10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-14384

BancFirst Corporation

(Exact name of registrant as specified in charter)


Oklahoma		73-1221379
(State or other Jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


100 N. Broadway Ave., Oklahoma City, Oklahoma		73102-8405
(Address of principal executive offices)		(Zip Code)

(405) 270-1086

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 Par Value Per Share

BANF

NASDAQ Global Select Market System

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2023 there were 32,899,898 shares of the registrant’s Common Stock outstanding.

BancFirst Corporation

Quarterly Report on Form 10-Q

March 31, 2023

Table of Contents


Item	PART I – Financial Information	Page
1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Shareholders’ Equity	4
	Consolidated Statements of Cash Flow	5

	Notes to Consolidated Financial Statements	6
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
3.	Quantitative and Qualitative Disclosure About Market Risk	37
4.	Controls and Procedures	37

	PART II – Other Information
1.	Legal Proceedings	38
1A.	Risk Factors	38
2.	Unregistered Sales of Equity Securities	38
3.	Defaults Upon Senior Securities	38
4.	Mine Safety Disclosures	38
5.	Other Information	38
6.	Exhibits	39
Signatures		40

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	March 31,			December 31,
	2023			2022
	(unaudited)			(see Note 1)
ASSETS
Cash and due from banks	$	212,826		$	259,049
Interest-bearing deposits with banks		2,623,565			2,909,861
Federal funds sold		1,084			2,850
Debt securities held for investment (fair value: $2,321 and $2,383, respectively)		2,320			2,383
Debt securities available for sale at fair value		1,615,913			1,538,221
Loans held for sale		6,223			6,232
Loans held for investment (net of unearned interest)		7,118,608			6,943,563
Allowance for credit losses		(94,760	)		(92,728	)
Loans, net of allowance for credit losses		7,023,848			6,850,835
Premises and equipment, net		279,461			278,088
Other real estate owned		38,587			36,756
Intangible assets, net		19,103			19,983
Goodwill		182,055			182,055
Accrued interest receivable and other assets		327,120			301,550
Total assets	$	12,332,105		$	12,387,863

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	4,540,363		$	4,944,730
Interest-bearing		6,069,740			6,029,498
Total deposits		10,610,103			10,974,228
Short-term borrowings		203,494			300
Accrued interest payable and other liabilities		121,568			76,455
Subordinated debt		86,058			86,044
Total liabilities		11,021,223			11,137,027

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: 32,899,493 and 32,875,560, respectively		32,900			32,876
Capital surplus		170,231			169,231
Retained earnings		1,164,665			1,120,292
Accumulated other comprehensive loss, net of tax benefit of $17,603 and $22,107, respectively		(56,914	)		(71,563	)
Total stockholders' equity		1,310,882			1,250,836
Total liabilities and stockholders' equity	$	12,332,105		$	12,387,863

The accompanying Notes are an integral part of these consolidated financial statements.

BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended
	March 31,
	2023			2022
INTEREST INCOME
Loans, including fees	$	104,396		$	72,954
Debt securities:
Taxable		8,991			3,781
Tax-exempt		7			26
Federal funds sold		32			1
Interest-bearing deposits with banks		32,020			1,757
Total interest income		145,446			78,519
INTEREST EXPENSE
Deposits		35,177			1,981
Short-term borrowings		83			1
Subordinated debt		1,030			1,030
Total interest expense		36,290			3,012
Net interest income		109,156			75,507
Provision for credit losses		2,322			2,936
Net interest income after provision for credit losses		106,834			72,571
NONINTEREST INCOME
Trust revenue		4,222			3,506
Service charges on deposits		21,231			21,375
Securities transactions (includes accumulated other comprehensive loss reclassifications of $0 and $1,536, respectively)		(213	)		(3,915	)
Income from sales of loans		604			1,666
Insurance commissions		8,741			7,427
Cash management		6,734			3,131
Gain on sale of other assets		479			45
Other		6,030			10,415
Total noninterest income		47,828			43,650
NONINTEREST EXPENSE
Salaries and employee benefits		49,252			43,932
Occupancy, net		4,983			4,403
Depreciation		4,643			4,775
Amortization of intangible assets		880			831
Data processing services		2,107			1,805
Net expense from other real estate owned		2,459			1,794
Marketing and business promotion		2,527			2,073
Deposit insurance		1,613			1,128
Other		11,853			11,771
Total noninterest expense		80,317			72,512
Income before taxes		74,345			43,709
Income tax expense		16,812			7,794
Net income	$	57,533		$	35,915
NET INCOME PER COMMON SHARE
Basic	$	1.75		$	1.10
Diluted	$	1.72		$	1.08
OTHER COMPREHENSIVE (LOSS)/GAIN
Unrealized income/(losses) on debt securities, net of tax (expense)/benefit of $(4,504) and $10,219, respectively		14,649			(32,833	)
Reclassification adjustment for losses included in net income, net of tax expense of $0 and $369, respectively		—			1,167
Other comprehensive income/(loss), net of tax (expense)/benefit of $(4,504) and $9,850, respectively		14,649			(31,666	)
Comprehensive income	$	72,182		$	4,249

The accompanying Notes are an integral part of these consolidated financial statements.

BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)


	Three Months Ended
	March 31,
	2023			2022
COMMON STOCK
Issued at beginning of period	$	32,876		$	32,603
Shares issued for stock options		24			123
Issued at end of period	$	32,900		$	32,726
CAPITAL SURPLUS
Balance at beginning of period	$	169,231		$	159,914
Common stock issued for stock options		618			3,020
Stock-based compensation arrangements		382			458
Balance at end of period	$	170,231		$	163,392
RETAINED EARNINGS
Balance at beginning of period	$	1,120,292		$	977,067
Net income		57,533			35,915
Dividends on common stock ($0.40 and $0.36 per share, respectively)		(13,160	)		(11,782	)
Balance at end of period	$	1,164,665		$	1,001,200
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized (losses)/gains on securities:
Balance at beginning of period	$	(71,563	)	$	2,150
Net change		14,649			(31,666	)
Balance at end of period	$	(56,914	)	$	(29,516	)
Total stockholders’ equity	$	1,310,882		$	1,167,802

The accompanying Notes are an integral part of these consolidated financial statements.

BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)


