UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-14384
BancFirst Corporation
(Exact name of registrant as specified in charter)
Oklahoma
73-1221379
(State or other Jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
101 N. Broadway, Oklahoma City, Oklahoma
73102-8405
(Address of principal executive offices)
(Zip Code)
(405) 270-1086
(Registrant’s telephone number, including area code)
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 ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2018 there were 32,753,690 shares of the registrant’s Common Stock outstanding.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
December 31,
2018
2017
(unaudited)
(see Note 1)
ASSETS
Cash and due from banks
$
185,009
216,104
Interest-bearing deposits with banks
1,607,157
1,541,771
Federal funds sold
600
700
Securities held for investment (fair value: $1,447 and $2,303, respectively)
1,440
2,292
Securities available for sale at fair value
475,640
467,703
Loans held for sale
4,739
6,173
Loans (net of unearned interest)
4,947,528
4,721,995
Allowance for loan losses
(51,875
)
(51,666
Loans, net of allowance for loan losses
4,895,653
4,670,329
Premises and equipment, net
170,167
134,088
Other real estate owned
6,827
4,136
Intangible assets, net
17,257
11,082
Goodwill
79,733
54,042
Accrued interest receivable and other assets
158,216
144,736
Total assets
7,602,438
7,253,156
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing
2,662,304
2,550,150
Interest-bearing
3,980,827
3,864,895
Total deposits
6,643,131
6,415,045
Short-term borrowings
2,200
900
Accrued interest payable and other liabilities
40,347
29,623
Junior subordinated debentures
31,959
Total liabilities
6,717,637
6,477,527
Stockholders' equity:
Senior preferred stock, $1.00 par; 10,000,000 shares authorized; none issued
—
Cumulative preferred stock, $5.00 par; 900,000 shares authorized; none issued
Common stock, $1.00 par, 40,000,000 shares authorized; shares issued and
outstanding: 32,749,690 and 31,894,563, respectively
32,750
31,895
Capital surplus
149,242
107,481
Retained earnings
707,481
638,580
Accumulated other comprehensive loss, net of income tax of $(1,597)
and $(795), respectively
(4,672
(2,327
Total stockholders' equity
884,801
775,629
Total liabilities and stockholders' equity
The accompanying Notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
INTEREST INCOME
Loans, including fees
66,788
56,090
195,311
164,488
Securities:
Taxable
2,246
1,763
6,100
5,430
Tax-exempt
145
187
478
552
89
6
288
7
8,165
4,972
21,272
12,837
Total interest income
77,433
63,018
223,449
183,314
INTEREST EXPENSE
Deposits
11,171
5,247
28,150
13,272
42
85
13
547
532
1,626
1,589
Total interest expense
11,760
5,785
29,861
14,874
Net interest income
65,673
57,233
193,588
168,440
Provision for loan losses
747
3,276
2,286
5,189
Net interest income after provision for loan losses
64,926
53,957
191,302
163,251
NONINTEREST INCOME
Trust revenue
3,281
3,083
9,806
8,929
Service charges on deposits
18,103
16,633
52,293
48,859
Securities transactions (includes accumulated other comprehensive income reclassifications of $9, $0, $9 and $(142), respectively)
(64
(22
37
(352
Income from sales of loans
800
732
2,253
2,180
Insurance commissions
5,207
4,603
14,333
12,894
Cash management
3,383
2,804
9,785
8,357
Gain (loss) on sale of other assets
195
29
348
(20
Other
1,896
1,307
4,493
4,390
Total noninterest income
32,801
29,169
93,348
85,237
NONINTEREST EXPENSE
Salaries and employee benefits
35,051
31,471
104,017
93,672
Occupancy, net
3,386
3,298
10,184
9,264
Depreciation
2,733
2,493
7,572
7,305
Amortization of intangible assets
740
2,232
1,641
Data processing services
1,418
1,110
3,816
3,402
Net expense from other real estate owned
64
68
109
320
Marketing and business promotion
1,997
1,790
5,998
5,564
Deposit insurance
597
553
1,856
1,683
9,823
9,270
30,171
26,290
Total noninterest expense
55,809
50,600
165,955
149,141
Income before taxes
41,918
32,526
118,695
99,347
Income tax expense
9,035
10,816
25,606
32,405
Net income
32,883
21,710
93,089
66,942
NET INCOME PER COMMON SHARE
Basic
1.01
0.68
2.85
2.11
Diluted
0.98
0.67
2.78
2.06
OTHER COMPREHENSIVE (LOSS)/INCOME
Unrealized (losses)/gains on securities, net of tax of $352, $178, $1,005 and $11, respectively
(1,027
(282
(2,956
(17
Reclassification adjustment for losses included in net income, net of tax of $2, $0, $2 and $(55), respectively
(7
87
Other comprehensive (losses)/gains, net of tax of $354, $178, $802 and $(44), respectively
(1,034
(2,963
70
Comprehensive income
31,849
21,428
90,126
67,012
3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
COMMON STOCK
Issued at beginning of period
32,731
31,818
31,622
Shares issued for stock options
19
45
122
241
Shares issued for acquisitions
733
Issued at end of period
31,863
CAPITAL SURPLUS
Balance at beginning of period
148,494
105,440
101,730
Common stock issued for stock options
395
811
2,015
4,056
Common stock issued for acquisitions
38,765
Stock-based compensation arrangements
353
354
981
819
Balance at end of period
106,605
RETAINED EARNINGS
684,425
610,758
577,648
Cumulative effect of change in accounting principle
(618
Dividends on common stock ($0.30, $0.21, $0.72 and $0.59 per share, respectively)
(9,827
(6,686
(23,570
(18,808
625,782
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains on securities:
(3,638
446
94
Net change
618
164
Total stockholders’ equity
764,414
4
CONSOLIDATED STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
9,804
8,946
Net amortization of securities premiums and discounts
(141
(108
Realized securities (gains)/losses
(37
352
Gain on sales of loans
(2,253
(2,180
Cash receipts from the sale of loans originated for sale
145,840
163,128
Cash disbursements for loans originated for sale
(142,207
(163,460
Deferred income tax provision (benefit)
83
(1,690
(Gain)/loss on other assets
(341
66
Increase in interest receivable
(2,380
(1,651
Increase in interest payable
764
188
Amortization of stock-based compensation arrangements
Excess tax benefit from stock-based compensation arrangements
(1,067
(2,229
Other, net
(4,994
2,513
Net cash provided by operating activities
99,427
76,825
INVESTING ACTIVITIES
Net cash received from acquisitions, net of cash paid
6,248
Net decrease/(increase) in federal funds sold
22,948
(11,300
Purchases of held for investment securities
(225
(220
Purchases of available for sale securities
(168,971
(54,456
Proceeds from maturities, calls and paydowns of held for investment securities
1,077
1,517
Proceeds from maturities, calls and paydowns of available for sale securities
121,581
72,853
Proceeds from sales of available for sale securities
31,286
Purchase of equity securities
(2,118
Proceeds from paydowns and sales of equity securities
1,414
Net change in loans
81,000
(251,883
Purchases of premises, equipment and computer software
(44,398
(11,495
Proceeds from the sale of other real estate owned and other assets
3,899
2,846
Net cash provided by/(used in) investing activities
53,741
(252,138
FINANCING ACTIVITIES
Net change in deposits
(101,874
53,989
Net increase in short-term borrowings
1,300
1,600
Issuance of common stock in connection with stock options, net
2,137
4,297
Cash dividends paid
(20,440
(18,091
Net cash (used in)/provided by financing activities
(118,877
41,795
Net increase/(decrease) in cash, due from banks and interest-bearing deposits
34,291
(133,518
Cash, due from banks and interest-bearing deposits at the beginning of the period
1,757,875
1,850,461
Cash, due from banks and interest-bearing deposits at the end of the period
1,792,166
1,716,943
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
29,096
14,688
Cash paid during the period for income taxes
24,255
32,051
Noncash investing and financing activities:
Stock issued in acquisitions
39,498
Cash consideration for acquisitions
24,722
Fair value of assets acquired in acquisitions
377,320
Liabilities assumed in acquisitions
338,860
Unpaid common stock dividends declared
6,686
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and general practice within the banking industry. A summary of significant accounting policies can be found in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., BancFirst Risk and Insurance Company and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BFTower, LLC and BancFirst Agency, Inc. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the unaudited interim consolidated financial statements.
