BANCFIRST CORPORATION The following discussion and analysis presents factors that the Company believes are relevant to an assessment and understanding of the Company's financial position and results of operations for the three years endedDecember 31, 2022 . This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto and the selected consolidated financial data included herein. FORWARD-LOOKING STATEMENTS The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management's current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
•
The Durbin Amendment will impact noninterest income beginning
•
Political pressures could further limit our ability to charge for NSF and overdraft fees.
• Rising interest rates.
•
The increased noninterest expense associated with greater
•
Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company's assessment of that impact.
•
Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.
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Inflation, including wage inflation, energy prices, securities markets and monetary fluctuations.
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The effect of changes in laws and regulations such as those from theConsumer Financial Protection Bureau ,Federal Reserve , and theFederal Deposit Insurance Corporation (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company must comply.
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Impairment of the Company's goodwill or other intangible assets.
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Changes in consumer spending, borrowing and savings habits.
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Changes in the financial performance and/or condition of the Company's borrowers, including the impact of rising interest rates.
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Technological changes.
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Acquisitions and integration of acquired businesses.
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The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as thePublic Company Accounting Oversight Board , theFinancial Accounting Standards Board and other accounting standard setters.
•
The Company's success at managing the risks involved in the foregoing items.
•
The cost and expenses of the foregoing items.
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Actual results may differ materially from forward-looking statements.
SUMMARY
The Company's net income for 2022 was
In 2022, net interest income increased to$373.7 million , compared to$315.7 million in 2021. Rising short-term interest rates and loan growth, along with net interest income related to the Worthington acquisition contributed to the increase in net interest income in 2022. The Company's net interest margin increased to 3.29% for 2022, compared to 3.15% for 2021. The margin for 2021 included$36.4 million in Paycheck Protection Program ("PPP") fees compared to only$2.1 million in 2022. The Company recorded a provision for credit losses of$10.1 million in 2022 compared to a net benefit from reversal of provisions for credit losses of$8.7 million in 2021. The Company believes there is a modest probability of a mild to moderate economic downturn inOklahoma andTexas and therefore considers the current CECL reserve as a percentage of loans is appropriate. Noninterest income totaled$183.7 million in 2022 compared to$170.0 million in 2021. The increase in noninterest income in 2022 was mostly attributable to a$9.3 million increase in income from an equity interest received through restructuring a loan, along with a$9.0 million increase in sweep fees, a$3.3 million increase in income from service charges on deposits and increases in trust revenue and insurance commissions. The increase in non-interest income was partially offset by a loss of$4.0 million on bonds resulting from the sale of$226 million of low yielding debt securities, which were subsequently reinvested in higher yielding debt securities. In addition, noninterest income in 2022 had a decrease in the gain on sale of other assets and a decrease in income from sales of loans. Noninterest expense was$309.9 million in 2022 compared to$286.0 million in 2021. The increase in noninterest expense in 2022 was due to the increase in salaries and employee benefits of$18.3 million , noninterest expenses (including salaries and employee benefits) related to the Worthington acquisition, and a$1.3 million increase in deposit insurance. The Company's effective tax rate in 2022 was 18.67% compared to 19.56% for 2021. The effective tax rates for both years were lower than the statutory tax rate due to the recognition of certain tax credits. The Company's assets at year-end 2022 totaled$12.4 billion , an increase of$3.0 billion fromDecember 31, 2021 . The growth in assets was driven by customer deposits that remained in the bank and that had previously been swept into off-balance sheet money market accounts at year-end 2021. Off-balance sheet sweep accounts totaled$3.7 billion atDecember 31, 2022 compared to$5.1 billion atDecember 31, 2021 . Loans totaled$6.9 billion an increase of$755.6 million from year-end 2021. Loan growth during 2022, net of acquired loans and PPP loan payoffs, was$578.0 million or 8.6%. Total deposits were$11.0 billion atDecember 31, 2022 an increase of$2.9 billion fromDecember 31, 2021 . The Company's total stockholders' equity was$1.3 billion , an increase of$79.1 million overDecember 31, 2021 . Asset quality remained strong as nonaccrual loans declined to$15.3 million , representing 0.22% of total loans atDecember 31, 2022 , down from 0.34% atDecember 31, 2021 . The allowance for credit losses to total loans was 1.33% atDecember 31, 2022 , down slightly from 1.36% atDecember 31, 2021 . The allowance for credit losses to nonaccrual loans was 606.10% atDecember 31, 2022 compared to 401.76% atDecember 31, 2021 . AtDecember 31, 2022 , the Company's other real estate owned (OREO) decreased$2.7 million fromDecember 31, 2021 . The ratio of net charge-offs to average loans for 2022 was 0.02%, compared to 0.11% for 2021.
See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company's recent developments, including mergers and acquisitions.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's significant accounting policies are described in Note (1) to the consolidated financial statements. The preparation of financial statements in conformity with accounting principles generally accepted inthe United States inherently involves the use of estimates and assumptions, which affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the allowance for credit losses, income taxes, intangible assets and the fair value of financial instruments. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported. The following is a summary of the accounting policies and estimates that management believes are the most critical. 27
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Table of Contents Allowance for Credit losses OnJanuary 1, 2020 , the Company adopted Accounting Standards Codification ("ASC") 326, which replaced the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as ("CECL"). The allowance for credit losses is management's estimate of the expected credit losses on financial assets measured at amortized cost. The allowance for credit losses is increased by provisions charged to operating expense and is reduced by net loan charge-offs. The amount of the allowance for credit losses is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. A loan is considered collateral-dependent when the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company's assessment as of the reporting date. For collateral dependent loans, the standard allows institutions to use, as a practical expedient, the fair value of the collateral to measure expected credit losses on collateral-dependent financial assets. This amount is included in the allowance for credit losses. To estimate expected losses using historical loss information, the Company elected to utilize a methodology known as vintage loss analysis forBancFirst , Pegasus, andWorthington Bank . Vintage loss analysis measures impairment based on the age of the accounts and the historical performance of assets with similar risk characteristics. Vintage loss analysis determines expected losses by allowing the Company to calculate the cumulative loss rates of a given loan pool and, in so doing, determine the loan pool's lifetime expected loss experience relative to the appropriate type of financial assets that share similar risk characteristics. Vintage loss analysis uses different "vintages" analyzed by year of origination through the weighted average maturity of each loan pool. The key quantitative inputs used in the Company's estimate of the allowance for credit losses include 1) all available loan data tracked by year of origination, 2) total charge-offs for each specific loan pool recorded since year of origination, 3) recovery rate calculated by the average recovery over the previous seven years across all loan pools, and 4) a weighting factor biased to more recent loss experience. The quantitative expected credit loss is calculated by dividing each year's net charge-offs by the original balance. The respective vintage's original balance remains the denominator in each annual calculation, referencing the specific vintage's initial balance. The loss experience of this original balance is tracked annually and summed over the life of the loan for each separate loan pool, leaving a cumulative life of credit loss rate based on historic averages weighted towards more recent loss experience. These key quantitative inputs change from period to period as new loans are originated, and charge-offs and recoveries are recognized. The recovery rate is revised on an annual basis, taking into consideration the most recent seven years. The weighting factor percentages remain static; however, the most recent year receives the highest weighting percentage. TheBancFirst Senior Loan Committee ("the SLC") establishesBancFirst qualitative adjustments. In setting the qualitative adjustments, they consider several factors, including external economic information, peer bank comparisons, and experience with the loan portfolio. The SLC also considers a Moody's Analytics dataset in whichBancFirst selects a range from three probability scenarios from two economic forecasts. To determine the appropriate correlation to the loss experience, economic indicators are compared to the prior ten years of charge-off history to arrive at a correlation factor.BancFirst then applies the correlation factor to the change in the forecast of the aforementioned economic indicators over the next 18-24 months, which is driven by management's judgment of a reasonable and supportable forecast period to arrive at a percentage range of qualitative loss adjustment attributable to economic forecasts. The SLC establishes a qualitative adjustment for each loan pool using these factors. For periods beyond whichBancFirst can make or obtain reasonable and supportable forecasts of expected credit losses,BancFirst reverts to historical loss information. Each quarter the SLC reviews aggregate allowance forBancFirst and adjusts the appropriateness of the allowance. In addition, annually or more frequently as needed, the SLC evaluates the qualitative adjustments used in theBancFirst allowance based on the information described above. To facilitate the SLC's evaluation, theAsset Quality Department performs periodic reviews of business units and reports on the adequacy of management's identification of collateral-dependent and adversely classified loans and their adherence to loan policies and procedures. The process of evaluating the appropriateness of the allowance for credit losses necessarily involves the exercise of judgment and consideration of numerous subjective factors and, accordingly, there can be no assurance that the estimate of expected losses will not change in light of future developments and economic conditions. Changes in assumptions and conditions could result in a materially different amount for the allowance for credit losses.
