10-Q 1 d549090d10q.htm 10-Q 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 June 30, 2013

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 July 31, 2013 there were 15,286,809 shares of the registrant’s Common Stock outstanding.

 

 

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

     June 30,
2013
    December 31,
2012
    June 30,
2012
 
     (unaudited)     (see Note 1)     (unaudited)  

ASSETS

      

Cash and due from banks

   $ 191,734      $ 213,103      $ 146,387   

Interest-bearing deposits with banks

     1,528,505        1,732,045        1,617,521   

Federal funds sold

     —          700        —     

Securities (fair value: $520,567, $562,815, and $575,404, respectively)

     520,424        562,542        575,034   

Loans:

      

Total loans (net of unearned interest)

     3,245,084        3,242,427        3,065,439   

Allowance for loan losses

     (38,982     (38,725     (37,436
  

 

 

   

 

 

   

 

 

 

Loans, net

     3,206,102        3,203,702        3,028,003   

Premises and equipment, net

     117,621        115,503        113,836   

Other real estate owned

     7,992        9,227        10,088   

Intangible assets, net

     11,100        12,083        13,158   

Goodwill

     44,545        44,545        44,545   

Accrued interest receivable

     15,958        15,976        17,532   

Other assets

     105,685        112,824        105,607   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,749,666      $ 6,022,250      $ 5,671,711   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Deposits:

      

Noninterest-bearing

   $ 1,955,723      $ 2,016,832      $ 1,842,680   

Interest-bearing

     3,194,688        3,423,998        3,256,968   
  

 

 

   

 

 

   

 

 

 

Total deposits

     5,150,411        5,440,830        5,099,648   

Short-term borrowings

     3,522        4,571        6,340   

Accrued interest payable

     1,907        2,170        2,260   

Long-term borrowings

     9,964        9,178        11,329   

Other liabilities

     22,097        19,130        25,769   

Junior subordinated debentures

     26,804        26,804        26,804   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     5,214,705        5,502,683        5,172,150   
  

 

 

   

 

 

   

 

 

 

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: 15,255,864, 15,242,308 and 15,153,991, respectively

     15,256        15,242        15,154   

Capital surplus

     84,360        82,401        79,181   

Retained earnings

     431,120        415,607        398,267   

Accumulated other comprehensive income, net of income tax of $2,275, $3,400 and $3,746, respectively

     4,225        6,317        6,959   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     534,961        519,567        499,561   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 5,749,666      $ 6,022,250      $ 5,671,711   
  

 

 

   

 

 

   

 

 

 

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
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

INTEREST INCOME

        

Loans, including fees

   $ 41,493      $ 41,857      $ 82,667      $ 83,817   

Securities:

        

Taxable

     1,295        2,087        2,648        4,494   

Tax-exempt

     314        411        660        835   

Federal funds sold

     1        —          2        1   

Interest-bearing deposits with banks

     970        1,061        1,947        2,034   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     44,073        45,416        87,924        91,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

INTEREST EXPENSE

        

Deposits

     2,889        3,883        5,929        8,132   

Short-term borrowings

     1        8        3        16   

Long-term borrowings

     62        91        124        196   

Junior subordinated debentures

     491        565        982        1,151   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     3,443        4,547        7,038        9,495   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     40,630        40,869        80,886        81,686   

Provision for loan losses

     516        248        816        421   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     40,114        40,621        80,070        81,265   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST INCOME

        

Trust revenue

     2,015        1,823        3,921        3,530   

Service charges on deposits

     12,924        11,031        25,260        21,638   

Securities transactions

     129        226        251        4,258   

Income from sales of loans

     691        766        1,379        1,338   

Insurance commissions

     3,045        2,803        7,090        5,796   

Cash management

     1,626        2,041        3,049        3,980   

Gain on sale of other assets

     34        323        251        343   

Other

     1,269        1,351        3,067        2,918   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     21,733        20,364        44,268        43,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST EXPENSE

        

Salaries and employee benefits

     25,085        24,830        50,294        49,630   

Occupancy and fixed assets expense, net

     2,501        2,477        5,081        4,923   

Depreciation

     2,358        2,226        4,666        4,357   

Amortization of intangible assets

     424        457        867        914   

Data processing services

     1,229        1,158        2,414        2,441   

Net expense from other real estate owned

     643        922        765        1,169   

Marketing and business promotion

     1,456        1,679        2,963        3,334   

Deposit insurance

     742        724        1,485        1,443   

Other

     8,017        8,090        15,864        16,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     42,455        42,563        84,399        84,600   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

     19,392        18,422        39,939        40,466   

Income tax expense

     (6,799     (6,693     (13,974     (14,732
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,593      $ 11,729      $ 25,965      $ 25,734   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME PER COMMON SHARE

        

Basic

   $ 0.83      $ 0.77      $ 1.70      $ 1.70   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.81      $ 0.76      $ 1.68      $ 1.67   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME

        

Unrealized losses on securities, net of tax of $857, $292, $1,083 and $610, respectively

   $ (1,593   $ (541   $ (2,014   $ (1,132

Reclassification adjustment for gains included in net income, net of tax of $37, $5, $42 and $728, respectively

     (68     (11     (78     (1,353
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of tax of $894, $297, $1,125 and $1,338, respectively

     (1,661     (552     (2,092     (2,485
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 10,932      $ 11,177      $ 23,873      $ 23,249   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

COMMON STOCK

        

Issued at beginning of period

   $ 15,228      $ 15,145      $ 15,242      $ 15,118   

Shares issued

     50        16        59        43   

Shares acquired and canceled

     (22     (7     (45     (7
  

 

 

   

 

 

   

 

 

   

 

 

 

Issued at end of period

   $ 15,256      $ 15,154      $ 15,256      $ 15,154   
  

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SURPLUS

        

Balance at beginning of period

   $ 82,956      $ 78,420      $ 82,401      $ 77,462   

Common stock issued

     870        267        1,028        722   

Tax effect of stock options

     213        137        236        199   

Stock-based compensation arrangements

     321        357        695        798   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 84,360      $ 79,181      $ 84,360      $ 79,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

RETAINED EARNINGS

        

Balance at beginning of period

   $ 423,637      $ 390,881      $ 415,607      $ 381,017   

Net income

     12,593        11,729        25,965        25,734   

Dividends on common stock

     (4,411     (4,094     (8,833     (8,235

Common stock acquired and canceled

     (699     (249     (1,619     (249
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 431,120      $ 398,267      $ 431,120      $ 398,267   
  

 

 

   

 

 

   

 

 

   

 

 

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

        

Unrealized gains (losses) on securities:

        

