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BANF > SEC Filings for BANF > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for BANCFIRST CORP /OK/

Form 10-Q for BANCFIRST CORP /OK/


9-May-2014

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, 2013 consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 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 2014 was $14.7 million, compared to $13.4 million for the first quarter of 2013. Diluted net income per common share was $0.94 and $0.86 for the first quarter of 2014 and 2013, respectively.

The Company's net interest income for the first quarter of 2014 increased to $42.0 million, compared to $40.3 million for the first quarter of 2013, due to higher volume of earning assets. The net interest margin for the quarter was 2.98%, compared to 3.08% a year ago, as interest rates have remained at historically low levels. The Company's provision for loan loss for the first quarter of 2014 increased to $1.2 million, compared to $300,000 a year ago, primarily due to loan growth during the quarter. Net charge-offs for the quarter were only 0.01% of average loans, which was the same as the first quarter of 2013. Noninterest income for the quarter totaled $23.6 million, compared to $22.5 million last year. Noninterest expense for the quarter totaled $43.8 million, compared to $41.9 million last year. During the first quarter of 2014, increases in salaries and benefits, primarily due to the impact of standard annual merit increases, were substantially offset by lower than anticipated health care costs of approximately $950,000. The Company's effective tax rate decreased to 28.6% compared to 34.9% for the first quarter of 2013, due primarily to the recognition of state deferred tax benefits.

At March 31, 2014, the Company's total assets were $6.4 billion, up $336.1 million, or 5.6%, from $6.0 billion at December 31, 2013. Securities increased $59.4 million to a total of $587.0 million. Loans totaled $3.5 billion, up $155.1 million from December 31, 2013. Deposits totaled $5.7 billion, up $318.3 million. The Company's total stockholders' equity was $568.1 million, an increase of $11.1 million, or 2.0%, over December 31, 2013.

Asset quality remained strong and was little changed from the previous quarters. Nonperforming and restructured assets were 0.69% of total assets, consistent with December 31, 2013. The allowance to total loans was 1.13%, compared to 1.15% at year end 2013.

On January 24, 2014, BancFirst, a wholly-owned subsidiary of BancFirst Corporation, assumed all of the deposits and purchased certain assets of The Bank of Union, El Reno, Oklahoma ("The Bank of Union"). The Bank of Union was closed on that day by the Oklahoma State Banking Department. At March 31, 2014, the acquired bank had approximately $98.8 million of loans, the majority of which are classified as performing, and deposits of approximately $231.0 million.

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,
                                                     2014           2013
          Income Statement Data
          Net interest income                      $  42,029      $ 40,256
          Provision for loan losses                    1,218           300
          Securities transactions                        450           122
          Total noninterest income                    23,562        22,535
          Salaries and employee benefits              25,938        25,209
          Total noninterest expense                   43,836        41,944
          Net income                                  14,657        13,372
          Per Common Share Data
          Net income - basic                       $    0.96      $   0.88
          Net income - diluted                          0.94          0.86
          Cash dividends                                0.31          0.29
          Performance Data
          Return on average assets                      0.96 %        0.94 %
          Return on average stockholders' equity       10.51         10.31
          Cash dividend payout ratio                   32.45         33.05
          Net interest spread                           2.83          2.91
          Net interest margin                           2.98          3.08
          Efficiency ratio                             66.83         66.80
          Net charge-offs to average loans              0.01          0.01

Net Interest Income

For the three months ended March 31, 2014, net interest income, which is the Company's principal source of operating revenue, was $42.0 million compared to $40.3 million for the three months ended March 31, 2013, due to a higher volume of earning assets. 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 first quarter of 2014 compared to the first quarter of 2013, due to continued historically low interest rates. If interest rates and/or loan volume do not increase, management expects continued compression of its net interest margin for the remainder of 2014 as higher yielding loans mature and are replaced at current market rates.

Provision for Loan Losses

The Company's provision for loan loss for the first quarter of 2014 increased to $1.2 million compared to $300,000 a year ago, primarily due to loan growth during the quarter. The Company establishes an allowance as an estimate of the probable inherent losses in the loan portfolio at the balance sheet date. Management believes the allowance for loan losses is appropriate based upon management's best estimate of probable losses that have been incurred within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change, the Company's estimate of probable loan losses could also change, which could affect the amount of future provisions for loan losses. Net loan charge-offs were $328,000 for the first quarter of 2014, compared to $361,000 for the first quarter of 2013. The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a very low level.


