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BANF > SEC Filings for BANF > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for BANCFIRST CORP /OK/


10-May-2013

Quarterly Report


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

The following discussion and analysis presents factors that the Company believes are relevant to an assessment and understanding of the Company's consolidated financial position and results of operations. This discussion and analysis should be read in conjunction with the Company's December 31, 2012 consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and the Company's consolidated financial statements and the related Notes included in Item 1.

FORWARD LOOKING STATEMENTS

The Company may make forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management's current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions; the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Actual results may differ materially from forward-looking statements.

SUMMARY

BancFirst Corporation's net income for the first quarter of 2013 was $13.4 million compared to $14.0 million for the first quarter of 2012. Diluted net income per share was $0.86 and $0.91 for the first quarter of 2013 and 2012, respectively. Included in the 2012 quarter's net income was a $4.5 million securities gain that was partially offset by merger related expenses and other non-operating costs totaling $2.5 million. Excluding these items, the Company's net income for the first quarter of 2012 would have been approximately $12.7 million, or approximately $0.83 diluted net income per share.

Net interest income for the first quarter of 2013 was $40.3 million compared to $40.8 million for the first quarter of 2012. The Company's net interest margin for the quarter was 3.08% compared to 3.18% a year ago, as interest rates have remained at historically low levels. The Company's provision for loan loss for the first quarter of 2013 was $300,000 compared to $173,000 for the first quarter of 2012. Net charge-offs for the quarter were only 0.01% of average loans, which was the same as for the first quarter of 2012. Noninterest income for the quarter totaled $22.5 million, compared to $23.4 million last year. Noninterest expense for the quarter totaled $41.9 million compared to $42.0 million last year.

At March 31, 2013, the Company's total assets were $5.8 billion, down $248.3 million, or 4.1%, from $6.0 billion at December 31, 2012. Loans totaled $3.2 billion, down $22.5 million from December 31, 2012. Deposits totaled $5.2 billion, down $266.3 million due to a temporary influx of deposits at year end 2012. Stockholders' equity was $527.7 million, an increase of $8.1 million, or 1.6%, over December 31, 2012.

Asset quality remained strong and was little changed from the previous quarters. Nonperforming and restructured assets were 0.84% of total assets compared to 0.81% at December 31, 2012. The allowance to total loans was 1.20% compared to 1.19% at year end 2012.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

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

SEGMENT INFORMATION

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


RESULTS OF OPERATIONS

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

                             BANCFIRST CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

                                  (Unaudited)

                 (Dollars in thousands, except per share data)



                                                     Three Months Ended
                                                          March 31,
                                                     2013           2012
          Income Statement Data
          Net interest income                      $  40,256      $ 40,817
          Provision for loan losses                      300           173
          Securities transactions                        122         4,032
          Total noninterest income                    22,535        23,437
          Salaries and employee benefits              25,209        24,800
          Total noninterest expense                   41,944        42,037
          Net income                                  13,372        14,005
          Per Common Share Data
          Net income - basic                       $    0.88      $   0.93
          Net income - diluted                          0.86          0.91
          Cash dividends                                0.29          0.27
          Performance Data
          Return on average assets                      0.94 %        1.00 %
          Return on average stockholders' equity       10.31         11.45
          Cash dividend payout ratio                   33.05         29.03
          Net interest spread                           2.91          2.98
          Net interest margin                           3.08          3.18
          Efficiency ratio                             66.80         65.42
          Net charge-offs to average loans              0.01          0.01

Net Interest Income

For the three months ended March 31, 2013, net interest income, which is the Company's principal source of operating revenue, was $40.3 million compared to $40.8 million for the three months ended March 31, 2012. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The Company's net interest margin decreased for the three months ended March 31, 2013 compared to the three months ended March 31, 2012, as shown in the preceding table, which was due to continued low interest rates and the maturity or pay down of higher-yielding earning assets. If interest rates and/or loan volume do not increase, management expects continued compression of its net interest margin for the remainder of 2013 as higher yielding loans and securities mature and are replaced at current market rates.

