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BANF > SEC Filings for BANF > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for BANCFIRST CORP /OK/

Form 10-Q for BANCFIRST CORP /OK/


8-Aug-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 was $14.7 million, or $0.92 diluted earnings per share, for the second quarter of 2014, compared to net income of $12.6 million, or $0.82 diluted earnings per share, for the second quarter of 2013. Net income was $29.3 million, or $1.86 diluted earnings per share for the six months ended June 30, 2014, compared to $26.0 million, or $1.68 diluted earnings per share, for the six months ended June 30, 2013.

Net interest income for the second quarter of 2014 was $45.5 million compared to $40.6 million for the three months ended June 30, 2013. The net interest margin for the quarter remained relatively flat at 3.10% compared to 3.08% a year ago, as interest rates have remained at historically low levels. The provision for loan losses for the second quarter was $3.1 million compared to $516,000 for the second quarter of 2013. The higher provision for loan losses in the second quarter was due in part to an additional $2 million allowance for a single commercial loan that was adversely graded during the quarter. The Company reported net recoveries for the quarter of 0.01% of average loans, compared to net charge-offs 0.01% for the same period the prior year. Noninterest income for the quarter totaled $23.6 million compared to $21.7 million for the second quarter of 2013. Noninterest expense was $45.9 million compared to $42.5 million a year ago. The effective income tax rate for the second quarter of 2014 decreased to 27% compared to 35% for the second quarter of 2013, primarily due to an investment in federal and state historic rehabilitation tax credits.

At June 30, 2014, the Company's total assets were $6.4 billion, up $329.7 million or 5.5% from $6.0 billion at December 31, 2013. Securities increased $42.8 million to a total of $570.4 million. Loans totaled $3.7 billion, up $278.8 million from December 31, 2013. Deposits totaled $5.7 billion, up $302.1 million. The Company's total stockholders' equity was $580.5 million, an increase of $23.5 million or 4.2% over December 31, 2013.

The Company's asset quality remained strong. Nonperforming and restructured assets were 0.72% of total assets compared to 0.69% at December 31, 2013. The allowance to total loans was 1.18% 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 June 30, 2014, the balance of acquired loans was approximately $83.6 million, the majority of which are classified as performing; and deposits in the acquired branches were approximately $225.6 million. As a result of the acquisition, the Company recorded core deposit intangibles of approximately $2.2 million and goodwill of $417,000.

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,
                                           2014           2013          2014          2013
Income Statement Data
Net interest income                      $  45,489      $ 40,630      $ 87,518      $ 80,866
Provision for loan losses                    3,129           516         4,347           816
Securities transactions                         85           129           535           251
Total noninterest income                    23,611        21,733        47,173        44,268
Salaries and employee benefits              27,478        25,085        53,416        50,294
Total noninterest expense                   45,857        42,455        89,693        84,399
Net income                                  14,688        12,593        29,345        25,965
Per Common Share Data
Net income - basic                       $    0.94      $   0.83      $   1.90      $   1.70
Net income - diluted                          0.92          0.82          1.86          1.68
Cash dividends                                0.31          0.29          0.62          0.58
Performance Data
Return on average assets                      0.92 %        0.88 %        0.94 %        0.91 %
Return on average stockholders' equity       10.20          9.48         10.35          9.89
Cash dividend payout ratio                   32.99         35.08         32.55         34.03
Net interest spread                           2.96          2.92          2.90          2.92
Net interest margin                           3.10          3.08          3.04          3.08
Efficiency ratio                             66.36         68.08         66.59         67.44
Net charge-offs to average loans             (0.01 )        0.01            -           0.02

Net Interest Income

For the three months ended June 30, 2014, net interest income, which is the Company's principal source of operating revenue, increased to $45.5 million compared to $40.6 million for the three months ended June 30, 2013, primarily 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 remained relatively flat for the second quarter of 2014 compared to the second 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.

Net interest income for the six months ended June 30, 2014 was $87.5 million compared to $80.9 million for the six months ended June 30, 2013. The net interest margin for the year-to-date decreased slightly 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 second quarter of 2014 was $3.1 million, compared to $516,000 for the second quarter of 2013. The higher provision for loan losses in the second quarter was due in part to an additional $2 million allowance for a single commercial loan that was adversely graded 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. The Company reported net loan recoveries of $244,000 for the second quarter of 2014, compared to net loan charge-offs of $198,000 for the second 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.

For the six months ended June 30, 2014, the Company's provision for loan losses was $4.3 million, compared to $816,000 for the six months ended June 30, 2013. Net loan charge-offs were $84,000, compared to $559,000 for the same period of the prior year.