Income Taxes
The Company files a consolidated income tax return. Deferred taxes are
recognized under the balance sheet method based upon the future tax consequences
of temporary differences between the carrying amounts and tax basis of assets
and liabilities, using the tax rates expected to apply to taxable income in the
periods when the related temporary differences are expected to be realized.
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The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are reported as tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax laws and regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.
Management performs an analysis of the Company's tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.
Intangible Assets and
Core deposit intangibles are amortized on a straight-line basis over the estimated useful lives of seven to ten years and customer relationship intangibles are amortized on a straight-line basis over the estimated useful life of three to eighteen years.Goodwill is not amortized, but is evaluated at a reporting unit level at least annually for impairment or more frequently if other indicators of impairment are present. At least annually in the fourth quarter, intangible assets, are evaluated for possible impairment. Impairment losses are measured by comparing the fair values of the intangible assets with their recorded amounts. Any impairment losses are reported in the consolidated statement of comprehensive income. The evaluation of remaining core deposit intangibles for possible impairment involves reassessing the useful lives and the recoverability of the intangible assets. The evaluation of the useful lives is performed by reviewing the levels of core deposits of the respective branches acquired. The actual life of a core deposit base may be longer than originally estimated due to more successful retention of customers, or may be shorter due to more rapid runoff. Amortization of core deposit intangibles would be adjusted, if necessary, to amortize the remaining net book values over the remaining lives of the core deposits. The evaluation for recoverability is only performed if events or changes in circumstances indicate that the carrying amount of the intangibles may not be recoverable. The evaluation of goodwill for possible impairment is performed by comparing the fair values of the related reporting units with their carrying amounts including goodwill. The fair values of the related business units are estimated using market data for prices of recent acquisitions of banks and branches.
The evaluation of intangible assets and goodwill for the year ended
Fair Value of Financial Instruments
Debt securities that are being held for indefinite periods of time, or that may be sold as part of the Company's asset/liability management strategy, to provide liquidity or for other reasons, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders' equity, net of income tax. The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to sell, the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the performance of any underlying collateral and adverse conditions specifically related to the security. AtDecember 31, 2022 , 98% of the available for sale debt securities held by the Company were issued by theU.S. Treasury , orU.S. government-sponsored entities and agencies compared to approximately 95% atDecember 31, 2021 . The Company does not consider the unrealized position of these securities to be the result of credit factors, because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company has not recorded an allowance for credit losses against its debt securities portfolio, as the credit risk is not material. The estimates of fair values of debt securities and other financial instruments are based on a variety of factors. In some cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future. 29
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Future Application of Accounting Standards
See Note (1) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements and their expected impact on the Company's consolidated financial statements.
Segment Information
See Note (23) of the Notes to Consolidated Financial Statements for disclosure regarding the Company's operating business segments.
RESULTS OF OPERATIONS
The following discussion and analysis presents the more significant factors that affected the Company's financial condition as ofDecember 31, 2022 and 2021 and results of operations for each of the years then ended. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with theSEC onFebruary 25, 2022 (the "2021 Form 10-K") for a discussion and analysis of the more significant factors that affected periods prior to 2021, which the Company incorporates by reference. Certain reclassifications have been made to make prior periods comparable. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report. From time to time, the Company has engaged in acquisitions. None of these acquisitions had a significant impact on the Company's consolidated financial statements. The Company accounts for acquisitions using the acquisition method, and as such, the results of operations of acquired companies are included from the date of acquisition forward.