	Three Months Ended
	March 31,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	57,533		$	35,915
Adjustments to reconcile to net cash provided by operating activities:
Provision for credit losses		2,322			2,936
Depreciation and amortization		5,523			5,606
Net amortization of securities premiums and discounts		(273	)		1,921
Realized securities losses		213			3,915
Gain on sales of loans		(604	)		(1,666	)
Cash receipts from the sale of loans originated for sale		34,246			83,749
Cash disbursements for loans originated for sale		(33,634	)		(67,444	)
Deferred income tax benefit		(778	)		(968	)
Gain on sale of other assets		(578	)		(771	)
Increase in interest receivable		(1,390	)		(4,714	)
Increase in interest payable		2,264			485
Amortization of stock-based compensation arrangements		382			458
Excess tax benefit from stock-based compensation arrangements		(324	)		(1,024	)
Other, net		4,602			5,209
Net cash provided by operating activities		69,504			63,607
INVESTING ACTIVITIES
Net cash received from acquisitions, net of cash paid		—			121,099
Net decrease/(increase) in federal funds sold		1,766			(76	)
Purchases of available for sale debt securities		(91,312	)		(966,818	)
Proceeds from maturities, calls and paydowns of held for investment debt securities		170			61
Proceeds from maturities, calls and paydowns of available for sale debt securities		32,940			19,689
Proceeds from sales of available for sale securities		—			222,473
Purchase of equity securities		(195	)		(144	)
Proceeds from paydowns and sales of equity securities		485			697
Net change in loans		(176,739	)		(67,669	)
Net receipts/(payments) on derivative asset contracts		11,141			(70,694	)
Purchases of premises, equipment and computer software		(7,962	)		(6,896	)
Purchase of tax credits		(536	)		(770	)
Other, net		1,658			3,078
Net cash used in investing activities		(228,584	)		(745,970	)
FINANCING ACTIVITIES
Net change in deposits		(364,125	)		2,729,040
Net change in short-term borrowings		203,194			3,300
Issuance of common stock in connection with stock options, net		642			3,143
Cash dividends paid		(13,150	)		(11,738	)
Net cash (used in) provided by financing activities		(173,439	)		2,723,745
Net (decrease)/increase in cash, due from banks and interest-bearing deposits		(332,519	)		2,041,382
Cash, due from banks and interest-bearing deposits at the beginning of the period		3,168,910			2,050,022
Cash, due from banks and interest-bearing deposits at the end of the period	$	2,836,391		$	4,091,404
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	34,026		$	2,503
Cash paid during the period for income taxes	$	1,880		$	—
Noncash investing and financing activities:
Cash consideration for acquisitions	$	—		$	77,685
Fair value of assets acquired in acquisitions	$	—		$	510,888
Liabilities assumed in acquisitions	$	—		$	433,203
Unpaid common stock dividends declared	$	13,160		$	11,781

The accompanying Notes are an integral part of these consolidated financial statements.

BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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 significant accounting policies can be found in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., Pegasus Bank ("Pegasus"), Worthington Bank ("Worthington") and BancFirst and its subsidiaries ("BancFirst"). The principal operating subsidiaries of BancFirst are BFTower, LLC, BFC-PNC 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 unaudited interim consolidated financial statements.

The accompanying unaudited interim consolidated financial statements and notes are presented in accordance with U.S. GAAP for interim financial information and the instructions for Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). The information contained in the consolidated financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

The unaudited interim consolidated financial statements contained herein reflect all adjustments, which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature.

Reclassifications

Certain items in prior consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or comprehensive income.

Use of Estimates in the Preparation of 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 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.

Recent Accounting Pronouncements

Standards Adopted During the Current Period:

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 January 1, 2023. ASU No. 2022-02 did not have a significant impact on the Company’s consolidated financial statements.

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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) and Low-Income Housing Tax Credits (LIHTC) that will be affected by ASU 2023-02. Upon adoption of ASU No. 2023-02, the Company recorded $21.8 million in other assets and other liabilities on the consolidated balance sheet for unfunded LIHTC commitments and amortized $977,000 of NMTC investments to income tax expense during the period that would have previously been recorded to other expense. ASU No. 2023-02 did not have a significant impact on the Company’s consolidated financial statements.

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

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

On February 8, 2022, the Company acquired Worthington for an aggregate cash purchase price of $77.7 million. Worthington is 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. At acquisition, 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 complements the Company by expanding its Texas presence in the Dallas-Fort Worth market.

(3) 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
March 31, 2023	(Dollars in thousands)
Mortgage backed securities (1)	$	10	$	1	$	—	$	11
States and political subdivisions		1,810		—		—		1,810
Other securities		500		—		—		500
Total	$	2,320	$	1	$	—	$	2,321
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
March 31, 2023	(Dollars in thousands)
U.S. treasuries	$	1,629,245	$	1,341	$	(72,992	)	$	1,557,594
U.S. federal agencies		14,072		183		(1	)		14,254
Mortgage backed securities (1)		17,934		26		(1,773	)		16,187
States and political subdivisions		8,236		33		(114	)		8,155
Asset backed securities		12,780		—		(417	)		12,363
Other securities		8,163		—		(803	)		7,360
Total	$	1,690,430	$	1,583	$	(76,100	)	$	1,615,913
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.

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

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


	March 31, 2023				December 31, 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	$	1,186	$	1,186	$	1,186	$	1,186
After one year but within five years		1,132		1,133		1,195		1,195
After five years but within ten years		2		2		2		2
After ten years		—		—		—		—
Total	$	2,320	$	2,321	$	2,383	$	2,383
Available for Sale
Contractual maturity of debt securities:
Within one year	$	105,557	$	104,164	$	101,607	$	100,655
After one year but within five years		1,336,179		1,267,384		1,316,874		1,233,725
After five years but within ten years		207,450		205,173		170,513		163,101
After ten years		41,244		39,192		42,897		40,740
Total debt securities	$	1,690,430	$	1,615,913	$	1,631,891	$	1,538,221

The following table is a summary of the Company’s book value of securities that were pledged as collateral for public funds on deposit, repurchase agreements and for other purposes as required or permitted by law:


	March 31, 2023		December 31, 2022
	(Dollars in thousands)
Book value of pledged securities	$	580,946	$	573,952

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



	March 31, 2023		March 31, 2022
	(Dollars in thousands)
Proceeds	$	—	$	222,473
Gross losses realized		—		3,990

There were no sales of debt securities and therefore no proceeds from sales or realized securities gains or losses on available for sale debt securities for the three months ended March 31, 2023. During the three months ended March 31, 2022, the Company sold $226 million of debt securities with an average yield of 0.16%, the proceeds of which were subsequently reinvested in $220 million of debt securities with an average yield of 1.86%. The Company used specific identification to reclassify the unrealized loss in other comprehensive income to a realized loss, as shown in the consolidated statements of comprehensive income.

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

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


			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)
March 31, 2023
Available for Sale
U.S. treasuries		71	$	501,386	$	9,684	$	958,843	$	63,308	$	1,460,229	$	72,992
U.S. federal agencies		1		344		1		—		—		344		1
Mortgage backed securities		95		302		3		14,364		1,770		14,666		1,773
States and political subdivisions		8		1,486		14		1,311		100		2,797		114
Asset backed securities		1		—		—		12,363		417		12,363		417
Other securities		3		4,793		370		2,567		433		7,360		803
Total		179	$	508,311	$	10,072	$	989,448	$	66,028	$	1,497,759	$	76,100
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 March 31, 2023 and December 31, 2022, the Company also had the ability and intent to hold the debt securities classified as available for sale for a period of time sufficient for a recovery of cost. 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 statement of comprehensive income.

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

Certain loan segments were reclassified during the quarter. Each loan segment is made up of loan categories possessing similar risk characteristics. The Company’s re-alignment of the segments primarily consisted of reclassifying farmland and agriculture related loans that were previously included in consumer-related and commercial-related loans to the agriculture category. Management believes this accurately represents the risk profile of each loan segment. The prior period amounts have been revised to conform to the current period presentation. These reclassifications did not have a significant impact on the allowance for credit losses.

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


	March 31, 2023		December 31, 2022
	(Dollars in thousands)
Real estate:
Commercial real estate owner occupied		920,104		908,494
Commercial real estate non-owner occupied		1,396,400		1,383,150
Construction and development < 60 months		534,847		475,236
Construction residential real estate < 60 months		304,766		303,305
Residential real estate first lien		1,147,800		1,117,899
Residential real estate all other		206,402		196,198
Agriculture		422,488		408,037
Commercial non-real estate		1,262,737		1,241,454
Consumer non-real estate		441,497		446,756
Oil and gas		481,567		463,034
Total (1)	$	7,118,608	$	6,943,563
(1) Excludes accrued interest receivable of $30.9 million at March 31, 2023 and $30.6 million at December 31, 2022, that is recorded in accrued interest receivable and other assets.