Balance at beginning of period

   $ 5,886      $ 7,511      $ 6,317      $ 9,444   

Net change

     (1,661     (552     (2,092     (2,485
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 4,225      $ 6,959      $ 4,225      $ 6,959   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

   $ 534,961      $ 499,561      $ 534,961      $ 499,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended
June 30,
 
     2013     2012  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 25,965      $ 25,734   

Adjustments to reconcile to net cash provided by operating activities:

    

Provision for loan losses

     816        421   

Depreciation and amortization

     5,533        5,271   

Net amortization of securities premiums and discounts

     839        782   

Realized securities gains

     (251     (4,258

Gain on sales of loans

     (1,379     (1,338

Cash receipts from the sale of loans originated for sale

     111,609        103,117   

Cash disbursements for loans originated for sale

     (108,613     (106,365

Deferred income tax benefit

     (335     (132

Gains on other assets

     (224     (288

Decrease in interest receivable

     18        1,130   

Decrease in interest payable

     (263     (450

Amortization of stock-based compensation arrangements

     695        798   

Other, net

     8,304        5,085   
  

 

 

   

 

 

 

Net cash provided by operating activities

     42,714        29,507   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net decrease in Federal funds sold

     700        400   

Purchases of securities:

    

Held for investment

     (252     (2,525

Available for sale

     (20,697     (41,330

Maturities of securities:

    

Held for investment

     1,604        2,831   

Available for sale

     54,394        70,033   

Proceeds from sales and calls of securities:

    

Held for investment

     1,289        2,417   

Available for sale

     1,975        8,129   

Purchases of loans

     (34,124     (17,255

Proceeds from sales of loans

     45,889        16,872   

Net other increase in loans

     (18,088     (49,192

Purchases of premises, equipment and computer software

     (7,052     (7,015

Proceeds from the sale of other assets

     2,178        7,213   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     27,816        (9,422
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Net (decrease)/increase in demand, transaction and savings deposits

     (244,230     112,565   

Net decrease in time deposits

     (46,189     (50,652

Net decrease in short-term borrowings

     (1,049     (1,934

Issuance/(paydown) of long-term borrowings

     786        (7,147

Redemption of junior subordinated debentures

            (9,279

Issuance of common stock

     1,323        964   

Common stock acquired

     (1,664     (256

Cash dividends paid

     (4,416     (8,171
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (295,439     36,090   
  

 

 

   

 

 

 

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

     (224,909     56,175   

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

     1,945,148        1,707,733   
  

 

 

   

 

 

 

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

   $ 1,720,239      $ 1,763,908   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest

   $ 7,301      $ 9,946   
  

 

 

   

 

 

 

Cash paid during the period for income taxes

   $ 12,942      $ 13,775   
  

 

 

   

 

 

 

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

 

5


BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to generally accepted accounting principles and general practice within the banking industry. A summary of significant accounting policies can be found in Footnote (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BancFirst Agency, Inc., 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 unaudited interim consolidated financial statements.

The accompanying unaudited interim consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012, should be referred to in connection with these unaudited interim consolidated financial statements.

The unaudited interim consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2012, the date of the most recent annual report.

Use of Estimates in the Preparation of Financial Statements

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

Reclassifications

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

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220).” ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012. Adoption of ASU 2013-02 did not have a significant effect on the Company’s financial statements.

 

6


In July 2012, the FASB issued ASU No. 2012-02, “Intangibles (Topic 350)—Goodwill and Other.” ASU 2012-02 simplifies the impairment test for indefinite-lived intangible assets other than goodwill. The new guidance gives the option to first assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative valuation test. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after September 15, 2012. The Company opted to continue to perform quantitative tests for indefinite-lived intangible assets other than goodwill and not to perform qualitative tests for impairment under ASU 2012-02 as of September 15, 2012. Adoption of ASU 2012-02 did not have a significant effect on the Company’s financial statements.

In November 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210)—Disclosure about Offsetting Assets and Liabilities.” ASU 2011-11 is an amendment to require an entity to disclose both net and gross information about offsetting assets and liabilities to enable users of its financial statements to understand the effect of those arrangements. Arrangements include derivatives, sale and repurchase agreements and transactions, securities borrowing and securities lending arrangements. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013 and did not have a significant effect on the Company’s financial statements.

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

On January 19, 2012, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst, completed the sale of one of its investments that resulted in a pretax gain of approximately $4.5 million. After related expenses and income taxes, the increase in net income approximated $2.6 million. The gain was included in first quarter 2012 earnings.

(3) SECURITIES

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

 

     June 30, 2013  
     (Dollars in thousands)  

Held for investment, at cost (fair value: $14,654)

   $ 14,511   

Available for sale, at fair value

     505,913   
  

 

 

 

Total

   $ 520,424   
  

 

 

 

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

 

     June 30, 2013  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair

Value
 
     (Dollars in thousands)  

Mortgage backed securities (1)

   $ 691       $ 57       $ —        $ 748   

States and political subdivisions

     13,820         94         (8     13,906   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 14,511       $ 151       $ (8   $ 14,654   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

7


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

 

     June 30, 2013  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in thousands)  

U.S. treasury and other Federal agencies

   $ 422,298       $ 2,558       $ (176   $ 424,680   

Mortgage backed securities (1)

     15,417         614         —          16,031   

States and political subdivisions

     50,604         1,386         (61     51,929   

Other securities (2)

     11,094         2,315         (136     13,273   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 499,413       $ 6,873       $ (373   $ 505,913   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(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.

 

     June 30, 2013  
     Amortized
Cost
     Estimated
Fair
Value
 
     (Dollars in thousands)  

Held for Investment

     

Contractual maturity of debt securities:

     

Within one year

   $ 5,705       $ 5,723   

After one year but within five years

     7,547         7,605   

After five years but within ten years

     867         886   

After ten years

     392         440   
  

 

 

    

 

 

 

Total

   $ 14,511       $ 14,654   
  

 

 

    

 

 

 

Available for Sale

     

Contractual maturity of debt securities:

     

Within one year

   $ 260,548       $ 260,550   

After one year but within five years

     113,656         115,492   

After five years but within ten years

     33,120         33,862   

After ten years

     84,388         86,182   
  

 

 

    

 

 

 

Total debt securities

     491,712         496,086   

Equity securities

     7,701         9,827   
  

 

 

    

 

 

 

Total

   $ 499,413       $ 505,913   
  

 

 

    

 

 

 

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:

 

     June 30, 2013  
     (Dollars in thousands)  

Book value of pledged securities

   $ 464,686   

 

8


(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

 

     June 30, 2013     December 31, 2012      June 30, 2012  
     Amount      Percent     Amount      Percent     Amount      Percent  
     (Dollars in thousands)  

