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BANF > SEC Filings for BANF > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for BANCFIRST CORP /OK/

Form 10-Q for BANCFIRST CORP /OK/


12-Nov-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 reported net income of $14.5 million, or $0.93 diluted earnings per common share, for the third quarter of 2013, compared to net income of $13.9 million, or $0.90 diluted earnings per common share for the third quarter of 2012. Net income for the first nine months of 2013 was $40.5 million or $2.61 diluted earnings per common share, compared to $39.6 million, or $2.57 diluted earnings per common share for the nine months ended September 30, 2012.

The Company's net interest income for the third quarter of 2013 was $40.7 million compared to $40.8 million for the third quarter of 2012. The net interest margin for the quarter was 3.01% compared to 3.06% a year ago as interest rates have remained at historically low levels. The Company's provision for loan loss for the third quarter of 2013 was virtually zero, primarily due to reductions in adversely graded loans. Net charge-offs for the quarter were $111,000, compared to $411,000 for the same period a year ago. Noninterest income for the quarter totaled $23.7 million compared to $22.1 million for the third quarter of 2012. Noninterest expense was $43.3 million compared to $42.5 million a year ago.

At September 30, 2013, the Company's total assets were $5.9 billion, compared to $6.0 billion at December 31, 2012. Loans totaled $3.4 billion, up $116.5 million over December 31, 2012. Deposits totaled $5.3 billion, down $131.4 million due to a temporary influx of deposits at year end 2012 and efforts by the Company to move certain commercial deposits into sweep accounts. The Company's total stockholders' equity was $546.0 million, an increase of $26.4 million or 5.1% over December 31, 2012.

Asset quality remained strong and was little changed from the previous quarters. Nonperforming and restructured assets edged down to 0.72% of total assets compared to 0.81% at December 31, 2012. The allowance to total loans was 1.16% 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              Nine Months Ended
                                                  September 30,                   September 30,
                                               2013            2012           2013            2012
Income Statement Data
Net interest income                          $  40,712       $ 40,832       $ 121,598       $ 122,518
Provision for loan losses                          (12 )          233             804             654
Securities transactions                             90            385             341           4,643
Total noninterest income                        23,652         22,116          67,920          65,917
Salaries and employee benefits                  26,094         24,641          76,388          74,271
Total noninterest expense                       43,321         42,465         127,720         127,065
Net income                                      14,491         13,860          40,456          39,594
Per Common Share Data
Net income - basic                           $    0.94       $   0.91       $    2.65       $    2.61
Net income - diluted                              0.93           0.90            2.61            2.57
Cash dividends                                    0.31           0.29            0.89            0.83
Performance Data
Return on average assets                          0.99 %         0.96 %          0.94 %          0.93 %
Return on average stockholders' equity           10.62          10.86           10.14           10.59
Cash dividend payout ratio                       33.05          31.87           33.56           31.80
Net interest spread                               2.85           2.87            2.90            2.94
Net interest margin                               3.01           3.06            3.06            3.13
Efficiency ratio                                 67.31          67.46           67.39           67.43
Net charge-offs to average loans                  0.00           0.01            0.02            0.04

Net Interest Income

For the three months ended September 30, 2013, net interest income, which is the Company's principal source of operating revenue, was $40.7 million compared to $40.8 million for the three months ended September 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 slightly for the third quarter of 2013 compared to the third quarter of 2012, 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 nine months ended September 30, 2013 was $121.6 million compared to $122.5 million for the nine months ended September 30, 2012. The net interest margin for the year-to-date decreased compared to the same period of the previous year, due to continued low interest rates and the maturity or pay down of higher-yielding earning assets.

Provision for Loan Losses

The Company's provision for loan loss for the third quarter of 2013 was virtually zero, primarily due to reductions in adversely graded loans. 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 $111,000 for the third quarter of 2013, compared to $411,000 for the third quarter of 2012. The rate of net charge-offs to average total loans is presented in the preceding table.

For the nine months ended September 30, 2013, the Company's provision for loan losses was $804,000 compared to $654,000 for the same period of 2012. Net loan charge-offs were $670,000 compared to $1.1 million for the same period of the prior year.

Noninterest Income

Noninterest income totaled $23.7 million for the third quarter of 2013 compared to $22.1 million for the third quarter of 2012. Service charges on deposits have increased due to an increase in deposit accounts and a higher volume of customer overdrafts.