The Company's loans are currently 83% held by BancFirst and 17% 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 Company's portfolio segment descriptions and the weighted average remaining life of portfolio segments are disclosed in Note (5) to the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

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:



	March 31, 2023		December 31, 2022
	(Dollars in thousands)
Other real estate owned and repossessed assets	$	38,874	$	36,936

As of both March 31, 2023 and December 31, 2022, other real estate owned included a commercial real estate property recorded at approximately $30.1 million and $29.4 million, respectively. 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 Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Rental income	$	2,690	$	2,670
Operating expense		2,381		2,439

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

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.

Nonaccrual loans

The Company did not recognize any interest income on nonaccrual loans for either the three months ended March 31, 2023 or 2022. In addition, there were no nonaccrual loans for which there is no related allowance for credit losses at both March 31, 2023 and December 31, 2022. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $358,000 for the three months ended March 31, 2023 and approximately $376,000 for the three months ended March 31, 2022.

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

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


	March 31, 2023		December 31, 2022
	(Dollars in thousands)
Real estate:
Commercial real estate owner occupied	$	4,408	$	1,795
Commercial real estate non-owner occupied		707		667
Construction and development < 60 months		114		93
Construction residential real estate < 60 months		388		430
Residential real estate first lien		2,646		1,947
Residential real estate all other		748		55
Agriculture		2,688		2,734
Commercial non-real estate		5,695		7,066
Consumer non-real estate		255		192
Oil and gas		—		320
Total	$	17,649	$	15,299

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)
As of March 31, 2023
Real estate:
Commercial real estate owner occupied	$	3,454	$	41	$	7,051	$	10,546	$	909,558	$	920,104	$	4,358
Commercial real estate non-owner occupied		6,257		1,079		242		7,578		1,388,822		1,396,400		201
Construction and development < 60 months		1,206		783		217		2,206		532,641		534,847		103
Construction residential real estate < 60 months		1,175		—		824		1,999		302,767		304,766		824
Residential real estate first lien		4,505		996		1,452		6,953		1,140,847		1,147,800		690
Residential real estate all other		789		860		130		1,779		204,623		206,402		113
Agriculture		4,372		596		1,350		6,318		416,170		422,488		22
Commercial non-real estate		2,709		2,264		3,802		8,775		1,253,962		1,262,737		415
Consumer non-real estate		2,668		724		616		4,008		437,489		441,497		449
Oil and gas		175		202		83		460		481,107		481,567		83
Total	$	27,310	$	7,545	$	15,767	$	50,622	$	7,067,986	$	7,118,608	$	7,258

As of 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

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 and the table summarizing the Company’s gross loans held for investment by year of origination and internally assigned credit grades as of December 31, 2022, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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

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


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Amortized Cost Basis		Total
As of March 31, 2023
Commercial real estate owner occupied
Grade 1	$	26,840	$	171,896	$	136,273	$	98,471	$	87,267	$	158,659	$	50,504	$	729,910
Grade 2		15,333		37,268		33,356		25,810		20,013		32,197		19,018		182,995
Grade 3		18		6		1,694		75		1,277		1,469		62		4,601
Grade 4		—		252		250		311		798		648		—		2,259
Grade 5		—		—		—		—		339		—		—		339
Total commercial real estate owner occupied		42,191		209,422		171,573		124,667		109,694		192,973		69,584		920,104
Current-period gross charge-offs		—		7		1		22		18		—		—		48
Commercial real estate non-owner occupied
Grade 1	$	40,007	$	333,790	$	239,906	$	164,977	$	106,365	$	86,491	$	44,389	$	1,015,925
Grade 2		13,477		122,684		48,822		28,644		36,980		79,557		31,249		361,413
Grade 3		—		6,996		—		152		9,864		1,343		—		18,355
Grade 4		45		620		—		—		—		42		—		707
Total commercial real estate non-owner occupied		53,529		464,090		288,728		193,773		153,209		167,433		75,638		1,396,400
Current-period gross charge-offs		—		—		—		—		—		3		—		3
Construction and development < 60 months
Grade 1	$	44,459	$	152,820	$	80,373	$	39,720	$	5,063	$	6,975	$	51,743	$	381,153
Grade 2		3,757		50,735		16,826		7,203		14,085		2,372		54,929		149,907
Grade 3		2,525		886		—		99		—		7		156		3,673
Grade 4		—		81		—		33		—		—		—		114
Total construction and development < 60 months		50,741		204,522		97,199		47,055		19,148		9,354		106,828		534,847
Current-period gross charge-offs		—		2		—		—		—		—		—		2
Construction residential real estate < 60 months
Grade 1	$	59,006	$	156,832	$	4,707	$	258	$	13	$	39	$	35,474	$	256,329
Grade 2		8,841		35,304		43		46		—		394		2,156		46,784
Grade 3		—		1,265		—		—		—		—		—		1,265
Grade 4		388		—		—		—		—		—		—		388
Total construction residential real estate < 60 months		68,235		193,401		4,750		304		13		433		37,630		304,766
Residential real estate first lien
Grade 1	$	77,619	$	281,309	$	197,623	$	135,722	$	82,252	$	180,597	$	5,693	$	960,815
Grade 2		8,715		43,684		35,764		25,194		13,434		46,291		—		173,082
Grade 3		428		1,910		1,254		905		1,587		3,937		—		10,021
Grade 4		66		110		1,155		369		245		1,937		—		3,882
Total residential real estate first lien		86,828		327,013		235,796		162,190		97,518		232,762		5,693		1,147,800
Current-period gross charge-offs		—		—		—		—		—		2		—		2
Residential real estate all other
Grade 1	$	8,382	$	30,718	$	9,868	$	9,884	$	5,061	$	14,304	$	41,871	$	120,088
Grade 2		987		5,712		2,002		1,729		1,500		3,624		66,883		82,437
Grade 3		172		224		139		48		122		1,113		1,242		3,060
Grade 4		—		—		—		27		—		18		772		817
Total residential real estate all other		9,541		36,654		12,009		11,688		6,683		19,059		110,768		206,402
Current-period gross charge-offs		—		2		19		—		1		4		—		26
Agriculture
Grade 1	$	16,685	$	69,811	$	42,014	$	34,467	$	20,604	$	39,693	$	49,791	$	273,065
Grade 2		10,701		24,320		21,468		9,205		10,223		19,584		32,697		128,198
Grade 3		592		6,337		977		3,356		112		3,290		4,896		19,560
Grade 4		59		646		98		477		50		305		30		1,665
Total Agriculture		28,037		101,114		64,557		47,505		30,989		62,872		87,414		422,488
Current-period gross charge-offs		—		4		—		16		13		2		—		35
Commercial non-real estate
Grade 1	$	108,823	$	212,982	$	189,496	$	58,782	$	45,803	$	47,346	$	305,503	$	968,735
Grade 2		22,343		73,851		42,567		15,526		12,546		21,578		94,656		283,067
Grade 3		952		2,000		392		308		675		1,773		2,035		8,135
Grade 4		20		308		351		741		608		305		203		2,536
Grade 5		—		—		—		—		264		—		—		264
Total commercial non-real estate		132,138		289,141		232,806		75,357		59,896		71,002		402,397		1,262,737
Current-period gross charge-offs		—		67		62		—		—		47		—		176
Consumer non-real estate
Grade 1	$	56,874	$	174,237	$	89,897	$	33,413	$	17,326	$	6,763	$	19,788	$	398,298
Grade 2		3,455		19,044		9,375		3,409		1,301		1,961		1,156		39,701
Grade 3		101		831		738		372		152		149		170		2,513
Grade 4		—		339		382		44		160		60		—		985
Total consumer non-real estate		60,430		194,451		100,392		37,238		18,939		8,933		21,114		441,497
Current-period gross charge-offs		—		76		32		15		9		6		2		140
Oil and gas
Grade 1	$	81,777	$	21,451	$	110,461	$	12,661	$	3,861	$	2,469	$	167,211	$	399,891
Grade 2		1,080		5,968		3,504		729		21,421		15,971		29,233		77,906
Grade 3		—		2,080		247		4		—		—		1,439		3,770
Total oil and gas		82,857		29,499		114,212		13,394		25,282		18,440		197,883		481,567
Total loans held for investment	$	614,527	$	2,049,307	$	1,322,022	$	713,171	$	521,371	$	783,261	$	1,114,949	$	7,118,608
Total current-period gross charge-offs	$	—	$	158	$	114	$	53	$	41	$	64	$	2	$	432

