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| BANF > SEC Filings for BANF > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
SUMMARY
Net income for the third quarter of 2008 was $11.0 million compared to $16.9 million for the third quarter of 2007. Diluted net income per share was $0.70 and $1.06 for the third quarter of 2008 and 2007, respectively. For the first nine months of 2008, net income was $36.3 million, compared to $41.5 million for the first nine months of 2007. Diluted net income per share for the first nine months of 2008 was $2.33 compared to $2.62 for the first nine months of 2007. The results for 2008 and 2007 include several one-time items that are more fully described below.
Total assets at September 30, 2008 were $3.8 billion, up $82.5 million from December 31, 2007 and up $279.2 million from a year ago. Total loans increased to $2.73 billion, up $243.3 million from December 31, 2007 and up $330.4 million from September 30, 2007. Total deposits were $3.4 billion, up $72.7 million from December 31, 2007 and up $241.5 million from September 30, 2007. Stockholders' equity was $398 million, or 10.4% of total assets, at September 30, 2008, up $25.7 million from December 31, 2007 and $38.8 million from September 30, 2007. The Company's liquidity remains strong as its average loan to deposit ratio was 77.7% at quarter end and core deposits represented 89.8% of total deposits. The Company had no brokered deposits and no Federal Home Loan Bank borrowings.
In June 2008, the Company recorded a $1.2 million pre-tax gain from the sale of an asset. The gain was included in gain on sale of other assets.
In April 2008, the Company completed an $80 million sale of securities resulting in a securities pre-tax gain of $6.1 million. The transaction resulted in the sale of $80 million of US Treasury securities and the purchase of Government Sponsored Enterprises (GSE) senior debt securities of similar amounts and maturities. The after-tax impact of these transactions was approximately $3.8 million or $0.24 per diluted earnings per share for the second quarter, and $3.3 million or $0.21 per diluted earnings per share for the year.
In March 2008, the Company, as a member bank of Visa, recorded a $1.8 million pre-tax gain from the mandatory partial redemption of the Company's Visa shares received in the first quarter initial public offering. The gain was included in gain on sale of other assets.
In July 2007, the Company was awarded the $3 million bond claim by their fidelity bond carrier for the $3.3 million cash shortfall that was reported in the second quarter of 2005.
In June 2007, the Company entered into an agreement to sell one of its investments held by Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst, that resulted in a one-time gain of approximately $7.8 million. The transaction was consummated on August 1, 2007. The Company made a $1 million contribution to its charitable foundation with the funds from the gain. This one-time gain, net of related expenses, income taxes and the contribution had a net income effect of approximately $3.9 million.
During the first quarter of 2007 the Company entered into an agreement to acquire Armor Assurance Company (Armor), an insurance agency in Muskogee, Oklahoma for cash of approximately $3.3 million and a $372,000 note payable in three equal annual installments. The transaction was consummated in April 2007. Armor had total assets of approximately $364,000. As a result of the acquisition, Armor was merged with the Company's existing property casualty agency, Wilcox & Jones, to form Wilcox, Jones & McGrath, Inc. The acquisition was accounted for as a purchase. Accordingly, the effects of the acquisition are included in the Company's consolidated financial statements from the date of acquisition forward. The acquisition did not have a material effect on the results of operations of the Company for 2007 or the first nine months of 2008.
In recent months certain events in the national economy have caused credit and liquidity issues, declining home sales and values, declining commodity prices and a disorderly financial market, which has resulted in an increase in credit losses at many U.S. banks. While the Oklahoma economy has performed better than the national average, the state is beginning to feel the impact of the national recession. Consequently, it is reasonable to expect nonperforming loans and loan losses of the Company to increase. Also, in light of declining interest rates and competitive pressures for deposits, the Company's interest rate margin will likely compress further, and it is likely to experience slower loan growth. The FDIC has indicated that deposit insurance premiums will increase beginning in 2009. This change will cause the Company's noninterest expense to increase next year. The Company has considered and evaluated the programs offered as part of the Emerging Economic Stabilization Act. The Company has decided to participate in the deposit insurance guarantee for noninterest bearing deposits in excess of $250,000. This program is at a cost of 10 basis points on those account balances. The Company will not participate in the Temporary Liquidity Guarantee Program on senior debt. The Company does not intend to participate in the Troubled Asset Relief Program Capital Purchase Program.