Commercial and industrial

   $ 529,253         16.31   $ 559,274         17.25   $ 515,456         16.82

Oil & gas production & equipment

     145,735         4.49        154,380         4.76        125,228         4.08   

Agriculture

     94,337         2.91        93,274         2.88        77,882         2.54   

State and political subdivisions:

         

Taxable

     9,202         0.28        9,412         0.29        6,520         0.21   

Tax-exempt

     12,392         0.38        13,194         0.41        13,853         0.45   

Real estate:

         

Construction

     247,827         7.64        226,102         6.97        197,168         6.43   

Farmland

     126,233         3.89        125,033         3.86        111,472         3.64   

One to four family residences

     697,927         21.51        669,230         20.64        674,577         22.01   

Multifamily residential properties

     48,128         1.48        50,721         1.56        46,866         1.53   

Commercial

     1,070,807         33.00        1,068,445         32.95        1,036,322         33.81   

Consumer

     243,799         7.51        253,002         7.80        239,156         7.80   

Other (not classified above)

     19,444         0.60        20,360         0.63        20,939         0.68   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total loans

   $ 3,245,084         100.00   $ 3,242,427         100.00   $ 3,065,439         100.00
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Loans held for sale (included above)

   $ 12,044         $ 13,661         $ 16,612      
  

 

 

      

 

 

      

 

 

    

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.

Accounting policies related to appraisals, nonaccruals and charge-offs are disclosed in Footnote (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Nonperforming and Restructured Assets

Nonaccrual loans, accruing loans past due 90 days or more, and restructured loans are shown in the table below. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $978,000 for the six months ended June 30, 2013 and approximately $654,000 for the six months ended June 30, 2012.

At June 30, 2013, troubled debt restructurings consisted primarily of one loan restructured to defer principal payments. The loan was evaluated by management and determined to be well collateralized. Additionally, none of the concessions granted involved a principal reduction or a change from the current market rate of interest. The collateral value will be monitored periodically to evaluate possible impairment. The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material.

 

9


The following is a summary of nonperforming and restructured assets:

 

     June 30,     December 31,     June 30,  
     2013     2012     2012  
     (Dollars in thousands)  

Past due 90 days or more and still accruing

   $ 850      $ 537      $ 1,403   

Nonaccrual

     18,946        20,549        20,702   

Restructured

     17,903        17,866        18,089   
  

 

 

   

 

 

   

 

 

 

Total nonperforming and restructured loans

     37,699        38,952        40,194   

Other real estate owned and repossessed assets

     8,503        9,566        10,223   
  

 

 

   

 

 

   

 

 

 

Total nonperforming and restructured assets

   $ 46,202      $ 48,518      $ 50,417   
  

 

 

   

 

 

   

 

 

 

Nonperforming and restructured loans to total loans

     1.16     1.20     1.31
  

 

 

   

 

 

   

 

 

 

Nonperforming and restructured assets to total assets

     0.80     0.81     0.89
  

 

 

   

 

 

   

 

 

 

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.

 

     June 30,
2013
     June 30,
2012
 
     (Dollars in thousands)  

Non-residential real estate

   $ 9,711       $ 9,711   

Residential real estate

     3,578         4,098   

Non-consumer non-real estate

     1,268         1,142   

Consumer non-real estate

     216         140   

Other loans

     1,938         1,918   

Acquired loans

     2,235         3,693   
  

 

 

    

 

 

 

Total

   $ 18,946       $ 20,702   
  

 

 

    

 

 

 

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

 

     Age Analysis of Past Due Loans  
     30-89
Days  Past
Due
     90 Days
and
Greater
     Total Past
Due Loans
     Current
Loans
     Total
Loans
     Accruing
Loans

90 Days  or
More Past
Due
 
     (Dollars in thousands)  

As of June 30, 2013

  

Non-residential real estate

   $ 2,078       $ 3,194       $ 5,272       $ 1,246,052       $ 1,251,324       $ 171   

Residential real estate

     2,990         817         3,807         788,947         792,754         151   

Non-consumer non-real estate

     3,519         816         4,335         745,327         749,662         32   

Consumer non-real estate

     2,382         213         2,595         214,785         217,380         176   

Other loans

     1,850         1,520         3,370         144,135         147,505         —     

Acquired loans

     375         593         968         85,491         86,459         320   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,194       $ 7,153       $ 20,347       $ 3,224,737       $ 3,245,084       $ 850   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2012

  

Non-residential real estate

   $ 2,649       $ 2,454       $ 5,103       $ 1,135,948       $ 1,141,051       $ 285   

Residential real estate

     4,240         1,288         5,528         715,621         721,149         478   

Non-consumer non-real estate

     1,285         244         1,529         695,887         697,416         16   

Consumer non-real estate

     2,002         183         2,185         198,242         200,427         122   

Other loans

     1,213         1,654         2,867         153,117         155,984         102   

Acquired loans

     3,134         1,352         4,486         144,926         149,412         400   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 14,523       $ 7,175       $ 21,698       $ 3,043,741       $ 3,065,439       $ 1,403   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

10


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.

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

 

     Impaired Loans  
     Unpaid
Principal
Balance
     Recorded
Investment

with  Allowance
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in thousands)  

As of June 30, 2013

  

Non-residential real estate

   $ 28,111       $ 26,607       $ 2,391       $ 26,508   

Residential real estate

     5,204         4,581         1,253         5,262   

Non-consumer non-real estate

     1,816         1,481         390         1,536   

Consumer non-real estate

     517         495         79         419   

Other loans

     2,253         2,090         278         2,648   

Acquired loans

     10,359         8,230         58         8,511   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 48,260       $ 43,484       $ 4,449       $ 44,884   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2012

           

Non-residential real estate

   $ 28,184       $ 27,165       $ 2,122       $ 27,397   

Residential real estate

     5,839         5,384         1,468         5,547   

Non-consumer non-real estate

     1,792         1,163         302         1,512   

Consumer non-real estate

     349         325         59         389   

Other loans

     2,255         2,020         212         2,158   

Acquired loans

     13,648         11,522         291         13,263   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 52,067       $ 47,579       $ 4,454       $ 50,266   
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit Risk Monitoring and Loan Grading

The Company considers various factors 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 disclosed in Footnote (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

11


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

 

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

As of June 30, 2013

                 

Non-residential real estate

   $ 1,032,002       $ 183,754       $ 25,686       $ 9,882       $ —         $ 1,251,324   

