What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-05 · 163 added, 87 removed, 207 unchanged (55% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition as of March 31, 2021 and December 31, 2020 and results of operations for the three months ended March 31, 2021 should be read in conjunction with our consolidated financial statements and notes to the financial statements for the year ended December 31, 2020, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The following discussion and analysis of our financial condition as of June 30, 2021 and December 31, 2020 and results of operations for the three and six months ended June 30, 2021 should be read in conjunction with our consolidated financial statements and notes to the financial statements for the year ended December 31, 2020, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K, and "Item 1A, Risk Factors" in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.

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THE COVID-19 PANDEMIC

The COVID-19 pandemic and actions taken in response to it have negatively impacted the global economy and all financial markets.

Since March 31, 2020, these conditions and the related financial impact have continued.

The COVID-19 pandemic and actions taken in response to it have negatively impacted the global economy and all financial markets since March 31, 2020.

Although the Company is not able to estimate the impact of the COVID-19 pandemic and the resultant economic circumstances on a long-term basis at this time, the COVID-19 pandemic could materially affect the Company’s financial and operational results.

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Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for further discussion.

The Company’s net income for the first quarter of 2021 was $42.5 million, compared to $22.6 million for the first quarter of 2020.

Diluted net income per common share was $1.27 and $0.68 for the first quarter of 2021 and 2020, respectively.

For the first quarter of 2021, no provision for credit losses was recorded compared to a provision for credit losses of $19.6 million for the first quarter of 2020;

the absence of a provision in the first quarter of 2021 was due to improvements in economic conditions and the outlook for certain economic indicators.

The Company’s net interest income for the first quarter of 2021 increased to $77.2 million, compared to $74.1 million for the first quarter of 2020.

Net interest income increased for the first quarter of 2021 due to loan growth, PPP fee income of approximately $9.8 million and the decrease in interest rates paid on deposits.

The Company’s net income for the second quarter of 2021 was $48.2 million, compared to $20.7 million for the second quarter of 2020.

Diluted net income per common share was $1.45 and $0.63 for the second quarter of 2021 and 2020, respectively.

The Company recorded a net benefit from reversal of provisions for credit losses of $9.9 million for the second quarter of 2021, compared to a provision for credit losses of $19.3 million for the second quarter of 2020.

Also included in noninterest income and noninterest expense were a purchase gain and acquisition related expenses from the purchase and assumption transaction with The First National Bank and Trust Company of Vinita, Oklahoma, which resulted in a net benefit of approximately $2.0 million.

Net income was $90.7 million, or $2.72 diluted earnings per share, for the six months ended June 30, 2021, compared to net income of $43.3 million, or $1.31 diluted earnings per share, for the six months ended June 30, 2020.

The Company’s net interest income for the second quarter of 2021 increased to $82.4 million, compared to $77.2 million for the second quarter of 2020, due primarily to $12.0 million in fee income from Paycheck Protection Program (PPP) loan forgiveness.

The net interest margin for the quarter was 3.32%, compared to 3.54% a year ago.

Noninterest income for the first quarter of 2021 totaled $39.9 million, compared to $35.1 million for the first quarter of 2020.

The increase in noninterest income was due to a gain from the sale of the Company’s Hugo, Oklahoma branch of $2.5 million, $2.4 million in rental income from a real estate property foreclosed on in the fourth quarter of 2020, and a $1.2 million increase in income from sales of mortgage loans, which were partially offset by a $1.3 million decrease in treasury management income.

Noninterest expense for the first quarter of 2021 increased to $65.0 million, compared to $61.4 million for the first quarter of 2020 because of $1.4 million of expenses related to such foreclosed property, and a $2.2 million gain on the sale of other real estate owned in the first quarter of 2020 that reduced noninterest expense.

The Company’s effective tax rate was 18.5% for the first quarter of 2021 compared to 20.0% for the first quarter of 2020.

At March 31, 2021, the Company’s total assets were $10.5 billion, an increase of $1.3 billion from December 31, 2020.

Debt securities of $520.5 million at March 31, 2021 were down $34.7 million from December 31, 2020.

Loans totaled $6.4 billion, a decrease of $68.1 million from December 31, 2020 partially due to approximately $21 million of loans that were sold with the Company’s Hugo, Oklahoma branch.

Noninterest income for the second quarter of 2021 totaled $44.6 million, compared to $32.1 million for the second quarter of 2020.

