10-Q 1 d242115d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended September 30, 2011

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

incorporation or organization)

 

(I.R.S. Employer

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)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨.

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

As of October 31, 2011 there were 15,130,708 shares of the registrant’s Common Stock outstanding.


PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

     September 30,
2011
    December 31,
2010
    September 30,
2010
 
     (unaudited)     (see Note 1)     (unaudited)  

ASSETS

      

Cash and due from banks

   $ 146,904      $ 93,059      $ 106,498   

Interest-bearing deposits with banks

     1,463,388        1,111,020        918,725   

Federal funds sold

     —          41,207        5,000   

Securities (market value: $607,626, $744,432, and $579,737, respectively)

     607,046        743,803        578,837   

Loans:

      

Total loans (net of unearned interest)

     2,984,114        2,811,964        2,756,118   

Allowance for loan losses

     (37,456     (35,745 )       (35,681
  

 

 

   

 

 

   

 

 

 

Loans, net

     2,946,658        2,776,219        2,720,437   

Premises and equipment, net

     110,001        97,796        92,005   

Other real estate owned

     16,222        22,956        21,252   

Intangible assets, net

     14,883        11,610        7,577   

Goodwill

     44,593        44,548        35,890   

Accrued interest receivable

     17,657        21,914        24,114   

Other assets

     104,954        96,117        88,847   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,472,306      $ 5,060,249      $ 4,599,182   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Deposits:

      

Noninterest-bearing

   $ 1,624,314      $ 1,318,431      $ 1,232,548   

Interest-bearing

     3,263,018        3,185,323        2,850,020   
  

 

 

   

 

 

   

 

 

 

Total deposits

     4,887,332        4,503,754        4,082,568   

Short-term borrowings

     12,279        7,250        2,700   

Accrued interest payable

     2,874        3,235        2,903   

Long-term borrowings

     28,049        34,265        —     

Other liabilities

     31,293        24,285        30,338   

Junior subordinated debentures

     36,083        28,866        26,804   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     4,997,910        4,601,655        4,145,313   
  

 

 

   

 

 

   

 

 

 

Commitments and contingent liabilities

      

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, 20,000,000 shares authorized; shares issued and outstanding: 15,125,541, 15,368,717 and 15,358,672, respectively

     15,126        15,369        15,359   

Capital surplus

     74,966        73,040        72,403   

Retained earnings

     374,140        361,680        355,340   

Accumulated other comprehensive income, net of income tax of $5,484, $4,551 and $5,797, respectively

     10,164        8,505        10,767   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     474,396        458,594        453,869   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 5,472,306      $ 5,060,249      $ 4,599,182   
  

 

 

   

 

 

   

 

 

 

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,  
     2011     2010     2011     2010  

INTEREST INCOME

        

Loans, including fees

   $ 42,074      $ 38,900      $ 121,587      $ 114,976   

Securities:

        

Taxable

     2,754        3,162        9,391        9,162   

Tax-exempt

     502        256        1,734        895   

Federal funds sold

     —          1        41        1   

Interest-bearing deposits with banks

     930        552        2,591        1,744   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     46,260        42,871        135,344        126,778   
  

 

 

   

 

 

   

 

 

   

 

 

 

INTEREST EXPENSE

        

Deposits

     5,159        6,308        17,390        19,703   

Short-term borrowings

     26        1        33        2   

Long-term borrowings

     332        —          833        —     

Junior subordinated debentures

     525        491        1,575        1,474   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     6,042        6,800        19,831        21,179   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     40,218        36,071        115,513        105,599   

Provision for loan losses

     885        469        3,686        2,236   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     39,333        35,602        111,827        103,363   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST INCOME

        

Trust revenue

     1,779        1,774        4,997        4,719   

Service charges on deposits

     11,386        10,036        31,587        29,000   

Gains on sale of securities

     39        156        819        139   

Gains reclassified from other comprehensive income

     11        177        555        180   

Income from sales of loans

     529        506        1,401        1,313   

Insurance commissions

     2,910        2,520        7,803        6,540   

Cash management services

     1,848        1,653        5,540        4,869   

Gain on sale of other assets

     3        4        7        381   

Other

     1,612        1,337        4,817        3,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     20,117        18,163        57,526        51,137   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST EXPENSE

        

Salaries and employee benefits

     23,845        20,692        68,215        60,350   

Occupancy and fixed assets expense, net

     2,667        2,374        7,529        6,567   

Depreciation

     2,117        1,879        5,910        5,526   

Amortization of intangible assets

     458        267        1,211        777   

Data processing services

     1,302        1,022        3,720        3,200   

Net expense from other real estate owned

     965        125        834        376   

Marketing and business promotion

     1,550        1,402        4,741        4,087   

Deposit insurance

     786        1,310        2,976        4,373   

Other

     7,569        6,318        22,130        19,539   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     41,259        35,389        117,266        104,795   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

     18,191        18,376        52,087        49,705   

Income tax expense

     5,638        6,589        18,064        17,573   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     12,553        11,787        34,023        32,132   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME PER COMMON SHARE

        

Basic

   $ 0.82      $ 0.77      $ 2.22      $ 2.09   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.81      $ 0.75      $ 2.18      $ 2.05   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME

        

Unrealized gains (losses) on securities, net of tax of $(273), $67, $(1,232) and $21, respectively

     430        (126     2,214        (76

Reclassification adjustment for gains included in net income, net of tax of $6, $96, $299 and $97, respectively

     (11     (177     (555     (180
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax of $(267), $163, $(933) and $118, respectively

     419        (303     1,659        (256
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 12,972      $ 11,484      $ 35,682      $ 31,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

COMMON STOCK

        

Issued at beginning of period

   $ 15,273      $ 15,347      $ 15,369      $ 15,309   

Shares issued

     16        28        37        66   

Shares acquired and canceled

     (163     (16     (280     (16
  

 

 

   

 

 

   

 

 

   

 

 

 

Issued at end of period

   $ 15,126      $ 15,359      $ 15,126      $ 15,359   
  

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SURPLUS

        

Balance at beginning of period

   $ 74,229      $ 71,196      $ 73,040      $ 69,725   

Common stock issued

     248        606        722        1,354   

Tax effect of stock options

     118        220        187        340   

Stock based compensation arrangements

     371        381        1,017        984   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 74,966      $ 72,403      $ 74,966      $ 72,403   
  

 

 

   

 

 

   

 

 

   

 

 

 

RETAINED EARNINGS

        

Balance at beginning of period

   $ 371,150      $ 347,979      $ 361,680      $ 334,693   

Net income

     12,553        11,787        34,023        32,132   

Dividends on common stock

     (4,097     (3,837     (11,791     (10,896

Common stock acquired and canceled

     (5,466     (589     (9,772     (589
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 374,140      $ 355,340      $ 374,140      $ 355,340   
  

 

 

   

 

 

   

 

 

   

 

 

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

        

Unrealized gains on securities

        

Balance at beginning of period

   $ 9,745      $ 11,070      $ 8,505      $ 11,023   

Other comprehensive income, net of tax

     419        (303     1,659        (256
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 10,164      $ 10,767      $ 10,164      $ 10,767   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

   $ 474,396      $ 453,869      $ 474,396      $ 453,869   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


BANCFIRST CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Nine Months Ended  
     September 30,  
     2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 34,023      $ 32,132   

Adjustments to reconcile to net cash provided by operating activities:

    

Provision for loan losses

     3,686        2,236   

Depreciation and amortization

     7,121        6,303   

Net amortization of securities premiums and discounts

     3,339        1,793   

Realized securities gains

     (1,374     (319

Gain on sales of loans

     (1,401     (1,313

Cash receipts from the sale of loans originated for sale

     117,751        116,920   

Cash disbursements for loans originated for sale

     (117,667     (190,203

Deferred income tax (benefit) provision

     (3,476     206   

Gains on other assets

     (1,066     (322

Decrease (increase) in interest receivable

     4,448        (3,427

Amortization of stock based compensation arrangements

     1,017        984   

Other, net

     6,205        6,090   
  

 

 

   

 

 

 

Net cash provided (used) by operating activities

     52,606        (28,920
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net cash and due from banks received from (used for) acquisitions

     32,186        (1,000

Purchases of securities:

    

Held for investment

     (6,400     (345

Available for sale

     (166,140     (221,449

Maturities of securities:

    

Held for investment

     5,731        7,851   

Available for sale

     264,978        44,606   

Proceeds from sales and calls of securities:

    

Held for investment

     2        154   

Available for sale

     79,770        4,591   

Net decrease in federal funds sold

     41,207        —     

Purchases of loans

     (28,404     (2,832

Proceeds from sales of loans

     9,298        30,908   

Net other (increase) decrease in loans

     (44,259     9,759   

Purchases of premises, equipment and other

     (12,439     (6,125

Proceeds from the sale of other assets

     14,125        5,104   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     189,655        (128,778
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Net increase in demand, transaction and savings deposits

     250,170        208,415   

Net decrease in certificates of deposits and IRA’s

     (43,780     (54,863

Net (decrease) increase in short-term borrowings

     (5,857     2,600   

Net decrease in long-term borrowings

     (15,968     —     

Issuance of common stock

     946        1,760   

Common stock acquired

     (10,052     (605

Cash dividends paid

     (11,507     (10,896
  

 

 

   

 

 

 

Net cash provided by financing activities

     163,952        146,411   
  

 

 

   

 

 

 

Net increase (decrease) in cash, due from banks and interest bearing deposits

     406,213        (11,287

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

     1,204,079        1,036,510   
  

 

 

   

 

 

 

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

   $ 1,610,292      $ 1,025,223   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest

   $ 20,192      $ 22,163   
  

 

 

   

 

 

 

Cash paid during the period for income taxes

   $ 21,802      $ 17,540   
  

 

 

   

 

 

 

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

 

5


BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) GENERAL

The accompanying consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., The Okemah National Bank, 1st Bank Oklahoma and BancFirst and its subsidiaries (the “Company”). The operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BancFirst Agency, Inc., Lenders Collection Corporation and BancFirst Community Development Corporation. 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 consolidated financial statements.