Noninterest income for the nine months ended September 30, 2013 totaled $67.9 million compared to $65.9 million for the nine months ended September 30, 2012. The increase year over year was due to increases in service charges on deposits, trust revenue and insurance commissions, partially offset by a $4.5 million pretax securities gain from the sale of an investment by Council Oak Investment Corporation in the first quarter of 2012.

The Company had fees from debit card usage totaling $13.2 million and $12.3 million during the nine months ended September 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 third quarter of 2013, noninterest expense totaled $43.3 million compared to $42.5 million for the third quarter of 2012.

For the nine months ended September 30, 2013, noninterest expense totaled $127.7 million compared to $127.1 million for the nine months ended September 30, 2012. Noninterest expense increased partly due to an increase in salaries and employee benefits. Also, noninterest expense in 2012 included $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 from other real estate owned for the first nine months of 2012 was approximately $499,000 higher than for the first nine months of 2013.

Income Taxes

The Company's effective tax rate on income before taxes was 31.2% for the third quarter of 2013, compared to 31.6% for the third quarter of 2012.

The Company's effective tax rate on income before taxes was 33.7% for the first nine months of 2013, compared to 34.8% for the first nine months of 2012. Additional tax credits have reduced the Company's effective tax rate in 2013.


FINANCIAL POSITION

                             BANCFIRST CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

                 (Dollars in thousands, except per share data)



                                          September 30,          December 31,          September 30,
                                              2013                   2012                  2012
                                           (unaudited)                                  (unaudited)
Balance Sheet Data
Total assets                             $     5,926,730        $    6,022,250        $     5,836,751
Total loans                                    3,358,938             3,242,427              3,116,096
Allowance for loan losses                         38,859                38,725                 37,258
Securities                                       474,640               562,542                540,475
Deposits                                       5,309,464             5,440,830              5,253,505
Stockholders' equity                             545,973               519,567                510,387
Book value per share                               35.69                 34.09                  33.58
Tangible book value per share                      32.08                 30.37                  29.82
Average loans to deposits
(year-to-date)                                     63.13 %               60.27 %                60.11 %
Average earning assets to total
assets (year-to-date)                              92.65                 92.73                  92.66
Average stockholders' equity to
average assets (year-to-date)                       9.24                  8.79                   8.78
Asset Quality Ratios
Nonperforming and restructured loans
to total loans                                      1.02 %                1.20 %                 1.30 %
Nonperforming and restructured
assets to total assets                              0.72                  0.81                   0.86
Allowance for loan losses to total
loans                                               1.16                  1.19                   1.20
Allowance for loan losses to
nonperforming and restructured loans              113.00                 99.42                  91.73

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 September 30, 2013 decreased $118.9 million from December 31, 2012 and $85.7 million from September 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 certain commercial deposits 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 September 30, 2013, total securities decreased $87.9 million compared to December 31, 2012 and decreased $65.8 million compared to September 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 $6.0 million at September 30, 2013, compared to an unrealized gain of $9.7 million at December 31, 2012, and an unrealized gain of $10.3 million at September 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 $3.9 million, $6.3 million and $6.7 million respectively.

Loans (Including Acquired Loans)

At September 30, 2013, total loans were up $116.5 million from December 31, 2012 and up $242.8 million from September 30, 2012, due to internal growth.

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At September 30, 2013, the allowance for loan losses represented 1.16% of total loans, compared to 1.19% at December 31, 2012, and 1.20% at September 30, 2012.

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 $2.3 million at September 30, 2013, $2.8 million at December 31, 2012, and $3.1 million at September 30, 2012 while the acquired loans outstanding were $72.9 million, $108.5 million and $136.6 million, respectively. The decrease from the third quarter of 2012 was due to improved credit quality of the loans, loan payoffs and the early settlement of the loan escrow agreement related to one of the bank acquisitions.


Nonperforming and Restructured Assets

Nonperforming and restructured assets totaled $42.8 million at September 30, 2013, compared to $48.5 million at December 31, 2012 and $50.4 million at September 30, 2012. The Company's level of nonperforming and restructured assets has continued to be relatively low.

Nonaccrual loans totaled $15.1 million at September 30, 2013, compared to $20.5 million at the end of 2012. Nonaccrual loans decreased $5.1 million due primarily to the resolution of several loans. 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 $1.3 million for the nine months ended September 30, 2013 and $1.0 million for the nine months ended September 30, 2012. Only a small amount of this interest is expected to be ultimately collected.