RESULTS OF OPERATIONS
Third Quarter
Net interest income totaled $35.3 million, a decrease of $1.7 million, or 4.6%, compared to the third quarter of 2007. The Company's net interest margin (on a taxable equivalent basis) was 4.03% compared to 4.55% for the same period a year ago. The lower interest rate environment in 2008 compared to a year ago has caused the Company's net interest margin to decline.
The Company's provision for loan losses was $2.3 million compared to $2.2 million during the same period a year ago. Net loan charge-offs were $1.9 million for the third quarter of 2008, compared to $988,000 for the third quarter of 2007. The net charge-offs represent a rate of 0.32% of average total loans for the third quarter of 2008 compared to 0.17% for the same period in 2007.
Noninterest income was $17.8 million for the quarter, up $1.1 million or 6.9% over operating noninterest income for the same quarter a year ago, excluding the one-time items previously mentioned. Noninterest expense of $34.3 million was up 2.8% from the operating expenses a year ago, excluding the one-time items of $1.8 million in the third quarter of 2007. The Company's effective tax rate was 33.4% for the quarter compared to 35.7% a year ago.
Year-To-Date
Net interest income for the nine months ended September 30, 2008 was $105.4 million, a decrease of $5.4 million from the same period in 2007. The net interest margin in 2008 decreased to 4.11% from 4.65% for the first nine months of 2007. The lower interest rate environment in 2008 compared to the first nine months of 2007 as a result of Federal Reserve rate cuts has caused the Company's net interest margin to decline.
The Company provided a $7.6 million provision for loan losses in the first nine months of 2008, compared to $2.4 million for the same period of 2007. The loan provision was driven primarily by the identification of certain commercial credits that were internally downgraded by management and to a lesser extent from the growth in the loan portfolio. Net loan charge-offs were $2.8 million for the first nine months of 2008, compared to $1.2 million for the first nine months of 2007. The net charge-offs represent an annualized rate of 0.15% of average total loans for the first nine months of 2008 compared to 0.07% for the first nine months of 2007.
Noninterest income for the first nine months of 2008 increased $2.4 million compared to the same period for 2007. Noninterest income during the first nine months of 2008 included a one-time gain of approximately $1.8 million, before taxes, from the Company's interest in the Visa initial public offering, a $6.1 million gain on the sale of securities, and a $1.2 million gain on the sale of an asset. In 2007 the Company had a $7.8 million gain on the sale of an investment and a $3.1 million recovery on a bond claim.
FINANCIAL POSITION
The aggregate of cash and due from banks, interest-bearing deposits with banks, and federal funds sold as of September 30, 2008 increased $155.6 million from December 31, 2007 but decreased $41.3 million from September 30, 2007. The increase from year-end was mainly from deposit growth in early 2008. The decrease from the previous year mainly resulted from a decrease in federal funds sold to help fund loan growth.
Total securities decreased $5.1 million compared to December 31, 2007 and $1.9 million compared to September 30, 2007. The size of the Company's securities portfolio is a function of liquidity management and excess funds available for investment. The Company has maintained a very liquid securities portfolio to provide funds for loan growth. The net unrealized gain on securities available for sale, before taxes, was $7.4 million at the end of the third quarter of 2008, compared to $10.7 million at December 31, 2007 and $5.2 million at September 30, 2007. The decrease in unrealized gains from year-end to September 30, 2008 was due in part to the realization of securities gains resulting from the $80 million sale of securities previously discussed. The Company does not own any equity securities issued by Fannie Mae or Freddie Mac. The average taxable equivalent yield on the securities portfolio for the third quarter of 2008 decreased to 4.01% from 4.47% for the same quarter of 2007.