The accompanying unaudited interim consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
The unaudited interim consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2017, the date of the most recent annual report.
Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or comprehensive income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for loan losses, income taxes, the fair value of financial instruments and the valuation of intangibles. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.
Recent Accounting Pronouncements
Standards Adopted During Current Period:
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-2, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-2 allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-2 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company elected to early adopt the provisions of ASU 2018-2 and the amount to reclassify was immaterial to the Company’s financial statements. The Company’s policy is to release material stranded tax effects on a specific identification basis.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in this update provide guidance about types of changes to the terms of conditions of share-based payment awards that would require an entity to apply modification accounting under ASC 718. ASU 2017-09 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements and no prior periods were adjusted.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 removes the second step of goodwill testing. ASU 2017-04 is effective for fiscal years beginning after December 31, 2019 with early adoption permitted. The Company elected to early adopt ASU 2017-4 and it did not have a significant impact on the Company’s financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business. ASU 2017-01 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provides guidance stating that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements and no prior periods were adjusted.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 requires all equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in the fair value recognized through net income. The adoption of the guidance resulted in a $618,000 decrease to retained earnings and a $618,000 increase to accumulated other comprehensive income. Additional income of $41,200 was recorded in the consolidated statement of comprehensive income during 2018 as a result of changes to the accounting for equity investments. Further, the Company’s securities disclosures in Note (3) have been revised to exclude equity investments in 2018 and fair value disclosures in Note (9) have incorporated the revised disclosure requirements for financial investments. ASU 2016-01 also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. Accordingly, we refined the calculation used to determine the disclosed fair value of the Company’s loans held for investment as part of adopting this standard. The refined calculation did not have a significant impact on the Company’s fair value disclosures. ASU 2016-01 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.
In January 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customer (Topic 606).” ASU 2014-09 implements a comprehensive new revenue recognition standard that will supersede substantially all existing revenue recognition guidance. The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in a manner that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, which comprises a significant portion of the Company’s revenue stream. ASU 2014-09 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.
Standards Not Yet Adopted:
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 removes, modifies and adds disclosure requirements on fair value measurements. ASU 2018-13 will be effective for the Company on January 1, 2020. Early adoption is permitted. In addition, early adoption of any removed or modified disclosures and delayed adoption of the additional disclosures until the effective date is also permitted.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact of ASU 2016-13 on its financial statements. In that regard, the Company has formed a task force under the direction of its Chief Financial Officer. The Company is currently developing an implementation plan to include assessment of process, portfolio segmentation, model development, system requirements and the identification of data and resource need, among other things.
In February 2016, the FASB issued ASU No. 2016-02, “Leases - (Topic 842).” ASU 2016-02 requires that lessees recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. The Company will adopt the new guidance using a modified retrospective basis and anticipates applying the optional practical expedients related to the transition. Based on leases outstanding and the Company’s preliminary assessment as of September 30, 2018, the Company expects the adoption of ASU 2016-02 to have an immaterial effect on its consolidated financial statements.
(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS
On August 31, 2018 the Company’s wholly-owned subsidiary, BFTower, LLC, purchased the Cotter Ranch Tower in Oklahoma City for its corporate headquarters. The contract price was $21.0 million. The Tower consists of an aggregate of 507,000 square feet, has 36 floors and is the second tallest building in Oklahoma City.
On January 11, 2018, the Company acquired First Wagoner Corp. and its subsidiary bank, First Bank & Trust Company, with locations in Carney, Grove, Ketchum, Luther, Tulsa and Wagoner. First Bank & Trust Company had approximately $290 million in total assets, $247 million in loans, $251 million in deposits and $36 million in equity capital. First Bank & Trust Company operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on February 16, 2018. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $6.3 million and goodwill of approximately $19.1 million. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of First Wagoner Corp. and its subsidiary bank, First Bank & Trust Company complements the Company’s community banking strategy by adding an additional five communities to its banking network in Oklahoma.
On January 11, 2018, the Company acquired First Chandler Corp. and its subsidiary bank, First Bank of Chandler, with two locations in Chandler. First Bank of Chandler had approximately $88 million in total assets, $66 million in loans, $79 million in deposits and $11 million in equity capital. First Bank of Chandler operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on September 16, 2018. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $2.2 million and goodwill of approximately $6.6 million. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of First Chandler Corp. and its subsidiary bank, First Bank of Chandler complements the Company’s community banking strategy by increasing its banking network in Oklahoma.
On July 31, 2017, the Company completed a two-for-one stock split of the Company’s outstanding shares of common stock. The stock was payable in the form of a dividend on or about July 31, 2017 to shareholders of record of the outstanding common stock as of the close of business record date of July 17, 2017. Stockholders received one additional share for each share held on that date. This was the second stock split for the Company since going public. All share and per share amounts in these consolidated financial statements and related notes have been retroactively adjusted to reflect this stock split for all periods presented.
(3)
SECURITIES
The following table summarizes securities held for investment and securities available for sale:
September 30, 2018
December 31, 2017
Held for investment, at cost (fair value: $1,447 and $2,303, respectively)
Available for sale, at fair value
Total
477,080
469,995
8
The following table summarizes the amortized cost and estimated fair values of securities held for investment:
Amortized
Cost
Gross
Unrealized
Gains
Losses
Estimated
Fair
Value
Mortgage backed securities (1)
151
States and political subdivisions
795
1
796
Other securities
500
1,447
10
197
1,605
(2
1,606
2,303
The following table summarizes the amortized cost and estimated fair values of securities available for sale:
U.S. treasuries
403,213
(5,747
397,466
U.S. federal agencies
32,017
(178
31,840
16,581
119
(566
16,134
30,098
262
(160
30,200
481,909
382
(6,651
314,905
(2,103
312,802
89,098
82
(329
88,851
18,358
204
(586
17,976
41,937
554
(121
42,370
Equity securities (2)
6,527
71
(894
5,704
470,825
911
(4,033
Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies.
(2)
Consisted of equity securities that are included in other assets in 2018.
9
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.
