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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to

Commission File Number 0-14384

 

BancFirst Corporation

(Exact name of registrant as specified in charter)

 

 

Oklahoma

 

73-1221379

(State or other Jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

101 N. Broadway, Oklahoma City, Oklahoma

 

73102-8405

(Address of principal executive offices)

 

(Zip Code)

(405) 270-1086

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $1.00 Par Value Per Share

 

BANF

 

NASDAQ Global Select Market System

As of October 31, 2019 there were 32,666,268 shares of the registrant’s Common Stock outstanding.

 


BancFirst Corporation

Quarterly Report on Form 10-Q

September 30, 2019

 

Table of Contents

 

Item

  

 

  

Page

 

  

PART I – Financial Information

  

 

 

1.

  

 

Financial Statements (Unaudited)

  

2

 

 

  

 

Consolidated Balance Sheets

  

2

 

 

  

 

Consolidated Statements of Comprehensive Income

  

3

 

 

  

 

Consolidated Statements of Shareholders’ Equity

  

4

 

 

 

Consolidated Statements of Cash Flow

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

2.

  

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

27

 

3.

  

 

Quantitative and Qualitative Disclosure About Market Risk

  

36

 

4.

  

 

Controls and Procedures

  

36

 

 

 

 

 

 

  

 

PART II – Other Information

  

 

 

1.

  

 

Legal Proceedings

  

37

 

1A.

  

 

Risk Factors

  

37

 

2.

  

 

Unregistered Sales of Equity Securities

  

37

 

3.

  

 

Defaults Upon Senior Securities

  

37

 

4.

  

 

Mine Safety Disclosures

  

37

 

5.

  

 

Other Information

  

37

 

6.

  

Exhibits

  

38

 

Signatures

  

40

 

 

 


PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

 

2019

 

 

 

2018

 

 

 

(unaudited)

 

 

(see Note 1)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

225,526

 

 

$

228,431

 

Interest-bearing deposits with banks

 

 

1,476,340

 

 

 

1,195,824

 

Federal funds sold

 

 

300

 

 

 

 

Securities held for investment (fair value: $1,911 and $1,433, respectively)

 

 

1,911

 

 

 

1,428

 

Securities available for sale at fair value

 

 

553,664

 

 

 

770,704

 

Loans held for sale

 

 

16,089

 

 

 

8,174

 

  Loans (net of unearned interest)

 

 

5,606,808

 

 

 

4,975,976

 

  Allowance for loan losses

 

 

(55,928

)

 

 

(51,389

)

Loans, net of allowance for loan losses

 

 

5,550,880

 

 

 

4,924,587

 

Premises and equipment, net

 

 

203,772

 

 

 

174,362

 

Other real estate owned

 

 

6,829

 

 

 

6,690

 

Intangible assets, net

 

 

24,025

 

 

 

16,470

 

Goodwill

 

 

147,013

 

 

 

79,749

 

Accrued interest receivable and other assets

 

 

182,467

 

 

 

167,839

 

Total assets

 

$

8,388,816

 

 

$

7,574,258

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

2,879,746

 

 

$

2,613,876

 

Interest-bearing

 

 

4,450,931

 

 

 

3,991,619

 

Total deposits

 

 

7,330,677

 

 

 

6,605,495

 

Short-term borrowings

 

 

605

 

 

 

1,675

 

Accrued interest payable and other liabilities

 

 

50,978

 

 

 

37,495

 

Junior subordinated debentures

 

 

26,804

 

 

 

26,804

 

Total liabilities

 

 

7,409,064

 

 

 

6,671,469

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Senior preferred stock, $1.00 par; 10,000,000 shares authorized; none issued

 

 

 

 

 

 

Cumulative preferred stock, $5.00 par; 900,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, $1.00 par, 40,000,000 shares authorized; shares issued and outstanding: 32,644,018 and 32,603,926, respectively

 

 

32,644

 

 

 

32,604

 

Capital surplus

 

 

151,470

 

 

 

149,709

 

Retained earnings

 

 

792,009

 

 

 

722,615

 

Accumulated other comprehensive income (loss), net of income tax of $1,248 and $(731), respectively

 

 

3,629

 

 

 

(2,139

)

Total stockholders' equity

 

 

979,752

 

 

 

902,789

 

Total liabilities and stockholders' equity

 

$

8,388,816

 

 

$

7,574,258

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

2


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

75,260

 

 

$

66,788

 

 

$

214,980

 

 

$

195,311

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,361

 

 

 

2,246

 

 

 

10,551

 

 

 

6,100

 

Tax-exempt

 

 

103

 

 

 

145

 

 

 

347

 

 

 

478

 

Federal funds sold

 

 

1

 

 

 

89

 

 

 

3

 

 

 

288

 

Interest-bearing deposits with banks

 

 

8,704

 

 

 

8,165

 

 

 

24,587

 

 

 

21,272

 

Total interest income

 

 

86,429

 

 

 

77,433

 

 

 

250,468

 

 

 

223,449

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

13,644

 

 

 

11,171

 

 

 

40,983

 

 

 

28,150

 

Short-term borrowings

 

 

7

 

 

 

42

 

 

 

29

 

 

 

85

 

Junior subordinated debentures

 

 

491

 

 

 

547

 

 

 

1,474

 

 

 

1,626

 

Total interest expense

 

 

14,142

 

 

 

11,760

 

 

 

42,486

 

 

 

29,861

 

Net interest income

 

 

72,287

 

 

 

65,673

 

 

 

207,982

 

 

 

193,588

 

Provision for loan losses

 

 

2,758

 

 

 

747

 

 

 

6,875

 

 

 

2,286

 

Net interest income after provision for loan losses

 

 

69,529

 

 

 

64,926

 

 

 

201,107

 

 

 

191,302

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust revenue

 

 

3,490

 

 

 

3,281

 

 

 

9,917

 

 

 

9,806

 

Service charges on deposits

 

 

19,866

 

 

 

18,103

 

 

 

56,643

 

 

 

52,293

 

Securities transactions (includes accumulated other comprehensive income reclassifications of $0, $9, $0 and $9, respectively)

 

 

 

 

 

(64

)

 

 

821

 

 

 

37

 

Income from sales of loans

 

 

964

 

 

 

800

 

 

 

2,530

 

 

 

2,253

 

Insurance commissions

 

 

5,535

 

 

 

5,207

 

 

 

15,220

 

 

 

14,333

 

Cash management

 

 

4,430

 

 

 

3,383

 

 

 

12,608

 

 

 

9,785

 

(Loss)/gain on sale of other assets

 

 

(1

)

 

 

195

 

 

 

(12

)

 

 

348

 

Other

 

 

1,343

 

 

 

1,896

 

 

 

3,978

 

 

 

4,493

 

Total noninterest income

 

 

35,627

 

 

 

32,801

 

 

 

101,705

 

 

 

93,348

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

40,354

 

 

 

35,051

 

 

 

112,649

 

 

 

104,017

 

Occupancy, net

 

 

3,386

 

 

 

3,386

 

 

 

8,966

 

 

 

10,184

 

Depreciation

 

 

3,268

 

 

 

2,733

 

 

 

9,268

 

 

 

7,572

 

Amortization of intangible assets

 

 

842

 

 

 

740

 

 

 

2,359

 

 

 

2,232

 

Data processing services

 

 

1,467

 

 

 

1,418

 

 

 

4,209

 

 

 

3,816

 

Net expense/(income) from other real estate owned

 

 

26

 

 

 

64

 

 

 

(361

)

 

 

109

 

Marketing and business promotion

 

 

2,047

 

 

 

1,997

 

 

 

6,227

 

 

 

5,998

 

Deposit insurance

 

 

(81

)

 

 

597

 

 

 

996

 

 

 

1,856

 

Other

 

 

10,882

 

 

 

9,823

 

 

 

30,692

 

 

 

30,171

 

Total noninterest expense

 

 

62,191

 

 

 

55,809

 

 

 

175,005

 

 

 

165,955

 

Income before taxes

 

 

42,965

 

 

 

41,918

 

 

 

127,807

 

 

 

118,695

 

Income tax expense

 

 

9,597

 

 

 

9,035

 

 

 

28,435

 

 

 

25,606

 

Net income

 

$

33,368

 

 

$

32,883

 

 

$

99,372

 

 

$

93,089

 

NET INCOME PER COMMON SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.02

 

 

$

1.01

 

 

$

3.04

 

 

$

2.85

 

Diluted

 

$

1.00

 

 

$

0.98

 

 

$

2.98

 

 

$

2.78

 

OTHER COMPREHENSIVE GAIN/(LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses)/gains on securities, net of tax of $1, $352, $(1,979) and $1,005, respectively

 

 

(26

)

 

 

(1,027

)

 

 

5,768

 

 

 

(2,956

)

Reclassification adjustment for losses included in net income

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Other comprehensive (losses)/gains, net of tax of $1, $354, $(1,979) and $802, respectively

 

 

(26

)

 

 

(1,034

)

 

 

5,768

 

 

 

(2,963

)

Comprehensive income

 

$

33,342

 

 

$

31,849

 

 

$

105,140

 

 

$

90,126

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

3


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued at beginning of period

 

$

32,640

 

 

$

32,731

 

 

$

32,604

 

 

$

31,895

 

Shares issued for stock options

 

 

4

 

 

 

19

 

 

 

40

 

 

 

122

 

Shares issued for acquisitions

 

 

 

 

 

 

 

 

 

 

 

733

 

Issued at end of period

 

$

32,644

 

 

$

32,750

 

 

$

32,644

 

 

$

32,750

 

CAPITAL SURPLUS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

150,995

 

 

$

148,494

 

 

$

149,709

 

 

$

107,481

 

Common stock issued for stock options

 

 

128

 

 

 

395

 

 

 

873

 

 

 

2,015

 

Common stock issued for acquisitions

 

 

 

 

 

 

 

 

 

 

 

38,765

 

Stock-based compensation arrangements

 

 

347

 

 

 

353

 

 

 

888

 

 

 

981

 

Balance at end of period

 

$

151,470

 

 

$

149,242

 

 

$

151,470

 

 

$

149,242

 

RETAINED EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

769,090

 

 

$

684,425

 

 

$

722,615

 

 

$

638,580

 

Net income

 

 

33,368

 

 

 

32,883

 

 

 

99,372

 

 

 

93,089

 

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

 

 

 

 

(618

)

Dividends on common stock ($0.32, $0.30, $0.92 and $0.72 per share, respectively)

 

 

(10,449

)

 

 

(9,827

)

 

 

(29,978

)

 

 

(23,570

)

Balance at end of period

 

$

792,009

 

 

$

707,481

 

 

$

792,009

 

 

$

707,481

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain/(losses) on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

3,655

 

 

$

(3,638

)

 

$

(2,139

)

 

$

(2,327

)

Net change

 

 

(26

)

 

 

(1,034

)

 

 

5,768

 

 

 

(2,963

)

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

 

 

 

 

618

 

Balance at end of period

 

$

3,629

 

 

$

(4,672

)

 

$

3,629

 

 

$

(4,672

)

Total stockholders’ equity

 

$

979,752

 

 

$

884,801

 

 

$

979,752

 

 

$

884,801

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

4


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

99,372

 

 

$

93,089

 

Adjustments to reconcile to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

6,875

 

 

 

2,286

 

Depreciation and amortization

 

 

11,627

 

 

 

9,804

 

Net amortization of securities premiums and discounts

 

 

(3,764

)

 

 

(141

)

Realized securities gains

 

 

(821

)

 

 

(37

)

Gain on sales of loans

 

 

(2,530

)

 

 

(2,253

)

Cash receipts from the sale of loans originated for sale

 

 

164,319

 

 

 

145,840

 

Cash disbursements for loans originated for sale

 

 

(169,740

)

 

 

(142,207

)

Deferred income tax (benefit) provision

 

 

(752

)

 

 

83

 

Gain on other assets

 

 

(454

)

 

 

(341

)

Decrease (increase) in interest receivable

 

 

1,243

 

 

 

(2,380

)

Increase in interest payable

 

 

235

 

 

 

764

 

Amortization of stock-based compensation arrangements

 

 

888

 

 

 

981

 

Excess tax benefit from stock-based compensation arrangements

 

 

(288

)

 

 

(1,067

)

Other, net

 

 

6,255

 

 

 

1,188

 

Net cash provided by operating activities

 

 

112,465

 

 

 

105,609

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Net cash received from acquisitions, net of cash paid

 

 

77,672

 

 

 

6,248

 

Net (increase)/decrease in federal funds sold

 

 

(300

)

 

 

22,948

 

Purchases of held for investment securities

 

 

(1,010

)

 

 

(225

)

Purchases of available for sale securities

 

 

(99,093

)

 

 

(168,971

)

Proceeds from maturities, calls and paydowns of held for investment securities

 

 

527

 

 

 

1,077

 