Total loans increased $243.3 million from December 31, 2007 and $330.4 million from September 30, 2007. The increase compared to year end and third quarter 2007 was due to internal loan growth. The allowance for loan losses increased $4.7 million from year-end 2007 and $5.0 million from the third quarter of 2007. The allowance as a percentage of total loans was 1.24%, 1.17% and 1.20% at September 30, 2008, December 31, 2007 and September 30, 2007, respectively. The allowance to nonperforming and restructured loans at the same dates was 153.50%, 215.57% and 190.20%, respectively. The decrease in the allowance to nonperforming and restructured loans is primarily related to one real estate credit.
Nonperforming and restructured loans totaled $22.1 million at September 30, 2008, compared to $13.5 million at December 31, 2007 and $15.2 million at September 30, 2007. The ratio of nonperforming and restructured loans to total loans for the same periods was 0.81%, 0.54% and 0.63%, respectively. The level of nonperforming loans and loan losses may rise over time as a result of economic and credit cycles.
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 $70.6 million of these loans at September 30, 2008 compared to $35.0 million at December 31, 2007 and $34.6 million at September 30, 2007. These loans are not included in nonperforming and restructured assets. In general, these loans are adequately collateralized and have no identifiable loss potential. Loans which are considered to have identifiable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming. The Company's nonaccrual loans are primarily commercial and real estate loans.
Total deposits increased $72.7 million compared to December 31, 2007, and $241.5 million compared to September 30, 2007 due to internal growth. The Company's deposit base continues to be comprised substantially of core deposits, with large denomination certificates of deposit being only 10.2% of total deposits at September 30, 2008, compared to 9.2% at December 31, 2007 and September 30, 2007.
Short-term borrowings decreased $15.0 million from December 31, 2007, and $928,000 from September 30, 2007. Fluctuations in short-term borrowings are a function of federal funds purchased from correspondent banks, customer demand for repurchase agreements and liquidity needs of the bank.
Stockholders' equity was $397.6 million at September 30, 2008 which was an increase of $25.7 million from year-end 2007 and an increase of $38.8 million from the third quarter of 2007 due to accumulated earnings. Average stockholders' equity to average assets for the third quarter of 2008 was 10.28%, compared to 10.21% for the third quarter of 2007. The Company's leverage ratio and total risk-based capital ratio were 9.97% and 13.56%, respectively, at September 30, 2008, well in excess of the regulatory minimums.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See note (2) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
SEGMENT INFORMATION
See note (13) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.
FORWARD LOOKING STATEMENTS
The Company may make forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 with respect to earnings, credit quality, corporate
objectives, interest rates and other financial and business matters.
Forward-looking statements include estimates and give management's current
expectations or forecasts of future events. The Company cautions readers that
these forward-looking statements are subject to numerous assumptions, risks and
uncertainties, including economic conditions, the performance of financial
markets and interest rates; legislative and regulatory actions and reforms;
competition; as well as other factors, all of which change over time. Actual
results may differ materially from forward-looking statements.
BANCFIRST CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Per Common Share Data
Net income - basic $ 0.72 $ 1.08 $ 2.39 $ 2.68
Net income - diluted 0.70 1.06 2.33 2.62
Cash dividends 0.22 0.20 0.62 0.56
Performance Data
Return on average assets 1.13 % 1.88 % 1.28 % 1.57 %
Return on average stockholders' equity 11.04 18.14 12.47 15.37
Cash dividend payout ratio 30.56 18.52 25.94 20.90
Net interest spread 3.34 3.48 3.35 3.60
Net interest margin 4.03 4.55 4.11 4.65