The unaudited interim 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, 2010, the date of the most recent annual report.

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. Certain items in prior financial statements have been reclassified to conform to the current presentation.

 

(2) RECENT ACCOUNTING PRONOUNCEMENTS

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20 “Receivables (Topic 310)—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which expands the disclosure requirements concerning the credit quality of an entity’s financing receivables and its allowance for loan losses. The new disclosures that relate to information as of the end of the reporting period were effective as of December 31, 2010, whereas the disclosures related to activity that occurred during the reporting periods were effective January 1, 2011. The adoption of this disclosure-only guidance did not have an effect on the Company’s financial statements. See Note (5) for disclosure.

In December 2010, the FASB issued ASU 2010-28 “Intangibles – Goodwill and Other (Topic 350)—When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments in this update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. For public entities, the amendments in this update were effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not have any reporting units with zero or negative carrying amounts, therefore the adoption of this update did not have an effect on the Company’s financial statements.

In April 2011, the FASB issued ASU No. 2011-02, “Receivables (Topic 310)—A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 was effective for the Company on July 1, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 did not have a significant effect on the Company’s financial statements.

 

6


In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRS”).” ASU 2011-04 is an update to explain how to measure fair value. This amendment does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. This amendment was put forth in order to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements consistent with IFRS. ASU 2011-04 will be effective for the Company on December 16, 2011, and applies prospectively. Adoption of ASU 2011-04 is not expected to have a significant effect on the Company’s financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” ASU 2011-05 is an update to improve the comparability, consistency, and transparency of financial reporting, to increase the prominence of items reported in other comprehensive income, and to facilitate convergence of GAAP and IFRS. The Company adopted ASU 2011-05 as of September 30, 2011, and it applies retrospectively. The adoption of ASU 2011-05 did not have a significant effect on the Company’s financial statements.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350).” ASU 2011-08 is an update to simplify how entities test for goodwill impairment. The amendments in the update permit the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If these factors determined that the fair value exceeds the carrying amount then the Company is not required to calculate the fair value of the reporting unit. The Company adopted ASU 2011-08 as of September 30, 2011. Adoption of ASU 2011-08 did not have a significant effect on the Company’s financial statements.

 

(3) RECENT TRANSACTIONS, INCLUDING MERGERS & ACQUISITIONS

On July 12, 2011, the Company completed the acquisition of FBC Financial Corporation and its subsidiary bank, 1st Bank Oklahoma with banking locations in Claremore, Tulsa, Verdigris, and Inola, Oklahoma. The Company paid a premium of $1.5 million above the equity capital of FBC Financial Corporation. At acquisition, 1st Bank Oklahoma had approximately $217 million in total assets, $116 million in loans, $178 million in deposits and $18 million in equity capital. The bank will operate under its present name until it is merged into BancFirst, which is expected to be on February 17, 2012. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On December 15, 2010, the Company completed the acquisition of OK Bancorporation, Inc., and its subsidiary bank, The Okemah National Bank. At acquisition, The Okemah National Bank had approximately $73 million in total assets, $32 million in loans, $62 million in deposits, and $9 million in equity capital. The bank operated as The Okemah National Bank until it was merged into BancFirst on October 21, 2011. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On December 10, 2010, the Company completed the acquisition of Exchange Bancshares of Moore, Inc., and its subsidiary bank, Exchange National Bank of Moore. At acquisition, Exchange National Bank of Moore had approximately $147 million in total assets, $47 million in loans, $116 million in deposits, and $10 million in equity capital. Exchange National Bank of Moore operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on June 17, 2011. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On October 8, 2010, the Company completed the acquisition of Union National Bancshares, Inc., and its subsidiary bank, Union Bank of Chandler with offices in Chandler and Tulsa, Oklahoma. At acquisition, Union Bank of Chandler had approximately $134 million in total assets, $90 million in loans, $117 million in deposits, and $15 million in equity capital. Union Bank of Chandler operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on November 12, 2010. The acquisition did not have a material effect on the Company’s consolidated financial statements.

 

7


The Company recorded a total of $13.3 million of goodwill and core deposit intangibles as a result of the three acquisitions completed in 2010. The combined acquisitions added approximately $354 million in total assets, $169 million in loans and $295 million in deposits. The effects of these acquisitions were included in the consolidated financial statements of the Company from the date of acquisition forward. The Company does not believe these acquisitions, individually or in aggregate were material to the Company’s consolidated financial statements.

The Federal Reserve enacted a final rule on June 29, 2011 establishing the debit card interchange rate at $0.21 per transaction and five basis points multiplied by the value of the transaction that was effective on October 1, 2011 for banks exceeding $10 billion in assets.

Effective June 30, 2010, the Company ceased participation in the Transaction Account Guarantee Program (“TAGP”) for extended coverage of noninterest-bearing transaction deposit accounts. Accordingly, the standard insurance amount was in effect for the Company’s deposit accounts through December 31, 2010. In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for temporary unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for noninterest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012.

On April 1, 2010, the Company’s insurance agency BancFirst Insurance Services, Inc., also operating as Wilcox & McGrath, Inc., completed its acquisition of RBC Agency, Inc., which has offices in Shawnee and Stillwater. BancFirst Insurance Services, Inc. has offices in Oklahoma City, Tulsa, Lawton and Muskogee. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On March 21, 2010, Congress passed student loan reform legislation centralizing student lending in a governmental agency, which as of June 30, 2010 resulted in an end to the student loan programs provided by the Company. As of September 30, 2011, the Company had no student loans held for sale and had approximately $48.4 million of student loans held for investment.

 

(4) SECURITIES

The following table summarizes securities held for investment and securities available for sale:

 

     September 30, 2011  
     (Dollars in thousands)  

Held for investment, at cost (market value: $23,257)

   $ 22,677   

Available for sale, at market value

     584,369   
  

 

 

 

Total

   $ 607,046   
  

 

 

 

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 
     (Dollars in thousands)  

September 30, 2011

          

U.S. treasury and other federal agencies

   $ 1,046       $ 79       $ —        $ 1,125   

States and political subdivisions

     21,631         502         (1     22,132   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 22,677       $ 581       $ (1   $ 23,257   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

8


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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 
     (Dollars in thousands)  

September 30, 2011

          

U.S. treasuries

   $ 30,027       $ 10       $ —        $ 30,037   

U.S. federal agencies (1)

     437,594         7,822         (172     445,244   

Mortgage backed securities

     31,798         628         (9     32,417   

States and political subdivisions

     61,650         2,377         (27     64,000   

Other securities (2)

     7,605         5,066         —          12,671   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 568,674       $ 15,903       $ (208   $ 584,369   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies.
(2) Primarily consists of equity securities.

The maturities of 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, 2011  
     Amortized
Cost
     Estimated
Market
Value
 
     (Dollars in thousands)  

Held for Investment

     

Contractual maturity of debt securities:

     

Within one year

   $ 5,809       $ 5,907   

After one year but within five years

     13,871         14,191   

After five years but within ten years

     2,281         2,352   

After ten years

     716         807   
  

 

 

    

 

 

 

Total

   $ 22,677       $ 23,257   
  

 

 

    

 

 

 

Available for Sale

     

Contractual maturity of debt securities:

     

Within one year

   $ 195,364       $ 198,664   

After one year but within five years

     199,037         202,827   

After five years but within ten years

     76,955         78,140   

After ten years

     89,713         92,067   
  

 

 

    

 

 

 

Total debt securities

     561,069         571,698   

Equity securities

     7,605         12,671   
  

 

 

    

 

 

 

Total

   $ 568,674       $ 584,369   
  

 

 

    

 

 

 

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, 2011  
     (Dollars in thousands)  

Book value of pledged securities

   $ 474,653   

 

9


(5) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

 

     September 30,     December 31,     September 30,  
     2011     2010     2010  
     Amount      Percent     Amount      Percent     Amount      Percent  
     (Dollars in thousands)  

Commercial and industrial

   $ 542,189         18.17   $ 549,050         19.53   $ 492,823         17.88

Oil & gas production & equipment

     109,272         3.66        94,535         3.36        81,816         2.97   

Agriculture

     73,021         2.45        87,879         3.13        74,494         2.70   

State and political subdivisions:

               

Taxable

     7,079         0.24        9,627         0.34        8,794         0.32   

Tax-exempt

     12,192         0.41        10,301         0.37        10,322         0.38   

Real estate:

               

Construction

     258,182         8.65        230,367         8.19        212,830         7.72   

Farmland

     97,041         3.25        93,137         3.31        89,048         3.23   

One to four family residences

     655,007         21.95        608,786         21.65        568,755         20.64   

Multifamily residential properties

     37,173         1.24        31,257         1.11        29,123         1.06   

Commercial

     908,207         30.43        797,564         28.36        754,066         27.36   

Consumer

     260,718         8.74        273,277         9.73        409,754         14.87   

Other

     24,033         0.81        26,184         0.92        24,293         0.87   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total loans

   $ 2,984,114         100.00   $ 2,811,964         100.00   $ 2,756,118         100.00
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Loans held for sale (included above)

   $ 13,066         $ 11,776         $ 159,660      

The Company’s loans are mostly to customers within Oklahoma and over 60% of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual 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.