The increase in noninterest income was primarily due to the previously discussed purchase gain associated with The First National Bank and Trust Company of Vinita, Oklahoma, $2.2 million in rental income from other real estate property, and a $2.7 million increase in income from debit card interchange fees, which were partially offset by a $1.5 million decrease in income from sweep fees.

Noninterest expense for the second quarter of 2021 increased to $74.0 million, compared to $64.7 million for the second quarter of 2020, due to approximately $3.2 million related to other real estate property operating costs, the previously discussed acquisition related expenses and $1.3 million in net occupancy and depreciation primarily from the Company’s new corporate headquarters.

The Company’s effective tax rate was 23.4% for the second quarter of 2021 compared to 18.1% for the second quarter of 2020.

At June 30, 2021, the Company’s total assets were $11.0 billion, an increase of $1.8 billion from December 31, 2020.

Loans totaled $6.2 billion, a decrease of $241.0 million from December 31, 2020 due primarily to a net decrease of approximately $284 million in PPP loans and the sale of approximately $21 million of loans from the Company’s Hugo, Oklahoma branch along with pay downs on loans.

The decrease in loans were partially offset by the Company’s purchase of approximately $195 million in loans, from the First National Bank and Trust Company of Vinita, Oklahoma.

Deposits totaled $9.7 billion, an increase of $1.7 billion from the December 31, 2020 total.

The increase in assets and deposits were primarily related to the Paycheck Protection Program (PPP) and other government stimulus .

At March 31, 2021, the Company had PPP loans held for investment of $713.7 million, net of unamortized processing fees of $23.3 million.

The Company’s total stockholders’ equity at March 31, 2021 was $1.1 billion, an increase of $26.8 million over December 31, 2020.

Off-balance sweep accounts were $2.2 billion at March 31, 2021 compared to $2.7 billion at December 31, 2020.

Nonaccrual loans represent 0.55% of total loans at March 31, 2021, down from 0.58% at December 31, 2020.

Net charge-offs for the quarter were 0.01% of average loans for the first quarter of 2021, compared to 0.02% of average loans for the first quarter of 2020.

The allowance for credit losses to total loans was 1.42% at both March 31, 2021 and December 31, 2020, and the allowance for credit losses to nonaccrual loans was 257.20% compared to 243.35% at December 31, 2020.

The increase in assets and deposits were primarily related to PPP and other government stimulus payments .

At June 30, 2021, the Company had PPP loans held for investment of $368.6 million, net of unamortized processing fees of $16.6 million.

The Company’s total stockholders’ equity at June 30, 2021 was $1.1 billion, an increase of $63.7 million over December 31, 2020.

Off-balance sheet sweep accounts totaled $2.6 billion at June 30, 2021 compared to $2.8 billion at December 31, 2020.

Nonaccrual loans represent 0.48% of total loans at June 30, 2021, down from 0.58% at December 31, 2020.

Net charge-offs for the quarter were 0.06% of average loans for the second quarter of 2021, compared to none in the second quarter of 2020.

The allowance for credit losses to total loans was 1.35% at June 30, 2021 compared to 1.42% at December 31, 2020.

The allowance for credit losses to nonaccrual loans was 281.73% at June 30, 2021 compared to 243.35% at December 31, 2020.

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

On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 (the “Subordinated Notes”) to various institutional accredited investors.

See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated notes.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

There have been no changes in the Registrant’s disclosures regarding recently issued accounting pronouncements since December 31, 2020, the date of its most recent annual report to stockholders.

There have been no changes in the Company’s disclosures regarding recently issued accounting pronouncements since December 31, 2020, the date of its most recent annual report to stockholders.

SEGMENT INFORMATION

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(Dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Earning assets:

Deb securities – taxable

Debt securities – taxable

Debt securities – tax exempt

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Short-term borrowings

Junior subordinated debentures

Long-term borrowings

Subordinated debt

Total interest-bearing liabilities

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(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

Taxable Equivalent Basis

(Dollars in thousands)

Six Months Ended June 30,

Earning assets:

Debt securities – taxable

Debt securities – tax exempt

Federal funds sold and interest-bearing deposits with banks

Total earning assets

Nonearning assets:

Cash and due from banks

Interest receivable and other assets

Allowance for credit losses

Total nonearning assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities:

Transaction deposits

Savings deposits

Time deposits

Short-term borrowings

Long-term borrowings

Subordinated debt

Total interest-bearing liabilities

Interest-free funds:

Noninterest-bearing deposits

Interest payable and other liabilities

Stockholders’ equity

Total interest free funds

Total liabilities and stockholders’ equity

Net interest income

Net interest spread

Effect of interest free funds

Net interest margin

For these computations, information is shown on a taxable-equivalent basis assuming a 21% tax rate.

