assets 1.75 % 1.56 % 1.54 % Return on average stockholders’ equity 15.89 16.11 14.88 Cash dividends payout ratio 25.74 25.81 27.34 Net interest spread 2.42 2.93 3.05 Net interest margin 3.79 3.29 3.15 Efficiency ratio 54.51 55.60 58.88 Net Interest Income Net interest income, which is the Company’s principal source of operating revenue, increased in 2023 by $50.8 million, to a total of $424.5 million, compared to an increase of $58.0 million in 2022. Rising short-term interest rates and loan growth contributed to the increase in 2023. Rising short-term interest rates and loan growth, along with net interest income related to the Worthington acquisition contributed to the increase in 2022. Net interest margin is shown in the preceding table. During 2022, the Federal Reserve began raising interest rates to help slow inflation in the economy. The Company’s net interest income and net interest margin were impacted by the increases in interest rates. Changes in the volume of earning assets and interest-bearing liabilities and changes in interest rates, determine the changes in net interest income. The following volume/rate analysis summarizes the relative contribution of each of these components to the changes in net interest income in 2023 and 2022. See “Maturity and Rate Sensitivity of Loans” for additional discussion. 34 Table of Contents VOLUME/RATE ANALYSIS Taxable Equivalent Basis Change in 2023 Change in 2022 Total Due to Volume(1) Due to Rate Total Due to Volume(1) Due to Rate (Dollars in thousands) INCREASE (DECREASE) Interest Income: Loans $ 131,212 $ 34,533 $ 96,679 $ 20,121 $ 2,524 $ 17,597 Investments—taxable 12,382 5,164 7,218 18,129 9,474 8,655 Investments—tax exempt (27 ) (22 ) (5 ) (140 ) (163 ) 23 Interest-bearing deposits with banks and federal funds sold 60,555 (18,805 ) 79,360 54,565 264 54,301 Total interest income 204,122 20,870 183,252 92,675 12,099 80,576 Interest Expense: Money market and interest-bearing checking deposits 111,030 3,148 107,882 27,098 541 26,557 Savings deposits 23,173 (357 ) 23,530 5,860 69 5,791 Time deposits 18,878 826 18,052 775 136 639 Short-term borrowings 252 (28 ) 280 58 1 57 Subordinated debt — 2 (2 ) 992 1,135 (143 ) Total interest expense 153,333 3,591 149,742 34,783 1,882 32,901 Net interest income $ 50,789 $ 17,279 $ 33,510 $ 57,892 $ 10,217 $ 47,675 (1) The effects of changes in the mix of earning assets and interest-bearing liabilities have been combined with the changes due to volume. Provision For and Benefit From Credit Losses As shown in the selected consolidated financial table above, the Company recorded a provision for credit losses for 2023 and 2022, compared to a net benefit from reversal of provision for credit losses for 2021. The Company's provision for credit losses decreased in 2023 due to improving economic forecasts. In 2021, provisions for credit losses normalized after the economic downturn and recovery from the effects of the COVID pandemic in prior years, and acquired loans and loan growth led to an increase in the provision in 2022. The Company’s reversal of provision for 2021 was based on improvements in economic conditions and the Company’s outlook for certain economic indicators. The Company establishes an allowance as an estimate of the current expected credit losses in the loan portfolio at the balance sheet date. Management believes the allowance for credit losses is appropriate based upon management’s best estimate of expected losses within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for credit losses change, the Company’s estimate of current expected credit losses could also change, which could affect the amount of future provisions for credit losses. Net loan charge-offs were $3.4 million for 2023 compared to $1.4 million for 2022 and $7.0 million for 2021. The net charge-offs equated to 0.05%, 0.02% and 0.11% of average loans for 2023, 2022 and 2021, respectively. The rate of net charge-offs to average total loans continues to be at a low level. A more detailed discussion of the allowance for credit losses is provided under “Loans.” Noninterest Income Noninterest income is shown in the selected consolidated financial table above. Total noninterest income increased in 2023 due mostly to the increase in sweep account fees of $12.2 million resulting from higher yields and increased sweep account balances. This increase was partially offset by the reduction of interchange fees of approximately $10.9 million related to the impact of the Durbin Amendment, which took effect for the Company on July 1, 2023. Other increases in noninterest income during 2023 included a $3.7 million increase in insurance commissions and a $3.1 million increase in trust revenue. The Company’s operating noninterest income has generally increased over time due to enhanced product lines, acquisitions and internal deposit account growth. Noninterest income for 2022 included $9.3 million of income from an equity interest received from a prior loan settlement compared to $327,000 for 2023. The equity interest was sold during the second quarter of 2023 at no gain. 35 Table of Contents The Company earned $2.6 million on the sale of loans in 2023 compared $4.5 million in 2022 and $7.3 million in 2021. The income from sales of loans in 2023 was lower due to higher mortgage rates resulting in a decrease of originations. The income from sales of loans in 2021 was higher due to the increase in the volume of mortgage loans originated because of record low mortgage rates. The Company expects the volume of mortgage loans originated to increase during 2024 as mortgage rates begin to decrease. The Company reported security transactions on the consolidated statements of comprehensive income totaling net losses of $1.8 million during each of 2023 and 2022, and a net gain of $1.0 million during 2021. These gains and losses related to its portfolio of debt securities and investments in equity securities carried in other assets. The Company’s practice is to maintain a liquid portfolio of debt securities and not engage in trading activities. The Company has the ability and intent to hold debt securities classified as available for sale that were in an unrealized loss position until they mature or until fair value exceeds amortized cost. In 2022, the Company recognized 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. The Company also recognized a net loss of $1.8 million during 2023, a net gain of $2.2 million during 2022, and a net gain of $1.0 million during 2021, due to changes in the fair value of the equity securities. Noninterest income included NSF and overdraft fees totaling $27.9 million, $26.0 million and $25.0 million in 2023, 2022 and 2021, respectively. This represents 15.1%, 14.2%, and 14.7% of the Company’s noninterest income for the years 2023, 2022 and 2021, respectively. In addition, the Company had debit card interchange fees totaling $37.6 million, $48.9 million and $46.0 million for the years 2023, 2022 and 2021, respectively. This represents 20.3%, 26.6% and 27.1% of the Company’s noninterest income for the years 2023, 2022 and 2021, respectively. The decrease in interchange fees in 2023 was due to the impact of the Durbin Amendments with took effect for the Company on July 1, 2023. The Company is subject to political pressures that could limit our ability to charge NSF and overdraft fees. As of April 1, 2022, the Company lowered the rates charged on NSF and overdraft fees. Also, based on current run rates, annual pretax income from debit card interchange fees will be reduced by approximately $23 million from the impact of the Durbin Amendment. Noninterest Expense Total noninterest expense increased by $22.5 million, or 7.3% to $332.5 million for 2023. This compares to an increase of $23.9 million, or 8.4% to $309.9 million for 2022. Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $15.0 million related to both annual merit increases and new hires needed to comply with the increased regulatory burden associated with exceeding $10 billion in assets. In addition, net expense from other real estate owned increased $6.0 million, which was due to an increase of $1.5 million of write downs on other real estate owned, a $1.0 million increase in the cost of holding other real estate owned, and a decrease in gain on the sales of other real estate owned of $3.5 million. During 2022, the Company’s prior headquarters which were held in other real estate owned, was sold for a gain of $3.1 million. The Company's adoption of ASU 2023-02 in the first quarter of 2023 decreased other expense by $4.4 million due to the amortization of New Markets Tax Credits ("NMTC") and other tax credits that are now being recorded to income tax expense. Noninterest expense for 2022 included a write down of an equity investment of $1.5 million. The increase in noninterest expense in 2022 was due to the increase in salaries and employee benefits of $18.3 million, noninterest expenses (including salaries and employee benefits) related to the Worthington acquisition, and an increase in deposit insurance. In addition, net expense from other real estate owned increased $822,000, which was due to an increase of $3.2 million of write downs on other real estate owned and a $1.3 million increase in the cost of holding other real estate owned, offset by an increase in gain on the sales of other real estate owned of $3.6 million. Noninterest expense included deposit insurance expense, which totaled $5.8 million for the year ended December 31, 2023, compared to $4.7 million for the year ended December 31, 2022 and $3.5 million for the year ended December 31, 2021. Income Taxes Income tax expense totaled $57.5 million in 2023, compared to $44.3 million in 2022 and $40.8 million in 2021. The effective tax rates for 2023, 2022 and 2021 were 21.3%, 18.7% and 19.6% respectively. The Company's adoption of ASU 2023-02 in the first quarter of 2023 increased income tax expense due to the amortization of $6.0 million of NMTC and other tax credits to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 2.22%. Exercises of stock options contributed to the lower effective tax rate in 2022. 36 Table of Contents 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. Certain financial information is prepared on a taxable equivalent basis to facilitate analysis of yields and changes in components of earnings. Average balance sheets, comprehensive income statements and other financial statistics are also presented on a taxable equivalent basis. Impact of Inflation The impact of inflation on financial institutions differs significantly from that of industrial or commercial companies. The assets of financial institutions are predominantly monetary, as opposed to fixed or nonmonetary assets such as premises, equipment and inventory. As a result, there is little exposure to inflated earnings by understated depreciation charges or significantly understated current values of assets. Although inflation can have an indirect effect by leading to higher interest rates, financial institutions are in a position to monitor the effects on interest costs and yields and respond to inflationary trends through management of interest rate sensitivity. Inflation can also have an impact on noninterest expenses such as salaries and employee benefits, occupancy, services and other costs. Impact of Deflation In a period of deflation, it would be reasonable to expect widely decreasing prices for real assets. In such an economic environment, assets of businesses and individuals, such as real estate, commodities or inventory, could decline. The inability of customers to repay or refinance their loans could result in credit losses incurred by the Company far in excess of historical experience due to deflated collateral values. 37 Table of Contents FINANCIAL POSITION BANCFIRST CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share data) At and for the Year Ended December 31, 2023 2022 Balance Sheet Data Total assets $ 12,372,042 $ 12,387,863 Debt securities 1,555,095 1,540,604 Total loans (net of unearned interest) 7,660,134 6,949,795 Allowance for credit losses 96,800 92,728 Deposits 10,700,122 10,974,228 Subordinated debt 86,101 86,044 Stockholders’ equity 1,433,891 1,250,836 Book value per share 43.54 38.05 Tangible book value per share (non-GAAP)(1) 37.50 31.90 Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2) Stockholders’ equity $ 1,433,891 $ 1,250,836 Less goodwill 182,263 182,055 Less intangible assets, net 16,704 19,983 Tangible stockholders' equity (non-GAAP) $ 1,234,924 $ 1,048,798 Common shares outstanding 32,933,018 32,875,560 Tangible book value per share (non-GAAP) $ 37.50 $ 31.90 Selected Financial Ratios Performance Ratios: Return on average assets 1.75 % 1.56 % Return on average stockholders' equity 15.89 16.11 Cash dividends payout ratio 25.74 25.81 Net interest spread 2.42 2.93 Net interest margin 3.79 3.29 Efficiency ratio 54.51 55.60 Balance Sheet Ratios: Average loans to deposits 68.87 % 60.06 % Average earning assets to total assets 92.93 91.63 Average stockholders’ equity to average assets 11.03 9.67 Asset Quality Ratios: Nonaccrual loans to total loans 0.32 % 0.22 % Allowance for credit losses to total loans 1.26 1.33 Allowance for credit losses to nonaccrual loans 393.92 606.10 Net charge-offs to average loans 0.05 0.02 (1) Refer to the "Reconciliation of Tangible Book Value per Common Share (non-GAAP)" Table (2) Tangible book value per common share is stockholders' equity less goodwill and intangible assets, net, divided by common shares outstanding. This amount is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate the financial condition and capital strength of the Company. This measure should not be considered a substitute for operating results determined in accordance with GAAP. Cash, Federal Funds Sold and Interest-Bearing Deposits with Banks Cash consists of cash and cash items on hand, noninterest-bearing deposits and amounts due from other banks, reserves deposited with the Federal Reserve Bank, and interest-bearing deposits with other banks. Federal funds sold consist of overnight investments of excess funds with other financial institutions. The Company has continued to maintain the majority of its excess funds with the Federal Reserve Bank. The Federal Reserve Bank pays interest on these funds based upon the lowest target rate for the maintenance period, which increased during 2023 from 4.50% to 5.50%. The rate increased from 0.25% to 4.50% during 2022. 38 Table of Contents The amount of cash, federal funds sold and interest-bearing deposits with the Federal Reserve Bank carried by the Company is a function of the availability of funds presented to other institutions for clearing and the Company’s liquidity and interest rate sensitivity management. Balances of these items can fluctuate widely based on these various factors. The aggregate of cash and due from banks, federal funds sold and interest-bearing deposits with banks decreased by $773.0 million, or 24.4%, to $2.4 billion, from December 31, 2022 to December 31, 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. Securities For the year ended December 31, 2023, total debt securities increased $14.5 million. Debt securities available for sale represented 99.9% of the total debt securities portfolio at both December 31, 2023 and December 31, 2022. Debt securities available for sale had a net unrealized loss of $65.5 million at December 31, 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 loss, net of income tax, in the amounts of a loss of $50.0 million and a loss of $71.6 million for December 31, 2023 and 2022, respectively. The Company did not recognize a gain or loss on debt securities during the year ended December 31, 2023. During the year ended December 31, 2022, the Company had a loss of $4.0 million resulting from the sale of $226 million of debt securities with an average yield of 0.16%, which was subsequently reinvested in $220 million of debt securities with an average yield of 1.86%. The Company purchased a total of $454.0 million of debt securities in 2023 compared to $1.9 billion of debt securities in 2022. The Company does not engage in securities trading activities. Any sales of debt securities are for the purpose of executing the Company’s asset/liability management strategy, eliminating a perceived credit risk in a specific security, or providing liquidity. Debt securities that are being held for indefinite periods of time, or that may be sold as part of the Company’s asset/liability management strategy, to provide liquidity, or for other reasons, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity, net of income tax. Debt securities for which the Company has the intent and ability to hold to maturity are classified as held for investment and are stated at cost, adjusted for amortization of premiums and accretion of discounts computed under the interest method. Management 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 securities. Furthermore, the Company also has 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. As of December 31, 2023, the Company had net unrealized losses largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value of those securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for similar investments decrease. Furthermore, as of December 31, 2023, management had no intent or requirement to sell before the recovery of the unrealized loss. See Note (4) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s Securities. 39 Table of Contents WEIGHTED AVERAGE YIELD OF DEBT SECURITIES The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at December 31, 2023. The following table presents securities at their expected maturities, which may differ from contractual maturities. The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements for public funds. For the interest rate sensitivity of debt securities see the table in item 7A. Within One Year After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Total Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield* (Dollars in thousands) Held for Investment Mortgage-backed securities $ 3 10.44 % $ 2 4.69 % $ — — % $ — — % $ 5 6.46 % State and political subdivisions 350 3.38 335 3.06 — — — — 685 3.22 Other securities — — 500 0.10 — — — — 500 0.10 Total $ 353 3.43 $ 837 1.29 $ — — $ — — $ 1,190 1.92 Percentage of total 29.7 % 70.3 % — % — % 100.0 % Available for Sale U.S. Treasury, other federal agencies and mortgage-backed securities $ 337,766 2.05 % $ 1,167,939 2.21 % $ 11,471 4.45 % $ 7,434 3.91 % $ 1,524,610 2.20 % State and political subdivisions 4,027 3.38 5,181 4.54 270 1.48 532 3.95 10,010 3.96 Asset backed securities — — — — 12,512 6.38 — — 12,512 6.38 Other securities — — 159 3.14 6,614 4.92 — — 6,773 4.88 Total $ 341,793 2.07 $ 1,173,279 2.22 $ 30,867 5.31 $ 7,966 3.92 $ 1,553,905 2.25 Percentage of total 22.0 % 75.5 % 2.0 % 0.5 % 100.0 % Total debt securities $ 342,146 2.07 % $ 1,174,116 2.22 % $ 30,867 5.31 % $ 7,966 3.92 % $ 1,555,095 2.25 % Percentage of total 22.0 % 75.5 % 2.0 % 0.5 % 100.0 % * Yield is on a taxable-equivalent basis using a 21% tax rate. 40 Table of Contents Loans The Company has historically generated loan growth from both internal originations and bank acquisitions. Total loans held for investment increased $713.1 million, or 10.2%, to $7.7 billion in 2023, as a result of internal loan growth. Of the total increase in loans, residential real estate loans made up the largest increase with $189.3 million, or 26.7% of the increase, construction and development loans increased $167.4 million, or 23.6%, and oil and gas loans increasing $123.6 million, or 17.4%. At December 31, 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 76% from the Company's Oklahoma subsidiary BancFirst and 24% from the Company's Texas subsidiaries Pegasus and Worthington. Composition The Company’s loan portfolio was diversified among various types of commercial and individual borrowers. Commercial loans were comprised principally of loans to companies in real estate, light manufacturing, retail and service industries. Consumer non-real estate loans were comprised primarily of loans to individuals for automobiles. LOANS HELD FOR INVESTMENT BY CATEGORY December 31, 2023 2022 Amount % of Total Amount % of Total (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 960,944 12.55 % $ 908,494 13.08 % Commercial real estate non-owner occupied 1,486,420 19.42 1,383,150 19.92 Construction and development < 60 months 642,643 8.39 475,236 6.84 Construction residential real estate < 60 months 283,486 3.70 303,305 4.37 Residential real estate first lien 1,258,744 16.44 1,117,899 16.10 Residential real estate all other 244,696 3.20 196,198 2.83 Agriculture 427,139 5.58 408,037 5.88 Commercial non-real estate 1,289,452 16.84 1,241,454 17.88 Consumer non-real estate 476,467 6.22 446,756 6.43 Oil and gas 586,654 7.66 463,034 6.67 Total loans $ 7,656,645 100.00 % $ 6,943,563 100.00 % See Note (1) and Note (5) of the Notes to Consolidated Financial Statements for additional disclosures regarding the Company’s loans. LOANS BY MATURITY AND INTEREST RATE SENSITIVITY The information relating to the maturity and interest rate sensitivity of loans is based upon contractual maturities and original loan terms. In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, at interest rates prevailing at the date of renewal. 41 Table of Contents The following table presents the maturity distribution of loans held for investment at December 31, 2023. Many of the loans with maturities of one year or less are renewed at existing or similar terms after scheduled principal reductions. Also, approximately 57% of loans had adjustable interest rates at December 31, 2023. Loans Maturing Within One Year After One But Within Five Years After Five Years But Within Fifteen Years After Fifteen Years Total December 31, 2023 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 88,565 $ 186,168 $ 501,122 $ 185,089 $ 960,944 Commercial real estate non-owner occupied 190,090 573,359 622,325 100,646 1,486,420 Construction and development < 60 months 264,471 291,901 56,254 30,017 642,643 Construction residential real estate < 60 months 250,990 15,895 3,335 13,266 283,486 Residential real estate first lien 73,852 134,425 433,188 617,279 1,258,744 Residential real estate all other 53,316 81,767 61,506 48,107 244,696 Agriculture 103,081 74,698 120,000 129,360 427,139 Commercial non-real estate 422,086 545,917 282,662 38,787 1,289,452 Consumer non-real estate 48,579 307,758 118,356 1,774 476,467 Oil and gas 233,477 333,008 16,441 3,728 586,654 Total loans $ 1,728,507 $ 2,544,896 $ 2,215,189 $ 1,168,053 $ 7,656,645 Percentage of total 22.58 % 33.24 % 28.93 % 15.25 % 100.00 % The interest rate composition of loans with a maturity date over one year are presented below based on contractual terms. Loans Maturing after One Year Predetermined (Fixed) Interest Rate Floating Interest Rate Total December 31, 2023 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 294,397 $ 577,982 $ 872,379 Commercial real estate non-owner occupied 701,512 594,818 1,296,330 Construction and development < 60 months 137,108 241,064 378,172 Construction residential real estate < 60 months 13,409 19,087 32,496 Residential real estate first lien 263,242 921,650 1,184,892 Residential real estate all other 42,524 148,856 191,380 Agriculture 74,413 249,645 324,058 Commercial non-real estate 475,501 391,865 867,366 Consumer non-real estate 415,422 12,466 427,888 Oil and gas 84,302 268,875 353,177 Total $ 2,501,830 $ 3,426,308 $ 5,928,138 NONPERFORMING ASSETS The following table summarizes nonperforming assets. December 31, 2023 2022 (Dollars in thousands) Past due 90 days or more and still accruing $ 9,542 $ 7,085 Nonaccrual (1) 24,573 15,299 Total nonperforming loans 34,115 22,384 Other real estate owned and repossessed assets 34,200 36,936 Total nonperforming assets $ 68,315 $ 59,320 (1) Government agencies guarantee approximately $6.7 million of nonaccrual loans at December 31, 2023, and $4.7 million at December 31, 2022. 