As of September 30, 2011, the Company had no student loans held for sale and had approximately $48.4 million of student loans held for investment. Loans held for sale included $145.2 million of guaranteed student loans at September 30, 2010. Student loans are classified as consumer loans in the preceding table and valued at the lower of cost or market. On March 21, 2010, Congress passed student loan reform legislation centralizing student lending in a governmental agency, which as of June 30, 2010 resulted in an end to the student loan programs provided by the Company. During October 2010 the Company sold student loans held for sale of approximately $144 million.

Appraisal Policy

An updated appraisal of the collateral is obtained when a loan is first identified as a problem loan. Appraisals are reviewed annually and are updated as needed, or are updated more frequently if significant changes are believed to have occurred in the collateral or market conditions.

Nonaccrual Policy

The Company does not accrue interest on (1) any loan upon which a default of principal or interest has existed for a period of 90 days or over unless the collateral margin or guarantor support are such that full collection of principal and interest are not in doubt, and an orderly plan for collection is in process; and (2) any other loan for which it is expected full collection of principal and interest is not probable.

 

10


A nonaccrual loan may be restored to an accrual status when none of its principal and interest is past due and unpaid or otherwise becomes well secured and in the process of collection and when prospects for future contractual payments are no longer in doubt. With the exception of a formal debt forgiveness agreement, no loan which has had principal charged-off shall be restored to accrual status unless the charged-off principal has been recovered.

Nonperforming and Restructured Assets

Nonaccrual loans, accruing loans past due more than 90 days, and restructured loans are shown in the table below. Had nonaccrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income of approximately $860,000 for the nine months ended September 30, 2011.

The following is a summary of nonperforming and restructured assets:

 

     September 30,     December 31,     September 30,  
     2011     2010     2010  
     (Dollars in thousands)  

Past due over 90 days and still accruing

   $ 1,413      $ 1,096      $ 563   

Nonaccrual

     24,088        26,701        25,684   

Other acquired loans covered by escrow

     4,951        —          —     

Restructured

     1,059        294        378   
  

 

 

   

 

 

   

 

 

 

Total nonperforming and restructured loans

     31,511        28,091        26,625   

Other real estate owned and repossessed assets

     16,723        23,179        21,499   
  

 

 

   

 

 

   

 

 

 

Total nonperforming and restructured assets

   $ 48,234      $ 51,270      $ 48,124   
  

 

 

   

 

 

   

 

 

 

Nonperforming and restructured loans to total loans

     1.06     1.00     0.97
  

 

 

   

 

 

   

 

 

 

Nonperforming and restructured assets to total assets

     0.88     1.01     1.05
  

 

 

   

 

 

   

 

 

 

The other acquired loans covered by escrow listed above are a part of the loan portfolio of 1st Bank Oklahoma that were acquired in the third quarter of 2011 and are covered by an escrow agreement whereby a portion of the purchase price was set aside to reimburse the Company for potential future losses. These loans were recorded at fair value at the acquisition date and were classified as nonperforming loans at September 30, 2011. The Company is still evaluating the loans and estimates that a substantial portion of the above amount may ultimately be reclassified to performing status.

Loans are segregated into classes based upon the nature of the collateral and the borrower. These classes are used to estimate the credit risk component in 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.

 

     As of
September 30, 2011
 
     (Dollars in thousands)  

Non-residential real estate

   $ 8,671   

Residential real estate

     5,871   

Non-consumer non-real estate

     1,286   

Consumer non-real estate

     180   

Other loans

     3,794   

Acquired loans

     4,286   
  

 

 

 

Total

   $ 24,088   
  

 

 

 

The following table presents an age analysis of past due loans, segregated by class of loans:

 

     Age Analysis of Past Due Receivables
As of September 30, 2011
 
     30-89
Days
Past Due
     Greater
than

90 Days
     Total Past
Due Loans
     Current
Loans
     Total Loans      Accruing
Loans

90 Days
or More

Past Due
 
     (Dollars in thousands)  

Non-residential real estate

   $ 2,269       $ 542       $ 2,811       $ 1,026,738       $ 1,029,549       $ 1   

Residential real estate

     4,462         1,723         6,185         689,731         695,916         225   

Non-consumer non-real estate

     2,077         374         2,451         690,059         692,510         149   

Consumer non-real estate

     2,594         354         2,948         198,684         201,632         310   

Other loans

     2,749         3,492         6,241         152,302         158,543         108   

Acquired loans

     1,108         1,913         3,021         202,943         205,964         620   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,259       $ 8,398       $ 23,657       $ 2,960,457       $ 2,984,114       $ 1,413   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

11


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 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. When it is not deemed necessary to allocate a specific valuation allowance to an impaired loan, the loan nevertheless has an allowance based on a historically adequate percentage determined for the class of loans.

The following table presents impaired loans, segregated by class of loans as of September 30, 2011. No interest income was recognized on impaired loans subsequent to their classification as impaired.

 

     Unpaid
Principal
Balance
     Recorded
Investment
with Allowance
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in thousands)  

Non-residential real estate

   $ 9,285       $ 8,671       $ 978       $ 9,835   

Residential real estate

     6,520         5,871         1,520         6,351   

Non-consumer non-real estate

     1,584         1,286         358         1,676   

Consumer non-real estate

     215         180         47         204   

Other loans

     3,888         3,794         342         4,296   

Acquired loans

     5,609         4,286         100         2,229   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 27,101       $ 24,088       $ 3,345       $ 24,591   
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit Risk Monitoring and Loan Grading

The Company employs several means to monitor the 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.

Loans are subject to an internal risk grading system which indicates the risk and acceptability of that loan. 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 as follows:

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

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

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

Grade 4—Problem Loans/Assets—Nonperforming—This category consists of nonperforming loans/assets

 

12


which are considered to be problems. Nonperforming loans are described as being 90 days and over past due and still accruing, and loans that are nonaccrual. Other nonperforming assets in this category will be other real estate and repossessed assets which formerly secured loans.

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

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

The following table presents internal loan grading by class of loans as of September 30, 2011:

 

     Grade  
     1      2      3      4      5      Total  
     (Dollars in thousands)  

Non-residential real estate

   $ 881,622       $ 107,228       $ 32,223       $ 8,476       $ —         $ 1,029,549   

Residential real estate

     602,621         72,095         14,805         6,395         —           695,916   

Non-consumer non-real estate

     620,123         63,375         7,881         1,131         —           692,510   

Consumer non-real estate

     189,895         8,950         2,380         407         —           201,632   

Other loans

     151,336         2,608         1,874         2,725         —           158,543   

Acquired loans

     151,103         35,609         8,264         10,891         97         205,964   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,596,700       $ 289,865       $ 67,427       $ 30,025       $ 97       $ 2,984,114   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for Loan Losses Methodology

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

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

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

Changes in the ALLL are summarized as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  
     (Dollars in thousands)  

Balance at beginning of period

   $ 37,092      $ 37,002      $ 35,745      $ 36,383   
  

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (629     (1,942     (2,364     (3,350

Recoveries

     108        152        389        412   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (521     (1,790     (1,975     (2,938
  

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     885        469        3,686        2,236   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 37,456      $ 35,681      $ 37,456      $ 35,681   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


The following table details activity in the ALLL by class of loans for the quarter presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

    Non-Residential
Real Estate
    Residential
Real
Estate
    Non-
Consumer
Non-Real
Estate
    Consumer
Non-Real
Estate
    Other
Loans
    Acquired
Loans
    Total  
    (Dollars in thousands)  

Three Months Ended September 30, 2011

             

Allowance for credit losses:

             

Beginning balance

  $ 13,651      $ 9,380      $ 9,334      $ 2,237      $ 1 ,712      $ 778      $ 37,092   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    (67     (21     (210     (72     (121     (138     (629

Recoveries

    7        20        46        24        2        9        108   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    (60     (1     (164     (48     (119     (129     (521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

    290        472        (460     136        156        291        885   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

  $ 13,881      $ 9,851      $ 8,710      $ 2,325      $ 1,749      $ 940      $ 37,456   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2011

             

Allowance for credit losses:

             

Beginning balance

  $ 13,142      $ 8,957      $ 9,587      $ 2,301      $ 1,758      $ —        $ 35,745   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

    (336     (522     (394     (400     (243     (469     (2,364

Recoveries

    23        115        130        92        9        20        389   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

    (313     (407     (264     (308     (234     (449     (1,975
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

    1,052        1,301        (613     332        225        1,389        3,686   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

  $ 13,881      $ 9,851      $ 8,710      $ 2,325      $ 1,749      $ 940      $ 37,456   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balances:

             

Individually evaluated for impairment

  $ 3,351      $ 2,681      $ 1,528      $ 318      $ 232      $ —        $ 8,110   

Collectively evaluated for impairment

    10,530        7,170        7,182        2,007        1,517        940        29,346   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

  $ 13,881      $ 9,851      $ 8,710      $ 2,325      $ 1,749      $ 940      $ 37,456   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans-Ending balances:

             

Individually evaluated for impairment

  $ 40,700      $ 21,200      $ 9,012      $ 2,787      $ 257      $ —        $ 73,956   

Collectively evaluated for impairment

    988,849       674,716        683,498        198,845        158,286        186,712        2,890,906   

Loans acquired with deteriorated credit quality

    —          —          —          —          —          19,252        19,252   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

  $ 1,029,549      $ 695,916      $ 692,510      $ 201,632      $ 158,543      $ 205,964      $ 2,984,114   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfers from Loans

Transfers from loans to other real estate owned and repossessed assets are non-cash transactions, and are not included in the statements of cash flow.