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 CECL model. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

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)
Three Months Ended March 31, 2023
Real estate:
Commercial real estate owner occupied	$	6,416	$	(48	)	$	49	$	1		$	130		$	6,547
Commercial real estate non-owner occupied		30,190		(3	)		—		(3	)		1,933			32,120
Construction and development < 60 months		3,778		(2	)		3		1			(171	)		3,608
Construction residential real estate < 60 months		3,275		—			—		—			(49	)		3,226
Residential real estate first lien		4,092		(2	)		3		1			361			4,454
Residential real estate all other		1,418		(26	)		2		(24	)		50			1,444
Agriculture		6,217		(35	)		6		(29	)		80			6,268
Commercial non-real estate		25,106		(176	)		22		(154	)		127			25,079
Consumer non-real estate		4,132		(140	)		57		(83	)		183			4,232
Oil and gas		8,104		—			—		—			(322	)		7,782
Total	$	92,728	$	(432	)	$	142	$	(290	)	$	2,322		$	94,760


	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)
Three Months Ended March 31, 2022
Real estate:
Commercial real estate owner occupied	$	7,550	$	—	$	(16	)	$	48	$	32		$	680		$	8,262
Commercial real estate non-owner occupied		16,807		—		—			—		—			(459	)		16,348
Construction and development < 60 months		3,454		—		—			3		3			(185	)		3,272
Construction residential real estate < 60 months		1,051		—		—			—		—			52			1,103
Residential real estate first lien		3,048		2		(44	)		7		(37	)		381			3,394
Residential real estate all other		1,567		—		—			402		402			(409	)		1,560
Agriculture		8,392		—		(125	)		3		(122	)		(252	)		8,018
Commercial non-real estate		25,565		48		(57	)		110		53			(503	)		25,163
Consumer non-real estate		3,694		28		(80	)		38		(42	)		50			3,730
Oil and gas		12,808		—		—			—		—			3,581			16,389
Total	$	83,936	$	78	$	(322	)	$	611	$	289		$	2,936		$	87,239

Purchased Credit Deteriorated Loans

The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The Company did not purchase credit-deteriorated loans during the three month period ended March 31, 2023. The credit-deteriorated loans purchased during the three months ended March 31, 2022 were as follows:


	Loans acquired with deteriorated credit quality
	(Dollars in thousands)
For the period ended March 31, 2022
Purchase price of loans at acquisition	$	661
Allowance for credit losses at acquisition		78
Par value of acquired loans at acquisition	$	739

Collateral Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. During the three months ended March 31, 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
	(Dollars in thousands)
As of March 31, 2023
Real estate:
Commercial real estate owner occupied	$	2,154	$	—	$	—	$	—	$	2,154	$	863
Commercial real estate non-owner occupied		1,248		—		—		—		1,248		333
Construction and development < 60 months		—		—		—		—		—		—
Construction residential real estate < 60 months		388		—		—		—		388		45
Residential real estate first lien		387		—		—		—		387		118
Residential real estate all other		8		—		—		—		8		9
Agriculture		3,439		689		—		3,447		7,575		3,027
Commercial non-real estate		—		5,190		—		—		5,190		1,823
Consumer non-real estate		—		—		—		183		183		95
Oil and gas		—		—		—		—		—		—
Total collateral-dependent loans held for investment	$	7,624	$	5,879	$	—	$	3,630	$	17,133	$	6,313

	Collateral Type
	Real Estate		Business Assets		Energy Reserves		Other Assets		Total		Specific Allocation
	(Dollars in thousands)
As of December 31, 2022
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 and repossessed 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 and repossessed assets during the periods presented are summarized as follows:


	Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Other real estate owned	$	565	$	2,153
Repossessed assets		395		277
Total	$	960	$	2,430

(5) INTANGIBLE ASSETS AND GOODWILL

The following is a summary of intangible assets as of the date listed:


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(Dollars in thousands)
March 31, 2023
Core deposit intangibles	$	33,298	$	(14,465	)	$	18,833
Customer relationship intangibles		3,350		(3,080	)		270
Total	$	36,648	$	(17,545	)	$	19,103
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

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)
Three months ended March 31, 2023
Balance at beginning and end of period	$	13,767	$	61,212	$	68,855	$	32,133	$	5,464	$	624	$	182,055

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

(6) 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 were callable at par, in whole or in part, after 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 approximately $59.15 million after deducting commissions and offering expenses of $850,000. The Company used the proceeds from the sale of the Subordinated Notes for general corporate purposes. The 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.

(7) STOCK-BASED COMPENSATION

The Company has had a nonqualified incentive stock option plan, the BancFirst Corporation Stock Option Plan (the “Employee Plan”), since May 1986. At March 31, 2023, there were 42,500 shares available for future grants. The Employee Plan will terminate on December 31, 2024, if not extended. The options vest and are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options expire no later than the end of fifteen years from the date of grant. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

The Company has had the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “Non-Employee Directors’ Plan”) since June 1999. Each non-employee director is granted an option for 10,000 shares. At March 31, 2023, there were 45,000 shares available for future grants. The Non-Employee Directors’ Plan will terminate on December 31, 2024, if not extended. The options vest and are exercisable beginning one year from the date of grant at the rate of 25% per year for four years, and expire no later than the end of fifteen years from the date of grant. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

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

Although not required or expected, the Company may settle some options in cash on a limited basis at the discretion of the Company. The Company had no cash settlements during the three months ended March 31, 2023 or March 31, 2022.

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)
Three Months Ended March 31, 2023
Outstanding at December 31, 2022		1,310,290		$	52.51
Options exercised		(6,541	)		33.72
Options canceled, forfeited, or expired		(7,500	)		87.62
Outstanding at March 31, 2023		1,296,249			52.40	10.37 Yrs.	$	39,796
Exercisable at March 31, 2023		500,499			31.48	6.69 Yrs.	$	25,833

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


	Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Total intrinsic value of options exercised	$	352	$	5,964
Cash received from options exercised		221		2,989
Tax benefit realized from options exercised		85		1,434

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


	Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Stock-based compensation expense	$	382	$	458
Tax benefit		92		110
Stock-based compensation expense, net of tax	$	290	$	348

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


	March 31, 2023
	(Dollars in thousands)
Unearned stock-based compensation expense	$	12,318

No stock options were granted during the three months ended March 31, 2023. The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the periods presented:


	Three Months Ended March 31,
	2023		2022
Weighted average grant-date fair value per share of options granted	$	—	$	26.21
Risk-free interest rate		—	1.75 to 2.14%
Dividend yield		—	2.00%
Stock price volatility		—	34.61 to 34.69%
Expected term		—	10 Yrs

The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S. Treasury security with a maturity similar to the expected term of the options. The dividend yield is the expected yield for the expected term. The stock price volatility is estimated from the recent historical volatility of the Company’s stock. The expected term is estimated from the historical option exercise experience. The Company accounts for forfeitures as they occur.

