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BANF > SEC Filings for BANF > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for BANCFIRST CORP /OK/

Form 10-Q for BANCFIRST CORP /OK/


9-Aug-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 was $12.6 million, or $0.81 diluted earnings per share, for the second quarter of 2013, compared to net income of $11.7 million, or $0.76 diluted earnings per share, for the second quarter of 2012. Net income was $26.0 million, or $1.68 diluted earnings per share for the six months ended June 30, 2013, compared to $25.7 million, or $1.67 diluted earnings per share, for the six months ended June 30, 2012.

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

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

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

FUTURE APPLICATION OF ACCOUNTING STANDARDS

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

SEGMENT INFORMATION

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


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            Six Months Ended
                                                June 30,                     June 30,
                                           2013           2012          2013          2012
Income Statement Data
Net interest income                      $  40,630      $ 40,869      $ 80,866      $ 81,686
Provision for loan losses                      516           248           816           421
Securities transactions                        129           226           251         4,258
Total noninterest income                    21,733        20,364        44,268        43,801
Salaries and employee benefits              25,085        24,830        50,294        49,630
Total noninterest expense                   42,455        42,563        84,399        84,600
Net income                                  12,593        11,729        25,965        25,734
Per Common Share Data
Net income - basic                       $    0.83      $   0.77      $   1.70      $   1.70
Net income - diluted                          0.81          0.76          1.68          1.67
Cash dividends                                0.29          0.27          0.58          0.54
Performance Data
Return on average assets                      0.88 %        0.83 %        0.91 %        0.91 %
Return on average stockholders' equity        9.48          9.46          9.89         10.44
Cash dividend payout ratio                   35.08         35.06         34.03         31.76
Net interest spread                           2.92          2.95          2.92          2.96
Net interest margin                           3.08          3.14          3.08          3.16
Efficiency ratio                             68.08         69.51         67.44         67.42
Net charge-offs to average loans              0.01          0.02          0.02          0.03

Net Interest Income

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

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

Provision for Loan Losses

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


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

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

Noninterest Income

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

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

The Company had fees from debit card usage totaling $8.5 million and $8.2 million during the six months ended June 30, 2013 and 2012, respectively. The Dodd-Frank Act has given the Federal Reserve the authority to establish rules regarding debit card interchange fees charged for electronic debit transactions by payment card issuers. Because of the uncertainty as to any future rulemaking by the Federal Reserve and the inability to forecast competitive responses, the Company cannot provide any assurance as to the ultimate impact of the Dodd-Frank Act on the amount of fees from debit card usage reported in future periods.

Noninterest Expense

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

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

Income Taxes

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

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


FINANCIAL POSITION

                             BANCFIRST CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

                 (Dollars in thousands, except per share data)



                                              June 30,           December 31,           June 30,
                                                2013                 2012                 2012
                                            (unaudited)                               (unaudited)
Balance Sheet Data
Total assets                                $  5,749,666        $    6,022,250        $  5,671,711
Total loans                                    3,245,084             3,242,427           3,065,439
Allowance for loan losses                         38,982                38,725              37,436
Securities                                       520,424               562,542             575,034
Deposits                                       5,150,411             5,440,830           5,099,648
Stockholders' equity                             534,961               519,567             499,561
Book value per share                               35.07                 34.09               32.97
Tangible book value per share                      31.42                 30.37               29.16
Average loans to deposits
(year-to-date)                                     62.58 %               60.27 %             60.17 %
Average earning assets to total assets
(year-to-date)                                     92.72                 92.73               92.56
Average stockholders' equity to average
assets (year-to-date)                               9.21                  8.79                8.75
Asset Quality Ratios
Nonperforming and restructured loans to
total loans                                         1.16 %                1.20 %              1.31 %
Nonperforming and restructured assets
to total assets                                     0.80                  0.81                0.89
Allowance for loan losses to total
loans                                               1.20                  1.19                1.22
Allowance for loan losses to
nonperforming and restructured loans              103.40                 99.42               93.14

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

The aggregate of cash and due from banks, interest-bearing deposits with banks, and Federal funds sold as of June 30, 2013 decreased $225.6 million from December 31, 2012 and $43.7 million from June 30, 2012. The higher level at year-end 2012 was due primarily to funds provided by the temporary influx of deposits at year-end 2012 and efforts by the Company to move public funds into sweep accounts. Federal funds sold consist of overnight investments of excess funds with other financial institutions. Due to the Federal Reserve Bank's intervention into the funds market that has resulted in near zero overnight Federal funds rates, the Company has continued to maintain the majority of its excess funds with the Federal Reserve Bank. The Federal Reserve Bank pays interest on these funds based upon the lowest target rate for the maintenance period which continues to be 0.25%.