(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

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

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Three Months Ended

Six Months Ended

Income Statement Data

Net interest income

Provision for credit losses

(Benefit from)/provision for credit losses

Securities transactions

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Net Interest Income

For the three months ended March 31, 2021, net interest income, which is the Company’s principal source of operating revenue, increased $3.1 million or 4.2% compared to the three months ended March 31, 2020.

Net interest income increased for the first quarter of 2021 due to loan growth, PPP fee income of approximately $9.8 million and the decrease in interest rates paid on deposits.

For the three months ended June 30, 2021, net interest income, which is the Company’s principal source of operating revenue, increased $5.2 million or 6.7% compared to the three months ended June 30, 2020.

Net interest income increased for the second quarter of 2021, due primarily to $12.0 million in fee income from PPP loan forgiveness.

Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period.

As shown in the preceding table, the Company’s net interest margin for the first quarter of 2021 decreased compared to the first quarter of 2020, primarily due to the lower average rates on loans, federal funds and securities during the quarter.

As shown in the preceding table, the Company’s net interest margin for the second quarter of 2021 decreased compared to the second quarter of 2020, primarily due to the lower average rates on loans, securities and interest-bearing deposits with banks during the quarter.

Net interest income for the six months ended June 30, 2021 increased $8.3 million or 5.5% compared to the six months ended June 30, 2020.

Net interest income increased for the six months ended June 30, 2021, due primarily to $21.7 million in fee income from PPP loan forgiveness and the drop in interest rates on deposits.

As shown in the preceding table, the Company’s net interest margin for the six months ended June 30, 2021 decreased compared to the six months ended June 30, 2020, primarily due to the lower average rates on loans, securities and interest-bearing deposits with banks during the period.

The Company’s net interest income and net interest margin have been, and the Company currently expects them to continue to be, impacted by the decreases in market interest rates.

The expectation is that interest rates will remain at these low levels for some period of time in light of the on-going response in Federal Reserve policy driven by the economic disruption arising from the COVID-19 pandemic.

Provision for Credit Losses

For the first quarter of 2021, no provision for credit losses was recorded, compared to a provision for credit losses of $19.6 million for the first quarter of 2020.

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

The elevated provision during the first quarter of 2020 was based on the Company’s evaluation of the level of uncertainty and lack of clarity of the timing of an end to the COVID-19 pandemic, as well as the magnitude of the government’s stimulus response to it.

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

The expectation is that interest rates will remain at these low levels for some period of time in light of the ongoing response in Federal Reserve policy driven by the economic disruption arising from the COVID-19 pandemic.

Benefit from and Provision for Credit Losses

For the second quarter of 2021, the Company recorded a net benefit from reversal of provisions for credit losses of $9.9 million, compared to a provision for credit losses of $19.3 million for the second quarter of 2020.

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

The elevated provision during the second quarter of 2020 was based on the Company’s evaluation of the level of uncertainty and lack of clarity of the timing of an end to the COVID-19 pandemic, as well as the magnitude of the government’s stimulus response to it.

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

balance sheet date.

Management believes the allowance for credit losses is appropriate based upon management’s best estimate of expected losses within the existing loan portfolio.

Should any of the factors considered by management in evaluating the appropriate level of the allowance for credit losses change, the Company’s estimate of expected credit losses could also change, which could affect the amount of future provisions for credit losses.

Net loan charge-offs were $506,000 for the first quarter of 2021, compared to net loan charge-offs of $1.0 million for the first quarter of 2020.

Net loan charge-offs were $ 4.2 million for the second quarter of 20 2 1 , compared to net loan recoveries of $87,000 for the second quarter of 2020 .

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

For the six months ended June 30, 2021, the Company recorded a net benefit from reversal of provisions for credit losses of $9.9 million compared to a provision for credit losses of $38.9 million for the six months ended June 30, 2020.

Net loan charge-offs were $4.7, compared to $961,000 for the same period of the prior year.