Proceeds from maturities, calls and paydowns of available for sale securities

 

 

369,073

 

 

 

121,581

 

Proceeds from sales of available for sale securities

 

 

 

 

 

31,286

 

Purchase of equity securities

 

 

(2,806

)

 

 

(2,118

)

Proceeds from paydowns and sales of equity securities

 

 

1,897

 

 

 

1,414

 

Net change in loans

 

 

(250,095

)

 

 

81,000

 

Purchases of premises, equipment and computer software

 

 

(19,865

)

 

 

(44,398

)

Other, net

 

 

(2,593

)

 

 

(2,283

)

Net cash provided by investing activities

 

 

73,407

 

 

 

47,559

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net change in deposits

 

 

121,260

 

 

 

(101,874

)

Net (decrease)/increase in short-term borrowings

 

 

(1,075

)

 

 

1,300

 

Issuance of common stock in connection with stock options, net

 

 

913

 

 

 

2,137

 

Cash dividends paid

 

 

(29,359

)

 

 

(20,440

)

Net cash provided by/(used in) financing activities

 

 

91,739

 

 

 

(118,877

)

Net increase in cash, due from banks and interest-bearing deposits

 

 

277,611

 

 

 

34,291

 

Cash, due from banks and interest-bearing deposits at the beginning of the period

 

 

1,424,255

 

 

 

1,757,875

 

Cash, due from banks and interest-bearing deposits at the end of the period

 

$

1,701,866

 

 

$

1,792,166

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

42,100

 

 

$

29,096

 

Cash paid during the period for income taxes

 

$

26,775

 

 

$

24,255

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Stock issued in acquisitions

 

$

 

 

$

39,498

 

Cash consideration for acquisitions

 

$

123,457

 

 

$

24,722

 

Fair value of assets acquired in acquisitions

 

$

729,365

 

 

$

377,320

 

Liabilities assumed in acquisitions

 

$

605,908

 

 

$

338,860

 

Unpaid common stock dividends declared

 

$

10,445

 

 

$

9,823

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

5


BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

(1)

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and general practice within the banking industry. A summary of significant accounting policies can be found in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., BancFirst Risk & Insurance Company, Pegasus Bank and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BFTower, LLC and BancFirst Agency, Inc. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the unaudited interim consolidated financial statements.

The accompanying unaudited interim consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

The unaudited interim consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2018, the date of the most recent annual report.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported net cash flows, stockholders’ equity or comprehensive income.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for loan losses, income taxes, the fair value of financial instruments and the valuation of intangibles. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.

Recent Accounting Pronouncements

Standards Adopted During Current Period:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases - (Topic 842)”, amended by ASU 2018-11, “Leases – (Topic 842)”: Targeted Improvements. This new guidance requires a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than twelve months and provide additional disclosures. The amendments were effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. The Company adopted this new standard on January 1, 2019, using a modified retrospective transition approach and recognized right-of-use lease assets and related lease liabilities totaling $4.3 million. The Company elected to apply certain practical adoption expedients provided under the updates whereby it did not reassess initial direct costs for any existing leases. No cumulative-effect adjustment was recognized as the amount was not material, and the impact on our results of operations and cash flows was also not material. No prior periods were adjusted. See Note 6 for the financial position impact and additional disclosures.

 

6


Standards Not Yet Adopted:

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 removes, modifies and adds disclosure requirements on fair value measurements. ASU 2018-13 will be effective for the Company on January 1, 2020. Early adoption is permitted. In addition, early adoption of any removed or modified disclosures and delayed adoption of the additional disclosures until the effective date is also permitted. The Company expects to adopt the standard in the first quarter of 2020.

 

In June 2016, the FASB issued ASU No.  2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact of ASU 2016-13 on its financial statements. In that regard, the Company has formed a task force under the direction of its Chief Financial Officer. In preparation, the Company has developed new credit estimation models, processes and controls. Internal validation of the model is underway and expected to be completed during the fourth quarter of 2019. The Company has performed test runs of the new processes and controls and begun full parallel runs. The adoption of ASU 2016-13 could result in an increase or decrease in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that the Company establish an allowance for expected credit losses for certain debt securities and other financial assets. While the Company is currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date. The Company expects to adopt the standard in the first quarter of 2020.

 

 

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

 

On August 15, 2019, BancFirst Corporation acquired Pegasus Bank, for an aggregate cash purchase price of $123.5 million. Pegasus Bank is a Texas state-chartered bank with three banking locations in Dallas, Texas. Upon acquisition, Pegasus Bank had approximately $651.1 million in total assets, $389.9 million in loans and $603.9 million in deposits. Pegasus Bank will continue to operate as “Pegasus Bank” under a separate Texas state-charter and remain an independent subsidiary of BancFirst Corporation. BancFirst Corporation intends to provide an appropriate amount of capital or other support to increase Pegasus Bank’s ability to approve larger loans and allow Pegasus Bank to continue to grow their assets. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $9.9 million and goodwill of approximately $67.3 million. The initial accounting for the business combination is not complete due to limited time since the acquisition date. However, we do not expect any acquisition related adjustments to be material to the financial statements. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of Pegasus Bank complements the Company by expanding into the high-growth Dallas market.

 

On August 31, 2018, BFTower, LLC, a wholly-owned subsidiary of BancFirst purchased Cotter Ranch Tower in Oklahoma City for the Company’s corporate headquarters for $21.0 million. Cotter Ranch Tower was subsequently renamed BancFirst Tower. BancFirst Tower consists of an aggregate of 507,000 square feet, has 36 floors and is the second tallest building in Oklahoma City. The BancFirst Tower will remain an income producing property as approximately 55% is currently, and is intended to continue to be, leased to outside tenants. BancFirst Tower will allow the Company to consolidate operations from three locations to one and will improve operational efficiencies. Upon consolidation, the Company expects to occupy approximately 35% of BancFirst Tower, resulting in approximately 90% total occupancy.  Renovations on BancFirst Tower are expected to be completed by the end of 2021 and are expected to cost approximately $75 million. The renovation costs include substantial deferred maintenance including HVAC, plumbing, electrical, elevators, building skin and roof while also including much needed improvements to both the interior and exterior common areas including the lobby, underground and outdoor plaza. The Company could start depreciating certain components of the renovation as they are put into service as early as December 2019. The Company estimates spending approximately $12 million on tenant improvements for the approximate 165,000 square feet that the Company will occupy.  The total purchase price, renovation costs, and Company tenant improvement costs were determined to be favorable to other alternatives, such as constructing new corporate headquarters or leasing space. On December 14, 2018, BFTower LLC, purchased a 42.6% ownership interest in SFPG, LLC, which is the owner of a 1,568 space parking garage adjacent to BancFirst Tower, for $9.8 million.

 

On January 11, 2018, the Company acquired First Wagoner Corp. and its subsidiary bank, First Bank & Trust Company, with locations in Carney, Grove, Ketchum, Luther, Tulsa and Wagoner. First Bank & Trust Company had approximately $290 million in total assets, $247 million in loans and $251 million in deposits. First Bank & Trust Company operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on February 16, 2018. As a result of the acquisition, the Company recorded a core

7


deposit intangible of approximately $6.3 million and goodwill of approximately $19.1 million. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of First Wagoner Corp. and its subsidiary bank, First Bank & Trust Company complements the Company’s community banking strategy by adding an additional five communities to its banking network in Oklahoma.

 

On January 11, 2018, the Company acquired First Chandler Corp. and its subsidiary bank, First Bank of Chandler, with two locations in Chandler. First Bank of Chandler had approximately $88 million in total assets, $66 million in loans and $79 million in deposits. First Bank of Chandler operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on September 7, 2018. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $2.2 million and goodwill of approximately $6.6 million. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of First Chandler Corp. and its subsidiary bank, First Bank of Chandler complements the Company’s community banking strategy by increasing its banking network in Oklahoma.

 

(3)

SECURITIES

The following table summarizes the amortized cost and estimated fair values of debt securities held for investment:

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

September 30, 2019

 

(Dollars in thousands)

 

Mortgage backed securities (1)

 

$

101

 

 

$

4

 

 

$

 

 

$

105

 

States and political subdivisions

 

 

1,310

 

 

 

1

 

 

 

(5

)

 

 

1,306

 

Other securities

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

1,911

 

 

$

5

 

 

$

(5

)

 

$

1,911

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities (1)

 

$

133

 

 

$

5

 

 

$

 

 

$

138

 

States and political subdivisions

 

 

795

 

 

 

 

 

 

 

 

 

795

 

Other securities

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

1,428

 

 

$

5

 

 

$

 

 

$

1,433

 

 

The following table summarizes the amortized cost and estimated fair values of debt securities available for sale:

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

September 30, 2019

 

(Dollars in thousands)

 

U.S. treasuries

 

$

463,898

 

 

$

5,286

 

 

$

(238

)

 

$

468,946

 

U.S. federal agencies

 

 

23,731

 

 

 

36

 

 

 

(25

)

 

 

23,742

 

Mortgage backed securities (1)

 

 

17,400

 

 

 

142

 

 

 

(70

)

 

 

17,472

 

States and political subdivisions

 

 

23,270

 

 

 

315

 

 

 

(36

)

 

 

23,549

 

Asset backed securities

 

 

13,491

 

 

 

 

 

 

(533

)

 

 

12,958

 

Other securities

 

 

6,997

 

 

 

1

 

 

 

(1

)

 

 

6,997

 

Total

 

$

548,787

 

 

$

5,780

 

 

$

(903

)

 

$

553,664

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

699,882

 

 

$

1,108

 

 

$

(3,524

)

 

$

697,466

 

U.S. federal agencies

 

 

30,079

 

 

 

 

 

 

(160

)

 

 

29,919

 

Mortgage backed securities (1)

 

 

2,352

 

 

 

114

 

 

 

(1

)

 

 

2,465

 

States and political subdivisions

 

 

27,246

 

 

 

277

 

 

 

(112

)

 

 

27,411

 

Asset backed securities

 

 

14,015

 

 

 

 

 

 

(572

)

 

 

13,443

 

Total

 

$

773,574

 

 

$

1,499

 

 

$

(4,369

)

 

$

770,704

 

 

 

 

(1)

Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies.

 

 

8


The maturities of debt securities held for investment and available for sale are summarized in the following table using contractual maturities. Actual maturities may differ from contractual maturities due to obligations that are called or prepaid. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been presented at their contractual maturity.

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Estimated

Fair

Value

 

 

Amortized

Cost

 

 

Estimated

Fair

Value

 

 

 

(Dollars in thousands)

 

Held for Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual maturity of debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within one year

 

$

300

 

 

$

300

 

 

$

495

 

 

$

495

 

After one year but within five years

 

 

1,063

 

 

 

1,060

 

 

 

369

 

 

 

370

 

After five years but within ten years

 

 

546

 

 

 

549

 

 

 

562

 

 

 

565

 

After ten years

 

 

2

 

 

 

2

 

 

 

2

 

 

 

3

 

Total

 

$

1,911

 

 

$

1,911

 

 

$

1,428

 

 

$

1,433

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual maturity of debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within one year

 

$

211,927

 

 

$

211,804

 

 

$

411,256

 

 

$

410,327

 

After one year but within five years

 

 

289,140

 

 

 

294,436

 

 

 

313,416

 

 

 

311,924

 

After five years but within ten years

 

 

6,359

 

 

 

9,206

 

 

 

7,524

 

 

 

7,685

 

After ten years

 

 

41,361

 

 

 

38,218

 

 

 

41,378

 

 

 

40,768

 

Total debt securities

 

$

548,787

 

 

$

553,664

 

 

$

773,574

 

 

$

770,704

 

The following table is a summary of the Company’s book value of securities that were pledged as collateral for public funds on deposit, repurchase agreements and for other purposes as required or permitted by law:

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(Dollars in thousands)

 

Book value of pledged securities

 

$

391,249

 

 

$

472,053

 

 

 

(4)

LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

 

(Dollars in thousands)

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,098,602

 

 

 

19.60

%

 

$

1,032,787

 

 

 

20.76

%

Oil & gas production and equipment

 

 

143,083

 

 

 

2.55

 

 

 

94,729

 

 

 

1.90

 

Agriculture

 

 

130,150

 

 

 

2.32

 

 

 

136,313

 

 

 

2.74

 

State and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

71,521

 

 

 

1.28

 

 

 

76,211

 

 

 

1.53

 

Tax-exempt

 

 

52,261

 

 

 

0.93

 

 

 

48,415

 

 

 

0.97

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

464,341

 

 

 

8.28

 

 

 

451,224

 

 

 

9.07

 

Farmland

 

 

242,181

 

 

 

4.32

 

 

 

219,241

 

 

 

4.41

 

One to four family residences

 

 

1,010,237

 

 

 

18.02

 

 

 

979,170

 

 

 

19.68

 

Multifamily residential properties

 

 

114,558

 

 

 

2.04

 

 

 

65,949

 

 

 

1.33

 

Commercial

 

 

1,480,898

 

 

 

26.41

 

 

 

1,506,937

 

 

 

30.28

 

Consumer

 

 

355,923

 

 

 

6.35

 

 

 

328,069

 

 

 

6.59

 

Other (not classified above)

 

 

50,909

 

 

 

0.91

 

 

 

36,931

 

 

 

0.74

 

Pegasus Bank

 

 

392,144

 

 

 

6.99

 

 

 

 

 

 

 

Total loans

 

$

5,606,808

 

 

 

100.00

%

 

$

4,975,976

 

 

 

100.00

%

 

9


BancFirst’s loans are mostly to customers within Oklahoma and approximately 59% 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 $83 million at September 30, 2019 and approximately $60 million at December 31, 2018.