The Company has had the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “Deferred Stock Compensation Plan”) since May 1999. As of March 31, 2023, there are 24,435 shares available for future issuance under the Deferred Stock Compensation Plan. The Deferred Stock Compensation Plan will terminate on December 31, 2024, if not extended. Under the plan, directors and members of the community advisory boards of the Company and its subsidiaries may defer up to 100% of their board fees. They are credited for each deferral with a number of stock units based on the current market price of the Company’s stock, which accumulate in an account until such time as the director or community board member terminates serving as a board member. Shares of common stock of the Company are then distributed to the terminating director or community board member based upon the number of

stock units accumulated in his or her account. There were 17,392 and 6,177 shares of common stock distributed from the Deferred Stock Compensation Plan during the three months ended March 31, 2023 and 2022, respectively.

A summary of the accumulated stock units is as follows:


	March 31,		December 31,
	2023		2022
Accumulated stock units		114,070		129,609
Average price	$	37.40	$	34.91

(8) STOCKHOLDERS’ EQUITY

In November 1999, the Company adopted 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 under the program:


	Three Months Ended March 31,
	2023		2022
Shares remaining to be repurchased		500,486		500,486

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 March 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:


				Required						To Be Well
				For Capital			With			Capitalized Under
				Adequacy			Capital Conservation			Prompt Corrective
	Actual			Purposes			Buffer			Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
As of March 31, 2023:
Total Capital
(to Risk Weighted Assets)-
BancFirst Corporation	$	1,346,652	16.70%	$	645,076	8.00%	$	846,662	10.50%	N/A		N/A
BancFirst		1,125,839	16.62%		541,939	8.00%		711,294	10.50%	$	677,423	10.00%
Pegasus		131,647	14.55%		72,377	8.00%		94,995	10.50%		90,472	10.00%
Worthington		49,123	13.18%		29,812	8.00%		39,129	10.50%		37,265	10.00%
Common Equity Tier 1 Capital
(to Risk Weighted Assets)-
BancFirst Corporation	$	1,166,638	14.47%	$	362,855	4.50%	$	564,441	7.00%	N/A		N/A
BancFirst		1,023,399	15.11%		304,840	4.50%		474,196	7.00%	$	440,325	6.50%
Pegasus		122,244	13.51%		40,712	4.50%		63,330	7.00%		58,807	6.50%
Worthington		45,556	12.22%		16,769	4.50%		26,086	7.00%		24,222	6.50%
Tier 1 Capital
(to Risk Weighted Assets)-
BancFirst Corporation	$	1,192,638	14.79%	$	483,807	6.00%	$	685,393	8.50%	N/A		N/A
BancFirst		1,043,399	15.40%		406,454	6.00%		575,810	8.50%	$	541,939	8.00%
Pegasus		122,244	13.51%		54,283	6.00%		76,901	8.50%		72,377	8.00%
Worthington		45,556	12.22%		22,359	6.00%		31,675	8.50%		29,812	8.00%
Tier 1 Capital
(to Total Assets)-
BancFirst Corporation	$	1,192,638	9.78%	$	487,729	4.00%	N/A		N/A	N/A		N/A
BancFirst		1,043,399	10.11%		412,824	4.00%	N/A		N/A	$	516,030	5.00%
Pegasus		122,244	9.07%		53,935	4.00%	N/A		N/A		67,419	5.00%
Worthington		45,556	9.08%		20,062	4.00%	N/A		N/A		25,077	5.00%

As of March 31, 2023, the most recent notifications from the Federal Reserve Bank of Kansas City, the FDIC and the Comptroller of the Currency, categorized BancFirst, Pegasus and Worthington as “well capitalized” 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 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. There are no conditions or events since the most recent notifications to BancFirst Corporation, BancFirst, Pegasus and Worthington of their capital category that management believes would materially change their category under capital requirements existing as of the report date.

On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $60 million aggregate principal amount of Subordinated Notes. The Subordinated Notes have been structured to qualify as Tier 2 capital under bank regulatory guidelines.

(9) NET INCOME PER COMMON SHARE

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


	Income (Numerator)		Shares (Denominator)		Per Share Amount
	(Dollars in thousands, except per share data)
Three Months Ended March 31, 2023
Basic
Income available to common stockholders	$	57,533		32,892,857	$	1.75
Dilutive effect of stock options		—		569,882
Diluted
Income available to common stockholders plus assumed exercises of stock options	$	57,533		33,462,739	$	1.72
Three Months Ended March 31, 2022
Basic
Income available to common stockholders	$	35,915		32,666,916	$	1.10
Dilutive effect of stock options		—		648,417
Diluted
Income available to common stockholders plus assumed exercises of stock options	$	35,915		33,315,333	$	1.08

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


	Shares
Three Months Ended March 31, 2023		309,833
Three Months Ended March 31, 2022		105,278

(10) 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 judgment or estimation. This category includes certain collaterally dependent 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 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)
March 31, 2023
Debt securities available for sale:
U.S. Treasury	$	1,557,594	$	—	$	—	$	1,557,594
U.S. federal agencies		—		14,254		—		14,254
Mortgage-backed securities		—		16,187		—		16,187
States and political subdivisions		—		7,697		458		8,155
Asset backed securities		—		12,363		—		12,363
Other debt securities		—		7,360		—		7,360
Derivative assets		—		25,970		—		25,970
Derivative liabilities		—		24,955		—		24,955

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

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


	Three Months Ended March 31,		Twelve Months Ended December 31,
	2023		2022
	(Dollars in thousands)
Balance at the beginning of the year	$	454	$	320
Transfers to level 2		—		—
Purchases		—		255
Settlements		—		(110	)
Total unrealized gain		4		(11	)
Balance at the end of the period	$	458	$	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 three months ended March 31, 2023, the Company did not transfer any debt securities. In addition, during the year ended December 31, 2022, the Company did not transfer any debt securities.

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.

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 March 31, 2023
Equity securities	$	15,009
Collateral dependent loans		168
Repossessed assets		235
Other real estate owned		2,032
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 based on 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 debt 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.

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.

The estimated fair values of the Company’s financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:


	March 31,				December 31,
	2023				2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
FINANCIAL ASSETS
Level 2 inputs:
Cash and cash equivalents	$	2,836,391	$	2,836,391	$	3,168,910	$	3,168,910
Federal funds sold		1,084		1,084		2,850		2,850
Debt securities held for investment		10		11		13		13
Loans held for sale		6,223		6,223		6,232		6,232
Level 3 inputs:
Debt securities held for investment		2,310		2,310		2,370		2,370
Loans, net of allowance for credit losses		7,023,848		6,711,575		6,850,835		6,563,755
FINANCIAL LIABILITIES
Level 2 inputs:
Deposits		10,610,103		10,188,895		10,974,228		10,614,840
Short-term borrowings		203,494		203,534		300		300
Subordinated debt		86,058		80,540		86,044		82,385
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments				4,691				4,598
Letters of credit				532				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. 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 March 31, 2023 or December 31, 2022.