Noninterest Income

Noninterest income, as presented in the preceding table, increased by $4.8 million for first quarter of 2021 compared to the first quarter of 2020.

Noninterest income included non-sufficient funds fees totaling $5.5 million and $8.3 million for the three month periods ended March 31, 2021 and 2020, respectively.

This represents 13.8% and 23.5% of the Company’s noninterest income for the three month periods ended March 31, 2021 and 2020, respectively.

In addition, the Company had debit card interchange fees totaling $10.7 million and $8.2 million during the three month periods ended March 31, 2021 and 2020, respectively.

This represents 26.7% and 23.3% of the Company’s noninterest income for the three month periods ended March 31, 2021 and 2020, respectively.

For the first quarter of 2021 compared to the first quarter of 2020, government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased customer liquidity and higher volume of transactions.

This activity resulted in lower non-sufficient funds fees and higher debit card interchange fees.

Noninterest income, as presented in the preceding table, increased by $12.5 million for second quarter of 2021 compared to the second quarter of 2020.

The increase in noninterest income was primarily due to a purchase gain of $6.0 million associated with The First National Bank and Trust Company of Vinita, Oklahoma, $2.2 million in rental income from other real estate property, and a $2.7 million increase in income from debit card interchange fees, which were partially offset by a $1.5 million decrease in income from sweep fees.

In addition, the Company earned $2.1 million on the sale of loans for second quarter of 2021 compared to $1.6 million for second quarter of 2020.

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

Noninterest income included non-sufficient funds fees totaling $5.6 million and $5.0 million for the three month periods ended June 30, 2021 and 2020, respectively.

This represents 12.6% and 15.6% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $11.9 million and $9.1 million during the three month periods ended June 30, 2021 and 2020, respectively.

This represents 26.6% and 28.5% of the Company’s noninterest income for the respective periods.

For the second quarter of 2021 compared to the second quarter of 2020, government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased both customer liquidity and interchange volume resulting in higher debit card interchange fees.

Noninterest income increased by $17.3 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase in noninterest income was primarily due to a purchase gain of $6.0 million associated with The First National Bank and Trust Company of Vinita, Oklahoma, a gain from the sale of the Company’s Hugo, Oklahoma branch of $2.5 million and $4.6 million in rental income from other real estate property, which were partially offset by a $3.6 million decrease in income from sweep fees.

In addition, the Company earned $4.1 million on the sale of loans for the six months ended June 30, 2021 compared to $2.3 million for the six months ended June 30, 2020.

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

Noninterest income included non-sufficient fund fees totaling $11.1 million and $13.3 million during the six months ended June 30, 2021 and 2020, respectively.

This represents 13.2% and 19.7% of the Company’s noninterest income for the respective periods.

In addition, the Company had debit card interchange fees totaling $22.5 million and $17.3 million during the six months ended June 30, 2021 and 2020, respectively.

This represents 26.6% and 25.7% of the Company’s noninterest income for the respective periods.

Government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased both customer liquidity and interchange volume.

This activity resulted in lower non-sufficient funds fees and higher debit card interchange fees for the six months ending June 30, 2021 compared to June 30, 2020.

Prior to the COVID-19 pandemic, there was little or no likelihood that the Company would surpass $10 billion in total assets for several years.

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Pursuant to the Durbin Amendment of the Dodd-Frank Act, based on current run rates, this would trigger an approximate reduction of annual pretax income from debit card interchange fees of between $17 to $20 million beginning July 1, 2022.

The Company earned $2.0 million on the sale of loans for first quarter of 2021 compared to $781,000 for first quarter of 2020.

The income from sales of loans increased due to the increase in volume of loans originated due to record low mortgage rates.

The Company is undergoing efforts to reduce total assets below $10 billion at December 31, 2021, but the success of these efforts is uncertain.

Noninterest Expense

Noninterest expense, as presented in the preceding table, increased by $3.6 million for first quarter of 2021 compared to the first quarter of 2020.

The increase in noninterest expenses was due to $1.4 million of expenses related to a real estate property foreclosed on in the fourth quarter of 2020 and a $2.2 million gain on the sale of other real estate owned in the first quarter of 2020 that reduced noninterest expense.

The Company’s effective tax rate was 18.5% for the first quarter of 2021, compared to 20.0% for the first quarter of 2020.