Residential real estate

     667,217         108,006         13,716         3,815         —           792,754   

Non-consumer non-real estate

     649,542         94,045         4,737         1,338         —           749,662   

Consumer non-real estate

     203,408         11,767         1,860         342         3         217,380   

Other loans

     143,653         2,642         864         346         —           147,505   

Acquired loans

     66,234         13,774         3,894         2,557         —           86,459   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,762,056       $ 413,988       $ 50,757       $ 18,280       $ 3       $ 3,245,084   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2012

                 

Non-residential real estate

   $ 983,946       $ 118,825       $ 28,514       $ 9,766       $ —         $ 1,141,051   

Residential real estate

     619,115         81,324         15,920         4,790         —           721,149   

Non-consumer non-real estate

     610,214         78,825         7,211         1,166         —           697,416   

Consumer non-real estate

     187,768         10,204         2,122         333         —           200,427   

Other loans

     151,330         2,917         1,027         710         —           155,984   

Acquired loans

     110,506         27,002         7,898         4,006         —           149,412   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,662,879       $ 319,097       $ 62,692       $ 20,771       $ —         $ 3,065,439   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The allowance for loan losses (“ALLL”) methodology is disclosed in Footnote (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

12


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

 

     ALLL  
     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 June 30, 2013

              

Allowance for credit losses:

              

Balance at March 31, 2013

   $ 15,331      $ 9,921      $ 8,982      $ 2,384      $ 1,822      $ 224      $ 38,664   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (3     (99     (69     (155     (20     (1     (347

Recoveries

     7        29        18        61        31        3        149   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     4        (70     (51     (94     11        2        (198
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     245        231        (180     99        128        (7     516   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 15,580      $ 10,082      $ 8,751      $ 2,389      $ 1,961      $ 219      $ 38,982   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2013

              

Allowance for credit losses:

              

Balance at December 31, 2012

   $ 14,969      $ 9,815      $ 9,385      $ 2,451      $ 1,885      $ 220      $ 38,725   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (21     (250     (105     (295     (159     (50     (880

Recoveries

     26        42        49        137        31        36        321   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     5        (208     (56     (158     (128     (14     (559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     606        475        (578     96        204        13        816   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 15,580      $ 10,082      $ 8,751      $ 2,389      $ 1,961      $ 219      $ 38,982   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses-ending balances:

              

Individually evaluated for impairment

   $ 2,880      $ 2,016      $ 1,124      $ 265      $ 231      $ —        $ 6,516   

Collectively evaluated for impairment

     12,700        8,066        7,627        2,124        1,730        219        32,466   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 15,580      $ 10,082      $ 8,751      $ 2,389      $ 1,961      $ 219      $ 38,982   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans-Ending balances:

              

Individually evaluated for impairment

   $ 35,568      $ 17,531      $ 6,075      $ 2,205      $ 280      $ —        $ 61,659   

Collectively evaluated for impairment

     1,215,756        775,223        743,587        215,175        147,225        80,008        3,176,974   

Loans acquired with deteriorated credit quality

     —          —          —          —          —          6,451        6,451   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 1,251,324      $ 792,754      $ 749,662      $ 217,380      $ 147,505      $ 86,459      $ 3,245,084   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

13


     ALLL  
     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 June 30, 2012

              

Allowance for credit losses:

              

Balance at March 31, 2012

   $ 14,109      $ 9,762      $ 9,198      $ 2,283      $ 1,850      $ 431      $ 37,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (7     (95     (313     (77     (27     (12     (531

Recoveries

     (6     13        26        32        12        9        86   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (13     (82     (287     (45     (15     (3     (445
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     253        326        (353     44        19        (41     248   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 14,349      $ 10,006      $ 8,558      $ 2,282      $ 1,854      $ 387      $ 37,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2012

              

Allowance for credit losses:

              

Balance at December 31, 2011

   $ 13,948      $ 9,764      $ 9,156      $ 2,315      $ 1,886      $ 587      $ 37,656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (128     (131     (330     (191     (207     (76     (1,063

Recoveries

     31        109        124        116        31        11        422   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (97     (22     (206     (75     (176     (65     (641
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     498        264        (392     42        144        (135     421   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 14,349      $ 10,006      $ 8,558      $ 2,282      $ 1,854      $ 387      $ 37,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses-ending balances:

              

Individually evaluated for impairment

   $ 2,986      $ 2,760      $ 1,436      $ 302      $ 196      $ —        $ 7,680   

Collectively evaluated for impairment

     11,363        7,246        7,122        1,980        1,658        387        29,756   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 14,349      $ 10,006      $ 8,558      $ 2,282      $ 1,854      $ 387      $ 37,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans-Ending balances:

              

Individually evaluated for impairment

   $ 38,278      $ 20,710      $ 8,377      $ 2,455      $ 109      $ —        $ 69,929   

Collectively evaluated for impairment

     1,102,773        700,439        689,039        197,972        155,875        137,508        2,983,606   

Loans acquired with deteriorated credit quality

     —          —          —          —          —          11,904        11,904   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 1,141,051      $ 721,149      $ 697,416      $ 200,427      $ 155,984      $ 149,412      $ 3,065,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 during the periods presented, are summarized as follows:

 

     Six Months Ended
June 30,
 
     2013      2012  
     (Dollars in thousands)  

Other real estate owned

   $ 896       $ 1,284   

Repossessed assets

     594         295   
  

 

 

    

 

 

 

Total

   $ 1,490       $ 1,579   
  

 

 

    

 

 

 

 

14


(5) INTANGIBLE ASSETS

The following is a summary of intangible assets:

 

     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
 
     (Dollars in thousands)  

As of June 30, 2013

       

Core deposit intangibles

   $ 13,473       $ (6,508   $ 6,965   

Customer relationship intangibles

     5,657         (2,160     3,497   

Mortgage servicing intangibles

     765         (127     638   
  

 

 

    

 

 

   

 

 

 

Total

   $ 19,895       $ (8,795   $ 11,100   
  

 

 

    

 

 

   

 

 

 

Additional information for intangible assets can be found in Footnote (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

(6) STOCK-BASED COMPENSATION

The Company 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 3,000,000 shares in May 2013. At June 30, 2013, 185,860 shares were available for future grants. The BancFirst ISOP will terminate on 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 expire at the end of fifteen years from the date of grant. Options outstanding as of June 30, 2013 will become exercisable through the year 2020. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

In June 1999, the Company adopted the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “BancFirst Directors’ Stock Option Plan”). Each non-employee director is granted an option for 10,000 shares. The Company 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 June 30, 2013, 15,000 shares were 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 June 30, 2013 will become exercisable through the year 2017. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

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

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

 

     Options     Wgtd.
Avg.
Exercise
Price
     Wgtd. Avg.
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
     (Dollars in thousands, except per share data)  

Six Months Ended June 30, 2013

  