Held for Investment
Contractual maturity of debt securities:
Within one year
495
496
1,036
1,034
After one year but within five years
370
371
623
627
After five years but within ten years
570
575
625
633
After ten years
Available for Sale
61,869
61,656
113,225
112,974
368,309
362,723
289,038
287,058
5,047
5,225
6,222
6,500
46,684
46,036
55,813
55,467
Total debt securities
464,298
461,999
Equity securities
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:
Book value of pledged securities
428,057
440,069
(4)
LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a schedule of loans outstanding by category:
Amount
Percent
Commercial and financial:
Commercial and industrial
1,042,237
21.07
%
995,207
21.08
Oil & gas production and equipment
98,324
1.99
95,574
2.02
Agriculture
127,904
2.59
141,249
2.99
State and political subdivisions:
79,832
1.61
73,827
1.56
41,368
0.84
48,626
1.03
Real estate:
Construction
446,046
9.02
437,277
9.26
Farmland
217,191
4.38
195,162
4.13
One to four family residences
972,922
19.66
875,766
18.55
Multifamily residential properties
62,555
1.26
46,030
Commercial
1,497,894
30.28
1,487,927
31.51
Consumer
323,952
6.55
284,373
6.02
Other (not classified above)
37,303
0.75
40,977
0.87
Total loans
100.00
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 and related borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained, if any, to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral.
The Company’s commercial and industrial loan category includes a small percentage of loans to companies that provide ancillary services to the oil and gas industry, such as transportation, preparation contractors and equipment manufacturers. The balance of these loans was approximately $62 million at September 30, 2018 and approximately $81 million at December 31, 2017.
Accounting policies related to appraisals, nonaccruals and charge-offs are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Nonperforming and Restructured Assets
The following is a summary of nonperforming and restructured assets:
Past due 90 days or more and still accruing
4,073
2,893
Nonaccrual
26,880
31,943
Restructured
13,557
4,720
Total nonperforming and restructured loans
44,510
39,556
Other real estate owned and repossessed assets
7,072
4,424
Total nonperforming and restructured assets
51,582
43,980
Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.7 million for the nine months ended September 30, 2018 and approximately $1.3 million for the nine months ended September 30, 2017.
The Company charges interest on principal balances outstanding on restructured loans during deferral periods. The current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material.
Loans are segregated into classes based upon the nature of the collateral and the borrower. These classes are used to estimate the allowance for loan losses. The following table is a summary of amounts included in nonaccrual loans, segregated by class of loans. Residential real estate refers to one-to-four family real estate.
Non-residential real estate owner occupied
1,526
1,108
Non-residential real estate other
7,125
9,809
Residential real estate permanent mortgage
1,043
781
Residential real estate all other
4,911
3,980
Non-consumer non-real estate
6,032
7,785
Consumer non-real estate
416
250
Other loans
427
5,596
Acquired loans
5,400
2,634
11
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents an age analysis of past due loans, segregated by class of loans:
Age Analysis of Past Due Loans
30-59
Days
Past Due
60-89
90 Days
and
Greater
Loans
Current
Total Loans
Accruing
Loans 90
Days or
More
As of September 30, 2018
977
1,106
2,894
627,528
630,422
90
4,964
385
172
5,521
1,111,929
1,117,450
57
3,910
1,318
961
6,189
322,237
328,426
2,034
2,790
2,333
7,157
810,727
817,884
845
2,573
1,469
2,222
6,264
1,263,816
1,270,080
1,070
1,721
530
2,803
317,629
320,432
345
514
372
886
142,319
143,205
128
2,927
2,175
4,164
9,266
310,363
319,629
1,111
19,620
9,773
11,587
40,980
4,906,548
As of December 31, 2017
998
2,043
639,575
641,618
84
2,905
271
2,112
5,288
1,121,303
1,126,591
432
2,211
403
3,591
326,743
330,334
584
1,739
749
1,377
3,865
781,790
785,655
973
2,210
706
1,785
4,701
1,279,704
1,284,405
2,085
670
293
3,048
285,872
288,920
194
506
103
3,916
4,525
139,920
144,445
753
192
713
1,658
118,369
120,027
223
13,407
3,162
12,150
28,719
4,693,276
Impaired Loans
Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect the full amount of scheduled principal and interest payments in accordance with the original contractual terms of the loan agreement. If a loan is impaired, a specific valuation allowance may be allocated, if necessary, so that the loan is reported, net of allowance for loss, at the present value of future cash flows using the loan’s existing rate, or the fair value of collateral if repayment is expected solely from the collateral.
12
The following table presents impaired loans, segregated by class of loans. During the period ended September 30, 2018 no material amount of interest income was recognized on impaired loans subsequent to their classification as impaired. During the period ended September 30, 2017, $2.3 million of interest income was recognized on impaired loans subsequent to their classification as impaired.
Unpaid
Principal
Balance
Recorded
Investment
with Allowance
Related
Allowance
Average
8,187
8,063
7,877
8,262
7,753
333
8,678
1,842
1,634
1,746
6,762
6,507
2,310
6,678
19,458
12,065
2,234
13,359
897
825
108
818
772
558
43
456
10,784
7,745
7,442
56,964
45,150
5,530
47,054
2,011
1,945
141
1,858
10,323
10,240
3,975
1,745
1,542
146
5,837
5,549
2,135
5,258
18,101
11,158
2,412
11,131
545
127
541
6,092
5,595
178
7,439
4,737
3,145
3,539
49,391
39,688
5,647
35,181
Credit Risk Monitoring and Loan Grading
The Company considers various factors to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical loan loss experience and economic conditions.
An internal risk grading system is used to indicate the credit risk of loans. The loan grades used by the Company are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions.
The general characteristics of the risk grades are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
The following table presents internal loan grading by class of loans:
Internal Loan Grading
Grade
478,014
131,597
19,221
1,590
913,259
181,829
15,238
7,124
280,194
38,452
8,093
1,687
641,246
156,018
15,000
5,620
980,535
268,882
14,915
5,748
297,516
19,975
2,202
739
137,705
5,304
157
39
188,452
99,686
25,082
6,160
249
3,916,921
901,743
99,908
28,707
520,641
105,696
13,852
1,429
931,295
178,282
14,290
2,724
289,200
33,033
6,352
1,749
621,401
149,201
9,418
5,635
1,018,172
234,884
24,322
6,997
30
268,826
17,499
2,038
557
136,617
5,668
1,203
957
65,685
34,418
17,113
2,811
3,851,837
758,681
88,588
22,859
Allowance for Loan Losses Methodology
The allowance for loan losses (“ALL”) methodology is disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
14
The following table details activity in the ALL by class of loans for the period presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
ALL
Balance at
beginning of
period
Charge-
offs
Recoveries
Net
charge-offs
Provisions
charged to
operations
end of
Three Months Ended September 30, 2018
6,426
(179
15
(164
10,705
(8
(49
10,648
3,307
(39
3,311
10,123
(71
95
24
274
10,421
15,069
(343
(336
(337
14,396
2,839
(294
(224
298
2,913
2,328
88
2,422
1,403
(331
266
1,338
52,200
(1,271
199
(1,072
51,875
Nine Months Ended September 30, 2018
6,195
(198
16
(182
413
10,519
(9
99
3,226
(101
26
(75
160
9,672
(312
101
(211
960
15,334
(652
(622
(316
2,793
(738
(544
664
2,481
28
(87
1,446
(530
(501
393
51,666
(2,542
465
(2,077
Three Months Ended September 30, 2017
5,685
(1
261
5,945
10,480
10,551
3,148
(90
(81
91
3,158
8,912
(89
(76
503
9,339
13,643
(538
(514
1,838
14,967
2,706
(238
(181
207
2,732
3,006
(47
153
3,112
1,425
(134
(127
1,451
49,005
(1,138
112
(1,026
51,255
Nine Months Ended September 30, 2017
5,602
(74
(69
412
10,793
(26
(23
(219
3,129
(246
20
(226
255
8,622
(162
(132
849
12,421
(1,215
986
(229
2,775
(706
140
494
4,045
(1,321
22
(1,299
366
1,277
(148
65
(83
257
48,693
(3,898
1,271
(2,627
The following table details the amount of ALL by class of loans for the period presented, detailed on the basis of the impairment methodology used by the Company.