The effective tax rate was lower for the first quarter of 2021 compared to the first quarter of 2020 primarily because of an increase in employee options exercised during the quarter.

Noninterest expense, as presented in the preceding table, increased by $9.4 million for second quarter of 2021 compared to the second quarter of 2020.

The increase in noninterest expenses was due to $3.2 million related to other real estate property operating costs, $4.0 million in acquisition related expenses, and approximately $1.3 million in net occupancy and depreciation primarily from the Company’s new corporate headquarters.

For the six months ended June 30, 2021, noninterest expense increased by $ 13.0 m illion compared to the six months ended June 30, 2020.

The increase in noninterest expenses was due to approximately $ 4.6 million related to other real estate property operating costs, $ 4 .0 million in acquisition related expenses, and approximately $ 2.5 million in net occupancy and depreciation primarily from the Company’s new corporate headquarters.

The second quarter of 2020 included a $2.2 million gain on the sale of other real estate owned that reduced noninterest expense.

The Company’s effective tax rate was 23.4% for the second quarter of 2021, compared to 18.1% for the second quarter of 2020.

The lower effective tax rate for the second quarter of 2020 was due to a greater effect of tax credits resulting from lower income.

The Company’s effective tax rate on income before taxes was 21.2% for the first six months of 2021, compared to 19.1% for the first six months of 2020.

The lower effective tax rate for the first six months of 2020 was due to a greater effect of tax credits resulting from lower income.

The reasons for the difference between the Company’s effective tax rate and the federal statutory rate were tax-exempt income, nondeductible amortization, federal and state tax credits and state tax expense.

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

(3) Government Agencies guarantee approximately $6.6 million of nonaccrual loans at March 31, 2021.

(3) Government Agencies guarantee approximately $3.5 million of nonaccrual loans at June 30, 2021.

Cash and Interest-Bearing Deposits with Banks

The aggregate of cash and due from banks and interest-bearing deposits with banks increased by $1.4 billion or 89.4% to $3.1 billion, from December 31, 2020 to March 31, 2021.

The aggregate of cash and due from banks and interest-bearing deposits with banks increased by $2.0 billion or 125.2% to $3.6 billion, from December 31, 2020 to June 30, 2021.

The increase was primarily related to the increase in deposits from PPP and other government stimulus payments.

At March 31, 2021, total debt securities decreased $34.7 million, or 6.2% compared to December 31, 2020.

At June 30, 2021, total debt securities increased $8.6 million, or 1.5% compared to December 31, 2020.

The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management.

The net unrealized gain on debt securities available for sale, before taxes, was $8.6 million at March 31, 2021, compared to a net unrealized gain of $9.9 million

at December 31, 2020 .

These unrealized gains are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income t ax , in the amounts of a gain of $ 6.4 million at March 31, 2021 and a gain of $ 7.4 million at December 31, 2020 .

The net unrealized gain on debt securities available for sale, before taxes, was $7.1 million at June 30, 2021, compared to a net unrealized gain of $9.9 million at

December 31, 2020 .

These unrealized gains are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax , in the amounts of a gain of $ 5.4 million at June 30, 2021 and a gain of $ 7.4 million at December 31, 2020 .

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.

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

The balance of equity securities was $10.4 million at June 30, 2021 and $10.1 million at December 31, 2020.

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

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

At March 31, 2021, total loans decreased $68.1 million or 1.1% compared to December 31, 2020.

The decrease in loans was partially due to approximately $21 million of loans that were sold with the Company’s Hugo, Oklahoma branch.

At March 31, 2021, the balance of total PPP loans was $713.7 million, net of unamortized processing fees of $23.3 million.

At June 30, 2021, total loans decreased $241.0 million or 3.7% compared to December 31, 2020.

The decrease in loans was due primarily to a net decrease of approximately $284 million in PPP loans and the sale of approximately $21 million of loans from the Company’s Hugo, Oklahoma branch along with pay downs on loans.

The decrease in loans were partially offset by the Company’s purchase of approximately $195 million in loans, from The First National Bank and Trust Company of Vinita, Oklahoma.

At June 30, 2021, the balance of total PPP loans was $368.6 million, net of unamortized processing fees of $16.6 million.

See Note (4) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s loan portfolio segments.

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On January 1, 2020, the Company adopted ASC 326, which replaces the incurred loss methodology with an expected loss methodology that is referred to as CECL.