Outstanding at December 31, 2012

     1,216,981      $ 31.98        

Options granted

     50,000        42.79        

Options exercised

     (55,750     21.54        

Options canceled, forfeited, or expired

     (5,000     43.02        
  

 

 

        

Outstanding at June 30, 2013

     1,206,231        32.86         8.64  Yr    $ 16,512   
  

 

 

      

 

 

   

 

 

 

Exercisable at June 30, 2013

     579,781        26.56         4.83  Yr    $ 11,588   
  

 

 

      

 

 

   

 

 

 

 

15


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

 

     Three Months Ended
June  30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  
     (Dollars in thousands, except per share data)  

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

   $ 8.74       $ —         $ 8.74       $ —     

Total intrinsic value of options exercised

     2,083         617         2,431         1,749   

Cash received from options exercised

     1,059         239         1,201         722   

Tax benefit realized from options exercised

     805         239         940         677   

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

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

 

     Three Months Ended
June  30,
     Six Months
Ended June 30,
 
     2013      2012      2013      2012  
     (Dollars in thousands)  

Stock-based compensation expense

   $ 321       $ 357       $ 695       $ 798   

Tax

     124         138         269         309   
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation expense, net of tax

   $ 197       $ 219       $ 426       $ 489   
  

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

     June 30, 2013  
     (Dollars in thousands)  

Fair value of stock options

   $ 5,144   

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

 

     Six Months Ended
June  30,
 
     2013     2012  

Risk-free interest rate

     2.53     1.78

Dividend yield

     2.00     2.00

Stock price volatility

     18.36     38.72

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.

 

16


(7) STOCKHOLDERS’ EQUITY

In November 1999, the Company adopted a Stock Repurchase Program (the “SRP”). The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options, and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company’s Executive Committee.

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Number of shares repurchased

     17,191         6,787         40,241         6,787   

Average price of shares repurchased

   $ 40.83       $ 37.70       $ 40.88       $ 37.70   

Shares remaining to be repurchased

     194,723         234,964         194,723         234,964   

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 June 30, 2013, 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 June 30, 2013:

               

Total Capital

               

(to Risk Weighted Assets)-

               

BancFirst Corporation

   $ 540,704         14.97   $ 288,899         8.00     N/A         N/A   

BancFirst

     510,785         14.18     288,208         8.00   $ 360,260         10.00

Tier 1 Capital

               

(to Risk Weighted Assets)-

               

BancFirst Corporation

   $ 501,722         13.89   $ 144,450         4.00     N/A         N/A   

BancFirst

     471,803         13.10     144,104         4.00   $ 216,156         6.00

Tier 1 Capital

               

(to Total Assets)-

               

BancFirst Corporation

   $ 501,722         8.81   $ 172,491         3.00     N/A         N/A   

BancFirst

     471,803         8.30     171,887         3.00   $ 286,479         5.00

As of June 30, 2013, BancFirst was considered to be “well capitalized” and there are no conditions or events since the most recent notification of BancFirst’s capital category that management believes would materially change its category under capital requirements existing as of the report date. 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%. The Company’s trust preferred securities have continued to be included in Tier 1 capital as the Company’s total assets do not exceed $10 billion.

 

17


Basel III Capital Rules

In July 2013, the three Federal bank regulatory agencies jointly published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. These Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. These Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules are effective for the Company and BancFirst on January 1, 2015 (subject to a 4-year phase-in period).

The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments as compared to existing regulations.

Under the Basel III Capital Rules, the initial minimum capital ratios as of January 1, 2015 will be as follows:

 

4.5% CET1 to risk-weighted assets.

6.0% Tier 1 capital to risk-weighted assets.

8.0% Total capital to risk-weighted assets.

4.0% Minimum leverage ratio

Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

Management believes that, as of June 30, 2013, the Company and BancFirst would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if such requirements were currently in effect.

 

18


(8) 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 June 30, 2013

        

Basic

        

Income available to common stockholders

   $ 12,593         15,232,129       $ 0.83   
        

 

 

 

Effect of stock options

     —           247,620      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 12,593         15,479,749       $ 0.81   
  

 

 

    

 

 

    

 

 

 

Three Months Ended June 30, 2012

        

Basic

        

Income available to common stockholders

   $ 11,729         15,155,525       $ 0.77   
        

 

 

 

Effect of stock options

     —           271,271      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 11,729         15,426,796       $ 0.76   
  

 

 

    

 

 

    

 

 

 

Six Months Ended June 30, 2013

        

Basic

        

Income available to common stockholders

   $ 25,965         15,235,397       $ 1.70   
        

 

 

 

Effect of stock options

     —           246,473      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 25,965         15,481,870       $ 1.68   
  

 

 

    

 

 

    

 

 

 

Six Months Ended June 30, 2012

        

Basic

        

Income available to common stockholders

   $ 25,734         15,145,066       $ 1.70   
        

 

 

 

Effect of stock options

     —           276,608      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 25,734         15,421,674       $ 1.67   
  

 

 

    

 

 

    

 

 

 

The following table shows the number and average exercise price of options that were excluded from the computation of diluted net income per common 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 June 30, 2013

     466,159       $ 39.76   

Three Months Ended June 30, 2012

     607,200       $ 38.70   

Six Months Ended June 30, 2013

     475,867       $ 39.69   

Six Months Ended June 30, 2012

     607,200       $ 38.70   

(9) FAIR VALUE MEASUREMENTS

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

 

19


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

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

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

Securities Available for Sale

Securities classified as available for sale are reported at fair value. U.S. Treasuries are valued using Level 1 inputs. Other securities available for sale including U.S. Federal agencies, mortgage backed securities, and state and political subdivisions are valued using prices from an independent pricing service utilizing Level 2 data. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The Company also invests in 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.

