# Bancfirst Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Bancfirst Corp](/companies/banf.md) (CIK 760498)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 19:16 ET
- Period: 2023-09-30
- Accession: 0000950170-23-059271
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/760498/000095017023059271/banf-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/760498/000095017023059271/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $55.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $137.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $14.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $46.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $51.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $163.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.52 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.88 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.55 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.97 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 33,539,389 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 33,493,015 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $190.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $17.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $39.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $1.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2023-09-30 | $12.11bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $10.74bn | us-gaap:Liabilities |
| Short-term borrowings | at 2023-09-30 | $4.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $1.37bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,278 characters.

*The following discussion and analysis of our financial condition as of September 30, 2023 and December 31, 2022 and results of operations for the three and nine months ended September 30, 2023 should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2022, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2022 Form 10-K, and "Item 1A, Risk Factors" in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.*

### FORWARD LOOKING STATEMENTS

The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management’s current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

- The impact of the Durbin Amendment of the Dodd-Frank Act ("Durbin Amendment") on noninterest income beginning July 1, 2023.
- Potential impacts of the recent adverse developments in the banking industry driven by high-profile bank failures, including impacts on customer confidence, demand deposit outflows and the regulatory response thereto.
- Recent deterioration in the market for commercial office property could have an adverse effect on the value of the Company's other real estate owned as well as commercial office collateral for the Company's commercial real estate loans.
- Political pressures could further limit our ability to charge 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.
- 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.

### SUMMARY

The Company’s net income for the third quarter of 2023 was $51.0 million, compared to $55.4 million for the third quarter of 2022. Diluted net income per common share was $1.52 and $1.65 for the third quarter of 2023 and 2022, respectively. The Company’s net interest income for the third quarter of 2023 increased to $104.3 million, compared to $100.9 million for the third quarter of 2022. Rising short-term interest rates and loan growth drove the increase. The net interest margin for the third quarter was 3.73%, compared to 3.48% a year ago. For the third quarter of 2023, the Company recorded a provision for credit losses of $2.3 million to account for loan growth, compared to $2.9 million for the third quarter of 2022.

Noninterest income for the third quarter of 2023 totaled $44.4 million, compared to $49.3 million for the third quarter of 2022. The decrease in noninterest income was attributable to the reduction of interchange fees of approximately $5.4 million related to the impact of the Durbin Amendment as the Company exceeded $10 billion in total assets at December 31, 2022. In addition, noninterest income for the third quarter of 2022 included $3.2 million of income from an equity interest received from a prior loan settlement. The equity interest was sold during the second quarter of 2023 at no gain.

Noninterest expense for the third quarter of 2023 increased to $81.2 million compared to $79.1 million for the third quarter of 2022. Higher noninterest expense was primarily related to an increase in salaries and employee benefits of $2.5 million.

The Company’s effective tax rate was 21.8% for the third quarter of 2023 compared to 19.0% for the third quarter of 2022. The Company adopted Accounting Standard Update ("ASU") 2023-02 on January 1, 2023, which increased income tax expenses. Exercises of stock options contributed to the lower effective tax rate in 2022.

At September 30, 2023, the Company’s total assets were $12.1 billion, a decrease of $273.3 million from December 31, 2022. Loans totaled $7.5 billion, an increase of $526.7 million from December 31, 2022. Liquidity remained strong with cash at $2.3 billion and a quarterly average loan to deposit ratio of 70.6% at September 30, 2023 compared to 62.3% at year-end 2022. Deposits totaled $10.5 billion, $440.1 million below December 31, 2022 as some large commercial deposits moved from demand accounts into the Company's off balance sheet sweep account product. Sweep accounts totaled $4.0 billion at September 30, 2023, up $285.3 million from December 31, 2022. The Company continues to fund itself with community-based deposits and does not use brokered or reciprocal deposits. The Company’s total stockholders’ equity at September 30, 2023 was $1.4 billion, an increase of $119.7 million above December 31, 2022.

At September 30, 2023, the Company’s nonaccrual loans were $16.7 million compared to $15.3 million at year-end 2022. Asset quality remained strong with nonaccrual loans representing 0.22% of total loans at both September 30, 2023 and December 31, 2022. The allowance for credit losses to total loans stood at 1.31% at September 30, 2023, compared to 1.33% at December 31, 2022. Net charge-offs were 0.02% of average loans for the third quarter of 2023 compared to 0.00% for the third quarter of 2022.