Transfers from loans to other real estate owned and repossessed assets are summarized as follows:

 

14


     Nine Months Ended
September 30,
 
     2011      2010  
     (Dollars in thousands)  

Other real estate owned

   $ 3,831       $ 15,543   

Repossessed assets

     1,096         816   
  

 

 

    

 

 

 

Total

   $ 4,927       $ 16,359   
  

 

 

    

 

 

 

 

(6) INTANGIBLE ASSETS AND GOODWILL

The following is a summary of intangible assets:

 

     September 30, 2011  
     (Dollars in thousands)  
      Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
 

Core deposit intangibles

   $ 14,799       $ (5,292   $ 9,507   

Customer relationship intangibles

     5,657         (1,551     4,106   

Mortgage servicing intangibles

     1,270         —          1,270   
  

 

 

    

 

 

   

 

 

 

Total

   $ 21,726       $ (6,843   $ 14,883   
  

 

 

    

 

 

   

 

 

 

Estimated amortization of intangible assets is as follows (dollars in thousands):

 

Year ending December 31:

  

Remainder of 2011

   $ 457   

2012

     1,828   

2013

     1,635   

2014

     1,444   

2015

     1,437   

At September 30, 2011, the weighted-average remaining life all intangible assets was 7.9 years which consisted of customer relationship intangibles with a weighted-average life of 12.5 years and core deposit intangibles with a weighted-average life of 6.3 years.

The following is a summary of goodwill by business segment for the nine months ended September 30, 2011:

 

     Metropolitan
Banks
     Community
Banks
     Other
Financial
Services
     Executive,
Operations
& Support
     Consolidated  
     (Dollars in thousands)  

Balance at December 31, 2010

   $ 8,079       $ 30,507       $ 5,464       $ 498       $ 44,548   

Adjustments

     —           45         —           —           45   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2011

   $ 8,079       $ 30,552       $ 5,464       $ 498       $ 44,593   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(7) 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 $482.1 million, are pledged as collateral for the borrowings under the line of credit. As of September 30, 2011, the Company had approximately $19.5 million in advances outstanding due to recent acquisitions.

 

15


On December 13, 2010, the Company borrowed $14.5 million from a commercial bank for a three year term. The loan has an interest rate of 3% per annum, payable quarterly on the first day of March, June, September and December until the maturity date of November 30, 2013. Scheduled principal payments are due on or before November 30, 2011 and November 30, 2012 equal to 25% of the unpaid principal amount outstanding. The loan may be prepaid in whole or in part without fee or penalty at any time. The proceeds were used to fund a portion of the Company’s recent acquisitions. On July 22, 2011, the Company made an advance payment of $6.0 million on this commercial bank loan. As of September 30, 2011, the remaining balance is $8.5 million. The Company paid off the remaining balance of $8.5 million on October 25, 2011.

 

(8) JUNIOR SUBORDINATED DEBENTURES

In January 2004, BancFirst Corporation established BFC Capital Trust II (“BFC II”), a trust formed under the Delaware Business Trust Act. BancFirst Corporation owns all of the common securities of BFC II. In February 2004, BFC II issued $25 million of aggregate liquidation amount of 7.20% Cumulative Trust Preferred Securities (the “Cumulative Trust Preferred Securities”) to other investors. In March 2004, BFC II issued an additional $1 million in Cumulative Trust Preferred Securities through the execution of an over-allotment option. The proceeds from the sale of the Cumulative Trust Preferred Securities and the common securities of BFC II were invested in $26.8 million of 7.20% Junior Subordinated Debentures of BancFirst Corporation. Interest payments on the $26.8 million of 7.20% Junior Subordinated Debentures are payable January 15, April 15, July 15 and October 15 of each year. Such interest payments may be deferred for up to twenty consecutive quarters. The stated maturity date of the $26.8 million of 7.20% Junior Subordinated Debentures is March 31, 2034, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Cumulative Trust Preferred Securities represent an undivided interest in the $26.8 million of 7.20% Junior Subordinated Debentures and are guaranteed by BancFirst Corporation. During any deferral period or during any event of default, BancFirst Corporation may not declare or pay any dividends on any of its capital stock. The Cumulative Trust Preferred Securities were callable at par, in whole or in part, after March 31, 2009.

In October 2010, BancFirst Corporation acquired Union National Statutory Trust I (“UNST I”), a trust formed under the Delaware Business Trust Act, from the merger of Union National Bancshares, Inc. BancFirst Corporation owns all of the common securities of UNST I. The trust had issued $2 million of aggregate liquidation amount of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Deferrable Interest Debentures”) to other investors. The proceeds from the sale of the Deferrable Interest Debentures and the common securities of UNST I were invested in $2.1 million of Junior Subordinated Debentures of Union National Bancshares, Inc., which were assumed by BancFirst Corporation as a result of the merger. Interest payments on the $2.1 million of Junior Subordinated Debentures are payable March 15, June 15, September 15 and December 15 of each year. The interest rate on the $2.1 million of Junior Subordinated Debentures was set at 6.5% through March 2011 at which time the rate switched to three-month LIBOR plus 165 basis points. Such interest payments may be deferred for up to twenty consecutive quarters. The stated maturity date of the $2.1 million of Junior Subordinated Debentures is March 15, 2036, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Deferrable Interest Debentures represent an undivided interest in the $2.1 million of Junior Subordinated Debentures and are guaranteed by BancFirst Corporation. During any deferral period or during any event of default, BancFirst Corporation may not declare or pay any dividends on any of its capital stock. The Deferrable Interest Debentures were callable at par, in whole or in part, after March 15, 2011.

On July 12, 2011, BancFirst Corporation acquired FBC Financial Corp. Statutory Trust I (“FBCST I”), a trust formed under the Delaware Business Trust Act, from the merger of FBC Financial Corp. BancFirst Corporation owns all of the common securities of FBCST I. The trust had issued $7 million of aggregate liquidation amount of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Deferrable Interest Debentures”) to other investors. The proceeds from the sale of the Deferrable Interest Debentures and the common securities of FBCST I were invested in $7.2 million of Junior Subordinated Debentures of FBC Financial Corp., which were assumed by BancFirst Corporation as a result of the merger. Interest payments on the $7.2 million of Junior Subordinated Debentures are payable March 17, June 17, September 17 and December 17 of each year. The interest rate on the $7.2 million of Junior Subordinated Debentures was set at three-month LIBOR plus 285 basis points. Such interest payments may be

 

16


deferred for up to twenty consecutive quarters. The stated maturity date of the $7.2 million of Junior Subordinated Debentures is December 17, 2033, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Deferrable Interest Debentures represent an undivided interest in the $7.2 million of Junior Subordinated Debentures and are guaranteed by BancFirst Corporation. During any deferral period or during any event of default, BancFirst Corporation may not declare or pay any dividends on any of its capital stock. The Deferrable Interest Debentures were callable at par, in whole or in part, after December 17, 2008.

 

(9) SHARE-BASED COMPENSATION

BancFirst Corporation adopted a nonqualified incentive stock option plan (the “BancFirst ISOP”) in May 1986. The Company amended the BancFirst ISOP to increase the number of shares to be issued under the plan to 2,800,000 shares in May 2011. At September 30, 2011, 109,860 shares are available for future grants. The BancFirst ISOP will terminate December 31, 2014. The options are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options granted expire at the end of fifteen years from the date of grant. Options outstanding as of September 30, 2011 will become exercisable through the year 2018. The option price must be no less than 100% of the fair market 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 amended the BancFirst Directors’ Stock Option Plan to increase the number of shares to be issued under the plan to 205,000 shares in May 2009. At September 30, 2011, 30,000 shares are available for future grants. The options 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, 2011 will become exercisable through the year 2015. 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 following table is a summary of the activity under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:

 

     Nine Months Ended September 30, 2011  
           Price      Contractual Term     Value  
     (Dollars in thousands, except per share data)  

Outstanding at December 31, 2010

     1,172,181      $ 28.32        

Options granted

     135,000        40.21        

Options exercised

     (35,250     19.90        

Options cancelled

     (5,000     37.50        
  

 

 

        

Outstanding at September 30, 2011

     1,266,931        29.79         8.63 Yr    $ 4,275   
  

 

 

      

 

 

   

 

 

 

Exercisable at September 30, 2011

     709,531        22.95         5.56 Yr    $ 7,246   
  

 

 

      

 

 

   

 

 

 

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  
     (Dollars in thousands, except per share data)  

Weighted average grant-date fair value per share of options granted

   $ 12.11       $ 10.97       $ 12.46       $ 16.62   

Total intrinsic value of options exercised

     264         440         669         1,271   

Cash received from options exercised

     263         615         701         1,390   

Tax benefit realized from options exercised

     102         170         259         492   

 

17


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 share-based employee compensation expense, net of tax:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  
     (Dollars in thousands)  

Share-based employee compensation expense, net of tax

   $ 227       $ 236       $ 623       $ 606   

The Company will continue to amortize the remaining fair value of stock options, over the remaining vesting period of approximately seven years. The following table shows the remaining fair value of stock options, net of tax:

 

     September 30, 2011  
     (Dollars in thousands)  

Fair value of stock options, net of tax

   $ 6,097   

The following table shows the assumptions used for computing share-based employee compensation expense under the fair value method:

 

     Nine Months Ended
September 30,
 
     2011     2010  

Risk-free interest rate

     3.32     3.08

Dividend yield

     2.00     2.00

Stock price volatility

     28.86     27.77

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.