(11) 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 March 31, 2023, the Company had a margin liability included in other liabilities in the amount of $4.6 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:


		March 31, 2023						December 31, 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		2,229		$	9,965			2,698		$	8,868
Derivative liabilities	Barrels		(2,229	)		(9,456	)		(2,698	)		(8,259	)

Gas/Natural Gas Liquids
Derivative assets	MMBTUs/Gallons		20,923			16,005			25,059			11,877
Derivative liabilities	MMBTUs/Gallons		(20,923	)		(15,499	)		(25,059	)		(11,424	)

Total Fair Value	Included in
Derivative assets	Other assets					25,970						20,745
Derivative liabilities	Other liabilities					(24,955	)					(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:


	Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Derivative income	$	89	$	159

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 the 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:


	March 31, 2023		December 31, 2022
	(Dollars in thousands)
Credit exposure	$	—	$	6,560

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.

(12) 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 and Fort Worth metropolitan areas. 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.

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)
Three Months Ended March 31, 2023
Net interest income	$	30,739	$	57,685	$	15,151	$	4,624	$	942	$	15		$	—		$	109,156
Noninterest income		6,087		19,532		214		279		14,172		66,143			(58,599	)		47,828
Income before taxes		23,310		43,599		9,644		1,630		6,164		48,417			(58,419	)		74,345

Three Months Ended March 31, 2022
Net interest income	$	19,608	$	44,568	$	7,620	$	1,694	$	2,913	$	(907	)	$	11		$	75,507
Noninterest income		9,773		16,845		191		133		12,983		42,574			(38,849	)		43,650
Income before taxes		18,171		31,339		2,827		385		6,045		23,648			(38,706	)		43,709

Total Assets:
March 31, 2023	$	3,413,494	$	6,817,850	$	1,390,459	$	516,112	$	147,971	$	1,491,908		$	(1,445,689	)	$	12,332,105
December 31, 2022		3,412,369		6,886,066		1,404,033		541,002		171,679		1,473,443			(1,500,729	)		12,387,863

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.

Item 2. 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, 2023 and December 31, 2022 and results of operations for the three months ended March 31, 2023 should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2022, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2022 Form 10-K, and "Item 1A, Risk Factors" in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.

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 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 the collateral for the Company's commercial real estate loans.

•

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

•

Rising interest rates.

•

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

•

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

•

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.

•

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 the first quarter of 2023 was $57.5 million, compared to $35.9 million for the first quarter of 2022. Diluted net income per common share was $1.72 and $1.08 for the first quarter of 2023 and 2022, respectively. The Company’s net interest income for the first quarter of 2023 increased to $109.2 million, compared to $75.5 million for the first quarter of 2022. Rising short-term interest rates and loan growth drove the increase. The net interest margin for the first quarter was 3.89%, compared to 2.78% a year ago. For the first quarter of 2023, the Company recorded a provision for credit losses of $2.3 million, compared to a provision for credit losses of $2.9 million for the first quarter of 2022.

Noninterest income for the first quarter of 2023 totaled $47.8 million, compared to $43.7 million for the first quarter of 2022. The increase in noninterest income was mostly attributable to an increase in sweep account fees due to rising interest rates and higher volume, along with a $1.3 million increase in insurance commissions. Noninterest income for the first quarter of 2023 included $327,000 of income from an equity interest received from a prior loan settlement compared to $4.9 million of income from the same source in the first quarter of 2022. In addition, the first quarter of 2022 included a loss of $4.0 million on the sale of $226 million of low yielding debt securities, which were subsequently reinvested at higher yielding debt securities.

Noninterest expense for the first quarter of 2023 increased to $80.3 million compared to $72.5 million for the first quarter of 2022. The increase in noninterest expense was primarily related to an increase in salaries and employee benefits of approximately $5.3 million. The first quarter of 2022 included a gain on sale of OREO which reduced noninterest expense by $726,000. The Company’s effective tax rate was 22.6% for the first quarter of 2023 compared to 17.8% for the first quarter of 2022. During the quarter, the Company adopted Accounting Standard Update ("ASU") 2023-02 and amortized $977,000 of New Market Tax Credits ("NMTC") to income tax expense during the period that would have previously been recorded to other expense. Exercises of stock options and a lower state tax rate contributed to the lower effective tax rate in 2022.

At March 31, 2023, the Company’s total assets were $12.3 billion, a decrease of $55.8 million from December 31, 2022. Debt securities of $1.6 billion were up $77.6 million from December 31, 2022. Loans totaled $7.1 billion, an increase of $175.0 million from December 31, 2022. Deposits totaled $10.6 billion, a decrease of $364.1 million from December 31, 2022 as demand deposits moved into the Company's off balance sheet sweep product. Sweep accounts totaled $4.1 billion at March 31, 2023 up $394.9 million from December 31, 2022. The Company’s total stockholders’ equity at March 31, 2023 was $1.3 billion, an increase of $60.0 million over December 31, 2022.

At March 31, 2023, the Company’s nonaccrual loans were $17.6 million compared to $15.3 million at year-end 2022. Nonaccrual loans represented 0.25% of total loans at March 31, 2023, compared to 0.22% at December 31, 2022. The allowance for credit losses to total loans was 1.33% at both March 31, 2023 and December 31, 2022. Net charge-offs were minimal for both the first quarter of 2023 and 2022.

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

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See Note (1) of the Notes to the Consolidated Financial Statements for disclosures regarding recently issued accounting pronouncements since December 31, 2022, the date of its most recent annual report to stockholders.

SEGMENT INFORMATION

See Note (12) of the Notes to the Consolidated Financial Statements for disclosures regarding business segments.

RESULTS OF OPERATIONS

Average Balances, Income, Expenses and Rates

The following table presents, for the periods indicated, certain information related to the Company's consolidated average balance sheet, average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. For these computations: (i) average balances are derived from daily averages, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, and (iii) nonaccrual loans are included in the average loan

balances and any interest on such nonaccrual loans is recognized on a cash basis. Loan fees included in interest income were $5.6 million for the three months ended March 31, 2023 compared to $7.3 million for the three months ended March 31, 2022.


BANCFIRST CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
(Unaudited)
Taxable Equivalent Basis
(Dollars in thousands)

	Three Months Ended March 31,
	2023								2022
				Interest		Average						Interest		Average
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
ASSETS
Earning assets:
Loans (1)	$	7,005,731		$	104,481		6.05	%	$	6,359,795		$	73,066		4.66	%
Debt securities – taxable		1,572,278			8,991		2.32			1,105,222			3,781		1.39
Debt securities – tax exempt		3,481			9		1.07			4,774			34		2.93
Federal funds sold and interest-bearing deposits with banks		2,799,540			32,052		4.64			3,548,875			1,758		0.20
Total earning assets		11,381,030			145,533		5.19			11,018,666			78,639		2.89
Nonearning assets:
Cash and due from banks		218,164								269,015
Interest receivable and other assets		795,316								785,248
Allowance for credit losses		(93,316	)							(85,228	)
Total nonearning assets		920,164								969,035
Total assets	$	12,301,194							$	11,987,701
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Transaction deposits	$	927,265		$	1,632		0.71	%	$	942,178		$	191		0.08	%
Savings deposits		4,424,063			30,491		2.80			4,170,503			1,141		0.11
Time deposits		705,787			3,054		1.76			654,091			649		0.40
Short-term borrowings		6,844			83		4.94			2,459			1		0.12
Subordinated debt		86,049			1,030		4.86			85,992			1,030		4.86
Total interest-bearing liabilities		6,150,008			36,290		2.39			5,855,223			3,012		0.21
Interest-free funds:
Noninterest-bearing deposits		4,797,014								4,883,050
Interest payable and other liabilities		79,735								67,688
Stockholders’ equity		1,274,437								1,181,740
Total interest free funds		6,151,186								6,132,478
Total liabilities and stockholders’ equity	$	12,301,194							$	11,987,701
Net interest income				$	109,243							$	75,627
Net interest spread							2.80	%							2.68	%
Effect of interest free funds							1.09	%							0.10	%
Net interest margin							3.89	%							2.78	%