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

Derivatives

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

Loans Held For Sale

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

 

20


Mortgage Servicing Intangibles

The Company acquired Mortgage Servicing Intangibles with the acquisition of 1st Bank Oklahoma on July 12, 2011. Mortgage Servicing Intangibles are amortized based on current prepayment assumptions and are adjusted to fair value quarterly, if impaired. Fair value is estimated based on the present value of future cash flows over several interest rate scenarios, which are then discounted at risk-adjusted rates. The Company considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. When available, fair value estimates and assumptions are compared to observable market data and the recent market activity and actual portfolio experience.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2013 and 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

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

June 30, 2013

           

Securities available for sale:

           

U.S. Treasury

   $ 20,158       $ —         $ —         $ 20,158   

U.S. Federal agencies

     —           404,522         —           404,522   

Mortgage-backed securities

     —           16,031         —           16,031   

States and political subdivisions

     —           51,929         —           51,929   

Other securities

     —           3,446         9,827         13,273   

Derivative assets

     —           2,200         —           2,200   

Derivative liabilities

     —           991         —           991   

Loans held for sale

     —           12,044         —           12,044   

Mortgage servicing intangibles

     —           —           638         638   

June 30, 2012

           

Securities available for sale:

           

U.S. Federal agencies

   $ —         $ 459,566       $ —         $ 459,566   

Mortgage-backed securities

     —           24,709         —           24,709   

States and political subdivisions

     —           60,538         —           60,538   

Other securities

     —           —           10,487         10,487   

Derivative assets

     —           7,652         —           7,652   

Derivative liabilities

     —           5,648         —           5,648   

Loans held for sale

     —           16,612         —           16,612   

Mortgage servicing intangibles

     —           —           915         915   

The changes in Level 3 assets measured at estimated fair value on a recurring basis during the six months ended June 30, 2013 and 2012 were as follows:

 

     Six Months Ended June 30,  
     2013     2012  
     (Dollars in thousands)  

Balance at the beginning of the year

   $ 10,779      $ 13,225   

Purchases, issuances and settlements

     239        1,739   

Sales

     (121     (5,154

(Losses) gains included in earnings

     5        4,110   

Total unrealized (losses) gains

     (437     (2,518
  

 

 

   

 

 

 

Balance at the end of the period

   $ 10,465      $ 11,402   
  

 

 

   

 

 

 

 

21


The Company’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period. During the six months ended June 30, 2013 and 2012, the Company did not transfer any securities between levels in the fair value hierarchy.

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

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

Impaired loans are reported at the fair value of the underlying collateral if repayment is dependent on liquidation of the collateral. The impaired loans are adjusted to fair value through a specific allocation of the allowance for 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 revalued at fair value subsequent to initial recognition, with any losses recognized in net expense from other real estate owned.

The following table summarizes assets measured at fair value on a nonrecurring basis and the related gains or losses recognized during the period:

 

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

Six Months Ended June 30, 2013

  

Impaired loans (less specific allowance)

     —           —         $ 39,035       $ 39,035       $ —     

Foreclosed assets

     —           —           511         511         29   

Other real estate owned

     —           —           7,992         7,992         (705

Six Months Ended June 30, 2012

  

Impaired loans (less specific allowance)

     —           —         $ 43,125       $ 43,125       $ —     

Foreclosed assets

     —           —           135         135         (86

Other real estate owned

     —           —           10,088         10,088         (1,067

Estimated Fair Value of Financial Instruments

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

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

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

Securities Held for Investment

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

 

22


Loans

For certain homogeneous categories of loans, such as some residential mortgages, fair values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits

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

Short-term Borrowings

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

Long-term Borrowings

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

Junior Subordinated Debentures

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

Loan Commitments and Letters of Credit

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

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

 

    June 30,  
    2013     2012  
    Carrying
Amount
    Fair Value     Carrying
Amount
    Fair Value  
    (Dollars in thousands)  

FINANCIAL ASSETS

       

Cash and cash equivalents

  $ 1,720,239      $ 1,720,239      $ 1,763,908      $ 1,763,908   

Securities held for investment

    14,511        14,654        19,734        20,104   

Loans:

       

Loans (net of unearned interest)

    3,245,084          3,065,439     

Allowance for loan losses

    (38,982       (37,436  
 

 

 

     

 

 

   

Loans, net

    3,206,102        3,238,652        3,028,003        3,092,725   

FINANCIAL LIABILITIES

       

Deposits

    5,150,411        5,175,528        5,099,648        5,121,335   

Short-term borrowings

    3,522        3,522        6,340        6,340   

Long-term borrowings

    9,964        9,906        11,329        11,431   

Junior subordinated debentures

    26,804        28,991        26,804        28,970   

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

       

Loan commitments

      1,574          1,321   

Letters of credit

      437          428   

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

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include intangible assets (excluding mortgage service rights, which are valued quarterly) and other non-financial long-lived assets measured at fair value and adjusted for impairment. These items are evaluated at least annually for impairment. The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were not considered to be significant to the Company at June 30, 2013 or 2012.

 

23


(10) 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:

 

     June 30, 2013  

Oil and Natural Gas Swaps and Options

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

Oil

       

Derivative assets

   Barrels      447      $ 1,202   

Derivative liabilities

   Barrels      (447     (697

Natural Gas

       

Derivative assets

   MMBTUs      3,122        999   

Derivative liabilities

   MMBTUs      (3,122     (294

Total Fair Value

   Included in     

Derivative assets

   Other assets        2,201   

Derivative liabilities

   Other liabilities        991   

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 June 30,      Six Months Ended June 30,  
     2013      2012      2013      2012  
     (Dollars in thousands)  

Derivative income

   $ 130       $ 141       $ 238       $ 350   

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 net credit exposure relating to oil and gas swaps and options with bank counterparties:

 

     June 30, 2013  
     (Dollars in thousands)  

Credit exposure

   $  1,246   

Balance Sheet Offsetting

Derivatives may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company’s derivative transactions with upstream financial institution counterparties and bank customers are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes.

 

24


(11) SEGMENT INFORMATION

The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The 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, 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:

               

June 30, 2013

               

Net interest income (expense)

   $ 13,943       $ 25,424       $ 1,730       $ (467   $ —        $ 40,630   

Noninterest income

     3,116         11,846         6,073         13,792        (13,094     21,733   

Income before taxes

     8,108         14,512         2,158         7,643        (13,029     19,392   

June 30, 2012

               

Net interest income (expense)

   $ 13,354       $ 26,384       $ 1,721       $ (590   $ —        $ 40,869   

Noninterest income

     2,672         10,721         6,214         13,245        (12,488     20,364   

Income before taxes

     8,220         14,944         2,011         5,686        (12,439     18,422   

Six Months Ended:

               

June 30, 2013

               

Net interest income (expense)

   $ 27,954       $ 50,568       $ 3,295       $ (931   $ —        $ 80,886   

Noninterest income

     6,306         23,391         12,975         28,541        (26,945     44,268   

Income before taxes

     17,045         28,589         5,395         15,737        (26,827     39,939   

June 30, 2012

               

Net interest income (expense)

   $ 26,517       $ 53,015       $ 3,434       $ (1,280   $ —        $ 81,686   

Noninterest income

     5,353         20,856         16,078         28,626        (27,112     43,801   

Income before taxes

     16,652         30,199         8,398         12,219        (27,002     40,466   

Total Assets:

               

June 30, 2013

   $ 1,945,032       $ 3,590,420       $ 93,047       $ 706,501      $ (585,334   $ 5,749,666   

December 31, 2012

     1,996,539         3,801,653         186,473         602,342        (564,757     6,022,250   

June 30, 2012

     1,801,752         3,688,931         130,762         607,662        (557,396     5,671,711   

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.