Noninterest Income

Noninterest income totaled $23.6 million for the first quarter of 2014 compared to $22.5 million for the first quarter of 2013. Service charges on deposits have increased due primarily to an increase in deposit accounts from internal growth. The Company had fees from debit card usage totaling $5.0 million and $4.1 million during the three months ended March 31, 2014 and 2013, respectively. Trust revenue and cash management revenue also increased due to growth in the number of customers and increased activity.

Noninterest Expense

For the three months ended March 31, 2014, noninterest expense totaled $43.8 million, compared to $41.9 million for the three months ended March 31, 2013. The increase in noninterest expense for the quarter was partly due to the acquisition of The Bank of Union, which added $934,000. During the first quarter of 2014, increases in salaries and benefits, primarily due to the impact of standard annual merit increases, were substantially offset by lower than anticipated health care costs of approximately $950,000.

Income Taxes

The Company's effective tax rate on income before taxes was 28.6% for the first quarter of 2014, compared to 34.9% for the first quarter of 2013, due primarily to the recognition of state deferred tax benefits.

FINANCIAL POSITION

                             BANCFIRST CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

                 (Dollars in thousands, except per share data)



                                                 March 31,         December 31,        March 31,
                                                    2014               2013               2013
                                                (unaudited)                           (unaudited)
Balance Sheet Data
Total assets                                    $  6,375,041      $    6,038,974      $  5,773,926
Total loans                                        3,542,270           3,387,146         3,219,967
Allowance for loan losses                             39,924              39,034            38,664
Securities                                           587,018             527,627           565,490
Deposits                                           5,737,850           5,419,519         5,174,512
Stockholders' equity                                 568,112             556,997           527,707
Book value per share                                   36.98               36.33             34.65
Tangible book value per share                          33.29               32.75             30.97
Average loans to deposits (year-to-date)               62.46 %             62.69 %           62.27 %
Average earning assets to total assets
(year-to-date)                                         92.46               92.65             92.79
Average stockholders' equity to average
assets (year-to-date)                                   9.10                9.23              9.14
Asset Quality Ratios
Nonperforming and restructured loans to total
loans                                                   1.02 %              0.98 %            1.22 %
Nonperforming and restructured assets to
total assets                                            0.69                0.69              0.84
Allowance for loan losses to total loans                1.13                1.15              1.20
Allowance for loan losses to nonperforming
and restructured loans                                110.50              117.60             98.47

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, 2014 increased $108.6 million from December 31, 2013 and increased $250.1 million from March 31, 2013. 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 March 31, 2014, total securities increased $59.4 million compared to December 31, 2013 and increased $21.5 million compared to March 31, 2013. 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 $6.4 million at March 31, 2014, compared to an unrealized gain of $6.0 million at December 31, 2013, and an unrealized gain of $9.1 million at March 31, 2013. 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, $3.9 million and $5.9 million respectively.

Loans (Including Acquired Loans)

At March 31, 2014, total loans were up $155.1 million from December 31, 2013 and up $322.3 million from March 31, 2013, due to internal growth and the acquisition of The Bank of Union, which added $98.8 million.

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At March 31, 2014, the allowance for loan losses represented 1.13% of total loans, compared to 1.15% at December 31, 2013 and 1.20% at March 31, 2013.

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 $11.3 million at March 31, 2014, $2.3 million at December 31, 2013, and $2.7 million at March 31, 2013 while the acquired loans outstanding were $160.8 million, $65.9 million and $96.2 million, respectively. The increase during 2014 was due to the acquisition of the Bank of Union. The decrease in 2013 was due to improved credit quality of the loans and loan payoffs.

Nonperforming and Restructured Assets

Nonperforming and restructured assets totaled $43.7 million at March 31, 2014, compared to $41.6 million at December 31, 2013 and $48.7 million at March 31, 2013. The Company's level of nonperforming and restructured assets has continued to be relatively low.

Nonaccrual loans totaled $17.8 million at March 31, 2014, compared to $14.4 million at the end of 2013. Nonaccrual loans increased in the first quarter of 2014 due primarily to the acquisition of nonperforming loans from The Bank of Union. 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 $227,000 for the first quarter of 2014 and $301,000 for the first quarter of 2013. Only a small amount of this interest is expected to be ultimately collected.