Individually
evaluated for
impairment
Collectively
Non-residential real estate owner occupied.
891
5,535
656
5,539
978
9,670
751
9,768
2,741
483
2,743
3,263
7,158
2,761
6,911
3,486
10,910
4,651
10,683
346
2,567
429
2,364
44
2,378
133
2,348
1,434
9,578
42,297
9,876
41,790
The following table details the loans outstanding by class of loans for the period presented, on the basis of the impairment methodology used by the Company.
Loans acquired
with deteriorated
credit quality
20,813
609,609
15,281
626,337
22,363
1,095,087
17,013
1,109,578
9,779
318,647
8,100
322,234
20,620
797,264
15,052
770,603
20,664
1,249,416
31,349
1,253,056
2,958
317,474
2,600
286,320
130
143,075
143,681
23,916
288,131
7,582
14,464
100,106
5,457
121,243
4,818,703
104,623
4,611,915
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:
2,944
1,906
Repossessed assets
842
887
3,786
(5)
INTANGIBLE ASSETS
The following is a summary of intangible assets:
Carrying
Accumulated
Amortization
Core deposit intangibles
25,907
(10,423
15,484
Customer relationship intangibles
5,699
(4,028
1,671
Mortgage servicing intangibles
(301
102
32,009
(14,752
17,447
(8,451
8,996
(3,767
1,932
439
(285
154
23,585
(12,503
17
The following is a summary of goodwill by business segment:
Executive,
Metropolitan
Community
Financial
Operations
Banks
Services
& Support
Consolidated
Nine month ended September 30, 2018
8,078
39,876
5,464
624
Acquisitions
5,689
20,002
25,691
13,767
59,878
Additional information for intangible assets can be found in Note (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
(6)
STOCK-BASED COMPENSATION
The Company adopted a nonqualified incentive stock option plan (the “BancFirst ISOP”) in May 1986. The Company has amended the BancFirst ISOP since 1986 to increase the number of shares to be issued under the plan to 6,400,000 shares. At September 30, 2018, there were 297,970 shares available for future grants. The BancFirst ISOP will terminate on December 31, 2019, if not extended. The options vest and are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options expire at the end of fifteen years from the date of grant. Options outstanding as of September 30, 2018 will become exercisable through the year 2025. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.
In June 1999, the Company adopted the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “BancFirst Directors’ Stock Option Plan”). Each non-employee director is granted an option for 10,000 shares. The Company has amended the BancFirst Directors’ Stock Option Plan since 1999 to increase the number of shares to be issued under the plan to 520,000 shares. At September 30, 2018, there were 40,000 shares available for future grants. The BancFirst Directors’ Stock Option Plan will terminate on December 31, 2019, if not extended. The options vest and are exercisable beginning one year from the date of grant at the rate of 25% per year for four years, and expire at the end of fifteen years from the date of grant. Options outstanding as of September 30, 2018 will become exercisable through the year 2022. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.
The Company currently uses newly issued shares for stock option exercises, but reserves the right to use shares purchased under the Company’s Stock Repurchase Program (the “SRP”) in the future.
The following table is a summary of the activity under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:
Wgtd. Avg.
Remaining
Aggregate
Exercise
Contractual
Intrinsic
Options
Price
Term
(Dollars in thousands, except option data)
Outstanding at December 31, 2017
1,273,625
25.90
Options granted
57,000
57.71
Options exercised
(118,425
17.37
Options canceled, forfeited, or expired
(5,000
48.02
Outstanding at September 30, 2018
1,207,200
28.14
9.70 Yrs
38,399
Exercisable at September 30, 2018
530,200
21.15
7.05 Yrs
20,574
18
The following table has additional information regarding options granted and options exercised under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:
(Dollars in thousands except per share data)
Weighted average grant-date fair value per share of options granted
16.49
11.63
14.93
11.21
Total intrinsic value of options exercised
766
1,493
4,593
7,138
Cash received from options exercised
856
2,057
4,113
Tax benefit realized from options exercised
578
1,170
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value of each option is expensed over its vesting period.
The following table is a summary of the Company’s recorded stock-based compensation expense:
Stock-based compensation expense
Tax benefit
137
317
Stock-based compensation expense, net of tax
263
217
731
502
The Company will continue to amortize the unearned stock-based compensation expense over the remaining vesting period of approximately seven years. The following table shows the unearned stock-based compensation expense:
Unearned stock-based compensation expense
3,350
The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the periods presented:
Risk-free interest rate
2.55 to 3.05%
2.15 to 2.38%
Dividend yield
2.00%
Stock price volatility
23.05 to 23.46%
22.57 to 23.53%
Expected term
10 Yrs
The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S. Treasury security with a maturity similar to the expected term of the options. The dividend yield is the expected yield for the expected term. The stock price volatility is estimated from the recent historical volatility of the Company’s stock. The expected term is estimated from the historical option exercise experience. The Company accounts for forfeitures as they occur.
In May 1999, the Company adopted the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “BancFirst Deferred Stock Compensation Plan”). The Company has amended the BancFirst Deferred Stock Compensation Plan since 1999 to increase the number of shares to be issued under the plan to 222,220 shares. The BancFirst Deferred Stock Compensation Plan will terminate on December 31, 2019, if not extended. Under the plan, directors and members of the community advisory boards of the Company and its subsidiaries may defer up to 100% of their board fees. They are credited for each deferral with a number of stock units based on the current market price of the Company’s stock, which accumulate in an account until such time as the director or community board member terminates serving as a board member. Shares of common stock of the Company are then distributed to the terminating director or community board member based upon the number of stock units accumulated in his or her account. There were 3,891 and 9,918 shares of common stock distributed from the BancFirst Deferred Stock Compensation Plan during the nine months ended September 30, 2018 and September 30, 2017, respectively.