42 Table of Contents Nonaccrual Loans Nonaccrual loans totaled $24.6 million at December 31, 2023, compared to $15.3 million at December 31, 2022. The Company’s nonaccrual loans are primarily commercial non-real estate loans. Nonaccrual loans negatively impact the Company’s net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of both interest and principal is in serious doubt. Interest income is not recognized until the principal balance is fully collected. However, if the full collection of the remaining principal balance is not in doubt, interest income is recognized on certain of these loans on a cash basis. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of $1.6 million for 2023, $1.3 million for 2022 and $2.2 million for 2021. Only a small amount of this interest is expected to be ultimately collected. The classification of a loan as nonaccrual does not necessarily indicate that loan principal and interest will ultimately be uncollectible; although, in an economic downturn, the Company’s experience has been that the level of collections decline. The above normal risk associated with nonaccrual loans has been considered in the determination of the allowance for credit losses. The level of nonaccrual loans and credit losses could rise over time as a result of adverse economic conditions. At December 31, 2023, the allowance for credit losses as a percentage of nonaccrual loans was 393.9%, compared to 606.1%, at the end of 2022. Modified Loans 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 $5.3 million for the year ended December 31, 2023. Other Real Estate Owned and Repossessed Assets Other real estate owned ("OREO") and repossessed assets decreased $2.7 million in 2023. 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. 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. The Company's write-downs in OREO totaled $5.2 million for 2023, $3.7 million for 2022 and $538,000 for 2021. OREO included a larger commercial real estate property recorded at $29.4 million at December 31, 2023 and December 31, 2022. Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income. Operating expense for this property is included in net expense from OREO in other noninterest expense on the consolidated statements of comprehensive income. This property had the following rental income and operating expenses for the periods presented. For the Year Ended December 31, 2023 2022 2021 Rental income $ 11,224 $ 10,340 $ 9,975 Operating expense 10,868 9,863 8,727 The Company's total rental income and operating expenses from OREO are presented in the following table: For the Year Ended December 31, 2023 2022 2021 Rental income $ 11,801 $ 10,877 $ 10,298 Operating expense 11,429 10,450 9,169 43 Table of Contents Allowance for Credit Losses/Fair Value Adjustments on Acquired Loans The Company determines its provision for credit losses and allowance for credit losses using the expected loss methodology that is referred to as the CECL model. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. At December 31, 2023, the allowance for credit losses to total loans stood at 1.26% of total loans, compared to 1.33% at December 31, 2022, due to improved economic forecasts. The overall credit quality of the Company’s loan portfolio has remained strong. Net charge-offs were $3.4 million and $1.4 million for the years ended 2023 and 2022, respectively. The amount of net loan charge-offs is relatively low, equating to 0.05% and 0.02% of average total loans for the years ended December 31, 2023 and 2022, respectively. If unforeseen adverse changes occur in the national or local economy, or in the credit markets, it would be reasonable to expect that the allowance for credit losses would increase in future periods. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES The following table is a break-out of the allowance for credit losses: Year Ended December 31, 2023 2022 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 7,483 $ 6,416 Commercial real estate non-owner occupied 33,080 30,190 Construction and development < 60 months 3,950 3,778 Construction residential real estate < 60 months 3,414 3,275 Residential real estate first lien 4,914 4,092 Residential real estate all other 1,646 1,418 Agriculture 6,137 6,217 Commercial non-real estate 22,745 25,106 Consumer non-real estate 4,401 4,132 Oil and gas 9,030 8,104 Total $ 96,800 $ 92,728 The following table is a break-out of net charge-offs/(recoveries) and the break-out of the percent of average loans in each category: December 31, 2023 2022 Amount % of Avg Loans Amount % of Avg Loans (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 854 0.01 % $ (487 ) 0.00 % Commercial real estate non-owner occupied 3 — — — Construction and development < 60 months (5 ) — 81 — Construction residential real estate < 60 months 94 — — — Residential real estate first lien 150 — 19 — Residential real estate all other 55 — (367 ) — Agriculture 369 0.01 192 — Commercial non-real estate 639 0.01 1,342 0.02 Consumer non-real estate 1,168 0.02 575 — Oil and gas 59 — — — Total $ 3,386 0.05 % $ 1,355 0.02 % 44 Table of Contents Fair Value Adjustments on Acquired Loans The fair value adjustment on acquired loans can consist of a credit component and a rate component to adjust for estimated credit exposures in the acquired loans. The credit component of the adjustment was a $1.6 million discount at December 31, 2023 and a $2.2 million discount at December 31, 2022. The rate component was $568,000 at December 31, 2023 and $738,000 at December 31, 2022. These fair value adjustments will be accreted to income over the remaining life of the loans. The acquired loans outstanding were $262.7 million and $263.5 million, at December 31, 2023 and 2022, respectively. Intangible Assets, Goodwill and Other Assets Identifiable intangible assets and goodwill totaled $199.0 million and $202.0 million at December 31, 2023 and December 31, 2022, respectively. On July 20, 2023, the Company recorded a core deposits intangible of approximately $252,000 because of the purchase of assets and assumption of liabilities from RCB Bank's Stroud, Oklahoma branch. See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company’s recent developments, including mergers and acquisitions. Other assets includes the cash surrender value of key-man life insurance policies totaling $84.4 million at December 31, 2023 and $82.7 million at December 31, 2022. Equity securities are reported in other assets on the balance sheet. The Company invests in equity securities without readily determinable fair values. These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. The balance of equity securities was $13.1 million at December 31, 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 at December 31, 2022 included an equity interest of $21.4 million related to a former borrower in the oil and gas industry, which was received through bankruptcy proceedings. This equity interest was sold during the second quarter of 2023 resulting in a zero balance at December 31, 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. Low Income Housing and New Market Tax Credit Investments The Company’s low income housing tax credit ("LIHTC") investments were $46.4 million and $24.7 million at December 31, 2023 and 2022, respectively and are included in other assets on the consolidated balance sheet. The Company’s NMTC investments were $12.1 million and $11.3 million at December 31, 2023 and 2022, respectively and are included in other assets on the consolidated balance sheet. The increase in 2023 was due to the Company adopting ASU 2023-02 on January 1, 2023. As a result of the adoption of ASU No. 2023-02, the Company recorded $25.1 million in other assets and other liabilities on the consolidated balance sheet during 2023 for unfunded LIHTC commitments and amortized $6.0 million of NMTC and other tax credit investments to income tax expense during the period that would have previously been recorded to other expense. See Note (6) of the Notes to Consolidated Financial Statements for disclosures regarding these investments. Liquidity and Funding The Company’s principal source of liquidity and funding is its broad deposit base generated from customer relationships. The availability of deposits is affected by economic conditions, competition with other financial institutions and alternative investments available to customers. Through interest rates paid, service charge levels and services offered, the Company can affect its level of deposits to a limited extent. The level and maturity of funding necessary to support the Company’s lending and investment functions is determined through the Company’s asset/liability management process. The Company currently does not rely heavily on long-term borrowings and does not utilize brokered CDs. The Company maintains 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 19.4% at December 31, 2023, compared to 25.6% at December 31, 2022, the Company is still highly 45 Table of Contents liquid. 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. Historically, BancFirst has more liquidity than its peers. This liquidity positions BancFirst to respond to increased loan demand and other requirements for funds, or to decreases in funding sources. The liquidity of BancFirst Corporation, however, is dependent upon dividend payments from BancFirst and its ability to obtain financing and or raise capital. Banking regulations limit bank dividends based upon net earnings retained by BancFirst and minimum capital requirements. Dividends in excess of these limits require regulatory approval. At January 1, 2024, BancFirst had approximately $145.7 million of equity available for dividends to BancFirst Corporation without regulatory approval. During 2023, BancFirst declared four common stock dividends totaling $61.7 million, two preferred stock dividends totaling $1.9 million and one special dividend totaling $50.0 million to BancFirst Corporation. During 2023, Pegasus declared one special dividend totaling $10.0 million to BancFirst Corporation. There are no near term plans for Worthington to pay dividends to BancFirst Corporation. Deposits At December 31, 2023, deposits totaled $10.7 billion, a decrease of $274.1 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 was 97.4% at December 31, 2023 and 98.1% December 31, 2022. Noninterest-bearing deposits to total deposits were 37.2% at December 31, 2023, compared to 45.1% at December 31, 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. Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Total uninsured deposits were $3.2 billion and $3.6 billion at December 31, 2023 and 2022, respectively, as calculated per regulatory guidance. This was approximately 30% and 33% of deposits at December 31, 2023 and 2022, respectively. Off-balance sheet sweep accounts totaled $4.3 billion at December 31, 2023, compared to $3.7 billion at December 31, 2022. The movement of customers' funds into the Company's sweep accounts affected the balances of both cash and deposits. ANALYSIS OF AVERAGE DEPOSITS Year Ended December 31, 2023 2022 (Dollars in thousands) Average Balances Noninterest-bearing demand deposits $ 4,343,646 $ 5,097,813 Money market and interest-bearing checking deposits 4,361,001 4,090,098 Savings deposits 1,087,642 1,147,673 Time deposits 797,179 672,179 Total deposits $ 10,589,468 $ 11,007,763 46 Table of Contents PERCENTAGE OF TOTAL AVERAGE DEPOSITS AND AVERAGE RATES PAID Year Ended December 31, 2023 2022 % of Total Rate % of Total Rate Noninterest-bearing demand deposits 41.02 % 46.31 % Money market and interest-bearing checking deposits 41.18 3.26 % 37.15 0.76 % Savings deposits 10.27 2.72 10.43 0.56 Time deposits 7.53 2.91 6.11 0.64 Total deposits 100.00 % 100.00 % Average rate paid on interest-bearing deposits 3.12 % 0.71 % MATURITY OF TIME DEPOSITS The following table shows the maturity of time deposits that are in excess of the Federal Deposit Insurance Corporation's insurance limit: December 31, 2023 (Dollars in thousands) Three months or less $ 29,195 Over three months through six months 48,134 Over six months through twelve months 66,794 Over twelve months 17,939 Total $ 162,062 At December 31, 2023, 88.9% of the Company’s uninsured time deposits mature in one year or less. Subordinated Debt On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 ("Subordinated Notes") to various institutional accredited investors. See Note (11) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated debt. Short-Term Borrowings See Note (9) of the Notes to Consolidated Financial Statements for a discussion of short-term borrowings. Lines of Credit See Note (10) of the Notes to Consolidated Financial Statements for a discussion of the Company’s lines of credit. Capital Resources Stockholders’ equity totaled $1.4 billion at December 31, 2023, compared to $1.3 billion at December 31, 2022. In addition to net income of $212.5 million, other changes in stockholders’ equity during the year ended December 31, 2023 included $2.5 million related to common stock issuances for stock option exercises, $3.0 million related to stock-based compensation, and a $21.5 million increase in other comprehensive income, that were partially offset by $54.7 million in dividends and $1.8 million in the repurchase of company stock. The Company’s average stockholders’ equity to average assets for 2023 was 11.03% compared to 9.67% for 2022. The Company’s leverage ratio and total risk-based capital ratios at December 31, 2023 were well in excess of the regulatory requirements. Banking institutions are generally expected to maintain capital well above the minimum levels. 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. 47 Table of Contents See Note (15) of the Notes to Consolidated Financial Statements for a discussion of capital ratio requirements. See Note (11) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s Subordinated Debt. On August 31, 2022, the Company filed with the Securities and Exchange Commission (“SEC”) an automatic shelf registration statement on Form S-3, which became effective upon filing with the SEC. Under the shelf registration, the Company may offer and sell, from time to time, an indeterminate amount of its common stock in one or more future offerings. The Company has had a Stock Repurchase Program (the “SRP”) since November 1999. The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company’s Executive Committee. At December 31, 2023, up to 479,784 shares could be repurchased under the SRP. For the year ended December 31, 2023, the Company repurchased 20,702 shares of its common stock for $1.8 million at an average price of $87.88 per share under the SRP. No shares were repurchased for the year ended December 31, 2022. For the year ended December 31, 2021, the Company repurchased 212,296 shares of its common stock for $11.7 million at an average price of $54.94 per share under the SRP. Future dividend payments will be determined by the Company’s Board of Directors considering the earnings, financial condition and capital needs of the Company, BancFirst, Pegasus, Worthington, applicable governmental policies and regulations and such other factors as the Board of Directors deems appropriate. While no assurance can be given as to the Company’s ability to pay dividends, management believes that, based upon the anticipated performance of the Company, regular dividend payments will continue in 2024. Related Party Transactions See Note (18) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s related party transactions. Liquidity Risk and Off-Balance Sheet Arrangements Liquidity is the ability to meet financial obligations through the maturity or sale of existing assets or the acquisition of additional funds. Various financial obligations, including contractual obligations and commercial commitments, may require future cash payments by the Company. Certain obligations are recognized on the Consolidated Balance Sheets, while others are off-balance sheet under U.S. generally accepted accounting principles. The Company currently has 7.20% Junior Subordinated Debentures, Subordinated Notes, operating lease payments, time deposit payments and low income housing partnership commitments. The Company’s 7.20% Junior Subordinated Debentures mature on March 31, 2034. The Company's Subordinated Notes mature on June 30, 2036. The Company has consistently generated positive net income and the Company currently expects to have positive net income for 2024. Management does not currently know of any trends that would cause the Company to be unable to provide for current obligations in the next twelve months. Refer to Notes 6, 8, 11, 19 and 20 to the consolidated financial statements for further information regarding these contractual obligations. The Company is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit, which involve elements of credit and interest-rate risk to varying degrees. The Company’s exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the instrument’s contractual amount. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the consolidated balance sheet. The Company had $2.8 billion and $2.6 billion in loan commitments at December 31, 2023 and 2022, respectively. The Company had $84.9 million and $72.2 million in stand-by letters of credit at December 31, 2023 and 2022, respectively. Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Stand-by letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments generally have fixed expiration dates or other termination clauses. Since many of the instruments are expected to expire without being drawn upon, the total amounts do not necessarily represent commitments that will be funded in the future. 48 Table of Contents Item 7A. Quantitative and Qualitati ve Disclosures about Market Risk. Market risk refers to the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates and prices, such as equity prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. Due to the nature of its operations, the Company is primarily exposed to interest rate risk arising principally from its lending, investing, deposit and borrowing activities and, to a lesser extent, liquidity risk. Interest rate risk on the Company’s consolidated balance sheet consists of repricing, option and basis risks. Repricing risk results from the differences in the maturity or repricing of asset and liability portfolios. Option risk arises from “embedded options” present in many financial instruments such as loan prepayment options, deposit early withdrawal options and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the Company. Basis risk refers to the potential for changes in the underlying relationship between market rates and indices, which subsequently result in a narrowing of the profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as savings accounts, negotiable order of withdrawal accounts and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates. The Company seeks to reduce volatility in its net interest margin and net interest income through periods of changing interest rates. Accordingly, the Company’s interest rate sensitivity and liquidity are monitored on an ongoing basis by its Asset and Liability Committee (“ALCO”). The ALCO establishes risk measures, limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. A variety of tools are used to evaluate the magnitude of interest rate risk, the distribution of risk, the level of risk over time and the exposure to changes in certain interest rate relationships. The ALCO also utilizes an earnings simulation model as a quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income over the next 12 months. These simulations incorporate assumptions regarding changes in interest rates and the maturity and repricing of earning assets and interest-bearing liabilities. The ALCO uses gap analysis to monitor interest rate sensitivity based on the maturity and repricing frequencies of its earning assets and interest-bearing liabilities. This analysis indicates that the Company’s position is liability-sensitive with a negative gap of $711 million for the zero to 12-month interval at December 31, 2023, which was 5.75% of total assets, compared to and asset-sensitive position and a positive gap of $327 million for the zero to 12-month interval at December 31, 2022, which was 2.64% of total assets. The ALCO continuously monitors and manages the balance between interest rate-sensitive assets and liabilities. The objective is to manage the impact of fluctuating market rates on net interest income within acceptable levels. In order to meet this objective, management may lengthen or shorten the duration of assets or liabilities. As of December 31, 2023, the model simulations projected that a 100 and 200 basis point increase would result in negative variance in net interest income of 1.98% and 3.90%, respectively, relative to the base case over the next 12 months. Conversely, the model simulation projected that a decrease in interest rates of 100 basis points would result in a positive variance in net interest income of 1.90% relative to the base case over the next twelve months. The following table presents the Company’s financial instruments that are sensitive to changes in interest rates, their expected maturities and their estimated fair values at December 31, 2023. Avg. Expected Maturity / Principal Repayments at December 31, Rate 2024 2025 2026 2027 2028 Thereafter Balance Fair Value (Dollars in thousands) Interest Sensitive Assets Loans held for investment 6.42 % $ 3,300,811 $ 1,043,448 $ 985,540 $ 675,982 $ 525,171 $ 1,125,693 $ 7,656,645 $ 7,453,568 Debt securities 2.35 348,668 336,836 307,718 327,543 252,272 47,573 1,620,610 1,555,095 Federal funds sold and interest-bearing deposits 5.10 2,173,317 — — — — — 2,173,317 2,173,317 Interest Sensitive Liabilities Savings and interest-bearing deposits 3.15 5,756,269 — — — — — 5,756,269 6,005,467 Time deposits 2.91 774,008 120,976 27,347 17,093 22,199 4 961,627 958,851 Short-term borrowings 4.84 3,351 — — — — — 3,351 3,351 Subordinated debt 4.79 — — — — — 86,101 86,101 79,271 Off Balance Sheet Items Loan commitments — — — — — — — 4,875 Letters of credit — — — — — — — 637 The expected maturities and principal repayments are based upon the contractual terms of the instruments. Debt securities are stated at par value. Prepayments have been estimated for certain instruments with predictable prepayment rates. Savings and interest bearing demand deposits are assumed to mature all in the first year as they are not subject to withdrawal restrictions and any assumptions regarding decay rates would be very subjective. The actual maturities and principal repayments for the financial instruments could vary substantially from the contractual terms and assumptions used in the analysis. 