Average Balances, Income Expenses and Rates
The following tables present, for the periods indicated, certain information related to the Company's consolidated average balance sheet, average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. For these computations: (i) average balances are derived from daily averages, (ii) information is shown on a taxable-equivalent basis assuming a 21% tax rate, and (iii) nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis. Loan fees included in interest income were$24.1 30
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million for the year endedDecember 31, 2022 compared to$55.5 million for the year endedDecember 31, 2021 and$33.5 million for the year endedDecember 31, 2020 . CONSOLIDATED AVERAGE
BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis
(Dollars in thousands)
December 31, 2022 December 31, 2021 December 31, 2020
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans (1) $ 6,611,617 $ 336,739 5.09 % $ 6,220,192 $ 316,618 5.09 % $ 6,432,455 $ 312,514 4.85 %
Debt securities - taxable 1,295,762 24,456 1.89 538,157 6,327 1.18 556,931 8,591 1.54
Debt securities - tax exempt 3,877 118 3.03 11,372 258 2.27 28,969 616 2.12
Federal funds sold and interest-bearing
deposits with banks 3,450,093 58,931 1.71 3,268,443 4,366 0.13 1,562,383 6,049 0.39
Total earning assets 11,361,349 420,244 3.70 10,038,164 327,569 3.26 8,580,738 327,770 3.81
Nonearning assets:
Cash and due from banks 260,028 271,004 220,995
Interest receivable and other assets 865,744 694,191 611,966
Allowance for credit losses (87,567 ) (88,028 ) (76,501 )
Total nonearning assets 1,038,205 877,167 756,460
Total assets $ 12,399,554 $ 10,915,331 $ 9,337,198 LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities: Transaction deposits$ 957,719 $ 2,049 0.21 %$ 848,535 $ 634 0.07 %$ 744,632 $ 940 0.13 % Savings deposits 4,280,052 35,598 0.83 3,736,901 4,055 0.11 3,273,903 9,385 0.29 Time deposits 672,179 4,318 0.64 654,801 3,543 0.54 695,637 8,147 1.17 Short-term borrowings 4,333 60 1.39 2,608 2 0.08 2,745 8 0.30 Long-term borrowings - - - - - - 1,107 - - Subordinated debt 86,013 4,122 4.79 56,793 3,130 5.51 26,804 1,966 7.31 Total interest-bearing liabilities 6,000,296 46,147 0.77 5,299,638 11,364 0.21 4,744,828 20,446 0.43 Interest-free funds: Noninterest-bearing deposits 5,097,813 4,437,352 3,503,187 Interest payable and other liabilities 102,691 52,069 46,048 Stockholders' equity 1,198,754 1,126,272 1,043,135 Total interest free funds 6,399,258 5,615,693 4,592,370 Total liabilities and stockholders' equity$ 12,399,554 $ 10,915,331 $ 9,337,198 Net interest income$ 374,097 $ 316,205 $ 307,324 Net interest spread 2.93 % 3.05 % 3.38 % Effect of interest free funds 0.36 % 0.10 % 0.19 % Net interest margin 3.29 % 3.15 % 3.57 % 31
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The following table depicts, for the periods indicated, selected income statement data and other selected data:
BANCFIRST CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
At and for the Year Ended December 31,
2022 2021 2020
Income Statement Data
Net interest income $ 373,673 $ 315,657 $ 306,668
Provision for (benefit from) 10,076 (8,690 ) 62,648
credit losses
Noninterest income 183,747 170,032 137,222
Noninterest expense 309,912 285,981 257,730
Net income 193,100 167,630 99,586
Per Common Share Data
Net income - basic $ 5.89 $ 5.12 $ 3.05
Net income - diluted 5.77 5.03 3.00
Cash dividends 1.52 1.40 1.32
Selected Financial Ratios
Performance ratios:
Return on average assets 1.56 % 1.54 % 1.06 %
Return on average stockholders' 16.11 14.88 9.52
equity
Cash dividends payout ratio 25.81 27.34 43.28
Net interest spread 2.93 3.05 3.38
Net interest margin 3.29 3.15 3.57
Efficiency ratio 55.60 58.88 58.06
Net Interest Income
Net interest income, which is the Company's principal source of operating
revenue, increased in 2022 by $58.0 million , to a total of $373.7 million ,
compared to an increase of $9.0 million in 2021. Rising short-term interest
rates and loan growth, along with net interest income related to the Worthington
acquisition contributed to the increase in 2022. Net interest income increased
in 2021 as a result of an increase of $20.9 million in fee income from PPP loan
forgiveness and the drop in average interest rates on deposits, offset by
average rates on loans.
Net interest margin is the ratio of taxable-equivalent net interest income to
average earning assets for the period. As shown in the preceding table, the
Company's net interest margin increased in 2022, compared to 2021, due to larger
balances and higher average rates on interest-bearing deposits with banks during
the year. The decrease in net interest margin in 2021 was due to larger balances
and lower average rates on interest-bearing deposits with banks during the year.
In addition, the margin for the year ended December 31, 2021 was positively
impacted by higher PPP fees, which were $36.4 million compared to approximately
$2.1 million for the year ended December 31, 2022 .
During 2022, the Federal Reserve began raising interest rates to help slow
inflation in the economy. The Company's net interest income and net interest
margin were impacted by the increases in interest rates. Our expectation is that
interest rates will continue to increase in the near term.
Changes in the volume of earning assets and interest-bearing liabilities and
changes in interest rates, determine the changes in net interest income. The
following volume/rate analysis summarizes the relative contribution of each of
these components to the changes in net interest income in 2022 and 2021. See
"Maturity and Rate Sensitivity of Loans" for additional discussion.
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VOLUME/RATE ANALYSIS
Taxable Equivalent Basis
Change in 2022 Change in 2021
Due to Due to Due to Due to
Total Volume(1) Rate Total Volume(1) Rate
(Dollars in thousands)
INCREASE (DECREASE)
Interest Income:
Loans $ 20,121 $ 2,524 $ 17,597 $ 4,104 $ (7,641 ) $ 11,745
Investments-taxable 18,129 9,474 8,655 (2,264 ) (361 ) (1,903 )
Investments-tax exempt (140 ) (163 ) 23 (358 ) (402 ) 44
Interest-bearing deposits
with banks and
federal funds sold 54,565 264 54,301 (1,683 ) 6,663 (8,346 )
Total interest income 92,675 12,099 80,576 (201 ) (1,741 ) 1,540
Interest Expense:
Transaction deposits 1,415 73 1,342 (306 ) 273 (579 )
Savings deposits 31,543 537 31,006 (5,330 ) 1,025 (6,355 )
Time deposits 775 136 639 (4,604 ) (500 ) (4,104 )
Short-term borrowings 58 1 57 (6 ) - (6 )
Subordinated debt 992 1,135 (143 ) 1,164 (1 ) 1,165
Total interest expense 34,783 1,882 32,901 (9,082 ) 797 (9,879 )
Net interest income $ 57,892 $ 10,217 Provision for and Benefit from Credit Losses