Pegasus Bank’s loans are mostly to customers within Texas and approximately $209 million or 53% of the loans are secured by real estate. Pegasus Bank’s commercial and industrial loans were approximately $160 million, of which approximately $40 million were loans to companies in the oil and gas industry.

Accounting policies related to appraisals, nonaccruals and charge-offs are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Nonperforming and Restructured Assets

The following is a summary of nonperforming and restructured assets:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Past due 90 days or more and still accruing

 

$

11,215

 

 

$

1,916

 

Nonaccrual

 

 

19,995

 

 

 

22,603

 

Restructured

 

 

17,504

 

 

 

13,188

 

Total nonperforming and restructured loans

 

 

48,714

 

 

 

37,707

 

Other real estate owned and repossessed assets

 

 

7,055

 

 

 

6,873

 

Total nonperforming and restructured assets

 

$

55,769

 

 

$

44,580

 

 

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.4 million for the nine months ended September 30, 2019 and approximately $1.7 million for the nine months ended September 30, 2018.

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.

 

 

 

September 30,

2019

 

 

December 31,

2018

 

 

 

(Dollars in thousands)

 

BancFirst

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

2,082

 

 

$

838

 

Non-residential real estate other

 

 

1,718

 

 

 

187

 

Residential real estate permanent mortgage

 

 

1,291

 

 

 

954

 

Residential real estate all other

 

 

6,142

 

 

 

5,488

 

Commercial and financial:

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

3,171

 

 

 

5,682

 

Consumer non-real estate

 

 

412

 

 

 

437

 

Other loans

 

 

368

 

 

 

490

 

Acquired loans

 

 

3,932

 

 

 

8,527

 

Pegasus Bank

 

 

879

 

 

 

 

Total

 

$

19,995

 

 

$

22,603

 

 

10


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 September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

1,325

 

 

$

935

 

 

$

4,859

 

 

$

7,119

 

 

$

678,852

 

 

$

685,971

 

 

$

3,808

 

Non-residential real estate other

 

 

1,066

 

 

 

 

 

 

73

 

 

 

1,139

 

 

 

1,189,409

 

 

 

1,190,548

 

 

 

 

Residential real estate permanent mortgage

 

 

1,387

 

 

 

1,166

 

 

 

1,930

 

 

 

4,483

 

 

 

334,943

 

 

 

339,426

 

 

 

1,297

 

Residential real estate all other

 

 

2,633

 

 

 

665

 

 

 

5,694

 

 

 

8,992

 

 

 

882,771

 

 

 

891,763

 

 

 

442

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

1,642

 

 

 

665

 

 

 

2,358

 

 

 

4,665

 

 

 

1,419,409

 

 

 

1,424,074

 

 

 

420

 

Consumer non-real estate

 

 

1,899

 

 

 

695

 

 

 

578

 

 

 

3,172

 

 

 

355,152

 

 

 

358,324

 

 

 

376

 

Other loans

 

 

683

 

 

 

737

 

 

 

4,340

 

 

 

5,760

 

 

 

149,582

 

 

 

155,342

 

 

 

4,340

 

Acquired loans

 

 

1,529

 

 

 

989

 

 

 

2,088

 

 

 

4,606

 

 

 

164,610

 

 

 

169,216

 

 

 

532

 

Pegasus Bank

 

 

 

 

 

879

 

 

 

 

 

 

879

 

 

 

391,265

 

 

 

392,144

 

 

 

 

Total

 

$

12,164

 

 

$

6,731

 

 

$

21,920

 

 

$

40,815

 

 

$

5,565,993

 

 

$

5,606,808

 

 

$

11,215

 

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

 

 

Impaired Loans

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.

11


The following table presents impaired loans, segregated by class of loans. During the period ended September 30, 2019 and September 30, 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 September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

12,817

 

 

$

12,566

 

 

$

450

 

 

$

9,352

 

Non-residential real estate other

 

 

3,873

 

 

 

3,593

 

 

 

279

 

 

 

2,501

 

Residential real estate permanent mortgage

 

 

3,060

 

 

 

2,768

 

 

 

254

 

 

 

2,422

 

Residential real estate all other

 

 

7,752

 

 

 

7,483

 

 

 

3,264

 

 

 

6,801

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

11,853

 

 

 

11,237

 

 

 

923

 

 

 

11,131

 

Consumer non-real estate

 

 

959

 

 

 

826

 

 

 

108

 

 

 

718

 

Other loans

 

 

4,917

 

 

 

4,708

 

 

 

94

 

 

 

424

 

Acquired loans

 

 

6,108

 

 

 

4,603

 

 

 

2

 

 

 

7,199

 

Pegasus Bank

 

 

2,989

 

 

 

2,190

 

 

 

 

 

 

1,089

 

Total

 

$

54,328

 

 

$

49,974

 

 

$

5,374

 

 

$

41,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Credit Risk Monitoring and Loan Grading

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.

The general characteristics of the risk grades are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Pegasus Bank Credit Quality Indicators

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

12


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

The following table presents internal loan grading by class of loans:

 

 

 

Internal Loan Grading

 

 

 

Grade

 

 

 

 

1

 

 

 

2

 

 

 

3

 

 

 

4

 

 

 

5

 

 

Total

 

 

 

(Dollars in thousands)

 

As of September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

531,883

 

 

$

125,467

 

 

$

26,082

 

 

$

2,539

 

 

$

 

 

$

685,971

 

Non-residential real estate other

 

 

896,692

 

 

 

264,421

 

 

 

28,669

 

 

 

766

 

 

 

 

 

 

1,190,548

 

Residential real estate permanent mortgage

 

 

288,714

 

 

 

41,332

 

 

 

7,104

 

 

 

2,225

 

 

 

51

 

 

 

339,426

 

Residential real estate all other

 

 

697,825

 

 

 

172,253

 

 

 

14,986

 

 

 

6,699

 

 

 

 

 

 

891,763

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

1,136,324

 

 

 

256,992

 

 

 

28,590

 

 

 

2,168

 

 

 

 

 

 

1,424,074

 

Consumer non-real estate

 

 

333,508

 

 

 

21,608

 

 

 

2,410

 

 

 

798

 

 

 

 

 

 

358,324

 

Other loans

 

 

149,914

 

 

 

3,878

 

 

 

1,528

 

 

 

22

 

 

 

 

 

 

155,342

 

Acquired loans

 

 

98,685

 

 

 

59,027

 

 

 

7,223

 

 

 

4,067

 

 

 

214

 

 

 

169,216

 

Pegasus Bank

 

 

258,497

 

 

 

131,458

 

 

 

1,310

 

 

 

879

 

 

 

 

 

 

392,144

 

Total

 

$

4,392,042

 

 

$

1,076,436

 

 

$

117,902

 

 

$

20,163

 

 

$

265

 

 

$

5,606,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

13


Allowance for Loan Losses Methodology

The allowance for loan losses (“ALL”) methodology is disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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)

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

6,887

 

 

$

(2

)

 

$

1

 

 

$

(1

)

 

$

72

 

 

$

6,958

 

Non-residential real estate other

 

 

11,287

 

 

 

(35

)

 

 

33

 

 

 

(2

)

 

 

478

 

 

 

11,763

 

Residential real estate permanent mortgage

 

 

3,325

 

 

 

(63

)

 

 

2

 

 

 

(61

)

 

 

97

 

 

 

3,361

 

Residential real estate all other

 

 

11,721

 

 

 

(29

)

 

 

2

 

 

 

(27

)

 

 

507

 

 

 

12,201

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

15,232

 

 

 

(244

)

 

 

49

 

 

 

(195

)

 

 

347

 

 

 

15,384

 

Consumer non-real estate

 

 

3,234

 

 

 

(287

)

 

 

66

 

 

 

(221

)

 

 

261

 

 

 

3,274

 

Other loans

 

 

2,449

 

 

 

 

 

 

9

 

 

 

9

 

 

 

189

 

 

 

2,647

 

Acquired loans

 

 

973

 

 

 

(1,517

)

 

 

53

 

 

 

(1,464

)

 

 

767

 

 

 

276

 

Pegasus Bank

 

 

 

 

 

 

 

 

24

 

 

 

24

 

 

 

40

 

 

 

64

 

Total

 

$

55,108

 

 

$

(2,177

)

 

$

239

 

 

$

(1,938

)

 

$

2,758

 

 

$

55,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

6,328

 

 

$

(11

)

 

$

2

 

 

$

(9

)

 

$

639

 

 

$

6,958

 

Non-residential real estate other

 

 

11,027

 

 

 

(57

)

 

 

34

 

 

 

(23

)

 

 

759

 

 

 

11,763

 

Residential real estate permanent mortgage

 

 

3,261

 

 

 

(130

)

 

 

11

 

 

 

(119

)

 

 

219

 

 

 

3,361

 

Residential real estate all other

 

 

10,673

 

 

 

(224

)

 

 

29

 

 

 

(195

)

 

 

1,723

 

 

 

12,201

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

13,151

 

 

 

(401

)

 

 

201

 

 

 

(200

)

 

 

2,433

 

 

 

15,384

 

Consumer non-real estate

 

 

3,065

 

 

 

(569

)

 

 

175

 

 

 

(394

)

 

 

603

 

 

 

3,274

 

Other loans

 

 

2,423

 

 

 

 

 

 

87

 

 

 

87

 

 

 

137

 

 

 

2,647

 

Acquired loans

 

 

1,461

 

 

 

(1,713

)

 

 

206

 

 

 

(1,507

)

 

 

322

 

 

 

276

 

Pegasus Bank

 

 

 

 

 

 

 

 

24

 

 

 

24

 

 

 

40

 

 

 

64

 

Total

 

$

51,389

 

 

$

(3,105

)

 

$

769

 

 

$

(2,336

)

 

$

6,875

 

 

$

55,928

 

14


 

 

 

ALL

 

 

 

Balance at

beginning

of period

 

 

Charge-

offs

 

 

Recoveries

 

 

Net

charge-offs

 

 

Provisions

charged to

operations

 

 

Balance at

end of

period

 

 

 

(Dollars in thousands)

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

6,426

 

 

$

(179

)

 

$

15

 

 

$

(164

)

 

$

164

 

 

$

6,426

 

Non-residential real estate other

 

 

10,705

 

 

 

(8

)

 

 

 

 

 

(8

)

 

 

(49

)

 

 

10,648

 

Residential real estate permanent mortgage

 

 

3,307

 

 

 

(39

)

 

 

 

 

 

(39

)

 

 

43

 

 

 

3,311

 

Residential real estate all other

 

 

10,123

 

 

 

(71

)

 

 

95

 

 

 

24

 

 

 

274

 

 

 

10,421

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

15,069

 

 

 

(343

)

 

 

7

 

 

 

(336

)

 

 

(337

)

 

 

14,396

 

Consumer non-real estate

 

 

2,839

 

 

 

(294

)

 

 

70

 

 

 

(224

)

 

 

298

 

 

 

2,913

 

Other loans

 

 

2,328

 

 

 

 

 

 

6

 

 

 

6

 

 

 

88

 

 

 

2,422

 

Acquired loans

 

 

1,403

 

 

 

(337

)

 

 

6

 

 

 

(331

)

 

 

266

 

 

 

1,338

 

Total

 

$

52,200

 

 

$

(1,271

)

 

$

199

 

 

$

(1,072

)

 

$

747

 

 

$

51,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

6,195

 

 

$

(198

)

 

$

16

 

 

$

(182

)

 

$

413

 

 

$

6,426

 

Non-residential real estate other

 

 

10,519

 

 

 

(9

)

 

 

39

 

 

 

30

 

 

 

99

 

 

 

10,648

 

Residential real estate permanent mortgage

 

 

3,226

 

 

 

(101

)

 

 

26

 

 

 

(75

)

 

 

160

 

 

 

3,311

 

Residential real estate all other

 

 

9,672

 

 

 

(312

)

 

 

101

 

 

 

(211

)

 

 

960

 

 

 

10,421

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

15,334

 

 

 

(652

)

 

 

30

 

 