Provision for Loan Losses

For the three months ended March 31, 2013, the Company's provision for loan losses was $300,000, compared to $173,000 for the same period a year ago. Management believes the recorded amount of 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 level of future provisions for loan losses. Net loan charge-offs were $361,000 for the first quarter of 2013 compared to $196,000 for the first quarter of 2012. The rate of net charge-offs to average total loans is presented in the preceding table.

Noninterest Income

Noninterest income totaled $22.5 million for the three months ended March 31, 2013 compared to $23.4 million for the three months ended March 31, 2012. The first quarter of 2012 included a $4.5 million pretax securities gain from the sale of an investment by the Company's Small Business Investment Corporation, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst.


The Company had income from debit card usage totaling $4.1 million during the three months ended March 31, 2013 and 2012. The Dodd-Frank Act has given the Federal Reserve the authority to establish rules regarding debit card interchange fees charged for electronic debit transactions by payment card issuers. Because of the uncertainty as to any future rulemaking by the Federal Reserve and the inability to forecast competitive responses, the Company cannot provide any assurance as to the ultimate impact of the Dodd-Frank Act on the amount of revenue from debit card usage reported in future periods.

Noninterest Expense

For the three months ended March 31, 2013, noninterest expense totaled $41.9 million compared to $42.0 million for the three months ended March 31, 2012. Included in the 2012 quarter's noninterest expense is $1.6 million in merger related costs and approximately $500,000 of expenses related to the sale of an investment by the Company's Small Business Investment Corporation, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst.

Income Taxes

The Company's effective tax rate on income before taxes was 34.9% for the first quarter of 2013 compared to 36.5% for the first quarter of 2012 due primarily to new tax credits utilized.

FINANCIAL POSITION

                             BANCFIRST CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

                 (Dollars in thousands, except per share data)



                                                     March 31,         December 31,        March 31,
                                                        2013               2012               2012
                                                    (unaudited)                           (unaudited)
Balance Sheet Data
Total assets                                        $  5,773,926      $    6,022,250      $  5,737,994
Total loans                                            3,219,967           3,242,427         3,049,376
Allowance for loan losses                                 38,664              38,725            37,633
Securities                                               565,490             562,542           573,801
Deposits                                               5,174,512           5,440,830         5,152,856
Stockholders' equity                                     527,707             519,567           491,957
Book value per share                                       34.65               34.09             32.48
Tangible book value per share                              30.97               30.37             28.64
Average loans to deposits (year-to-date)                   62.27 %             60.27 %           59.99 %
Average earning assets to total assets
(year-to-date)                                             92.79               92.73             92.51
Average stockholders' equity to average assets
(year-to-date)                                              9.14                8.79              8.73
Asset Quality Ratios
Nonperforming and restructured loans to total
loans                                                       1.22 %              1.20 %            1.32 %
Nonperforming and restructured assets to total
assets                                                      0.84                0.81              0.92
Allowance for loan losses to total loans                    1.20                1.19              1.23
Allowance for loan losses to nonperforming and
restructured loans                                         98.47               99.42             93.26

Cash, Federal Funds Sold and Interest-Bearing Deposits with Banks

The aggregate of cash and due from banks, interest-bearing deposits with banks, and Federal funds sold as of March 31, 2013 decreased $229.8 million from December 31, 2012 and $120.9 million from March 31, 2012. The higher level at year-end 2012 was due primarily to funds provided by the temporary influx of deposits at year-end 2012. Federal funds sold consist of overnight investments of excess funds with other financial institutions. Due to the Federal Reserve Bank's intervention into the funds market that has resulted in near zero overnight Federal funds rates, the Company has continued to maintain the majority of its excess funds with the Federal Reserve Bank. The Federal Reserve Bank pays interest on these funds based upon the lowest target rate for the maintenance period.