As shown in the selected consolidated financial table above, the Company recorded a provision for credit losses for 2022, compared to a net benefit from reversal of provision for credit losses for 2021 and a provision for credit losses for 2020. Provisions for credit losses have stabilized in 2022 after the economic downturn and recovery from the effects of the COVID pandemic in prior years. Also, the addition of acquired loans and loan growth led to an increase in the provision in 2022. The Company's reversal of provision for 2021 was based on improvements in economic conditions and the Company's outlook for certain economic indicators. The Company establishes an allowance as an estimate of the expected credit losses in the loan portfolio at the balance sheet date. Management believes the allowance for credit losses is appropriate based upon management's best estimate of expected losses within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for credit losses change, the Company's estimate of expected credit losses could also change, which could affect the amount of future provisions for credit losses. Net loan charge-offs were$1.4 million for 2022 compared to$7.0 million for 2021 and$22.8 million for 2020. The net charge-offs equated to 0.02%, 0.11% and 0.35% of average loans for 2022, 2021 and 2020, respectively. Net charge-offs were higher in 2020 primarily due to three loans. The rate of net charge-offs to average total loans continues to be at a low level. A more detailed discussion of the allowance for credit losses is provided under "Loans." Noninterest Income Noninterest income is shown in the selected consolidated financial table above. Total noninterest income increased in 2022. The increase in noninterest income was mostly attributable to$9.3 million of income from an equity interest received through restructuring a loan, along with$9.0 million in income from sweep fees, a$3.3 million increase in income from service charges on deposits primarily related to debit card interchange fees and non-sufficient funds ("NSF") and overdraft fees discussed below, a$3.1 million increase in insurance commissions and a$2.7 million increase in trust revenue. The increase in non-interest income was partially offset by a loss of$4.0 million on bonds resulting from the sale of$226 million of low yielding debt securities, which were subsequently reinvested in higher yielding debt securities. In addition, the increase in noninterest income in 2022 was partially offset by a decrease in the gain on sale of other assets and a decrease from income from the sale of loans discussed below. The Company's operating noninterest income has generally increased due to enhanced product lines, acquisitions and internal deposit account growth. 33
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The Company earned$4.5 million on the sale of loans in 2022 compared$7.3 million in 2021 and$6.1 million in 2020. The income from sales of loans in 2021 was higher due to the increase in the volume of mortgage loans originated because of record low mortgage rates. The Company expects the volume of mortgage loans originated to continue to decrease during 2023 due to higher mortgage interest rates. The Company recognized a net gain of$2.2 million during 2022, a net gain of$1.0 million during 2021, and a net loss of$389,000 during 2020, due to transactions of equity securities. These losses and gains were primarily due to the Accounting Standard Update 2016-01, which requires the change in fair value of equity securities to be recognized through net income. The Company's practice is to maintain a liquid portfolio of securities and not engage in trading activities. The Company has the ability and intent to hold debt securities classified as available for sale that were in an unrealized loss position until they mature or until fair value exceeds amortized cost. As described above, due to the interest rate increases during 2022, the Company recognized a loss on the sale of debt securities of$4.0 million . Noninterest income included NSF and overdraft fees totaling$26.0 million ,$25.0 million and$26.6 million in 2022, 2021 and 2020, respectively. This represents 14.2%, 14.7%, and 19.4% of the Company's noninterest income for the years 2022, 2021 and 2020, respectively. In addition, the Company had debit card interchange fees totaling$48.9 million ,$46.0 million and$36.9 million for the years 2022, 2021 and 2020, respectively. This represents 26.6%, 27.1% and 26.9% of the Company's noninterest income for the years 2022, 2021 and 2020, respectively. For 2022 compared to 2021, an increase in customer accounts and interchange volume activity resulted in higher debit card interchange fees. The Company is subject to political pressures that could limit our ability to charge for NSF and overdraft fees. As ofApril 1, 2022 , the Company lowered the rates charged on NSF and overdraft fees. To the extent that increased volume doesn't overcome these rate changes, the Company could experience a decline in NSF and overdraft fees. The Company exceeded$10 billion in total assets atDecember 31, 2022 . Pursuant to the Durbin Amendment of the Dodd-Frank Act, based on current run rates, this will trigger a reduction of annual pretax income from debit card interchange fees of approximately$22 million beginningJuly 1, 2023 .
Noninterest Expense
Total noninterest expense increased by$23.9 million , or 8.4% to$309.9 million for 2022. This compares to an increase of$28.3 million , or 11.0%, for 2021. The increase in noninterest expense in 2022 was due to the increase in salaries and employee benefits of$18.3 million , noninterest expenses (including salaries and employee benefits) related to the Worthington acquisition, and an increase in deposit insurance. In addition, net expense from other real estate owned increased$822,000 , which was due to an increase of$3.2 million of write downs on other real estate owned and$1.3 million increase in the cost of holding other real estate owned, offset by an increase in gain on the sales of other real estate owned of$3.6 million . The increase in noninterest expense in 2021 was due to the increase in salaries and employee benefits of$2.0 million ,$8.9 million related to other real estate property operating costs,$4.8 million in acquisition related expenses,$4.4 million in net occupancy and depreciation primarily from the Company's move to its new corporate headquarters,$3.1 million amortization of investment in tax credits,$1.1 million incentive to customers that participated in the year-end sweep program and an increase in deposit insurance. Noninterest expense included deposit insurance expense, which totaled$4.7 million for the year endedDecember 31, 2022 , compared to$3.5 million for the year endedDecember 31, 2021 and$2.1 million for the year endedDecember 31, 2020 . Income Taxes Income tax expense totaled$44.3 million in 2022, compared to$40.8 million in 2021 and$23.9 million in 2020. The effective tax rates for 2022, 2021 and 2020 were 18.7%, 19.6% and 19.4% respectively. The primary reasons for the difference between the Company's effective tax rate and the federal statutory rate were tax-exempt income, nondeductible amortization, federal and state tax credits and state tax expense. Certain financial information is prepared on a taxable equivalent basis to facilitate analysis of yields and changes in components of earnings. Average balance sheets, comprehensive income statements and other financial statistics are also presented on a taxable equivalent basis. 34
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Table of Contents Impact of Inflation The impact of inflation on financial institutions differs significantly from that of industrial or commercial companies. The assets of financial institutions are predominantly monetary, as opposed to fixed or nonmonetary assets such as premises, equipment and inventory. As a result, there is little exposure to inflated earnings by understated depreciation charges or significantly understated current values of assets. Although inflation can have an indirect effect by leading to higher interest rates, financial institutions are in a position to monitor the effects on interest costs and yields and respond to inflationary trends through management of interest rate sensitivity. Inflation can also have an impact on noninterest expenses such as salaries and employee benefits, occupancy, services and other costs.
Impact of Deflation
In a period of deflation, it would be reasonable to expect widely decreasing
prices for real assets. In such an economic environment, assets of businesses
and individuals, such as real estate, commodities or inventory, could decline.
The inability of customers to repay or refinance their loans could result in
credit losses incurred by the Company far in excess of historical experience due
to deflated collateral values.
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FINANCIAL POSITION
BANCFIRST CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
At and for the Year Ended December 31,
2022 2021
Balance Sheet Data
Total assets $ 12,387,863 $ 9,405,612
Debt securities 1,540,604 534,500
Total loans (net of unearned interest) 6,949,795 6,194,218
Allowance for credit losses 92,728 83,936
Deposits 10,974,228 8,091,914
Subordinated debt 86,044 85,987
Stockholders' equity 1,250,836 1,171,734
Book value per share 38.05 35.94
Tangible book value per shares (non-GAAP)(1) 31.90 30.80
Reconciliation of Tangible Book Value per Common Share
(non-GAAP)(2)
Stockholders' equity $ 1,250,836 $ 1,171,734
Less goodwill 182,055 149,922
Less intangible assets, net 19,983 17,566
Tangible stockholders' equity (non-GAAP) $ 1,048,798 $ 1,004,246
Common shares outstanding 32,875,560 32,603,118
Tangible book value per share (non-GAAP) $ 31.90 $ 30.80
Selected Financial Ratios
Performance Ratios:
Return on average assets 1.56 % 1.54 %
Return on average stockholders' equity 16.11 14.88
Cash dividends payout ratio 25.81 27.34
Net interest spread 2.93 3.05
Net interest margin 3.29 3.15
Efficiency ratio 55.60 58.88
Balance Sheet Ratios:
Average loans to deposits 60.06 % 64.27 %
Average earning assets to total assets 91.63 91.96
Average stockholders' equity to average assets 9.67 10.32
Asset Quality Ratios:
Nonaccrual loans to total loans 0.22 % 0.34 %
Nonperforming and restructured loans to total loans 0.35 0.48
Nonperforming and restructured assets to total assets 0.50 0.73
Allowance for credit losses to total loans 1.33 1.36
Allowance for credit losses to nonperforming and 376.67 284.33
restructured loans
Allowance for credit losses to nonaccrual loans 606.10 401.76
Net charge-offs to average loans 0.02 0.11
(1) Refer to the "Reconciliation of Tangible Book Value per Common Share (non-GAAP)" Table
(2) Tangible book value per common share is stockholders' equity less goodwill and intangible assets,
net, divided by common shares outstanding.
This amount is a non-GAAP financial measure but has been included as it is considered to be a
critical metric with which to analyze and
evaluate the financial condition and capital strength of the Company. This measure should not be
considered a substitute for operating results determined in accordance with GAAP.
Cash, Federal Funds Sold and Interest-Bearing Deposits with Banks
Cash consists of cash and cash items on hand, noninterest-bearing deposits and amounts due from other banks, reserves deposited with theFederal Reserve Bank , and interest-bearing deposits with other banks. Federal funds sold consist of overnight investments of excess funds with other financial institutions. The Company has continued to maintain the majority of its excess funds with theFederal Reserve Bank . TheFederal Reserve Bank pays interest on these funds based upon the lowest target rate for the maintenance period, which increased during 2022 from 0.25% to 4.50%. The rate was 0.25% during all of 2021. 36
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The amount of cash, federal funds sold and interest-bearing deposits with theFederal Reserve Bank carried by the Company is a function of the availability of funds presented to other institutions for clearing, and the Company's requirements for liquidity, operating cash and reserves, available yields and interest rate sensitivity management. Balances of these items can fluctuate widely based on these various factors. The aggregate of cash and due from banks and interest-bearing deposits with banks increased by$1.1 billion , or 54.7%, to$3.2 billion , fromDecember 31, 2021 toDecember 31, 2022 . The increase was primarily related to the return of deposits from off-balance sheet sweep accounts related to the Company's year-end sweep program, which was partially off-set by the purchase of higher yielding bonds described below.
Securities
For the year endedDecember 31, 2022 , total debt securities increased$1.0 billion , or 188.2%, to$1.5 billion . Debt securities available for sale represented 99.9% of the total debt securities portfolio atDecember 31, 2022 , compared to 99.4% of total debt securities portfolio atDecember 31, 2021 . Debt securities available for sale had a net unrealized loss of$93.7 million atDecember 31, 2022 , compared to a net unrealized gain of$2.8 million atDecember 31, 2021 . These unrealized (losses)/gains are included in the Company's stockholders' equity as accumulated other comprehensive (loss)/income, net of income tax, in the amounts of a loss of$71.6 million and a gain of$2.2 million forDecember 31, 2022 and 2021, respectively. During the year endedDecember 31, 2022 , the Company had a loss of$4.0 million resulting from the sale of$226 million of debt securities with an average yield of 0.16%, which was subsequently reinvested in$220 million of debt securities with an average yield of 1.86%. The Company also made two other purchases of debt securities in 2022. OnJanuary 10, 2022 , the Company purchased United States Treasury Notes with$600 million par value at an average yield of 1.42% and an average maturity of 53 months. OnAugust 25, 2022 , the Company purchased United States Treasury Notes of$300 million par value with an average yield of 3.27% and an average maturity of 58 months. The Company does not engage in securities trading activities. Any sales of debt securities are for the purpose of executing the Company's asset/liability management strategy, eliminating a perceived credit risk in a specific security, or providing liquidity. Debt securities that are being held for indefinite periods of time, or that may be sold as part of the Company's asset/liability management strategy, to provide liquidity, or for other reasons, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders' equity, net of income tax. Debt securities for which the Company has the intent and ability to hold to maturity are classified as held for investment and are stated at cost, adjusted for amortization of premiums and accretion of discounts computed under the interest method. Management has the ability and intent to hold the debt securities classified as held for investment until they mature, at which time the Company will receive full value for the securities. Furthermore, the Company also has the ability and intent to hold the debt securities classified as available for sale for a period of time sufficient for a recovery of cost. As ofDecember 31, 2022 , the Company had net unrealized losses largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value of those securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for similar investments decrease. Furthermore, as ofDecember 31, 2022 , management had no intent or requirement to sell before the recovery of the unrealized loss.
See Note (4) of the Notes to Consolidated Financial Statements for disclosures regarding the Company's Securities.
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WEIGHTED AVERAGE YIELD OF DEBT SECURITIES
The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio atDecember 31, 2022 . The following table presents securities at their expected maturities, which may differ from contractual maturities. The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements for public funds. For the interest rate sensitivity of debt securities see the table in item 7A. After One Year After Five Years But Within But Within Within One Year Five Years Ten Years After Ten Years Total Amount Yield* Amount Yield*
Amount Yield* Amount Yield* Amount Yield*
(Dollars in thousands)
Held for Investment
Mortgage-backed
securities $ 8 7.24 % $ 5 5.46 % $ - - % $ - - % $ 13 6.56 %
State and political 1,185 1.22 685 3.22 1,870
subdivisions - - - - 1.96
Other securities - - 500 0.10 - - - - 500 0.10
Total $ 1,193 1.27 $ 1,190 1.92 $ - - $ - - $ 2,383 1.59
Percentage of total 50.1 % 49.9 % - % - % 100.0 %
Available for Sale
U.S. Treasury, other
federal agencies and
mortgage-backed
securities $ 100,825 2.62 % $ 1,241,414 1.94 % $ 156,405 3.31 % $ 11,028 2.18 % $ 1,509,672 2.13 %
State and political 656 1.37 6,193 3.78 1,285 3.50 8,134 3.54
subdivisions - -
Asset backed 4.91 13,010 4.91
securities - - - - 13,010 - -
Other securities - - 158 3.16 7,247 4.92 - - 7,405 4.88
Total $ 101,481 2.61 $ 1,247,765 1.95
81.1 % 11.6 % 0.7 % 100.0 %
Total debt $ 102,674 2.60 % $ 1,248,955 1.95 % $ 177,947 3.50 % $ 11,028 2.18 % $ 1,540,604 2.17 %
securities
Percentage of total 6.6 % 81.1 % 11.6 % 0.7 % 100.0 %* Yield is on a taxable-equivalent basis using a 21% tax rate.