Competition for deposits has recently increased and available yields have similarly increased, causing non-interest bearing deposits to move to interest bearing deposits and off balance sheet sweep account products. Although the percent of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets has decreased to 19.4% at September 30, 2023, compared to 25.6% at December 31, 2022, the Company is still highly liquid.

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

### 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 sheets, average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. For these computations: (i) average balances are derived from daily averages, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, and (iii) nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis. Loan fees included in interest income were $6.0 million for the three months ended September 30, 2023 compared to $5.7 million for the three months ended September 30, 2022. Loan fees included in interest income were $17.3 million for the nine months ended September 30, 2023 compared to $19.4 million for the nine months ended September 30, 2022.

*BANCFIRST CORPORATION*

*CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS*

*(Unaudited)*

*Taxable Equivalent Basis*

*(Dollars in thousands)*

| ASSETS Earning assets: | Three Months Ended September 30, 2023 Average Balance | Interest Income/ Expense | Average Yield/ Rate | 2022 Average Balance | Interest Income/ Expense | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans (1) | $7,379,572 | $122,005 | 6.56% | $6,652,613 | $87,169 | 5.20% |
| Debt securities – taxable | 1,552,590 | 9,260 | 2.37 | 1,353,950 | 6,793 | 1.99 |
| Debt securities – tax exempt | 2,990 | 27 | 3.61 | 3,539 | 28 | 3.09 |
| Federal funds sold and interest-bearing deposits with banks | 2,162,655 | 29,052 | 5.33 | 3,512,242 | 20,119 | 2.27 |
| Total earning assets | 11,097,807 | 160,344 | 5.73 | 11,522,344 | 114,109 | 3.93 |
| Nonearning assets: |  |  |  |  |  |  |
| Cash and due from banks | 197,702 |  |  | 252,874 |  |  |
| Interest receivable and other assets | 813,824 |  |  | 892,858 |  |  |
| Allowance for credit losses | (97,591) |  |  | (86,955) |  |  |
| Total nonearning assets | 913,935 |  |  | 1,058,777 |  |  |
| Total assets | $12,011,742 |  |  | $12,581,121 |  |  |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Transaction deposits | $804,122 | $2,002 | 0.99% | $958,008 | $442 | 0.18% |
| Savings deposits | 4,646,598 | 46,292 | 3.95 | 4,313,076 | 10,447 | 0.96 |
| Time deposits | 816,779 | 6,544 | 3.18 | 678,549 | 1,110 | 0.65 |
| Short-term borrowings | 4,937 | 49 | 3.94 | 6,979 | 36 | 2.05 |
| Subordinated debt | 86,077 | 1,030 | 4.75 | 86,020 | 1,030 | 4.75 |
| Total interest-bearing liabilities | 6,358,513 | 55,917 | 3.49 | 6,042,632 | 13,065 | 0.86 |
| Interest-free funds: |  |  |  |  |  |  |
| Noninterest-bearing deposits | 4,183,422 |  |  | 5,208,591 |  |  |
| Interest payable and other liabilities | 114,867 |  |  | 118,375 |  |  |
| Stockholders’ equity | 1,354,940 |  |  | 1,211,523 |  |  |
| Total interest free funds | 5,653,229 |  |  | 6,538,489 |  |  |
| Total liabilities and stockholders’ equity | $12,011,742 |  |  | $12,581,121 |  |  |
| Net interest income |  | $104,427 |  |  | $101,044 |  |
| Net interest spread |  |  | 2.24% |  |  | 3.07% |
| Effect of interest free funds |  |  | 1.49% |  |  | 0.41% |
| Net interest margin |  |  | 3.73% |  |  | 3.48% |