A summary of the accumulated stock units is as follows:
Accumulated stock units
140,946
138,768
Average price
24.36
22.84
(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:
Number of shares repurchased
Average price of shares repurchased
Shares remaining to be repurchased
300,000
The Company and BancFirst are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“FDIC”). These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’s and BancFirst’s assets, liabilities and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s financial statements. Management believes that as of September 30, 2018, the Company and BancFirst met all capital adequacy requirements to which they are subject. The actual and required capital amounts and ratios are shown in the following table:
Required
To Be Well
For Capital
With
Capitalized Under
Adequacy
Capital Conservation
Prompt Corrective
Actual
Purposes
Buffer
Action Provisions
Ratio
As of September 30, 2018:
Total Capital
(to Risk Weighted Assets)-
875,460
16.39%
427,430
8.00%
527,609
9.875%
BancFirst
745,152
13.96%
426,871
526,919
533,589
10.00%
Common Equity Tier 1 Capital
792,585
14.83%
240,430
4.50%
340,609
6.375%
673,277
12.62%
240,115
340,163
346,833
6.50%
Tier 1 Capital
823,585
15.41%
320,573
6.00%
420,752
7.875%
693,277
12.99%
320,153
420,202
(to Total Assets)-
10.93%
301,392
4.00%
9.21%
301,193
376,491
5.00%
As of September 30, 2018, the most recent notification from the Federal Reserve Bank of Kansas City and the FDIC categorized BancFirst as “well capitalized” under the regulatory framework from prompt corrective action. The Company’s trust preferred securities have continued to be included in Tier 1 capital as the Company’s total assets do not exceed $15 billion. There are no conditions or events since the most recent notifications of BancFirst’s capital category that management believes would materially change its category under capital requirements existing as of the report date.
Basel III Capital Rules
Under the Basel III Capital Rules, 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 began on January 1, 2016 at the 0.625% level and will 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 September 30, 2018, 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.
21
(8)
Basic and diluted net income per common share based on weighted-average shares outstanding are calculated as follows:
Income
(Numerator)
Shares
(Denominator)
Per Share
Income available to common stockholders
32,742,480
Dilutive effect of stock options
761,663
Income available to common stockholders plus assumed
exercises of stock options
33,504,143
31,838,392
753,885
32,592,277
32,678,310
752,451
33,430,761
31,792,270
741,949
32,534,219
The following table shows the number of options that were excluded from the computation of diluted net income per common share for each period because the options’ exercise prices were greater than the average market price of the common shares:
83,799
75,543
84,368
39,120
(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.
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, repossessed assets, other real estate owned, goodwill and other intangible assets.
Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis
A description of the valuation methodologies and key inputs used to measure financial assets and financial liabilities at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to the following categories of the Company’s financial assets and financial liabilities.
Securities Available for Sale
Securities classified as available for sale are reported at fair value. U.S. Treasuries are valued using Level 1 inputs. Other securities available for sale including U.S. federal agencies, registered mortgage backed securities and state and political subdivisions are valued using prices from an independent pricing service utilizing Level 2 data. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The Company also invests in private label mortgage backed securities for which observable information is not readily available. These securities are reported at fair value utilizing Level 3 inputs. For these securities, management determines the fair value based on replacement cost, the income approach or information provided by outside consultants or lead investors.
The Company reviews the prices for Level 1 and Level 2 securities supplied by the independent pricing service for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities that are esoteric or that have complicated structures. The Company’s portfolio primarily consists of traditional investments including U.S. Treasury obligations, federal agency mortgage pass-through securities, general obligation municipal bonds and a small amount of municipal revenue bonds. Pricing for such instruments is fairly generic and is easily obtained. For in-state bond issues that have relatively low issue sizes and liquidity, the Company utilizes the same parameters for pricing mentioned in the preceding paragraph adjusted for the specific issue. Periodically, the Company will validate prices supplied by the independent pricing service by comparison to prices obtained from third party sources.
Equity Securities
The Company invests in equity securities without readily determinable fair values and utilizes Level 3 inputs. Beginning January 1, 2018, upon adoption of ASU 2016-01, these securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. For periods prior to January 1, 2018, equity securities were classified as available-for-sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (loss), net of tax.
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.
23
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Level 1 Inputs
Level 2 Inputs
Level 3 Inputs
Total Fair Value
Securities available for sale:
U.S. Treasury
Mortgage-backed securities
2,691
13,443
6,509
Derivative assets
247
Derivative liabilities
229
3,509
14,467
295
The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows:
Twelve Months Ended
Balance at the beginning of the year
20,171
21,385
Purchases
2,118
1,668
Settlements
(2,385
(722
Sales
(73
(5,412
Gains included in earnings
67
4,060
Total unrealized losses
54
(808
Balance at the end of the period
19,952
The Company’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period. During the nine months ended September 30, 2018 and 2017, 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. In no case does the fair value of an impaired loan exceed the fair value of the underlying collateral. The impaired loans are adjusted to fair value through a specific allocation of the allowance for loan losses or a direct charge-down of the loan.
Repossessed assets, upon initial recognition, are measured and adjusted to fair value through a charge-off to the allowance for possible loan losses based upon the fair value of the repossessed asset.
Other real estate owned is revalued at fair value subsequent to initial recognition, with any losses recognized in net expense from other real estate owned.
The following table summarizes assets measured at fair value on a nonrecurring basis. The fair value represents end of period values, which approximate fair value measurements that occurred on various measurement dates throughout the period:
Level 3
As of and for the Year-to-date Period Ended September 30, 2018
Impaired loans (less specific allowance)
39,620
244
4,610
As of and for the Year-to-date Period Ended December 31, 2017
34,041
1,995
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.
To determine the fair value of loans, the Company uses an exit price calculation, which takes into account factors such as liquidity, credit and the nonperformance risk of loans. For certain homogeneous categories of loans, such as some residential mortgages, fair values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
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.
25
Junior Subordinated Debentures
The fair values of junior subordinated debentures are estimated using the rates that would be charged for junior subordinated debentures of similar remaining maturities.
Loan Commitments and Letters of Credit
The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the terms of the agreements. The fair values of letters of credit are based on fees currently charged for similar agreements.
The estimated fair values of the Company’s financial instruments that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:
Fair Value
FINANCIAL ASSETS
Level 2 inputs:
Cash and cash equivalents
1,792,766
1,758,575
Securities held for investment
940
947
1,792
1,803
Level 3 inputs:
4,854,167
4,663,608
FINANCIAL LIABILITIES
6,760,191
6,490,309
34,795
34,661
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments
2,006
1,839
Letters of credit
425
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 periodically) and other non-financial long-lived assets measured at fair value and adjusted for impairment. These items are evaluated at least annually for impairment. The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were not considered to be significant to the Company at September 30, 2018 or December 31, 2017.
(10)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:
Eliminations
Net interest income (expense)
21,313
42,773
1,241
Noninterest income
4,266
15,404
10,264
36,503
(33,636
16,538
27,515
4,440
26,344
(32,919
18,617
37,310
1,332
3,981
13,884
9,217
24,470
(22,383
11,499
23,810
3,762
15,137
(21,682
62,701
126,223
4,074
590
12,391
44,189
28,784
102,306
(94,322
46,157
81,805
13,511
69,881
(92,659
54,969
109,480
(534
11,748
40,821
24,983
74,586
(66,901
36,357
71,038
10,526
47,368
(65,942
Total Assets:
2,724,502
4,841,853
80,411
945,221
(989,549
2,552,024
4,544,196
117,332
885,590
(845,986
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.