Other real estate owned and repossessed assets totaled $7.6 million at March 31, 2014, compared to $8.4 million at December 31, 2013 and $9.4 million at March 31, 2013.

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 $4.4 million of these loans at March 31, 2014, compared to $6.2 million at December 31, 2013 and $3.3 million at March 31, 2013. 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 March 31, 2014, total deposits increased $318.3 million compared to December 31, 2013 and increased $563.3 million compared to March 31, 2013. The acquisition of The Bank of Union added $231.0 million in deposits. 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 93.5% at March 31, 2014 and December 31, 2013, compared to 92.8% at March 31, 2013. Noninterest-bearing deposits to total deposits were 37.2% at March 31, 2014, compared to 38.5% at December 31, 2013 and 37.4% at March 31, 2013.

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 $8.6 million at March 31, 2014, compared to $4.6 million at December 31, 2013 and $4.9 million at March 31, 2013.

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 $563.8 million, are pledged as collateral for the borrowings under the line of credit. As of March 31, 2014, the Company had approximately $2.0 million in advances outstanding compared to $6.9 million at December 31, 2013 and $11.0 million at March 31, 2013. The outstanding advance matures in 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, 2013.

Capital Resources

Stockholders' equity totaled $568.1 million at March 31, 2014, compared to $557.0 million at December 31, 2013 and $527.7 million at March 31, 2013. In addition to net income of $14.7 million, other changes in stockholders' equity during the three months ended March 31, 2014 included $831,000 related to stock option exercises, $347,000 related to stock-based compensation and an $33,000 increase in other comprehensive income, that were partially offset by $4.8 million in dividends. The Company's Tier 1 Capital (to Total Assets) and Total Capital (to Risk Weighted Assets) were 8.45% and 14.52%, respectively, at March 31, 2014, 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, 2013.


                             BANCFIRST CORPORATION

        CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

                                  (Unaudited)

                Taxable Equivalent Basis (Dollars in thousands)



                                                                          Three Months Ended March 31,
                                                               2014                                          2013
                                                              Interest       Average                        Interest       Average
                                               Average         Income/       Yield/          Average         Income/       Yield/
                                               Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                                    $ 3,481,988      $  42,714          4.97 %    $ 3,219,496      $  41,255          5.20 %
Securities - taxable                             484,900          1,305          1.09          524,384          1,353          1.05
Securities - tax exempt                           41,206            430          4.23           45,006            532          4.80
Interest-bearing deposits w/ banks & FFS       1,739,671          1,095          0.26        1,551,233            977          0.26

Total earning assets                           5,747,765         45,544          3.21        5,340,119         44,117          3.35

Nonearning assets:
Cash and due from banks                          200,176                                       144,940
Interest receivable and other assets             307,983                                       308,532
Allowance for loan losses                        (39,257 )                                     (38,646 )

Total nonearning assets                          468,902                                       414,826

Total assets                                 $ 6,216,667                                   $ 5,754,945

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits                         $   760,342      $     198          0.11 %    $   675,854      $     167          0.10 %
Savings deposits                               1,957,007          1,103          0.23        1,780,675          1,080          0.25
Time deposits                                    801,054          1,488          0.75          826,131          1,793          0.88
Short-term borrowings                              5,487              2          0.13            4,770              2          0.14
Long-term borrowings                               5,309             18          1.36            8,569             62          2.91
Junior subordinated debentures                    26,804            491          7.43           26,804            491          7.43

Total interest-bearing liabilities             3,556,003          3,300          0.38        3,322,803          3,595          0.44

Interest-free funds:
Noninterest-bearing deposits                   2,056,512                                     1,887,883
Interest payable and other liabilities            38,522                                        18,489
Stockholders' equity                             565,630                                       525,770

Total interest free funds                      2,660,664                                     2,432,142

Total liabilities and stockholders' equity   $ 6,216,667                                   $ 5,754,945

Net interest income                                           $  42,244                                     $  40,522

Net interest spread                                                              2.83 %                                        2.91 %

Effect of interest free funds                                                    0.15 %                                        0.17 %

Net interest margin                                                              2.98 %                                        3.08 %

(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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