Efficiency ratio 64.69 55.16 61.57 60.12
Net charge-offs 0.32 0.17 0.15 0.07
September 30, December 31,
2008 2007 2007
Balance Sheet Data
Book value per share $ 26.09 $ 23.61 $ 24.44
Tangible book value per share 23.35 20.80 21.66
Average loans to deposits (year-to-date) 77.66 % 75.98 % 76.04 %
Average earning assets to total assets
(year-to-date) 91.09 90.80 90.86
Average stockholders' equity to average assets
(year-to-date) 10.28 10.21 10.18
Asset Quality Ratios
Nonperforming and restructured loans to total
loans 0.81 % 0.63 % 0.54 %
Nonperforming and restructured assets to total
assets 0.67 0.46 0.40
Allowance for loan losses to total loans 1.24 1.20 1.17
Allowance for loan losses to nonperforming and
restructured loans 153.50 190.20 215.57
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BANCFIRST CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES
(Unaudited)
Taxable Equivalent Basis (Dollars in thousands)
Three Months Ended September 30,
2008 2007
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans (1) $ 2,652,458 $ 42,822 6.41 % $ 2,361,844 $ 48,123 8.08 %
Securities - taxable 407,465 3,950 3.85 425,087 4,660 4.35
Securities - tax-exempt 41,689 594 5.65 35,743 536 5.95
Federal funds sold 398,197 1,932 1.92 433,114 5,411 4.96
Total earning assets 3,499,809 49,298 5.59 3,255,788 58,730 7.16
Nonearning assets:
Cash and due from banks 145,734 136,631
Interest receivable and other assets 229,689 217,360
Allowance for loan losses (33,456 ) (27,606 )
Total nonearning assets 341,967 326,385
Total assets $ 3,841,776 $ 3,582,173
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 429,837 $ 537 0.50 % $ 387,214 $ 724 0.74 %
Savings deposits 1,112,228 5,767 2.06 1,076,400 10,681 3.94
Time deposits 838,672 6,860 3.25 790,873 9,186 4.61
Short-term borrowings 21,721 105 1.92 30,829 396 5.10
Long-term borrowings 30 - - 951 3 1.25
Junior subordinated debentures 26,803 491 7.27 26,805 492 7.28
Total interest-bearing liabilities 2,429,291 13,760 2.25 2,313,072 21,482 3.68
Interest-free funds:
Noninterest-bearing deposits 983,074 873,531
Interest payable and other
liabilities 35,621 24,980
Stockholders' equity 393,790 370,590
Total interest free funds 1,412,485 1,269,101
Total liabilities and stockholders'
equity $ 3,841,776 $ 3,582,173
Net interest income $ 35,538 $ 37,248
Net interest spread 3.34 % 3.48 %
Net interest margin 4.03 % 4.55 %
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(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.
BANCFIRST CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES
(Unaudited)
Taxable Equivalent Basis (Dollars in thousands)
Nine Months Ended September 30,
2008 2007
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans (1) $ 2,566,497 $ 130,658 6.78 % $ 2,344,745 $ 142,055 8.10 %
Securities - taxable 417,612 12,639 4.03 405,252 13,748 4.54
Securities - tax-exempt 36,369 1,607 5.89 35,782 1,621 6.06
Federal funds sold 417,016 7,356 2.35 421,949 16,339 5.18
Total earning assets 3,437,494 152,260 5.90 3,207,728 173,763 7.24
Nonearning assets:
Cash and due from banks 141,633 140,912
Interest receivable and other
assets 225,719 211,721
Allowance for loan losses (31,205 ) (27,602 )
Total nonearning assets 336,147 325,031
Total assets $ 3,773,641 $ 3,532,759
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LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Transaction deposits $ 423,833 $ 1,704 0.54 % $ 401,440 $ 2,304 0.77 % Savings deposits 1,102,171 19,374 2.34 1,033,857 30,177 3.90 Time deposits 832,274 23,068 3.69 780,412 26,608 4.56 Short-term borrowings 23,007 413 2.39 35,507 1,345 5.06 Long-term borrowings 291 9 4.12 1,034 42 5.43 Junior subordinated debentures 26,716 1,474 7.35 28,178 1,648 7.82 Total interest-bearing liabilities 2,408,292 46,042 2.55 2,280,428 62,124 3.64 Interest-free funds: Noninterest-bearing deposits 946,322 870,137 Interest payable and other liabilities 31,277 21,413 Stockholders' equity 387,750 360,781 Total interest free funds 1,365,349 1,252,331 Total liabilities and stockholders' equity $ 3,773,641 $ 3,532,759 Net interest income $ 106,218 $ 111,639 Net interest spread 3.35 % 3.60 % Net interest margin 4.11 % 4.65 % |
(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.
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