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Table of Contents Loans The Company has historically generated loan growth from both internal originations and bank acquisitions. Total loans held for investment increased$774.1 million , or 12.6%, to$6.9 billion in 2022. Internal loan growth during 2022, net of acquired loans and PPP loans, was approximately$578.0 million , or 8.6%. The acquisition of Worthington also added$257 million in loans. AtDecember 31, 2022 , the balance of total PPP loans was$1.1 million , with no unamortized processing fees, compared to$80.4 million , net of unamortized processing fees of$2.0 million atDecember 31, 2021 .
Composition
The Company's loan portfolio was diversified among various types of commercial and individual borrowers. Commercial loans were comprised principally of loans to companies in real estate, light manufacturing, retail and service industries. Consumer non-real estate loans were comprised primarily of loans to individuals for automobiles.
LOANS HELD FOR INVESTMENT BY CATEGORY
December 31,
2022 2021
% of % of
Amount Total Amount Total
(Dollars in thousands)
Real estate:
Commercial real estate owner occupied $ 906,461 13.05 % $ 775,554 12.57 %
Commercial real estate non-owner 1,385,307 19.95 1,095,324 17.75
occupied
Construction and development < 60 481,070 6.93 415,466 6.74
months
Construction residential real estate 304,432 4.38 254,524 4.13
< 60 months
Residential real estate first lien 1,119,706 16.13 937,006 15.19
Residential real estate all other 199,005 2.87 161,018 2.61
Farmland 261,518 3.77 272,179 4.41
Commercial and agricultural non-real 1,376,375 19.82 1,416,093 22.95
estate
Consumer non-real estate 447,039 6.44 413,370 6.70
Oil and gas 462,650 6.66 428,908 6.95
Total loans $ 6,943,563 100.00 % $ 6,169,442 100.00 %
See Note (1) and Note (5) of the Notes to Consolidated Financial Statements for additional disclosures regarding the Company's loans.
LOANS BY MATURITY AND INTEREST RATE SENSITIVITY
The information relating to the maturity and interest rate sensitivity of loans
is based upon contractual maturities and original loan terms. In the ordinary
course of business, loans maturing within one year may be renewed, in whole or
in part, at interest rates prevailing at the date of renewal.
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The following table presents the maturity distribution of loans held for investment atDecember 31, 2022 . Many of the loans with maturities of one year or less are renewed at existing or similar terms after scheduled principal reductions. Also, approximately 56% of loans had adjustable interest rates atDecember 31, 2022 . Loans Maturing After Five After One Years But Within One But Within Within After Fifteen Year (a) Five Years Fifteen Years Years Total December 31, 2022 (Dollars in thousands) Real estate: Commercial real estate owner occupied$ 43,648 $ 241,763 $ 440,777 $ 180,273 $ 906,461 Commercial real estate non-owner 177,911 514,144 604,488 88,764 1,385,307
occupied
Construction and development < 60 months 198,110 201,096
63,656 18,208 481,070
Construction residential real estate < 285,316 9,977 4,050 5,089 304,432
60 months
Residential real estate first lien 72,291 112,933 433,114 501,368 1,119,706
Residential real estate all other 41,918 76,008 48,947 32,132 199,005
Farmland 38,027 22,529 91,735 109,227 261,518
Commercial and agricultural non-real 495,753 547,855 308,018 24,749 1,376,375
estate
Consumer non-real estate 51,651 291,479 101,573 2,336 447,039
Oil and gas 247,938 194,671 16,292 3,749 462,650
Total loans $ 1,652,563 $ 2,212,455 $ 2,112,650 $ 965,895 $ 6,943,563
Percentage of total 23.80 % 31.86 % 30.43 % 13.91 % 100.00 %
The interest rate composition of loans with a maturity date over one year are presented below based on contractual terms.
Loans Maturing after One Year
Predetermined
(Fixed) Interest Floating
Rate Interest Rate Total
December 31, 2022 (Dollars in thousands)
Real estate:
Commercial real estate owner occupied $ 289,305 $ 573,508 $ 862,813
Commercial real estate non-owner occupied 655,185 552,211 1,207,396
Construction and development < 60 months 89,372 193,588 282,960
Construction residential real estate < 60 months 11,467 7,649 19,116
Residential real estate first lien 247,806 799,609 1,047,415
Residential real estate all other 38,520 118,567 157,087
Farmland 25,065 198,426 223,491
Commercial and agricultural non-real estate 486,546 394,076 880,622
Consumer non-real estate 382,558 12,830 395,388
Oil and gas 83,644 131,068 214,712
Total $ 2,309,468 $ 2,981,532 $ 5,291,000
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NONPERFORMING AND RESTRUCTURED ASSETS
The following table summarizes nonperforming and restructured assets.
December 31,
2022 2021
(Dollars in thousands)
Past due 90 days or more and still accruing $ 7,085 $ 4,964
Nonaccrual (1) 15,299 20,892
Restructured 2,234 3,665
Total nonperforming and restructured loans 24,618 29,521
Other real estate owned and repossessed assets 36,936 39,553
Total nonperforming and restructured assets $ 61,554
(1) Government agencies guarantee approximately
Nonperforming and Restructured Assets
During 2022, nonperforming and restructured assets decreased$7.5 million to$61.6 million . The Company's level of nonperforming and restructured assets has continued to be relatively low, equating to 0.50% and 0.73% of total assets atDecember 31, 2022 and 2021, respectively. Nonaccrual loans decreased$5.6 million in 2022 due to resolution of several loans. The Company's nonaccrual loans are primarily commercial and agricultural non-real estate. Nonaccrual loans negatively impact the Company's net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of both interest and principal is in serious doubt. Interest income is not recognized until the principal balance is fully collected. However, if the full collection of the remaining principal balance is not in doubt, interest income is recognized on certain of these loans on a cash basis. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of$1.3 million for 2022,$2.2 million for 2021 and$2.8 million for 2020. Only a small amount of this interest is expected to be ultimately collected. Approximately$4.7 million of nonaccrual loans are guaranteed by government agencies as ofDecember 31, 2022 . Restructured loans decreased$1.4 million in 2022 due primarily to the overall improvement in the asset quality of the loans. The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered troubled debt restructurings whose terms were modified during the period were not considered material. The classification of a loan as nonperforming does not necessarily indicate that loan principal and interest will ultimately be uncollectible; although, in an economic downturn, the Company's experience has been that the level of collections declines. The above normal risk associated with nonperforming loans has been considered in the determination of the allowance for credit losses. AtDecember 31, 2022 , the allowance for credit losses as a percentage of nonperforming and restructured loans was 376.67%, compared to 284.33%, at the end of 2021. The level of nonperforming loans and credit losses could rise over time as a result of adverse economic conditions. Other real estate owned ("OREO") and repossessed assets decreased$2.6 million in 2022. OREO consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure and premises held for sale. These properties are carried at the lower of the book values of the related loans or fair values based upon appraisals, less estimated costs to sell. Write-downs arising at the time of reclassification of such properties from loans to OREO are charged directly to the allowance for credit losses. Any losses on bank premises designated to be sold are charged to operating expense at the time of transfer from premises to OREO. Decreases in values of properties subsequent to their classification as OREO are charged to operating expense. The Company's write-downs in OREO totaled$3.7 million for 2022,$538,000 for 2021 and$558,000 for 2020. OREO included a commercial real estate property recorded at$29.4 million atDecember 31, 2022 and$29.5 million atDecember 31, 2021 . 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. 41
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This property had the following rental income and operating expenses for the
periods presented.