27
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, 2017 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and the Company’s consolidated financial statements and the related Notes included in Item 1.
FORWARD LOOKING STATEMENTS
The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management’s current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.
Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.
Inflation, interest rate, crude oil price, securities market and monetary fluctuations.
The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company must comply.
Impairment of the Company’s goodwill or other intangible assets.
Changes in consumer spending, borrowing and savings habits.
Changes in the financial performance and/or condition of the Company’s borrowers.
Technological changes.
Acquisitions and integration of acquired businesses.
The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.
The Company’s success at managing the risks involved in the foregoing items.
Actual results may differ materially from forward-looking statements.
SUMMARY
BancFirst Corporation’s net income for the third quarter of 2018 was $32.9 million, compared to $21.7 million for the third quarter of 2017. Diluted net income per common share was $0.98 and $0.67 for the third quarter of 2018 and 2017, respectively.
Net income was $93.1 million, or $2.78 diluted earnings per share, for the nine months ended September 30, 2018, compared to net income of $66.9 million, or $2.06 diluted earnings per share, for the nine months ended September, 30, 2017. On January 11, 2018 the Company completed the acquisitions of two Oklahoma banking corporations. Consequently, the nine months ended September 30, 2018 included one-time acquisition related expenses of approximately $2.6 million. Net income for the nine months ended September 30, 2017 included the effects of favorable resolutions of two problem loans which resulted in principal recovery of $894,000 and unaccrued interest income of $2.3 million.
The Company’s net interest income for the third quarter of 2018 increased to $65.7 million, compared to $57.2 million for the third quarter of 2017. The net interest margin for the quarter was 3.68%, compared to 3.46% a year ago. The increase in margin was primarily due to the increase in the federal funds rate throughout 2017 and 2018 and the two acquisitions in the first quarter of 2018. The Company’s provision for loan losses for the third quarter of 2018 was $747,000, compared to $3.3 million a year ago. Net charge-offs for the third quarter of 2017 and 2018 were both 0.02% of average loans. Noninterest income for the quarter totaled $32.8 million, compared to $29.2 million last year. The increase in noninterest income was primarily due to the growth in debit card usage fees, insurance commissions and cash management revenue. Noninterest expense for the quarter totaled $55.8 million, compared to $50.6 million last year. The increase in noninterest expenses was primarily due to salary increases in 2018 and the two acquisitions. The Company’s effective tax rate for the third quarter of 2018 was 21.6% compared to 33.3% for the third quarter of 2017. The decrease in the effective tax rate compared to the third quarter of 2017 was due to the change in tax rates from the Tax Cuts and Jobs Act and exercising of stock options during the third quarter of 2018.
At September 30, 2018, the Company’s total assets were $7.6 billion, an increase of $349.3 million from December 31, 2017. The increase in total assets was primarily related to the acquisitions during the first quarter. Securities of $477.1 million were up slightly from December 31, 2017, despite the decrease related to Accounting Standards Update No. 2016-01, which revised securities to exclude equity investments in 2018. Loans totaled $5.0 billion, a slight decrease from June 30, 2018. Loan growth for the nine months ended September 30, 2018 was primarily from acquired loans. Deposits totaled $6.6 billion, an increase of $228.1 million from the December 31, 2017 total, which was primarily related to the acquisitions. The Company’s total stockholders’ equity was $884.8 million, an increase of $109.2 million over December 31, 2017.
Asset quality remained strong during the third quarter of 2018. Nonperforming and restructured assets were 0.68% of total assets at September 30, 2018 compared to 0.61% at December 31, 2017. The allowance to total loans was 1.05%, compared to 1.09% at year-end 2017. The allowance to nonperforming and restructured loans was 116.5% compared to 130.6% at year-end 2017.
On January 11, 2018, the Company completed the previously announced acquisitions of two Oklahoma banking corporations. First Wagoner Corporation and its subsidiary bank, First Bank & Trust Company, and First Chandler Corp. and its subsidiary bank, First Bank of Chandler, had combined total assets of approximately $378 million. The Company exchanged a combination of cash and stock for these transactions.
On August 31, 2018 the Company’s wholly-owned subsidiary, BFTower, LLC, completed the purchase of Cotter Ranch Tower in Oklahoma City for $21.0 million. The Tower consists of an aggregate of 507,000 square feet, has 36 floors and is the second tallest building in Oklahoma City. The Company plans to move its headquarters to this location as soon as renovations are complete.
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 (10) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.
RESULTS OF OPERATIONS
Selected income statement data and other selected data for the comparable periods were as follows:
SELECTED CONSOLIDATED FINANCIAL DATA
Income Statement Data
Securities transactions
Per Common Share Data
Net income – basic
Net income – diluted
Cash dividends
0.30
0.21
0.72
0.59
Performance Data
Return on average assets
1.71
1.22
1.64
Return on average stockholders’ equity
14.86
11.34
14.62
12.06
Cash dividend payout ratio
29.70
30.80
25.26
28.02
Net interest spread
3.20
3.28
Net interest margin
3.68
3.46
3.42
Efficiency ratio
56.67
58.56
57.84
58.79
Net charge-offs to average loans
0.02
0.04
0.06
Net Interest Income
For the three months ended September 30, 2018, net interest income, which is the Company’s principal source of operating revenue, increased 14.7% compared to the three months ended September 30, 2017. Net interest margin, which is shown in the preceding table, is the ratio of taxable-equivalent net interest income to average earning assets for the period. The increase in the margin was primarily due to the increase in the federal funds rate throughout 2017 and 2018 and the two acquisitions in the first quarter of 2018.
Net interest income for the nine months ended September 30, 2018 increased 14.9% compared to the nine months ended September 30, 2017. The net interest margin for the year-to-date increased compared to the same period of the previous year, as shown in the preceding table. The increase in the margin was primarily due to the increase in the federal funds rate throughout 2017 and 2018 and the two acquisitions in the first quarter of 2018.
Provision for Loan Losses
The Company’s provision for loan loss for the third quarter of 2018 was $747,000 compared to $3.3 million a year ago. The Company establishes an allowance as an estimate of the probable inherent losses in the loan portfolio at the balance sheet date. Management believes the allowance for loan losses is appropriate based upon management’s best estimate of probable losses that have been incurred within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the amount of future provisions for loan losses. Net loan charge-offs were $1.1 million for the third quarter of 2018, compared to $1.0 million for the third quarter of 2017. The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a very low level.
For the nine months ended September 30, 2018, the Company’s provision for loan losses was $2.3 million compared to $5.2 million for the nine months ended September 30, 2017. Net loan charge-offs were $2.1 million, compared to $2.6 million for the same period of the prior year.
Noninterest Income
Noninterest income totaled $32.8 million for the third quarter of 2018 compared to $29.2 million for the third quarter of 2017. Noninterest income included increases in trust revenue, insurance commissions, debit card usage fees and non-sufficient funds fees. The Company had fees from debit card usage totaling $7.4 million and $6.6 million during the three month periods ended September 30, 2018 and 2017, respectively. This represents 22.7% and 22.6% of the Company’s noninterest income for the three month periods ended September 30, 2018 and 2017, respectively. In addition, the Company has non-sufficient funds fees totaling $8.2 million and $7.5 million for the three month periods ended September 30, 2018 and 2017, respectively. This represents 24.9% and 25.8% of the Company’s noninterest income for the three month periods ended September 30, 2018 and 2017, respectively.