At March 31, 2021 and December 31, 2020, the allowance for credit losses to total loans represented 1.42% of total loans.

The allowance for credit losses to total loans represented 1.35% and 1.42% at June 30, 2021 and December 31, 2020, respectively.

The decrease in the allowance for credit loss during the second quarter of 2021 was primarily driven by a reversal of provision during the quarter based on sustained improvements in the economy, both nationally and in Oklahoma, which reduced the amount of expected credit loss within the loan portfolio.

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

Nonaccrual and Restructured Assets

At March 31, 2021, nonperforming and restructured assets decreased $3.9 million to $78.7 million compared to December 31, 2020.

The Company’s level of nonperforming and restructured assets has continued to be relatively low, equating to 0.75% of total assets at March 31, 2021 and 0.90% of total assets at December 31, 2020.

Nonaccrual loans totaled $35.3 million at March 31, 2021, compared to $37.5 million at December 31, 2020.

At June 30, 2021, nonperforming and restructured assets decreased $754,000 to $81.9 million compared to December 31, 2020.

The Company’s level of nonperforming and restructured assets has continued to be relatively low, equating to 0.74% of total assets at June 30, 2021 and 0.90% of total assets at December 31, 2020.

Nonaccrual loans totaled $29.8 million at June 30, 2021, compared to $37.5 million at December 31, 2020.

At June 30, 2021, the Company’s nonaccrual loans decreased $7.7 million from year-end 2020, due to resolutions of several loans, which was slightly offset by $7.3 million of nonaccrual loans acquired from The First National Bank and Trust Company of Vinita, Oklahoma.

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

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However, interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is not in doubt.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $521,000 for the three months ended March 31, 2021 and $332,000 for the three months ended March 31, 2020.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.2 million for the six months ended June 30, 2021 and $983,000 for the six months ended June 30, 2020.

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

Approximately $6.6 million of nonaccrual loans were guaranteed by government agencies at March 31, 2021.

Restructured loans totaled $7.8 million at both March 31, 2021 and December 31 2020.

Approximately $3.5 million of nonaccrual loans were guaranteed by government agencies at June 30, 2021.

Restructured loans totaled $7.5 million at June 30, 2021 compared to $7.8 million at December 31, 2020.

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

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The above normal risk associated with nonperforming loans has been considered in the determination of the allowance for credit losses.

At March 31, 2021, the allowance for credit losses as a percentage of nonperforming and restructured loans was 187.69%, compared to 182.26%, at December 31, 2020.

At June 30, 2021, the allowance for credit losses as a percentage of nonperforming and restructured loans was 201.48%, compared to 182.26%, at December 31, 2020.

The level of nonperforming loans and credit losses could rise over time as a result of adverse economic conditions.

Other real estate owned and repossessed assets totaled $30.3 million at March 31, 2021, compared to $32.5 million at December 31, 2020.

Other real estate owned (OREO) and repossessed assets totaled $ 40.2 million at June 30, 20 2 1 , compared to $ 32.5 million at December 31, 20 20 .

Other real estate owned consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure and premises held for sale.

As of both March 31, 2021 and December 31, 2020, other real estate owned included a commercial real estate property recorded at approximately $28 million.

At June 30, 2021, the Company’s OREO increased $8.0 million from December 31, 2020, and included approximately $4.0 million due to the repossession of one commercial real estate property, $2.4 million from the decommissioning of the Company’s previous headquarters, and $2.5 million for other real estate acquired from The First National Bank and Trust Company of Vinita, Oklahoma.

As of both June 30, 2021 and December 31, 2020, other real estate owned included a commercial real estate property recorded at approximately $28 million.

Other real estate owned and repossessed assets are carried at the lower of the book values of the related loans or fair values based upon appraisals, less estimated costs to sell.

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Intangible Assets, Goodwill and Other Assets

Identifiable intangible assets and goodwill totaled $168.1 million and $168.9 million at March 31, 2021 and December 31, 2020, respectively.

Other assets includes the cash surrender value of key-man life insurance policies.

The balance of the cash surrender value of key-man life insurance policies was $81.3 million at March 31, 2021 and $80.7 million at December 31, 2020.

Identifiable intangible assets and goodwill totaled $169.2 million and $168.9 million at June 30, 2021 and December 31, 2020, respectively.