Securities

At March 31, 2013, total securities increased $2.9 million compared to December 31, 2012 and decreased $8.3 million compared to March 31, 2012. The size of the Company's securities portfolio is determined by the Company's liquidity and asset/liability management. The net unrealized gain on securities available for sale, before taxes, was $9.1 million at March 31, 2013, compared to an unrealized gain of $9.7 million at December 31, 2012 and $11.6 million at March 31, 2012. These unrealized gains are included in the Company's stockholders' equity as accumulated other comprehensive income, net of income tax, in the amounts of $5.9 million, $6.3 million and $7.5 million, respectively.

Loans (Including Acquired Loans)

At March 31, 2013, total loans were down $22.5 million from December 31, 2012 and up $170.6 million from March 31, 2012 due primarily to growth in the fourth quarter of 2012.

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At March 31, 2013, the allowance for loan losses represented 1.20% of total loans, compared to 1.19% at December 31, 2012 and 1.23% at March 31, 2012. The allowance for loan losses as a percentage of total loans and the allowance to nonperforming and restructured loans are shown in the preceding table.

The fair value adjustment on acquired loans consists of an interest rate component to adjust the effective rates on the loans to market rates and a credit component to adjust for estimated credit exposures in the acquired loans. The credit component of the adjustment was $2.7 million at March 31, 2013, $2.8 million at December 31, 2012 and $3.8 million at March 31, 2012, while the acquired loans outstanding were $96.2 million, $108.5 million and $162.6 million, respectively. The decrease from the first quarter of 2012 was due t improved credit quality of the loans, loan payoffs and the early settlement of a loan escrow agreement related to one of the bank acquisitions.

Nonperforming and Restructured Assets

Nonperforming and restructured assets totaled $48.7 million at March 31, 2013 compared to $48.5 million at December 31, 2012 and $52.8 million at March 31, 2012. The Company's level of nonperforming and restructured assets has continued to be relatively low, as shown in the preceding table.

Nonaccrual loans totaled $20.9 million at March 31, 2013 compared to $20.5 million at the end of 2012. The Company's nonaccrual loans are primarily commercial and real estate loans. Nonaccrual loans negatively impact the Company's net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of interest or principal or both is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. Total interest income for the quarter, which was not accrued on nonaccrual loans outstanding was approximately $301,000 at March 31, 2013 and $338,000 at March 31, 2012. Only a small amount of this interest is expected to be ultimately collected.

Other real estate owned and repossessed assets totaled $9.4 million at March 31, 2013 compared to $9.6 million at December 31, 2012 and $12.4 million at March 31, 2012. The decrease in 2012 was due in part to the sale of one nonperforming commercial real estate property valued at $3.5 million.

Potential problem loans are performing loans to borrowers with a weakened financial condition, or which are experiencing unfavorable trends in their financial condition, which causes management to have concerns as to the ability of such borrowers to comply with the existing repayment terms. The Company had approximately $3.3 million of these loans at March 31, 2013 compared to $5.3 million at December 31, 2012 and $7.3 million at March 31, 2012. These loans are not included in nonperforming and restructured loans. In general, these loans are adequately collateralized and have no specific identifiable probable loss. Loans which are considered to have identifiable probable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming.


Liquidity and Funding

Deposits

At March 31, 2013, total deposits decreased $266.3 million compared to December 31, 2012 and increased $21.7 million compared to March 31, 2012. The decrease from December 31, 2012 was due to a temporary influx of deposits at year end 2012. The Company's core deposits provide it with a stable, low-cost funding source. The Company's core deposits as a percentage of total deposits were 92.8% at March 31, 2013and December 31, 2012 compared to 92.3% at March 31, 2012. Noninterest-bearing deposits to total deposits were 37.4% at March 31, 2013, compared to 37.1% at December 31, 2012 and 35.3% at March 31, 2012.