Other real estate owned and repossessed assets totaled $8.4 million at September 30, 2013, compared to $9.6 million at December 31, 2012 and $9.8 million at September 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 $5.1 million of these loans at September 30, 2013 compared to $5.3 million at December 31, 2012 and $5.2 million at September 30, 2012. 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

Deposits

At September 30, 2013, total deposits decreased $131.4 million compared to December 31, 2012 and increased $56.0 million compared to September 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 certain commercial deposits 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 93.3% at September 30, 2013, compared to 92.8% at December 31, 2012 and 92.6% at September 30, 2012. Noninterest-bearing deposits to total deposits were 38.1% at September 30, 2013, compared to 37.1% at December 31, 2012 and 36.7% at September 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 $5.1 million at September 30, 2013, compared to $4.6 million from December 31, 2012 and $5.7 million at September 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 $554.7 million, are pledged as collateral for the borrowings under the line of credit. As of September 30, 2013 the Company had approximately $8.9 million in advances outstanding, compared to $9.2 million at December 31, 2012 and $11.3 million at September 30, 2012. The advances mature at varying dates through 2014.

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, 2012.


Capital Resources

Stockholders' equity totaled $546.0 million at September 30, 2013, compared to $519.6 million at December 31, 2012 and $510.4 million at September 30, 2012. In addition to net income of $40.5 million, other changes in stockholders' equity during the nine months ended September 30, 2013 included $3.6 million related to stock option exercises and $1.1 million related to stock-based compensation, that were partially offset by $13.6 million in dividends, $2.7 million of common stock acquired and canceled, and a $2.4 million decrease in other comprehensive income. The Company's leverage ratio and total risk-based capital ratio were 8.75% and 14.72%, respectively, at September 30, 2013, well in excess of the regulatory minimums.

See Note (7) of the Notes to the 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 September 30,
                                                               2013                                          2012
                                                              Interest       Average                        Interest       Average
                                               Average         Income/       Yield/          Average         Income/       Yield/
                                               Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                                    $ 3,297,360      $  41,766          5.03 %    $ 3,093,928      $  42,112          5.40 %
Securities - taxable                             453,614          1,097          0.96          516,187          1,681          1.29
Securities - tax exempt                           40,549            438          4.28           47,649            563          4.69
Interest-bearing deposits w/ banks & FFS       1,601,947          1,031          0.26        1,667,921          1,071          0.25

Total earning assets                           5,393,470         44,332          3.26        5,325,685         45,427          3.38

Nonearning assets:
Cash and due from banks                          173,030                                       141,353
Interest receivable and other assets             302,772                                       306,079
Allowance for loan losses                        (39,284 )                                     (37,533 )

Total nonearning assets                          436,518                                       409,899

Total assets                                 $ 5,829,988                                   $ 5,735,584

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits                         $   629,765      $     155          0.10 %    $   693,616      $     224          0.13 %
Savings deposits                               1,838,186          1,051          0.23        1,783,662          1,412          0.31
Time deposits                                    790,106          1,643          0.82          854,967          2,093          0.97
Short-term borrowings                              4,921              1          0.05            6,521              7          0.43
Long-term borrowings                               9,584             52          2.16           11,282             84          2.95
Junior subordinated debentures                    26,804            492          7.29           26,804            492          7.28

Total interest-bearing liabilities             3,299,366          3,394          0.41        3,376,852          4,312          0.51

Interest-free funds:
Noninterest-bearing deposits                   1,965,052                                     1,825,053
Interest payable and other liabilities            24,107                                        27,404
Stockholders' equity                             541,463                                       506,275

Total interest free funds                      2,530,622                                     2,358,732

Total liabilities and stockholders' equity   $ 5,829,988                                   $ 5,735,584

Net interest income                                           $  40,938                                     $  41,115

Net interest spread                                                              2.85 %                                        2.87 %

Effect of interest free funds                                                    0.16 %                                        0.19 %

Net interest margin                                                              3.01 %                                        3.06 %

(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)



                                                                        Nine Months Ended September 30,
                                                               2013                                          2012
                                                              Interest       Average                        Interest       Average
                                               Average         Income/       Yield/          Average         Income/       Yield/
                                               Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                                    $ 3,251,226      $ 124,589          5.12 %    $ 3,064,584      $ 126,126          5.48 %
Securities - taxable                             497,410          3,745          1.01          523,953          6,174          1.57
Securities - tax exempt                           42,769          1,452          4.54           50,874          1,847          4.84
Interest-bearing deposits w/ banks & FFS       1,560,303          2,980          0.26        1,620,688          3,105          0.26

Total earning assets                           5,351,708        132,766          3.32        5,260,099        137,252          3.48

. . .
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