 

(622

)

 

 

(316

)

 

 

14,396

 

Consumer non-real estate

 

 

2,793

 

 

 

(738

)

 

 

194

 

 

 

(544

)

 

 

664

 

 

 

2,913

 

Other loans

 

 

2,481

 

 

 

(2

)

 

 

30

 

 

 

28

 

 

 

(87

)

 

 

2,422

 

Acquired loans

 

 

1,446

 

 

 

(530

)

 

 

29

 

 

 

(501

)

 

 

393

 

 

 

1,338

 

Total

 

$

51,666

 

 

$

(2,542

)

 

$

465

 

 

$

(2,077

)

 

$

2,286

 

 

$

51,875

 

 

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

 

 

 

ALL

 

 

 

September 30, 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

 

$

1,110

 

 

$

5,848

 

 

$

669

 

 

$

5,659

 

Non-residential real estate other

 

 

1,152

 

 

 

10,611

 

 

 

1,119

 

 

 

9,908

 

Residential real estate permanent mortgage

 

 

556

 

 

 

2,805

 

 

 

505

 

 

 

2,756

 

Residential real estate all other

 

 

4,379

 

 

 

7,822

 

 

 

3,413

 

 

 

7,260

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

3,185

 

 

 

12,199

 

 

 

2,114

 

 

 

11,037

 

Consumer non-real estate

 

 

355

 

 

 

2,919

 

 

 

374

 

 

 

2,691

 

Other loans

 

 

17

 

 

 

2,630

 

 

 

65

 

 

 

2,358

 

Acquired loans

 

 

 

 

 

276

 

 

 

 

 

 

1,461

 

Pegasus Bank

 

 

 

 

 

64

 

 

 

 

 

 

 

Total

 

$

10,754

 

 

$

45,174

 

 

$

8,259

 

 

$

43,130

 

 

15


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

 

 

 

September 30, 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

 

$

28,622

 

 

$

657,349

 

 

$

 

 

$

17,846

 

 

$

608,775

 

 

$

 

Non-residential real estate other

 

 

29,435

 

 

 

1,161,113

 

 

 

 

 

 

25,333

 

 

 

1,120,795

 

 

 

 

Residential real estate permanent mortgage

 

 

9,380

 

 

 

330,046

 

 

 

 

 

 

9,026

 

 

 

319,676

 

 

 

 

Residential real estate all other

 

 

21,685

 

 

 

870,078

 

 

 

 

 

 

21,285

 

 

 

806,219

 

 

 

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

30,626

 

 

 

1,393,448

 

 

 

 

 

 

19,432

 

 

 

1,264,222

 

 

 

 

Consumer non-real estate

 

 

3,208

 

 

 

355,116

 

 

 

 

 

 

3,093

 

 

 

323,769

 

 

 

 

Other loans

 

 

175

 

 

 

155,167

 

 

 

 

 

 

209

 

 

 

141,700

 

 

 

 

Acquired loans

 

 

10,504

 

 

 

157,761

 

 

 

951

 

 

 

22,132

 

 

 

265,084

 

 

 

7,380

 

Pegasus Bank

 

 

 

 

 

389,955

 

 

 

2,189

 

 

 

 

 

 

 

 

 

 

Total

 

$

133,635

 

 

$

5,470,033

 

 

$

3,140

 

 

$

118,356

 

 

$

4,850,240

 

 

$

7,380

 

Non-Cash Transfers from Loans and Premises and Equipment

Transfers from loans and premises and equipment to other real estate owned and repossessed assets are non-cash transactions, and are not included in the statements of cash flow. Such transfers during the periods presented, are summarized as follows:

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Other real estate owned

 

$

2,972

 

 

$

2,944

 

Repossessed assets

 

 

946

 

 

 

842

 

Total

 

$

3,918

 

 

$

3,786

 

 

 

 

(5)

INTANGIBLE ASSETS

The following is a summary of intangible assets:

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

 

(Dollars in thousands)

 

As of September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangibles

 

$

35,855

 

 

$

(13,210

)

 

$

22,645

 

Customer relationship intangibles

 

 

5,699

 

 

 

(4,376

)

 

 

1,323

 

Mortgage servicing intangibles

 

 

375

 

 

 

(318

)

 

 

57

 

Total

 

$

41,929

 

 

$

(17,904

)

 

$

24,025

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangibles

 

$

25,907

 

 

$

(11,113

)

 

$

14,794

 

Customer relationship intangibles

 

 

5,699

 

 

 

(4,115

)

 

 

1,584

 

Mortgage servicing intangibles

 

 

397

 

 

 

(305

)

 

 

92

 

Total

 

$

32,003

 

 

$

(15,533

)

 

$

16,470

 

 

16


The following is a summary of goodwill by business segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Executive,

 

 

 

 

 

 

 

Metropolitan

 

 

Community

 

 

Pegasus

 

 

Financial

 

 

Operations

 

 

 

 

 

 

 

Banks

 

 

Banks

 

 

Bank

 

 

Services

 

 

& Support

 

 

Consolidated

 

 

 

(Dollars in thousands)

 

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

13,767

 

 

$

59,894

 

 

$

 

 

$

5,464

 

 

$

624

 

 

$

79,749

 

Acquisitions

 

 

 

 

 

 

 

 

67,264

 

 

 

 

 

 

 

 

 

67,264

 

Balance at beginning and end of period

 

$

13,767

 

 

$

59,894

 

 

$

67,264

 

 

$

5,464

 

 

$

624

 

 

$

147,013

 

 

The Company acquired Pegasus Bank on August 15, 2019, which added $67.3 million in goodwill.  The Company did not apply push down accounting and therefore the goodwill associated with this acquisition is included at the holding company level.

 

Additional information for intangible assets can be found in Note (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

 

(6)

LEASES

Lessee

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases - (Topic 842),” which requires the recognition of the Company’s operating leases on its balance sheet. See Note (1) for additional information.

 

The Company has operating leases, which primarily consist of office space in buildings, ATM locations, storage facilities, parking lots and land on which it owns certain buildings. Rent expense for all operating leases totaled approximately $357,000 and $398,000 for the three months ended September 30, 2019 and September 30, 2018, respectively. Rent expense for all operating leases totaled approximately $1.1 million and $1.2 million for the nine months ended September 30, 2019 and September 30, 2018, respectively. As of September 30, 2019, a right of use lease asset included in accrued interest receivable and other assets on the balance sheet totaled $6.1 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $6.1 million. There have been no significant changes in our expected future minimum lease payments since December 31, 2018, which are disclosed in Note (19) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. As of September 30, 2019, our operating leases have a weighted-average remaining lease term of 4.1 years and a weighted-average discount rate of 3.4 percent.

 

 

Maturity of Operating Lease Liabilities

 

 

 

September 30, 2019

 

 

 

(Dollars in thousands)

 

2019 (three months)

 

$

11

 

2020

 

 

688

 

2021

 

 

118

 

2022

 

 

1,361

 

2023

 

 

857

 

Thereafter

 

 

3,049

 

Operating Lease Liability

 

$

6,084

 

 

Lessor

 

The Company is a lessor of operating leases, which primarily consist of office space in buildings and parking lots. These assets are classified on the balance sheet as premises and equipment. The Company had operating lease revenue of $1.6 million for the three months ended September 30, 2019 and $4.7 million for the nine months ended September 30, 2019, which is included in occupancy, net on the consolidated statement of comprehensive income.

 

17


Future Minimum Lease Payments to be received

The Company does not have operating leases that extend beyond 2026. The following table presents the scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases:

 

 

 

September 30, 2019

 

 

 

(Dollars in thousands)

 

2019 (three months)

 

$

1,066

 

2020

 

 

2,770

 

2021

 

 

1,939

 

2022

 

 

1,294

 

2023

 

 

832

 

2024

 

 

289

 

2025-2026

 

 

367

 

Total Future Minimum Lease Payments

 

$

8,557

 

 

(7)

STOCK-BASED COMPENSATION

The Company adopted a nonqualified incentive stock option plan (the “BancFirst ISOP”) in May 1986. The Company has amended the BancFirst ISOP since 1986 to increase the number of shares to be issued under the plan to 6,484,530 shares. At September 30, 2019, there were 330,000 shares available for future grants. The BancFirst ISOP will terminate on December 31, 2024, if not extended. The options vest and are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options expire at the end of fifteen years from the date of grant. Options outstanding as of September 30, 2019 will become exercisable through the year 2026. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

In June 1999, the Company adopted the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “BancFirst Directors’ Stock Option Plan”). Each non-employee director is granted an option for 10,000 shares. The Company has amended the BancFirst Directors’ Stock Option Plan since 1999 to increase the number of shares to be issued under the plan to 530,000 shares. At September 30, 2019, there were 15,000 shares available for future grants. The BancFirst Directors’ Stock Option Plan will terminate on December 31, 2024, if not extended. The options vest and are exercisable beginning one year from the date of grant at the rate of 25% per year for four years, and expire at the end of fifteen years from the date of grant. Options outstanding as of September 30, 2019 will become exercisable through the year 2023. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

The Company currently uses newly issued shares for stock option exercises, but reserves the right to use shares purchased under the Company’s Stock Repurchase Program (the “SRP”) in the future.

The following table is a summary of the activity under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:

 

 

 

 

 

 

 

 

 

 

 

Wgtd. Avg.

 

 

 

 

 

 

 

 

 

 

Wgtd. Avg.

 

 

Remaining

 

Aggregate

 

 

 

 

 

 

 

Exercise

 

 

Contractual

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

Value

 

 

 

(Dollars in thousands, except option data)

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2018

 

 

1,216,700

 

 

$

28.48

 

 

 

 

 

 

 

Options granted

 

 

95,000

 

 

 

55.63

 

 

 

 

 

 

 

Options exercised

 

 

(30,550

)

 

 

23.24

 

 

 

 

 

 

 

Options canceled, forfeited, or expired

 

 

(22,500

)

 

 

51.83

 

 

 

 

 

 

 

Outstanding at September 30, 2019

 

 

1,258,650

 

 

 

30.24

 

 

9.21 Yrs

 

$

31,698

 

Exercisable at September 30, 2019

 

 

652,150

 

 

 

22.53

 

 

6.86 Yrs

 

$

21,451

 

 

18


The following table has additional information regarding options exercised under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Total intrinsic value of options exercised

 

$

87

 

 

$

766

 

 

$

991

 

 

$

4,593

 

Cash received from options exercised

 

 

99

 

 

 

413

 

 

 

710

 

 

 

2,057

 

Tax benefit realized from options exercised

 

 

22

 

 

 

195

 

 

 

252

 

 

 

1,170

 

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term.  The fair value of each option is expensed over its vesting period.

The following table is a summary of the Company’s recorded stock-based compensation expense:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Stock-based compensation expense

 

$

347

 

 

$

353

 

 

$

888

 

 

$

981

 

Tax benefit

 

 

88

 

 

 

90

 

 

 

226

 

 

 

250

 

Stock-based compensation expense, net of tax

 

$

259

 

 

$

263

 

 

$

662

 

 

$

731

 

 

The Company will continue to amortize the unearned stock-based compensation expense over the remaining vesting period of approximately seven years.  The following table shows the unearned stock-based compensation expense:

 

 

 

September 30, 2019

 

 

 

(Dollars in thousands)

 

Unearned stock-based compensation expense

 

$

3,676

 

 

The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the periods presented:

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Weighted average grant-date fair value per share of

   options granted

 

$

13.31

 

 

$

14.93

 

Risk-free interest rate

 

1.55 to 2.76%

 

 

2.55 to 3.05%

 

Dividend yield

 

2.00%

 

 

2.00%

 

Stock price volatility

 

22.93 to 23.63%

 

 

23.05 to 23.46%

 

Expected term

 

10 Yrs

 

 

10 Yrs

 

 

The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S. Treasury security with a maturity similar to the expected term of the options. The dividend yield is the expected yield for the expected term.  The stock price volatility is estimated from the recent historical volatility of the Company’s stock. The expected term is estimated from the historical option exercise experience. The Company accounts for forfeitures as they occur.

In May 1999, the Company adopted the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “BancFirst Deferred Stock Compensation Plan”). The Company has amended the BancFirst Deferred Stock Compensation Plan since 1999 to increase the number of shares to be issued under the plan to 244,148 shares. The BancFirst Deferred Stock Compensation Plan will terminate on December 31, 2024, if not extended. Under the plan, directors and members of the community advisory boards of the Company and its subsidiaries may defer up to 100% of their board fees. They are credited for each deferral with a number of stock units based on the current market price of the Company’s stock, which accumulate in an account until such time as the director or community board member terminates serving as a board member. Shares of common stock of the Company are then distributed to the terminating director or community board member based upon the number of stock units accumulated in his or her account. There were 9,542 and 3,891 shares of common stock distributed from the BancFirst Deferred Stock Compensation Plan during the nine months ended September 30, 2019 and September 30, 2018, respectively.