Short-Term Borrowings

Short-term borrowings, consisting primarily of Federal funds purchased and repurchase agreements are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company's ability to earn a favorable spread on the funds obtained. Short-term borrowings were $4.9 million at March 31, 2013 compared to $4.6 million at December 31, 2012 and $7.3 million at March 31, 2012.

Long-Term Borrowings

The Company has a line of credit from the Federal Home Loan Bank ("FHLB") of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed rate loans. The Company's assets, including residential first mortgages of $535.9 million, are pledged as collateral for the borrowings under the line of credit. As of March 31, 2013, the Company had approximately $11.0 million in advances outstanding compared to $9.2 million at December 31, 2012 and $13.4 million at March 31, 2012. The advances mature at varying dates through 2014.

There have not been material changes from the liquidity and funding discussion included in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Capital Resources

Stockholders' equity totaled $527.7 million at March 31, 2013 compared to $519.6 million at December 31, 2012 and $492.0 million at March 31, 2012. In addition to net income of $13.4 million, other changes in stockholders' equity during the three months ended March 31, 2013 included $190,000 related to stock option exercises and $374,000 related to stock-based compensation, that were partially offset by $4.4 million in dividends, $943,000 in common stock acquired and canceled, and a $431,000 decrease in other comprehensive income. The Company's average stockholders' equity to average assets are presented above. The Company's leverage ratio and total risk-based capital ratio were 8.61% and 14.75%, respectively, at March 31, 2013, well in excess of the regulatory minimums.

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

CONTRACTUAL OBLIGATIONS

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


                             BANCFIRST CORPORATION

        CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

                                  (Unaudited)

                Taxable Equivalent Basis (Dollars in thousands)



                                                                          Three Months Ended March 31,
                                                               2013                                          2012
                                                              Interest       Average                        Interest       Average
                                               Average         Income/       Yield/          Average         Income/       Yield/
                                               Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                                    $ 3,219,496      $  41,255          5.20 %    $ 3,026,473      $  42,062          5.57 %
Securities - taxable                             524,384          1,353          1.05          539,563          2,408          1.79
Securities - tax exempt                           45,006            532          4.80           53,277            652          4.91
Interest-bearing deposits w/ banks & FFS       1,551,233            977          0.26        1,580,975            974          0.25

Total earning assets                           5,340,119         44,117          3.35        5,200,288         46,096          3.56

Nonearning assets:
Cash and due from banks                          144,940                                       145,970
Interest receivable and other assets             308,532                                       312,429
Allowance for loan losses                        (38,646 )                                     (37,663 )

Total nonearning assets                          414,826                                       420,736

Total assets                                 $ 5,754,945                                   $ 5,621,024

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits                         $   675,854      $     167          0.10 %    $   741,786      $     274          0.15 %
Savings deposits                               1,780,675          1,080          0.25        1,706,102          1,543          0.36
Time deposits                                    826,131          1,793          0.88          892,134          2,432          1.09
Short-term borrowings                              4,770              2          0.14            7,891              8          0.41
Long-term borrowings                               8,569             62          2.91           14,451            105          2.91
Junior subordinated debentures                    26,804            491          7.43           36,083            586          6.51

Total interest-bearing liabilities             3,322,803          3,595          0.44        3,398,447          4,948          0.58

Interest-free funds:
Noninterest-bearing deposits                   1,887,883                                     1,705,026
Interest payable and other liabilities            18,489                                        26,789
Stockholders' equity                             525,770                                       490,762

Total interest free funds                      2,432,142                                     2,222,577

Total liabilities and stockholders' equity   $ 5,754,945                                   $ 5,621,024

Net interest income                                           $  40,522                                     $  41,148

Net interest spread                                                              2.91 %                                        2.98 %

Effect of interest free funds                                                    0.17 %                                        0.20 %

Net interest margin                                                              3.08 %                                        3.18 %

(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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