49 Table of Contents Item 8. Financial Statement s a nd Supplementary Data. Report of Independent Registered Public Accounting Firm Shareholders, Board of Directors and Audit Committee BancFirst Corporation Oklahoma City, Oklahoma Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of BancFirst Corporation (the Company) as of December 31, 2023 and 2022 and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report, dated February 27, 2024, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: 1) relate to accounts or disclosures that are material to the financial statements and 2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses - Loans Description of the Matter As more fully described in Notes 1 and 5 to the financial statements, the allowance for credit losses – loans (ACL) estimates lifetime expected credit losses for loans. The estimate of ACL considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. The Company measures expected credit losses of loans on a pool basis when the loans share similar characteristics. Historical loss rates are analyzed and applied to their respective loan segments comprised of loans not subject to individual evaluation. The Company utilizes 50 Table of Contents a methodology known as vintage loss analysis for substantially all its loan portfolio. Vintage loss analysis measures impairment based on the age of the accounts and the historical asset performance of assets with similar risk characteristics. Vintage loss analysis accounts for expected losses by calculating the cumulative loss rates of a given loan pool over the expected pool’s life. Historical loss rates are adjusted for significant factors that, in management’s judgment, reflect the impact of current conditions on loss recognition and certain known model limitations. Forecast factors are developed based on information obtained from external sources and consideration of other internal information. They are included in the ACL model for a reasonable and supportable forecast period, with loss factors reverting to historical loss rates. Management continually re-evaluates the other subjective and forecast factors in its ACL analysis. We identified the valuation of the ACL as a critical audit matter. The primary reason for our determination that the ACL is a critical audit matter is that auditing the estimated ACL involved significant judgment and complex review. Auditing the ACL involved a high degree of subjectivity in evaluating management’s estimates, such as segmentation, weighted average life calculations, assessment of economic conditions and other environmental factors, and assessment of forecast factors. How the Critical Audit Matter was Addressed in the Audit We obtained an understanding of the Company’s process for establishing the ACL, which involves a high degree of subjectivity. We evaluated management’s process to assess economic conditions and other environmental factors, adequacy of specific allowances associated with individually evaluated loans, appropriateness of loan grades, and other data used to calculate and estimate the various components of the ACL. Our primary audit procedures related to the ACL included the following, among others: • Testing the design and operating effectiveness of controls, including those related to technology, over the ACL, including data completeness and accuracy; classifications of loans by loan pool; verification of historical net loss data and calculated net loss rates; the establishment of qualitative and economic forecast adjustments, loan grades, and risk classification of loans; and establishment of specific allocations associated with individually evaluated loans; • Testing of completeness and accuracy of the data utilized in the ACL; • Testing the model’s computational accuracy; • Evaluating the relevance and reliability of data and assumptions used in the estimate; • Evaluating the qualitative and economic forecast adjustments to the historical loss rates, including assessing the basis for the adjustments and the reasonableness of the significant assumptions; • Testing the internal loan review function and evaluating the reasonableness of loan grades and specific allocations, if any; • Assessing the reasonableness of specific allocations associated with individually evaluated loans. • Evaluated the accuracy and completeness of Topic 326 disclosures in the financial statements. /s/ FORVIS, LLP We have served as the Company’s auditor since 2013. Oklahoma City, Oklahoma February 27, 2024 51 Table of Contents BANCFIRST CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, 2023 2022 ASSETS Cash and due from banks $ 225,462 $ 259,049 Interest-bearing deposits with banks 2,172,001 2,909,861 Federal funds sold 1,316 2,850 Debt securities held for investment (fair value: $ 1,190 and $ 2,383 , respectively) 1,190 2,383 Debt securities available for sale at fair value 1,553,905 1,538,221 Loans held for sale 3,489 6,232 Loans held for investment (net of unearned interest) 7,656,645 6,943,563 Allowance for credit losses ( 96,800 ) ( 92,728 ) Loans, net of allowance for credit losses 7,559,845 6,850,835 Premises and equipment, net 278,594 278,088 Other real estate owned 33,718 36,756 Intangible assets, net 16,704 19,983 Goodwill 182,263 182,055 Accrued interest receivable and other assets 343,555 301,550 Total assets $ 12,372,042 $ 12,387,863 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 3,982,226 $ 4,944,730 Interest-bearing 6,717,896 6,029,498 Total deposits 10,700,122 10,974,228 Short-term borrowings 3,351 300 Accrued interest payable and other liabilities 148,577 76,455 Subordinated debt 86,101 86,044 Total liabilities 10,938,151 11,137,027 Commitments and contingent liabilities (Note 19) Stockholders' equity: Senior preferred stock, $ 1.00 par; 10,000,000 shares authorized; none issued — — Cumulative preferred stock, $ 5.00 par; 900,000 shares authorized; none issued — — Common stock, $ 1.00 par, 40,000,000 shares authorized; shares issued and outstanding: 32,933,018 and 32,875,560 , respectively 32,933 32,876 Capital surplus 174,695 169,231 Retained earnings 1,276,305 1,120,292 Accumulated other comprehensive loss, net of income tax benefit of $ 15,473 and $ 22,107 , respectively ( 50,042 ) ( 71,563 ) Total stockholders' equity 1,433,891 1,250,836 Total liabilities and stockholders' equity $ 12,372,042 $ 12,387,863 The accompanying Notes are an integral part of these consolidated financial statements. 52 Table of Contents BANCFIRST CORPORATION CONSOLIDATED STATEMENTS O F COMPREHENSIVE INCOME (Dollars in thousands, except per share data) Year Ended December 31, 2023 2022 2021 INTEREST INCOME Loans, including fees $ 467,540 $ 336,340 $ 316,124 Debt securities: Taxable 36,838 24,456 6,327 Tax-exempt 72 93 204 Federal funds sold 226 83 — Interest-bearing deposits with banks 119,260 58,848 4,366 Total interest income 623,936 419,820 327,021 INTEREST EXPENSE Deposits 195,046 41,965 8,232 Short-term borrowings 312 60 2 Subordinated debt 4,122 4,122 3,130 Total interest expense 199,480 46,147 11,364 Net interest income 424,456 373,673 315,657 Provision for (benefit from) credit losses 7,458 10,076 ( 8,690 ) Net interest income after provision for (benefit from) credit losses 416,998 363,597 324,347 NONINTEREST INCOME Trust revenue 18,784 15,645 12,912 Service charges on deposits 77,367 86,757 83,425 Securities transactions (includes accumulated other comprehensive income reclassifications of $ 0 , $ 1,536 and $ 0 , respectively) ( 1,828 ) ( 1,833 ) 1,047 Income from sales of loans 2,607 4,548 7,282 Insurance commissions 30,615 26,883 23,745 Cash management 30,716 19,326 12,313 Gain on sale of other assets 1,603 448 2,762 Other 25,544 31,973 26,546 Total noninterest income 185,408 183,747 170,032 NONINTEREST EXPENSE Salaries and employee benefits 199,986 184,976 166,723 Occupancy, net 21,027 19,326 18,483 Depreciation 18,657 18,600 16,925 Amortization of intangible assets 3,532 3,448 3,116 Data processing services 8,368 7,584 6,735 Net expense from other real estate owned 15,938 9,911 9,089 Marketing and business promotion 9,114 8,074 7,403 Deposit insurance 5,827 4,735 3,456 Other 50,009 53,258 54,051 Total noninterest expense 332,458 309,912 285,981 Income before taxes 269,948 237,432 208,398 Income tax expense 57,483 44,332 40,768 Net income $ 212,465 $ 193,100 $ 167,630 NET INCOME PER COMMON SHARE Basic $ 6.45 $ 5.89 $ 5.12 Diluted $ 6.34 $ 5.77 $ 5.03 OTHER COMPREHENSIVE (LOSS)/GAIN Unrealized gains/(losses) on available for sale debt securities, net of tax (expense)/benefit of $( 6,634 ), $ 23,160 and $ 1,829 , respectively $ 21,521 $ ( 74,880 ) $ ( 5,280 ) Reclassification adjustment for available for sale debt security gains included in net income, net of tax expense of $ 0 , $( 369 ) and $ 0 , respectively — 1,167 — Other comprehensive gain/(loss), net of tax (expense)/benefit of $( 6,634 ), $ 22,791 and $ 1,829 , respectively 21,521 ( 73,713 ) ( 5,280 ) Comprehensive income $ 233,986 $ 119,387 $ 162,350 The accompanying Notes are an integral part of these consolidated financial statements. 53 Table of Contents BANCFIRST CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in thousands, except share data) Year Ended December 31, 2023 2022 2021 Shares Amount Shares Amount Shares Amount COMMON STOCK Issued at beginning of period 32,875,560 $ 32,876 32,603,118 $ 32,603 32,719,852 $ 32,720 Shares issued for stock options 78,160 78 272,442 273 95,562 95 Shares acquired and canceled ( 20,702 ) ( 21 ) — — ( 212,296 ) ( 212 ) Issued at end of period 32,933,018 $ 32,933 32,875,560 $ 32,876 32,603,118 $ 32,603 CAPITAL SURPLUS Balance at beginning of period $ 169,231 $ 159,914 $ 156,574 Common stock issued for stock options 2,465 7,376 2,165 Net cash settlement of options — — ( 958 ) Stock-based compensation arrangements 2,999 1,941 2,133 Balance at end of period $ 174,695 $ 169,231 $ 159,914 RETAINED EARNINGS Balance at beginning of period $ 1,120,292 $ 977,067 $ 871,161 Net income 212,465 193,100 167,630 Dividends on common stock ($ 1.66 , $ 1.52 and $ 1.40 per share, respectively) ( 54,653 ) ( 49,875 ) ( 45,752 ) Net cash settlement of options — — ( 4,521 ) Common stock acquired and canceled ( 1,799 ) — ( 11,451 ) Balance at end of period $ 1,276,305 $ 1,120,292 $ 977,067 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gains/(losses) on available for sale debt securities: Balance at beginning of period $ ( 71,563 ) $ 2,150 $ 7,430 Net change 21,521 ( 73,713 ) ( 5,280 ) Balance at end of period $ ( 50,042 ) $ ( 71,563 ) $ 2,150 Total stockholders’ equity $ 1,433,891 $ 1,250,836 $ 1,171,734 The accompanying Notes are an integral part of these consolidated financial statements. 54 Table of Contents BANCFIRST CORPORATION CONSOLIDATED STATEM ENTS OF CASH FLOW (Dollars in thousands) December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 212,465 $ 193,100 $ 167,630 Adjustments to reconcile to net cash provided by operating activities: Provision for (benefit from) credit losses 7,458 10,076 ( 8,690 ) Depreciation and amortization 22,189 22,048 20,041 Net amortization of securities premiums and discounts ( 1,269 ) 2,619 4,409 Realized securities losses (gains) 1,828 1,833 ( 1,047 ) Gain on sales of loans ( 2,607 ) ( 4,548 ) ( 7,282 ) Cash receipts from the sale of loans originated for sale 149,825 246,499 369,301 Cash disbursements for loans originated for sale ( 144,476 ) ( 223,407 ) ( 354,674 ) Deferred income tax (benefit) provision ( 2,787 ) 322 7,044 Gain on sale of other real estate owned and other assets ( 2,330 ) ( 4,682 ) ( 3,379 ) (Increase)/decrease in interest receivable ( 9,876 ) ( 16,914 ) 4,214 Increase/(decrease) in interest payable 7,719 3,192 ( 617 ) Stock-based compensation arrangements 2,999 1,941 2,133 Excess tax benefit from stock-based compensation arrangements ( 899 ) ( 3,325 ) ( 1,932 ) Other, net ( 7,194 ) ( 2,482 ) 6,783 Net cash provided by operating activities 233,045 226,272 203,934 INVESTING ACTIVITIES Net cash received from acquisitions, net of cash paid 8,045 121,099 12,599 Net cash paid from sale of assets and liabilities, net of cash received — — ( 13,733 ) Net decrease in federal funds sold 1,534 563 14,200 Purchases of held for investment debt securities — — ( 845 ) Purchases of available for sale debt securities ( 454,019 ) ( 1,881,784 ) ( 462,304 ) Proceeds from maturities, calls and paydowns of held for investment debt securities 1,351 74 831 Proceeds from maturities, calls and paydowns of available for sale debt securities 467,601 550,018 506,737 Proceeds from sales of available for sale debt securities — 222,474 — Purchase of equity securities ( 310 ) ( 4,309 ) ( 904 ) Proceeds from paydowns and sales of equity securities 850 1,620 1,459 Net change in loans ( 719,287 ) ( 521,220 ) 404,393 Net receipts (payments) on derivative asset contracts 21,192 7,294 ( 14,146 ) Purchases of premises, equipment and computer software ( 22,504 ) ( 19,785 ) ( 27,251 ) Purchase of tax credits ( 7,635 ) ( 9,706 ) ( 7,456 ) Other, net 33,477 14,494 9,305 Net cash (used in) provided by investing activities ( 669,705 ) ( 1,519,168 ) 422,885 FINANCING ACTIVITIES Net change in deposits ( 284,919 ) 2,452,297 ( 191,737 ) Net change in short-term borrowings 3,051 300 ( 1,100 ) Issuance of common stock in connection with stock options, net 2,543 7,649 2,260 Common stock acquired ( 1,820 ) — ( 11,663 ) Proceeds from issuance of subordinated notes, net of debt issuance costs — — 59,150 Net cash settlement of options — — ( 5,479 ) Cash dividends paid ( 53,642 ) ( 48,462 ) ( 45,140 ) Net cash (used in) provided by financing activities ( 334,787 ) 2,411,784 ( 193,709 ) Net (decrease)/increase in cash, due from banks and interest-bearing deposits ( 771,447 ) 1,118,888 433,110 Cash, due from banks and interest-bearing deposits at the beginning of the period 3,168,910 2,050,022 1,616,912 Cash, due from banks and interest-bearing deposits at the end of the period $ 2,397,463 $ 3,168,910 $ 2,050,022 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 191,760 $ 42,930 $ 11,993 Cash paid during the period for income taxes $ 52,398 $ 34,640 $ 30,600 Noncash investing and financing activities: Cash (received)/paid consideration for acquisitions $ ( 7,833 ) $ 77,685 $ 21,000 Fair value of assets acquired in acquisitions $ 2,981 $ 511,595 $ 283,711 Liabilities assumed in acquisitions $ 10,814 $ 433,911 $ 257,915 Unpaid common stock dividends declared $ 14,161 $ 13,150 $ 11,737 The accompanying Notes are an integral part of these consolidated financial statements. 55 Table of Contents BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and general practice within the banking industry. A summary of the significant accounting policies follows. Nature of Operations BancFirst Corporation is an Oklahoma business corporation and a financial holding company under federal law. It conducts virtually all of its operating activities through its principal wholly-owned subsidiary, BancFirst (“BancFirst”), an Oklahoma state-chartered bank headquartered in Oklahoma City, Oklahoma. The Company also conducts operating activities through its wholly-owned subsidiaries, Pegasus Bank (“Pegasus”), a Texas state-chartered bank headquartered in Dallas, Texas and Worthington Bank ("Worthington"), a Texas state-chartered bank headquartered in Arlington, Texas. BancFirst, Pegasus and Worthington provide a wide range of retail and commercial banking services, including: commercial, real estate, agricultural and consumer lending; depository and funds transfer services; collections; safe deposit boxes; cash management services; and other services tailored for both individual and corporate customers. BancFirst also offers trust services and acts as executor, administrator, trustee, transfer agent and in various other fiduciary capacities. BancFirst provides item processing, research and other correspondent banking services to financial institutions and governmental units. The Company’s wholly-owned subsidiary, BancFirst Insurance Services, Inc., an independent insurance agency, offers a variety of commercial and personal insurance products. In addition, the Company’s wholly-owned subsidiary, Council Oak Partners, LLC, an Oklahoma limited liability company, engages in investing activities. Basis of Presentation The accompanying consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., Pegasus, Worthington and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are BFTower, LLC, BFC-PNC LLC, BF Brazito, LLC, and BancFirst Agency, Inc. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the consolidated financial statements. Certain amounts from 2022 and 2021 have been reclassified to conform to the 2023 presentation. These reclassifications were not material to the Company’s consolidated fin ancial statements. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with U.S. GAAP inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for credit losses, income taxes, the fair value of financial instruments and the valuation of assets and liabilities acquired in a business combination, including identifiable intangible assets. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported. Securities The Company invests in debt securities. Any sales of debt securities are for the purpose of executing the Company’s asset/liability management strategy, eliminating a perceived credit risk in a specific security or providing liquidity. Debt securities that are being held for indefinite periods of time, or that may be sold as part of the Company’s asset/liability management strategy, to provide liquidity or for other reasons, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity, net of income tax. Gains or losses from sales of debt securities are based upon the book values of the specific debt securities sold. Debt securities for which the Company has the intent and ability to hold to maturity are classified as held for investment and are stated at cost, adjusted for amortization of premiums and accretion of discounts computed under the interest method. The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell or it is more-likely-than-not that it will be required to sell the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the performance of any underlying collateral and adverse conditions specifically related to the security. The Company does not consider the unrealized position of its debt securities to be the result of credit factors, because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company has not recorded an allowance for 56 Table of Contents credit losses against its debt securities portfolio, as the credit risk is not material. The Company does not engage in securities trading activities. The Company invests in equity securities without readily determinable fair values and utilizes Level 3 inputs. These securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. Equity securities are reported in other assets on the consolidated balance sheet. The Company reviews its portfolio of equity securities for impairment at least quarterly. Loans The lending function is governed by written policies and procedures, as determined by senior management and approved by the Board of Directors. The policies and procedures set the standards for lending in each major loan category by collateral type and use of loan proceeds. The objectives of these policies and procedures are to identify profitable markets, determine appropriate risk tolerance levels for each type of loan, establish limits for loan officer approval, set concentration limits, establish loan-to-value thresholds, set repayment terms and loan structure guidelines and adhere to documentation requirements. Interest rate risk is controlled by the use of variable rate provisions, the vast majority of which have a rate floor, limits on fixing rates for longer periods and the use of prepayment penalties. Loans originated within the Company are stated at the principal amount outstanding, net of unearned interest, loan fees and allowance for credit losses. Interest on all performing loans is recognized, on a simple interest basis, based upon the principal amount outstanding. See Note (5) for loan disclosures. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts. The Company has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses because it writes off uncollectible accrued interest in a timely manner. Interest income is accrued on the unpaid principal balance using the simple-interest method on the daily balances of the principal amounts outstanding. The Company writes off accrued interest once a loan enters non-accrual status. The Company debits interest income for the interest accrued. No interest will be accrued on loans, for which a default of principal or interest has existed for a period of at least 90 days unless the collateral margin or guarantor support are such that full collection of principal and interest are not in doubt and an orderly plan for collection is in process. The Company also suspends interest recognition on any other loan for which it is more likely than not that future contractual payments will not be collected. Interest income on consumer and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Consumer loans are charged off at 180 days past due and commercial loans are charged off to the extent principal or interest is deemed uncollectible. Past-due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. The amount of interest accrued but not received for loans placed on nonaccrual and reversed against interest income was $ 429,000 , $ 147,000 and $ 83,000 for the years ended December 31, 2023, 2022 and 2021, respectively. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Modifications of loans to existing borrowers generally consist of interest rate reductions, extension of payment terms, or a combination of these. Modifications may arise either voluntarily through negotiations with the borrower or involuntarily through court order. Payment deferrals up to six months are generally considered to be short-term modifications. Generally, principal and accrued but unpaid interest is not voluntarily forgiven. A change to the allowance for credit losses is generally not recorded upon modification because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance methodology. 57 Table of Contents Residential real estate loans are made in accordance with underwriting policies and are fully documented. Credit worthiness is assessed based on significant credit characteristics including credit history and residential and employment stability. The Company does not engage in any hybrid loan programs. In addition, the Company does not have any exposure to loans with negative amortization, interest rate carryover or discounting of the initial rates (teaser rates). An updated appraisal of the collateral is obtained when a loan is first identified as a problem loan. Appraisals are reviewed annually and are updated as needed or are updated more frequently if significant changes are believed to have occurred in the collateral or market conditions. Appraisals of other real estate owned are also reviewed and updated consistent with this policy. When a loan deteriorates to the point that the account officer or the Loan Committee concludes it no longer represents a viable asset, it will be charged off. Similarly, any portion of a loan that is deemed to no longer be a viable asset will be charged off. A loan will not be charged off unless such action has been approved by the branch President. Acquired Loans Loans acquired through business combinations are required to be carried at fair value as of the date of the combination. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date. The methodology of allowance for credit loss recorded for these acquired loans depends on whether the acquired loans are purchase credit deteriorated or non-purchase credit deteriorated. An allowance for credit loss for non-purchase credit deteriorated loans is determined and recorded in a manner consistent with originated loans. That is, the allowance for credit loss is calculated based on the loan’s amortized cost basis (i.e., the acquisition date fair value in a business combination) and is established through a charge to provision expense at the acquisition date. An allowance for credit loss for purchase credit deteriorated loans is recorded as an adjustment to the loans, in addition to the fair value amount recorded, as of the acquisition date, and not through provision expense. The acquisition date fair value plus the allowance for credit loss equals the loans new amortized cost basis as of the acquisition date. The difference between the new amortized cost basis and the unpaid principal balance of the loan represents the non-credit purchase discount/premium recorded. The difference between the fair value of loans which do not have specific evidence of deterioration of credit quality since origination and their principal balance is recognized in interest income on a level-yield method over the life of the loans. For loans which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments (as determined by the present value of expected future cash flows), the difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” is recognized in interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as yield adjustments or as loss accruals or valuation allowances. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairments. Any probable loss due to subsequent credit deterioration of the loans since acquisition is provided for in the allowance for credit losses. Purchased Credit Deteriorated (PCD) Loans The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. Loans Held for Sale The Company originates mortgage loans to be sold. At the time of origination, the acquiring bank has already been determined and the terms of the loan, including the interest rate, have already been set by the acquiring bank allowing the Company to originate the loan at fair value. Mortgage loans are generally sold within 30 days of origination. Loans held for sale are carried at the lower of cost or fair value. Gains or losses recognized upon the sale of the loans are determined on a specific identification basis. The Company does not sell residential mortgage loans with recourse other than obligations under standard representations and warranties or for fraud. These obligations relate to loan performance for the life of the loan. The amount of loans repurchased since the inception of the program is not considered to be material, and therefore, no reserve has been required. Allowance for Credit Losses The allowance for credit losses is a valuation account that is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a 58 Table of Contents loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The allowance for credit losses is increased by provisions charged to operating expense and is reduced by net loan charge-offs. The Company considers various factors to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical loan loss experience and economic conditions. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as the political, legal, and regulatory environment, technology and consumer preferences. Historical loss information is also adjusted for reasonable and supportable changes in national and local economic conditions, such as consumer loans 90 days past due and commercial bankruptcies. Economic conditions are forecast as "current conditions" over the forecast period. Forecast models were used to validate credit performance during the forecast period. Beyond the reasonable and supportable forecast, the economic expectation reverts to the historical average, which is determined by the weighted average life of each loan pool. If a loan is individually evaluated a specific allowance is provided, if necessary, so that the loan is reported net, at the fair value of collateral. Interest payments on collateral dependent loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans, or portions thereof, are charged off when deemed uncollectible. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Determining the Contractual Term Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless the following applies: the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Based on a low likelihood that funding will occur and the Company’s ability to manage the extension of credit to our borrowers, the allowance for credit losses on off-balance sheet credit exposure is not material. Allowance for Credit Losses on Available-for-Sale Debt Securities The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell or it is more-likely-than-not that it will be required to sell the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the performance of any underlying collateral and adverse conditions specifically related to the security. At December 31, 2023 and December 31, 2022 approximately 98 % of the available for sale debt securities held by the Company were issued by the U.S. Treasury, or U.S. government-sponsored entities and agencies. The Company does not consider the unrealized loss position of these securities to be the result of credit factors, because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company has not recorded an allowance for credit losses against its debt securities portfolio, as the credit risk is not material. Nonaccrual Policy A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of both interest and principal is not probable. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. 59 Table of Contents The Company does not accrue interest on (1) any loan upon which a default of principal or interest has existed for a period of 90 days or over unless the collateral margin or guarantor support are such that full collection of principal and interest are not in doubt, and an orderly plan for collection is in process; and (2) any other loan for which it is expected full collection of principal and interest is not probable. A nonaccrual loan may be restored to an accrual status when none of its principal and interest are past due and unpaid or otherwise becomes well secured and in the process of collection and when prospects for collection of future contractual payments are no longer in doubt. With the exception of a formal debt forgiveness agreement, no loan which has had principal charged-off shall be restored to accrual status unless the charged-off principal has been recovered. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is charged to operating expense and is computed using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred while improvements are capitalized. Premises and equipment is tested for impairment if events or changes in circumstances occur that indicate that the carrying amount of any premises and equipment may not be recoverable. Impairment losses are measured by comparing the fair values of the premises and equipment with their recorded amounts. Premises that are identified to be sold are transferred to other real estate owned at the lower of their carrying amounts or their fair values less estimated costs to sell. Any losses on premises identified to be sold are charged to operating expense. When premises and equipment are transferred to other real estate owned, sold, or otherwise retired, the cost and applicable accumulated depreciation are removed from the respective accounts and any resulting gains or losses are reported in the consolidated statements of comprehensive income. Construction in progress includes all the costs of construction associated with the building of fixed long-term assets and is included in premises and equipment, net as an asset. When construction is completed, the asset is reclassified as a building or a leasehold improvement and depreciated over its applicable useful life. Leases Certain operating leases are included as right of use lease assets in accrued interest receivable and other assets on the consolidated balance sheet and a related lease liability is included in accrued interest payable and other liabilities on the consolidated balance sheet. Right of use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The lease liability is measured as the present value of the unpaid lease payments, and the right of use assets value is derived from the calculation of the lease liability. To calculate the discount rate for each lease, the Company uses the rate implicit in the lease if available, otherwise an appropriate Federal Home Loan Bank ("FHLB") advance borrowing rate is used that correlates with the term of the lease. Other Real Estate Owned Other real estate owned ("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. Losses 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 premises identified to be sold are charged to operating expense at the time of transfer from premises to OREO. Losses from declines in value of the properties subsequent to classification as OREO are charged to operating expense. Revenues and expenses for OREO property are included in the consolidated statements of comprehensive income for the period in which they occur. Gross rental income for OREO is included in other non-interest income. The expenses of operating or holding OREO property are included in noninterest expense. Intangible Assets and Goodwill Core deposit intangibles are amortized on a straight-line basis over the estimated useful lives of seven to ten years and customer relationship intangibles are amortized on a straight-line basis over the estimated useful life of three to eighteen years . Goodwill is not amortized but is evaluated at a reporting unit level at least annually for impairment, or more frequently if other indicators of impairment are present. At least annually in the fourth quarter, intangible assets are evaluated for possible impairment. Impairment losses are measured by comparing the fair values of the intangible assets with their recorded amounts. Any impairment losses are reported in the consolidated statements of comprehensive income. Advertising Costs Advertising costs are expensed as incurred. Advertising costs for the year ended December 31, 2023 were $ 3.2 million. Advertising costs for the years ended December 31, 2022 and 2021 were both $ 3.0 million. 60 Table of Contents Stock-based Compensation The Company recognizes stock-based compensation as compensation expense in the consolidated statements of comprehensive income based on the fair value of the Company’s stock options and restricted stock units ("RSU's") on the measurement date, which, for the Company, is the date of the grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value of each RSU granted is equal to the market price of the Company’s stock at the date of grant. The fair value of each option and RSU is expensed over its vesting period. Income Taxes The Company files a consolidated income tax return with its subsidiaries. Federal and state income tax expense or benefit has been allocated to subsidiaries on a separate return basis. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. Earnings Per Common Share Basic earnings per common share is computed by dividing net income, less any preferred dividends requirement, by the weighted average of common shares outstanding. Diluted earnings per common share reflects the potential dilution that could occur if options, RSU's, convertible securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Revenue Recognition In addition to lending and related activities, the Company offers various services to customers that generate revenue. Contract performance typically occurs in one year or less. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less. Sales of real estate The sale of real estate property is generally recognized, along with any associated gain or loss, when control of the property transfers to the buyer. Service and transaction fees on depository accounts Customers often pay certain fees to the bank to access the cash on deposit including certain non-transactional fees such as account maintenance or dormancy fees, and certain transaction-based fees such as non-sufficient funds fees, overdraft, ATM, wire transfer, or foreign exchange fees. Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur, or in some cases, within 90 days of the service period. Interchange Fees Interchange fees, or “swipe” fees, are charges that merchants pay to the processors who, in turn, share that revenue with us and other card-issuing banks for processing electronic payment transactions. Interchange fees represent the portion of the debit card transaction amount that the card issuer retains to compensate it for processing transactions and providing rewards. Interchange fees are settled and recognized on a daily or monthly basis. Insurance Commissions and Fees Insurance commissions are received on the sale of insurance products, and revenue is recognized upon the placement date of the insurance policies or when such commissions are received. Payment is normally received within the policy period. In addition to placement, the Company also provides insurance policy related risk management services. Revenue is recognized as these services are provided. Performance-based commissions are recognized when received or earlier when, upon consideration of past results and current condition, the revenue is deemed not probable of reversal. 61 Table of Contents For accounts billed by BancFirst Insurance Services, Inc., commission revenue is recognized at the later of the billing date or the effective date of the related insurance policies. Commission revenue, for accounts that are directly billed by the insurance company to the insured, is recognized when determinable by BancFirst Insurance Services, Inc., which is generally when such commissions are received. BancFirst Insurance Services, Inc. also receives contingent commissions from insurance companies as additional incentive for achieving specified premium volume goals and/or loss experience parameters relating to the insurance they place. Contingent commissions from insurance companies are recognized when determinable, which is generally when such commissions are received. Trust BancFirst offers trust services and acts as executor, administrator, trustee, transfer agent and in various other fiduciary capacities. There are four basic types of fees that are included in the trust department income. Administrative fees are assessed for managing trust accounts. Shareholder fees are received in connection with holding specific fund share classes. In return for these services, the mutual fund (or its distributor or investment advisor) pay a fee to BancFirst. Oil and gas fees are assessed for management of oil and gas related activities. There are also other types of fees charged on a one time basis such as those related to opening and closing trust accounts. BancFirst records trust fees on a monthly, quarterly or annual basis based on the size of the asset being managed. Fees may be fixed or, where applicable, based on a percentage of transaction size of managed assets. These fees are recorded as revenue at the time the fee is billed, according to the agreement with the customer. Comprehensive Income Comprehensive income includes all changes in stockholders’ equity during a period, except those resulting from transactions with stockholders. Besides net income, other components of the Company’s comprehensive income includes the after tax effect of changes in the net unrealized gain/loss on debt securities available for sale. The Company’s policy is to release material stranded tax effects included in accumulated other comprehensive income on a specific identification basis. Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers cash and due from banks and interest-bearing deposits with banks as cash equivalents. 62 Table of Contents Recent Accounting Pronouncements Standards Not Yet Adopted: In November 2023, the Financial Accounting Standards Board (“FASB“) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures” requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal year beginning after December 15, 2024 on a retrospective basis. The amendments are to be applied retrospectively to all periods presented and segment expense categories should be based on the categories identified at adoption. The Company does not expect adoption of the standard to have a material impact on its consolidated financial statements. In December 2023, FASB issued ASU No. 2023-09, “Income Taxes - Improvements to Income Tax Disclosures” requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company does not expect adoption of the standard to have a material impact on its consolidated financial statements. Standards Adopted During the Current Period: In March 2022, FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminated the Troubled Debt Restructurings (“TDR”) recognition and measurement guidance and, instead, required 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. In addition, the update required that the Company disclose current-period charge-offs by year of origination for financing receivables. The current-period charge-off amendment was applied prospectively. The amendments were effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods. The Company adopted ASU 2022-02 on a prospective basis on January 1, 2023 . ASU No. 2022-02 did no t have a significant impact on the Company’s consolidated financial statements. Prior to the adoption of ASU 2022-02, a TDR occurred when a loan to a borrower experiencing financial difficulty was restructured with a concession provided that a creditor would not otherwise consider. For the Company's accounting policy related to TDRs granted prior to the adoption of ASU 2022-02, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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. 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"), Low-Income Housing Tax Credits ("LIHTC") and other tax credits that were affected by ASU 2023-02. As a result of the adoption of ASU No. 2023-02, the Company recorded $ 25.1 million in other assets and other liabilities on the consolidated balance sheet during 2023 for unfunded LIHTC commitments and amortized $ 6.0 million of NMTC and other tax credit investments to income tax expense during the period that would have previously been recorded to other expense. ASU No. 2023-02 did no t have a significant impact on the Company’s consolidated financial statements as disclosed above. 63 Table of Contents (2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS BancFirst Corporation is regulated by the Federal Reserve System as a financial holding company. On August 11, 2023, BancFirst became 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 $ 252,000 and goodwill of $ 209,000 . 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. At the time of the acquisition, Worthington was chartered and regulated by the Texas State Banking Department with one banking location in Arlington, Texas, one in Colleyville, Texas and two in Fort Worth, Texas. Worthington had approximately $ 478 million in total assets, $ 257 million in loans and $ 430 million in deposits. Worthington will continue to operate under a separate charter and remain a separate subsidiary of the Company governed by its existing board of directors. The Company intends to provide an appropriate amount of capital or other support to increase Worthington’s ability to approve larger loans and allow Worthington to continue to grow earning assets. As a result of the acquisition, the Company recorded a core deposit intangible of $ 5.9 million and goodwill of $ 32.1 million. The Company did not incur a material amount of acquisition-related expenses. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. Pro forma information has not been presented because the acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of Worthington complemented the Company's growing presence in the Dallas-Fort Worth market. (3) CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS AND FEDERAL FUNDS SOLD The Company maintains accounts with the Federal Reserve Bank and various other financial institutions primarily for the purpose of holding excess liquidity and clearing cash items. It may also sell federal funds to certain of these institutions on an overnight basis. At December 31, 2023 and 2022, the Company had no significant concentrations of credit risk with other financial institutions. The Company maintained vault cash and funds on deposit with the Federal Reserve Bank, which is included in the following table: December 31, 2023 2022 (Dollars in thousands) Vault cash and funds on deposit with the Federal Reserve Bank $ 2,255,198 $ 2,942,665 64 Table of Contents (4) SECURITIES The following table summarizes the amortized cost and estimated fair values of debt securities held for investment: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (Dollars in thousands) December 31, 2023 Mortgage backed securities (1) $ 5 $ — $ — $ 5 States and political subdivisions 685 — — 685 Other securities 500 — — 500 Total $ 1,190 $ — $ — $ 1,190 December 31, 2022 Mortgage backed securities (1) $ 13 $ — $ — $ 13 States and political subdivisions 1,870 — — 1,870 Other securities 500 — — 500 Total $ 2,383 $ — $ — $ 2,383 The following table summarizes the amortized cost and estimated fair values of debt securities available for sale: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (Dollars in thousands) December 31, 2023 U.S. treasuries $ 1,560,265 $ 415 $ ( 62,635 ) $ 1,498,045 U.S. federal agencies 11,631 142 ( 3 ) 11,770 Mortgage backed securities (1) 16,459 13 ( 1,677 ) 14,795 States and political subdivisions 10,108 16 ( 114 ) 10,010 Asset backed securities 12,794 — ( 282 ) 12,512 Other securities 8,163 — ( 1,390 ) 6,773 Total $ 1,619,420 $ 586 $ ( 66,101 ) $ 1,553,905 December 31, 2022 U.S. treasuries $ 1,568,563 $ — $ ( 90,699 ) $ 1,477,864 U.S. federal agencies 15,025 198 ( 1 ) 15,222 Mortgage backed securities (1) 18,449 21 ( 1,884 ) 16,586 States and political subdivisions 8,320 35 ( 221 ) 8,134 Asset backed securities 13,371 — ( 361 ) 13,010 Other securities 8,163 — ( 758 ) 7,405 Total $ 1,631,891 $ 254 $ ( 93,924 ) $ 1,538,221 (1) Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies. 65 Table of Contents The maturities of debt securities held for investment and available for sale are summarized in the following table using contractual maturities. Actual maturities may differ from contractual maturities due to obligations that are called or prepaid. 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. December 31, 2023 2022 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (Dollars in thousands) Held for Investment Contractual maturity of debt securities: Within one year $ 350 $ 350 $ 1,186 $ 1,186 After one year but within five years 840 840 1,195 1,195 After five years but within ten years — — 2 2 After ten years — — — — Total $ 1,190 $ 1,190 $ 2,383 $ 2,383 Available for Sale Contractual maturity of debt securities: Within one year $ 348,318 $ 341,645 $ 101,607 $ 100,655 After one year but within five years 1,223,529 1,167,973 1,316,874 1,233,725 After five years but within ten years 10,331 8,851 170,513 163,101 After ten years 37,242 35,436 42,897 40,740 Total debt securities $ 1,619,420 $ 1,553,905 $ 1,631,891 $ 1,538,221 The following is a detail of proceeds from sales and the realized losses on available for sale debt securities: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Proceeds $ — $ 222,474 $ — Gross losses realized — 3,990 — In March 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. There were no sales of securities and therefore no proceeds from sales or realized securities losses on available for sale debt securities for the years ended December 31, 2023 and 2021, 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 is a summary of the Company’s book value of debt securities that were pledged as collateral for public funds on deposit, repurchase agreements and for other purposes as required or permitted by law: December 31, 2023 2022 (Dollars in thousands) Book value of pledged securities $ 591,324 $ 573,952 66 Table of Contents The following table summarizes debt securities with unrealized losses, segregated by the duration of the unrealized loss, at December 31, 2023 and 2022 respectively: Less than 12 Months More than 12 Months Total Number of investments Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses (Dollars in thousands) December 31, 2023 Available for Sale U.S. treasuries 68 $ 4,838 $ 90 $ 1,401,669 $ 62,545 $ 1,406,507 $ 62,635 U.S. federal agencies 3 1,100 3 — — 1,100 3 Mortgage backed securities 74 80 — 13,261 1,677 13,341 1,677 States and political subdivisions 6 306 4 1,847 110 2,153 114 Asset backed securities 1 — — 12,512 282 12,512 282 Other securities 3 — — 6,773 1,390 6,773 1,390 Total 155 $ 6,324 $ 97 $ 1,436,062 $ 66,004 $ 1,442,386 $ 66,101 December 31, 2022 Available for Sale U.S. treasuries 74 $ 787,925 $ 27,078 $ 689,939 $ 63,621 $ 1,477,864 $ 90,699 U.S. federal agencies 1 — — 349 1 349 1 Mortgage backed securities 92 10,001 1,239 5,055 645 15,056 1,884 States and political subdivisions 8 2,308 184 464 37 2,772 221 Asset backed securities 1 13,010 361 — — 13,010 361 Other securities 3 4,871 291 2,534 467 7,405 758 Total 179 $ 818,115 $ 29,153 $ 698,341 $ 64,771 $ 1,516,456 $ 93,924 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 December 31, 2023 and 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. The fair value of those debt securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline. The Company has no intent or requirement to sell before the recovery of the unrealized loss; therefore, no impairment loss was realized in the Company’s consolidated statements of comprehensive income. 67 Table of Contents (5) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS Loans held for investment are summarized by portfolio segment as follows: December 31, 2023 2022 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 960,944 $ 908,494 Commercial real estate non-owner occupied 1,486,420 1,383,150 Construction and development < 60 months 642,643 475,236 Construction residential real estate < 60 months 283,486 303,305 Residential real estate first lien 1,258,744 1,117,899 Residential real estate all other 244,696 196,198 Agriculture 427,139 408,037 Commercial non-real estate 1,289,452 1,241,454 Consumer non-real estate 476,467 446,756 Oil and gas 586,654 463,034 Total (1) $ 7,656,645 $ 6,943,563 (1) Excludes accrued interest receivable of $ 39.4 million at December 31, 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. 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. The Company's loans are currently 84 % held by BancFirst and 16 % held by Pegasus and Worthington. In addition, approximately 69 % of the Company's loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual and related borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained, if any, to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments, which includes the applicable weighted average remaining life, and measures the allowance for credit losses using the vintage loss analysis adjusted for qualitative factors: Portfolio Segments Life (in years) Real estate: Commercial real estate owner occupied 9 Commercial real estate non-owner occupied 6 Construction and development < 60 months 3 Construction residential real estate < 60 months 2 Residential real estate first lien 15 Residential real estate all other 8 Agriculture 9 Commercial non-real estate 4 Consumer non-real estate 4 Oil and gas 2 68 Table of Contents These portfolio segments are separately identified because they exhibit distinctive risk characteristics, such as financial asset types, loan purpose, collateral, and industry of the borrower. A summary of our primary portfolio segments is as follows: Commercial real estate owner occupied. Commercial real estate owner occupied are nonresidential property loans for which the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the entity, or an affiliate of the entity, who owns the property. This category includes, among other loans, loans secured by office buildings, garden office buildings, manufacturing facilities, warehouse and flex warehouse facilities, hospitals, and car washes unless the property is owned by an investor who leases the property to the operator who, in turn, is not related to or affiliated with the investor. Commercial real estate non-owner occupied. Commercial real estate non-owner occupied are nonresidential property loans where the primary source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent financing of the property. This category includes, among other loans, loans secured by shopping centers, office buildings, hotels/motels, nursing homes, assisted-living facilities, mini-storage warehouse facilities, and similar properties. Construction and development < 60 months . Residential development loans include loans to develop raw land into a residential development. Advances on the loans typically include land costs, hard costs (grading, utilities, roads, etc.), soft costs (engineering fees, development fees, entitlement fees, etc.) and carrying costs until the development is completed. Upon completion of the development, the loan is typically repaid through the sale of lots to homebuilders. Construction residential real estate < 60 months. Residential construction includes loans to builders for speculative or custom homes, as well as direct loans to individuals for construction of their personal residence. Custom construction and self-construction loans typically will have commitments in place for long-term financing at the completion of construction. Speculative construction loans generally will have periodic curtailment plans beginning after completion of construction and a reasonable time for sales to have occurred. Residential real estate first lien. Residential real estate first lien loans includes all closed-end loans secured by first liens on 1-to-4 family residential properties. This category includes property containing 1-to-4 dwelling units (including vacation homes) or more than four dwelling units if each is separated from other units by dividing walls that extend from ground to roof. This category also includes individual condominium dwelling units and loans secured by an interest in individual cooperative housing units, even if in a building with five or more dwelling units. Residential real estate all other. Residential real estate all other loans includes loans secured by junior (i.e., other than first) liens on 1-to-4 family residential properties. This category includes loans secured by junior liens even if the Company also holds a loan secured by a first lien on the same 1-to-4 family residential property. Agricultural. This category includes loans secured by all land known to be used or usable for agricultural purposes, such as crop and livestock production. Commercial non-real estate. Commercial non-real estate represent loans for working capital, facilities acquisition or expansion, purchase of equipment and other needs of commercial customers primarily located within Oklahoma. Loans in this category include commercial and industrial and state and political subdivisions. Consumer non-real estate. Consumer loans are loans to individuals for household, family and other personal expenditures. Commonly, such loans are made to finance purchases of consumer goods, such as automobiles, boats, household goods, vacations and education. Oil and gas. Oil and gas loans represent loans for producing oil and gas properties and any other mineral interests that may be pumped, mined, quarried or otherwise extracted from the earth. These loans also include upstream and midstream energy loans, and loans to companies that provide ancillary services to the energy industry, such as transportation, wellsite preparation contractors and equipment manufacturers. 69 Table of Contents Loan Modifications, Other Real Estate Owned and Repossessed Assets and Held for Sale Assets The following is a summary of other real estate owned and repossessed assets: December 31, 2023 2022 (Dollars in thousands) Other real estate owned and repossessed assets $ 34,200 $ 36,936 As of both December 31, 2023 and December 31, 2022, other real estate owned included a larger commercial real estate property recorded at $ 29.4 million. Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income. Operating expense for this property is included in net expense from other real estate owned in other noninterest expense on the consolidated statements of comprehensive income. This property had the following rental income and operating expenses for the periods presented. For the Twelve Months Ended December 31, 2023 2022 2021 (Dollars in thousands) Rental income $ 11,224 $ 10,340 $ 9,975 Operating expense 10,868 9,863 8,727 During 2023, the Company sold property held in other real estate owned for a total gain of $ 728,000 compared to gains of $ 4.2 million in 2022 and $ 618,000 in 2021. During 2023, the Company wrote down property held in other real estate owned for a total of $ 5.2 million compared to write downs of $ 3.7 million in 2022 and $ 538,000 in 2021. 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 $ 5.3 million during the year ended December 31, 2023. Nonaccrual loans The Company did no t recognize any interest income on nonaccrual loans for any of the years ended December 31, 2023, 2022 or 2021. In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both December 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 $ 1.6 million in 2023, $ 1.3 million in 2022 and $ 2.2 million in 2021. Nonaccrual loans guaranteed by government agencies totaled $ 6.7 million at December 31, 2023 and $ 4.7 million at December 31, 2022. 70 Table of Contents The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment. December 31, 2023 December 31, 2022 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 1,686 $ 1,795 Commercial real estate non-owner occupied 874 667 Construction and development < 60 months 800 93 Construction residential real estate < 60 months 638 430 Residential real estate first lien 3,336 1,947 Residential real estate all other 899 55 Agriculture 3,662 2,734 Commercial non-real estate 10,101 7,066 Consumer non-real estate 449 192 Oil and gas 2,128 320 Total $ 24,573 $ 15,299 71 Table of Contents Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents an age analysis of the Company's loans held for investment: Age Analysis of Past Due Loans 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Total Past Due Loans Current Loans Total Loans Accruing Loans 90 Days or More Past Due (Dollars in thousands) December 31, 2023 Real estate: Commercial real estate owner occupied $ 1,386 $ 26 $ 5,598 $ 7,010 $ 953,934 $ 960,944 $ 4,377 Commercial real estate non-owner occupied 2,224 7,371 1,786 11,381 1,475,039 1,486,420 913 Construction and development <60 months 198 158 800 1,156 641,487 642,643 — Construction residential real estate < 60 months 1,542 206 405 2,153 281,333 283,486 332 Residential real estate first lien 3,879 1,204 1,849 6,932 1,251,812 1,258,744 731 Residential real estate all other 757 190 613 1,560 243,136 244,696 549 Agriculture 1,694 724 1,227 3,645 423,494 427,139 579 Commercial non-real estate 1,501 436 10,028 11,965 1,277,487 1,289,452 1,714 Consumer non-real estate 3,248 1,090 594 4,932 471,535 476,467 347 Oil and gas — — 92 92 586,562 586,654 — Total $ 16,429 $ 11,405 $ 22,992 $ 50,826 $ 7,605,819 $ 7,656,645 $ 9,542 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Total Past Due Loans Current Loans Total Loans Accruing Loans 90 Days or More Past Due (Dollars in thousands) December 31, 2022 Real estate: Commercial real estate owner occupied $ 1,314 $ 1,524 $ 4,580 $ 7,418 $ 901,076 $ 908,494 $ 4,580 Commercial real estate non-owner occupied 6,237 — 42 6,279 1,376,871 1,383,150 43 Construction and development <60 months 535 40 114 689 474,547 475,236 81 Construction residential real estate < 60 months 1,320 282 148 1,750 301,555 303,305 — Residential real estate first lien 3,415 1,076 844 5,335 1,112,564 1,117,899 349 Residential real estate all other 265 37 185 487 195,711 196,198 166 Agriculture 2,357 34 2,265 4,656 403,381 408,037 1,054 Commercial non-real estate 2,490 2,142 2,772 7,404 1,234,050 1,241,454 345 Consumer non-real estate 2,591 648 585 3,824 442,932 446,756 467 Oil and gas 654 — — 654 462,380 463,034 — Total $ 21,178 $ 5,783 $ 11,535 $ 38,496 $ 6,905,067 $ 6,943,563 $ 7,085 72 Table of Contents Credit Quality Indicators The Company considers credit quality indicators to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical credit loss experience and economic conditions. These indicators are reviewed and updated regularly throughout the year. An internal risk grading system is used to indicate the credit risk of loans. The loan grades used by the Company are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions. The general characteristics of the risk grades are as follows: Grade 1 – Acceptable - Loans graded 1 represent reasonable and satisfactory credit risk which requires normal attention and supervision. Capacity to repay through primary and/or secondary sources is not questioned. Grade 2 – Acceptable - Increased Attention - This category consists of loans that have credit characteristics deserving management’s close attention. These complexities or potential weaknesses could result in deterioration of the repayment prospects for the loan or the Company's credit position at some future date. Such credit characteristics include loans to highly leveraged borrowers in cyclical industries, adverse financial trends which could potentially weaken repayment capacity, loans that have fundamental structure complexity or deficiencies, loans lacking secondary sources of repayment where prudent, and loans with deficiencies in essential documentation, including financial information. Grade 3 – Loans with Problem Potential - This category consists of performing loans which are considered to exhibit problem potential. Loans in this category would generally include, but not be limited to, borrowers with a weakened financial condition or poor performance history, past dues, loans restructured to reduce payments to an amount that is below market standards and/or loans with severe documentation problems. In general, these loans have no identifiable loss potential in the near future; however, the possibility of a loss developing is heightened. Grade 4 - Problem Loans/Assets – Nonperforming - This category consists of nonperforming loans/assets which are considered to be problems. Nonperforming loans are described as being 90 days and over past due and still accruing, and loans that are nonaccrual. The government guaranteed portion of SBA loans is excluded. Grade 5 - Loss Potential - This category consists of loans/assets which are considered to possess loss potential. While the loss may not occur in the current year, management expects that loans/assets in this category will ultimately result in a loss, unless substantial improvement occurs. Grade 6 - Charge Off - This category consists of loans that are considered uncollectible and other assets with little or no value. The Company’s revolving loans that are converted to term loans are not material and therefore have not been presented. The following tables summarizes the Company's gross loans held for investment by year of origination and internally assigned credit grades: 73 Table of Contents Term Loans Amortized Cost Basis by Origination Year Revolving Loans 2023 2022 2021 2020 2019 Prior Amortized Cost Basis Total (Dollars in thousands) December 31, 2023 Commercial real estate owner occupied Grade 1 $ 125,041 $ 144,429 $ 124,113 $ 85,619 $ 77,400 $ 135,064 $ 23,004 $ 714,670 Grade 2 39,735 61,879 28,506 22,473 19,617 24,199 33,304 229,713 Grade 3 140 3,580 4,262 644 1,432 1,051 2,450 13,559 Grade 4 399 90 — 352 656 1,016 150 2,663 Grade 5 — — — — 339 — — 339 Total commercial real estate owner occupied 165,315 209,978 156,881 109,088 99,444 161,330 58,908 960,944 Commercial real estate non-owner occupied Grade 1 221,014 271,637 172,291 113,676 56,831 68,576 44,878 948,903 Grade 2 82,206 139,982 79,204 53,154 63,331 72,075 28,844 518,796 Grade 3 2,135 6,666 1,715 — 6,207 251 — 16,974 Grade 4 200 632 349 — — 566 — 1,747 Total commercial real estate non-owner occupied 305,555 418,917 253,559 166,830 126,369 141,468 73,722 1,486,420 Construction and development < 60 months Grade 1 124,218 133,254 65,472 5,828 3,392 5,019 76,831 414,014 Grade 2 95,138 43,884 28,772 6,625 13,406 2,146 34,559 224,530 Grade 3 2,051 893 101 235 — 19 — 3,299 Grade 4 — 800 — — — — — 800 Total construction and development < 60 months 221,407 178,831 94,345 12,688 16,798 7,184 111,390 642,643 Construction residential real estate < 60 months Grade 1 158,161 7,551 1,421 100 105 467 49,284 217,089 Grade 2 57,172 2,365 27 12 — — 98 59,674 Grade 3 5,457 387 — — — — — 5,844 Grade 4 673 206 — — — — — 879 Total construction residential real estate <60 months 221,463 10,509 1,448 112 105 467 49,382 283,486 Residential real estate first lien Grade 1 294,363 226,557 174,325 115,055 71,941 149,836 6,047 1,038,124 Grade 2 51,619 39,146 35,226 24,738 12,591 39,264 — 202,584 Grade 3 2,175 2,187 2,630 773 1,140 4,009 — 12,914 Grade 4 759 122 1,144 651 355 2,091 — 5,122 Total residential real estate first lien 348,916 268,012 213,325 141,217 86,027 195,200 6,047 1,258,744 Residential real estate all other Grade 1 44,475 24,861 8,381 8,122 3,753 12,827 46,479 148,898 Grade 2 4,244 5,819 1,415 1,652 1,308 2,527 74,388 91,353 Grade 3 355 262 198 40 23 391 1,942 3,211 Grade 4 119 24 — — 55 89 947 1,234 Total residential real estate all other 49,193 30,966 9,994 9,814 5,139 15,834 123,756 244,696 Agriculture Grade 1 52,934 51,099 34,840 26,603 17,863 33,052 46,981 263,372 Grade 2 28,829 20,931 18,245 9,826 8,207 15,833 41,018 142,889 Grade 3 9,516 1,185 789 2,570 296 2,372 2,454 19,182 Grade 4 265 633 55 131 370 241 1 1,696 Total agriculture 91,544 73,848 53,929 39,130 26,736 51,498 90,454 427,139 Commercial non-real estate Grade 1 252,112 176,013 159,470 39,097 36,907 33,824 277,740 975,163 Grade 2 95,590 35,955 19,519 6,591 6,456 8,071 127,800 299,982 Grade 3 2,206 2,598 1,011 109 121 164 1,779 7,988 Grade 4 1,181 1,691 400 686 309 154 1,425 5,846 Grade 5 — — — — 473 — — 473 Total commercial non-real estate 351,089 216,257 180,400 46,483 44,266 42,213 408,744 1,289,452 Consumer non-real estate Grade 1 211,028 105,365 55,079 18,529 8,939 3,301 22,184 424,425 Grade 2 19,085 14,919 6,764 2,062 702 910 2,085 46,527 Grade 3 941 1,424 932 326 299 156 11 4,089 Grade 4 361 452 409 117 72 10 5 1,426 Total consumer non-real estate 231,415 122,160 63,184 21,034 10,012 4,377 24,285 476,467 Oil and gas Grade 1 147,902 29,658 72,127 13,898 1,553 15,015 180,321 460,474 Grade 2 66,080 4,851 1,019 402 279 177 50,201 123,009 Grade 3 1,758 132 225 — — — 323 2,438 Grade 4 313 83 166 — 10 161 — 733 Total oil and gas 216,053 34,724 73,537 14,300 1,842 15,353 230,845 586,654 Total loans held for investment $ 2,201,950 $ 1,564,202 $ 1,100,602 $ 560,696 $ 416,738 $ 634,924 $ 1,177,533 $ 7,656,645 74 Table of Contents Term Loans Amortized Cost Basis by Origination Year Revolving Loans 2022 2021 2020 2019 2018 Prior Amortized Cost Basis Total (Dollars in thousands) December 31, 2022 Commercial real estate owner occupied Grade 1 $ 173,596 $ 145,425 $ 106,285 $ 91,892 $ 44,086 $ 119,755 $ 53,026 $ 734,065 Grade 2 34,774 34,283 27,153 17,999 8,528 29,638 14,737 167,112 Grade 3 235 1,718 387 1,334 332 1,161 62 5,229 Grade 4 40 269 — 1,110 180 489 — 2,088 Total commercial real estate owner occupied 208,645 181,695 133,825 112,335 53,126 151,043 67,825 908,494 Commercial real estate non-owner occupied Grade 1 349,333 239,369 170,186 107,983 24,075 66,546 45,372 1,002,864 Grade 2 115,372 50,573 29,031 46,870 24,877 69,601 31,928 368,252 Grade 3 7,677 — 153 2,733 64 1,318 — 11,945 Grade 4 — — — — 42 47 — 89 Total commercial real estate non-owner occupied 472,382 289,942 199,370 157,586 49,058 137,512 77,300 1,383,150 Construction and development < 60 months Grade 1 164,865 92,595 39,819 5,558 3,146 4,993 40,474 351,450 Grade 2 36,090 20,273 1,413 14,248 1,648 774 47,973 122,419 Grade 3 967 — 141 — — 8 158 1,274 Grade 4 — — 33 47 — 13 — 93 Total construction and development < 60 months 201,922 112,868 41,406 19,853 4,794 5,788 88,605 475,236 Construction residential real estate < 60 months Grade 1 209,699 12,612 259 18 — 42 36,114 258,744 Grade 2 39,174 1,152 102 — — 400 2,091 42,919 Grade 3 1,212 — — — — — — 1,212 Grade 4 420 10 — — — — — 430 Total construction residential real estate < 60 months 250,505 13,774 361 18 — 442 38,205 303,305 Residential real estate first lien Grade 1 303,369 205,377 141,752 85,850 55,631 136,776 4,242 932,997 Grade 2 46,751 36,453 25,623 13,414 11,687 37,167 — 171,095 Grade 3 1,940 1,903 1,065 1,689 497 3,826 — 10,920 Grade 4 55 311 175 386 144 1,816 — 2,887 Total residential real estate first lien 352,115 244,044 168,615 101,339 67,959 179,585 4,242 1,117,899 Residential real estate all other Grade 1 31,741 11,012 10,696 5,458 3,607 11,198 41,653 115,365 Grade 2 5,683 1,887 1,744 1,589 1,237 2,574 62,395 77,109 Grade 3 381 186 71 50 201 786 1,828 3,503 Grade 4 — 18 28 32 39 53 51 221 Total residential real estate all other 37,805 13,103 12,539 7,129 5,084 14,611 105,927 196,198 Agriculture Grade 1 73,722 44,037 35,684 22,094 12,064 31,517 42,542 261,660 Grade 2 28,351 22,773 9,638 10,548 6,025 15,233 33,844 126,412 Grade 3 6,435 476 3,427 140 320 2,703 4,452 17,953 Grade 4 660 221 498 80 144 393 16 2,012 Total agriculture 109,168 67,507 49,247 32,862 18,553 49,846 80,854 408,037 Commercial non-real estate Grade 1 282,252 205,516 67,229 50,725 13,780 40,989 280,774 941,265 Grade 2 88,017 46,604 17,420 11,447 15,628 3,582 105,783 288,481 Grade 3 2,093 461 346 738 1,566 180 2,544 7,928 Grade 4 240 415 656 745 348 929 183 3,516 Grade 5 — — — 264 — — — 264 Total commercial non-real estate 372,602 252,996 85,651 63,919 31,322 45,680 389,284 1,241,454 Consumer non-real estate Grade 1 203,238 104,380 39,779 21,035 6,589 2,187 26,263 403,471 Grade 2 21,011 10,538 3,978 1,541 822 1,340 825 40,055 Grade 3 827 671 405 282 134 63 4 2,386 Grade 4 229 351 54 141 56 13 — 844 Total consumer non-real estate 225,305 115,940 44,216 22,999 7,601 3,603 27,092 446,756 Oil and gas Grade 1 24,303 125,209 16,482 682 1,678 880 199,995 369,229 Grade 2 7,610 10,668 766 23,040 3,167 327 45,240 90,818 Grade 3 2,117 47 5 — — — 498 2,667 Grade 4 — 320 — — — — — 320 Total oil and gas 34,030 136,244 17,253 23,722 4,845 1,207 245,733 463,034 Total loans held for investment $ 2,264,479 $ 1,428,113 $ 752,483 $ 541,762 $ 242,342 $ 589,317 $ 1,125,067 $ 6,943,563 75 Table of Contents 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 2023 2022 2021 2020 2019 Prior Amortized Cost Basis Total (Dollars in thousands) Year ended December 31, 2023 Commercial real estate owner occupied Current-period gross charge-offs $ 174 $ 196 $ 26 $ 203 $ 165 $ 158 $ — $ 922 Commercial real estate non-owner occupied Current-period gross charge-offs — — — — — 3 — 3 Construction and development < 60 months Current-period gross charge-offs — 3 — 2 — 1 — 6 Construction residential real estate < 60 months Current-period gross charge-offs — 94 — — — — — 94 Residential real estate first lien Current-period gross charge-offs — — 91 44 5 25 — 165 Residential real estate all other Current-period gross charge-offs — 4 19 — 1 36 — 60 Agriculture Current-period gross charge-offs — 154 9 317 14 2 — 496 Commercial non-real estate Current-period gross charge-offs 390 351 111 22 51 160 — 1,085 Consumer non-real estate Current-period gross charge-offs 312 632 261 45 41 40 19 1,350 Oil and gas Current-period gross charge-offs 57 2 — — — — — 59 Total current-period gross charge-offs $ 933 $ 1,436 $ 517 $ 633 $ 277 $ 425 $ 19 $ 4,240 Allowance for Credit Losses Methodology The Company determines its provision for credit losses and allowance for credit losses using the current expected credit loss methodology that is referred to as the current expected credit loss ("CECL") model. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company elected to utilize a methodology known as vintage loss analysis for BancFirst, Pegasus, and Worthington. Vintage loss analysis measures impairment based on the age of the accounts and the historical asset performance of assets with similar risk characteristics. Vintage loss analysis determines expected losses by allowing the Company to calculate the cumulative loss rates of a given loan pool and in so doing, determine the loan pool’s lifetime expected loss experience relative to the appropriate type of financial assets that share similar risk characteristics. Vintage loss analysis uses different “vintages” analyzed by year of origination through the weighted average maturity of each loan pool. The key quantitative inputs used in the Company’s estimate of the allowance for credit losses include 1) all available loan data tracked by year of origination, 2) total charge-offs for each specific loan pool recorded since year of origination, 3) recovery rate calculated by the average recovery over the previous seven years across all loan pools, and 4) a weighting factor biased to more recent loss experience. The quantitative expected credit loss is calculated by dividing each year’s net charge-offs by the original balance. The respective vintage’s original balance remains the denominator in each annual calculation, as it references the specific vintage’s initial balance. The loss experience of this original balance is tracked annually and summed over the life of the loan for each separate loan pool, leaving a cumulative life of credit loss rate based on historic averages weighted towards more recent loss experience. These key quantitative inputs change from period to period as new loans are originated, and charge-offs and recoveries are recognized. The recovery rate is revised on an annual basis, taking into consideration the most recent seven years. The weighting factor percentages remain static, however, the most recent year receives the highest weighting percentage. The BancFirst Senior Loan Committee (“the SLC”) sets BancFirst qualitative adjustments. In setting the qualitative adjustments, they consider several factors, including external economic information, peer bank comparisons and experience with the loan portfolio. The SLC also considers Moody’s Analytics dataset. From this dataset, BancFirst selects a range of 4 probability scenarios from two economic forecasts. To determine the appropriate correlation to our loss experience, BancFirst compares the economic indicators over 76 Table of Contents the past ten years of charge-off history to arrive at a correlation factor. BancFirst then applies the correlation factor to the change in the forecast of the aforementioned economic indicators over the next 18-24 months, which is driven by management’s judgment of a reasonable and supportable forecast period to arrive at a percentage range of qualitative loss adjustment attributable to economic forecasts. The SLC establishes a qualitative adjustment for each loan pool using these factors. For periods beyond which BancFirst is able to make or obtain reasonable and supportable forecasts of expected credit losses, BancFirst reverts to historical loss information. In some cases, management may determine a loan to be collateral dependent. A loan is considered collateral-dependent when the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company's assessment as of the reporting date. For collateral dependent loans, the standard allows institutions to use, as a practical expedient, the fair value of the collateral to measure expected credit losses on collateral-dependent financial assets. This amount is included in the allowance for credit losses. The increase in allowance for credit losses during 2023 was related to loan growth during the year. The increase in allowance for credit losses during 2022 was related to the purchase of loans without credit deterioration during the year along with loan growth. The following table details activity in the allowance for credit losses on loans for the period presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Allowance for Credit Losses Balance at beginning of period Charge- offs Recoveries Net charge-offs Provision for/(benefit from) credit losses on loans Balance at end of period (Dollars in thousands) Year ended December 31, 2023 Real estate: Commercial real estate owner occupied $ 6,416 $ ( 922 ) $ 68 $ ( 854 ) $ 1,921 $ 7,483 Commercial real estate non-owner occupied 30,190 ( 3 ) — ( 3 ) 2,893 33,080 Construction and development < 60 months 3,778 ( 6 ) 11 5 167 3,950 Construction residential real estate < 60 months 3,275 ( 94 ) — ( 94 ) 233 3,414 Residential real estate first lien 4,092 ( 165 ) 15 ( 150 ) 972 4,914 Residential real estate all other 1,418 ( 60 ) 5 ( 55 ) 283 1,646 Agriculture 6,217 ( 496 ) 127 ( 369 ) 289 6,137 Commercial non-real estate 25,106 ( 1,085 ) 446 ( 639 ) ( 1,722 ) 22,745 Consumer non-real estate 4,132 ( 1,350 ) 182 ( 1,168 ) 1,437 4,401 Oil and gas 8,104 ( 59 ) — ( 59 ) 985 9,030 Total $ 92,728 $ ( 4,240 ) $ 854 $ ( 3,386 ) $ 7,458 $ 96,800 77 Table of Contents Allowance for Credit Losses Balance at beginning of period Initial allowance on loans purchased with credit deterioration Charge- offs Recoveries Net charge-offs Provision for/(benefit from) credit losses on loans Balance at end of period (Dollars in thousands) Year ended December 31, 2022 Real estate: Commercial real estate owner occupied $ 7,550 $ — $ ( 20 ) $ 507 $ 487 $ ( 1,621 ) $ 6,416 Commercial real estate non-owner occupied 16,807 — — — — 13,383 30,190 Construction and development < 60 months 3,454 — ( 93 ) 12 ( 81 ) 405 3,778 Construction residential real estate < 60 months 1,051 — — — — 2,224 3,275 Residential real estate first lien 3,048 2 ( 106 ) 87 ( 19 ) 1,061 4,092 Residential real estate all other 1,567 — ( 38 ) 405 367 ( 516 ) 1,418 Agriculture 8,392 — ( 205 ) 13 ( 192 ) ( 1,983 ) 6,217 Commercial non-real estate 25,565 44 ( 1,551 ) 209 ( 1,342 ) 839 25,106 Consumer non-real estate 3,694 25 ( 768 ) 193 ( 575 ) 988 4,132 Oil and gas 12,808 — — — — ( 4,704 ) 8,104 Total $ 83,936 $ 71 $ ( 2,781 ) $ 1,426 $ ( 1,355 ) $ 10,076 $ 92,728 Purchased Credit Deteriorated Loans The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The Company did not purchase credit-deteriorated loans during the year ended December 31, 2023. The credit-deteriorated loans purchased during the year ended December 31, 2022 were as follows: Loans acquired with deteriorated credit quality (Dollars in thousands) For the year ended December 31, 2022 Purchase price of loans at acquisition $ 668 Allowance for credit losses at acquisition 71 Par value of acquired loans at acquisition $ 739 78 Table of Contents Collateral Dependent Loans A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. During the years ended December 31, 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: Collateral Type Real Estate Business Assets Energy Reserves Other Assets Total Specific Allocation As of December 31, 2023 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ — $ — $ — $ — $ — $ — Commercial real estate non-owner occupied 632 — — — 632 250 Construction and development < 60 months 800 — — — 800 225 Construction residential real estate < 60 months 638 — — — 638 134 Residential real estate first lien 189 — — — 189 62 Residential real estate all other 140 — — — 140 140 Agriculture 1,841 593 — 15 2,449 1,386 Commercial non-real estate — 6,090 — 241 6,331 1,867 Consumer non-real estate — — — 147 147 88 Oil and gas — — — — — — Total collateral-dependent loans held for investment $ 4,240 $ 6,683 $ — $ 403 $ 11,326 $ 4,152 Collateral Type Real Estate Business Assets Energy Reserves Other Assets Total Specific Allocation As of December 31, 2022 (Dollars in thousands) Real estate: Commercial real estate owner occupied $ 2,213 $ — $ — $ — $ 2,213 $ 870 Commercial real estate non-owner occupied 1,263 — — — 1,263 333 Construction and development < 60 months — — — — — — Construction residential real estate < 60 months 420 — — — 420 45 Residential real estate first lien 481 — — — 481 207 Residential real estate all other 9 — — — 9 9 Agriculture 3,447 701 — 3,592 7,740 3,114 Commercial non-real estate — 5,924 — 4 5,928 1,938 Consumer non-real estate — — — 117 117 81 Oil and gas — — — — — — Total collateral-dependent loans held for investment $ 7,833 $ 6,625 $ — $ 3,713 $ 18,171 $ 6,597 Non-Cash Transfers from Loans and Premises and Equipment Transfers from loans and premises and equipment to other real estate owned, repossessed assets, and other assets are non-cash transactions, and are not included in the consolidated statements of cash flow. Transfers from loans and premises and equipment to other real estate owned, repossessed assets, and other assets during the periods presented are summarized as follows: Year ended December 31, 2023 2022 2021 (Dollars in thousands) Other real estate owned $ 3,459 $ 2,563 $ 12,651 Repossessed assets 2,019 1,040 844 Other assets — 1,943 — Total $ 5,478 $ 5,546 $ 13,495 79 Table of Contents Related Party Loans The Company has made loans in the ordinary course of business to the executive officers and directors of the Company and to certain affiliates of these executive officers and directors. Management believes that all such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons and do not represent more than a normal risk of collectability or present other unfavorable features. A summary of these loans is as follows: Year Ended December 31, Balance Beginning of the Period Additions Collections/ Terminations Balance End of the Period (Dollars in thousands) 2023 $ 23,167 $ 106,819 $ ( 45,722 ) $ 84,264 2022 28,292 46,124 ( 51,249 ) 23,167 2021 22,057 31,574 ( 25,339 ) 28,292 (6) PREMISES AND EQUIPMENT, NET AND OTHER ASSETS The following is a summary of premises and equipment by classification: December 31, Estimated Useful Lives 2023 2022 (Dollars in thousands) Land $ 49,173 $ 47,856 Buildings 10 to 40 years 288,391 266,660 Furniture, fixtures and equipment 3 to 15 years 94,851 91,340 Construction in progress 4,213 16,613 Accumulated depreciation ( 158,034 ) ( 144,381 ) Premises and equipment, net $ 278,594 $ 278,088 Non-cash items in Premises and Equipment, Net The Company h ad $ 195,000 in construction in progress for retainage payable at December 31, 2023 and $ 1.1 million at December 31, 2022. Retainage payable is not remitted to the vendor until completion of the project and is therefore not included in the consolidated statements of cash flow. Construction in Progress Construction in progress included in the table above is primarily related to the renovation of BancFirst Tower, which began in 2018. When renovations on the building are completed, the asset is reclassified as buildings and depreciated over its applicable useful life. Other Assets Other assets includes the cash surrender value of key-man life insurance policies totaling $ 84.4 million at December 31, 2023 and $ 82.7 million at December 31, 2022. Equity securities are reported in other assets on the consolidated balance sheet. The Company invests in equity securities without readily determinable fair values. These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. The balance of equity securities was $ 13.1 million at December 31, 2023 and $ 15.5 million at December 31, 2022. 80 Table of Contents The balance of other assets included an equity interest of a former borrower in the oil and gas industry, which was received through bankruptcy proceedings, with a value of $ 21.4 million at December 31, 2022. This equity interest was sold during the second quarter of 2023 resulting in a zero balance at December 31, 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. Low Income Housing Tax Credit Investments The Company invests in affordable housing projects that qualify for the low-income housing tax credit (LIHTC), which is designed to promote private development of low-income housing. These investments generate a return primarily through realization of federal tax credits, and also through a tax deduction generated by operating losses of the investments. The investments are amortized through tax expense using the proportional amortization method as related tax credits are utilized. The Company is periodically required to provide additional contributions at the discretion of the project sponsors. Although in some cases the Company’s investment may exceed 50 % of the equity interest in an entity, the Company does not consolidate these structures as variable interest entities due to the project sponsor’s ability to manage the projects, which is indicative of power over them. Total LIHTC investments were $ 46.4 million and $ 24.7 million at December 31, 2023 and 2022, respectively and are included in other assets on the consolidated balance sheet. The Company recognized tax credits and other tax benefits of $ 7.3 mi llion, $ 6.4 million and $ 6.5 million in 2023, 2022 and 2021, respectively and amortization expense of $ 5.6 million, $ 5.1 million and $ 5.5 million in 2023, 2022 and 2021, respectively resulting from LIHTC investments. Additional contributions are committed during the investment periods through the ye ar 2035. Unfunded commitments to these investments as of December 31, 2023 tot aled $ 26.8 mil lion. New Market Tax Credit Investments The Company also invests in active low-income community businesses that qualify for New Market Tax Credits (NMTC). NMTC investments are made through Community Development Entities (CDEs) and such entities are qualified through the US Department of the Treasury. NMTCs are earned for a qualified entity investment made by a taxpayer in a CDE if substantially all of the investment is used by the CDE to make qualified investments. It is through its equity contributions into the CDE entities that the Company is able to receive the benefits of the NMTCs. The amount of the NMTC is equal to 39 % of the qualified investment taken over a seven year period. The investments are amortized through tax expense using the proportional amortization method as related tax credits are utilized. The Company does not consolidate these CDEs as variable interest entities due to the control the allocatee of the tax credits has over the entity. Total NMTC investments were $ 12.1 million and $ 11.3 million at December 31, 2023 and 2022, respectively, and are included in other assets on the consolidated balance sheet. The Company recognized tax cred its of $ 5.6 m illion, $ 4.7 million and $ 4.0 million in 2023, 2022 and 2021, respectively and amortization expe nse of $ 4.6 m illion, $ 3.9 million, and $ 3.3 million in 2023, 2022 and 2021 , respectively resulting from NMTC investments. NMTC investments are funded in full in the year they begin. There are no unfunded commitments. 81 Table of Contents (7) INTANGIBLE ASSETS AND GOODWILL The following is a summary of intangible assets: Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Dollars in thousands) As of December 31, 2023 Core deposit intangibles $ 33,550 $ ( 17,027 ) $ 16,523 Customer relationship intangibles 3,350 ( 3,169 ) 181 Total $ 36,900 $ ( 20,196 ) $ 16,704 As of December 31, 2022 Core deposit intangibles $ 33,298 $ ( 13,615 ) $ 19,683 Customer relationship intangibles 3,350 ( 3,050 ) 300 Total $ 36,648 $ ( 16,665 ) $ 19,983 Estimated amortization of intangible assets for the next five years, as of December 31, 2023, is as follows (dollars in thousands): Estimated Amortization 2024 $ 3,474 2025 3,249 2026 2,645 2027 2,641 2028 1,821 At December 31, 2023 , the weighted-average remaining life of all intangible assets was approximately 5.8 years, which consisted of customer relationship intangibles with a weighted-average life of 1.6 years and core deposit intangibles with a weighted-average life of 5.9 years. The following is a summary of goodwill by business segment: BancFirst Metropolitan Banks BancFirst Community Banks Pegasus Worthington Other Financial Services Executive, Operations & Support Consolidated (Dollars in thousands) Year Ended December 31, 2023 Balance at beginning of period $ 13,767 $ 61,212 $ 68,855 $ 32,133 $ 5,464 $ 624 $ 182,055 Acquisitions — 208 — — — — 208 Balance at end of period $ 13,767 $ 61,420 $ 68,855 $ 32,133 $ 5,464 $ 624 $ 182,263 Year Ended December 31, 2022 Balance at beginning of period $ 13,767 $ 61,212 $ 68,855 $ — $ 5,464 $ 624 $ 149,922 Acquisitions — — — 32,133 — — 32,133 Balance at end of period $ 13,767 $ 61,212 $ 68,855 $ 32,133 $ 5,464 $ 624 $ 182,055 The Company purchased a branch from RCB Bank on July 20, 2023, which added goodwill as shown in the table above. The Company acquired Worthington on February 8, 2022, which added core deposit intangibles and goodwill shown in the tables above. See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company’s recent developments, including mergers and acquisitions. 82 Table of Contents (8) DEPOSITS Year-end deposits were as follows: December 31, 2023 2022 (Dollars in thousands) Noninterest-bearing demand deposits $ 3,982,226 $ 4,944,730 Money market and interest-bearing checking deposits 4,699,865 4,173,268 Savings deposits 1,056,404 1,143,176 Time deposits 961,627 713,054 Total deposits $ 10,700,122 $ 10,974,228 The aggregate amount of overdrawn customer transaction deposits that have been reclassified as loan balances was $ 6.2 million at December 31, 2023 and $ 4.4 million at December 31, 2022. Time deposits include certificates of deposit and individual retirement accounts. At December 31, 2023, the scheduled maturities of all time deposits are as follows (Dollars in thousands): 2024 $ 774,008 2025 120,976 2026 27,347 2027 17,093 2028 22,199 Thereafter 4 Total $ 961,627 The following table is a summary of time deposits that meet or exceed the current Federal Deposit Insurance Corporation ("FDIC") insurance limit for the periods presented: December 31, 2023 2022 (Dollars in thousands) Time deposits of $250,000 or more $ 299,018 $ 224,517 (9) SHORT-TERM BORROWINGS The following is a summary of short-term borrowings: December 31, 2023 2022 (Dollars in thousands) Federal funds purchased $ 2,525 $ 300 Repurchase agreements 826 — Total short-term borrowings $ 3,351 $ 300 Weighted average interest rate 4.84 % 1.39 % End of period interest rate 4.06 % 4.30 % Federal funds purchased represent borrowings of overnight funds from other financial institutions. 