 

(10) 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 shareholders wishing to sell their 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. At September 30, 2011 there were 263,834 shares remaining that could be repurchased under the SRP.

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

 

18


     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

Number of shares repurchased

     162,890         16,500         280,066         16,500   

Average price of shares repurchased

   $ 34.56       $ 36.69       $ 35.89       $ 36.69   

The Company and BancFirst are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and 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, as of September 30, 2011, that the Company and BancFirst met all capital adequacy requirements to which they are subject. The required capital amounts and the Company’s and BancFirst’s respective ratios are shown in the following table:

 

     Actual     For Capital
Adequacy
Purposes
    To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  
     (Dollars in thousands)  

As of September 30, 2011:

               

Total Capital

               

(to Risk Weighted Assets)-

               

BancFirst Corporation

   $ 479,559         14.52   $ 265,025         8.00     N/A         N/A   

BancFirst

     453,249         14.56     249,005         8.00   $ 311,256         10.00

Tier 1 Capital

               

(to Risk Weighted Assets)-

               

BancFirst Corporation

   $ 442,103         13.39   $ 132,512         4.00     N/A         N/A   

BancFirst

     415,961         13.36     124,502         4.00   $ 186,753         6.00

Tier 1 Capital

               

(to Total Assets)-

               

BancFirst Corporation

   $ 442,103         8.17   $ 164,169         3.00     N/A         N/A   

BancFirst

     415,961         8.08     155,809         3.00   $ 259,682         5.00

As of September 30, 2011, BancFirst was considered to be “well capitalized”. To be well capitalized under federal bank regulatory agency definitions, a depository institution must have a Tier 1 Ratio of at least 6%, a combined Tier 1 and Tier 2 Ratio of at least 10%, and a Leverage Ratio of at least 5%. There are no conditions or events since the most recent notification of BancFirst’s capital category that management believes would change its category.

 

19


(11) NET INCOME PER COMMON SHARE

Basic and diluted net income per common share are calculated as follows:

 

     Income
(Numerator)
     Shares
(Denominator)
     Per Share
Amount
 
     (Dollars in thousands, except per share data)  

Three Months Ended September 30, 2011

        

Basic

        

Income available to common stockholders

   $ 12,553         15,210,090       $ 0.82   
        

 

 

 

Effect of stock options

     —           261,569      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 12,553         15,471,659       $ 0.81   
  

 

 

    

 

 

    

 

 

 

Three Months Ended September 30, 2010

        

Basic

        

Income available to common stockholders

   $ 11,787         15,356,366       $ 0.77   
        

 

 

 

Effect of stock options

     —           288,720      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 11,787         15,645,086       $ 0.75   
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2011

        

Basic

        

Income available to common stockholders

   $ 34,023         15,316,218       $ 2.22   
        

 

 

 

Effect of stock options

     —           286,905      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 34,023         15,603,123       $ 2.18   
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2010

        

Basic

        

Income available to common stockholders

   $ 32,132         15,340,087       $ 2.09   
        

 

 

 

Effect of stock options

     —           302,467      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 32,132         15,642,554       $ 2.05   
  

 

 

    

 

 

    

 

 

 

The following table shows the number and average exercise prices of options that were excluded from the computation of diluted net income per share for each period because the options’ exercise prices were greater than the average market price of the common shares:

 

     Shares      Average
Exercise
Price
 

Three Months Ended September 30, 2011

     649,347       $ 38.61   

Three Months Ended September 30, 2010

     435,570       $ 38.21   

Nine Months Ended September 30, 2011

     535,781       $ 38.86   

Nine Months Ended September 30, 2010

     415,075       $ 39.77   

 

20


(12) FAIR VALUE MEASUREMENTS

FASB 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 for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

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, mortgage backed securities, and states 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 equity securities classified as available for sale 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.

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.

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 carried at lower of cost or market. Gains or losses recognized upon the sale of the loans are determined on a specific identification basis.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2011 and 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

21


     Level 1 Inputs      Level 2 Inputs      Level 3 Inputs      Total Fair Value  
     (Dollars in thousands)  

September 30, 2011

           

Securities available for sale

   $ 30,036       $ 541,662       $ 12,671       $ 584,369   

Derivative assets

     —           7,590         —           7,590   

Derivative liabilities

     —           6,017         —           6,017   

Loans held for sale

     —           13,066         —           13,066   

 

     Level 1 Inputs      Level 2 Inputs      Level 3 Inputs      Total Fair Value  
     (Dollars in thousands)  

September 30, 2010

           

Securities available for sale

   $ 5,037       $ 542,290       $ 9,372       $ 556,699   

Derivative assets

     —           6,590         —           6,590   

Derivative liabilities

     —           5,082         —           5,082   

Loans held for sale

     —           159,660         —           159,660   

The changes in Level 3 assets measured at estimated fair value on a recurring basis during the nine months ended September 30, 2011 and 2010 were as follows:

 

     Nine Months Ended
September 30,
 
     2011     2010  
     (Dollars in thousands)  

Beginning balance

   $ 10,837      $ 9,506   

Purchases, issuances and settlements

     224        226   

Sales

     (223     (625

Losses included in earnings

     (3     (196

Total unrealized gains

     1,836        461   
  

 

 

   

 

 

 

Ending balance

   $ 12,671      $ 9,372   
  

 

 

   

 

 

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Due from Banks; Federal Funds Sold and Interest-Bearing Deposits

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

Securities

For securities, 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.

Loans

For certain homogeneous categories of loans, such as some residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. For residential mortgage loans held for sale and guaranteed student loans, the carrying amount is a reasonable estimate of fair value. The fair value of other types of loans is 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.

Derivatives

Derivatives are reported at fair value using dealer quotes and observable market data.

 

22


Deposits

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

Short-term Borrowings

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

Long-term Borrowings

The fair value of fixed-rate long-term borrowings is estimated using the rates that would be charged for borrowings of similar remaining maturities.

Junior Subordinated Debentures

The fair value of fixed-rate junior subordinated debentures is estimated using the rates that would be charged for junior subordinated debentures of similar remaining maturities.

Loan Commitments and Letters of Credit

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

The estimated fair values of the Company’s financial instruments are as follows:

 

     September 30,  
     2011      2010  
     Carrying
Amount
    Fair Value      Carrying
Amount
    Fair Value  
     (Dollars in thousands)  

FINANCIAL ASSETS

         

Cash and due from banks

   $ 146,904      $ 146,904       $ 106,498      $ 106,498   

Federal funds sold and interest-bearing deposits

     1,463,388        1,463,388         923,725        923,725   

Securities

     607,046        607,626         578,837        579,737   

Loans:

         

Loans (net of unearned interest)

     2,984,114           2,756,118     

Allowance for loan losses

     (37,456        (35,681  
  

 

 

      

 

 

   

Loans, net

     2,946,658        2,979,289         2,720,437        2,752,604   

Derivative assets

     7,590        7,590         6,590        6,590   

FINANCIAL LIABILITIES

         

Deposits

     4,887,332        4,898,752         4,082,568        4,112,117   

Short-term borrowings

     12,279        12,279         2,700        2,700   

Long-term borrowings

     28,049        28,236         —          —     

Derivative liabilities

     6,017        6,017         5,082        5,082   

Junior subordinated debentures

     36,083        37,691         26,804        28,895   

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

         

Loan commitments

       1,119           1,067   

Letters of credit

       439           417   

 

23


Non-financial Assets and Liabilities

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 foreclosed assets (valued upon initial recognition or subsequent impairment), and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. These items are evaluated at least annually for impairment. The overall level of non-financial assets and non-financial liabilities were not considered to be significant to the Company at September 30, 2011 or 2010.

The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments as defined.

Assets and 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).

Impaired loans are generally collateral dependent and are reported at book balance before deducting any specific or general allowance for those loans. The fair value of those loans is the remainder after deducting the specific and general allowance. Impaired loans, upon initial recognition, are measured and adjusted to fair value through a charge-off to the allowance for possible loan losses.

Foreclosed 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 foreclosed asset.

Other real estate owned is remeasured 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 as of September 30, 2011 and the related gains or losses recognized during the period:

 

Description

   Level 1      Level 2      Level 3      Total Fair
Value
     Gains
(Losses)
 
     (Dollars in thousands)  

Impaired loans

     —           —         $ 25,694       $ 25,694       $ —     

Foreclosed assets

     —           —         $ 501       $ 501       $ —     

Other real estate owned

     —           —         $ 16,222       $ 16,222       $ (1,620

 

(13) DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into oil and gas swaps and options contracts to accommodate the business needs of its customers. Upon the origination of an oil or gas swap or option contract with a customer, the Company simultaneously enters into an offsetting contract with a counterparty to mitigate the exposure to fluctuations in oil and gas prices. These derivatives are not designated as hedged instruments and are recorded on the Company’s consolidated balance sheet at fair value.