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

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended March 31,
	2023			2022
Income Statement Data
Net interest income	$	109,156		$	75,507
Provision for credit losses		2,322			2,936
Securities transactions		(213	)		(3,915	)
Total noninterest income		47,828			43,650
Salaries and employee benefits		49,252			43,932
Total noninterest expense		80,317			72,512
Net income		57,533			35,915
Per Common Share Data
Net income – basic	$	1.75		$	1.10
Net income – diluted		1.72			1.08
Cash dividends		0.40			0.36
Performance Data
Return on average assets		1.90	%		1.22	%
Return on average stockholders’ equity		18.31			12.33
Cash dividend payout ratio		22.86			32.73
Net interest spread		2.80			2.68
Net interest margin		3.89			2.78
Efficiency ratio		51.16			60.85
Net charge-offs to average loans		0.00			0.00

Net Interest Income

For the three months ended March 31, 2023, net interest income, which is the Company’s principal source of operating revenue, increased $33.6 million or 44.6% compared to the three months ended March 31, 2022. The increase was due to rising short-term interest rates and loan growth. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. As shown in the preceding table, the Company’s net interest margin for the first quarter of 2023 increased compared to the first quarter of 2022.

During 2022, the Federal Reserve began raising interest rates to help slow inflation in the economy. The Company’s net interest income and net interest margin were impacted by the increases in interest rates. Our expectation is that interest rates will continue to increase in the near term.

Provision for Credit Losses

The provision for credit losses is presented in the preceding table. The 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 $290,000 for the first quarter of 2023, compared to net loan recoveries of $289,000 for the first quarter of 2022. The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a low level.

Noninterest Income

Noninterest income, as presented in the preceding table, increased by $4.2 million for the first quarter of 2023 compared to the first quarter of 2022. The increase in noninterest income was mostly attributable to an increase in sweep account fees due to rising interest rates and higher volume, along with a $1.3 million increase in insurance commissions. Noninterest income for the first quarter of 2023 included $327,000 of income from an equity interest received from a prior loan settlement compared to $4.9 million of income

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

Noninterest income included non-sufficient funds ("NSF") and overdraft fees totaling $6.4 million and $6.5 million for the three months ended March 31, 2023 and 2022, respectively. This represents 13.5% and 15.0% of the Company’s noninterest income for the respective periods. In addition, the Company had debit card interchange fees totaling $12.0 million and $11.7 million during the three months ended March 31, 2023 and 2022, respectively. This represents 25.2% and 26.7% of the Company’s noninterest income for the respective periods.

The Company is subject to political pressures that could limit our ability to charge for NSF and overdraft fees. As of April 1, 2022, the Company lowered the rates charged on NSF and overdraft fees. The Company exceeded $10 billion in total assets at December 31, 2022. Pursuant to the Durbin Amendment of the Dodd-Frank Act, based on current run rates, this will cause a reduction of annual pretax income from debit card interchange fees of approximately $22 million beginning July 1, 2023.

Noninterest Expense

Noninterest expense, as presented in the preceding table, increased by $7.8 million for first quarter of 2023 compared to the first quarter of 2022. The increase in noninterest expenses was primarily related to an increase in salaries and employee benefits of $5.3 million. The first quarter of 2022 included a gain on sale of OREO which reduced noninterest expense by $726,000.

Income Taxes

The Company’s effective tax rate was 22.6% for the first quarter of 2023, compared to 17.8% for the first quarter of 2022. During the quarter, the Company adopted ASU 2023-02 and amortized $977,000 of NMTC to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 1.31%. Exercises of stock options and a lower state tax rate contributed to the lower effective tax rate in 2022. 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.

FINANCIAL POSITION


BANCFIRST CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)

	March 31,			December 31,
	2023			2022
	(unaudited)
Balance Sheet Data
Total assets	$	12,332,105		$	12,387,863
Total loans (net of unearned interest)		7,124,831			6,949,795
Allowance for credit losses		94,760			92,728
Debt securities		1,618,233			1,540,604
Deposits		10,610,103			10,974,228
Stockholders' equity		1,310,882			1,250,836
Book value per share		39.85			38.05
Tangible book value per share (non-GAAP)(1)		33.73			31.90
Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2)
Stockholders' equity	$	1,310,882		$	1,250,836
Less goodwill		182,055			182,055
Less intangible assets, net		19,103			19,983
Tangible stockholders' equity (non-GAAP)	$	1,109,724		$	1,048,798
Common shares outstanding		32,899,493			32,875,560
Tangible book value per share (non-GAAP)	$	33.73		$	31.90
Selected Financial Ratios
Balance Sheet Ratios:
Average loans to deposits (year-to-date)		64.54	%		60.06	%
Average earning assets to total assets (year-to-date)		92.52			91.63
Average stockholders’ equity to average assets (year-to-date)		10.36			9.67
Asset Quality Data
Loans past due 90 days and still accruing	$	7,258		$	7,085
Nonaccrual loans (3)		17,649			15,299
Other real estate owned and repossessed assets		38,874			36,936
Asset Quality Ratios:
Nonaccrual loans to total loans		0.25	%		0.22	%
Allowance for credit losses to total loans		1.33			1.33
Allowance for credit losses to nonaccrual loans		536.93			606.10
(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.
(3) Government agencies guarantee approximately $6.4 million of nonaccrual loans at March 31, 2023.

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

The aggregate of cash and due from banks, federal funds sold and interest-bearing deposits with banks decreased by $334.3 million or 10.5% to $2.8 billion, from December 31, 2022 to March 31, 2023. The decrease was related to demand deposits that were moved into the Company's off-balance sheet sweep product. Sweep accounts were $4.1 billion at March 31, 2023, up $394.9 million from December 31, 2022.

Securities

At March 31, 2023, total debt securities increased $77.6 million, or 5.0% compared to December 31, 2022. The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management. The net unrealized loss on debt securities available for sale, before taxes, was $74.5 million at March 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 income, net of income tax, in the amounts of a loss of $56.9 million at March 31, 2023 and a loss of $71.6 million at December 31, 2022. During the quarter ended March 31, 2023, the Company purchased debt securities as shown in the consolidated statements of cash flow. The Company did not have any sales of debt securities during the quarter ended March 31, 2023. During the quarter ended March 31, 2022, the Company had a loss of $4.0 million on bonds resulting from the sale of $226 million of debt securities with an average yield of 0.16%, the proceeds of which were subsequently reinvested in $220 million of debt securities with an average yield of 1.86%.

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

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

Loans

At March 31, 2023, total loans increased $175.0 million or 2.5% compared to December 31, 2022, as a result of internal loan growth. The increase of internal loan growth was 62% from the Company's Oklahoma subsidiary BancFirst and 38% from the Company's Texas subsidiaries Pegasus and Worthington.