32

*BANCFIRST CORPORATION*

*CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS*

*(Unaudited)*

*Taxable Equivalent Basis*

*(Dollars in thousands)*

| ASSETS Earning assets: | Nine Months Ended September 30, 2023 Average Balance | Interest Income/ Expense | Average Yield/ Rate | 2022 Average Balance | Interest Income/ Expense | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans (1) | $7,212,231 | $341,194 | 6.33% | $6,527,355 | $239,072 | 4.90% |
| Debt securities – taxable | 1,576,358 | 27,659 | 2.35 | 1,218,092 | 15,716 | 1.73 |
| Debt securities – tax exempt | 3,239 | 65 | 2.70 | 3,993 | 89 | 2.99 |
| Federal funds sold and interest-bearing deposits with banks | 2,362,174 | 87,879 | 4.97 | 3,582,533 | 29,482 | 1.10 |
| Total earning assets | 11,154,002 | 456,797 | 5.48 | 11,331,973 | 284,359 | 3.35 |
| Nonearning assets: |  |  |  |  |  |  |
| Cash and due from banks | 205,269 |  |  | 271,060 |  |  |
| Interest receivable and other assets | 810,025 |  |  | 874,379 |  |  |
| Allowance for credit losses | (95,614) |  |  | (86,545) |  |  |
| Total nonearning assets | 919,680 |  |  | 1,058,894 |  |  |
| Total assets | $12,073,682 |  |  | $12,390,867 |  |  |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Transaction deposits | $859,301 | $5,271 | 0.82% | $959,261 | $846 | 0.12% |
| Savings deposits | 4,510,005 | 114,450 | 3.39 | 4,271,070 | 14,320 | 0.45 |
| Time deposits | 756,962 | 14,026 | 2.48 | 666,190 | 2,400 | 0.48 |
| Short-term borrowings | 7,324 | 261 | 4.76 | 5,401 | 49 | 1.21 |
| Subordinated debt | 86,063 | 3,091 | 4.80 | 86,006 | 3,091 | 4.81 |
| Total interest-bearing liabilities | 6,219,655 | 137,099 | 2.95 | 5,987,928 | 20,706 | 0.46 |
| Interest-free funds: |  |  |  |  |  |  |
| Noninterest-bearing deposits | 4,432,349 |  |  | 5,106,094 |  |  |
| Interest payable and other liabilities | 101,574 |  |  | 104,299 |  |  |
| Stockholders’ equity | 1,320,104 |  |  | 1,192,546 |  |  |
| Total interest free funds | 5,854,027 |  |  | 6,402,939 |  |  |
| Total liabilities and stockholders’ equity | $12,073,682 |  |  | $12,390,867 |  |  |
| Net interest income |  | $319,698 |  |  | $263,653 |  |
| Net interest spread |  |  | 2.53% |  |  | 2.89% |
| Effect of interest free funds |  |  | 1.30% |  |  | 0.22% |
| Net interest margin |  |  | 3.83% |  |  | 3.11% |

33

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

### SELECTED CONSOLIDATED FINANCIAL DATA

### (Dollars in thousands, except per share data)

| Income Statement Data | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $104,308 | $100,947 | $319,390 | $263,321 |
| Provision for credit losses | 2,312 | 2,863 | 7,458 | 6,300 |
| Securities transactions | (361) | 966 | (464) | (2,949) |
| Total noninterest income | 44,449 | 49,331 | 140,251 | 135,579 |
| Salaries and employee benefits | 50,200 | 47,741 | 149,255 | 136,957 |
| Total noninterest expense | 81,215 | 79,078 | 242,642 | 225,307 |
| Net income | 50,988 | 55,352 | 163,531 | 135,974 |
| **Per Common Share Data** |  |  |  |  |
| Net income – basic | $1.55 | $1.69 | $4.97 | $4.15 |
| Net income – diluted | 1.52 | 1.65 | 4.88 | 4.07 |
| Cash dividends | 0.43 | 0.40 | 1.23 | 1.12 |
| **Performance Data** |  |  |  |  |
| Return on average assets | 1.68% | 1.75% | 1.81% | 1.47% |
| Return on average stockholders’ equity | 14.93 | 18.13 | 16.56 | 15.24 |
| Cash dividend payout ratio | 27.74 | 23.67 | 24.75 | 26.99 |
| Net interest spread | 2.24 | 3.07 | 2.53 | 2.89 |
| Net interest margin | 3.73 | 3.48 | 3.83 | 3.11 |
| Efficiency ratio | 54.60 | 52.62 | 52.79 | 56.48 |
| Net loan charge-offs |  |  |  |  |
| Net loan charge-offs to average loans | 0.02 | 0.00 | 0.03 | 0.01 |

### Net Interest Income

For the three months ended September 30, 2023, net interest income, which is the Company’s principal source of operating revenue, increased $3.4 million or 3.3% compared to the three months ended September 30, 2022. The increase was due to rising short-term interest rates and loan growth. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. As shown in the preceding table, the Company’s net interest margin for the third quarter of 2023 increased compared to the third quarter of 2022.