The Company utilizes dealer quotations and observable market data inputs to substantiate internal valuation models. The notional amounts and estimated fair values of oil and gas derivative positions outstanding are presented in the following table:

 

24


    

September 30, 2011

 

Oil and Natural Gas

Swaps and Options

  

Notional Units

   Notional
Amount
    Estimated
Fair  Value
 
     (Notional amounts and dollars in thousands)  

Oil

       

Derivative assets

   Barrels      293      $ 5,604   

Derivative liabilities

   Barrels      (293     (4,757

Natural Gas

       

Derivative assets

   MMBTUs      3,286        1,986   

Derivative liabilities

   MMBTUs      (3,286     (1,260

Total Fair Value

   Included in     

Derivative assets

   Other assets        7,590   

Derivative liabilities

   Other liabilities        6,017   

The following table is a summary of the Company’s recognized income related to the activity, which was included in other noninterest income:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  
     (Dollars in thousands)  

Derivative income

   $ 128       $ 178       $ 326       $ 388   

The Company’s credit exposure on oil and gas swaps and options varies based on the current market prices of oil and natural gas. Other than credit risk, changes in the fair value of customer positions will be offset by equal and opposite changes in the counterparty positions. The net positive fair value of the contracts is the profit derived from the activity and is unaffected by market price movements.

Customer credit exposure is managed by strict position limits and is primarily offset by first liens on production while the remainder is offset by cash. Counterparty credit exposure is managed by selecting highly rated counterparties (rated A- or better by Standard and Poor’s) and monitoring market information.

The following table is a summary of the Company’s credit exposure relating to oil and gas swaps and options with bank counterparties:

 

     September 30, 2011  
     (Dollars in thousands)  

Credit exposure

   $ 7,537   

The Company entered into a $30 million five year guaranty with a counterparty on June 4, 2008 for the timely payment of the obligations of its subsidiary Bank related to the settlement of oil and gas positions.

 

25


(14) 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 four principal business units are metropolitan banks, community banks, other financial services, and executive, operations and support. Metropolitan and community banks offer traditional banking products such as commercial and retail lending, and a full line of deposit accounts. Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Other financial services are specialty product business units including guaranteed small business lending, guaranteed student 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
     Other
Financial
Services
     Executive,
Operations
& Support
    Eliminations     Consolidated  
     (Dollars in thousands)  

Three Months Ended:

               

September 30, 2011

               

Net interest income (expense)

   $ 13,167       $ 26,518       $ 1,620       $ (1,087   $ —        $ 40,218   

Noninterest income

     2,979         10,607         5,845         13,897        (13,211     20,117   

Income before taxes

     7,612         14,867         2,217         6,557        (13,062     18,191   

September 30, 2010

               

Net interest income (expense)

   $ 12,028       $ 22,680       $ 2,099       $ (736   $ —        $ 36,071   

Noninterest income

     2,734         8,947         5,843         12,845        (12,206     18,163   

Income before taxes

     7,513         13,375         3,117         6,430        (12,059     18,376   

Nine Months Ended:

               

September 30, 2011

               

Net interest income (expense)

   $ 37,650       $ 75,576       $ 5,349       $ (3,062   $ —        $ 115,513   

Noninterest income

     8,491         29,292         17,448         38,139        (35,844     57,526   

Income before taxes

     22,492         41,703         7,849         15,647        (35,604     52,087   

September 30, 2010

               

Net interest income (expense)

   $ 34,771       $ 67,650       $ 5,600       $ (2,422   $ —        $ 105,599   

Noninterest income

     7,877         26,427         14,962         35,375        (33,504     51,137   

Income before taxes

     21,505         38,933         6,999         15,533        (33,265     49,705   

Total Assets:

               

September 30, 2011

   $ 1,660,756       $ 3,615,387       $ 134,984       $ 612,535      $ (551,356)      $ 5,472,306   

December 31, 2010

   $ 1,534,552       $ 3,298,409       $ 140,854       $ 611,979      $ (525,545)      $ 5,060,249   

September 30, 2010

   $ 1,543,550       $ 2,816,654       $ 302,948       $ 446,157      $ (510,127   $ 4,599,182   

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 December 31, 2010 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 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. Actual results may differ materially from forward-looking statements.

SUMMARY

BancFirst Corporation’s net income for the third quarter of 2011 was $12.6 million compared to $11.8 million for the third quarter of 2010. Diluted net income per share was $0.81 and $0.75 for the third quarter of 2011 and 2010, respectively. For the first nine months of 2011, net income was $34.0 million compared to $32.1 million for the first nine months of 2010. Diluted net income per share for the first nine months of 2011 was $2.18 compared to $2.05 for the first nine months of 2010.

Net interest income for the third quarter of 2011 was $40.2 million, up $4.1 million or 11.5% from the third quarter of 2010. The increase was attributable to the increase in the Company’s earning assets. Average earning assets grew $813 million from a year ago including $323 million from acquisitions in addition to internal growth. While the Company’s net interest income increased, the net interest margin declined to 3.20% from 3.40%. The decline was due to further margin compression as interest rates remain at historically low levels and the earning asset growth was largely in lower yielding investments. The Company’s loan loss provision for the quarter was $885,000 compared to $469,000 for the third quarter of 2010. At September 30, 2011, nonperforming assets declined to 0.88% of total assets compared to 1.05% at September 30, 2010. Noninterest income for the quarter totaled $20.1 million a $2.0 million increase over the same period in 2010. Noninterest income growth stemmed from higher commercial deposit revenues, insurance commissions, treasury management services and rental income on other real estate. Noninterest expense for the quarter was $41.3 million, compared to $35.4 million in the third quarter a year ago. The primary driver for the increase was from the acquisitions made in the fourth quarter of 2010 and in July 2011 which approximated $3.7 million of third quarter noninterest expense. Additionally, third quarter results included a $729,000 write down on other real estate. The Company’s effective tax rate fell to 31.0% for the third quarter of 2011 compared to 35.9% a year ago. The decrease was largely due to $790,000 of income tax benefits realized from federal tax credit investments made in 2010 and 2011.

Total assets at September 30, 2011 were $5.5 billion, up $412.1 million or 8.1% over December 31, 2010. Compared to September 30, 2010, total assets grew by $873.1 million or 19.0%. Total loans were $3.0 billion, an increase of $172.2 million from December 31, 2010 and $228.0 million from September 30, 2010. At September 30, 2011 total deposits were $4.9 billion, up $383.6 million or 8.5% from December 31, 2010 and up $804.8 million or 19.7% from September 30, 2010. The Company’s liquidity remains strong as its average loan-to-deposit ratio was 60.5% at September 30, 2011 compared to 67.6% at December 31, 2010 and 69.2% at September 30, 2010. Stockholders’ equity was $474.4 million at September 30, 2011, an increase of $15.8 million or 3.4% over December 31, 2010 and $20.5 million or 4.5% from September 30, 2010. Average stockholders’ equity to average assets was 8.89% at September 30, 2011, compared to 9.74% at December 31, 2010 and 9.85% at September 30, 2010.

 

27


Asset quality has improved somewhat in 2011 as measured by a ratio of nonperforming and restructured assets to total assets of 0.88% at September 30, 2011, compared to 1.01% at December 31, 2010 and 1.05% at September 30, 2010. The Company sold a commercial property held in other real estate owned valued at $6.9 million in the first quarter of 2011.The allowance for loan losses equaled 118.9% of nonperforming and restructured loans at September 30, 2011, versus 127.2% at December 31, 2010 and 134.0% at September 30, 2010. Net charge-offs to average loans remained low at 0.09% at September 30, 2011, compared to 0.13% at December 31, 2010 and 0.14% at September 30, 2010. The allowance for loan losses as a percentage of total loans was 1.26% at September 30, 2011 compared to 1.27% at December 31, 2010 and 1.29% at September 30, 2010.

On July 12, 2011, the Company completed the acquisition of FBC Financial Corporation and its subsidiary bank, 1st Bank Oklahoma with banking locations in Claremore, Tulsa, Verdigris, and Inola, Oklahoma. The Company paid a premium of $1.5 million above the equity capital of FBC Financial Corporation. At acquisition, 1st Bank Oklahoma had approximately $217 million in total assets, $116 million in loans, $178 million in deposits and $18 million in equity capital. The bank will operate under its present name until it is merged into BancFirst, which is expected to be on February 17, 2012. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On December 15, 2010, the Company completed the acquisition of OK Bancorporation, Inc., and its subsidiary bank, The Okemah National Bank. At acquisition, The Okemah National Bank had approximately $73 million in total assets, $32 million in loans, $62 million in deposits, and $9 million in equity capital. The bank operated as The Okemah National Bank until it was merged into BancFirst on October 21, 2011. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On December 10, 2010, the Company completed the acquisition of Exchange Bancshares of Moore, Inc., and its subsidiary bank, Exchange National Bank of Moore. At acquisition, Exchange National Bank of Moore had approximately $147 million in total assets, $47 million in loans, $116 million in deposits, and $10 million in equity capital. Exchange National Bank of Moore operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on June 17, 2011. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On October 8, 2010, the Company completed the acquisition of Union National Bancshares, Inc., and its subsidiary bank, Union Bank of Chandler with offices in Chandler and Tulsa, Oklahoma. At acquisition, Union Bank of Chandler had approximately $134 million in total assets, $90 million in loans, $117 million in deposits, and $15 million in equity capital. Union Bank of Chandler operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on November 12, 2010. The acquisition did not have a material effect on the Company’s consolidated financial statements.