83 Table of Contents The Company enters into sales of securities to certain of its customers with simultaneous agreements to repurchase. These agreements represent an overnight borrowing of funds. (10) LINES OF CREDIT BancFirst has a line of credit from the FHLB of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed rate loans. BancFirst's assets, including residential first mortgages of $ 1.1 billion, are pledged as collateral for the borrowings under the line of credit. As of December 31, 2023 , BancFirst had the ability to draw up to $ 793.3 million on the FHLB line of credit based on FHLB stock holdings of $ 658,300 with no advances outstanding. In addition, BancFirst has a $ 25.0 million line of credit with another financial institution that is an overnight federal funds facility. As of December 31, 2023, BancFirst had no advances outstanding under either line of credit. Worthington has $ 10.5 million in lines of credit with other financial institutions that serve as overnight federal funds facilities, a Federal Reserve discount window capacity of $ 26.3 million, a $ 75.2 million line of credit from the FHLB of Dallas, Texas to use for liquidity or to match-fund certain long-term fixed rate loans, and a brokered certificate of deposit capacity of $ 72.1 million. Worthington had no advances outstanding as of December 31, 2023 under any line of credit. (11) SUBORDINATED DEBT In January 2004, the Company established BFC Capital Trust II (“BFC II”), a trust formed under the Delaware Business Trust Act. The Company owns all of the common securities of BFC II. In February 2004, BFC II issued $ 25 million of aggregate liquidation amount of 7.20 % Cumulative Trust Preferred Securities (the “Cumulative Trust Preferred Securities”) to other investors. In March 2004, BFC II issued an additional $ 1 million in Cumulative Trust Preferred Securities through the execution of an over-allotment option. The proceeds from the sale of the Cumulative Trust Preferred Securities and the common securities of BFC II were invested in $ 26.8 million of 7.20 % Junior Subordinated Debentures of the Company. Interest payments on the $ 26.8 million of 7.20 % Junior Subordinated Debentures are payable January 15, April 15, July 15 and October 15 of each year. Such interest payments may be deferred for up to twenty consecutive quarters. 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. 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. The Cumulative Trust Preferred Securities have been callable at par, in whole or in part, since March 31, 2009. On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $ 60 million aggregate principal amount of 3.50 % Fixed-to-Floating Rate Subordinated Notes due 2036 (the “Subordinated Notes”) to various institutional accredited investors. The sale of the Subordinated Notes was pursuant to a Subordinated Note Purchase Agreement entered into with each of the investors. The Subordinated Notes have been structured to qualify as Tier 2 capital under bank regulatory guidelines. The net proceeds to the Company from the sale of the Subordinated Notes were $ 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 Subordinated Notes will initially bear interest at a fixed rate of 3.50 % per annum, from and including June 17, 2021 to but excluding June 30, 2031, payable semi-annually in arrears on June 30 and December 31 of each year , commencing December 31, 2021 . Then, from and including June 30, 2031, to but excluding the maturity date, the Subordinated Notes will bear interest at a floating rate equal to the benchmark (initially, three-month term SOFR), reset quarterly, plus a spread of 229 basis points, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year . The Subordinated Notes mature on June 30, 2036 . The Company may, at its option, beginning with the interest payment date of June 30, 2031, and on any scheduled interest payment date thereafter, redeem the Subordinated Notes, in whole or in part. In addition, the Company may redeem all, but not less than all, of the Subordinated Notes at any time upon the occurrence of a “Tier 2 Capital Event,” a “Tax Event” or an “Investment Company Event” (each as defined in the Subordinated Notes). Any such redemption is subject to obtaining the prior approval of the Board of Governors of the Federal Reserve System (or its designee). The redemption price with respect to any such redemption will be equal to 100 % of the principal amount of the Subordinated Note, or portion thereof, to be redeemed, plus accrued but unpaid interest, if any, thereon to, but excluding, the redemption date. 84 Table of Contents (12) INCOME TAXES The components of the Company’s income tax expense (benefit) are as follows: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Current taxes: Federal $ 53,247 $ 39,197 $ 28,359 State 7,023 4,813 5,365 Deferred taxes ( 2,787 ) 322 7,044 Total income taxes $ 57,483 $ 44,332 $ 40,768 Income tax (benefit) expense applicable to securities transactions approximated $( 384,000 ), $ 453,000 and $ 220,000 for the years ended December 31, 2023, 2022 and 2021, respectively. A reconciliation of tax expense at the federal statutory tax rate applied to income before taxes is presented in the following table. The federal statutory tax rate was 21 % in 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Tax expense at the federal statutory tax rate $ 56,689 $ 49,861 $ 43,764 Increase (decrease) in tax expense from: Tax-exempt income, net ( 343 ) ( 337 ) ( 436 ) Modified endowment life contracts ( 497 ) ( 487 ) ( 501 ) Share based compensation excess tax benefit ( 786 ) ( 2,905 ) ( 1,643 ) Tax deductible dividends paid on ESOP ( 505 ) ( 481 ) ( 490 ) State tax expense, net of federal tax benefit 4,945 3,788 4,779 Bargain purchase gain — — ( 1,007 ) Utilization of tax credits: New markets tax credits, net of amortization ( 777 ) ( 3,745 ) ( 3,192 ) Low-income housing tax credits, net of amortization ( 1,106 ) ( 1,024 ) ( 1,533 ) Other tax credits, net of amortization ( 192 ) ( 91 ) ( 379 ) Other, net 55 ( 247 ) 1,406 Total tax expense $ 57,483 $ 44,332 $ 40,768 85 Table of Contents The net deferred tax asset consisted of the following and is reported in other assets: December 31, 2023 2022 (Dollars in thousands) Unrealized net losses on securities $ 15,473 $ 22,107 Provision for credit losses 22,782 20,988 Write-downs of other real estate owned 2,522 938 Deferred compensation 2,116 2,142 Stock-based compensation 2,199 1,643 Investments in partnership interests 7,260 6,056 Other 911 1,123 Gross deferred tax assets 53,263 54,997 Intangibles ( 5,639 ) ( 6,346 ) Basis difference related to tax credits ( 5,462 ) ( 4,118 ) Depreciation ( 21,833 ) ( 20,360 ) Prepaid expense deducted ( 1,243 ) ( 1,139 ) Other ( 181 ) ( 283 ) Gross deferred tax liabilities ( 34,358 ) ( 32,246 ) Net deferred tax asset $ 18,905 $ 22,751 The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, in income tax expense. During the years ended December 31, 2023, 2022 and 2021 , the Company did no t recognize or accrue any interest and penalties related to unrecognized tax benefits. Federal and various state income tax statutes dictate that tax returns filed in any of the previous three reporting periods remain open to examination, which includes tax return years 2020 to 2022 . The Company has no open examinations with either the Internal Revenue Service or any state agency. Management performs an analysis of the Company’s tax position annually and believes it is more likely than not that all of its tax positions will be utilized in future years. (13) STOCK-BASED COMPENSATION 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 December 31, 2023 there were 467,925 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. Wgtd. Avg. Restricted Grant Date Stock Units Fair Value Year Ended December 31, 2023 Nonvested at December 31, 2022 — Granted 32,075 $ 87.23 Nonvested at December 31, 2023 32,075 The Company has had the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “Deferred Stock Compensation Plan”) since May 1999. As of December 31, 2023 , there are 18,186 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 86 Table of Contents 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 30,982 shares of common stock distributed from the Deferred Stock Compensation Plan during the years ended December 31, 2023 and 2022, respectively. A summary of the accumulated stock units is as follows: December 31, 2023 2022 Accumulated stock units 119,575 129,609 Average price $ 40.03 $ 34.91 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 . The Company had the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “Non-Employee Directors’ 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. The following table is a summary of the activity under both the Employee Plan and the Non-Employee Directors’ Plan: Wgtd. Avg. Wgtd. Avg. Remaining Aggregate Exercise Contractual Intrinsic Options Price Term Value (Dollars in thousands, except option data) Year Ended December 31, 2023 Outstanding at December 31, 2022 1,310,290 $ 52.51 Options exercised ( 60,024 ) 34.83 Options canceled, forfeited, or expired ( 8,875 ) 86.42 Outstanding at December 31, 2023 1,241,391 53.12 9.70 Yrs $ 54,882 Exercisable at December 31, 2023 524,016 34.53 6.39 Yrs $ 32,908 Year Ended December 31, 2022 Outstanding at December 31, 2021 1,303,250 $ 40.90 Options granted 278,500 87.13 Options exercised ( 241,460 ) 28.06 Options canceled, forfeited, or expired ( 30,000 ) 66.31 Outstanding at December 31, 2022 1,310,290 52.51 8.73 Yrs $ 46,741 Exercisable at December 31, 2022 489,540 30.82 6.80 Yrs $ 28,082 The following table has additional information regarding options exercised under both the Employee Plan and the Non-Employee Directors’ Plan: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Total intrinsic value of options exercised $ 3,055 $ 14,837 $ 9,264 Cash received from options exercised 2,090 6,776 5,015 Tax benefit realized from options exercised 734 3,567 2,360 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value of each option is expensed over its vesting period. The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S. 87 Table of Contents 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 year ended December 31, 2023. T he following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the periods presented: Year Ended December 31, 2022 2021 Weighted average grant-date fair value per share of options granted $ 31.90 $ 21.16 Risk-free interest rate 1.75 to 4.17 % 1.30 to 1.74 % Dividend yield 2.00 % 2.00 % Stock price volatility 34.61 to 35.60 % 35.55 to 36.39 % Expected term 10 Yrs 10 Yrs 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. During the years ended December 31, 2023 and 2022, the Company had no cash settlements. During the year ended December 31, 2021, the Company had cash settlements for 121,330 shares for a total net cash settlement of options of $ 5.5 million that did not increase the outstanding shares of the Company. Stock-based compensation expense is charged to salaries and benefits expense on the Consolidated Statements of Comprehensive Income. The components of s tock-based compensation expense for all share-based compensation plans and related tax benefits are as follows: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Stock-based compensation expense $ 2,999 $ 1,941 $ 2,133 Tax benefit 721 467 513 Stock-based compensation expense, net of tax $ 2,278 $ 1,474 $ 1,620 The Company will continue to amortize the unearned stock-based compensation expense over the remaining vesting period of approximately five years for unvested stock options and six years for unvested RSU's. The following table shows the unearned stock-based compensation expense for unvested stock options and unvested RSU's: December 31, 2023 (Dollars in thousands) Unearned stock-based compensation expense for unvested stock options $ 10,316 Unearned stock-based compensation expense for unvested RSU's 2,672 (14) RETIREMENT PLANS The Company has two separate retirement plans, the Thrift Plan (“401(k)”) and the Employee Stock Ownership Plan (“ESOP”). These two plans cover all eligible employees, as defined in the plans, of the Company and its subsidiaries. The 401(k) allows employees to defer up to the maximum legal limit of their compensation, of which the Company may match up to 3 % of their compensation. In addition, the Company may make discretionary contributions based on employee contributions or eligible compensation to the ESOP, as determined by the Company’s Board of Directors. The ESOP sponsor purchases shares from the open market. These shares are 88 Table of Contents included in the calculation of the basic earnings per share. Dividends issued on these shares are reinvested into the ESOP. The ESOP is not leveraged. The aggregate amounts of contributions by the Company to the 401(k) and ESOP are shown in the following table: December 31, 2023 2022 2021 (Dollars in thousands) 401(k) contributions $ 3,410 $ 3,011 $ 2,856 ESOP contributions 5,747 4,807 4,317 Total contributions $ 9,157 $ 7,818 $ 7,173 (15) STOCKHOLDERS’ EQUITY As of December 31, 2023, 2022 and 2021 the Company’s authorized and outstanding preferred and common stock was as follows: No. of Shares Authorized at No. of Shares Outstanding at December 31, Par Value Class of Stock December 31, 2023 2023 2022 2021 Per Share Dividends Voting Rights Senior Preferred 10,000,000 — — — $ 1.00 As declared Voting 10% Cumulative Preferred 900,000 — — — 5.00 As declared Non-voting Common 40,000,000 32,933,018 32,875,560 32,603,118 1.00 As declared Voting The following is a description of the capital stock of the Company: (a) Senior Preferred Stock: No shares issued or outstanding. Shares may be issued with such voting, dividend, redemption, sinking fund, conversion, exchange, liquidation and other rights as shall be determined by the Company’s Board of Directors, without approval of the stockholders. The Senior Preferred Stock would have a preference over common stock as to payment of dividends, as to the right to distribution of assets upon redemption of such shares or upon liquidation of the Company. (b) 10% Cumulative Preferred Stock: Redeemable at the Company’s option at $ 5.00 per share plus accumulated dividends; non-voting; cumulative dividends at the rate of 10 % payable semi-annually on January 15 and July 15; no shares issued or outstanding. (c) Common stock: At December 31, 2023, 2022 and 2021 the shares issued equaled shares outstanding. The Company has adopted a Stock Repurchase Program (the “SRP”). The SRP may be used as a means to increase earnings per share and return on equity. In addition, the SRP may be used to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options, and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company’s Executive Committee. The following table is a summary of the shares purchased under the program and the shares remaining to be repurchased in the program: Year Ended December 31, 2023 2022 2021 Number of shares repurchased 20,702 — 212,296 Average price of shares repurchased $ 87.88 $ — $ 54.94 Shares remaining to be repurchased 479,784 500,486 500,486 The Company’s ability to pay dividends is dependent upon dividend payments received from BancFirst. Banking regulations limit bank dividends based upon net earnings retained and minimum capital requirements. Dividends in excess of these requirements require regulatory approval. At January 1, 2024, approximately $ 145.7 million of the equity of BancFirst was available for dividend payments to the Company. During any deferral period or any event of default on the Junior Subordinated Debentures, the Company may not declare or pay any dividends on any of its capital stock. 89 Table of Contents BancFirst Corporation, BancFirst, Pegasus and Worthington are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation ("FDIC"). These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of BancFirst Corporation’s, BancFirst’s, Pegasus’s and Worthington's assets, liabilities, and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s consolidated financial statements. The Company believes that as of December 31, 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: 90 Table of Contents Actual Required For Capital Adequacy Purposes With Capital Conservation Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2023: Total Capital (to Risk Weighted Assets)- BancFirst Corporation $ 1,467,062 16.90 % $ 694,520 8.00 % $ 911,558 10.50 % N/A N/A BancFirst 1,166,750 15.68 % 595,191 8.00 % 781,189 10.50 % $ 743,989 10.00 % Pegasus 139,472 16.98 % 65,706 8.00 % 86,239 10.50 % 82,132 10.00 % Worthington 51,608 12.30 % 33,571 8.00 % 44,061 10.50 % 41,963 10.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets)- BancFirst Corporation $ 1,284,966 14.80 % $ 390,668 4.50 % $ 607,705 7.00 % N/A N/A BancFirst 1,061,943 14.27 % 334,795 4.50 % 520,792 7.00 % $ 483,593 6.50 % Pegasus 130,792 15.92 % 36,959 4.50 % 57,492 7.00 % 53,386 6.50 % Worthington 47,690 11.36 % 18,883 4.50 % 29,374 7.00 % 27,276 6.50 % Tier 1 Capital (to Risk Weighted Assets)- BancFirst Corporation $ 1,310,966 15.10 % $ 520,890 6.00 % $ 737,928 8.50 % N/A N/A BancFirst 1,081,943 14.54 % 446,393 6.00 % 632,391 8.50 % $ 595,191 8.00 % Pegasus 130,792 15.92 % 49,279 6.00 % 69,812 8.50 % 65,706 8.00 % Worthington 47,690 11.36 % 25,178 6.00 % 35,669 8.50 % 33,571 8.00 % Tier 1 Capital (to Total Assets)- BancFirst Corporation $ 1,310,966 10.76 % $ 487,279 4.00 % N/A N/A N/A N/A BancFirst 1,081,943 10.43 % 414,882 4.00 % N/A N/A $ 518,603 5.00 % Pegasus 130,792 10.56 % 49,529 4.00 % N/A N/A 61,911 5.00 % Worthington 47,690 8.62 % 22,140 4.00 % N/A N/A 27,675 5.00 % As of December 31, 2022: Total Capital (to Risk Weighted Assets)- BancFirst Corporation $ 1,298,329 16.61 % $ 625,387 8.00 % $ 820,821 10.50 % N/A N/A BancFirst 1,092,098 16.68 % 523,932 8.00 % 687,661 10.50 % $ 654,916 10.00 % Pegasus 117,445 12.91 % 77,802 8.00 % 95,553 10.50 % 91,003 10.00 % Worthington 47,554 14.09 % 27,006 8.00 % 35,446 10.50 % 33,758 10.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets)- BancFirst Corporation $ 1,120,361 14.33 % $ 351,780 4.50 % $ 547,214 7.00 % N/A N/A BancFirst 991,050 15.13 % 294,712 4.50 % 458,441 7.00 % $ 425,695 6.50 % Pegasus 108,437 11.92 % 40,951 4.50 % 63,702 7.00 % 59,152 6.50 % Worthington 44,207 13.10 % 15,191 4.50 % 23,631 7.00 % 21,943 6.50 % Tier 1 Capital (to Risk Weighted Assets)- BancFirst Corporation $ 1,146,361 14.66 % $ 469,041 6.00 % $ 664,474 8.50 % N/A N/A BancFirst 1,011,050 15.44 % 392,949 6.00 % 556,678 8.50 % $ 523,932 8.00 % Pegasus 108,437 11.92 % 54,602 6.00 % 77,352 8.50 % 72,802 8.00 % Worthington 44,207 13.10 % 20,255 6.00 % 28,694 8.50 % 27,006 8.00 % Tier 1 Capital (to Total Assets)- BancFirst Corporation $ 1,146,361 9.30 % $ 493,191 4.00 % N/A N/A N/A N/A BancFirst 1,011,050 9.72 % 416,004 4.00 % N/A N/A $ 520,005 5.00 % Pegasus 108,437 8.00 % 54,238 4.00 % N/A N/A 67,798 5.00 % Worthington 44,207 8.53 % 20,738 4.00 % N/A N/A 25,922 5.00 % As of December 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” under the prompt corrective action provisions. The Common Equity Tier 1 Capital of BancFirst Corporation, BancFirst, Pegasus and Worthington includes common stock and related paid-in capital and retained earnings. In connection with the adoption of the Basel III Capital Rules, the election was made 91 Table of Contents to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1 Capital. Common Equity Tier 1 Capital for BancFirst Corporation, BancFirst, Pegasus and Worthington is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. The Company’s trust preferred securities have continued to be included in Tier 1 capital, as the Company’s total assets do not exceed $ 15 billion. 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. (16) NET INCOME PER COMMON SHARE Basic and diluted net income per common share are calculated as follows: Year ended December 31, 2023 2022 2021 (Dollars in thousands, except per share data) (Numerator) Income available to common stockholders $ 212,465 $ 193,100 $ 167,630 (Denominator) Weighted-average shares outstanding for basic earnings per common share 32,919,348 32,778,355 32,716,099 Dilutive effect of stock compensation 575,139 661,141 598,047 Weighted-average shares outstanding for diluted earnings per common share 33,494,487 33,439,496 33,314,146 Basic earnings per share $ 6.45 $ 5.89 $ 5.12 Diluted earnings per share $ 6.34 $ 5.77 $ 5.03 The following table shows the number of options and RSU's that were excluded from the computation of diluted net income per common share for each period because they were anti-dilutive for the period: Shares December 31, 2023 280,150 December 31, 2022 155,316 December 31, 2021 189,780 92 Table of Contents (17) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS BALANCE SHEETS December 31, 2023 2022 (Dollars in thousands) ASSETS Cash $ 91,454 $ 17,806 Investments in subsidiaries 1,315,124 1,206,246 Goodwill 101,611 101,611 Core deposit premium 10,428 12,009 Dividends receivable 17,091 15,682 Other assets 2,262 1,731 Total assets $ 1,537,970 $ 1,355,085 LIABILITIES AND STOCKHOLDERS’ EQUITY Other liabilities $ 17,978 $ 18,205 Subordinated debt 86,101 86,044 Stockholders’ equity 1,433,891 1,250,836 Total liabilities and stockholders’ equity $ 1,537,970 $ 1,355,085 STATEMENTS OF INCOME Year Ended December 31, 2023 2022 2021 (Dollars in thousands) OPERATING INCOME Dividends from subsidiaries $ 137,275 $ 93,139 $ 54,480 Interest on interest-bearing deposits 1,178 94 41 Other 726 1,338 1,071 Total operating income 139,179 94,571 55,592 OPERATING EXPENSE Interest 4,122 4,122 3,130 Other 3,206 7,190 3,340 Total operating expense 7,328 11,312 6,470 Income before taxes and equity in undistributed earnings of subsidiaries 131,851 83,259 49,122 Allocated income tax benefit 2,249 5,857 4,191 Income before equity in undistributed earnings of subsidiaries 134,100 89,116 53,313 Equity in undistributed earnings of subsidiaries 81,275 105,817 116,365 Amortization of stock-based compensation arrangements of subsidiaries ( 2,910 ) ( 1,833 ) ( 2,048 ) Net income $ 212,465 $ 193,100 $ 167,630 93 Table of Contents STATEMENTS OF CASH FLOW Year Ended December 31, 2023 2022 2021 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 212,465 $ 193,100 $ 167,630 Adjustments to reconcile to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries ( 81,275 ) ( 105,817 ) ( 116,365 ) Amortization of stock-based compensation arrangements of subsidiaries 2,910 1,833 2,048 Other, net ( 655 ) 3,815 5,056 Net cash provided by operating activities 133,445 92,931 58,369 INVESTING ACTIVITIES Payments for investments in subsidiaries ( 6,100 ) ( 94,967 ) ( 9,000 ) Other, net ( 778 ) ( 1,352 ) 4,429 Net cash used in investing activities ( 6,878 ) ( 96,319 ) ( 4,571 ) FINANCING ACTIVITIES Issuance of common stock 2,543 7,649 2,260 Common stock acquired ( 1,820 ) — ( 11,663 ) Net cash settlement of options — — ( 5,479 ) Cash dividends paid ( 53,642 ) ( 48,462 ) ( 45,140 ) Proceeds from the issuance of subordinated notes, net of debt issuance costs — — 59,150 Net cash used in financing activities ( 52,919 ) ( 40,813 ) ( 872 ) Net increase/(decrease) in cash and due from banks 73,648 ( 44,201 ) 52,926 Cash and due from banks at the beginning of the period 17,806 62,007 9,081 Cash and due from banks at the end of the period $ 91,454 $ 17,806 $ 62,007 SUPPLEMENTAL DISCLOSURE Cash paid during the period for interest $ 4,122 $ 4,122 $ 3,130 Cash received during the period for income taxes, net $ 1,746 $ 6,667 $ 4,411 (18) RELATED PARTY TRANSACTIONS The Company had, and expects to have in the future, transactions with the Company’s directors and executive officers, companies with which these individuals are associated and certain related individuals. Such transactions were made in the ordinary course of business and included loans, leases and professional services. Refer to Note (5) for information regarding loan transactions with related parties. (19) COMMITMENTS AND CONTINGENT LIABILITIES The Company is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit, which involve elements of credit and interest rate risk to varying degrees. The Company’s exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the instrument’s contractual amount. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the consolidated balance sheet. The amounts of financial instruments with off-balance-sheet risk are as follows: December 31, 2023 2022 (Dollars in thousands) Loan commitments $ 2,785,673 $ 2,627,552 Stand-by letters of credit 84,947 72,237 94 Table of Contents Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Stand-by letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the instruments are expected to expire without being drawn upon, the total amounts do not necessarily represent commitments that will be funded in the future. The Company is a defendant in legal actions arising from normal business activities. Management believes that all legal actions against the Company are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Company’s consolidated financial statements. (20) LEASES Lessee The Company has operating leases, which primarily consist of office space in buildings, ATM locations, storage facilities, parking lots, equipment and land on which it owns certain buildings. Rental expense on all operating leases, including those rented on a monthly or temporary basis were as follows (Dollars in thousands): Year Ending December 31: 2023 $ 2,066 2022 1,865 2021 1,560 A right of use lease asset included in accrued interest receivable and other assets on the consolidated balance sheet totaled $ 5.9 million at December 31, 2023 compared to $ 5.6 million at December 31, 2022 , and a related lease liability included in accrued interest payable and other liabilities on the consolidated balance sheet totaled $ 5.8 million at December 31, 2023 compared to $ 5.4 million at December 31, 2022. As of December 31, 2023 , our operating leases have a weighted-average remaining lease term of 3.2 years and a weighted-average discount rate of 2.6 percent. Maturity of Operating Lease Liabilities The following table presents minimum future commitments by year for the Company’s operating leases. Such commitments are reflected as undiscounted values and are reconciled to the discounted present value recognized on the consolidated balance sheet. December 31, 2023 (Dollars in thousands) 2024 $ 2,022 2025 1,653 2026 1,085 2027 731 2028 409 Thereafter 312 Total lease payments 6,212 Less imputed interest ( 375 ) Operating lease liability $ 5,837 Lessor The Company is a lessor of operating leases, which primarily consist of office space in buildings and parking lots. These assets are classified on the consolidated balance sheet as premises and equipment. The Company had operating lease revenue of $ 5.9 million, 95 Table of Contents $ 5.4 million and $ 4.9 million for the years ended December 31, 2023, 2022 and 2021 , respectively. Lease revenue is included in occupancy, net on the consolidated statements of comprehensive income. Future Minimum Lease Payments to be received The Company does not have operating leases that extend beyond 2031. The following table presents the scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases: December 31, 2023 (Dollars in thousands) 2024 $ 3,555 2025 2,796 2026 2,535 2027 2,181 2028 1,951 2029-2031 4,269 Total future minimum lease payments $ 17,287 (21) FAIR VALUE MEASUREMENTS Accounting standards define fair value as the price that would be received to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date. FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: • Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset and liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes certain collaterally dependent loans, impaired loans, repossessed assets, other real estate owned, goodwill and other intangible assets. Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis A description of the valuation methodologies and key inputs used to measure financial assets and financial liabilities at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to the following categories of the Company’s financial assets and financial liabilities. Debt Securities Available for Sale Debt securities classified as available for sale are reported at fair value. U.S. Treasuries are valued using Level 1 inputs. Other debt securities available for sale including U.S. federal agencies, registered mortgage backed debt securities and state and political subdivisions are valued using prices from an independent pricing service utilizing Level 2 data. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The Company also invests in private label mortgage backed debt securities for which observable information is not readily available. These debt securities are reported at fair value utilizing Level 3 inputs. For these debt securities, management determines the fair value based on replacement cost, the income approach or information provided by outside consultants or lead investors. Discount rates are primarily based on reference to interest rate spreads on comparable debt securities of similar duration and credit rating as determined by the 96 Table of Contents nationally recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar debt securities. The Company reviews the prices for Level 1 and Level 2 debt securities supplied by the independent pricing service for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio debt securities that are esoteric or that have complicated structures. The Company’s portfolio primarily consists of traditional investments including U.S. Treasury obligations, federal agency mortgage pass-through debt securities, general obligation municipal bonds and a small amount of municipal revenue bonds. Pricing for such instruments is fairly generic and is easily obtained. For in-state bond issues that have relatively low issue sizes and liquidity, the Company utilizes the same parameters for pricing mentioned in the preceding paragraph adjusted for the specific issue. Periodically, the Company will validate prices supplied by the independent pricing service by comparison to prices obtained from third party sources. Derivatives Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains dealer and market quotations to value its oil and gas swaps and options. The Company utilizes dealer quotes and observable market data inputs to substantiate internal valuation models. The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value (Dollars in thousands) December 31, 2023 Debt securities available for sale: U.S. Treasury $ 1,498,045 $ — $ — $ 1,498,045 U.S. federal agencies — 11,770 — 11,770 Mortgage-backed securities — 14,795 — 14,795 States and political subdivisions — 9,830 180 10,010 Asset backed securities — 12,512 — 12,512 Other debt securities — 6,773 — 6,773 Derivative assets — 41,099 — 41,099 Derivative liabilities — 39,176 — 39,176 December 31, 2022 Debt securities available for sale: U.S. Treasury $ 1,477,864 $ — $ — $ 1,477,864 U.S. federal agencies — 15,222 — 15,222 Mortgage-backed securities — 16,586 — 16,586 States and political subdivisions — 7,680 454 8,134 Asset backed securities — 13,010 — 13,010 Other debt securities — 7,405 — 7,405 Derivative assets — 20,745 — 20,745 Derivative liabilities — 19,683 — 19,683 97 Table of Contents The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows: Twelve Months Ended December 31, 2023 2022 (Dollars in thousands) Balance at the beginning of the year $ 454 $ 320 Transfers to level 2 ( 244 ) — Purchases — 255 Settlements ( 30 ) ( 110 ) Total unrealized losses — ( 11 ) Balance at the end of the period $ 180 $ 454 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 year ended December 31, 2023, the Company transferred debt securities from Level 3 to Level 2 due to a review of the pricing models that determined some state and political subdivision securities to be Level 2. During the year ended December 31, 2022, the Company did not transfer any debt securities. Financial Assets and Financial Liabilities Measured at Fair Value on a Nonrecurring Basis Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and financial liabilities are reported at fair value utilizing Level 3 inputs. The Company invests in equity securities without readily determinable fair values and utilizes Level 3 inputs. These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. 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. In no case does the fair value of a collateral dependent loan exceed the fair value of the underlying collateral. The collateral dependent loans are adjusted to fair value through a specific allocation of the allowance for credit losses or a direct charge-down of the loan. Repossessed assets, upon initial recognition, are measured and adjusted to fair value through a charge-off to the allowance for possible credit losses based upon the fair value of the repossessed asset. Other real estate owned is revalued at fair value subsequent to initial recognition, with any losses recognized in net expense from other real estate owned. 98 Table of Contents The following table summarizes assets measured at fair value on a nonrecurring basis during the period presented. These nonrecurring fair values do not represent all assets, only those assets that have been adjusted during the reporting period: Total Fair Value Level 3 (Dollars in thousands) As of and for the Year-to-date Period Ended December 31, 2023 Equity securities $ 13,144 Collateral dependent loans 1,894 Repossessed assets 474 Other real estate owned 31,773 As of and for the Year-to-date Period Ended December 31, 2022 Equity securities $ 15,512 Collateral dependent loans 1,618 Repossessed assets 180 Other real estate owned 34,999 Estimated Fair Value of Financial Instruments The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instruments that are not recorded at fair value. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents Include: Cash and Due from Banks and Interest-Bearing Deposits with Banks The carrying amount of these short-term instruments is a reasonable estimate of fair value. Federal Funds Sold The carrying amount of these short-term instruments is a reasonable estimate of fair value. Debt Securities Held for Investment For debt securities held for investment, which are generally traded in secondary markets, fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities making adjustments for credit or liquidity if applicable. Loans Held for Sale The Company originates mortgage loans to be sold. At the time of origination, the acquiring bank has already been determined and the terms of the loan, including interest rate, have already been set by the acquiring bank allowing the Company to originate the loan at fair value. Mortgage loans are generally sold within 30 days of origination. Loans held for sale are valued using Level 2 inputs. Gains or losses recognized upon the sale of the loans are determined on a specific identification basis. Loans Held for Investment To determine the fair value of loans held for investment, the Company uses an exit price calculation, which takes into account factors such as liquidity, credit and the nonperformance risk of loans. For certain homogeneous categories of loans, such as some residential mortgages, fair values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. 99 Table of Contents Deposits The fair values of transaction and savings accounts are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using the rates currently offered for deposits of similar remaining maturities. Short-term Borrowings The amounts payable on these short-term instruments are reasonable estimates of fair value. Subordinated Debt The fair values of subordinated debt are estimated using the rates that would be charged for subordinated debt of similar remaining maturities. Loan Commitments and Letters of Credit The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the terms of the agreements. The fair values of letters of credit are based on fees currently charged for similar agreements. T he 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: December 31, 2023 2022 Carrying Amount Fair Value Carrying Amount Fair Value (Dollars in thousands) FINANCIAL ASSETS Level 2 inputs: Cash and cash equivalents $ 2,397,463 $ 2,397,463 $ 3,168,910 $ 3,168,910 Federal funds sold 1,316 1,316 2,850 2,850 Debt securities held for investment 5 5 13 13 Loans held for sale 3,489 3,489 6,232 6,232 Level 3 inputs: Debt securities held for investment 1,185 1,185 2,370 2,370 Loans held for investment, net of allowance for credit losses 7,559,845 7,356,768 6,850,835 6,563,755 FINANCIAL LIABILITIES Level 2 inputs: Deposits 10,700,122 10,413,348 10,974,228 10,614,840 Short-term borrowings 3,351 3,351 300 300 Subordinated debt 86,101 79,271 86,044 82,385 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Loan commitments 4,875 4,598 Letters of credit 637 542 Non-financial Assets and Non-financial Liabilities Measured at Fair Value The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include intangible assets and other non-financial long-lived assets measured at fair value and adjusted for impairment. These items are evaluated at least annually for impairment, of which there was none as of December 31, 2023 or 2022. The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were not considered to be significant to the Company at December 31, 2023 or 2022. 100 Table of Contents (22) DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into oil and gas swaps and options contracts to accommodate the business needs of its customers. Upon the origination of an oil or gas swap or option contract with a customer, to mitigate the exposure to fluctuations in oil and gas prices, the Company simultaneously enters into an offsetting contract with a counterparty. These derivatives are not designated as hedged instruments and are recorded on the Company's consolidated balance sheet at fair value and are included in other assets. The Company's derivative financial instruments require a daily margin to be posted, which fluctuates with oil and gas prices. At December 31, 2023, the Company had a margin liability in other liabilities in the amount of $ 15.5 million. At December 31, 2022, the Company had a margin asset included in other assets in the amount of $ 6.6 million. The Company 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: December 31, 2023 2022 Oil and Natural Gas Swaps and Options Notional Units Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value (Notional amounts and dollars in thousands) Oil Derivative assets Barrels 3,896 $ 20,567 2,698 $ 8,868 Derivative liabilities Barrels ( 3,896 ) ( 19,512 ) ( 2,698 ) ( 8,259 ) Gas/Natural Gas Liquids Derivative assets MMBTUs/Gallons 46,140 20,532 25,059 11,877 Derivative liabilities MMBTUs/Gallons ( 46,140 ) ( 19,664 ) ( 25,059 ) ( 11,424 ) Total Fair Value Included in Derivative assets Other assets 41,099 20,745 Derivative liabilities Other liabilities ( 39,176 ) ( 19,683 ) The following table is a summary of the Company’s recognized income related to the activity, which was included in other noninterest income: Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Derivative income $ 701 $ 416 $ 266 The Company’s credit exposure on oil and gas swaps and options varies based on the current market prices of oil and natural gas. Other than credit risk, changes in the fair value of customer positions will be offset by equal and opposite changes in the counterparty positions. The net positive fair value of the contracts represents the profit derived from the activity and is unaffected by market price movements. The Company’s share of total profit is approximately 35 %. Customer credit exposure is managed by strict position limits and is primarily offset by first liens on production while the remainder is offset by cash. Counterparty credit exposure is managed by selecting highly rated counterparties (rated A- or better by Standard and Poor’s) and monitoring market information. The following table is a summary of the Company’s net credit exposure relating to oil and gas swaps and options with bank counterparties: December 31, 2023 2022 (Dollars in thousands) Credit exposure $ 39,527 $ 6,560 101 Table of Contents Balance Sheet Offsetting Derivatives may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company’s derivative transactions with upstream financial institution counterparties and bank customers are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements, which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes. (23) SEGMENT INFORMATION The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The six principal business units are BancFirst metropolitan banks, BancFirst community banks, Pegasus, Worthington, other financial services and executive, operations and support. BancFirst metropolitan banks, BancFirst community banks, Pegasus and Worthington offer traditional banking products such as commercial and retail lending and a full line of deposit accounts. BancFirst metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. BancFirst community banks consist of banking locations in communities in Oklahoma outside the Oklahoma City and Tulsa metropolitan areas. Pegasus consists of banking locations in the Dallas metropolitan area. Worthington consists of banking locations in the Dallas-Fort Worth-Arlington metropolitan area. Other financial services are specialty product business units including guaranteed small business lending, residential mortgage lending, trust services, securities brokerage, electronic banking and insurance. The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units. 102 Table of Contents The results of operations and selected financial information for the six business units are as follows: BancFirst Metropolitan Banks BancFirst Community Banks Pegasus Worthington Other Financial Services Executive, Operations & Support Eliminations Consolidated (Dollars in thousands) December 31, 2023 Net interest income $ 120,226 $ 229,196 $ 51,277 $ 17,395 $ 4,164 $ 2,198 $ — $ 424,456 Provision for/(benefit from) credit losses 4,836 2,331 ( 328 ) 564 79 ( 24 ) — 7,458 Noninterest income 24,793 70,824 1,646 1,170 52,711 250,968 ( 216,704 ) 185,408 Depreciation and amortization 2,347 10,514 804 496 481 7,547 — 22,189 Other expenses 46,329 123,554 20,084 13,636 37,495 70,293 ( 1,122 ) 310,269 Income before taxes $ 91,507 $ 163,621 $ 32,363 $ 3,869 $ 18,820 $ 175,350 $ ( 215,582 ) $ 269,948 Total assets $ 3,598,888 $ 7,012,905 $ 1,280,618 $ 600,364 $ 121,601 $ 1,307,714 $ ( 1,550,048 ) $ 12,372,042 Capital expenditures $ 2,752 $ 5,156 $ 528 $ 5,497 $ 108 $ 8,463 $ — $ 22,504 December 31, 2022 Net interest income $ 97,728 $ 208,728 $ 46,439 $ 14,919 $ 8,065 $ ( 2,226 ) $ 20 $ 373,673 (Benefit from)/provision for credit losses 2,186 2,451 2,840 ( 43 ) ( 161 ) 2,803 — 10,076 Noninterest income 32,756 72,385 1,026 1,034 50,643 223,844 ( 197,941 ) 183,747 Depreciation and amortization 2,821 10,453 789 398 519 7,068 — 22,048 Other expenses 42,583 117,248 19,013 9,280 36,271 64,325 ( 856 ) 287,864 Income before taxes $ 82,894 $ 150,961 $ 24,823 $ 6,318 $ 22,079 $ 147,422 $ ( 197,065 ) $ 237,432 Total assets $ 3,412,369 $ 6,886,066 $ 1,404,033 $ 541,002 $ 171,679 $ 1,473,443 $ ( 1,500,729 ) $ 12,387,863 Capital expenditures $ 2,026 $ 10,146 $ 311 $ 262 $ 67 $ 6,973 $ — $ 19,785 December 31, 2021 Net interest income $ 77,840 $ 180,925 $ 24,222 $ — $ 35,244 $ ( 3,295 ) $ 721 $ 315,657 Provision for credit losses ( 5,474 ) ( 4,694 ) 1,395 — 109 ( 26 ) — ( 8,690 ) Noninterest income 23,257 65,600 1,448 — 47,124 203,005 ( 170,402 ) 170,032 Depreciation and amortization 2,593 10,483 782 — 557 5,626 — 20,041 Other expenses 39,356 110,574 15,317 — 60,435 41,199 ( 941 ) 265,940 Income before taxes $ 64,622 $ 130,162 $ 8,176 $ — $ 21,267 $ 152,911 $ ( 168,740 ) $ 208,398 Total assets $ 2,627,874 $ 5,821,220 $ 1,045,699 $ — $ 71,694 $ 1,201,974 $ ( 1,362,849 ) $ 9,405,612 Capital expenditures $ 1,612 $ 7,390 $ 363 $ — $ 400 $ 17,486 $ — $ 27,251 The financial information for each business unit is presented on the basis used internally by management to evaluate performance and allocate resources. The Company utilizes a transfer pricing system to allocate the benefit or cost of funds provided or used by the various business units. Certain services provided by the support group to other business units, such as item processing, are allocated at rates approximating the cost of providing the services. Eliminations are adjustments to consolidate the business units and companies. Capital expenditures are generally charged to the business unit using the asset. 103 Table of Contents Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure. There were no disagreements with accountants regarding accounting and financial disclosure matters during the year ended December 31, 2023.