 

25


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, 2012 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 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 was $12.6 million, or $0.81 diluted earnings per share, for the second quarter of 2013, compared to net income of $11.7 million, or $0.76 diluted earnings per share, for the second quarter of 2012. Net income was $26.0 million, or $1.68 diluted earnings per share for the six months ended June 30, 2013, compared to $25.7 million, or $1.67 diluted earnings per share, for the six months ended June 30, 2012.

Net interest income for the second quarter of 2013 was $40.6 million compared to $40.9 million for the second quarter of 2012. The net interest margin for the quarter was 3.08% compared to 3.14% a year ago as interest rates have remained at historically low levels. The provision for loan loss as for the second quarter of 2013 was $516,000 compared to $248,000 for the second quarter of 2012. Net charge-offs for the second quarter of 2013 were 0.01% of average loans compared to 0.02% for the second quarter of 2012. Noninterest income for the quarter totaled $21.7 million compared to $20.4 million for the second quarter of 2012. Noninterest expense was $42.5 million compared to $42.6 million a year ago.

At June 30, 2013, the Company’s total assets were $5.7 billion, down $272.6 million or 4.5% from $6.0 billion at December 31, 2012. Loans totaled $3.2 billion, up $2.7 million from December 31, 2012. Deposits totaled $5.2 billion, down $290.4 million due to a temporary influx of deposits at year end 2012 and efforts by the Company to move public funds into sweep accounts. The Company’s total stockholders’ equity was $535.0 million, an increase of $15.4 million or 3.0% over December 31, 2012.

Asset quality remained strong and was little changed from the previous quarters. Nonperforming and restructured assets were 0.80% of total assets compared to 0.81% at December 31, 2012. The allowance to total loans was 1.20% compared to 1.19% at year end 2012.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

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

SEGMENT INFORMATION

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

 

26


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
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Income Statement Data

        

Net interest income

   $ 40,630      $ 40,869      $ 80,866      $ 81,686   

Provision for loan losses

     516        248        816        421   

Securities transactions

     129        226        251        4,258   

Total noninterest income

     21,733        20,364        44,268        43,801   

Salaries and employee benefits

     25,085        24,830        50,294        49,630   

Total noninterest expense

     42,455        42,563        84,399        84,600   

Net income

     12,593        11,729        25,965        25,734   

Per Common Share Data

        

Net income – basic

   $ 0.83      $ 0.77      $ 1.70      $ 1.70   

Net income – diluted

     0.81        0.76        1.68        1.67   

Cash dividends

     0.29        0.27        0.58        0.54   

Performance Data

        

Return on average assets

     0.88     0.83     0.91     0.91

Return on average stockholders’ equity

     9.48        9.46        9.89        10.44   

Cash dividend payout ratio

     35.08        35.06        34.03        31.76   

Net interest spread

     2.92        2.95        2.92        2.96   

Net interest margin

     3.08        3.14        3.08        3.16   

Efficiency ratio

     68.08        69.51        67.44        67.42   

Net charge-offs to average loans

     0.01        0.02        0.02        0.03   

Net Interest Income

For the three months ended June 30, 2013, net interest income, which is the Company’s principal source of operating revenue, was $40.6 million compared to $40.9 million for the three months ended June 30, 2012. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The Company’s net interest margin decreased for the second quarter of 2013 compared to the second quarter of 2012, as shown in the preceding table, which was due to continued low interest rates and the maturity or pay down of higher-yielding earning assets. If interest rates and/or loan volume do not increase, management expects continued compression of its net interest margin for the remainder of 2013 as higher yielding loans and securities mature and are replaced at current market rates.

Net interest income for the six months ended June 30, 2013 was $80.9 million compared to $81.7 million for the six months ended June 30, 2012. The net interest margin for the year-to-date decreased compared to the same period of the previous year, as shown in the preceding table.

Provision for Loan Losses

The Company’s provision for loan losses for the current quarter was $516,000, compared to $248,000 for the second quarter of 2012. Management believes the allowance for loan losses is appropriate based upon management’s best estimate of probable losses that have been incurred within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level

 

27


of the allowance for loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for loan losses. Net loan charge-offs were $198,000 for the three months ended June 30, 2013, compared to $445,000 for the three months ended June 30, 2012. The rate of net charge-offs to average total loans is presented in the preceding table.

For the six months ended June 30, 2013, the Company’s provision for loan losses was $816,000, compared to $421,000 for the six months ended June 30, 2012. Net loan charge-offs were $559,000 compared to $641,000 for the same period of the prior year.

Noninterest Income

Noninterest income totaled $21.7 million for the second quarter compared to $20.4 million for the second quarter of 2012.

Noninterest income for the six months ended June 30, 2013 totaled $44.3 million compared to $43.8 million for the six months ended June 30, 2012. The first quarter of 2012 included a $4.5 million pretax securities gain from the sale of an investment by the Company’s Small Business Investment Corporation, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst.

The Company had fees from debit card usage totaling $8.5 million and $8.2 million during the six months ended June 30, 2013 and 2012, respectively. The 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 fees from debit card usage reported in future periods.

Noninterest Expense

For the second quarter of 2013, noninterest expense totaled $42.5 million compared to $42.6 million for the second quarter of 2012.

For the six months ended June 30, 2013, noninterest expense totaled $84.4 million compared to $84.6 million for the six months ended June 30, 2012. Included in the noninterest expense for the first quarter of 2012 was $1.6 million in merger related costs and approximately $500,000 of expenses related to the sale of an investment by the Company’s Small Business Investment Corporation, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst. Additionally, the net expense on other real estate for the first six months of 2012 was $1.2 million higher than for the first half of 2013.

Income Taxes

The Company’s effective tax rate on income before taxes was 35.1% for the three months ended June 30, 2013, compared to 36.3% for the three months ended June 30, 2012 due primarily to new tax credits utilized.

The Company’s effective tax rate on income before taxes was 35.0% for the first six months of 2013, compared to 36.4% for the first six months of 2012 due primarily to new tax credits utilized.