Net interest income for the nine months ended September 30, 2023 increased $56.1 million or 21.3% compared to the nine months ended September 30, 2022. Rising short term interest rates and loan growth contributed to the increase. As shown in the preceding table, the Company’s net interest margin for the nine months ended September 30, 2023 increased compared to the nine months ended September 30, 2022.

In March of 2022, the Federal Reserve began raising the federal funds rate in an effort to reduce inflation and slow the economy. The Company’s net interest income and net interest margin were impacted by the increases in interest rates.

### 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 $1.5 million for the third quarter of 2023, compared to net loan charge-offs of $80,000 for the third quarter of 2022. The rate of net charge-offs to average loans, as presented in the preceding table, continues to be at a low level.

The increased provision for credit losses for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to loan growth. Net loan charge-offs were $2.4 million for the nine months ended September 30, 2023, compared to $436,000 for the same period of the prior year.

### Noninterest Income

Noninterest income, as presented in the preceding table, decreased by $4.9 million for the third quarter of 2023 compared to the third quarter of 2022. The decrease in noninterest income was attributable to the reduction of interchange fees of approximately $5.4 million related to the impact of the Durbin Amendment as the Company exceeded $10 billion in total assets at December 31, 2022. Sweep account fees increased $2.4 million for the third quarter of 2023 compared to the third quarter of 2022 due to higher sweep account balances. Noninterest income for the third quarter of 2022 included $3.2 million in income from an equity interest received from a prior loan settlement, which was sold during the second quarter of 2023 at no gain.

Noninterest income included non-sufficient funds ("NSF") and overdraft fees totaling $7.4 million and $6.7 million for the three months ended September 30, 2023 and 2022, respectively. This represents 16.7% and 13.6% of the Company’s noninterest income for the respective periods. In addition, the Company had debit card interchange fees totaling $6.6 million and $12.6 million during the three months ended September 30, 2023 and 2022, respectively. This represents 14.9% and 25.5% of the Company’s noninterest income for the respective periods. The decrease in debit card interchange fees was due to the aforementioned impact of the Durbin Amendment.

Noninterest income grew by $4.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The growth in noninterest income was mostly attributable to an increase in sweep account fees of $10.7 million due to increased sweep account balances, along with an increase in trust revenue and insurance commissions. In addition, the first nine months of 2022 included a loss of $4.0 million on the sale of $226 million of low yielding debt securities, which were subsequently reinvested at higher yielding debt securities. Noninterest income for the nine months ended September 30, 2022 included $8.8 million of income from an equity interest received from a prior loan settlement compared to $327,000 for nine months ended September 30, 2023. The equity interest was sold during the second quarter of 2023 at no gain. The Company earned $2.1 million on the sale of loans for the nine months ended September 30, 2023 compared to $3.9 million for the nine months ended September 30, 2022.

Noninterest income included non-sufficient fund fees totaling $20.5 million and $19.4 million during the nine months ended September 30, 2023 and 2022, respectively. This represents 14.6% and 14.3% of the Company’s noninterest income for the respective periods. In addition, the Company had debit card interchange fees totaling $31.0 million and $36.7 million during the nine months ended September 30, 2023 and 2022, respectively. This represents 22.1% and 27.1% of the Company’s noninterest income for the respective periods. The decrease in debit card interchange fees was due to the aforementioned impact of the Durbin Amendment.

The Company is subject to political pressures that could limit our ability to charge for NSF and overdraft fees. 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, which took effect on July 1, 2023, based on current run rates, annual pretax income from debit card interchange fees would be reduced by approximately $23 million.

### Noninterest Expense

Noninterest expense, as presented in the preceding table, increased by $2.1 million for third quarter of 2023 compared to the third quarter of 2022. Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $2.5 million.

For the nine months ended September 30, 2023, noninterest expense increased by $17.3 million compared to the nine months ended September 30, 2022. Higher noninterest expenses in 2023 was primarily related to growth in salaries and employee benefits of $12.3 million. In addition, noninterest expense was lower in the nine months ended September 30, 2022 due to a gain from the sale of the Company’s prior headquarters that was carried in other real estate owned which reduced noninterest expense by $3.1 million. The nine months ended September 30, 2022 also included a write down of an equity investment of $1.5 million.

### Income Taxes

The Company’s effective tax rate was 21.8% for the third quarter of 2023, compared to 19.0% for the third quarter of 2022. The Company's adoption of ASU 2023-02 in the first quarter of 2023 increased income tax expense due to the amortization of $1.3 million of New Markets Tax Credits ("NMTC") to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 1.99%. The lower effective tax rate in 2022 was also driven by the exercising of stock options during the quarter.

The Company’s effective tax rate was 22.0% for the first nine months of 2023, compared to 18.7% for the first nine months of 2022. The Company's adoption of ASU 2023-02 in the first quarter of 2023 increased income tax expense due to the amortization of $3.5 million of NMTC to income tax expense during the period that would have previously been recorded to other expense, which increased the effective tax rate by 1.65%. Exercises of stock options contributed to the lower effective tax rate in 2022.

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

### FINANCIAL POSITION

*BANCFIRST CORPORATION*

*SELECTED CONSOLIDATED FINANCIAL DATA*

*(Dollars in thousands, except per share data)*

*(unaudited)*

| Balance Sheet Data | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Total assets | $12,114,602 | $12,387,863 |
| Total loans (net of unearned interest) | 7,476,474 | 6,949,795 |
| Allowance for credit losses | 97,776 | 92,728 |
| Debt securities | 1,525,448 | 1,540,604 |
| Deposits | 10,534,171 | 10,974,228 |
| Stockholders' equity | 1,370,584 | 1,250,836 |
| Book value per share | 41.63 | 38.05 |
| Tangible book value per share (non-GAAP)(1) | 35.56 | 31.90 |
| **Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2)** |  |  |
| Stockholders' equity | $1,370,584 | $1,250,836 |
| Less goodwill | 182,263 | 182,055 |
| Less intangible assets, net | 17,591 | 19,983 |
| Tangible stockholders' equity (non-GAAP) | $1,170,730 | $1,048,798 |
| Common shares outstanding | 32,921,393 | 32,875,560 |
| Tangible book value per share (non-GAAP) | $35.56 | $31.90 |
| **Selected Financial Ratios** |  |  |
| Balance Sheet Ratios: |  |  |
| Average loans to deposits (year-to-date) | 68.31% | 60.06% |
| Average earning assets to total assets (year-to-date) | 92.38 | 91.63 |
| Average stockholders’ equity to average assets (year-to-date) | 10.93 | 9.67 |
| **Asset Quality Data** |  |  |
| Loans past due 90 days and still accruing | $12,575 | $7,085 |
| Nonaccrual loans (3) | 16,676 | 15,299 |
| Other real estate owned and repossessed assets | 42,782 | 36,936 |
| Asset Quality Ratios: |  |  |
| Nonaccrual loans to total loans | 0.22% | 0.22% |
| Allowance for credit losses to total loans | 1.31 | 1.33 |
| Allowance for credit losses to nonaccrual loans | 586.34 | 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 $5.7 million of nonaccrual loans at September 30, 2023. |  |  |

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

The aggregate of cash and due from banks, federal funds sold and interest-bearing deposits with banks decreased by $828.1 million or 26.1% to $2.3 billion, from December 31, 2022 to September 30, 2023. The decrease was primarily due to the movement of some large commercial deposits into the Company's off-balance sheet sweep account product and loan growth. Sweep accounts were $4.0 billion at September 30, 2023, up $285.3 million from December 31, 2022.

### Securities

At September 30, 2023, total debt securities decreased $15.2 million, or 1.0% compared to December 31, 2022. The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management. The net unrealized loss on debt securities available for sale, before taxes, was $101.0 million at September 30, 2023, compared to a net unrealized loss of $93.7 million at December 31, 2022. These unrealized losses are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax, in the amounts of a loss of $77.2 million at September 30, 2023 and a loss of $71.6 million at December 31, 2022. During the nine months ended September 30, 2023, the Company purchased debt securities as shown in the consolidated statements of cash flow. The Company did not have any sales of debt securities during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, the Company had a loss of $4.0 million on bonds resulting from the sale of $226 million of debt securities with an average yield of 0.16%, the proceeds of which were subsequently reinvested in $220 million of debt securities with an average yield of 1.86%. The Company also made two other purchases of debt securities in 2022. On January 10, 2022, the Company purchased United States Treasury Notes with $600 million par value at an average yield of 1.42% and an average maturity of 53 months. On August 25, 2022, the Company purchased United States Treasury Notes of $300 million par value with an average yield of 3.27% and an average maturity of 58 months.

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

### Loans

At September 30, 2023, total loans increased $526.7 million or 7.6% compared to December 31, 2022, as a result of internal loan growth. Of the total increase in loans, oil and gas loans made up the largest increase with $109.6 million, or 20.8% of the increase, and construction and development loans increasing $100.4 million, or 19.1%. At September 30, 2023, oil and gas loans comprise 7.7% of loans compared to 6.7% at December 31, 2022. The increase of internal loan growth was 79% from the Company's Oklahoma subsidiary BancFirst and 21% from the Company's Texas subsidiaries Pegasus and Worthington.

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 1.31% at September 30, 2023, compared to 1.33% at December 31, 2022. The overall credit quality of the Company's loan portfolio has remained strong. 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 $16.7 million at September 30, 2023, compared to $15.3 million at December 31, 2022. The Company’s nonaccrual loans are primarily commercial real estate and commercial non-real estate loans. 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 $1.1 million for the nine months ended September 30, 2023 and $992,000 for the nine months ended September 30, 2022. Only a small amount of this interest is expected to be ultimately collected. Approximately $5.7 million of nonaccrual loans were guaranteed by government agencies at September 30, 2023.

The classification of a loan as nonaccrual does not necessarily indicate that loan principal and interest will ultimately be uncollectible; 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 ASU No. 2022-02, which eliminates the Troubled Debt Restructurings (“TDR”) recognition and measurement guidance and, instead, requires that the Company evaluate, based on the accounting for loan modifications, whether the modification represents a new loan or a continuation of an existing loan when a borrower is experiencing financial difficulty. The current and future financial effects of the recorded balance of loans considered to be modified during the period were not considered to be material. The recorded balance of modified loans was approximately $8.4 million during the period ended September 30, 2023.

### Other Real Estate Owned and Repossessed Assets

Other real estate owned (OREO) and repossessed assets totaled $42.8 million at September 30, 2023, compared to $36.9 million at December 31, 2022. The Company has spent $4.2 million on OREO tenant improvement during the nine months ended September 30, 2023, which is the contributing factor to the increase. OREO consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure and premises held for sale. These properties are carried at the lower of the book values of the related loans or fair values based upon appraisals, less estimated costs to sell. Write-downs arising at the time of reclassification of such properties from loans to OREO are charged directly to the allowance for credit losses. Any losses on bank premises designated to be sold are charged to operating expense at the time of transfer from premises to OREO. Decreases in values of properties subsequent to their classification as OREO are charged to operating expense.

OREO included a commercial real estate property recorded at $32.7 million at September 30, 2023 and $29.4 million at December 31, 2022. Rental income for this property is included in other noninterest income on the consolidated statements of comprehensive income. 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.

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Rental income | $2,911 | $2,437 | $8,379 | $7,750 |
| Operating expense | 2,690 | 2,381 | 8,038 | 7,120 |

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

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Rental income | $3,030 | $2,546 | $8,746 | $8,148 |
| Operating expense | 2,831 | 2,528 | 8,445 | 7,606 |

### Intangible Assets, Goodwill and Other Assets

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

Other assets includes the cash surrender value of key-man life insurance policies totaling $84.0 million at September 30, 2023 and $82.7 million at December 31, 2022.

Derivative financial instruments consisting of oil and gas swaps and option contracts are included in other assets and totaled $21.7 million at September 30, 2023 and $20.7 million at December 31, 2022. These derivative financial instruments have increased due to the increase in oil and gas prices and customer activity. They require a daily margin to be posted, which fluctuates with oil and gas prices and customer activity. The Company had a margin asset included in other assets in the amount of $22.3 million at September 30, 2023 and $6.6 million at December 31, 2022. See Note (11) of the Notes to Consolidated Financial Statements for a complete discussion of the Company’s derivative financial instruments.

