	December 31,
	2019					2018
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
BancFirst
Commercial and financial:
Commercial and industrial	$	1,065,804		18.82	%	$	1,032,787		20.76	%
Oil & gas production and equipment		209,792		3.71			94,729		1.90
Agriculture		135,082		2.39			136,313		2.74
State and political subdivisions:
Taxable		68,126		1.20			76,211		1.53
Tax-exempt		46,071		0.81			48,415		0.97
Real estate:
Construction		476,618		8.42			451,224		9.07
Farmland		246,988		4.36			219,241		4.41
One to four family residences		1,022,496		18.06			979,170		19.68
Multifamily residential properties		129,996		2.30			65,949		1.33
Commercial		1,421,488		25.10			1,506,937		30.28
Consumer		359,589		6.35			328,069		6.59
Other (not classified above)		49,388		0.87			36,931		0.74
Pegasus Bank		430,705		7.61			—		—
Total loans	$	5,662,143		100.00	%	$	4,975,976		100.00	%

BancFirst’s loans are mostly to customers within Oklahoma and approximately 58% of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual and related borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained, if any, to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral.

BancFirst’s commercial and industrial loan category includes a small percentage of loans to companies that provide ancillary services to the oil and gas industry, such as transportation, preparation contractors and equipment manufacturers. The balance of these loans was approximately $93 million at December 31, 2019 and approximately $60 million at December 31, 2018.

Pegasus Bank’s loans are mostly to customers within Texas and approximately $237 million or 55% of the loans are secured by real estate. Pegasus Bank’s commercial and industrial loans were approximately $172 million at December 31, 2019, of which approximately $44 million were loans to companies in the oil and gas industry.

There are inherent risks associated with the Company’s lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates. Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. The Company is also subject to various laws and regulations that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Company to regulatory enforcement action that could result in the assessment of significant civil money penalties against the Company. As a lender, the Company faces the risk that a significant number of its borrowers will fail to pay their loans when due. If borrower defaults cause losses in excess of the Company’s allowance for loan losses, it could have an adverse effect on the Company’s business, profitability, and financial condition.

Loans secured by real estate, including farmland, multifamily, commercial, one-to-four family residential and construction and development loans, have been a large portion of the Company’s loan portfolio. The Company is subject to risk of future market fluctuations in property values relating to these loans. In addition, multi-family and commercial real estate (“CRE”) loans represent the majority of the Company’s real estate loans outstanding. A decline in tenant occupancy due to such factors or for other reasons could adversely impact the ability of the Company’s borrowers to repay their loans on a timely basis, which could have a negative impact on the Company’s financial condition and results of operation. The Company attempts to manage this risk through rigorous loan underwriting standards.

During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage.

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.7 million in 2019, $2.3 million in 2018 and $1.8 million in 2017.

The Company charges interest on principal balances outstanding on restructured loans during deferral periods. The current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material.

Loans are segregated into classes based upon the nature of the collateral and the borrower. These classes are used to estimate the allowance for loan losses. The following table is a summary of amounts included in nonaccrual loans, segregated by class of loans. Residential real estate refers to one-to-four family real estate.

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 past due loans, segregated by class of loans:

	Age Analysis of Past Due Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 Days or More Past Due
	(Dollars in thousands)
As of December 31, 2019
BancFirst
Real estate:
Non-residential real estate owner occupied	$	1,600	$	967	$	5,159	$	7,726	$	699,690	$	707,416	$	3,799
Non-residential real estate other		971		—		1,228		2,199		1,134,976		1,137,175		—
Residential real estate permanent mortgage		4,705		973		2,215		7,893		332,679		340,572		1,660
Residential real estate all other		4,496		1,028		2,541		8,065		912,767		920,832		549
Commercial and financial:
Non-consumer non-real estate		2,290		1,446		1,763		5,499		1,448,894		1,454,393		354
Consumer non-real estate		2,829		858		592		4,279		358,075		362,354		491
Other loans		1,670		8		4,613		6,291		147,724		154,015		4,426
Acquired loans		2,167		1,376		3,447		6,990		147,691		154,681		555
Pegasus Bank		—		—		851		851		429,854		430,705		—
Total	$	20,728	$	6,656	$	22,409	$	49,793	$	5,612,350	$	5,662,143	$	11,834
As of December 31, 2018
BancFirst
Real estate:
Non-residential real estate owner occupied	$	5,114	$	810	$	43	$	5,967	$	620,654	$	626,621	$	—
Non-residential real estate other		2,772		32		114		2,918		1,143,210		1,146,128		—
Residential real estate permanent mortgage		2,448		653		693		3,794		324,908		328,702		430
Residential real estate all other		1,728		292		2,799		4,819		822,685		827,504		612
Commercial and financial:
Non-consumer non-real estate		3,620		702		833		5,155		1,278,499		1,283,654		282
Consumer non-real estate		1,991		565		559		3,115		323,747		326,862		325
Other loans		322		158		178		658		141,251		141,909		—
Acquired loans		5,240		1,669		4,936		11,845		282,751		294,596		267
Total	$	23,235	$	4,881	$	10,155	$	38,271	$	4,937,705	$	4,975,976	$	1,916