Noninterest income for the nine months ended September 30, 2018 totaled $93.3 million compared to $85.2 million for the nine months ended September 30, 2017. Noninterest income included increases in trust revenue, insurance commissions, debit card usage fees and non-sufficient funds fees. Fees from debit card usage totaled $21.7 million and $19.5 million during the nine months ended September 30, 2018 and 2017, respectively. This represents 23.2% and 22.8% of the Company’s noninterest income for the nine month periods ended September 30, 2018 and 2017, respectively. In addition, the Company had non-sufficient fund fees totaling $23.0 million and $21.7 million during the nine months ended September 30, 2018 and 2017, respectively. This represents 24.6% and 25.4% of the Company’s noninterest income for the nine month periods ended September 30, 2018 and 2017, respectively.
Noninterest Expense
For the three months ended September 30, 2018, noninterest expense totaled $55.8 million, compared to $50.6 million for the three months ended September 30, 2017. The increase in noninterest expense for the third quarter of 2018 was due to salary increases in 2018 and the two acquisitions.
For the nine months ended September 30, 2018, noninterest expense totaled $166.0 million compared to $149.1 million for the nine months ended September 30, 2017. The increase in noninterest expense for year-to-date 2018 was primarily due to salary increases in 2018 and the two acquisitions which included one-time acquisition related expenses of approximately $2.6 million.
Income Taxes
The Company’s effective tax rate on income before taxes was 21.6% for the third quarter of 2018, compared to 33.3% for the third quarter of 2017. The decrease in the effective tax rate was due to the change in tax rates from the Tax Cuts and Jobs Act and exercising of stock options during the period.
The Company’s effective tax rate on income before taxes was 21.6% for the first nine months of 2018, compared to 32.6% for the first nine months of 2017. The decrease in the effective tax rate was due to the change in tax rates from the Tax Cuts and Jobs Act and exercising of stock options during the period.
31
FINANCIAL POSITION
Balance Sheet Data
Total loans (net of unearned interest)
4,952,267
4,728,168
Securities
Stockholders' equity
Book value per share
27.02
24.32
Tangible book value per share (non-GAAP)(1)
24.06
22.28
Average loans to deposits (year-to-date)
74.76
72.22
Average earning assets to total assets (year-to-date)
93.04
93.41
Average stockholders’ equity to average assets (year-to-date)
11.23
10.56
Asset Quality Ratios
Nonperforming and restructured loans to total loans
0.90
Nonperforming and restructured assets to total assets
0.61
Allowance for loan losses to total loans
1.05
1.09
Allowance for loan losses to nonperforming and restructured loans
116.55
130.62
Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2)
Less goodwill
Less intangible assets, net
Tangible stockholders' equity (non-GAAP)
787,811
710,505
Common shares outstanding
32,749,690
31,894,563
Tangible book value per share (non-GAAP)
Refer to the “Reconciliation of Tangible Book Value per Common Share (non-GAAP)” Table
Tangible book value per common share is stockholders’ equity less goodwill and intangible assets, net, divided by common shares outstanding. This amount is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate the financial condition and capital strength of the Company. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
Cash, Federal Funds Sold and Interest-Bearing Deposits with Banks
The aggregate of cash and due from banks, interest-bearing deposits with banks and federal funds sold increased slightly by $34.2 million or 1.9% to $1.8 billion, from December 31, 2017 to September 30, 2018.
At September 30, 2018, total securities increased $7.1 million, or 1.5% compared to December 31, 2017, despite Accounting Standards Update No. 2016-01 which revised securities to exclude equity investments in 2018. The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management. The net unrealized loss on securities available for sale, before taxes, was $6.3 million at September 30, 2018, compared to $3.1 million at December 31, 2017. These unrealized losses are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax, in the amounts of $4.7 and $2.3 million, respectively.
32
Loans (Including Acquired Loans)
At September 30, 2018, loans totaled $5.0 billion, an increase of $224.1 million from December 31, 2017. Loan growth for the nine months ended September 30, 2018 was primarily from acquired loans.
Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans
At September 30, 2018, the allowance for loan losses to total loans represented 1.05% of total loans, compared to 1.09% at December 31, 2017.
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 interest rate component was $2.3 million at September 30, 2018 and zero at December 31, 2017. The credit component of the adjustment was $8.3 million at September 30, 2018 and $1.2 million at December 31, 2017 while the acquired loans outstanding were $319.6 million and $120.0 million, respectively.
Nonperforming and restructured assets totaled $51.6 million at September 30, 2018, compared to $44.0 million at December 31, 2017. The Company’s level of nonperforming and restructured assets has continued to be relatively low.
Nonaccrual loans totaled $26.9 million at September 30, 2018, compared to $31.9 million at the end of 2017. The Company’s nonaccrual loans are primarily commercial and real estate loans. Nonaccrual loans negatively impact the Company’s net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of interest or principal or both is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $1.7 million for the nine months ended September 30, 2018 and $1.3 million for the nine months ended September 30, 2017. Only a small amount of this interest is expected to be ultimately collected.
Restructured loans totaled $13.6 million at September 30, 2018, compared to $4.7 million at the end of 2017. The increase in restructured loans was due primarily to a few commercial loans identified as troubled debt restructurings during the period and the restructured loans from the two acquisitions. The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings whose terms were modified during the period were not considered to be material.
Other real estate owned and repossessed assets totaled $7.1 million at September 30, 2018, compared to $4.4 million at December 31, 2017.
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 $14.2 million of these loans at September 30, 2018, compared to $7.7 million at December 31, 2017. Potential problem loans are not included in nonperforming and restructured loans. In general, these loans are adequately collateralized and have no specific identifiable probable loss. Loans which are considered to have identifiable probable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming.
Liquidity and Funding
At September 30, 2018, deposits totaled $6.6 billion, an increase of $228.1 million from the December 31, 2017 total, which was primarily related to the acquisitions during the first quarter of 2018. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s core deposits were 98.0% of total deposits at September 30, 2018 compared to 98.1% at December 31, 2017. Noninterest-bearing deposits were 40.1% of total deposits at September 30, 2018 compared to 39.8% at December 31, 2017.
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
33
ability to earn a favorable spread on the funds obtained. Short-term borrowings were $2.2 million at September 30, 2018, compared to $900,000 at December 31, 2017.
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 $775.7 million, are pledged as collateral for the borrowings under the line of credit. As of September 30, 2018 and December 31, 2017, the Company had no advances outstanding under the line of credit from FHLB. In addition, the Company has a revolving line of credit with another financial institution with the ability to draw up to $10.0 million with no advances outstanding. This line of credit has a variable rate based on prime rate minus 25 basis points and matures in 2020.
There have not been any other material changes from the liquidity and funding discussion included in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Capital Resources
Stockholders’ equity totaled $848.8 million at September 30, 2018, compared to $775.6 million at December 31, 2017. In addition to net income of $93.1 million, other changes in stockholders’ equity during the nine months ended September 30, 2018 included $41.6 million related to common stock issuances and $981,000 related to stock-based compensation, that were partially offset by $23.6 million in dividends and a $3.0 million decrease in other comprehensive income. The Company’s leverage ratio and total risk-based capital ratios at September 30, 2018, were well in excess of the regulatory requirements.