On May 20, 2021, the Company recorded a core deposit intangible of approximately $1.9 million because of the purchase of assets and assumption of liabilities from The First National Bank and Trust Company of Vinita, Oklahoma.

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

Other assets includes the cash surrender value of key-man life insurance policies totaling $81.9 million at June 30, 2021 and $80.7 million at December 31, 2020.

In addition, other assets includes approximately $11.1 million in equity interest of a previous borrower in the oil and gas industry, which was received through bankruptcy proceedings in the fourth quarter of 2020.

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During 2021, there have not been any material changes in the Company’s low income housing tax credit investments and new market tax credit investments, which are included in other assets on the Company’s balance sheet.

See Note (6) of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for disclosures regarding the Company’s low income housing tax credit investments and new market tax credit investments.

See Note (6) of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for disclosures regarding these investments.

Liquidity and Funding

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The Company maintains federal funds lines of credit with other banks and could also utilize the sale of loans, securities and liquidation of other assets as sources of liquidity and funding.

At March 31, 2021, deposits totaled $9.4 billion, an increase of $1.3 billion or 16.2% from the December 31, 2020 total.

The increase in deposits was primarily related to deposits of proceeds from the PPP and government stimulus payments.

There have not been any other material changes from the liquidity and funding discussion included in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

At June 30, 2021, deposits totaled $9.7 billion, an increase of $1.7 billion or 20.6% from the December 31, 2020 total.

The increase in deposits was primarily related to deposits of proceeds from the PPP and other government stimulus payments.

The Company’s core deposits provide it with a stable, low-cost funding source.

The Company’s core deposits as a percentage of total deposits were 98.6% at March 31, 2021 and 98.2% at December 31, 2020.

Noninterest-bearing deposits to total deposits were 45.6% at March 31, 2021, compared to 47.0% at December 31, 2020.

The Company’s core deposits as a percentage of total deposits were 98.5% at June 30, 2021 and 98.2% at December 31, 2020.

Noninterest-bearing deposits to total deposits were 46.0% at June 30, 2021, compared to 47.0% at December 31, 2020.

S ubordinated Debt

See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated debt.

Short-Term Borrowings

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The level of these borrowings is determined by various factors, including customer demand and the Company’s ability to earn a favorable spread on the funds obtained.

Short-term borrowings were $3.8 million at March 31, 2021, compared to $1.1 million at December 31, 2020.

Short-term borrowings were $3.1 million at June 30, 2021, compared to $1.1 million at December 31, 2020.

Long-Term Borrowings

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The Company’s assets, including residential first mortgages of $849.8 million, are pledged as collateral for the borrowings under the line of credit.

As of March 31, 2021 and December 31, 2020, the Company had no advances outstanding under the line of credit from FHLB.

As of June 30, 2021 and December 31, 2020, the Company had no advances outstanding under the line of credit from FHLB.

Capital Resources

Stockholders’ equity totaled $1.1 billion at both March 31, 2021 and December 31, 2020.

In addition to net income of $42.5 million, other changes in stockholders’ equity during the three months ended March 31, 2021 included $1.3 million related to common stock issuances, and $576,00 related to stock-based compensation, that were partially offset by $11.1 million in dividends, $5.4 million in settlement of options in cash, and a $1.0 million decrease in other comprehensive income.

The Company’s leverage ratio and total risk-based capital ratios at March 31, 2021, were well in excess of the regulatory requirements.

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

Stockholders’ equity totaled $1.1 billion at both June 30, 2021 and December 31, 2020.

In addition to net income of $90.7 million, other changes in stockholders’ equity during the six months ended June 30, 2021 included $1.7 million related to common stock issuances and $1.0 million related to stock-based compensation, that were partially offset by $22.3 million in dividends, $5.5 million from settlement of options in cash, and a $2.0 million decrease in other comprehensive income.

The Company’s leverage ratio and total risk-based capital ratios at June 30, 2021, were well in excess of the regulatory requirements.

See Note (9) of the Notes to Consolidated Financial Statements for a discussion of capital ratios and requirements.

Liquidity Risk and Off-Balance Sheet Arrangements

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Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in the Registrant’s disclosures regarding market risk since December 31, 2020, the date of its most recent annual report to stockholders.

There have been no significant changes in the Company’s disclosures regarding market risk since December 31, 2020, the date of its most recent annual report to stockholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis