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 September 30, 2024
OR
☐
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 October 31, 2024 there were 33,128,923 shares of the registrant’s Common Stock outstanding.
Quarterly Report on Form 10-Q
September 30, 2024
Table of Contents
Item
PART I – Financial Information
Page
1.
Financial Statements (Unaudited)
2
Consolidated Balance Sheets
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
31
3.
Quantitative and Qualitative Disclosure About Market Risk
42
4.
Controls and Procedures
PART II – Other Information
Legal Proceedings
43
1A.
Risk Factors
Unregistered Sales of Equity Securities
Defaults Upon Senior Securities
Mine Safety Disclosures
5.
Other Information
6.
Exhibits
44
Signatures
45
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
December 31,
2024
2023
(unaudited)
(see Note 1)
ASSETS
Cash and due from banks
$
248,495
225,462
Interest-bearing deposits with banks
2,743,578
2,172,001
Federal funds sold
—
1,316
Debt securities held for investment (fair value: $838 and $1,190, respectively)
838
1,190
Debt securities available for sale at fair value
1,376,075
1,553,905
Loans held for sale
7,841
3,489
Loans held for investment (net of unearned interest)
8,180,361
7,656,645
Allowance for credit losses
(101,882
)
(96,800
Loans, net of allowance for credit losses
8,078,479
7,559,845
Premises and equipment, net
285,553
278,594
Other real estate owned
38,946
33,718
Intangible assets, net
14,045
16,704
Goodwill
182,263
Accrued interest receivable and other assets
337,369
343,555
Total assets
13,313,482
12,372,042
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing
3,858,670
3,982,226
Interest-bearing
7,615,682
6,717,896
Total deposits
11,474,352
10,700,122
Short-term borrowings
4,429
3,351
Accrued interest payable and other liabilities
163,983
148,577
Subordinated debt
86,143
86,101
Total liabilities
11,728,907
10,938,151
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: 33,122,689 and 32,933,018, respectively
33,123
32,933
Capital surplus
183,277
174,695
Retained earnings
1,392,572
1,276,305
Accumulated other comprehensive loss, net of tax benefit of $7,551 and $15,473, respectively
(24,397
(50,042
Total stockholders' equity
1,584,575
1,433,891
Total liabilities and stockholders' equity
The accompanying Notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
INTEREST INCOME
Loans, including fees
144,024
121,891
413,860
340,899
Securities:
Taxable
8,341
9,260
26,454
27,659
Tax-exempt
18
22
56
52
1
63
25
176
35,266
28,989
97,363
87,703
Total interest income
187,650
160,225
537,758
456,489
INTEREST EXPENSE
Deposits
71,615
54,838
203,507
133,747
48
49
203
261
1,030
3,091
Total interest expense
72,693
55,917
206,801
137,099
Net interest income
114,957
104,308
330,957
319,390
Provision for credit losses
3,031
2,312
10,404
7,458
Net interest income after provision for credit losses
111,926
101,996
320,553
311,932
NONINTEREST INCOME
Trust revenue
5,672
4,866
16,250
13,678
Service charges on deposits
17,723
17,027
51,431
60,526
Securities transactions
(308
(361
(258
(464
Sales of loans
721
734
1,945
2,095
Insurance commissions
9,391
8,429
25,514
23,395
Cash management
9,189
8,177
26,989
22,838
(Loss)/gain on sale of other assets
(63
464
(67
1,258
Other
6,387
5,113
15,752
16,925
Total noninterest income
48,712
44,449
137,556
140,251
NONINTEREST EXPENSE
Salaries and employee benefits
54,215
50,200
157,671
149,255
Occupancy, net
5,776
5,487
16,215
15,588
Depreciation
4,482
4,685
13,542
14,097
Amortization of intangible assets
886
885
2,659
2,645
Data processing services
2,720
1,820
8,032
6,144
Net expense from other real estate owned
2,751
6,609
8,068
Marketing and business promotion
2,168
2,034
6,670
6,461
Deposit insurance
1,645
1,419
4,697
4,495
12,091
11,965
38,734
35,889
Total noninterest expense
86,734
81,215
254,829
242,642
Income before taxes
73,904
65,230
203,280
209,541
Income tax expense
15,001
14,242
43,402
46,010
Net income
58,903
50,988
159,878
163,531
NET INCOME PER COMMON SHARE
Basic
1.78
1.55
4.84
4.97
Diluted
1.75
1.52
4.76
4.88
OTHER COMPREHENSIVE GAIN/(LOSS)
Unrealized income/(loss) on debt securities, net of tax (expense)/benefit of $(7,387), $1,919, $(7,922) and $1,765, respectively
23,844
(6,172
25,645
(5,614
Other comprehensive income/(loss), net of tax (expense)/benefit of $(7,387), $1,919, $(7,922) and $1,765, respectively
Comprehensive income
82,747
44,816
185,523
157,917
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
COMMON STOCK
Issued at beginning of period
33,022
32,939
32,876
Shares issued for stock options
101
190
66
Shares acquired and canceled
(21
Issued at end of period
32,921
CAPITAL SURPLUS
Balance at beginning of period
178,806
172,358
169,231
Common stock issued for stock options
3,526
86
6,002
2,000
Stock-based compensation arrangements
945
864
2,580
2,077
Balance at end of period
173,308
RETAINED EARNINGS
1,348,905
1,206,499
1,120,292
Dividends on common stock ($0.46, $0.43, $1.32 and $1.23 per share, respectively)
(15,236
(14,156
(43,611
(40,492
Common stock acquired and canceled
(1,799
1,241,532
ACCUMULATED OTHER COMPREHENSIVE LOSS
Unrealized (losses)/gains on securities:
(48,241
(71,005
(71,563
Net change
(77,177
Total stockholders’ equity
1,370,584
CONSOLIDATED STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
16,201
16,742
Net amortization of securities premiums and discounts
(850
(883
Realized securities losses
258
Gain on sales of loans
(1,945
(2,095
Cash receipts from the sale of loans originated for sale
152,279
118,786
Cash disbursements for loans originated for sale
(115,407
(114,312
Deferred income tax benefit
(2,812
(2,038
Gain on sale of other assets
(1,259
(1,635
Increase in interest receivable
(3,219
(8,519
Increase in interest payable
6,491
5,235
Amortization of stock-based compensation arrangements
Excess tax benefit from stock-based compensation arrangements
(2,188
(775
Other, net
23,657
6,245
Net cash provided by operating activities
244,068
190,281
INVESTING ACTIVITIES
Net cash received from acquisitions, net of cash paid
8,045
Net decrease/(increase) in federal funds sold
(4,025
Purchases of available for sale debt securities
(522
(154,104
Proceeds from maturities, calls and paydowns of held for investment debt securities
353
1,350
Proceeds from maturities, calls and paydowns of available for sale debt securities
212,768
161,414
Purchase of equity securities
(409
(310
Proceeds from paydowns and sales of equity securities
531
Net change in loans
(580,760
(532,471
Net payments on derivative asset contracts
(4,295
(16,817
Purchases of premises, equipment and computer software
(21,508
(17,695
Purchase of tax credits
(5,874
(6,670
10,156
24,756
Net cash used in investing activities
(388,422
(535,996
FINANCING ACTIVITIES
Net change in deposits
774,230
(450,870
Net change in short-term borrowings
1,078
3,676
Issuance of common stock in connection with stock options, net
6,192
2,066
Common stock acquired
(1,820
Cash dividends paid
(42,536
(39,486
Net cash provided by (used in) financing activities
738,964
(486,434
Net increase/(decrease) in cash, due from banks and interest-bearing deposits
594,610
(832,149
Cash, due from banks and interest-bearing deposits at the beginning of the period
2,397,463
3,168,910
Cash, due from banks and interest-bearing deposits at the end of the period
2,992,073
2,336,761
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
200,309
131,864
Cash paid during the period for income taxes
36,356
42,680
Noncash investing and financing activities:
Cash received for acquisitions
(7,833
Fair value of assets acquired in acquisitions
2,981
Liabilities assumed in acquisitions
10,814
Unpaid common stock dividends declared
15,236
14,156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and general practice within the banking industry. A summary of 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, 2023.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., BFC-PNC LLC, Pegasus Bank ("Pegasus"), Worthington Bank ("Worthington") and BancFirst and its subsidiaries ("BancFirst"). The principal operating subsidiaries of BancFirst are BFTower, 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, 2023, 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 Not Yet Adopted:
In December 2023, the Financial Accounting Standards Board (“FASB“) issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes - Improvements to Income Tax Disclosures” requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company does not expect adoption of the standard to have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures” requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The amendments are to be applied retrospectively to all periods presented and segment expense categories are required to be based on the categories identified at adoption. The Company is currently evaluating the provisions of this ASU and expects to adopt them for the year ending December 31, 2024. The Company does not expect the adoption to have a significant impact on the Company’s consolidated financial statements.
(2) SECURITIES
The following table summarizes the amortized cost and estimated fair values of debt securities held for investment:
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
EstimatedFairValue
Mortgage backed securities (1)
States and political subdivisions
335
Other securities
500
Total
December 31, 2023
685
The following table summarizes the amortized cost and estimated fair values of debt securities available for sale:
U.S. treasuries
1,361,149
1,537
(31,363
1,331,323
U.S. federal agencies
8,803
109
(4
8,908
15,211
21
(1,230
14,002
6,579
13
(97
6,495
Asset backed securities
8,118
8,140
8,163
(956
7,207
1,408,023
1,702
(33,650
1,560,265
415
(62,635
1,498,045
11,631
142
(3
11,770
16,459
(1,677
14,795
10,108
16
(114
10,010
12,794
(282
12,512
(1,390
6,773
1,619,420
586
(66,101
(1) Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies.
7
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.
Held for Investment
Contractual maturity of debt securities:
Within one year
275
350
After one year but within five years
563
840
After five years but within ten years
After ten years
Available for Sale
364,051
359,967
348,318
341,645
1,004,948
979,225
1,223,529
1,167,973
11,141
10,143
10,331
8,851
27,883
26,740
37,242
35,436
Total debt securities
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:
Book value of pledged securities
1,038,637
591,324
8
There were no sales of debt securities and therefore no proceeds from sales or realized securities gains or losses on available for sale debt securities for the nine months ended September 30, 2024 or September 30, 2023.
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 September 30, 2024 and December 31, 2023 respectively:
Less than 12 Months
More than 12 Months
Number of investments
EstimatedFair Value
UnrealizedLosses
54
1,238,833
31,363
699
653
1,352
Mortgage backed securities
53
12,407
1,230
796
97
956
115
1,259,896
33,647
1,260,595
33,650
68
4,838
90
1,401,669
62,545
1,406,507
62,635
1,100
74
80
13,261
1,677
13,341
306
1,847
110
2,153
114
282
1,390
155
6,324
1,436,062
66,004
1,442,386
66,101
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 September 30, 2024 and December 31, 2023, 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.
9
(3) LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
Loans held for investment are summarized by portfolio segment as follows:
Real estate:
Commercial real estate owner occupied
939,520
960,944
Commercial real estate non-owner occupied
1,632,472
1,486,420
Construction and development < 60 months
713,138
642,643
Construction residential real estate < 60 months
262,101
283,486
Residential real estate first lien
1,395,163
1,258,744
Residential real estate all other
271,598
244,696
Agriculture
428,012
427,139
Commercial non-real estate
1,482,474
1,289,452
Consumer non-real estate
476,475
476,467
Oil and gas
579,408
586,654
Total (1)
(1) Excludes accrued interest receivable of $42.2 million at September 30, 2024 and $39.4 million at December 31, 2023, that is recorded in accrued interest receivable and other assets.
The Company's loans are currently 84% held by BancFirst and 16% held by Pegasus and Worthington. In addition, approximately 69% of the Company's loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual and related borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained, if any, to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and/or securities. The Company’s interest in collateral is secured through filing mortgages and liens, or 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, 2023.
Other Real Estate Owned and Repossessed Assets and Loan Modifications
The following is a summary of other real estate owned and repossessed assets:
Other real estate owned and repossessed assets
39,519
34,200
As of both September 30, 2024 and December 31, 2023, other real estate owned included a commercial real estate property recorded at approximately $31.1 million and $29.4 million, respectively. The increase in OREO and this commercial real estate property was primarily due to tenant improvements associated with new and renewing leases during the nine months ended September 30, 2024. 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 noninterest expense on the consolidated statements of comprehensive income.
This property had the following rental income and operating expenses for the periods presented.
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
Rental income
3,043
2,911
9,069
8,379
Operating expense
2,601
2,690
7,524
8,038
During the nine months ended September 30, 2024, the Company sold property held in other real estate owned for a total gain of $1.3 million, compared to a total gain of $378,000 in the nine months ended September 30, 2023.
10
The Company charges interest on principal balances outstanding on modified loans during deferral periods. The current and future financial effects of the recorded balance of loans considered to be modified during the period were not considered to be material. The recorded balance of loans modified during the nine months ended September 30, 2024 was approximately $8.4 million compared to $5.3 million during the year ended December 31, 2023.
Nonaccrual loans
The Company did not recognize any interest income on nonaccrual loans for either the nine months ended September 30, 2024 or 2023. In addition, all loans identified as nonaccrual loans have related allowances for credit losses at September 30, 2024 and December 31, 2023, respectively. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $2.6 million for the nine months ended September 30, 2024 and approximately $1.1 million for the nine months ended September 30, 2023.
Nonaccrual loans guaranteed by government agencies totaled approximately $7.5 million at September 30, 2024 and approximately $6.7 million at December 31, 2023.
The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment.
5,959
1,686
2,779
874
20,349
800
561
638
4,269
3,336
889
899
2,051
3,662
5,911
10,101
917
449
1,796
2,128
45,481
24,573
11
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 DaysandGreater
TotalPast DueLoans
CurrentLoans
Total Loans
AccruingLoans 90Days orMorePast Due
As of September 30, 2024
2,856
9,208
5,803
17,867
921,653
171
952
2,706
1,629,766
524
304
107
20,442
20,853
692,285
635
827
1,462
260,639
548
5,482
1,967
2,990
10,439
1,384,724
916
1,299
356
901
2,556
269,042
238
331
1,657
3,784
424,228
1,191
2,011
2,297
5,496
9,804
1,472,670
329
3,303
817
810
4,930
471,545
429
232
579,176
17,754
17,001
39,878
74,633
8,105,728
4,628
As of December 31, 2023
1,386
26
5,598
7,010
953,934
4,377
2,224
7,371
1,786
11,381
1,475,039
913
198
158
1,156
641,487
1,542
206
405
281,333
332
3,879
1,204
1,849
6,932
1,251,812
731
757
613
1,560
243,136
549
1,694
724
1,227
3,645
423,494
579
1,501
436
10,028
1,277,487
1,714
3,248
1,090
594
4,932
471,535
347
92
586,562
16,429
11,405
22,992
50,826
7,605,819
9,542
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 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, 2023, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The Company’s revolving loans that are converted to term loans are not material and therefore have not been presented.
12
The following table summarizes the Company’s gross loans held for investment by year of origination and internally assigned credit grades:
Term Loans Amortized Cost Basis by Origination Year
Revolving Loans
2022
2021
2020
Prior
Amortized Cost Basis
Grade 1
57,484
100,209
148,898
102,563
77,151
175,433
18,792
680,530
Grade 2
25,814
37,446
48,964
47,874
21,235
35,911
4,971
222,215
Grade 3
12,960
7,293
3,687
4,596
915
2,609
160
32,220
Grade 4
1,650
377
20
352
1,985
122
4,555
Total commercial real estate owner occupied
97,908
145,325
201,569
155,082
99,653
215,938
24,045
74,870
271,096
280,887
187,555
119,241
122,367
40,695
1,096,711
91,056
105,735
129,516
81,139
29,760
64,675
4,002
505,883
11,030
13,616
33
243
26,608
185
141
98
2,542
3,270
Total commercial real estate non-owner occupied
177,141
376,972
424,019
270,684
149,132
189,827
44,697
74,367
79,181
171,801
30,183
9,039
7,416
29,490
401,477
79,077
116,406
60,905
1,202
1,567
14,489
11,913
285,559
4,736
88
663
69
5,622
51
831
100
138
19,342
20,480
Total construction and development < 60 months
158,231
195,693
233,537
32,148
10,813
21,971
60,745
104,772
35,253
3,954
91
1,284
532
10,942
156,828
66,604
15,903
2,471
14,451
99,450
4,916
511
907
Total construction residential real estate < 60 months
176,803
51,346
6,631
1,296
25,393
213,294
220,298
208,733
157,011
101,934
181,950
986
1,084,206
55,742
70,183
49,081
35,708
24,668
46,015
969
282,366
4,640
3,918
3,005
2,897
2,157
5,635
22,252
1,224
700
448
1,780
453
1,734
6,339
Grade 5
Total residential real estate first lien
274,900
295,099
261,267
197,396
129,212
235,334
1,955
31,285
31,220
20,562
5,993
6,922
11,298
55,518
162,798
5,421
4,896
4,417
1,342
1,331
3,762
82,285
103,454
571
401
226
174
197
1,629
3,792
262
169
50
24
1,554
Total residential real estate all other
37,539
36,686
25,255
7,509
8,592
15,678
140,339
36,702
45,768
41,775
29,706
21,769
43,550
42,446
261,716
25,454
19,370
19,784
14,665
9,183
18,189
35,079
141,724
2,497
8,160
1,503
1,481
2,548
3,085
2,744
22,018
646
491
824
170
252
2,554
Total Agriculture
65,299
73,789
63,886
46,022
33,574
65,076
80,366
124,981
127,161
142,229
122,786
24,896
52,512
426,523
1,021,088
96,479
84,077
32,323
20,523
4,708
6,396
202,912
447,418
1,647
2,292
599
126
2,438
10,389
891
482
647
245
432
89
545
3,331
71
248
Total commercial non-real estate
223,998
214,725
177,562
144,159
30,163
59,449
632,418
154,137
130,104
65,270
34,106
9,199
4,752
11,574
409,142
15,183
16,368
10,112
4,926
1,002
10,128
58,946
1,460
2,134
1,529
241
15
6,571
231
720
418
270
95
58
1,794
Total consumer non-real estate
171,011
149,348
77,329
40,219
10,796
6,053
21,719
77,698
15,998
5,293
23,811
4,967
2,427
232,703
362,897
110,739
7,652
4,652
584
366
244
90,353
214,590
288
173
475
1,389
422
Total oil and gas
188,725
24,103
9,945
24,678
5,333
3,093
323,531
Total loans held for investment
1,571,555
1,563,086
1,481,000
917,997
478,564
812,951
1,355,208
The following tables summarize the Company's gross charge-offs by year of origination for the periods indicated:
Three months ended September 30, 2024
Current-period gross charge-offs
189
61
85
84
298
166
124
38
431
Total current-period gross charge-offs
236
264
430
47
94
1,086
2019
Three months ended September 30, 2023
112
147
805
150
159
19
46
108
239
192
146
427
385
207
135
199
302
1,730
14
Nine months ended September 30, 2024
57
175
27
79
83
1,247
374
149
96
324
1,886
4,132
187
624
338
117
1,372
266
1,115
145
435
1,928
6,154
Nine months ended September 30, 2023
196
134
165
853
32
144
28
154
317
496
116
517
221
408
41
35
965
456
882
546
269
384
3,012
Allowance for Credit Losses Methodology
The Company determines its provision for credit losses and allowance for credit losses using the current expected credit loss methodology that is referred to as the current expected credit loss ("CECL") model. The allowance for current expected credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The allowance for credit losses methodology is disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The following tables detail 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
Charge-offs
Recoveries
Net charge-offs
Provision for/(benefit from) credit losses on loans
Three Months Ended September 30, 2024
7,370
(8
7,408
33,867
(189
(95
(26
33,746
6,780
1,575
8,355
3,519
(178
3,341
5,572
(85
5,646
1,729
(50
(47
55
1,737
5,917
(33
(15
21,475
(298
(198
983
22,260
4,383
(431
(381
378
4,380
9,014
78
9,092
99,626
(1,086
311
101,882
Three Months Ended September 30, 2023
6,808
(805
(802
809
6,815
33,432
1,182
34,614
3,440
467
3,910
3,553
(9
3,544
4,755
(100
4,764
1,661
1,665
6,426
(159
6,433
25,127
(239
(886
24,245
4,344
(427
(403
4,389
7,374
23
7,397
96,920
(1,730
274
(1,456
97,776
Nine Months Ended September 30, 2024
7,483
77
62
(137
33,080
(203
(109
775
3,950
4,405
3,414
(70
4,914
(175
(150
1,646
(79
(68
6,137
(83
(48
(172
22,745
(4,132
413
(3,719
3,234
4,401
(1,372
177
(1,195
1,174
9,030
(92
96,800
(6,154
832
(5,322
Nine Months Ended September 30, 2023
6,416
(853
(798
1,197
30,190
4,427
3,778
127
3,275
4,092
(144
(131
803
1,418
(28
(24
271
6,217
(496
(483
25,106
(517
392
(125
(736
(965
(849
1,106
8,104
(2
(705
92,728
(3,012
602
(2,410
Purchased Credit Deteriorated Loans
The Company has previously 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 nine months ended September 30, 2024 and 2023.
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 nine months ended September 30, 2024 and 2023, no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent.
17
The following tables summarize collateral-dependent gross loans held for investment by collateral type and the related specific allocation as follows:
Collateral Type
Real Estate
Business Assets
Other Assets
Specific Allocation
2,018
20,141
3,755
279
39
136
1,778
1,984
3,747
186
3,933
1,327
326
Total collateral-dependent loans held for investment
24,442
3,939
526
28,907
6,547
632
250
225
140
1,841
593
2,449
6,090
6,331
1,867
4,240
6,683
403
11,326
4,152
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:
Nine Months Ended September 30,
10,111
2,236
Repossessed assets
2,332
1,448
12,443
3,684
(4) INTANGIBLE ASSETS AND GOODWILL
The following is a summary of intangible assets as of the date listed:
GrossCarryingAmount
AccumulatedAmortization
NetCarryingAmount
Core deposit intangibles
33,550
(19,597
13,953
Customer relationship intangibles
3,350
(3,258
36,900
(22,855
(17,027
16,523
(3,169
181
(20,196
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
Balance at beginning and end of period
13,767
61,420
68,855
32,133
5,464
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, 2023.
(5) 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 Cumulative Trust Preferred Securities qualify as Tier 1 capital under regulatory guidelines. The proceeds from the sale of the Cumulative Trust Preferred Securities and the common securities of BFC II were invested in $26.8 million of 7.20% Junior Subordinated Debentures of the Company. Interest payments on the $26.8 million of 7.20% Junior Subordinated Debentures are payable January 15, April 15, July 15 and October 15 of each year. Such interest payments may be deferred for up to twenty consecutive quarters. The stated maturity date of the $26.8 million of 7.20% Junior Subordinated Debentures is March 31, 2034, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Cumulative Trust Preferred Securities represent an undivided interest in the $26.8 million of 7.20% Junior Subordinated Debentures and are guaranteed by the Company. During any deferral period or during any event of default, the Company may not declare or pay any dividends on any of its capital stock. The Cumulative Trust Preferred Securities have been callable at par, in whole or in part, since March 31, 2009.
On June 17, 2021, the Company completed a private placement, under Regulation D of the Securities Act of 1933, of $60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 (the “Subordinated Notes”) to various institutional accredited investors. The sale of the Subordinated Notes was pursuant to a Subordinated Note Purchase Agreement entered into with each of the investors. The Subordinated Notes qualify as Tier 2 capital under regulatory guidelines. The net proceeds to the Company from the sale of the Subordinated Notes were approximately $59.15 million net of commissions and offering expenses. The Company used the proceeds from the sale of the Subordinated Notes for general corporate purposes. The Subordinated Notes 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.
(6) STOCK-BASED COMPENSATION
On May 25, 2023, the shareholders of the Company adopted the BancFirst Corporation 2023 Restricted Stock Unit Plan (the "RSU Plan"). The RSU Plan was effective as of June 1, 2023 and for a period of ten years thereafter. The RSU Plan will continue in effect after such ten-year period until all matters relating to the payment of awards and administration of the RSU Plan have been settled. At September 30, 2024 there were 458,675 shares available for future grants. The restricted stock units ("RSU's") vest beginning two years from the date of grant at the rate of 20% per year for five years. The RSU's are settled and distributed as of each vesting date. The fair value of each RSU granted is equal to the market price of the Company’s stock at the date of grant.
The following table is a summary of the activity under the Company's RSU plan.
Wgtd. Avg.
Restricted
Grant Date
Stock Units
Fair Value
Nonvested at December 31, 2023
32,075
87.23
Granted
10,750
93.85
Forfeited
(1,500
83.61
Nonvested at September 30, 2024
41,325
89.08
The Company has had the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “Deferred Stock Compensation Plan”) since May 1999. As of September 30, 2024, there are 37,399 shares available for future issuance under the Deferred Stock Compensation Plan. The Deferred Stock Compensation Plan will terminate on December 31, 2030, 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 5,022 and 18,136 shares of common stock distributed from the Deferred Stock Compensation Plan during the nine months ended September 30, 2024 and 2023, respectively.
A summary of the accumulated stock units under the Deferred Stock Compensation Plan is as follows:
Accumulated stock units
121,241
119,575
Average price
43.43
40.03
The Company terminated the BancFirst Corporation Stock Option Plan (the “Employee Plan”) on June 1, 2023. The remaining options will continue to vest and are exercisable beginning four years from the date of grant at the rate of 25% per year for four years, and expire no later than the end of fifteen years from the date of grant.