Noninterest Income

Noninterest income totaled $23.6 million for the second quarter of 2014 compared to $21.7 million for the second quarter of 2013. Service charges on deposits have increased due primarily to an increase in deposit accounts from internal growth. Fees from debit card usage totaled $5.2 million and $4.4 million during the three months ended June 30, 2014 and 2013, respectively. Trust revenue and cash management revenue also increased due to growth in the number of customers and increased activity.

Noninterest income for the six months ended June 30, 2014 totaled $47.2 million compared to $44.3 million for the six months ended June 30, 2013. Service charges on deposits have increased due primarily to an increase in deposit accounts from internal growth. Fees from debit card usage totaled $10.2 million and $8.5 million during the six months ended June 30, 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 second quarter of 2014, noninterest expense totaled $45.9 million compared to $42.5 million for the second quarter of 2013. The increase in noninterest expense was partly due to the acquisition of The Bank of Union, which added $1.6 million in the quarter partly offset by a gain on sale of other real estate owned property of approximately $500,000.

For the six months ended June 30, 2014, noninterest expense totaled $89.7 million compared to $84.4 million for the six months ended June 30, 2013. The increase in noninterest expense was partly due to the acquisition of The Bank of Union, which added $2.0 million in the first half partly offset by a gain on sale of other real estate owned property of approximately $500,000. Increases in salaries and benefits, primarily due to the impact of standard annual merit increases, were partly offset by lower than anticipated health care costs of approximately $950,000 in the first quarter of 2014.

Income Taxes

The Company's effective tax rate on income before taxes was 27.0% for the three months ended June 30, 2014, compared to 35.1% for the three months ended June 30, 2013 due primarily to new tax credits utilized.

The Company's effective tax rate on income before taxes was 27.8% for the first six months of 2014, compared to 35.0% for the first six months of 2013 due primarily to new tax credits utilized in the second quarter and the recognition of state deferred tax benefits in the first quarter.


FINANCIAL POSITION

                             BANCFIRST CORPORATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

                 (Dollars in thousands, except per share data)



                                              June 30,           December 31,           June 30,
                                                2014                 2013                 2013
                                            (unaudited)                               (unaudited)
Balance Sheet Data
Total assets                                $  6,368,633        $    6,038,974        $  5,749,666
Total loans                                    3,665,908             3,387,146           3,245,084
Allowance for loan losses                         43,297                39,034              38,982
Securities                                       570,429               527,627             520,424
Deposits                                       5,721,593             5,419,519           5,150,411
Stockholders' equity                             580,505               556,997             534,961
Book value per share                               37.70                 36.33               35.07
Tangible book value per share                      34.03                 32.75               31.42
Average loans to deposits
(year-to-date)                                     62.39 %               62.69 %             62.58 %
Average earning assets to total assets
(year-to-date)                                     92.57                 92.65               92.72
Average stockholders' equity to average
assets (year-to-date)                               9.07                  9.23                9.21
Asset Quality Ratios
Nonperforming and restructured loans to
total loans                                         1.08 %                0.98 %              1.16 %
Nonperforming and restructured assets
to total assets                                     0.72                  0.69                0.80
Allowance for loan losses to total
loans                                               1.18                  1.15                1.20
Allowance for loan losses to
nonperforming and restructured loans              109.14                117.60              103.40

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, 2014 decreased $1.1 million from December 31, 2013 and increased $136.2 million from June 30, 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 June 30, 2014, total securities increased $42.8 million compared to December 31, 2013 and increased $50.0 million compared to June 30, 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 $8.0 million at June 30, 2014, compared to an unrealized gain of $6.0 million at December 31, 2013, and an unrealized gain of $6.5 million at June 30, 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 $4.9 million, $3.9 million and $4.2 million respectively.

Loans (Including Acquired Loans)

At June 30, 2014, total loans were up $278.8 million from December 31, 2013 and up $420.8 million from June 30, 2013, due to internal growth and loans from the Bank of Union acquisition, which had $83.6 million at June 30, 2014.

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At June 30, 2014, the allowance for loan losses represented 1.18% of total loans, compared to 1.15% at December 31, 2013 and 1.20% at June 30, 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 $8.6 million at June 30, 2014, $2.3 million at December 31, 2013 and $2.6 million at June 30, 2013, while the acquired loans outstanding were $126.7 million, $65.9 million and $86.5 million, respectively. The increase during 2014 was due to the Bank of Union acquisition. 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 $46.1 million at June 30, 2014, compared to $41.6 million at December 31, 2013 and $46.2 million at June 30, 2013. The Company's level of nonperforming and restructured assets has continued to be relatively low.

Nonaccrual loans totaled $17.3 million at June 30, 2014 compared to $14.4 million at the end of 2013. Nonaccrual loans increased in 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 $481,000 for the six months ended June 30, 2014 and $978,000 for the six months ended June 30, 2013. Only a small amount of this interest is expected to be ultimately collected.