The Company recorded a total of $13.3 million of goodwill and core deposit intangibles as a result of the three acquisitions completed in 2010. The combined acquisitions added approximately $354 million in total assets, $169 million in loans and $295 million in deposits. The effects of these acquisitions are included in the consolidated financial statements of the Company from the date of acquisition forward. The Company does not believe these acquisitions, individually or in aggregate are material to the Company’s consolidated financial statements.

The Federal Reserve enacted a final rule on June 29, 2011 establishing the debit card interchange rate at $0.21 per transaction and five basis points multiplied by the value of the transaction that was effective on October 1, 2011 for banks exceeding $10 billion in assets.

Effective June 30, 2010, the Company ceased participation in the Transaction Account Guarantee Program (“TAGP”) for extended coverage of noninterest-bearing transaction deposit accounts. Accordingly, the standard insurance amount was in effect for the Company’s deposit accounts through December 31, 2010. In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for temporary unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for noninterest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012.

On April 1, 2010, the Company’s insurance agency BancFirst Insurance Services, Inc., also operating as Wilcox & McGrath, Inc., completed its acquisition of RBC Agency, Inc., which has offices in Shawnee and

 

28


Stillwater. BancFirst Insurance Services, Inc. has offices in Oklahoma City, Tulsa, Lawton and Muskogee. The acquisition did not have a material effect on the Company’s consolidated financial statements.

On March 21, 2010, Congress passed student loan reform legislation centralizing student lending in a governmental agency, which as of June 30, 2010 resulted in an end to the student loan programs provided by the Company. As of September 30, 2011, the Company had approximately $48.4 million of student loans held for investment remaining in the loan portfolio.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See Note (2) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

SEGMENT INFORMATION

See Note (14) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.

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,
 
     2011     2010     2011     2010  

Income Statement Data

        

Net interest income

   $ 40,218      $ 36,071      $ 115,513      $ 105,599   

Provision for loan losses

     885        469        3,686        2,236   

Gain on sale of securities

     50        333        1,374        319   

Total noninterest income

     20,117        18,163        57,526        51,137   

Salaries and employee benefits

     23,845        20,692        68,215        60,350   

Total noninterest expense

     41,259        35,389        117,266        104,795   

Net income

     12,553        11,787        34,023        32,132   

Per Common Share Data

        

Net income – basic

     0.82        0.77        2.22        2.09   

Net income – diluted

     0.81        0.75        2.18        2.05   

Cash dividends

     0.27        0.25        0.77        0.71   

Performance Data

        

Return on average assets

     0.91     1.03     0.86     0.95

Return on average stockholders’ equity

     10.50        10.34        9.66        9.68   

Cash dividend payout ratio

     32.93        32.47        34.68        33.97   

Net interest spread

     2.99        3.10        2.94        3.08   

Net interest margin

     3.20        3.40        3.18        3.40   

Efficiency ratio

     68.38        65.25        67.77        66.86   

Net charge-offs to average loans

     0.07        0.26        0.09        0.14   

Net Interest Income

For the three months ended September 30, 2011, net interest income which is the Company’s principal source of operating revenue, increased $4.1 million, or 11.5%, compared to the three months ended September 30, 2010. The Company’s net interest margin decreased for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 as shown in the preceding table due to these low interest rates and due to the

 

29


increase in earning assets at relatively low rates. If interest rates and/or loan volume do not increase, management expects continued compression of its net interest margin for the remainder of 2011. Net interest income for the third quarter of 2010 included interest collected on nonaccrual loans of $744,000.

Net interest income for the nine months ended September 30, 2011 increased $9.9 million, or 9.4%, from the same period in 2010. Net interest income for the nine months ended September 30, 2010 included interest collected on nonaccrual loans of $1.4 million. The net interest margin for the nine months ended September 30, 2011 decreased compared to the first nine months of 2010 as shown in the preceding table.

Provision for Loan Losses

The Company’s provision for loan losses increased $416,000 for the three months ended September 30, 2011, compared to the same period a year ago. A portion of the increase in the loan loss provision during the quarter was due to internal loan growth. Net loan charge-offs were $521,000 for the third quarter of 2011, compared to $1.8 million for the third quarter of 2010. The rate of net charge-offs to average total loans is presented in the preceding table.

The Company’s provision for loan losses increased $1.4 million for the first nine months of 2011, compared to the same period a year ago. Net loan charge-offs were $2.0 million for the first nine months of 2011, compared to $2.9 million for the first nine months of 2010.

Noninterest Income

Noninterest income increased $2.0 million or 10.8% for the three months ended September 30, 2011 compared to the same period in 2010. Noninterest income growth stemmed from higher commercial deposit revenues, insurance commissions, treasury management services and rental income on other real estate.

Noninterest income for the nine months ended September 30, 2011, increased $6.4 million or 12.5% compared to the same period in 2010. For the nine months ended September 30, 2011, noninterest income included a securities gain of $1.2 million on the sale of an investment made by the Company’s venture capital subsidiary, Council Oak Investment Corporation. In addition, noninterest income was higher in 2011 due to higher trust and commercial deposit revenues, insurance commissions, treasury management services and rental income on other real estate.

The Company had income from debit card usage totaling $11.3 million and $9.4 million during the nine months ended September 30, 2011 and 2010, respectively. The recently enacted Dodd-Frank Act has given the Federal Reserve the authority to establish rules regarding debit card interchange fees charged for electronic debit transactions by payment card issuers. Because of the uncertainty as to any future rulemaking by the Federal Reserve and the inability to forecast competitive responses, the Company cannot provide any assurance as to the ultimate impact of the Dodd-Frank Act on the amount of income from debit card usage reported in future periods.

Noninterest Expense

For the three months ended September 30, 2011, noninterest expense increased $5.9 million or 16.6%, compared to the three months ended September 30, 2010. The increase in noninterest expense was primarily driven by the Company’s acquisitions made in the later part of 2010 and the acquisition made during 2011, which added approximately $3.7 million of noninterest expense, and a write down on other real estate of $729,000.

For the nine months ended September 30, 2011, noninterest expense increased $12.5 million or 11.9% compared to the nine months ended September 30, 2010. The increase in noninterest expense was primarily related to the Company’s acquisitions made in the later part of 2010 and the acquisition made during 2011, which added approximately $7.8 million of noninterest expense, write downs on other real estate of $1.4 million, and a one-time merger related expense of $800,000, partially offset by a gain on the sale of other real estate of approximately $988,000 from the first quarter of 2011.

Income Taxes

The Company’s effective tax rate on income before taxes was 31.0% for the third quarter of 2011, compared to 35.9% for the third quarter of 2010. The decrease was largely due to $790,000 of income tax benefits realized from Federal tax credit investments made in 2010 and 2011.

 

 

30


The Company’s effective tax rate on income before taxes was 34.7% for the first nine months of 2011, compared to 35.4% for the first nine months of 2010. The decrease was a result of Federal tax credit investments made in 2010 and 2011.

FINANCIAL POSITION

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except per share data)

 

     September 30,     December 31,     September 30,  
     2011     2010     2010  

Balance Sheet Data

      

Total assets

   $ 5,472,306      $5,060,249      $4,599,182   

Total loans

     2,984,114      2,811,964      2,756,118   

Allowance for loan losses

     37,456      35,745      35,681   

Securities

     607,046      743,803      578,837   

Deposits

     4,887,332      4,503,754      4,082,568   

Stockholders’ equity

     474,396      458,594      453,869   

Book value per share

     31.36      29.84      29.55   

Tangible book value per share

     27.52      26.19      26.72   

Average loans to deposits (year-to-date)

     60.52        67.58        69.20

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

     92.40           92.74           92.74   

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

     8.89           9.74           9.85   

Asset Quality Ratios

            

Nonperforming and restructured loans to total loans

     1.06        1.00        0.97

Nonperforming and restructured assets to total assets

     0.88           1.01           1.05   

Allowance for loan losses to total loans

     1.26           1.27           1.29   

Allowance for loan losses to nonperforming and restructured loans

     118.87           127.25           134.01   

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 as of September 30, 2011 increased $365.0 million from December 31, 2010 and increased $580.1 million from September 30, 2010. The increase year-over-year was primarily from deposit growth which is explained later under “Deposits”. Federal funds sold consist of overnight investments of excess funds with other financial institutions. Due to the high degree of counterparty instability in the federal funds market and near zero overnight federal funds rates, the Company has continued to maintain the majority of its excess funds with the Federal Reserve Bank. The Federal Reserve Bank pays interest on these funds based upon the lowest target rate for the maintenance period.

Securities

At September 30, 2011, total securities decreased $136.8 million compared to December 31, 2010, and increased $28.2 million compared to September 30, 2010. The size of the Company’s securities portfolio is a function of liquidity management and excess funds available for investment. The Company has maintained a very liquid securities portfolio to provide funds for loan growth. The net unrealized gain on securities available for sale, before taxes, was $15.6 million at September 30, 2011, compared to an unrealized gain of $13.1 million at December 31, 2010, and an unrealized gain of $16.6 million at September 30, 2010. These unrealized gains are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax, in the amounts of $10.2 million, $8.5 million and $10.8 million respectively.

 

31


Loans (Including Acquired Loans)

At September 30, 2011, total loans were up $172.2 million or 6.1% from December 31, 2010 and $228.0 million or 8.3% from September 30, 2010 due primarily to acquisitions and internal growth. The Company had acquired loans from acquisitions of approximately $214 million at September 30, 2011, compared to $166 million at December 31, 2010 and $6 million at September 30, 2010. The book value of these loans was reduced by fair market value adjustment of approximately $4.3 million, $2.3 million and $105,000, respectively, for the same time periods.