19


A summary of the accumulated stock units is as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accumulated stock units

 

 

141,086

 

 

 

143,347

 

Average price

 

$

26.68

 

 

$

24.91

 

 

 

(8)

STOCKHOLDERS’ EQUITY

In November 1999, the Company adopted a Stock Repurchase Program (the “SRP”). 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.

The following table is a summary of the shares under the program:

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Number of shares repurchased

 

 

 

 

 

 

Average price of shares repurchased

 

$

 

 

$

 

Shares remaining to be repurchased

 

 

148,736

 

 

 

300,000

 

The Company, BancFirst and Pegasus Bank are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“FDIC”). These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’s and BancFirst’s assets, liabilities and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s financial statements. Management believes that as of September 30, 2019, the Company, BancFirst and Pegasus Bank met all capital adequacy requirements to which they are subject.  The actual and required capital amounts and ratios are shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

Required

 

 

 

 

 

To Be Well

 

 

 

 

 

 

 

 

 

 

 

For Capital

 

 

With

 

 

Capitalized Under

 

 

 

 

 

 

 

 

 

 

 

Adequacy

 

 

Capital Conservation

 

 

Prompt Corrective

 

 

 

Actual

 

 

Purposes

 

 

Buffer

 

 

Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(Dollars in thousands)

 

As of September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

887,070

 

 

14.34%

 

 

$

494,966

 

 

8.00%

 

 

$

649,643

 

 

10.50%

 

 

N/A

 

 

N/A

 

BancFirst

 

 

812,703

 

 

14.12%

 

 

 

460,315

 

 

8.00%

 

 

 

604,164

 

 

10.50%

 

 

$

575,394

 

 

10.00%

 

Pegasus Bank

 

 

55,783

 

 

13.38%

 

 

 

33,359

 

 

8.00%

 

 

 

43,784

 

 

10.50%

 

 

 

41,699

 

 

10.00%

 

Common Equity Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

805,142

 

 

13.01%

 

 

$

278,418

 

 

4.50%

 

 

$

433,095

 

 

7.00%

 

 

N/A

 

 

N/A

 

BancFirst

 

 

736,839

 

 

12.81%

 

 

 

258,927

 

 

4.50%

 

 

 

402,776

 

 

7.00%

 

 

$

374,006

 

 

6.50%

 

Pegasus Bank

 

 

52,286

 

 

12.54%

 

 

 

18,765

 

 

4.50%

 

 

 

29,190

 

 

7.00%

 

 

 

27,105

 

 

6.50%

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

831,142

 

 

13.43%

 

 

$

371,225

 

 

6.00%

 

 

$

525,901

 

 

8.50%

 

 

N/A

 

 

N/A

 

BancFirst

 

 

756,839

 

 

13.15%

 

 

 

345,236

 

 

6.00%

 

 

 

489,085

 

 

8.50%

 

 

$

460,315

 

 

8.00%

 

Pegasus Bank

 

 

52,286

 

 

12.54%

 

 

 

25,020

 

 

6.00%

 

 

 

35,444

 

 

8.50%

 

 

 

33,359

 

 

8.00%

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Total Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

831,142

 

 

10.59%

 

 

$

314,007

 

 

4.00%

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

BancFirst

 

 

756,839

 

 

10.06%

 

 

 

300,900

 

 

4.00%

 

 

N/A

 

 

N/A

 

 

$

376,124

 

 

5.00%

 

Pegasus Bank

 

 

52,286

 

 

7.71%

 

 

 

27,139

 

 

4.00%

 

 

N/A

 

 

N/A

 

 

 

33,924

 

 

5.00%

 

20


As of September 30, 2019, the most recent notification from the Federal Reserve Bank of Kansas City and the FDIC categorized BancFirst and Pegasus Bank as “well capitalized” under the prompt corrective action provisions. 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. There are no conditions or events since the most recent notifications of BancFirst or Pegasus Bank’s capital category that management believes would materially change its category under capital requirements existing as of the report date.

 

 

(9)

NET INCOME PER COMMON SHARE

Basic and diluted net income per common share based on weighted-average shares outstanding are calculated as follows:

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per Share

Amount

 

 

 

(Dollars in thousands, except per share data)

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

33,368

 

 

 

32,641,902

 

 

$

1.02

 

Dilutive effect of stock options

 

 

 

 

 

685,311

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed exercises of stock options

 

$

33,368

 

 

 

33,327,213

 

 

$

1.00

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

32,883

 

 

 

32,742,480

 

 

$

1.01

 

Dilutive effect of stock options

 

 

 

 

 

761,663

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed exercises of stock options

 

$

32,883

 

 

 

33,504,143

 

 

$

0.98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

99,372

 

 

 

32,627,924

 

 

$

3.04

 

Dilutive effect of stock options

 

 

 

 

 

686,374

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed exercises of stock options

 

$

99,372

 

 

 

33,314,298

 

 

$

2.98

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

93,089

 

 

 

32,678,310

 

 

$

2.85

 

Dilutive effect of stock options

 

 

 

 

 

752,451

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed exercises of stock options

 

$

93,089

 

 

 

33,430,761

 

 

$

2.78

 

 

The following table shows the number of options that were excluded from the computation of diluted net income per common share for each period because the options were anti-dilutive for the period:

 

 

 

Shares

 

Three Months Ended September 30, 2019

 

 

164,696

 

Three Months Ended September 30, 2018

 

 

83,799

 

Nine Months Ended September 30, 2019

 

 

174,489

 

Nine Months Ended September 30, 2018

 

 

84,368

 

 

 

(10)

FAIR VALUE MEASUREMENTS

Accounting standards define fair value as the price that would be received to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date.

21


FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:

 

Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset and liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes certain impaired loans, repossessed assets, other real estate owned, goodwill and other intangible assets.

Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis

A description of the valuation methodologies and key inputs used to measure financial assets and financial liabilities at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to the following categories of the Company’s financial assets and financial liabilities.

Securities Available for Sale

Securities classified as available for sale are reported at fair value. U.S. Treasuries are valued using Level 1 inputs. Other securities available for sale including U.S. federal agencies, registered mortgage backed securities and state and political subdivisions are valued using prices from an independent pricing service utilizing Level 2 data. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The Company also invests in private label mortgage backed securities for which observable information is not readily available. These securities are reported at fair value utilizing Level 3 inputs. For these securities, management determines the fair value based on replacement cost, the income approach or information provided by outside consultants or lead investors.

The Company reviews the prices for Level 1 and Level 2 securities supplied by the independent pricing service for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities that are esoteric or that have complicated structures. The Company’s portfolio primarily consists of traditional investments including U.S. Treasury obligations, federal agency mortgage pass-through securities, general obligation municipal bonds and a small amount of municipal revenue bonds. Pricing for such instruments is fairly generic and is easily obtained. For in-state bond issues that have relatively low issue sizes and liquidity, the Company utilizes the same parameters for pricing mentioned in the preceding paragraph adjusted for the specific issue. Periodically, the Company will validate prices supplied by the independent pricing service by comparison to prices obtained from third party sources.

Derivatives

Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains dealer and market quotations to value its oil and gas swaps and options.  The Company utilizes dealer quotes and observable market data inputs to substantiate internal valuation models.

22


The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

 

 

Level 1 Inputs

 

 

Level 2 Inputs

 

 

Level 3 Inputs

 

 

Total Fair Value

 

 

 

(Dollars in thousands)

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

468,946

 

 

$

 

 

$

 

 

$

468,946

 

U.S. federal agencies

 

 

 

 

 

23,742

 

 

 

 

 

 

23,742

 

Mortgage-backed securities

 

 

 

 

 

17,472

 

 

 

 

 

 

17,472

 

States and political subdivisions

 

 

 

 

 

23,549

 

 

 

 

 

 

23,549

 

Asset backed securities

 

 

 

 

 

 

 

 

12,958

 

 

 

12,958

 

Other securities

 

 

 

 

 

6,997

 

 

 

 

 

 

6,997

 

Derivative assets

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Derivative liabilities

 

 

 

 

 

14

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

697,466

 

 

$

 

 

$

 

 

$

697,466

 

U.S. federal agencies

 

 

 

 

 

29,919

 

 

 

 

 

 

29,919

 

Mortgage-backed securities

 

 

 

 

 

2,465

 

 

 

 

 

 

2,465

 

States and political subdivisions

 

 

 

 

 

27,411

 

 

 

 

 

 

27,411

 

Asset backed securities

 

 

 

 

 

 

 

 

13,443

 

 

 

13,443

 

Derivative assets

 

 

 

 

 

252

 

 

 

 

 

 

252

 

Derivative liabilities

 

 

 

 

 

238

 

 

 

 

 

 

238

 

 

The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows:

 

 

 

Nine Months

Ended

September 30,

 

 

Twelve Months

Ended

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Balance at the beginning of the year

 

$

13,443

 

 

$

14,467

 

Settlements

 

 

(525

)

 

 

(1,037

)

Total unrealized gains

 

 

40

 

 

 

13

 

Balance at the end of the period

 

$

12,958

 

 

$

13,443

 

 

The Company’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period. During the nine months ended September 30, 2019 and 2018, the Company did not transfer any securities between levels in the fair value hierarchy.

Financial Assets and Financial Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and financial liabilities are reported at fair value utilizing Level 3 inputs.

The Company invests in equity securities without readily determinable fair values and utilizes Level 3 inputs. Beginning January 1, 2018, upon adoption of ASU 2016-01, these 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.

Impaired loans are reported at the fair value of the underlying collateral if repayment is dependent on liquidation of the collateral. In no case does the fair value of an impaired loan exceed the fair value of the underlying collateral. The impaired loans are adjusted to fair value through a specific allocation of the allowance for loan losses or a direct charge-down of the loan.

23


Repossessed assets, upon initial recognition, are measured and adjusted to fair value through a charge-off to the allowance for possible loan losses based upon the fair value of the repossessed asset.

Other real estate owned is revalued at fair value subsequent to initial recognition, with any losses recognized in net expense from other real estate owned.

The following table summarizes assets measured at fair value on a nonrecurring basis. The fair value represents end of period values, which approximate fair value measurements that occurred on various measurement dates throughout the period:

 

 

 

Total Fair Value

 

 

 

Level 3

 

 

 

(Dollars in thousands)

 

As of and for the Year-to-date Period Ended September 30, 2019

 

 

 

 

Equity securities

 

$

9,251

 

Impaired loans (less specific allowance)

 

 

44,600

 

Repossessed assets

 

 

215

 

Other real estate owned

 

 

1,980

 

 

 

 

 

 

As of and for the Year-to-date Period Ended December 31, 2018

 

 

 

 

Equity securities

 

$

7,521

 

Impaired loans (less specific allowance)

 

 

34,396

 

Repossessed assets

 

 

183

 

Other real estate owned

 

 

4,683

 

 

Estimated Fair Value of Financial Instruments

The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instruments that are not recorded at fair value. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents Include: Cash and Due from Banks and Interest-Bearing Deposits

The carrying amount of these short-term instruments is a reasonable estimate of fair value.

Securities Held for Investment

For securities held for investment, which are generally traded in secondary markets, fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities making adjustments for credit or liquidity if applicable.

Loans Held For Sale

The Company originates mortgage loans to be sold.  At the time of origination, the acquiring bank has already been determined and the terms of the loan, including interest rate, have already been set by the acquiring bank, allowing the Company to originate the loan at fair value. Mortgage loans are generally sold within 30 days of origination. Loans held for sale are valued using Level 2 inputs.  Gains or losses recognized upon the sale of the loans are determined on a specific identification basis.

Loans

To determine the fair value of loans, the Company uses an exit price calculation, which takes into account factors such as liquidity, credit and the nonperformance risk of loans. For certain homogeneous categories of loans, such as some residential mortgages, fair values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

24


Deposits

The fair values of transaction and savings accounts are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using the rates currently offered for deposits of similar remaining maturities.

Short-term Borrowings

The amounts payable on these short-term instruments are reasonable estimates of fair value.

Junior Subordinated Debentures

The fair values of junior subordinated debentures are estimated using the rates that would be charged for junior subordinated debentures of similar remaining maturities.

Loan Commitments and Letters of Credit

The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the terms of the agreements. The fair values of letters of credit are based on fees currently charged for similar agreements.