The Company terminated the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “Non-Employee Directors’ Plan”) on June 1, 2023. The remaining options will continue to vest and are exercisable beginning one year from the date of grant at the rate of 25% per year for four years, and expire no later than the end of fifteen years from the date of grant.
The following table is a summary of the activity under both the Employee Plan and the Non-Employee Directors’ Plan:
Remaining
Aggregate
Exercise
Contractual
Intrinsic
Options
Price
Term
Value
(Dollars in thousands, except option data)
Outstanding at December 31, 2023
1,241,391
53.12
Options exercised
(184,649
32.83
Options canceled, forfeited or expired
(14,500
91.45
Outstanding at September 30, 2024
1,042,242
56.18
9.54 Yrs.
51,141
Exercisable at September 30, 2024
421,117
38.99
6.63 Yrs.
27,901
The following table has additional information regarding options exercised under both the Employee Plan and the Non-Employee Directors’ Plan:
Total intrinsic value of options exercised
6,846
11,931
2,507
Cash received from options exercised
3,639
75
6,061
1,614
Tax benefit realized from options exercised
2,868
603
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 or restricted stock units in cash on a limited basis at the discretion of the Company. The Company had no cash settlements during the nine months ended September 30, 2024 or 2023.
Stock-based compensation expense is charged to salaries and benefits expense on the Consolidated Statements of Comprehensive Income. The components of stock-based compensation expense for all share-based compensation plans and related tax benefits are as follows:
Stock-based compensation expense
Tax benefit
227
208
620
Stock-based compensation expense, net of tax
718
656
1,960
1,577
The Company amortizes the unearned stock-based compensation expense over the remaining weighted average vesting period of approximately five years for unvested stock options and six years for unvested RSU's. The following table shows the unearned stock-based compensation expense for unvested stock options and unvested RSU's:
Unearned stock-based compensation expense for unvested stock options
8,106
Unearned stock-based compensation expense for unvested RSU's
3,161
(7) STOCKHOLDERS’ EQUITY
The Company has adopted a Stock Repurchase Program (the “SRP”). The SRP may be used as a means to increase earnings per share and return on equity. In addition, the SRP may be used to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP is determined by management and approved by the Company’s Executive Committee.
The following table is a summary of the shares under the SRP:
Shares remaining to be repurchased
479,784
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 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 September 30, 2024, BancFirst Corporation, BancFirst, Pegasus and Worthington each 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
As of September 30, 2024:
Total Capital
(to Risk Weighted Assets)-
1,599,885
17.53%
729,952
8.00%
958,062
10.50%
N/A
BancFirst
1,232,839
16.12%
611,761
802,936
764,701
10.00%
149,997
15.77%
76,071
99,843
95,089
54,111
12.27%
35,284
46,310
44,105
Common Equity Tier 1 Capital
1,412,664
15.48%
410,598
4.50%
638,708
7.00%
1,127,513
14.74%
344,115
535,291
497,056
6.50%
140,511
14.78%
42,790
66,562
61,808
50,016
11.34%
19,847
30,873
28,668
Tier 1 Capital
1,438,664
547,464
6.00%
775,574
8.50%
1,147,513
15.01%
458,821
649,996
57,053
80,826
26,463
37,489
(to Quarterly Average Assets)-
11.19%
514,059
4.00%
10.52%
436,513
545,642
5.00%
10.55%
53,263
66,579
8.59%
23,294
29,117
As of September 30, 2024, BancFirst, Pegasus and Worthington were classified by the Federal Reserve 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 qualify as Tier 1 capital and its Subordinated Notes qualify as Tier 2 capital. The Company's Subordinated Notes have been structured to qualify as Tier 2 capital under bank regulatory guidelines. BancFirst, Pegasus and Worthington have had no events or conditions that management believes would materially change their category under capital requirements existing as of the report dates.
(8) NET INCOME PER COMMON SHARE
Basic and diluted net income per common share are calculated as follows:
(Numerator)
Income available to common stockholders
(Denominator)
Weighted average shares outstanding for basic earnings per common share
33,097,164
32,937,149
33,015,741
32,916,996
Dilutive effect of stock compensation
549,385
602,240
551,376
576,019
Weighted-average shares outstanding for diluted earnings per common share
33,646,549
33,539,389
33,567,117
33,493,015
Basic earnings per share
Diluted earnings per share
The following table shows the number of options and RSU's that were excluded from the computation of diluted net income per common share for each period because they were anti-dilutive for the period:
Shares
204,005
263,176
250,142
278,828
(9) 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:
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 a 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 municipal revenue bonds. Pricing for such instruments 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
Debt securities available for sale:
U.S. Treasury
Mortgage-backed securities
6,345
Other debt securities
Derivative assets
26,376
Derivative liabilities
24,717
9,830
180
41,099
39,176
The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows:
Twelve Months Ended December 31,
Balance at the beginning of the year
454
Transfers to level 2
(244
Settlements
(30
Balance at the end of the period
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 nine months ended September 30, 2024, the Company did not transfer any debt securities. During the year ended December 31, 2023, the Company transferred debt securities from Level 3 to Level 2 due to a review of the pricing models that determined some state and political subdivision securities to be Level 2.
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; 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:
Level 3
As of and for the Year-to-date Period Ended September 30, 2024
Equity securities
12,768
Collateral dependent loans
525
8,007
As of and for the Year-to-date Period Ended December 31, 2023
13,144
1,894
474
31,773
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 are 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.
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:
CarryingAmount
FINANCIAL ASSETS
Level 2 inputs:
Cash and cash equivalents
Debt securities held for investment
Level 3 inputs:
835
1,185
9,007,747
7,356,768
FINANCIAL LIABILITIES
11,244,035
10,413,348
80,227
79,271
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Loan commitments
4,597
4,875
Letters of credit
701
637
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. In addition, the Company has no non-financial liabilities measured at fair value on a nonrecurring basis. Non-financial assets measured at fair value on a nonrecurring basis include intangible assets. The intangible assets are evaluated at least annually for impairment. The overall levels of non-financial assets measured at fair value on a nonrecurring basis were not considered to be significant to the Company at September 30, 2024 or December 31, 2023.
(10) 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. The Company had a margin liability in other liabilities in the amount of $10.7 million at September 30, 2024 and $15.5 million at December 31, 2023.