For the Year Ended December 31,
2022 2021 2020
Rental income $ 10,340 $ 9,975 $ -
Operating expense 9,863 8,727 -
The Company's total rental income from OREO was $10.9 million in 2022 compared
to $10.3 million in 2021 and $16,000 in 2020. In addition, the Company's total
OREO holding expense was $10.5 million in 2022 compared to $9.2 million in 2021
and $313,000 in 2020.
Allowance for Credit Losses/Fair Value Adjustments on Acquired Loans
The Company determines its provision for credit losses and allowance for credit losses using the expected loss methodology that is referred to as the CECL model. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. AtDecember 31, 2022 , the allowance for credit losses to total loans represented 1.33% of total loans, compared to 1.36% atDecember 31, 2021 . The increase in the allowance for credit losses during 2022 was related to the additional allowance for credit losses required for newly acquired loans and loan growth. The decrease in the allowance for credit losses during 2021 was driven by a reversal of a pandemic-related provision during 2021 based on sustained improvements in the economy, both nationally and in the Company's markets, which reduced the amount of expected credit losses within the loan portfolio. This reduction was partially offset by additional allowance for credit losses required for newly acquired loans. The overall credit quality of the Company's loan portfolio has remained strong. Net charge-offs were$1.3 million and$7.0 million for the years ended 2022 and 2021, respectively. The amount of net loan charge-offs is relatively low, equating to 0.02% and 0.11% of average total loans for the years endedDecember 31, 2022 and 2021, respectively. If unforeseen adverse changes occur in the national or local economy, or in the credit markets, it would be reasonable to expect that the allowance for credit losses would increase in future periods.
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
The following table is a break-out of the allowance for credit losses:
Year Ended December 31,
2022 2021
(Dollars in thousands)
Real estate:
Commercial real estate owner occupied $ 6,412 $ 7,568
Commercial real estate non-owner occupied 30,192
16,987
Construction and development < 60 months 3,778
3,490
Construction residential real estate < 60 months 3,276 1,092 Residential real estate first lien
4,098 3,076
Residential real estate all other 1,845
2,104
Farmland 3,510
4,822
Commercial and agricultural non-real estate 27,311 28,085 Consumer non-real estate 4,135 3,734 Oil and gas 8,171 12,978 Total$ 92,728 $ 83,936 42
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The following table is a break-out of net charge-offs/(recoveries) and the break-out of the percent of average loans in each category:
December 31,
2022 2021
% of % of
Amount Avg Loans Amount Avg Loans
(Dollars in thousands)
Real estate:
Commercial real estate owner occupied $ (487 ) 0.00 % $ (36 ) 0.00 %
Commercial real estate non-owner 736 0.01
occupied - -
Construction and development < 60 81 (12 )
months - -
Construction residential real estate
< 60 months - - - -
Residential real estate first lien 19 - 32 -
Residential real estate all other (367 ) - 469 0.01
Farmland - - 888 0.01
Commercial and agricultural non-real 1,534 0.02 4,424 0.07
estate
Consumer non-real estate 575 - 538 0.01
Oil and gas - - - -
Total $ 1,355 0.02 % $ 7,039 0.11 %
The fair value adjustment on acquired loans can consist of a credit component
and a rate component to adjust for estimated credit exposures in the acquired
loans. The credit component of the adjustment was a $2.2 million discount at
December 31, 2022 and a $1.1 million discount at December 31, 2021 . The rate
component was $738,000 at December 31 2022. These fair value adjustments will be
accreted to income over the remaining life of the loans. The acquired loans
outstanding were $263.5 million and $312.0 million , at December 31, 2022 and
2021, respectively.
Intangible Assets,
Identifiable intangible assets and goodwill totaled
The increase in goodwill and intangible assets in 2022 was due to the
acquisition of
Other assets includes the cash surrender value of key-man life insurance
policies totaling
Equity securities are reported in other assets on the balance sheet. The Company invests in equity securities without readily determinable fair values. These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. The balance of equity securities was$15.5 million atDecember 31, 2022 and$10.6 million atDecember 31, 2021 . The Company reviews its portfolio of equity securities for impairment at least quarterly. The balance of other assets included equity interests of previous borrowers in the oil and gas industry, which were received through bankruptcy proceedings, which totaled$21.4 million atDecember 31, 2022 and$16.4 million atDecember 31, 2021 . Under the equity method, the carrying value of a bank's investment in an investee is originally recorded at cost but is adjusted periodically to record as 43
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income the bank's proportionate share of the investee's earnings or losses and decreased by the amount of cash dividends or similar distributions received from the investee.
During 2022, there have not been any material changes in the Company's low income housing tax credit investments and new market tax credit investments, which are included in other assets on the Company's balance sheet. See Note (6) of the Notes to Consolidated Financial Statements for disclosures regarding these investments.
Liquidity and Funding
The Company's principal source of liquidity and funding is its broad deposit base generated from customer relationships. The availability of deposits is affected by economic conditions, competition with other financial institutions and alternative investments available to customers. Through interest rates paid, service charge levels and services offered, the Company can affect its level of deposits to a limited extent. The level and maturity of funding necessary to support the Company's lending and investment functions is determined through the Company's asset/liability management process. The Company currently does not rely heavily on long-term borrowings and does not utilize brokered CDs. The Company maintains 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. Historically,BancFirst has more liquidity than its peers do. This liquidity positionsBancFirst to respond to increased loan demand and other requirements for funds, or to decreases in funding sources. The liquidity ofBancFirst Corporation , however, is dependent upon dividend payments fromBancFirst and its ability to obtain financing. Banking regulations limit bank dividends based upon net earnings retained byBancFirst and minimum capital requirements. Dividends in excess of these limits require regulatory approval. AtJanuary 1, 2023 ,BancFirst had approximately$185.1 million of equity available for dividends toBancFirst Corporation without regulatory approval. During 2022,BancFirst declared four common stock dividends totaling$54.4 million , two preferred stock dividends totaling$1.9 million and two special dividends totaling$30.8 million . There are no near term plans for Pegasus or Worthington to pay dividends toBancFirst Corporation .