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, 2017.
34
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
Three Months Ended September 30,
Interest
Income/
Yield/
Expense
Rate
Earning assets:
Loans (1)
4,973,580
66,852
5.33
4,597,267
56,319
4.86
Securities – taxable
432,935
421,464
1.66
Securities – tax exempt
23,469
184
3.10
30,920
287
Federal funds sold and interest-bearing deposits with banks
1,657,460
8,254
1.98
1,552,975
4,978
1.27
Total earning assets
7,087,444
77,536
4.34
6,602,626
63,347
3.81
Nonearning assets:
182,449
176,194
Interest receivable and other assets
414,096
341,724
(52,293
(49,186
Total nonearning assets
544,252
468,732
7,631,696
7,071,358
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Transaction deposits
775,122
744
0.38
759,160
0.19
Savings deposits
2,553,401
8,010
1.24
2,304,342
3,479
0.60
Time deposits
736,060
2,417
1.30
668,378
1,396
0.83
8,960
1.85
2,262
0.99
6.80
6.60
Total interest-bearing liabilities
4,105,502
1.14
3,766,101
Interest-free funds:
Noninterest-bearing deposits
2,610,935
2,515,521
Interest payable and other liabilities
37,051
30,071
Stockholders’ equity
878,208
759,665
Total interest free funds
3,526,194
3,305,257
Total liabilities and stockholders’ equity
65,776
57,562
Effect of interest free funds
0.48
0.26
Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.
35
Nine Months Ended September 30,
4,975,621
195,657
5.26
4,501,675
165,132
4.90
437,379
1.86
427,635
1.70
26,969
606
3.00
32,107
848
3.53
1,609,596
21,560
1.79
1,650,902
12,844
1.04
7,049,565
223,923
4.25
6,612,319
184,254
3.73
184,170
174,975
395,607
339,232
(52,190
(48,644
527,587
465,563
7,577,152
7,077,882
801,750
1,740
0.29
782,588
0.14
2,502,746
20,305
1.08
2,280,310
8,554
0.50
756,041
6,105
678,520
3,922
0.77
6,332
0.92
6.65
4,098,828
0.97
3,775,283
0.53
2,594,714
2,533,750
32,518
26,801
851,092
742,048
3,478,324
3,302,599
194,062
169,380
0.40
0.22
36
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no significant changes in the Registrant’s disclosures regarding market risk since December 31, 2017, the date of its most recent annual report to stockholders.
Item 4. Controls and Procedures.
The Company’s Chief Executive Officer, Chief Financial Officer and its Disclosure Committee, which includes the Company’s Executive Chairman, Chief Risk Officer, Chief Internal Auditor, Chief Asset Quality Officer, Controller, General Counsel and Vice President of Corporate Finance, have evaluated, as of the last day of the period covered by this report, the Company’s disclosure controls and procedures. Based on their evaluation they concluded that the disclosure controls and procedures of the Company are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms.
No changes were made to the Company’s internal control over financial reporting during the period covered by this report that materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has been named as a defendant in various legal actions arising from the conduct of its normal business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse effect on the consolidated financial statements of the Company.
Item 1A. Risk Factors.
As of September 30, 2018, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
38
Item 6. Exhibits.
ExhibitNumber
Exhibit
3.1
Second Amended and Restated Certificate of Incorporation of BancFirst Corporation (filed as Exhibit 1 to the Company’s 8-A/A filed July 24, 1998 and incorporated herein by reference).
3.2
Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of BancFirst Corporation dated June 15, 2004 (filed as Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004 and incorporated herein by reference).
3.3
Amended and Restated By-Laws of BancFirst Corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 30, 2015 and incorporated herein by reference).
3.4
Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of BancFirst Corporation dated May 23, 2013 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 29, 2013 and incorporated herein by reference).
3.5
Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of BancFirst Corporation dated May 31, 2017 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 31, 2017 and incorporated herein by reference).
4.1
Instruments defining the rights of securities holders (see Exhibits 3.1, 3.2, 3.3 and 3.4 above).
4.2
Form of Amended and Restated Trust Agreement relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.5 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).
4.3
Form of 7.20% Cumulative Trust Preferred Security Certificate for BFC Capital Trust II (filed as Exhibit D to Exhibit 4.5 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).
4.4
Form of Indenture relating to the 7.20% Junior Subordinated Deferrable Interest Debentures of BancFirst Corporation issued to BFC Capital Trust II (filed as Exhibit 4.1 to the Company’s registration statement on Form S-3, File No. 333-112488 dated February 4, 2004, and incorporated herein by reference).
4.5
Form of Certificate of 7.20% Junior Subordinated Deferrable Interest Debenture of BancFirst Corporation (filed as Exhibit 4.2 to the Company’s registration statement on Form S-3, File No. 333-112488 dated February 4, 2004, and incorporated herein by reference).
4.6
Form of Guarantee of BancFirst Corporation relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.7 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).
4.7
Form of Guarantee Agreement by and between CSB Bancshares, Inc. and Wilmington Trust Company (filed as Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).
4.8
Form of Indenture relating to the Floating Rate Junior Subordinated Deferrable Interest Debentures of CSB Bancshares, Inc., issued to Wilmington Trust Company (filed as Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).
4.9
Form of First Supplemental Indenture relating to the Floating Rate Junior Subordinated Deferrable Interest Debentures by and between Wilmington Trust Company and BancFirst Corporation (filed as Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).
10.1
BancFirst Corporation Employee Stock Ownership and Trust Agreement adopted effective January 1, 2015 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2015 and incorporated herein by reference).
10.2
Amendment Number One to the BancFirst Corporation Employee Stock Ownership Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 26, 2018 and incorporated herein by reference).
10.3
Fifth Amended and Restated BancFirst Corporation Directors’ Stock Option Plan (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 and incorporated herein by reference).
10.4
Fifth Amended and Restated BancFirst Corporation Directors’ Deferred Stock Compensation Plan (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 and incorporated herein by reference).
10.5
Fourteenth Amended and Restated BancFirst Corporation Stock Option Plan (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 and incorporated herein by reference).
10.6
Adoption Agreement for the BancFirst Corporation Thrift Plan adopted April 21, 2016 effective January 1, 2016. (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2016 and incorporated herein by reference).
10.7
Amendment Number One to the BancFirst Corporation Thrift Plan. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 26, 2018 and incorporated herein by reference).
10.8
Purchase and Sale Agreement and Escrow Instructions by and between Cottor Tower – Oklahoma L.P. and BancFirst Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 5, 2018 and incorporated herein by reference).
10.9
First Amendment to Purchase and Sale Agreement and Escrow Instructions by and between Cottor Tower – Oklahoma L.P. and BancFirst Corporation (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 5, 2018 and incorporated herein by reference).
31.1*
Chief Executive Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2*
Chief Financial Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32*
CEO’s & CFO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label Linkbase
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
*
Filed herewith.
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: November 2, 2018
/s/ David Harlow
David Harlow
President
Chief Executive Officer
(Principal Executive Officer)
/s/ Kevin Lawrence
Kevin Lawrence
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
41