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:
Oil and Natural Gas Swaps and Options
Notional Units
NotionalAmount
(Notional amounts and dollars in thousands)
Oil
Barrels
3,409
3,896
20,567
(3,409
(15,558
(3,896
(19,512
Gas/Natural Gas Liquids
MMBTUs/Gallons
32,060
9,947
46,140
20,532
(32,060
(9,159
(46,140
(19,664
Included in
Other assets
Other liabilities
(24,717
(39,176
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 September 30,
Derivative income
82
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:
Credit exposure
25,806
39,527
29
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.
(11) 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 Arlington, Fort Worth and Denton Texas. 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 MetropolitanBanks
BancFirst CommunityBanks
OtherFinancialServices
Executive,Operations& Support
Eliminations
30,214
63,699
12,849
4,675
1,364
2,156
Noninterest income
5,692
17,787
394
16,241
67,087
(58,727
23,426
43,494
7,188
1,273
6,787
49,880
(58,144
30,258
56,644
11,334
4,160
1,063
849
5,533
15,986
301
14,542
59,923
(52,397
22,043
38,985
6,559
693
5,541
43,282
(51,873
87,546
185,420
13,526
3,486
5,900
16,423
50,591
1,053
709
44,917
183,579
(159,716
66,966
124,553
16,445
2,686
17,261
134,176
(158,807
90,266
171,946
39,994
12,907
3,063
1,214
18,710
55,504
1,242
41,064
189,754
(166,858
66,941
125,768
26,060
3,114
16,003
137,624
(165,969
Total Assets:
3,484,436
7,672,481
1,506,885
627,105
93,819
1,567,000
(1,638,244
3,598,888
7,012,905
1,280,618
600,364
121,601
1,307,714
(1,550,048
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.
30
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 September 30, 2024 and December 31, 2023 and results of operations for the three and nine months ended September 30, 2024 should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2023, and the other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2023 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:
Actual results may differ materially from forward-looking statements.
SUMMARY
The Company’s net income for the third quarter of 2024 was $58.9 million compared to $51.0 million for the third quarter of 2023. Diluted net income per common share was $1.75 and $1.52 for the third quarter of 2024 and 2023, respectively.
The Company’s net interest income for the third quarter of 2024 increased to $115.0 million from $104.3 million for the third quarter of 2023. Loan volume was the primary driver of the change in net interest income, but was partially offset by the impact of the shifting mix between interest-bearing and noninterest-bearing deposits. Net interest margin for the third quarter of 2024 was 3.78% compared to 3.73% for the third quarter of 2023. For the third quarter of 2024, the Company recorded a provision for credit losses of $3.0 million compared to $2.3 million for the third quarter of 2023.
Noninterest income for the third quarter of 2024 totaled $48.7 million compared to $44.4 million for the third quarter of 2023. Trust revenue, treasury income, sweep fees and insurance commissions each increased when compared to third quarter last year.
Noninterest expense for the third quarter of 2024 increased to $86.7 million compared to $81.2 million for the third quarter of 2023. The increase in noninterest expense was primarily related to growth in salaries and employee benefits of $4.0 million.
At September 30, 2024, the Company’s total assets were $13.3 billion, an increase of $941.4 million from December 31, 2023. Loans grew $528.1 million from December 31, 2023, totaling $8.2 billion at September 30, 2024. Deposits totaled $11.5 billion, an increase of $774.2 million from December 31, 2023. Off-balance-sheet sweep accounts totaled $4.3 billion at September 30, 2024, down $60.6 million from December 31, 2023. The Company’s total stockholders’ equity at September 30, 2024 was $1.6 billion, an increase of $150.7 million over December 31, 2023.
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, 2023, the date of its most recent annual report to stockholders.
SEGMENT INFORMATION
See Note (11) 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 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 $5.0 million for the three months ended September 30, 2024 compared to $6.0 million for the three months ended September 30, 2023. Loan fees included in interest income were $15.9 million for the nine months ended September 30, 2024 compared to $17.3 million for the nine months ended September 30, 2023.
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis
Interest
Average
Income/
Yield/
Balance
Expense
Rate
Earning assets:
Loans
8,103,297
144,179
7.06
%
7,379,572
122,005
6.56
Securities – taxable
1,406,344
2.35
1,552,590
2.37
Securities – tax exempt
2,374
3.87
3.61
Federal funds sold and interest-bearing deposits with banks
2,574,083
35,267
5.44
2,162,655
29,052
5.33
Total earning assets
12,086,098
187,810
6.17
11,097,807
160,344
5.73
Nonearning assets:
195,636
197,702
Interest receivable and other assets
810,781
813,824
(99,967
(97,591
Total nonearning assets
906,450
913,935
12,992,548
12,011,742
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Money market and interest-bearing checking deposits
5,064,491
47,386
3.71
4,381,614
39,658
3.59
Savings deposits
1,078,383
9,277
3.41
1,069,106
8,636
3.20
Time deposits
1,275,206
14,952
4.65
816,779
6,544
3.18
4,423
4.30
4,937
3.94
86,134
4.74
86,077
4.75
Total interest-bearing liabilities
7,508,637
3.84
6,358,513
3.49
Interest-free funds:
Noninterest-bearing deposits
3,793,962
4,183,422
Interest payable and other liabilities
146,868
114,867
Stockholders’ equity
1,543,081
1,354,940
Total interest free funds
5,483,911
5,653,229
Total liabilities and stockholders’ equity
115,117
104,427
Net interest spread
2.33
2.24
Effect of interest free funds
1.45
1.49
Net interest margin
3.78
3.73
7,916,192
414,274
6.97
7,212,231
341,194
6.33
Debt securities – taxable
1,484,049
1,576,358
Debt securities – tax exempt
2,474
3.80
3,239
65
2.70
2,370,685
97,388
5.47
2,362,174
87,879
11,773,400
538,187
6.09
11,154,002
456,797
5.48
200,515
205,269
807,891
810,025
(98,327
(95,614
910,079
919,680
12,683,479
12,073,682
4,933,831
136,899
3.70
4,270,554
99,197
3.11
1,070,512
27,502
3.42
1,098,752
20,524
2.50
1,146,042
39,106
4.55
756,962
14,026
2.48
5,673
7,324
86,120
4.78
86,063
4.80
7,242,178
6,219,655
2.95
3,818,752
4,432,349
132,698
101,574
1,489,851
1,320,104
5,441,301
5,854,027
331,386
319,698
2.29
2.53
1.46
1.30
3.75
3.83
34
Selected income statement data and other selected data for the comparable periods were as follows:
SELECTED CONSOLIDATED FINANCIAL DATA
Income Statement Data
Per Common Share Data
Net income – basic
Net income – diluted
Cash dividends
0.46
0.43
1.32
1.23
Performance Data
Return on average assets
1.80
1.68
1.81
Return on average stockholders’ equity
15.14
14.93
14.30
16.56
Cash dividend payout ratio
25.84
27.74
27.27
24.75
Efficiency ratio
52.99
54.60
54.39
52.79
Net charge-offs to average loans
0.01
0.02
0.07
0.03
Net Interest Income
For the three months ended September 30, 2024, net interest income, which is the Company’s principal source of operating revenue, increased $10.6 million or 10.2% compared to the three months ended September 30, 2023. The primary driver of the increase in net interest income was higher loan volume. Rate increases also attributed to the increase in net interest income. Higher loan volume and increasing rates were partially offset by the expense associated with the shifting mix between interest and noninterest-bearing deposits. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The Company’s net interest margin for the third quarter of 2024 increased compared to the third quarter of 2023.
Net interest income for the nine months ended September 30, 2024 increased $11.6 million or 3.6% compared to the nine months ended September 30, 2023. The primary driver of the increase in net interest income was higher loan volume. Rate increases also attributed to the increase in net interest income. Higher loan volume and increasing rates were partially offset by the expense associated with the shifting mix between interest and noninterest-bearing deposits. The Company’s net interest margin for the nine months ended September 30, 2024 decreased compared to the nine months ended September 30, 2023.
Changes in the volume of earning assets and interest-bearing liabilities and changes in interest rates, determine the changes in net interest income. The following volume/rate analysis summarizes the relative contribution of each of these components to the changes in net interest income.
VOLUME/RATE ANALYSIS
The following table presents the change in net interest income for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Due toVolume(1)
Due toRate
INCREASE (DECREASE)
Interest Income:
22,174
12,142
10,032
Securities—taxable
(919
(820
(99
Securities—tax exempt
(5
6,215
6,107
27,466
17,424
10,042
Interest Expense:
7,728
6,981
747
641
76
565
8,408
4,531
3,877
(1
16,776
11,596
5,180
10,690
5,828
4,862
(1) The effects of changes in the mix of earning assets and interest-bearing liabilities have been combined with the changes due to volume.
The following table presents the change in net interest income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
73,080
35,853
37,227
(1,205
(1,283
9,509
1,762
7,747
81,390
36,317
45,073
37,702
19,212
18,490
6,978
(417
7,395
25,080
9,023
16,057
(58
(18
69,702
27,773
41,929
11,688
8,544
3,144
36
Provision for Credit Losses
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.
The increased provision for credit losses for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to loan growth. Net loan charge-offs were $775,000 for the third quarter of 2024 compared to net loan charge-offs of $1.5 million for the third quarter of 2023.
The increased provision for credit losses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to loan growth. Net loan charge-offs were $5.3 million for the nine months ended September 30, 2024, compared to $2.4 million for the same period of the prior year.
Noninterest Income
Noninterest income increased by $4.3 million for the third quarter of 2024 compared to the third quarter of 2023. Trust revenue, treasury income, sweep fees and insurance commissions each increased when compared to last year.
Noninterest income included non-sufficient funds ("NSF") and overdraft fees totaling $8.2 million and $7.4 million for the three months ended September 30, 2024 and 2023, respectively. This represents 16.9% and 16.7% of the Company’s noninterest income for the respective periods. In addition, the Company had debit card usage and interchange fees totaling $6.7 million and $6.6 million during the three months ended September 30, 2024 and 2023, respectively. This represents 13.7% and 14.9% of the Company’s noninterest income for the respective periods.
Noninterest income decreased by $2.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in noninterest income was primarily due to an approximate $10.9 million reduction of interchange fees related to the impact of the Durbin Amendment, which was offset by increases in trust revenue, treasury income, sweep fees and insurance commissions.
Noninterest income included NSF and overdraft fees totaling $22.7 million and $20.5 million during the nine months ended September 30, 2024 and 2023, respectively. This represents 16.5% and 14.6% of the Company’s noninterest income for the respective periods. In addition, the Company had debit card usage and interchange fees totaling $20.0 million and $31.0 million during the nine months ended September 30, 2024 and 2023, respectively. This represents 14.5% and 22.1% 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 and could adversely impact our noninterest income. On April 1, 2022, the Company lowered the rates charged on NSF and overdraft fees. The Company also became subject to the reduced interchange fees under the Durbin Amendment, effective July 1, 2023. Consequently, the Company's interchange fee revenue was reduced by approximately $10.9 million in the first half of 2024, as shown above, and reduced by $11.2 million in the last half of 2023. The reduced interchange fees under the Durbin Amendment have now been fully implemented.
Noninterest Expense
Noninterest expense increased by $5.5 million for third quarter of 2024 compared to the third quarter of 2023. The increase in noninterest expenses was primarily related to growth in salaries and employee benefits of $4.0 million.
For the nine months ended September 30, 2024, noninterest expense increased by $12.2 million compared to the nine months ended September 30, 2023. Higher noninterest expenses in 2024 was primarily related to growth in salaries and employee benefits of $8.4 million.
Income Taxes
The Company’s effective tax rate was 20.3% for the third quarter of 2024, compared to 21.8% for the third quarter of 2023.
The Company’s effective tax rate was 21.4% for the first nine months of 2024, compared to 22.0% or the first nine months of 2023.
The primary reasons for the difference between the Company’s effective tax rate and the federal statutory rate were tax-exempt income, nondeductible expenses, federal and state tax credits and state tax expense.
37
FINANCIAL POSITION
Balance Sheet Data
Total loans (net of unearned interest)
8,188,202
7,660,134
Debt securities
1,376,913
1,555,095
Stockholders' equity
Book value per share
47.84
43.54
Tangible book value per share (non-GAAP)(1)
41.91
37.50
Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2)
Less goodwill
Less intangible assets, net
Tangible stockholders' equity (non-GAAP)
1,388,267
1,234,924
Common shares outstanding
33,122,689
32,933,018
Tangible book value per share (non-GAAP)
Selected Financial Ratios
Balance Sheet Ratios:
Average loans to deposits (year-to-date)
72.17
68.87
Average earning assets to total assets (year-to-date)
92.82
92.39
Average stockholders’ equity to average assets (year-to-date)
11.75
11.03
Asset Quality Data
Loans past due 90 days and still accruing
Nonaccrual loans (3)
Asset Quality Ratios:
Nonaccrual loans to total loans
0.56
0.32
Allowance for credit losses to total loans
1.24
1.26
Allowance for credit losses to nonaccrual loans
224.01
393.92
(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 guaranteed approximately $7.5 million of nonaccrual loans at September 30, 2024.
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 increased by $593.3 million or 24.7%, to $3.0 billion from December 31, 2023 to September 30, 2024. The increase was related to an increase of interest-bearing deposits partially driven by maturing securities.
Securities
At September 30, 2024, total debt securities decreased $178.2 million, or 11.5% compared to December 31, 2023. 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 $31.9 million at September 30, 2024, compared to a net unrealized loss of $65.5 million at December 31, 2023. These unrealized losses, net of income tax, are included in the Company’s stockholders’ equity as
accumulated other comprehensive loss in the amounts of $24.4 million at September 30, 2024 and $50.0 million at December 31, 2023. During the nine months ended September 30, 2024, the Company purchased $522,000 of debt securities and did not sell any debt securities.
See Note (2) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s securities.
At September 30, 2024, total loans increased $528.1 million or 6.9% compared to December 31, 2023 as a result of internal loan growth. The preponderance of internal loan growth was from the Company's Oklahoma subsidiary BancFirst. BancFirst's strong liquidity was the driving force behind the loan growth.
See Note (3) of the Notes to Consolidated Financial Statements for disclosures regarding the Company’s loan portfolio segments.
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
The Company's nonaccrual and past due loans have increased, however, the level of these loans remains low. The Company’s nonaccrual loans are primarily comprised of construction and development real estate loans, commercial real estate loans 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 $2.6 million for the nine months ended September 30, 2024 and $1.1 million for the nine months ended September 30, 2023. Only a small amount of this interest is expected to be ultimately collected. Approximately $7.5 million of nonaccrual loans were guaranteed by government agencies at September 30, 2024.
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 risk of loss is heightened. 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.
Modified Loans
As of January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2022-02, which eliminated 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 loans modified during the period ended September 30, 2024 was approximately $8.4 million compared to $5.3 million during the year ended December 31, 2023.
Other Real Estate Owned and Repossessed Assets
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 of the properties, 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 larger commercial real estate property recorded at $31.1 million at September 30, 2024 and $29.4 million at December 31, 2023. During the period ended September 30, 2024, the Company made $1.7 million of tenant improvements to this property, which contributed to the increase of total OREO. 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:
The Company's total rental income and operating expenses from OREO are presented in the following table:
3,067
3,030
9,152
8,746
2,734
2,831
7,865
8,445
Intangible Assets, Goodwill and Other Assets
Identifiable intangible assets and goodwill totaled $196.3 million and $199.0 million at September 30, 2024 and December 31, 2023, respectively.
Other assets includes the cash surrender value of key-man life insurance policies totaling $83.9 million and $84.4 million at September 30, 2024 and December 31, 2023, respectively.
Derivative financial instruments consisting of oil and gas swaps and option contracts are included in other assets and totaled $26.4 million at September 30, 2024 and $41.1 million at December 31, 2023. They require a daily margin to be posted, which fluctuates with oil and gas prices and customer activity. The Company had a margin liability included in other liabilities in the amount of $10.7 million at September 30, 2024 and $15.5 million at December 31, 2023. See Note (10) 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 Company’s consolidated balance sheet. The Company invests in equity securities without readily determinable fair values. 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 $12.8 million at September 30, 2024 and $13.1 million at December 31, 2023. The Company reviews its portfolio of equity securities for impairment at least quarterly.
Low-Income Housing and New Market Tax Credit Investments
During 2024, the Company’s low-income housing tax credit ("LIHTC") investments and New Markets Tax Credits ("NMTC") investments, which are included in other assets on the Company’s consolidated balance sheet, increased $10.2 million.
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, 2023 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 or reciprocal deposits. 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 a total of cash and due from banks and interest-bearing deposits with banks to total assets of 22.5%.
40
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, 2023.
At September 30, 2024, deposits totaled $11.5 billion, an increase of $774.2 million from December 31, 2023. 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 95.8% at September 30, 2024 and 97.4% at December 31, 2023. Noninterest-bearing deposits to total deposits were 33.6% at September 30, 2024 compared to 37.2% at December 31, 2023. Quantitative tightening by the Federal Reserve and competition for deposits has increased, and available yields have similarly increased, causing noninterest-bearing deposits to move to interest-bearing deposits and off-balance-sheet sweep account products.
Off-balance-sheet sweep accounts totaled $4.3 billion at both September 30, 2024 and December 31, 2023. The movement of customers' funds into the Company's off-balance-sheet sweep accounts affected the balances of both cash and deposits.
See Note (5) 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 $4.4 million at September 30, 2024 compared to $3.4 million at December 31, 2023.
The Company has several lines of credit available. At September 30, 2024, BancFirst had $877.1 million available on its line of credit from the FHLB of Topeka, Kansas. At September 30, 2024, BancFirst had no advances outstanding under this line of credit. Pegasus had a Federal Reserve discount window capacity of $125.6 million. At September 30, 2024, Pegasus had no advances outstanding under this line of credit. Worthington had $10.5 million in lines of credit with other financial institutions that serve as overnight federal funds facilities, a Federal Reserve discount window capacity of $29.4 million and a $81.8 million line of credit from the FHLB of Dallas, Texas to use for liquidity or to match-fund certain long-term rate loans. Worthington had no advances outstanding at September 30, 2024 under any of these lines of credit.
Capital Resources
Stockholders’ equity totaled $1.6 billion at September 30, 2024, an increase of $150.7 million from December 31, 2023. In addition to net income of $159.9 million, other increases in stockholders’ equity during the nine months ended September 30, 2024 included $6.2 million related to common stock issuances for stock option exercises, $2.6 million related to stock-based compensation and $25.6 million in accumulated other comprehensive income, that were partially offset by $43.6 million in dividends. The Company’s leverage ratio and other risk-based capital ratios at September 30, 2024 were well in excess of the regulatory requirements.
See Note (7) 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, 2023.
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, 2023, 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.
As of September 30, 2024, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
ExhibitNumber
Exhibit
3.1
Amended and Restated By-Laws of BancFirst Corporation (filed as Exhibit 3.1 to the Company's Quarterly Report on form 10Q for the Quarter Ended March 31, 2023 and incorporated herein by reference).
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).
10.1
Amended and Restated BancFirst Corporation Directors' Deferred Stock Compensation Plan. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated May 23, 2024 and incorporated herein by reference).
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.
101.SCH
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents.
104
Cover page Interactive Data File (formatted as Inline XBRL and included 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.
(Registrant)
Date: November 5, 2024
/s/ David Harlow
David Harlow
President
Chief Executive Officer
(Principal Executive Officer)
/s/ Hannah Andrus
Hannah Andrus
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)