The estimated fair values of the Company’s financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,702,166

 

 

$

1,702,166

 

 

$

1,424,255

 

 

$

1,424,255

 

Securities held for investment

 

 

1,411

 

 

 

1,411

 

 

 

928

 

 

 

933

 

Loans held for sale

 

 

16,089

 

 

 

16,089

 

 

 

8,174

 

 

 

8,174

 

Level 3 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held for investment

 

 

500

 

 

 

500

 

 

 

500

 

 

 

500

 

Loans, net of allowance for loan losses

 

 

5,550,880

 

 

 

5,586,751

 

 

 

4,924,587

 

 

 

4,901,159

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

7,330,677

 

 

 

7,342,023

 

 

 

6,605,495

 

 

 

6,713,542

 

Short-term borrowings

 

 

605

 

 

 

605

 

 

 

1,675

 

 

 

1,675

 

Junior subordinated debentures

 

 

26,804

 

 

 

29,120

 

 

 

26,804

 

 

 

29,549

 

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan commitments

 

 

 

 

 

 

2,694

 

 

 

 

 

 

 

2,158

 

Letters of credit

 

 

 

 

 

 

473

 

 

 

 

 

 

 

421

 

 

Non-financial Assets and Non-financial Liabilities Measured at Fair Value

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include intangible assets (excluding mortgage service rights, which are valued periodically) and other non-financial long-lived assets measured at fair value and adjusted for impairment. These items are evaluated at least annually for impairment. The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were not considered to be significant to the Company at September 30, 2019 or December 31, 2018.

 

 

(11)SEGMENT INFORMATION

The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The five principal business units are metropolitan banks, community banks, Pegasus Bank, other financial services and executive, operations and support. Metropolitan banks, community banks and Pegasus Bank offer traditional banking products such as commercial and retail lending and a full line of deposit accounts. Metropolitan banks consist of banking

25


locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Pegasus Bank consists of banking locations in the Dallas metropolitan area. Other financial services are specialty product business units including guaranteed small business lending, residential mortgage lending, trust services, securities brokerage, electronic banking and insurance. The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units.

The results of operations and selected financial information for the four business units are as follows:

 

 

 

Metropolitan

Banks

 

 

Community

Banks

 

 

Pegasus

Bank

 

 

Other

Financial

Services

 

 

Executive,

Operations

& Support

 

 

Eliminations

 

 

Consolidated

 

 

 

(Dollars in thousands)

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

21,955

 

 

$

44,707

 

 

$

2,954

 

 

$

1,654

 

 

$

1,017

 

 

$

 

 

$

72,287

 

Noninterest income

 

 

4,862

 

 

 

16,823

 

 

 

109

 

 

 

10,916

 

 

 

39,640

 

 

 

(36,723

)

 

 

35,627

 

Income before taxes

 

 

15,670

 

 

 

29,710

 

 

 

1,404

 

 

 

6,239

 

 

 

25,882

 

 

 

(35,940

)

 

 

42,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

21,313

 

 

$

42,773

 

 

$

 

 

$

1,241

 

 

$

346

 

 

$

 

 

$

65,673

 

Noninterest income

 

 

4,266

 

 

 

15,404

 

 

 

 

 

 

10,264

 

 

 

36,503

 

 

 

(33,636

)

 

 

32,801

 

Income before taxes

 

 

16,538

 

 

 

27,515

 

 

 

 

 

 

4,440

 

 

 

26,344

 

 

 

(32,919

)

 

 

41,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

64,746

 

 

$

132,889

 

 

$

2,954

 

 

$

4,236

 

 

$

3,157

 

 

$

 

 

$

207,982

 

Noninterest income

 

 

13,706

 

 

 

47,951

 

 

 

109

 

 

 

30,894

 

 

 

113,078

 

 

 

(104,033

)

 

 

101,705

 

Income before taxes

 

 

45,905

 

 

 

87,796

 

 

 

1,404

 

 

 

16,310

 

 

 

78,495

 

 

 

(102,103

)

 

 

127,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

62,701

 

 

$

126,223

 

 

$

 

 

$

4,074

 

 

$

590

 

 

$

 

 

$

193,588

 

Noninterest income

 

 

12,391

 

 

 

44,189

 

 

 

 

 

 

28,784

 

 

 

102,306

 

 

 

(94,322

)

 

 

93,348

 

Income before taxes

 

 

46,157

 

 

 

81,805

 

 

 

 

 

 

13,511

 

 

 

69,881

 

 

 

(92,659

)

 

 

118,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

$

2,720,095

 

 

$

4,970,497

 

 

$

731,400

 

 

$

112,527

 

 

$

867,134

 

 

$

(1,012,837

)

 

$

8,388,816

 

December 31, 2018

 

 

2,743,876

 

 

 

4,892,946

 

 

 

 

 

 

84,706

 

 

 

861,782

 

 

 

(1,009,052

)

 

 

7,574,258

 

The financial information for each business unit is presented on the basis used internally by management to evaluate performance and allocate resources.  The Company utilizes a transfer pricing system to allocate the benefit or cost of funds provided or used by the various business units.  Certain services provided by the support group to other business units, such as item processing, are allocated at rates approximating the cost of providing the services.  Eliminations are adjustments to consolidate the business units and companies. Capital expenditures are generally charged to the business unit using the asset.

26


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis presents factors that the Company believes are relevant to an assessment and understanding of the Company’s consolidated financial position and results of operations. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the Company’s consolidated financial statements and the related Notes included in Item 1.

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:

 

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.

 

Inflation, interest rate, crude oil price, securities market and monetary fluctuations.

 

The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company must comply.

 

Impairment of the Company’s goodwill or other intangible assets.

 

Changes in consumer spending, borrowing and savings habits.

 

Changes in the financial performance and/or condition of the Company’s borrowers.

 

Technological changes.

 

Acquisitions and integration of acquired businesses.

 

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

 

The Company’s success at managing the risks involved in the foregoing items.

Actual results may differ materially from forward-looking statements.

SUMMARY

BancFirst Corporation’s net income for the third quarter of 2019 was $33.4 million, compared to $32.9 million for the third quarter of 2018. Diluted net income per common share was $1.00 and $0.98 for the third quarter of 2019 and 2018, respectively.

Net income was $99.4 million, or $2.98 diluted earnings per share, for the nine months ended September 30, 2019, compared to net income of $93.1 million, or $2.78 diluted earnings per share, for the nine months ended September 30, 2018. On August 15, 2019 the Company completed the acquisition of Pegasus Bank in Dallas, Texas. As a result, the third quarter of 2019 included acquisition related expenses of approximately $3.1 million. On January 11, 2018 the Company completed the acquisitions of two Oklahoma banking corporations. Consequently, the nine months ended September 30, 2018 included acquisition related expenses of approximately $2.6 million.

The Company’s net interest income for the third quarter of 2019 increased to $72.3 million, compared to $65.7 million for the third quarter of 2018. The net interest margin for the quarter was 3.89%, compared to 3.68% a year ago. The Company’s net interest

27


margin for the third quarter of 2019 compared to the third quarter of 2018 increased primarily due to the higher average federal funds rate in the third quarter of 2019 and loan growth during the quarter. The Company’s provision for loan losses for the third quarter of 2019 was $2.8 million, compared to $747,000 a year ago. The increase in the provision was primarily due to downgrades of a few commercial loans during the quarter. Net charge-offs for the third quarter of 2019 were 0.04% of average loans compared to 0.02% of average loans in 2018 Net charge-offs for the full year of 2019 were 0.05% of average loans compared to 0.04% of average loans in 2018. Noninterest income for the quarter totaled $35.6 million, compared to $32.8 million last year. The increase in noninterest income was primarily due to growth in debit card usage fees and sweep fees. Noninterest expense for the quarter totaled $62.2 million, compared to $55.8 million last year. The increase in noninterest expenses was primarily due to salary increases in 2019 and greater acquisition related expenses in 2019.

At September 30, 2019, the Company’s total assets were $8.4 billion, an increase of $814.6 million from December 31, 2018. Securities of $555.6 million were down $216.6 million from December 31, 2018. Loans totaled $5.6 billion, an increase of $638.7 million from December 31, 2018. Deposits totaled $7.3 billion, an increase of $725.2 million from the December 31, 2018 total. The Company’s total stockholders’ equity was $979.8 million, an increase of $77.0 million over December 31, 2018.

 

On August 15, 2019, BancFirst Corporation acquired Pegasus Bank, for an aggregate cash purchase price of $123.5 million. Pegasus Bank is a Texas state-chartered bank with three banking locations in Dallas, Texas. Upon acquisition, Pegasus Bank had approximately $651.1 million in total assets, $389.9 million in loans, and $603.9 million in deposits. Pegasus Bank will continue to operate as “Pegasus Bank” under a separate Texas state-charter and remain an independent subsidiary of BancFirst Corporation. BancFirst Corporation intends to provide an appropriate amount of capital to increase Pegasus Bank’s ability to approve larger loans and allow Pegasus Bank to continue to grow their assets. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $9.9 million and goodwill of approximately $67.3 million. The initial accounting for the business combination is not complete due to limited time since the acquisition date. However, we do not expect any acquisition related adjustments to be material to the financial statements. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of Pegasus Bank complements the Company by expanding into the high-growth Dallas market.

Asset quality remained strong during the third quarter of 2019. Nonperforming and restructured assets represented 0.67% of total assets at September 30, 2019 and 0.59% at December 31, 2018. The allowance to total loans was 0.99% down slightly from 1.03% at year-end 2018. The allowance to nonperforming and restructured loans was 114.06% compared to 136.29% at year-end 2018.

On August 31, 2018, BFTower, LLC, a wholly-owned subsidiary of BancFirst, purchased the Cotter Ranch Tower in Oklahoma City for the Company’s corporate headquarters for $21.0 million. Cotter Ranch Tower was subsequently renamed BancFirst Tower. BancFirst Tower consists of an aggregate of 507,000 square feet, has 36 floors and is the second tallest building in Oklahoma City. The BancFirst Tower will remain an income producing property as approximately 55% is currently, and is intended to continue to be, leased to outside tenants. BancFirst Tower will allow the Company to consolidate operations from three locations to one and will improve operational efficiencies. Upon consolidation, the Company expects to initially occupy approximately 35% of the BancFirst Tower, resulting in approximately 90% total occupancy. Renovations on BancFirst Tower are expected to be completed by the end of 2021 and are expected to cost approximately $75 million. The renovation costs include substantial deferred maintenance including HVAC, plumbing, electrical, elevators, building skin and roof while also including much needed improvements to both the interior and exterior common areas including the lobby, underground and outdoor plaza. The Company could start depreciating certain components of the renovation as they are put into service as early as December 2019. The Company estimates spending approximately $12 million on tenant improvements for the approximate 165,000 square feet that the Company will occupy.  The total purchase price, renovation costs, and Company tenant improvement costs were determined to be favorable to other alternatives, such as constructing new corporate headquarters or leasing space. On December 14, 2018, BFTower LLC, purchased a 42.6% ownership interest in SFPG, LLC, which is the owner of a 1,568 space parking garage adjacent to BancFirst Tower, for $9.8 million.

On January 11, 2018, the Company completed the acquisitions of two Oklahoma banking corporations. First Wagoner Corporation and its subsidiary bank, First Bank & Trust Company, and First Chandler Corp. and its subsidiary bank, First Bank of Chandler, had combined total assets of approximately $378 million. The Company exchanged a combination of cash and stock for these transactions.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See Note (1) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

SEGMENT INFORMATION

See Note (11) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.

28


RESULTS OF OPERATIONS

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

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Income Statement Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

72,287

 

 

$

65,673

 

 

$

207,982

 

 

$

193,588

 

Provision for loan losses

 

 

2,758

 

 

 

747

 

 

 

6,875

 

 

 

2,286

 

Securities transactions

 

 

 

 

 

(64

)

 

 

821

 

 

 

37

 

Total noninterest income

 

 

35,627

 

 

 

32,801

 

 

 

101,705

 

 

 

93,348

 

Salaries and employee benefits

 

 

40,354

 

 

 

35,051

 

 

 

112,649

 

 

 

104,017

 

Total noninterest expense

 

 

62,191

 

 

 

55,809

 

 

 

175,005

 

 

 

165,955

 

Net income

 

 

33,368

 

 

 

32,883

 

 

 

99,372

 

 

 

93,089

 

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income – basic

 

$

1.02

 

 

$

1.01

 

 

$

3.04

 

 

$

2.85

 

Net income – diluted

 

 

1.00

 

 

 

0.98

 

 

 

2.98

 

 

 

2.78

 

Cash dividends

 

 

0.32

 

 

 

0.30

 

 

 

0.92

 

 

 

0.72

 

Performance Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.65

%

 

 

1.71

%

 

 

1.71

%

 

 

1.64

%

Return on average stockholders’ equity

 

 

13.80

 

 

 

14.86

 

 

 

14.14

 

 

 

14.62

 

Cash dividend payout ratio

 

 

31.37

 

 

 

29.70

 

 

 

30.26

 

 

 

25.26

 

Net interest spread

 

 

3.34

 

 

 

3.20

 

 

 

3.30

 

 

 

3.28

 

Net interest margin

 

 

3.89

 

 

 

3.68

 

 

 

3.88

 

 

 

3.68

 

Efficiency ratio

 

 

57.63

 

 

 

56.67

 

 

 

56.51

 

 

 

57.84

 

Net charge-offs to average loans

 

 

0.04

 

 

 

0.02

 

 

 

0.05

 

 

 

0.04

 

 

Net Interest Income

For the three months ended September 30, 2019, net interest income, which is the Company’s principal source of operating revenue, increased $6.6 million or 10.1% compared to the three months ended September 30, 2018. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The Company’s net interest margin for the third quarter of 2019 compared to the third quarter of 2018 increased primarily due to the higher average federal funds rate in the third quarter of 2019 and loan growth during such quarter. If the federal funds rate continues to decline compared to the average for the current quarter, the Company expects the yield on earning assets to decrease, which would negatively impact the net interest margin.

