BANF — Q2 2026 Financial Report Analysis

Record quarter on cheaper deposits — but problem loans are climbing

BancFirst, the Oklahoma City-based parent of BancFirst (109 Oklahoma branches), Pegasus Bank (Dallas) and Worthington Bank (Fort Worth area), earned a record $66.7 million, or $1.96 per diluted share, in the second quarter of 2026, up from $62.3 million and $1.85 a year earlier. The driver was net interest income, the gap between what the bank earns on loans and cash and what it pays depositors, which rose 10.1% to $133.5 million. The 10-Q's own explanation is "higher loan volume and general growth in earning assets", but the average balance table shows a second engine: deposit costs fell much faster than asset yields. Underneath, nonaccrual loans (loans where the bank has stopped booking interest because repayment is in serious doubt) rose to $81.4 million from $49.9 million a year ago, and the quarter's provision for credit losses more than tripled.

At a glance

• Net interest margin 3.84% vs 3.75%: the bank kept 9 basis points (0.09 percentage points) more of each dollar of earning assets as interest profit, because the rate it paid on interest-bearing funds fell from 3.30% to 2.81% while the yield on its assets dipped only from 5.82% to 5.62%.
• Nonaccrual loans 0.94% of loans vs 0.61%: up 63% in a year, and the allowance now covers them 1.3x instead of 1.9x. Actual losses (net charge-offs of $2.4 million) are still small.
• CET1 ratio 18.80%: the core capital cushion is far above the 7.0% the rules require including the conservation buffer, which leaves room for the pending SpiritBank deal and any credit losses.

Key figures

BancFirst reports net charge-offs to average loans as 0.03% for Q2 2026 and 0.05% for Q2 2025; those are quarterly rates, not annualized. The annualized figures above multiply by four ($2.4M of charge-offs on $8.6B of average loans). The efficiency ratio is noninterest expense as a share of revenue — lower is better. The 10-Q gives the CET1 ratio only as of June 30, 2026, and the company does not report a return on tangible common equity.

Where the margin came from

A bank's net interest margin (NIM) is its interest profit divided by the assets that earn interest. BancFirst's rose for the second straight quarter: 3.79% in Q3 2025, 3.71% in Q4 2025, 3.74% in Q1 2026, 3.84% in Q2. The average balance table in the 10-Q shows why:

Loan yields held almost flat, while what the bank paid on every deposit category fell about half a percentage point. Total interest expense dropped to $61.8 million from $67.2 million even though interest-bearing liabilities grew by $677 million on average. BancFirst can do this partly because about a third of its deposits (32.5% at June 30) pay no interest at all, and that share rose from 30.8% at year-end.

The weak spot is cash. BancFirst keeps an unusually large pile of it: $4.3 billion on average, nearly a third of earning assets, and 29.2% of total assets at quarter-end. That cash earned 3.70% versus 4.47% a year ago, which cost about $2.1 million of interest income despite a higher balance. This is the main way lower short-term rates hurt the bank, and it is why the margin did not widen even more.

What the headline numbers hide

• Problem loans are rising while charge-offs stay low. Nonaccrual loans rose to $81.4 million from $61.1 million at year-end and $62.2 million at March 31, so most of the jump happened in this quarter. Commercial non-real-estate loans make up 52% of them and commercial real estate 32%; about $7.9 million is government-guaranteed. Foreclosed property (OREO) rose to $61.7 million from $49.1 million at year-end, including a $9.6 million commercial property taken over during the half. OREO write-downs were $1.3 million in the first half, against $20,000 a year earlier. Net charge-offs ($2.4 million vs $4.7 million) understate the trend: this is the early stage of credit stress, where loans stop paying before any loss is booked.
• The provision is building reserves, not covering losses. The $4.8 million loan provision was double the $2.4 million charged off, lifting the allowance to 1.25% of loans from 1.19% a year ago. But the allowance covers nonaccrual loans 1.32x, down from 1.94x. CEO David Harlow called the outlook "guarded".
• About $4.4 million of the $5.9 million noninterest-income rise is one-off or noisy. The quarter includes $2.9 million of gains on bank-owned life insurance claims (payouts on policies the bank holds on employees), and securities transactions swung to a $0.7 million gain from a $0.7 million loss. Without those two items, fee income grew about 3%, led by service charges (+7.6% to $19.1 million). Insurance commissions fell to $7.5 million from $7.9 million.
• Part of the growth was bought. BancFirst acquired American Bank of Oklahoma (ABOK) in November 2025, which brought about $244 million of loans and $341 million of deposits. Excluding those amounts, year-on-year loan growth was roughly 3.5% rather than 6.5%, and deposit growth was roughly 3.6% rather than 6.4%. Since year-end, loans grew only 1.3%, mostly commercial real estate.
• Expenses are growing as fast as revenue. Noninterest expense rose 10.6%: salaries were up $5.2 million and net OREO expense up $1.6 million. Salaries were also helped by an $828,000 favorable benefit-trust adjustment. The efficiency ratio barely moved (52.02% vs 52.10%).
• Earnings quality is otherwise clean. First-half operating cash flow was $158.9 million against $129.7 million of net income. The tax rate was flat (21.6% vs 21.8%), and there were no buybacks: diluted shares rose 0.8%, partly from stock issued for ABOK, so EPS grew a bit slower than net income (5.9% vs 7.0%). Pre-tax, pre-provision earnings rose about 10.9%. The gap between that and 7.0% net income growth is mostly the larger provision.

Takeaway: BancFirst's record quarter came from deposit costs falling faster than loan yields, which is a durable advantage given its large base of non-interest-bearing deposits. The number to watch is credit, not the margin: nonaccrual loans rose 63% in a year and reserve coverage of them fell from 1.9x to 1.3x, while reported losses stayed tiny.

Outlook

BancFirst gives no numeric guidance. On June 10 it agreed to buy Spirit BankCorp (SpiritBank) of Tulsa, which has about $940 million in assets, $618 million in loans and $847 million in deposits. Closing is expected in the fourth quarter of 2026, pending regulatory approval. That would add roughly 7% to loans and deposits and expand the bank's Tulsa footprint; on ABOK, the 10-Q noted about $1.2 million of first-half conversion costs.

Our read: the margin should hold up reasonably well while deposit costs keep catching down. But with almost a third of assets in cash, each further cut in short-term rates directly lowers interest income on that cash. That makes further margin gains harder after this quarter's 3.84%. The bigger swing factor is whether the rise in nonaccrual commercial loans turns into actual charge-offs. With an 18.8% CET1 ratio, BancFirst can absorb losses well above its current run-rate, but provisions at the Q2 level ($4.9 million) or higher would keep net income growing slower than revenue. For the Q3 report, due in mid-to-late October, the things to watch are nonaccrual loans versus $81.4 million, net charge-offs, and whether NIM stays above 3.8%.