Allowance for Loan Losses/Fair Market Value Adjustments on Acquired Loans

At September 30, 2011, the allowance for loan losses increased $1.7 million or 4.8% from December 31, 2010, and $1.8 million or 5.0% from September 30, 2010. The allowance for loan losses as a percentage of total loans and the allowance to nonperforming and restructured loans are shown in the preceding table.

The fair market value adjustment on acquired loans contains a market component to adjust the rates on the loans to market value and a credit component to estimate the credit exposure as of the acquisition date. The credit component is available to absorb potential and identified credit exposures in the acquired loans. The credit component was $3.7 million at September 30, 2011, $2.9 million at December 31, 2010, and $152,000 at September 30, 2010.

Nonperforming Loans, Restructured Loans and Other Real Estate Owned

Nonperforming and restructured loans totaled $31.5 million at September 30, 2011, compared to $28.1 million at December 31, 2010 and $26.6 million at September 30, 2010. At September 30, 2011, the Company had approximately $5.0 million of nonperforming loans covered by escrow from the 1st Bank Oklahoma acquisition. The Company is still evaluating the loans and estimates that a substantial portion of the above amount may ultimately be reclassified to performing status. In September 2010, the Company transferred two commercial properties totaling $11.6 million from nonperforming loans to other real estate owned. The properties were recorded at net realizable value. A related nonperforming commercial real estate property was sold at a sheriff’s sale for $6.3 million which paid off the Company’s loan balance and the interest due on the loan. The level of nonperforming loans and loan losses may rise over time as a result of economic conditions. Nonperforming and restructured assets as a percentage of total loans is shown in the preceding table.

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 $24.9 million of these loans at September 30, 2011 compared to $10.1 million at December 31, 2010 and $9.4 million at September 30, 2010. These loans are not included in nonperforming and restructured assets. 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. The Company’s nonaccrual loans are primarily commercial and real estate loans.

Deposits

At September 30, 2011 total deposits increased $383.6 million compared to December 31, 2010, and $804.8 million compared to September 30, 2010. The increase from September 30, 2010 was due to acquisitions made in December 2010 and July 2011 combined with internal deposit growth due in part to FDIC coverage on noninterest bearing accounts and low yields on alternative investments. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s deposit base continues to be comprised substantially of core deposits, with certificates of deposit exceeding $100,000 being only 10.0% of total deposits at September 30, 2011, compared to 9.1% at December 31, 2010 and 8.7% at September 30, 2010. Noninterest-bearing deposits to total deposits were 33.2% at September 30, 2011, compared to 29.3% at December 31, 2010 and 30.2% at September 30, 2010.

Short-Term Borrowings

Short-term borrowings consist primarily of Federal funds purchased and repurchase agreements and are another source of funds for the Company. Fluctuations in short-term borrowings are a function of Federal funds purchased from correspondent banks, customer demand for repurchase agreements and the liquidity needs of the bank. As of September 30, 2011, short-term borrowings were $12.3 million, an increase of $5.0 million from December 31, 2010, and $9.6 million from September 30, 2010.

 

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 $482.1 million, are pledged as collateral for the borrowings under the line of credit. As of September 30, 2011, the Company had approximately $19.5 million in advances outstanding due to recent acquisitions. The advances mature at varying dates through 2014. The Company had no FHLB borrowings as of September 30, 2010.

On December 13, 2010, the Company borrowed $14.5 million from a commercial bank for a three year term. The loan had an interest rate of 3% per annum, payable quarterly on the first day of March, June, September and December until the maturity date of November 30, 2013. The proceeds were used to fund a portion of the Company’s recent acquisitions. On July 22, 2011, the Company made a payment of $6.0 million and paid the remaining balance of $8.5 million on October 25, 2011.

Capital Resources and Liquidity

Stockholders’ equity increased $15.8 million from December 31, 2010 and $20.5 million from September 30, 2010, due to accumulated earnings net of dividends and stock repurchases. The ratios of average stockholders’ equity to average assets are presented above. The Company’s leverage ratio and total risk-based capital ratio were 8.17% and 14.52%, respectively, at September 30, 2011, well in excess of the regulatory minimums.

On July 12, 2011 the Company assumed $7.2 million of junior subordinated debentures related to the acquisition of FBC Financial Corporation.

See Note (10) of the Notes to Consolidated Financial Statements for a discussion of capital ratio requirements.

There have not been 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, 2010.

CONTRACTUAL OBLIGATIONS

On July 12, 2011, the Company assumed $7.2 million of junior subordinated debentures related to the acquisition of FBC Financial Corporation and advances outstanding due to the FHLB of $3.0 million. In addition, the Company had a commercial bank loan, described above, which at September 30, 2011 had a balance of $8.5 million. The Company paid off the remaining balance of $8.5 million on October 25, 2011.

Except for the items described above, there have not been 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, 2010.

 

33


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

     Three Months Ended September 30,  
     2011     2010  
           Interest      Average           Interest      Average  
     Average     Income/      Yield/     Average     Income/      Yield/  
     Balance     Expense      Rate     Balance     Expense      Rate  

ASSETS

              

Earning assets:

              

Loans (1)

   $ 2,957,867      $ 42,167         5.66   $ 2,780,674      $ 38,972         5.56

Securities – taxable

     563,791        2,754         1.94        539,703        3,163         2.33   

Securities – tax exempt

     68,179        773         4.50        27,948        393         5.58   

Interest bearing deposits w/ banks & FFS

     1,455,577        930         0.25        884,429        553         0.25   
  

 

 

   

 

 

      

 

 

   

 

 

    

Total earning assets

     5,045,414        46,624         3.67        4,232,754        43,081         4.04   
  

 

 

   

 

 

      

 

 

   

 

 

    

Nonearning assets:

              

Cash and due from banks

     152,892             104,373        

Interest receivable and other assets

     310,065             259,274        

Allowance for loan losses

     (37,189          (36,853     
  

 

 

        

 

 

      

Total nonearning assets

     425,768             326,794        
  

 

 

        

 

 

      

Total assets

   $ 5,471,182           $ 4,559,548        
  

 

 

        

 

 

      

LIABILITIES AND STOCKHOLDERS EQUITY

              

Interest-bearing liabilities:

              

Transaction deposits

   $ 731,347      $ 342         0.19   $ 596,290      $ 332         0.22

Savings deposits

     1,759,400        1,902         0.43        1,422,735        3,031         0.85   

Time deposits

     946,326        2,915         1.22        811,634        2,945         1.44   

Short-term borrowings

     13,188        26         0.78        2,934        1         0.14   

Long-term borrowings

     32,933        332         4.00        —          —           —     

Junior subordinated debentures

     35,219        525         5.91        26,804        491         7.27   
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     3,518,413        6,042         0.68        2,860,397        6,800         0.94   
  

 

 

   

 

 

      

 

 

   

 

 

    

Interest-free funds:

              

Noninterest-bearing deposits

     1,445,458             1,217,088        

Interest payable and other liabilities

     32,934             29,873        

Stockholders’ equity

     474,377             452,190        
  

 

 

        

 

 

      

Total interest free funds

     1,952,769             1,699,151        
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 5,471,182           $ 4,559,548        
  

 

 

        

 

 

      

Net interest income

     $ 40,582           $ 36,281      
    

 

 

        

 

 

    

Net interest spread

          2.99          3.10
       

 

 

        

 

 

 

Net interest margin

          3.20          3.40
       

 

 

        

 

 

 

 

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

 

34


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

     Nine Months Ended September 30,  
     2011     2010  
           Interest      Average           Interest      Average  
     Average     Income/      Yield/     Average     Income/      Yield/  
     Balance     Expense      Rate     Balance     Expense      Rate  

ASSETS

              

Earning assets:

              

Loans (1)

   $ 2,858,171      $ 121,861         5.70   $ 2,770,388      $ 115,205         5.56

Securities – taxable

     575,604        9,391         2.18        446,683        9,167         2.74   

Securities – tax exempt

     74,787        2,668         4.77        33,085        1,376         5.56   

Interest bearing deposits w/ banks & FFS

     1,384,558        2,632         0.25        926,598        1,745         0.25   
  

 

 

   

 

 

      

 

 

   

 

 

    

Total earning assets

     4,893,120        136,552         3.73        4,176,754        127,493         4.08   
  

 

 

   

 

 

      

 

 

   

 

 

    

Nonearning assets:

              

Cash and due from banks

     143,891             107,114        

Interest receivable and other assets

     295,282             256,538        

Allowance for loan losses

     (36,439          (36,688     
  

 

 

        

 

 

      
              

Total nonearning assets

     402,734             326,964        
  

 

 

        

 

 

      

Total assets

   $ 5,295,854           $ 4,503,718        
  

 

 

        

 

 

      

LIABILITIES AND STOCKHOLDERS EQUITY

              

Interest-bearing liabilities:

              

Transaction deposits

   $ 722,354      $ 1,144         0.21   $ 606,568      $ 1,061         0.23

Savings deposits

     1,657,603        7,470         0.60        1,371,821        9,112         0.89   

Time deposits

     922,857        8,776         1.27        834,912        9,530         1.53   

Short-term borrowings

     8,816        33         0.50        1,691        2         0.16   

Long-term borrowings

     34,153        833         3.26        —          —           —