 

28


FINANCIAL POSITION

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share data)

 

     June 30,     December 31,     June 30,  
     2013     2012     2012  
     (unaudited)           (unaudited)  

Balance Sheet Data

      

Total assets

   $ 5,749,666      $ 6,022,250      $ 5,671,711   

Total loans

     3,245,084        3,242,427        3,065,439   

Allowance for loan losses

     38,982        38,725        37,436   

Securities

     520,424        562,542        575,034   

Deposits

     5,150,411        5,440,830        5,099,648   

Stockholders’ equity

     534,961        519,567        499,561   

Book value per share

     35.07        34.09        32.97   

Tangible book value per share

     31.42        30.37        29.16   

Average loans to deposits (year-to-date)

     62.58     60.27     60.17

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

     92.72        92.73        92.56   

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

     9.21        8.79        8.75   

Asset Quality Ratios

      

Nonperforming and restructured loans to total loans

     1.16     1.20     1.31

Nonperforming and restructured assets to total assets

     0.80        0.81        0.89   

Allowance for loan losses to total loans

     1.20        1.19        1.22   

Allowance for loan losses to nonperforming and restructured loans

     103.40        99.42        93.14   

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 June 30, 2013 decreased $225.6 million from December 31, 2012 and $43.7 million from June 30, 2012. The higher level at year-end 2012 was due primarily to funds provided by the temporary influx of deposits at year-end 2012 and efforts by the Company to move public funds into sweep accounts. Federal funds sold consist of overnight investments of excess funds with other financial institutions. Due to the Federal Reserve Bank’s intervention into the funds market that has resulted in 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 which continues to be 0.25%.

Securities

At June 30, 2013, total securities decreased $42.1 million compared to December 31, 2012, and $54.6 million compared to June 30, 2012. The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management. The net unrealized gain on securities available for sale, before taxes, was $6.5 million at June 30, 2013, compared to an unrealized gain of $9.7 million at December 31, 2012, and $10.7 million at June 30, 2012. These unrealized gains are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax, in the amounts of $4.2 million, $6.3 million and $7.0 million, respectively.

Loans (Including Acquired Loans)

At June 30, 2013, total loans were up $2.7 million from December 31, 2012 and up $179.6 million from June 30, 2012, due to internal growth.

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At June 30, 2013, the allowance for loan losses represented 1.20% of total loans, compared to 1.19% at December 31, 2012 and 1.22% at June 30, 2012. 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.

 

29


The fair value adjustment on acquired loans consists of an interest rate component to adjust the effective rates on the loans to market rates and a credit component to adjust for estimated credit exposures in the acquired loans. The credit component of the adjustment was $2.6 million at June 30, 2013, $2.8 million at December 31, 2012 and $3.2 million at June 30, 2012, while the acquired loans outstanding were $86.5 million, $108.5 million and $149.4 million, respectively. The decrease from the second quarter of 2012 was due to improved credit quality of the loans, loan payoffs and the early settlement of a loan escrow agreement related to one of the bank acquisitions.

Nonperforming and Restructured Assets

Nonperforming and restructured assets totaled $46.2 million at June 30, 2013, compared to $48.5 million at December 31, 2012 and $50.4 million at June 30, 2012. The Company’s level of nonperforming and restructured assets has continued to be relatively low.

Nonaccrual loans totaled $18.9 million at June 30, 2013, compared to $20.5 million at the end of 2012. The Company’s nonaccrual loans are primarily commercial and real estate loans. Nonaccrual loans negatively impact the Company’s net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of interest or principal or both is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. Total interest income, which was not accrued on nonaccrual loans outstanding, was approximately $979,000 for the six months ended June 30, 2013 and $654,000 for the six months ended June 30, 2012. Only a small amount of this interest is expected to be ultimately collected.

Other real estate owned and repossessed assets totaled $8.5 million at June 30, 2013, compared to $9.6 million at December 31, 2012 and $10.2 million at June 30, 2012.

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 $3.2 million of these loans at June 30, 2013 compared to $5.3 million at December 31, 2012 and $6.5 million at June 30, 2012. These loans are not included in nonperforming and restructured loans. In general, these loans are adequately collateralized and have no specific identifiable probable loss. Loans which are considered to have identifiable probable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming.

Liquidity and Funding

Deposits

At June 30, 2013 total deposits decreased $290.4 million compared to December 31, 2012 and increased $50.8 million compared to June 30, 2012. The decrease from December 2012 was due to a temporary influx of deposits at year end 2012 and efforts by the Company to move public funds into sweep accounts. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s core deposits as a percentage of total deposits were 93.0% at June 30, 2013, compared to 92.8% at December 31, 2012 and 92.4% at June 30, 2012. Noninterest-bearing deposits to total deposits were 38.0% at June 30, 2013, compared to 37.1% at December 31, 2012 and 36.1% at June 30, 2012.

Short-Term Borrowings

Short-term borrowings consisting primarily of Federal funds purchased and repurchase agreements are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company’s ability to earn a favorable spread on the funds obtained. Short-term borrowings were $3.5 million at June 30, 2013, compared to $4.6 million at December 31, 2012 and $6.3 million at June 30, 2012.

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 $548.9 million, are pledged as collateral for the borrowings under the line of credit. As of June 30, 2013, the Company had approximately $10.0 million in advances outstanding compared to $9.2 million at December 31, 2012 and $11.3 million at June 30, 2012. The advances mature at varying dates through 2014.

 

30


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, 2012.

Capital Resources

Stockholders’ equity totaled $535.0 million at June 30, 2013, compared to $519.6 million at December 31, 2012 and $499.6 million at June 30, 2012. In addition to net income of $26.0 million, other changes in stockholders’ equity during the six months ended June 30, 2013 included $1.3 million related to stock option exercises and $695,000 related to stock-based compensation, that were partially offset by $8.8 million in dividends, $1.7 million of common stock acquired and canceled, and a $2.1 million decrease in other comprehensive income. The Company’s average stockholders’ equity to average assets, are presented above. The Company’s leverage ratio and total risk-based capital ratio were 8.81% and 14.97%, respectively, at June 30, 2013, well in excess of the regulatory minimums.

See Note (7) of the Notes to Consolidated Financial Statements for a discussion of capital ratio requirements.

CONTRACTUAL OBLIGATIONS

There have not been any material changes in the resources required for scheduled repayments of contractual obligations from the table of Contractual Cash Obligations included in Management’s Discussion and Analysis which was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

31


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

     Three Months Ended June 30,  
     2013     2012  
           Interest      Average           Interest      Average  
     Average     Income/      Yield/     Average     Income/      Yield/  
     Balance     Expense      Rate     Balance     Expense      Rate  

ASSETS

              

Earning assets:

              

Loans (1)

   $ 3,235,966      $ 41,568         5.15   $ 3,073,027      $ 41,952         5.48

Securities – taxable

     515,010        1,295         1.01        516,195        2,087         1.62   

Securities – tax exempt

     42,801        483         4.53        51,731        632         4.90   

Interest bearing deposits w/ banks & FFS

     1,527,172        971         0.25        1,612,649        1,061