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 $14.8 million at September 30, 2023 and $15.5 million at December 31, 2022. The Company reviews its portfolio of equity securities for impairment at least quarterly.

The balance of other assets included equity interests of previous borrowers in the oil and gas industry that were received through bankruptcy proceedings, which totaled $21.4 million at December 31, 2022. This equity interest was sold during the second quarter of 2023 resulting in a zero balance at September 30, 2023. Under the equity method, the carrying value of a bank’s investment in an investee is originally recorded at cost but is adjusted periodically to record as income the bank’s proportionate share of the investee’s earnings or losses and decreased by the amount of cash dividends or similar distributions received from the investee.

### 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. The Company adopted ASU 2023-02 on January 1, 2023 and as of September 30, 2023 have recorded $26.1 million in other assets and other liabilities on the consolidated balance sheet for unfunded LIHTC commitments. See Note (6) of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, for disclosures regarding these investments.

### Liquidity and Funding

The Company’s principal source of liquidity and funding is its broad deposit base generated from customer relationships. The availability of deposits is affected by economic conditions, competition with other financial institutions and alternative investments available to customers. Through interest rates paid, service charge levels and services offered, the Company can affect its level of deposits to a limited extent. The level and maturity of funding necessary to support the Company’s lending and investment functions is determined through the Company’s asset/liability management process. The Company currently does not rely heavily on long-term borrowings and does not utilize brokered CDs. The Company maintains lines of credit from the Federal Home Loan Bank (“FHLB”), federal funds lines of credit with other banks and could also utilize the sale of loans, securities and liquidation of other assets as sources of liquidity and funding. Although the percent of cash and due from banks, interest-bearing deposits with banks and federal funds sold to total assets has decreased to 19.4% at September, 30. 2023, compared to 25.6% at December 31, 2022, the Company is still highly liquid. The decrease was primarily due to the movement of some large commercial deposits into the Company's off-balance sheet sweep account product and loan growth.

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

### Deposits

At September 30, 2023, deposits totaled $10.5 billion, a decrease of $440.1 million from December 31, 2022 as some large commercial deposits moved into the Company's off balance sheet sweep account product. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s core deposits as a percentage of total deposits were 97.3% at September 30, 2023 and 98.1% at December 31, 2022. Noninterest-bearing deposits to total deposits were 39.6% at September 30, 2023, compared to 45.1% at December 31, 2022. Competition for deposits has recently increased and available yields have similarly increased, causing non-interest bearing deposits to move to interest bearing deposits and off balance sheet sweep account products.

Off-balance sheet sweep accounts totaled $4.0 billion at September 30, 2023 compared to $3.7 billion at December 31, 2022. The Company's sweep accounts affected the balances of both cash and deposits.

### 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 $4.0 million at September 30, 2023, compared to $300,000 at December 31, 2022. The Company has several lines of credit it can use. At September 30, 2023, BancFirst had $793.2 million available on its line of credit from the FHLB of Topeka, Kansas and a $25.0 million line of credit with another financial institution that is an overnight federal funds facility. Worthington has a $10.5 million line of credit with another financial institution that is an overnight federal funds facility, a Federal Reserve discount window capacity of $27.5 million and a $76.4 million line of credit from the FHLB of Dallas, Texas.

### Capital Resources

Stockholders’ equity totaled $1.4 billion at September 30, 2023, an increase of $119.7 million above December 31, 2022. In addition to net income of $163.5 million, other changes in stockholders’ equity during the nine months ended September 30, 2023 included $2.1 million related to common stock issuances for stock option exercises and $2.1 million related to stock-based compensation that were partially offset by $40.5 million in dividends, $1.8 million in the repurchase of company stock and a $5.6 million decrease in accumulated other comprehensive income. The Company’s leverage ratio and total risk-based capital ratios at September 30, 2023, were well in excess of the regulatory requirements.

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

### Liquidity Risk and Off-Balance Sheet Arrangements

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

## Market risk

As filed, 173 characters.

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.

## Controls and procedures

As filed, 1,340 characters.

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.

## Risk factors

As filed, 1,284 characters.

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 has prompted 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 inflation and rising interest rates will depend on future developments which are highly uncertain and difficult to predict.

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-059271. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.