Other real estate owned and repossessed assets declined $6.4 million at June 30, 2014, compared to $8.4 million at December 31, 2013 and $8.5 million at June 30, 2013 due to the sale of a property.

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 $35.3 million of these loans at June 30, 2014 compared to $6.2 million at December 31, 2013 and $3.2 million at June 30, 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. The higher level of potential problem loans in the second quarter was due primarily to an additional $28.4 million for a single commercial loan that was experiencing financial difficulty during the quarter, but was not considered impaired.

Liquidity and Funding

Deposits

At June 30, 2014, total deposits increased $302.1 million compared to December 31, 2013 and increased $571.2 million compared to June 30, 2013. The branches acquired from the former Bank of Union had $225.6 million in deposits at June 30, 2014. 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 93.7% at June 30, 2014, compared to 93.5% at December 31, 2013 and 93.0% June 30, 2013. Noninterest-bearing deposits to total deposits were 38.5% at June 30, 2014, and December 31, 2013, compared to and 38.0% at June 30, 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 $12.3 million at June 30, 2014, compared to $4.6 million at December 31, 2013 and $3.5 million at June 30, 2013.


Long-Term Borrowings

The Company does not have any borrowings from the Federal Home Loan Bank ("FHLB") of Topeka, Kansas as of June 30, 2014. The Company had $6.9 million of FHLB borrowings at December 31, 2013 and $10.0 million at June 30, 2013, which matured during the first half of 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, 2013.

Capital Resources

Stockholders' equity totaled $580.5 million at June 30, 2014, compared to $557.0 million at December 31, 2013 and $535.0 million at June 30, 2013. In addition to net income of $29.3 million, other changes in stockholders' equity during the six months ended June 30, 2014 included $1.9 million related to stock option exercises, $776,000 related to stock-based compensation and an $992,000 increase in other comprehensive income, that were offset by $9.5 million in dividends. The Company's tier 1 capital (to total assets) and total capital (to risk weighted assets) were 8.64% and 14.47%, respectively, at June 30, 2014, 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, 2013.


                             BANCFIRST CORPORATION

        CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

                                  (Unaudited)

                Taxable Equivalent Basis (Dollars in thousands)



                                                                    Three Months Ended June 30,
                                                         2014                                          2013
                                                        Interest       Average                        Interest       Average
                                         Average         Income/       Yield/          Average         Income/       Yield/
                                         Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
Loans (1)                              $ 3,602,491      $  45,929          5.11 %    $ 3,235,966      $  41,568          5.15 %
Securities - taxable                       530,482          1,502          1.14          515,010          1,295          1.01
Securities - tax exempt                     40,870            421          4.13           42,801            483          4.53
Interest bearing deposits w/ banks &
FFS                                      1,748,422          1,096          0.25        1,527,172            971          0.25

Total earning assets                     5,922,265         48,948          3.32        5,320,949         44,317          3.34

Nonearning assets:
Cash and due from banks                    184,984                                       150,781
Interest receivable and other assets       323,312                                       310,034
Allowance for loan losses                  (40,567 )                                     (38,776 )

Total nonearning assets                    467,729                                       422,039

Total assets                           $ 6,389,994                                   $ 5,742,988

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits                   $   810,729      $     208          0.10 %    $   657,540      $     163          0.10 %
Savings deposits                         1,975,496          1,113          0.23        1,791,912          1,013          0.23
Time deposits                              804,779          1,412          0.70          803,750          1,713          0.86
Short-term borrowings                       10,270              5          0.20            3,970              1          0.12
Long-term borrowings                         1,308              7          2.22           10,957             62          2.27
Junior subordinated debentures              26,804            492          7.37           26,804            491          7.35

Total interest bearing liabilities       3,629,386          3,237          0.36        3,294,933          3,443          0.42

Interest free funds:
Noninterest bearing deposits             2,159,268                                     1,892,014
Interest payable and other
liabilities                                 23,769                                        22,988
Stockholders' equity                       577,571                                       533,053

Total interest free funds                2,760,608                                     2,448,055

Total liabilities and stockholders'
equity                                 $ 6,389,994                                   $ 5,742,988

Net interest income                                     $  45,711                                     $  40,874

Net interest spread                                                        2.96 %                                        2.92 %

Effect of interest free funds                                              0.14 %                                        0.16 %

Net interest margin                                                        3.10 %                                        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.


                             BANCFIRST CORPORATION

        CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

                                  (Unaudited)

                Taxable Equivalent Basis (Dollars in thousands)



                                                                           Six Months Ended June 30,
                                                               2014                                          2013
                                                              Interest       Average                        Interest       Average
                                               Average         Income/       Yield/          Average         Income/       Yield/
                                               Balance         Expense        Rate           Balance         Expense        Rate
ASSETS
Earning assets:
. . .
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