Securities

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

Loans (Including Acquired Loans)

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

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At June 30, 2013, the allowance for loan losses represented 1.20% of total loans, compared to 1.19% at December 31, 2012 and 1.22% at June 30, 2012. The allowance for loan losses as a percentage of total loans and the allowance to nonperforming and restructured loans are shown in the preceding table.


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

Nonperforming and Restructured Assets

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

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

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

Potential problem loans are performing loans to borrowers with a weakened financial condition, or which are experiencing unfavorable trends in their financial condition, which causes management to have concerns as to the ability of such borrowers to comply with the existing repayment terms. The Company had approximately $3.2 million of these loans at June 30, 2013 compared to $5.3 million at December 31, 2012 and $6.5 million at June 30, 2012. These loans are not included in nonperforming and restructured loans. In general, these loans are adequately collateralized and have no specific identifiable probable loss. Loans which are considered to have identifiable probable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming.

Liquidity and Funding

Deposits

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

Short-Term Borrowings

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

Long-Term Borrowings

The Company has a line of credit from the Federal Home Loan Bank ("FHLB") of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed rate loans. The Company's assets, including residential first mortgages of $548.9 million, are pledged as collateral for the borrowings under the line of credit. As of June 30, 2013, the Company had approximately $10.0 million in advances outstanding compared to $9.2 million at December 31, 2012 and $11.3 million at June 30, 2012. The advances mature at varying dates through 2014.


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

Capital Resources

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

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

CONTRACTUAL OBLIGATIONS

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


                             BANCFIRST CORPORATION

        CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

                                  (Unaudited)

                Taxable Equivalent Basis (Dollars in thousands)



                                                                    Three Months Ended June 30,
                                                         2013                                          2012
                                                        Interest       Average                        Interest       Average
                                         Average         Income/       Yield/          Average         Income/       Yield/
                                         Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                              $ 3,235,966      $  41,568          5.15 %    $ 3,073,027      $  41,952          5.48 %
Securities - taxable                       515,010          1,295          1.01          516,195          2,087          1.62
Securities - tax exempt                     42,801            483          4.53           51,731            632          4.90
Interest bearing deposits w/ banks &
FFS                                      1,527,172            971          0.25        1,612,649          1,061          0.26

Total earning assets                     5,320,949         44,317          3.34        5,253,602         45,732          3.49

Nonearning assets:
Cash and due from banks                    150,781                                       146,124
Interest receivable and other assets       310,034                                       311,157
Allowance for loan losses                  (38,776 )                                     (37,635 )

Total nonearning assets                    422,039                                       419,646

Total assets                           $ 5,742,988                                   $ 5,673,248

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits                   $   657,540      $     163          0.10 %    $   721,868      $     260          0.14 %
Savings deposits                         1,791,912          1,013          0.23        1,721,452          1,401          0.33
Time deposits                              803,750          1,713          0.86          868,330          2,222          1.03
Short-term borrowings                        3,970              1          0.12            7,361              8          0.44
Long-term borrowings                        10,957             62          2.27           12,783             91          2.86
Junior subordinated debentures              26,804            491          7.35           34,691            565          6.53

Total interest bearing liabilities       3,294,933          3,443          0.42        3,366,485          4,547          0.54

Interest free funds:
Noninterest bearing deposits             1,892,014                                     1,780,168
Interest payable and other
liabilities                                 22,988                                        29,051
Stockholders' equity                       533,053                                       497,544

Total interest free funds                2,448,055                                     2,306,763

Total liabilities and stockholders'
equity                                 $ 5,742,988                                   $ 5,673,248

Net interest income                                     $  40,874                                     $  41,185

Net interest spread                                                        2.92 %                                        2.95 %

Effect of interest free funds                                              0.16 %                                        0.19 %

Net interest margin                                                        3.08 %                                        3.14 %

(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 ANALYSIS

                                  (Unaudited)

                Taxable Equivalent Basis (Dollars in thousands)



                                                                           Six Months Ended June 30,
                                                               2013                                          2012
                                                              Interest       Average                        Interest       Average
                                               Average         Income/       Yield/          Average         Income/       Yield/
                                               Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                                    $ 3,227,777      $  82,823          5.17 %    $ 3,049,750      $  84,014          5.52 %
Securities - taxable                             519,671          2,648          1.03          527,879          4,494          1.71
Securities - tax exempt                           43,897          1,015          4.66           52,504          1,284          4.90
Interest bearing deposits w/ banks & FFS       1,539,136          1,949          0.26        1,596,812          2,034          0.26

Total earning assets                           5,330,481         88,435          3.35        5,226,945         91,826          3.52

Nonearning assets:
Cash and due from banks                          147,876                                       146,047
Interest receivable and other assets             309,287                                       311,793
Allowance for loan losses                        (38,711 )                                     (37,649 )

Total nonearning assets                          418,452                                       420,191

Total assets                                 $ 5,748,933                                   $ 5,647,136

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
. . .
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