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect the full amount of scheduled principal and interest payments in accordance with the original contractual terms of the loan agreement. If a loan is impaired, a specific valuation allowance may be allocated, if necessary, so that the loan is reported, net of allowance for loss, at the present value of future cash flows using the loan’s existing rate, or the fair value of collateral if repayment is expected solely from the collateral.

The following table presents impaired loans, segregated by class of loans. During the years ended December 31, 2019 and 2018 no material amount of interest income was recognized on impaired loans subsequent to their classification as impaired.

	Impaired Loans
	Unpaid Principal Balance		Recorded Investment with Allowance		Related Allowance		Average Recorded Investment
	(Dollars in thousands)
As of December 31, 2019
BancFirst
Real estate:
Non-residential real estate owner occupied	$	13,253	$	13,000	$	514	$	12,868
Non-residential real estate other		3,973		3,678		300		3,946
Residential real estate permanent mortgage		3,445		3,129		242		2,968
Residential real estate all other		7,117		4,487		946		5,567
Commercial and financial:
Non-consumer non-real estate		11,598		11,012		1,005		11,085
Consumer non-real estate		969		836		97		844
Other loans		5,711		5,510		105		1,130
Acquired loans		6,421		5,108		2		5,472
Pegasus Bank		2,960		2,138		—		2,161
Total	$	55,447	$	48,898	$	3,211	$	46,041

As of December 31, 2018
BancFirst
Real estate:
Non-residential real estate owner occupied	$	7,126	$	6,933	$	202	$	7,739
Non-residential real estate other		949		757		50		6,057
Residential real estate permanent mortgage		1,789		1,545		127		1,650
Residential real estate all other		7,177		6,862		2,433		7,154
Commercial and financial:
Non-consumer non-real estate		18,507		10,977		881		12,140
Consumer non-real estate		928		829		131		846
Other loans		710		490		35		481
Acquired loans		12,846		9,864		2		11,050
Total	$	50,032	$	38,257	$	3,861	$	47,117

The Company considers various factors to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical loan loss experience and economic conditions.

An internal risk grading system is used to indicate the credit risk of loans. The loan grades used by the Company are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions.

Grade 1 – Acceptable - Loans graded 1 represent reasonable and satisfactory credit risk which requires normal attention and supervision. Capacity to repay through primary and/or secondary sources is not questioned.

Grade 2 – Acceptable - Increased Attention - This category consists of loans that have credit characteristics deserving management’s close attention. These complexities or potential weaknesses could result in deterioration of the repayment prospects for the loan or BancFirst’s credit position at some future date. Such credit characteristics include loans to highly leveraged borrowers in cyclical industries, adverse financial trends which could potentially weaken repayment capacity, loans that have fundamental structure complexity or deficiencies, loans lacking secondary sources of repayment where prudent, and loans with deficiencies in essential documentation, including financial information.

Grade 3 – Loans with Problem Potential - This category consists of performing loans which are considered to exhibit problem potential. Loans in this category would generally include, but not be limited to, borrowers with a weakened financial condition or poor performance history, past dues, loans restructured to reduce payments to an amount that is below market standards and/or loans with severe documentation problems. In general, these loans have no identifiable loss potential in the near future, however; the possibility of a loss developing is heightened.