Net interest income for the nine months ended September 30, 2019 increased $14.4 million or 7.4% compared to the nine months ended September 30, 2018. The net interest margin for the year-to-date increased compared to the same period of the previous year, as shown in the preceding table. The increase in the margin was primarily due to the higher average federal funds rate throughout 2019 compared to 2018 and loan growth during 2019. If the federal funds rate continues to decline compared to the average for the current year, the Company expects the yield on earning assets to decrease, which would negatively impact the net interest margin.

Provision for Loan Losses

The Company’s provision for loan losses for the third quarter of 2019 was $2.8 million compared to $747,000 a year ago. The increase in the provision was primarily due to downgrades of a few commercial loans during the quarter. The Company establishes an allowance as an estimate of the probable inherent losses in the loan portfolio at the balance sheet date.  Management believes the allowance for loan losses is appropriate based upon management’s best estimate of probable losses that have been incurred within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the amount of future provisions for loan losses. Net loan charge-offs were $1.9 million for the third quarter of 2019, primarily related to the charge-off of acquired loans, compared to $1.1 million for the third quarter of 2018. The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a very low level.

 

29


For the nine months ended September 30, 2019, the Company’s provision for loan losses was $6.9 million compared to $2.3 million for the nine months ended September 30, 2018. The increase in the provision was primarily due to downgrades of a few commercial loans as well as loan growth during 2019. Net loan charge-offs were $2.3 million, compared to $2.1 million for the same period of the prior year.

Noninterest Income

Noninterest income, as presented in the preceding table, increased by $2.8 million for third quarter of 2019 compared to the third quarter of 2018. The increase in noninterest income was primarily due to growth in debit card usage fees and sweep fees. The Company had fees from debit card usage totaling $8.7 million and $7.4 million during the three month periods ended September 30, 2019 and 2018, respectively. This represents 24.3% and 22.7% of the Company’s noninterest income for the three month periods ended September 30, 2019 and 2018, respectively. In addition, the Company has non-sufficient funds fees totaling $8.8 million and $8.2 million for the three month periods ended September 30, 2019 and 2018, respectively. This represents 24.7% and 24.9% of the Company’s noninterest income for the three month periods ended September 30, 2019 and 2018, respectively.

 

Noninterest income for the nine months ended September 30, 2019 totaled $101.7 million compared to $93.3 million for the nine months ended September 30, 2018. The increase in noninterest income was primarily due to growth in debit card usage fees, sweep fees, insurance commissions and equity security gains of $821,000.  Fees from debit card usage totaled $25.1 million and $21.7 million during the nine months ended September 30, 2019 and 2018, respectively. This represents 24.6% and 23.2% of the Company’s noninterest income for the nine month periods ended September 30, 2019 and 2018, respectively. In addition, the Company had non-sufficient fund fees totaling $24.5 million and $23.0 million during the nine months ended September 30, 2019 and 2018, respectively. This represents 24.1% and 24.6% of the Company’s noninterest income for the nine month periods ended September 30, 2019 and 2018, respectively.

 

The Durbin Amendment is a provision in the larger Dodd-Frank Act that gave the Federal Reserve the authority to establish rates on debit card transactions. The Durbin Amendment aims to control debit card interchange fees and restrict anti-competitive practices. The law applies to banks with over $10 billion in assets and limits these banks on what they charge for debit card interchange fees. If the Company grows to exceed $10 billion in assets, the Durbin Amendment will decrease the Company’s income from debit card usage fees by approximately $15 million annually based on current volume.

Noninterest Expense

For the three months ended September 30, 2019, noninterest expense totaled $62.2 million, compared to $55.8 million for the three months ended September 30, 2018. The increase in noninterest expenses was primarily due to salary increases in 2019 and acquisition related expenses of approximately $3.1 million.

 

For the nine months ended September 30, 2019, noninterest expense totaled $175.0 million compared to $166.0 million for the nine months ended September 30, 2018. The increase in noninterest expense was due to salary increases and acquisition related expenses of approximately $3.1 million in 2019 partially offset by a decrease in other expense due to acquisition related expenses of approximately $2.6 million in 2018.

Income Taxes

The Company’s effective tax rate on income before taxes was 22.3% for the third quarter of 2019, compared to 21.6% for the third quarter of 2018. The increase in the effective tax rate compared to the third quarter of 2018 was due to a decrease in option exercises during the quarter.

 

The Company’s effective tax rate on income before taxes was 22.3% for the first nine months of 2019, compared to 21.6% for the first nine months of 2018.  The increase in the effective tax rate compared 2018 was due to a decrease in option exercises during such year.

 

30


FINANCIAL POSITION

 

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Balance Sheet Data

 

 

 

 

 

 

 

 

Total assets

 

$

8,388,816

 

 

$

7,574,258

 

Total loans (net of unearned interest)

 

 

5,622,897

 

 

 

4,984,150

 

Allowance for loan losses

 

 

55,928

 

 

 

51,389

 

Debt securities

 

 

555,575

 

 

 

772,132

 

Deposits

 

 

7,330,677

 

 

 

6,605,495

 

Stockholders' equity

 

 

979,752

 

 

 

902,789

 

Book value per share

 

 

30.01

 

 

 

27.69

 

Tangible book value per share (non-GAAP)(1)

 

 

24.77

 

 

 

24.74

 

Average loans to deposits (year-to-date)

 

 

76.15

%

 

 

74.63

%

Average earning assets to total assets (year-to-date)

 

 

92.36

 

 

 

92.90

 

Average stockholders’ equity to average assets (year-to-date)

 

 

12.07

 

 

 

11.37

 

Asset Quality Ratios

 

 

 

 

 

 

 

 

Nonperforming and restructured loans to total loans

 

 

0.87

%

 

 

0.76

%

Nonperforming and restructured assets to total assets

 

 

0.66

 

 

 

0.59

 

Allowance for loan losses to total loans

 

 

0.99

 

 

 

1.03

 

Allowance for loan losses to nonperforming and restructured loans

 

 

114.81

 

 

 

136.29

 

Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2)

 

 

 

 

 

 

 

 

Stockholders' equity

 

$

979,752

 

 

$

902,789

 

Less goodwill

 

 

147,013

 

 

 

79,749

 

Less intangible assets, net

 

 

24,025

 

 

 

16,470

 

Tangible stockholders' equity (non-GAAP)

 

$

808,714

 

 

$

806,570

 

Common shares outstanding

 

 

32,644,018

 

 

 

32,603,926

 

Tangible book value per share (non-GAAP)

 

$

24.77

 

 

$

24.74

 

 

 

 

 

 

 

 

 

 

(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

The aggregate of cash and due from banks, interest-bearing deposits with banks and federal funds sold increased by $277.9 million or 19.5% to $1.7 billion, from December 31, 2018 to September 30, 2019. The increase was primarily from cash from the Pegasus Bank acquisition and maturities of U. S. treasury securities.

Securities

At September 30, 2019, total debt securities decreased $216.6 million, or 28.1% compared to December 31, 2018, due to maturing U.S. treasury securities. The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management. The net unrealized gain on securities available for sale, before taxes, was $4.9 million at September 30, 2019, compared to a net unrealized loss of $2.9 million at December 31, 2018. These unrealized gains and losses are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax, in the amounts of a gain of $3.6 million at September 30, 2019 and a loss of $2.1 million at December 31, 2018.

Loans (Including Acquired Loans)

At September 30, 2019, loans totaled $5.6 billion, an increase of $638.7 million from December 31, 2018. The increase in loans was due to internal growth, and the acquisition of Pegasus Bank, which added approximately $389.9 million in the third quarter of 2019.

31


Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At September 30, 2019, the allowance for loan losses to total loans represented 0.99% of total loans, compared to 1.03% at December 31, 2018.  

The fair value adjustment on BancFirst and Pegasus Bank acquired loans consists of an interest rate component to adjust the effective rates on the loans to market rates and a credit component to adjust for estimated credit exposures in the acquired loans. The interest rate component was $1.9 million at September 30, 2019 and $2.2 million at December 31, 2018. The credit component of the adjustment was $7.6 million at September 30, 2019 and $7.6 million at December 31, 2018. The BancFirst acquired loans outstanding were $169.2 million at September 30, 2019 and $294.6 million at December 31, 2018. The Pegasus Bank acquired loans were approximately $371.1 million at September 30, 2019.

Nonperforming and Restructured Assets

Nonperforming and restructured assets totaled $55.8 million at September 30, 2019, compared to $44.6 million at December 31, 2018. The Company’s level of nonperforming and restructured assets has continued to be relatively low.

Nonaccrual loans totaled $20.0 million at September 30, 2019, compared to $22.6 million at the end of 2018. The Company’s nonaccrual loans are primarily commercial and real estate loans. Nonaccrual loans negatively impact the Company’s net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of interest or principal or both is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.4 million for the nine months ended September 30, 2019 and $1.7 million for the nine months ended September 30, 2018.  Only a small amount of this interest is expected to be ultimately collected.

Restructured loans totaled $17.5 million at September 30, 2019, compared to $13.2 million at the end of 2018. The increase in restructured loans was due primarily to a few commercial loans identified as troubled debt restructurings during the year. 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 to be troubled debt restructurings whose terms were modified during the period were not considered to be material.

Other real estate owned and repossessed assets totaled $7.1 million at September 30, 2019, compared to $6.9 million at December 31, 2018.

Potential problem loans are performing loans to borrowers with a weakened financial condition, or which are experiencing unfavorable trends in their financial condition, which causes management to have concerns as to the ability of such borrowers to comply with the existing repayment terms. The Company had approximately $17.4 million of these loans at September 30, 2019, compared to $8.0 million at December 31, 2018. Potential problem loans are not included in nonperforming and restructured loans.  In general, these loans are adequately collateralized and have no specific identifiable probable loss. Loans which are considered to have identifiable probable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming.

Liquidity and Funding

Deposits

At September 30, 2019, deposits totaled $7.3 billion, an increase of $725.2 million from the December 31, 2018 total primarily related to the acquisition of Pegasus Bank, which added approximately $603.9 million in deposits. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s core deposits as a percentage of total deposits were 98.3% at September 30, 2019 and 98.1% at December 31, 2018.  Noninterest-bearing deposits to total deposits were 39.3% at September 30, 2019, compared to 39.6% at December 31, 2018.

Short-Term Borrowings

Short-term borrowings, consisting primarily of federal funds purchased and repurchase agreements are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company’s ability to earn a favorable spread on the funds obtained. Short-term borrowings were $605,000 at September 30, 2019, compared to $1.7 million at December 31, 2018.

32


Long-Term Borrowings

The Company has a line of credit from the Federal Home Loan Bank (“FHLB”) of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed-rate loans. The Company’s assets, including residential first mortgages of $794.1 million, are pledged as collateral for the borrowings under the line of credit. As of September 30, 2019 and December 31, 2018, the Company had no advances outstanding under the line of credit from FHLB. In addition, the Company has a revolving line of credit with another financial institution with the ability to draw up to $10.0 million with no advances outstanding. This line of credit has a variable rate based on prime rate minus 25 basis points and matures in 2020.

Parent Company Cash

Parent company cash decreased from $105.1 million at December 31, 2018 to $2.9 million at September 30, 2019 due to the $123.5 million purchase price for Pegasus Bank and a subsequent $5.0 million capital infusion.

There have not been any other material changes from the liquidity and funding discussion included in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Capital Resources

Stockholders’ equity totaled $979.8 million at September 30, 2019, compared to $902.8 million at December 31, 2018. In addition to net income of $99.4 million, other changes in stockholders’ equity during the nine months ended September 30, 2019 included $913,000 related to common stock issuances for stock option exercises, $888,000 related to stock-based compensation and a $5.8 million increase in other comprehensive income, that were partially offset by $30.0 million in dividends. The Company’s leverage ratio and total risk-based capital ratios at September 30, 2019, were well in excess of the regulatory requirements.

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

CONTRACTUAL OBLIGATIONS

There have not been any material changes in the resources required for scheduled repayments of contractual obligations from the table of Contractual Cash Obligations included in Management’s Discussion and Analysis which was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 

33


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

(Unaudited)

Taxable Equivalent Basis

(Dollars in thousands)

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

5,376,278

 

 

$

75,446

 

 

 

5.57

%

 

$

4,973,580

 

 

$

66,852

 

 

 

5.33

%

Securities – taxable

 

 

427,152

 

 

 

2,361

 

 

 

2.19

 

 

 

432,935

 

 

 

2,246

 

 

 

2.06

 

Securities – tax exempt

 

 

17,399

 

 

 

130

 

 

 

2.96

 

 

 

23,469

 

 

 

184

 

 

 

3.10

 

Federal funds sold and interest-bearing deposits with banks

 

 

1,577,446

 

 

 

8,705

 

 

 

2.19

 

 

 

1,657,460

 

 

 

8,254

 

 

 

1.98

 

Total earning assets

 

 

7,398,275

 

 

 

86,642

 

 

 

4.65

 

 

 

7,087,444

 

 

 

77,536

 

 

 

4.34

 

Nonearning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

178,862

 

 

 

 

 

 

 

 

 

 

 

182,449

 

 

 

 

 

 

 

 

 

Interest receivable and other assets

 

 

500,067

 

 

 

 

 

 

 

 

 

 

 

414,096

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(56,056

)

 

 

 

 

 

 

 

 

 

 

(52,293

)

 

 

 

 

 

 

 

 

Total nonearning assets

 

 

622,873

 

 

 

 

 

 

 

 

 

 

 

544,252

 

 

 

 

 

 

 

 

 

Total assets

 

$

8,021,148

 

 

 

 

 

 

 

 

 

 

$

7,631,696

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction deposits

 

$

737,162

 

 

$

646

 

 

 

0.35

%

 

$

775,122

 

 

$

744

 

 

 

0.38

%

Savings deposits

 

 

2,835,855

 

 

 

10,127

 

 

 

1.42

 

 

 

2,553,401

 

 

 

8,010

 

 

 

1.24

 

Time deposits

 

 

690,867

 

 

 

2,871

 

 

 

1.65

 

 

 

736,060

 

 

 

2,417

 

 

 

1.30

 

Short-term borrowings

 

 

1,063

 

 

 

7

 

 

 

2.72

 

 

 

8,960

 

 

 

42

 

 

 

1.85

 

Junior subordinated debentures

 

 

26,804

 

 

 

491

 

 

 

7.27

 

 

 

31,959

 

 

 

547

 

 

 

6.80

 

Total interest-bearing liabilities

 

 

4,291,751

 

 

 

14,142

 

 

 

1.31

 

 

 

4,105,502

 

 

 

11,760

 

 

 

1.14

 

Interest-free funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

2,720,830

 

 

 

 

 

 

 

 

 

 

 

2,610,935

 

 

 

 

 

 

 

 

 

Interest payable and other liabilities

 

 

49,262

 

 

 

 

 

 

 

 

 

 

 

37,051

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

959,305

 

 

 

 

 

 

 

 

 

 

 

878,208

 

 

 

 

 

 

 

 

 

Total interest free funds

 

 

3,729,397

 

 

 

 

 

 

 

 

 

 

 

3,526,194

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

8,021,148

 

 

 

 

 

 

 

 

 

 

$

7,631,696

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

72,500

 

 

 

 

 

 

 

 

 

 

$

65,776

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.34

%

 

 

 

 

 

 

 

 

 

 

3.20

%

Effect of interest free funds

 

 

 

 

 

 

 

 

 

 

0.55

%

 

 

 

 

 

 

 

 

 

 

0.48

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.89

%

 

 

 

 

 

 

 

 

 

 

3.68

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis

 

34


 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

5,158,737

 

 

$

215,462

 

 

 

5.58

%

 

$

4,975,621

 

 

$

195,657

 

 

 

5.26

%

Securities – taxable

 

 

613,365

 

 

 

10,551

 

 

 

2.30

 

 

 

437,379

 

 

 

6,100

 

 

 

1.86

 

Securities – tax exempt

 

 

19,687

 

 

 

439

 

 

 

2.98

 

 

 

26,969

 

 

 

606

 

 

 

3.00

 

Federal funds sold and interest-bearing deposits with banks

 

 

1,397,739

 

 

 

24,590

 

 

 

2.35

 

 

 

1,609,596

 

 

 

21,560

 

 

 

1.79

 

Total earning assets

 

 

7,189,528

 

 

 

251,042

 

 

 

4.67

 

 

 

7,049,565

 

 

 

223,923

 

 

 

4.25

 

Nonearning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

178,826

 

 

 

 

 

 

 

 

 

 

 

184,170

 

 

 

 

 

 

 

 

 

Interest receivable and other assets

 

 

469,615

 

 

 

 

 

 

 

 

 

 

 

395,607

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(53,814

)

 

 

 

 

 

 

 

 

 

 

(52,190

)

 

 

 

 

 

 

 

 

Total nonearning assets

 

 

594,627

 

 

 

 

 

 

 

 

 

 

 

527,587

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,784,155

 

 

 

 

 

 

 

 

 

 

$

7,577,152

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction deposits

 

$

743,158

 

 

$

1,967

 

 

 

0.35

%

 

$

801,750

 

 

$

1,740

 

 

 

0.29

%

Savings deposits

 

 

2,700,393

 

 

 

30,852

 

 

 

1.53

 

 

 

2,502,746

 

 

 

20,305

 

 

 

1.08

 

Time deposits

 

 

688,056

 

 

 

8,164

 

 

 

1.59

 

 

 

756,041

 

 

 

6,105

 

 

 

1.08

 

Short-term borrowings

 

 

1,650

 

 

 

29

 

 

 

2.31

 

 

 

6,332

 

 

 

85

 

 

 

1.79

 

Junior subordinated debentures

 

 

26,804

 

 

 

1,474

 

 

 

7.35

 

 

 

31,959

 

 

 

1,626

 

 

 

6.80

 

Total interest-bearing liabilities

 

 

4,160,061

 

 

 

42,486

 

 

 

1.37

 

 

 

4,098,828

 

 

 

29,861

 

 

 

0.97

 

Interest-free funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

2,643,189

 

 

 

 

 

 

 

 

 

 

 

2,594,714

 

 

 

 

 

 

 

 

 

Interest payable and other liabilities

 

 

41,138

 

 

 

 

 

 

 

 

 

 

 

32,518

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

939,767

 

 

 

 

 

 

 

 

 

 

 

851,092

 

 

 

 

 

 

 

 

 

Total interest free funds

 

 

3,624,094

 

 

 

 

 

 

 

 

 

 

 

3,478,324

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

7,784,155

 

 

 

 

 

 

 

 

 

 

$

7,577,152

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

208,556

 

 

 

 

 

 

 

 

 

 

$

194,062

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.30

%

 

 

 

 

 

 

 

 

 

 

3.28

%

Effect of interest free funds

 

 

 

 

 

 

 

 

 

 

0.58

%

 

 

 

 

 

 

 

 

 

 

0.40

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.88

%

 

 

 

 

 

 

 

 

 

 

3.68

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis

 

 

35


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in the Registrant’s disclosures regarding market risk since December 31, 2018, the date of its most recent annual report to stockholders.

 

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer, Chief Financial Officer and its Disclosure Committee, which includes the Company’s Executive Chairman, Chief Risk Officer, Chief Internal Auditor, Chief Asset Quality Officer, Controller, General Counsel and Vice President of Corporate Finance, have evaluated, as of the last day of the period covered by this report, the Company’s disclosure controls and procedures.  Based on their evaluation they concluded that the disclosure controls and procedures of the Company are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms.

No changes were made to the Company’s internal control over financial reporting during the period covered by this report that materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

36


PART II – OTHER INFORMATION

 

 

The Company has been named as a defendant in various legal actions arising from the conduct of its normal business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse effect on the consolidated financial statements of the Company.

 

 

Item 1A. Risk Factors.

Except as set forth below, as of September 30, 2019, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018:

The Company’s noninterest income may be reduced

The Durbin Amendment is a provision in the larger Dodd-Frank Act that gave the Federal Reserve the authority to establish rates on debit card transactions. The Durbin Amendment aims to control debit card interchange fees and restrict anti-competitive practices. The law applies to banks with over $10 billion in assets and limits these banks on what they charge for debit card interchange fees. If the Company grows to exceed $10 billion in assets, the Durbin Amendment will decrease the Company’s income from debit card usage fees by approximately $15 million annually based on current volume.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

 

 

Item 3. Defaults Upon Senior Securities.

None.

 

 

Item 4. Mine Safety Disclosures.

None.

 

 

Item 5. Other Information.

None.

37


Item 6. Exhibits.

 

Exhibit
Number

 

Exhibit

 

 

 

 

 

 

2.1

 

Share Exchange Agreement by and between BancFirst Corporation and Pegasus Bank dated April 23, 2019 (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K/A dated April 25, 2019 and incorporated herein by reference).

 

3.1

 

Amended and Restated By-Laws of BancFirst Corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 30, 2015 and incorporated herein by reference).

 

 

 

   3.2

 

Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of BancFirst Corporation dated May 31, 2017 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 31, 2017 and incorporated herein by reference).

 

 

 

4.1

 

Instruments defining the rights of securities holders (see Exhibits 3.1 and 3.2 above).

 

 

 

4.2

 

Form of Amended and Restated Trust Agreement relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.5 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).

 

 

 

4.3

 

Form of 7.20% Cumulative Trust Preferred Security Certificate for BFC Capital Trust II (filed as Exhibit D to Exhibit 4.5 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).

 

 

 

4.4

 

Form of Indenture relating to the 7.20% Junior Subordinated Deferrable Interest Debentures of BancFirst Corporation issued to BFC Capital Trust II (filed as Exhibit 4.1 to the Company’s registration statement on Form S-3, File No. 333-112488 dated February 4, 2004, and incorporated herein by reference).

 

 

 

4.5

 

Form of Certificate of 7.20% Junior Subordinated Deferrable Interest Debenture of BancFirst Corporation (filed as Exhibit 4.2 to the Company’s registration statement on Form S-3, File No. 333-112488 dated February 4, 2004, and incorporated herein by reference).

 

 

 

4.6

 

Form of Guarantee of BancFirst Corporation relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.7 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).

 

 

 

4.7

 

Form of Guarantee Agreement by and between CSB Bancshares, Inc. and Wilmington Trust Company (filed as Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).

 

 

 

4.8

 

Form of Indenture relating to the Floating Rate Junior Subordinated Deferrable Interest Debentures of CSB Bancshares, Inc., issued to Wilmington Trust Company (filed as Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).

 

 

 

4.9

 

Form of First Supplemental Indenture relating to the Floating Rate Junior Subordinated Deferrable Interest Debentures by and between Wilmington Trust Company and BancFirst Corporation (filed as Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).

 

 

 

10.1

 

BancFirst Corporation Employee Stock Ownership and Trust Agreement adopted effective January 1, 2015 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2015 and incorporated herein by reference).

 

10.2

 

Amendment Number One to the BancFirst Corporation Employee Stock Ownership Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 26, 2018 and incorporated herein by reference).

 

10.3

 

Adoption Agreement for the BancFirst Corporation Thrift Plan adopted April 21, 2016 effective January 1, 2016 (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2016 and incorporated herein by reference).

 

10.4

 

Amendment Number One to the BancFirst Corporation Thrift Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 26, 2018 and incorporated herein by reference).

 

10.5

 

Purchase and Sale Agreement and Escrow Instructions by and between Cotter Tower – Oklahoma L.P. and BancFirst Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 5, 2018 and incorporated herein by reference).

 

38


Exhibit
Number

 

Exhibit

10.6

 

First Amendment to Purchase and Sale Agreement and Escrow Instructions by and between Cotter Tower – Oklahoma L.P. and BancFirst Corporation (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 5, 2018 and incorporated herein by reference).

 

10.7

 

Sixth Amended and Restated BancFirst Corporation Directors’ Deferred Stock Compensation Plan (filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2019 and incorporated herein by reference).

 

10.8

 

Sixth Amended and Restated BancFirst Corporation Directors’ Stock Option Plan (filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2019 and incorporated herein by reference).

 

10.9

 

Fifteenth Amended and Restated BancFirst Corporation Stock Option Plan (filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2019 and incorporated herein by reference).

 

31.1*

 

Chief Executive Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

 

 

 

31.2*

 

Chief Financial Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

 

 

 

32*

 

CEO’s & CFO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101*

 

Interactive Data File - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

 

 

 

104*

 

Cover Page Interactive Date File (formatted as Inline XBRL and included in Exhibit 101).

 

 

 

 

*

Filed herewith.

39


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

BANCFIRST CORPORATION

 

 

(Registrant)

 

 

 

Date:  November 8, 2019

 

/s/ David Harlow

 

 

David Harlow

 

 

President

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Date:  November 8, 2019

 

/s/ Kevin Lawrence

 

 

Kevin Lawrence

 

 

Executive Vice President

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

40