Deposits
Total deposits increased$2.9 billion to$11.0 billion , an increase of 35.6% in 2022. The increase in deposits during 2022 was predominantly driven by customer deposits that remained in the bank and that had previously been swept into off-balance sheet money market accounts at year-end 2021. The Company's core deposits provide it with a stable, low-cost funding source. The Company's core deposits as a percentage of total deposits was 98.1% atDecember 31, 2022 and 98.2%December 31, 2021 . Noninterest-bearing deposits to total deposits were 45.1% atDecember 31, 2022 , compared to 46.7% atDecember 31, 2021 . In addition, off-balance sheet sweep accounts totaled$3.7 billion atDecember 31, 2022 , compared to$5.1 billion atDecember 31, 2021 , which included a temporary sweep amount of$2.3 billion . Our sweep accounts affect the balances of our year-end assets and deposits. ANALYSIS OF AVERAGE DEPOSITS Year Ended December 31, 2022 2021 (Dollars in thousands) Average Balances Demand deposits$ 5,097,813 $ 4,437,352 Interest-bearing transaction deposits 957,719 848,535 Savings deposits 4,280,052 3,736,901 Time deposits 672,179 654,801 Total deposits$ 11,007,763 $ 9,677,589 44
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PERCENTAGE OF TOTAL AVERAGE DEPOSITS AND AVERAGE RATES PAID
Year Ended December 31,
2022 2021
% of % of
Total Rate Total Rate
Demand deposits 46.31 % 45.85 %
Interest-bearing transaction deposits 8.70 0.21 % 8.77 0.07 %
Savings deposits 38.88 0.83 38.61 0.11
Time deposits 6.11 0.64 6.77 0.54
Total deposits 100.00 % 100.00 %
Average rate paid on interest-bearing deposits 0.71 % 0.16 %
MATURITY OF TIME DEPOSITS
The following table shows the maturity of time deposits that are in excess of
the
December 31, 2022
(Dollars in
thousands)
Three months or less $ 47,908
Over three months through six months 55,975
Over six months through twelve months 81,233
Over twelve months 29,401
Total $ 214,517
At
Subordinated Debt
OnJune 17, 2021 , the Company completed a private placement, under Regulation D of the Securities Act of 1933, of$60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 ("Subordinated Notes") to various institutional accredited investors. See Note (11) of the Notes to Consolidated Financial Statements for a complete discussion of the Company's subordinated debt. Short-Term Borrowings
See Note (9) of the Notes to Consolidated Financial Statements for a discussion of short-term borrowings.
Lines of Credit
See Note (10) of the Notes to Consolidated Financial Statements for a discussion of the Company's lines of credit.
Capital Resources
Stockholders' equity totaled$1.3 billion atDecember 31, 2022 , compared to$1.2 billion atDecember 31, 2021 . In addition to net income of$193.1 million , other changes in stockholders' equity during the year endedDecember 31, 2022 included$7.6 million related to common stock issuances and$1.9 million related to stock-based compensation, that were partially offset by$49.9 million in dividends, and a$73.7 million decrease in other comprehensive income. The Company's average stockholders' equity to average assets for 2022 was 9.67% compared to 10.32% for 2021. The Company's leverage ratio and total risk-based capital ratios atDecember 31, 2022 were well in excess of the regulatory requirements. Banking institutions are generally expected to maintain capital well above the minimum levels. The Company's trust preferred securities have continued to be included in Tier 1 capital, as the Company's total assets do not exceed$15 billion . The Company's Subordinated Notes have been structured to qualify as Tier 2 capital under bank regulatory guidelines. 45
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See Note (15) of the Notes to Consolidated Financial Statements for a discussion of capital ratio requirements.
See Note (11) of the Notes to Consolidated Financial Statements for disclosures regarding the Company's Subordinated Debt.
OnAugust 31, 2022 , the Company filed with theSecurities and Exchange Commission ("SEC") an automatic shelf registration statement on Form S-3, which became effective upon filing with theSEC . Under the shelf registration, the Company may offer and sell, from time to time, an indeterminate amount of its common stock in one or more future offerings. The Company has had a Stock Repurchase Program (the "SRP") sinceNovember 1999 . The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company's Executive Committee. AtDecember 31, 2022 , up to 500,486 shares could be repurchased under the SRP. No shares were repurchased for the year endedDecember 31, 2022 . For the year endedDecember 31, 2021 , the Company repurchased 212,296 shares of its common stock for$11.7 million at an average price of$54.94 per share under the SRP. For the year endedDecember 31, 2020 , the Company repurchased 59,284 shares of its common stock for$3.1 million at an average price of$52.26 per share under the SRP. Future dividend payments will be determined by the Company's Board of Directors considering the earnings, financial condition and capital needs of the Company,BancFirst , Pegasus, Worthington, applicable governmental policies and regulations and such other factors as the Board of Directors deems appropriate. While no assurance can be given as to the Company's ability to pay dividends, management believes that, based upon the anticipated performance of the Company, regular dividend payments will continue in 2023.
Related Party Transactions
See Note (18) of the Notes to Consolidated Financial Statements for disclosures regarding the Company's related party transactions.
Liquidity Risk and Off-Balance Sheet Arrangements
Liquidity is the ability to meet financial obligations through the maturity or sale of existing assets or the acquisition of additional funds. Various financial obligations, including contractual obligations and commercial commitments, may require future cash payments by the Company. Certain obligations are recognized on the Consolidated Balance Sheets, while others are off-balance sheet underU.S. generally accepted accounting principles. The Company currently has 7.20% Junior Subordinated Debentures, Subordinated Notes, operating lease payments, time deposit payments and low income housing partnership commitments. The Company's time deposits require the majority of cash obligations in the next twelve months. The Company's 7.20% Junior Subordinated Debentures mature onMarch 31, 2034 . The Company's Subordinated Notes mature onJune 30, 2036 . The Company has consistently generated positive net income and the Company currently expects to have positive net income for 2023. Management does not currently know of any trends that would cause the Company to be unable to provide for current obligations in the next twelve months.
Refer to Notes 6, 8, 11, 19 and 20 to the consolidated financial statements for further information regarding these contractual obligations.
The Company is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit, which involve elements of credit and interest-rate risk to varying degrees. The Company's exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the instrument's contractual amount. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the consolidated balance sheet. The Company had$2.6 billion and$2.1 billion in loan commitments atDecember 31, 2022 and 2021, respectively. The Company had$72.2 million and$82.8 million in stand-by letters of credit atDecember 31, 2022 and 2021, respectively. Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Stand-by letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments generally have fixed expiration dates or other termination clauses. Since many of the instruments are expected to expire without being drawn upon, the total amounts do not necessarily represent commitments that will be funded in the future. 46
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