Grade 4 - Problem Loans/Assets – Nonperforming - This category consists of nonperforming loans/assets which are considered to be problems. Nonperforming loans are described as being 90 days and over past due and still accruing, and loans that are nonaccrual. The government guaranteed portion of Small Business Administration (“SBA”) loans is excluded.

Grade 5 - Loss Potential - This category consists of loans/assets which are considered to possess loss potential. While the loss may not occur in the current year, management expects that loans/assets in this category will ultimately result in a loss, unless substantial improvement occurs.

Grade 6 - Charge Off - This category consists of loans that are considered uncollectible and other assets with little or no value.

Pegasus Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Pegasus Bank analyzes loans individually by classifying the loans as to credit risk. Pegasus Bank uses the following definitions for risk ratings:

Pass – Loans classified as a pass are loans with low to average risk. These loans are included in grade 1 and 2 for the purposes for the following table:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of Pegasus Bank’s credit position at some future date. These loans are included in grade 3 for the purposes of the following table:

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Pegasus Bank will sustain some loss if the deficiencies are not corrected. These loans are included in grade 4 for the purposes of the following table:

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These loans, if any, would be included in grade 5 for the purposes of the following table:

	Internal Loan Grading
	Grade
		1		2		3		4		5	Total
	(Dollars in thousands)
As of December 31, 2019
BancFirst
Real estate:
Non-residential real estate owner occupied	$	554,942	$	130,783	$	15,191	$	6,500	$	—	$	707,416
Non-residential real estate other		861,108		252,134		23,048		868		17		1,137,175
Residential real estate permanent mortgage		289,350		41,754		6,975		2,442		51		340,572
Residential real estate all other		722,983		179,951		14,382		3,446		70		920,832
Commercial and financial:
Non-consumer non-real estate		1,166,155		261,003		25,276		1,959		—		1,454,393
Consumer non-real estate		335,916		23,407		2,327		704		—		362,354
Other loans		148,692		3,631		1,564		128		—		154,015
Acquired loans		88,205		55,087		6,800		4,446		143		154,681
Pegasus Bank		295,243		133,324		1,287		851		—		430,705
Total	$	4,462,594	$	1,081,074	$	96,850	$	21,344	$	281	$	5,662,143

As of December 31, 2018
BancFirst
Real estate:
Non-residential real estate owner occupied	$	451,059	$	157,715	$	16,949	$	898	$	—	$	626,621
Non-residential real estate other		932,454		188,341		25,146		187		—		1,146,128
Residential real estate permanent mortgage		279,870		39,806		7,401		1,625		—		328,702
Residential real estate all other		644,217		162,003		15,232		6,052		—		827,504
Commercial and financial:
Non-consumer non-real estate		1,000,089		264,134		15,128		4,303		—		1,283,654
Consumer non-real estate		302,217		21,600		2,255		790		—		326,862
Other loans		136,132		5,542		116		119		—		141,909
Acquired loans		156,008		109,075		20,884		8,284		345		294,596
Total	$	3,902,046	$	948,216	$	103,111	$	22,258	$	345	$	4,975,976

The allowance for loan losses (“ALL”) is determined by a calculation based on segmenting the loans into the following categories: (1) adversely graded loans [Grades 3, 4 and 5] that have a specific reserve allocation; (2) loans without a specific reserve segmented by loans secured by real estate other than one-to-four family residential property, loans secured by one-to-four family residential property, commercial, industrial and agricultural loans not secured by real estate, consumer purpose loans not secured by real estate, and loans over 60 days past due that are not otherwise Grade 3, 4, or 5; (3) Grade 2 loans; (4) Grade 1 loans and (5) loans held for sale which are excluded.

The ALL is calculated as the sum of the following: (1) the total dollar amount of specific reserve allocations; (2) the dollar amount derived by multiplying each segment of adversely graded loans without a specific reserve allocation times its respective reserve factor; (3) the dollar amount derived by multiplying Grade 2 loans and Grade 1 loans (less certain exclusions) times the respective reserve factor; and (4) other adjustments as deemed appropriate and documented by the Senior Loan Committee or Board of Directors.

The amount of the ALL is an estimate based upon factors which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated ALL in the near term.

The following table details activity in the ALL by class of 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.