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

Allowance for Credit Losses

The allowance for credit losses to total loans was 1.33% at both March 31, 2023 and December 31, 2022. The overall credit quality of the Company's loan portfolio has remained strong. 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.

Nonaccrual Loans

Nonaccrual loans totaled $17.6 million at March 31, 2023, compared to $15.3 million at December 31, 2022. The Company’s nonaccrual loans are primarily commercial real estate and commercial non-real estate loans. 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 approximately $358,000 for the three months ended March 31, 2023 and $376,000 for the three months ended March 31, 2022. Only a small amount of this interest is expected to be ultimately collected. Approximately $6.4 million of nonaccrual loans were guaranteed by government agencies at March 31, 2023.

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 declines. 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. The allowance for credit losses as a percentage of nonaccrual loans is shown in the table above.

Modified Loans

As of January 1, 2023, the Company adopted Accounting Standards Update (“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.

Other Real Estate Owned and Repossessed Assets

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

OREO included a commercial real estate property recorded at $30.1 million at March 31, 2023 and $29.4 million at December 31, 2022. Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income. 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 Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Rental income	$	2,690	$	2,670
Operating expense		2,381		2,439

The Company's total rental income from OREO was approximately $2.8 million for the three months ended March 31, 2023 and for the three months ended March 31, 2022. In addition, the Company's total OREO holding expense was approximately $2.6 million for the three months ended March 31, 2023 compared to approximately $2.5 million for the three months ended March 31, 2022.

Intangible Assets, Goodwill and Other Assets

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

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

Derivative financial instruments consisting of oil and gas swaps and option contracts are included in other assets and totaled $26.0 million at March 31, 2023 and $20.7 million at December 31, 2022. These derivative financial instruments have increased due to the increase in oil and gas prices and customer activity. They require a daily margin to be posted, which fluctuates with oil and gas prices and customer activity. At March 31, 2023, the Company had a margin liability included in other liabilities in the amount of $4.6 million. At December 31, 2022, the Company had a margin asset included in other assets in the amount of $6.6 million. See Note (11) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s derivative financial instruments.

Equity securities are reported in other assets on the consolidated balance sheet. The Company invests in equity securities without readily determinable fair values. 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 $15.0 million at March 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 included equity interests of previous borrowers in the oil and gas industry that were received through bankruptcy proceedings, which totaled $20.3 million at March 31, 2023 and $21.4 million at December 31, 2022. 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

During 2023, there have not been any material changes in the Company’s low income housing tax credit ("LIHTC") investments and NMTC investments, which are included in other assets on the Company’s consolidated balance sheet. During the quarter the Company adopted ASU 2023-02 and recorded $21.8 million in other assets and other liabilities on the consolidated balance sheet for unfunded LIHTC commitments and amortized $977,000 of NMTC investments to income tax expense during the period that would have previously been recorded to other expense. See Note (6) of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for disclosures regarding these investments.

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

There have not been any other material changes from the liquidity and funding discussion included in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Deposits

At March 31, 2023, deposits totaled $10.6 billion, a decrease of $364.1 million from December 31, 2022 as demand deposits moved into the Company's off balance sheet sweep product. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s core deposits as a percentage of total deposits were 97.8% at March 31, 2023 and 98.1% at December 31, 2022. Noninterest-bearing deposits to total deposits were 42.8% at March 31, 2023, compared to 45.1% at December 31, 2022.

Off-balance sheet sweep accounts totaled $4.1 billion at March 31, 2023 compared to $3.7 billion at December 31, 2022. The Company's sweep accounts affected the balances of both assets and deposits.

Subordinated Debt

See Note (6) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s subordinated debt.

Short-Term Borrowings and Lines of Credit

Short-term borrowings, consisting primarily of federal funds purchased and repurchase agreements, are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company’s ability to earn a favorable spread on the funds obtained. Short-term borrowings were $203.5 million at March 31, 2023, compared to $300,000 at December 31, 2022. The increase in short-term borrowings was due to BancFirst taking a $200.0 million advance on its line of credit from the Federal Home Loan Bank (“FHLB”) of Topeka, Kansas, which was paid off on April 3, 2023. The Company has several lines of credit it can use. At March 31, 2023, BancFirst had $560.3 million available on its line of credit from the FHLB of Topeka, Kansas and a $25.0 million line of credit with another financial institution that is an overnight federal funds facility. Pegasus has a federal funds line of credit with BancFirst for $50.0 million. Worthington has a $25.0 million federal funds line of credit with BancFirst, a $10.5 million line of credit with another financial institution that is an overnight federal funds facility, a federal reserve discount window capacity of $28.2 million and a $69.9 million line of credit from the FHLB of Dallas, Texas.

Capital Resources

Stockholders’ equity totaled $1.3 billion at March 31, 2023 an increase of $60.0 million from December 31, 2022. In addition to net income of $57.5 million, other changes in stockholders’ equity during the three months ended March 31, 2023 included $642,000 related to common stock issuances for stock option exercises, $382,000 related to stock-based compensation and a $14.6 million increase in accumulated other comprehensive income that were partially offset by $13.2 million in dividends. The Company’s leverage ratio and total risk-based capital ratios at March 31, 2023, were well in excess of the regulatory requirements.

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

Liquidity Risk and Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in the Company’s disclosures regarding market risk since December 31, 2022, the date of its most recent annual report to stockholders.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s Chief Executive Officer, Chief Financial Officer and its Disclosure Committee, which includes the Company’s Executive Chairman, Chief Risk Officer, Chief Internal Auditor, Chief Asset Quality Officer, Controller, General Counsel and Director of Financial Reporting, have evaluated, as of the last day of the period covered by this report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on their evaluation they concluded that the disclosure controls and procedures of the Company are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms.

Changes in Internal Control Over Financial Reporting. During the period to which this report relates, there have not been any changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, such controls.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The Company has been named as a defendant in various legal actions arising from the conduct of its normal business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse effect on the consolidated financial statements of the Company.

Item 1A. Risk Factors.

The following represents a material change in our risk factors from those disclosed in Part I – “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Recent negative developments in the banking industry could adversely affect our financial condition and results of operations.

The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. These developments have negatively impacted customer confidence in regional and community banks that are not considered too big to fail, which could prompt customers to move uninsured deposits to banks that are perceived as too big to fail. Further, competition for deposits has recently increased and available yields have similarly increased, causing non-interest bearing deposits to move to interest bearing deposits and sweeps. If such movement is permanent, it will reduce our net interest margin going forward. The financial impact on the Company of ongoing market volatility, continued high inflation and rising interest rates will depend on future developments which are highly uncertain and difficult to predict.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.


Exhibit Number		Exhibit
3.1*		Amended and Restated By-Laws of BancFirst Corporation.

3.2		Restated Certificate of Incorporation of BancFirst Corporation dated August 5, 2021. (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2021).

31.1*		Chief Executive Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

31.2*		Chief Financial Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

32**		CEO’s & CFO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover page Interactive Data File (formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101)

* Filed herewith.

** This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		BANCFIRST CORPORATION
		(Registrant)

Date: May 9, 2023		/s/ David Harlow
		David Harlow
		President
		Chief Executive Officer
		(Principal Executive Officer)

Date: May 9, 2023		/s/ Kevin Lawrence
		Kevin Lawrence
		Executive Vice President
		Chief Financial Officer
		(Principal Financial Officer)