	ALL
	Balance at beginning of period		Charge- offs			Recoveries		Net charge-offs			Provisions charged to operations			Balance at end of period
	(Dollars in thousands)
As of December 31, 2019
BancFirst
Real estate:
Non-residential real estate owner occupied	$	6,328	$	(34	)	$	25	$	(9	)	$	721		$	7,040
Non-residential real estate other		11,027		(67	)		42		(25	)		155			11,157
Residential real estate permanent mortgage		3,261		(146	)		22		(124	)		250			3,387
Residential real estate all other		10,673		(2,697	)		30		(2,667	)		2,143			10,149
Commercial and financial:
Non-consumer non-real estate		13,151		(514	)		272		(242	)		2,432			15,341
Consumer non-real estate		3,065		(868	)		218		(650	)		904			3,319
Other loans		2,423		—			90		90			119			2,632
Acquired loans		1,461		(2,060	)		219		(1,841	)		994			614
Pegasus Bank		—		—			30		30			569			599
Total	$	51,389	$	(6,386	)	$	948	$	(5,438	)	$	8,287		$	54,238
As of December 31, 2018
BancFirst
Real estate:
Non-residential real estate owner occupied	$	6,195	$	(282	)	$	17	$	(265	)	$	398		$	6,328
Non-residential real estate other		10,519		(93	)		41		(52	)		560			11,027
Residential real estate permanent mortgage		3,226		(174	)		26		(148	)		183			3,261
Residential real estate all other		9,672		(395	)		106		(289	)		1,290			10,673
Commercial and financial:
Non-consumer non-real estate		15,334		(2,257	)		92		(2,165	)		(18	)		13,151
Consumer non-real estate		2,793		(1,066	)		245		(821	)		1,093			3,065
Other loans		2,481		(16	)		361		345			(403	)		2,423
Acquired loans		1,446		(720	)		36		(684	)		699			1,461
Total	$	51,666	$	(5,003	)	$	924	$	(4,079	)	$	3,802		$	51,389

The following table details the amount of ALL by class of loans for the period presented, on the basis of the impairment methodology used by the Company.

	ALL
	December 31, 2019				December 31, 2018
	Individually evaluated for impairment		Collectively evaluated for impairment		Individually evaluated for impairment		Collectively evaluated for impairment
	(Dollars in thousands)
BancFirst
Real estate:
Non-residential real estate owner occupied	$	900	$	6,140	$	669	$	5,659
Non-residential real estate other		990		10,167		1,119		9,908
Residential real estate permanent mortgage		531		2,856		505		2,756
Residential real estate all other		2,026		8,123		3,413		7,260
Commercial and financial:
Non-consumer non-real estate		2,902		12,439		2,114		11,037
Consumer non-real estate		343		2,976		374		2,691
Other loans		13		2,619		65		2,358
Acquired loans		—		614		—		1,461
Pegasus Bank		—		599		—		—
Total	$	7,705	$	46,533	$	8,259	$	43,130

The following table details the loans outstanding by class of loans for the period presented, on the basis of the impairment methodology used by the Company.

	Loans
	December 31, 2019						December 31, 2018
	Individually evaluated for impairment		Collectively evaluated for impairment		Loans acquired with deteriorated credit quality		Individually evaluated for impairment		Collectively evaluated for impairment		Loans acquired with deteriorated credit quality
	(Dollars in thousands)
BancFirst
Real estate:
Non-residential real estate owner occupied	$	21,690	$	685,726	$	—	$	17,846	$	608,775	$	—
Non-residential real estate other		23,933		1,113,242		—		25,333		1,120,795		—
Residential real estate permanent mortgage		9,468		331,104		—		9,026		319,676		—
Residential real estate all other		17,898		902,934		—		21,285		806,219		—
Commercial and financial:
Non-consumer non-real estate		27,016		1,427,377		—		19,432		1,264,222		—
Consumer non-real estate		3,090		359,264		—		3,093		323,769		—
Other loans		231		153,784		—		209		141,700		—
Acquired loans		10,470		143,351		860		22,132		265,084		7,380
Pegasus Bank		—		428,567		2,138		—		—		—
Total	$	113,796	$	5,545,349	$	2,998	$	118,356	$	4,850,240	$	7,380

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 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:

The Company has made loans in the ordinary course of business to the executive officers and directors of the Company and to certain affiliates of these executive officers and directors. Management believes that all such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons and do not represent more than a normal risk of collectability or present other unfavorable features. A summary of these loans is as follows: