XNAS:BANF BancFirst Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number 0-14384

 

 

BancFirst Corporation

(Exact name of registrant as specified in charter)

 

 

 

Oklahoma     73-1221379

(State or other Jurisdiction of

incorporation or organization)

   

(I.R.S. Employer

Identification No.)

101 N. Broadway, Oklahoma City, Oklahoma   73102-8405
(Address of principal executive offices)   (Zip Code)

(405) 270-1086

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (sec. 232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 31, 2012 there were 15,161,446 shares of the registrant’s Common Stock outstanding.

 

 

 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

     June 30,
2012
    December 31,
2011
    June 30,
2011
 
     (unaudited)     (see Note 1)     (unaudited)  

ASSETS

      

Cash and due from banks

   $ 146,387      $ 163,698      $ 153,997   

Interest-bearing deposits with banks

     1,617,521        1,544,035        1,417,102   

Federal funds sold

     —          400        100   

Securities (market value: $575,404, $615,458, and $580,630,respectively)

     575,034        614,977        580,059   

Loans:

      

Total loans (net of unearned interest)

     3,065,439        3,013,498        2,861,844   

Allowance for loan losses

     (37,436     (37,656     (37,092
  

 

 

   

 

 

   

 

 

 

Loans, net

     3,028,003        2,975,842        2,824,752   

Premises and equipment, net

     113,836        111,355        102,801   

Other real estate owned

     10,088        16,109        14,991   

Intangible assets, net

     13,158        14,219        10,857   

Goodwill

     44,545        44,545        44,593   

Accrued interest receivable

     17,532        18,662        19,863   

Other assets

     105,607        104,983        98,330   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,671,711      $ 5,608,825      $ 5,267,445   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Deposits:

      

Noninterest-bearing

   $ 1,842,680      $ 1,704,996      $ 1,509,433   

Interest-bearing

     3,256,968        3,332,739        3,192,566   
  

 

 

   

 

 

   

 

 

 

Total deposits

     5,099,648        5,037,735        4,701,999   

Short-term borrowings

     6,340        8,274        1,400   

Accrued interest payable

     2,260        2,710        3,107   

Long-term borrowings

     11,329        18,476        32,121   

Other liabilities

     25,769        22,506        29,555   

Junior subordinated debentures

     26,804        36,083        28,866   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     5,172,150        5,125,784        4,797,048   
  

 

 

   

 

 

   

 

 

 

Commitments and contingent liabilities

      

Stockholders’ equity:

      

Senior preferred stock, $1.00 par; 10,000,000 shares authorized; none issued

     —          —          —     

Cumulative preferred stock, $5.00 par; 900,000 shares authorized; none issued

     —          —          —     

Common stock, $1.00 par, 20,000,000 shares authorized; shares issued and outstanding: 15,153,991, 15,117,430 and 15,273,181, respectively

     15,154        15,118        15,273   

Capital surplus

     79,181        77,462        74,229   

Retained earnings

     398,267        381,017        371,150   

Accumulated other comprehensive income, net of income tax of $3,746, $5,084 and $5,217, respectively

     6,959        9,444        9,745   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     499,561        483,041        470,397   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 5,671,711      $ 5,608,825      $ 5,267,445   
  

 

 

   

 

 

   

 

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

2


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (Dollars in thousands, except per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

INTEREST INCOME

        

Loans, including fees

   $ 41,857      $ 40,256      $ 83,817      $ 79,513   

Securities:

        

Taxable

     2,087        3,011        4,494        6,637   

Tax-exempt

     411        602        835        1,232   

Federal funds sold

     —          20        1        41   

Interest-bearing deposits with banks

     1,061        886        2,034        1,661   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     45,416        44,775        91,181        89,084   
  

 

 

   

 

 

   

 

 

   

 

 

 

INTEREST EXPENSE

        

Deposits

     3,883        5,986        8,132        12,231   

Short-term borrowings

     8        3        16        7   

Long-term borrowings

     91        255        196        501   

Junior subordinated debentures

     565        525        1,151        1,050   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     4,547        6,769        9,495        13,789   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     40,869        38,006        81,686        75,295   

Provision for loan losses

     248        2,013        421        2,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     40,621        35,993        81,265        72,494   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST INCOME

        

Trust revenue

     1,823        1,631        3,530        3,218   

Service charges on deposits

     11,031        10,449        21,638        20,201   

Securities transactions

     226        1,316        4,258        1,324   

Income from sales of loans

     766        420        1,338        872   

Insurance commissions

     2,803        2,471        5,796        4,893   

Cash management

     2,041        1,927        3,980        3,692   

Gain (loss) on sale of other assets

     323        (5     343        4   

Other

     1,351        1,470        2,918        3,205   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     20,364        19,679        43,801        37,409   
  

 

 

   

 

 

   

 

 

   

 

 

 

NONINTEREST EXPENSE

        

Salaries and employee benefits

     24,830        22,557        49,630        44,369   

Occupancy and fixed assets expense, net

     2,477        2,411        4,923        4,862   

Depreciation

     2,226        1,889        4,357        3,793   

Amortization of intangible assets

     457        377        914        754   

Data processing services

     1,158        1,168        2,441        2,418   

Net expense from other real estate owned

     922        775        1,169        (131

Marketing and business promotion

     1,679        1,653        3,334        3,191   

Deposit insurance

     724        764        1,443        2,190   

Other

     8,090        8,016        16,389        14,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     42,563        39,610        84,600        76,007   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

     18,422        16,062        40,466        33,896   

Income tax expense

     (6,693     (5,947     (14,732     (12,426
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 11,729      $ 10,115      $ 25,734      $ 21,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME PER COMMON SHARE

        

Basic

   $ 0.77      $ 0.66      $ 1.70      $ 1.40   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.76      $ 0.65      $ 1.67      $ 1.37   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME

        

Unrealized gains (losses) on securities, net of tax of $292, $(1,034), $610 and $(959), respectively

   $ (541   $ 1,976      $ (1,132   $ 1,784   

Reclassification adjustment for gains included in net income, net of tax of $5, $293, $728 and $293, respectively

     (11     (544     (1,353     (544
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax of $297, $(741), $1,338 and $(666), respectively

     (552     1,432        (2,485     1,240   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 11,177      $ 11,547      $ 23,249      $ 22,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

3


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

COMMON STOCK

        

Issued at beginning of period

   $ 15,145      $ 15,390      $ 15,118      $ 15,369   

Shares issued

     16        —          43        21   

Shares acquired and canceled

     (7     (117     (7     (117
  

 

 

   

 

 

   

 

 

   

 

 

 

Issued at end of period

   $ 15,154      $ 15,273      $ 15,154      $ 15,273   
  

 

 

   

 

 

   

 

 

   

 

 

 

CAPITAL SURPLUS

        

Balance at beginning of period

   $ 78,420      $ 73,935      $ 77,462      $ 73,040   

Common stock issued

     267        —          722        474   

Tax effect of stock options

     137        23        199        69   

Stock-based compensation arrangements

     357        271        798        646   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 79,181      $ 74,229      $ 79,181      $ 74,229   
  

 

 

   

 

 

   

 

 

   

 

 

 

RETAINED EARNINGS

        

Balance at beginning of period

   $ 390,881      $ 369,189      $ 381,017      $ 361,680   

Net income

     11,729        10,115        25,734        21,470   

Dividends on common stock

     (4,094     (3,848     (8,235     (7,694

Common stock acquired and canceled

     (249     (4,306     (249     (4,306
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 398,267      $ 371,150      $ 398,267      $ 371,150   
  

 

 

   

 

 

   

 

 

   

 

 

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

        

Unrealized gains (losses) on securities:

        

Balance at beginning of period

   $ 7,511      $ 8,313      $ 9,444      $ 8,505   

Net change

     (552     1,432        (2,485     1,240   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 6,959      $ 9,745      $ 6,959      $ 9,745   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

   $ 499,561      $ 470,397      $ 499,561      $ 470,397   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

4


BANCFIRST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended
June 30,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 25,734      $ 21,470   

Adjustments to reconcile to net cash provided by operating activities:

    

Provision for loan losses

     421        2,801   

Depreciation and amortization

     5,271        4,547   

Net amortization of securities premiums and discounts

     782        2,558   

Realized securities gains

     (4,258     (1,324

Gain on sales of loans

     (1,338     (872

Cash receipts from the sale of loans originated for sale

     103,117        75,562   

Cash disbursements for loans originated for sale

     (106,365     (74,175

Deferred income tax benefit

     (132     (1,309

Gains on other assets

     (288     (1,058

Decrease in interest receivable

     1,130        2,051   

Decrease in interest payable

     (450     (128

Amortization of stock-based compensation arrangements

     798        646   

Other, net

     5,085        4,076   
  

 

 

   

 

 

 

Net cash provided by operating activities

     29,507        34,845   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Net decrease in Federal funds sold

     400        41,107   

Purchases of securities:

    

Held for investment

     (2,525     (6,400

Available for sale

     (41,330     (32,183

Maturities of securities:

    

Held for investment

     2,831        2,755   

Available for sale

     70,033        134,557   

Proceeds from sales and calls of securities:

    

Held for investment

     2,417        2   

Available for sale

     8,129        65,478   

Purchases of loans

     (17,255     (26,847

Proceeds from sales of loans

     16,872        3,226   

Net other increase in loans

     (49,192     (32,286

Purchases of premises, equipment and computer software

     (7,015     (8,135

Proceeds from the sale of other assets

     7,213        12,196   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (9,422     153,470   
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Net increase in demand, transaction and savings deposits

     112,565        215,139   

Net decrease in time deposits

     (50,652     (16,894

Net decrease in short-term borrowings

     (1,934     (5,850

Paydown of long-term borrowings

     (7,147     (2,144

Redemption of junior subordinated debentures

     (9,279     —     

Issuance of common stock

     964        564   

Common stock acquired

     (256     (4,423

Cash dividends paid

     (8,171     (7,687
  

 

 

   

 

 

 

Net cash provided by financing activities

     36,090        178,705   
  

 

 

   

 

 

 

Net increase in cash, due from banks and interest-bearing deposits

     56,175        367,020   

Cash, due from banks and interest-bearing deposits at the beginning of the period

     1,707,733        1,204,079   
  

 

 

   

 

 

 

Cash, due from banks and interest-bearing deposits at the end of the period

   $ 1,763,908      $ 1,571,099   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest

   $ 9,946      $ 13,917   
  

 

 

   

 

 

 

Cash paid during the period for income taxes

   $ 13,775      $ 14,000   
  

 

 

   

 

 

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

5


BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the “Company”) conform to generally accepted accounting principles and general practice within the banking industry. A summary of significant accounting policies can be found in Footnote (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BancFirst Agency, Inc., and BancFirst Community Development Corporation. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the consolidated financial statements.

The accompanying consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the financial statements and footnotes included in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011, should be referred to in connection with these unaudited interim consolidated financial statements.

The unaudited interim consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2011, the date of the most recent annual report.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for loan losses, income taxes, the fair value of financial instruments and the valuation of intangibles. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or net income.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12, “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to re-deliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12. ASU 2011-12 was effective for annual and interim periods beginning after December 15, 2011. Adoption of ASU 2011-12 did not have a significant effect on the Company’s financial statements.

 

6


In November 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210)—Disclosure about Offsetting Assets and Liabilities.” ASU 2011-11 is an amendment to require an entity to disclose both net and gross information about offsetting assets and liabilities to enable users of its financial statements to understand the effect of those arrangements. Arrangements include derivatives, sale and repurchase agreements and transactions, securities borrowing and securities lending arrangements. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013 and is not expected to have a significant effect on the Company’s financial statements.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles (Topic 350) – Goodwill and Other.” ASU 2011-08 is an update to simplify how entities test for goodwill impairment. The amendments in the update permit the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If these factors determined that the fair value exceeds the carrying amount then the Company is not required to calculate the fair value of the reporting unit. The Company opted to continue to perform quantitative tests for goodwill impairment and not to perform qualitative tests for goodwill impairment under ASU 2011-08 as of September 30, 2011. Adoption of ASU 2011-08 did not have a significant effect on the Company’s financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” ASU 2011-05 is an update to improve the comparability, consistency, and transparency of financial reporting, to increase the prominence of items reported in other comprehensive income, and to facilitate convergence of GAAP and IFRS. The Company adopted ASU 2011-05 as of September 30, 2011, and the standard was applied retrospectively. The adoption of ASU 2011-05 did not have a significant effect on the Company’s financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”).” ASU 2011-04 is an update to explain how to measure fair value. This amendment does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. This amendment was put forth in order to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements consistent with IFRS. ASU 2011-04 was effective for the Company on January 1, 2012, and was applied prospectively. Adoption of ASU 2011-04 did not have a significant effect on the Company’s financial statements.

In April 2011, the FASB issued ASU No. 2011-02, “Receivables (Topic 310)—A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 was effective for the Company on July 1, 2011, and was applied retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 did not have a significant effect on the Company’s financial statements.

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

On January 19, 2012, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst, completed the sale of one of its investments that resulted in a pretax gain of approximately $4.5 million. After related expenses and income taxes, the increase in net income approximated $2.6 million or $0.17 per share on a fully diluted basis. The gain was included in first quarter 2012 earnings.

On July 12, 2011, the Company completed the acquisition of FBC Financial Corporation and its subsidiary bank, 1st Bank Oklahoma with banking locations in Claremore, Verdigris, and Inola, Oklahoma. The Company paid a premium of $1.5 million above the equity capital of FBC Financial Corporation. At acquisition, 1st Bank Oklahoma had approximately $217 million in total assets, $116 million in loans, $178 million in deposits and $18 million in equity capital. 1st Bank Oklahoma operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on February 17, 2012. The acquisition did not have a material effect on the Company’s consolidated financial statements.

 

7


The Federal Reserve enacted a final rule on June 29, 2011 establishing the debit card interchange rate at $0.21 per transaction and five basis points multiplied by the value of the transaction that was effective on October 1, 2011 for banks exceeding $10 billion in assets. Although the rule does not apply directly to the Company, the possible competitive response may have an impact on the Company’s pricing of these services.

(3) SECURITIES

The following table summarizes securities held for investment and securities available for sale:

 

     June 30,
2012
 
     (Dollars in
thousands)
 

Held for investment, at cost (market value: $20,104)

   $ 19,734   

Available for sale, at market value

     555,300   
  

 

 

 

Total

   $ 575,034   
  

 

 

 

The following table summarizes the amortized cost and estimated market values of securities held for investment:

 

     June 30, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Market

Value
 
     (Dollars in thousands)  

U.S. treasury and other Federal agencies

   $ 901       $ 68       $ —         $ 969   

States and political subdivisions

     18,833         302         —           19,135   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,734       $ 370       $ —         $ 20,104   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes the amortized cost and estimated market values of securities available for sale:

 

     June 30, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Market
Value
 
     (Dollars in thousands)  

U.S. Federal agencies (1)

   $ 455,175       $ 4,512       $ (121   $ 459,566   

Mortgage backed securities

     23,869         843         (3     24,709   

States and political subdivisions

     57,540         3,008         (10     60,538   

Other securities (2)

     8,011         2,498         (22     10,487   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 544,595       $ 10,861       $ (156   $ 555,300   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies.
(2) Primarily consists of equity securities.

The maturities of securities held for investment and available for sale are summarized in the following table using contractual maturities. Actual maturities may differ from contractual maturities due to obligations that are called or prepaid. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been presented at their contractual maturity.

 

8


 

     June 30, 2012  
     Amortized
Cost
     Estimated
Market
Value
 
     (Dollars in thousands)  

Held for Investment

     

Contractual maturity of debt securities:

     

Within one year

   $ 1,583       $ 1,602   

After one year but within five years

     14,679         14,909   

After five years but within ten years

     2,830         2,889   

After ten years

     642         704   
  

 

 

    

 

 

 

Total

   $ 19,734       $ 20,104   
  

 

 

    

 

 

 

Available for Sale

     

Contractual maturity of debt securities:

     

Within one year

   $ 85,373       $ 86,441   

After one year but within five years

     323,771         326,413   

After five years but within ten years

     46,982         49,031   

After ten years

     80,458         82,928   
  

 

 

    

 

 

 

Total debt securities

     536,584         544,813   

Equity securities

     8,011         10,487   
  

 

 

    

 

 

 

Total

   $ 544,595       $ 555,300   
  

 

 

    

 

 

 

The following table is a summary of the Company’s book value of securities that were pledged as collateral for public funds on deposit, repurchase agreements and for other purposes as required or permitted by law:

 

     June 30, 2012  
     (Dollars in thousands)  

Book value of pledged securities

   $ 484,329   

 

9


(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

 

     June 30, 2012     December 31, 2011     June 30, 2011  
     Amount      Percent     Amount      Percent     Amount      Percent  
     (Dollars in thousands)  

Commercial and industrial

   $ 515,456         16.82   $ 547,942         18.19   $ 551,293         19.26

Oil & gas production & equipment

     125,228         4.08        115,786         3.84        113,868         3.98   

Agriculture

     77,882         2.54        86,297         2.86        74,221         2.59   

State and political subdivisions:

               

Taxable

     6,520         0.21        6,939         0.23        7,281         0.25   

Tax-exempt

     13,853         0.45        17,070         0.57        11,920         0.42   

Real estate:

               

Construction

     197,168         6.43        207,953         6.90        236,660         8.27   

Farmland

     111,472         3.64        103,923         3.45        86,285         3.02   

One to four family residences

     674,577         22.01        655,134         21.74        618,428         21.61   

Multifamily residential properties

     46,866         1.53        37,734         1.25        34,040         1.19   

Commercial

     1,036,322         33.81        960,074         31.86        846,684         29.59   

Consumer

     239,156         7.80        252,331         8.37        255,975         8.94   

Other (not classified above)

     20,939         0.68        22,315         0.74        25,189         0.88   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total loans

   $ 3,065,439         100.00   $ 3,013,498         100.00   $ 2,861,844         100.00
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Loans held for sale (included above)

   $ 16,612         $ 12,126         $ 11,258      

The Company’s loans are mostly to customers within Oklahoma and over 60% of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained, if any, to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral.

Accounting policies related to appraisals, nonaccruals and charge-offs are disclosed in Footnote (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Nonperforming and Restructured Assets

Nonaccrual loans, accruing loans past due 90 days or more, and restructured loans are shown in the table below. Had nonaccrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income of approximately $654,000 for the six months ended June 30, 2012 and approximately $562,000 for the six months ended June 30, 2011.

At June 30, 2012, troubled debt restructurings were primarily due to the principal deferral restructuring from one customer. This loan was evaluated by management and determined to be well collateralized. Additionally, none of the concessions granted involved a principal reduction or a change from the current market rate of interest. Collateral value will be monitored periodically to evaluate possible impairment. The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material.

The following is a summary of nonperforming and restructured assets:

 

     June 30,     December 31,     June 30,  
     2012     2011     2011  
     (Dollars in thousands)  

Past due 90 days or more and still accruing

   $ 1,403      $ 798      $ 1,166   

Nonaccrual

     20,702        21,187        22,469   

Restructured

     18,089        1,041        344   
  

 

 

   

 

 

   

 

 

 

Total nonperforming and restructured loans

     40,194        23,026        23,979   

Other real estate owned and repossessed assets

     10,223        16,640        15,501   
  

 

 

   

 

 

   

 

 

 

Total nonperforming and restructured assets

   $ 50,417      $ 39,666      $ 39,480   
  

 

 

   

 

 

   

 

 

 

Nonperforming and restructured loans to total loans

     1.31     0.76     0.84
  

 

 

   

 

 

   

 

 

 

Nonperforming and restructured assets to total assets

     0.89     0.71     0.75
  

 

 

   

 

 

   

 

 

 

 

10


Loans are segregated into classes based upon the nature of the collateral and the borrower. These classes are used to estimate the credit risk component in the allowance for loan losses.

The following table is a summary of amounts included in nonaccrual loans, segregated by class of loans. Residential real estate refers to one-to-four family real estate.

 

     June 30, 2012      June 30, 2011  
     (Dollars in thousands)  

Non-residential real estate

   $ 9,711       $ 9,235   

Residential real estate

     4,098         5,860   

Non-consumer non-real estate

     1,142         1,547   

Consumer non-real estate

     140         178   

Other loans

     1,918         4,285   

Acquired loans

     3,693         1,364   
  

 

 

    

 

 

 

Total

   $ 20,702       $ 22,469   
  

 

 

    

 

 

 

The following table presents an age analysis of past due loans, segregated by class of loans:

 

     Age Analysis of Past Due Receivables  
     30-89
Days
Past Due
     90 Days
and
Greater
     Total
Past Due
Loans
     Current
Loans
     Total
Loans
     Accruing
Loans

90 Days
or More
Past Due
 
     (Dollars in thousands)  

As of June 30, 2012

  

Non-residential real estate

   $ 2,649       $ 2,454       $ 5,103       $ 1,135,948       $ 1,141,051       $ 285   

Residential real estate

     4,240         1,288         5,528         715,621         721,149         478   

Non-consumer non-real estate

     1,285         244         1,529         695,887         697,416         16   

Consumer non-real estate

     2,002         183         2,185         198,242         200,427         122   

Other loans

     1,213         1,654         2,867         153,117         155,984         102   

Acquired loans

     3,134         1,352         4,486         144,926         149,412         400   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 14,523       $ 7,175       $ 21,698       $ 3,043,741       $ 3,065,439       $ 1,403   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

  

Non-residential real estate

   $ 1,720       $ 573       $ 2,293       $ 978,409       $ 980,702       $ 1   

Residential real estate

     2,617         2,208         4,825         684,344         689,169         927   

Non-consumer non-real estate

     1,474         324         1,798         710,640         712,438         6   

Consumer non-real estate

     1,822         173         1,995         196,583         198,578         116   

Other loans

     3,489         3,766         7,255         152,982         160,237         89   

Acquired loans

     908         920         1,828         118,892         120,720         27   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,030       $ 7,964       $ 19,994       $ 2,841,850       $ 2,861,844       $ 1,166   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect the full amount of scheduled principal and interest payments in accordance with the original contractual terms of the loan agreement. If a loan is impaired, a specific valuation allowance may be allocated, if necessary, so that the loan is reported net at the present value of future cash flows using the loan’s existing rate or the fair value of collateral if repayment is expected solely from the collateral. When it is not deemed necessary to allocate a specific valuation allowance to an impaired loan, the loan nevertheless will have an allowance based on a historically adequate percentage determined for the class of loans.

 

11


The following table presents impaired loans, segregated by class of loans. No material amount of interest income was recognized on impaired loans subsequent to their classification as impaired.

 

     Impaired Loans  
     Unpaid
Principal
Balance
     Recorded
Investment

with
Allowance
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in thousands)  

As of June 30, 2012

  

Non-residential real estate

   $ 28,184       $ 27,165       $ 2,122       $ 27,397   

Residential real estate

     5,839         5,384         1,468         5,547   

Non-consumer non-real estate

     1,792         1,163         302         1,512   

Consumer non-real estate

     349         325         59         389   

Other loans

     2,255         2,020         212         2,158   

Acquired loans

     13,648         11,522         291         13,263   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 52,067       $ 47,579       $ 4,454       $ 50,266   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

           

Non-residential real estate

   $ 9,723       $ 9,235       $ 978       $ 10,223   

Residential real estate

     6,466         5,860         1,520         6,511   

Non-consumer non-real estate

     1,873         1,547         358         1,806   

Consumer non-real estate

     211         178         47         212   

Other loans

     4,418         4,285         193         4,312   

Acquired loans

     1,529         1,364         92         1,339   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 24,220       $ 22,469       $ 3,188       $ 24,403   
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit Risk Monitoring and Loan Grading

The Company employs several means to monitor the risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical loan loss experience, and economic conditions.

Loans are subject to an internal risk grading system which indicates the risk and acceptability of that loan. The loan grades used by the Company are for internal risk identification purposes and do not directly correlate to regulatory classification categories or any financial reporting definitions.

The general characteristics of the risk grades are as follows:

Grade 1—Acceptable—Loans graded 1 represent reasonable and satisfactory credit risk which requires normal attention and supervision. Capacity to repay through primary and/or secondary sources is not questioned.

Grade 2—Acceptable—Increased Attention—This category consists of loans that have credit characteristics deserving management’s close attention. These potential weaknesses could result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date. Such credit characteristics include loans to highly leveraged borrowers in cyclical industries, adverse financial trends which could potentially weaken repayment capacity, loans that have fundamental structure deficiencies, loans lacking secondary sources of repayment where prudent, and loans with deficiencies in essential documentation, including financial information.

Grade 3—Loans with Problem Potential—This category consists of performing loans which are considered to exhibit problem potential. Loans in this category would generally include, but not be limited to, borrowers with a weakened financial condition or poor performance history, past dues, loans restructured to reduce payments to an amount that is below market standards and/or loans with severe documentation problems. In general, these loans have no identifiable loss potential in the near future, however, the possibility of a loss developing is heightened.

Grade 4—Problem Loans/Assets—Nonperforming—This category consists of nonperforming loans/assets which are considered to be problems. Nonperforming loans are described as being 90 days and over past due and still accruing, and loans that are nonaccrual. The government guaranteed portion of SBA loans is excluded.

Grade 5—Loss Potential—This category consists of loans/assets which are considered to possess loss potential. While the loss may not occur in the current year, management expects that loans/assets in this category will ultimately result in a loss, unless substantial improvement occurs.

 

12


Grade 6—Charge Off—This category consists of loans that are considered uncollectible and other assets with little or no value.

The following table presents internal loan grading by class of loans:

 

     Internal Loan Grading  
     Grade  
     1      2      3      4      5      Total  
     (Dollars in thousands)  

As of June 30, 2012

                 

Non-residential real estate

   $ 983,946       $ 118,825       $ 28,514       $ 9,766       $ —         $ 1,141,051   

Residential real estate

     619,115         81,324         15,920         4,790         —           721,149   

Non-consumer non-real estate

     610,214         78,825         7,211         1,166         —           697,416   

Consumer non-real estate

     187,768         10,204         2,122         333         —           200,427   

Other loans

     151,330         2,917         1,027         710         —           155,984   

Acquired loans

     110,506         27,002         7,898         4,006         —           149,412   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,662,879       $ 319,097       $ 62,692       $ 20,771       $ —         $ 3,065,439   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2011

                 

Non-residential real estate

   $ 834,857       $ 103,359       $ 33,446       $ 9,040       $ —         $ 980,702   

Residential real estate

     601,469         68,651         12,970         6,079         —           689,169   

Non-consumer non-real estate

     638,872         61,481         10,710         1,375         —           712,438   

Consumer non-real estate

     189,220         6,891         2,172         295         —           198,578   

Other loans

     153,104         2,463         2,050         2,620         —           160,237   

Acquired loans

     84,482         26,475         8,398         1,267         98         120,720   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,502,004       $ 269,320       $ 69,746       $ 20,676       $ 98       $ 2,861,844   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Allowance for Loan Losses Methodology

The allowance for loan losses (“ALLL”) is determined by a calculation based on segmenting the loans into the following categories: (1) adversely graded loans [Grades 3, 4, and 5] that have a specific reserve allocation; (2) loans without a specific reserve segmented by loans secured by real estate other than 1-4 family residential property, loans secured by 1-4 family residential property, commercial, industrial, and agricultural loans not secured by real estate, consumer purpose loans not secured by real estate, and loans over 60 days past due that are not otherwise Grade 3, 4, or 5; (3) Grade 2 loans; (4) Grade 1 loans; and (5) loans held for sale which are excluded.

The ALLL is calculated as the sum of the following: (1) the total dollar amount of specific reserve allocations; (2) the dollar amount derived by multiplying each segment of adversely graded loans without a specific reserve allocation times its respective reserve factor; (3) the dollar amount derived by multiplying Grade 2 loans and Grade 1 loans (less exclusions) times the respective reserve factor; and (4) other adjustments as deemed appropriate and documented by the Senior Loan Committee or Board of Directors.

The amount of the ALLL is an estimate based upon factors which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated ALLL in the near term.

 

13


The following table details activity in the ALLL by class of loans for the period presented. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

ALLL

 
     Non-Residential
Real Estate
    Residential
Real
Estate
    Non-
Consumer
Non-Real
Estate
    Consumer
Non-Real
Estate
    Other
Loans
    Acquired
Loans
    Total  
     (Dollars in thousands)  

Three Months Ended June 30, 2012

              

Allowance for credit losses:

              

Balance at March 31, 2012

   $ 14,109      $ 9,762      $ 9,198      $ 2,283      $ 1,850      $ 431      $ 37,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (7     (95     (313     (77     (27     (12     (531

Recoveries

     (6     13        26        32        12        9        86   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (13     (82     (287     (45     (15     (3     (445
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     253        326        (353     44        19        (41     248   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 14,349      $ 10,006      $ 8,558      $ 2,282      $ 1,854      $ 387      $ 37,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2012

              

Allowance for credit losses:

              

Balance at December 31, 2011

   $ 13,948      $ 9,764      $ 9,156      $ 2,315      $ 1,886      $ 587      $ 37,656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (128     (131     (330     (191     (207     (76     (1,063

Recoveries

     31        109        124        116        31        11        422   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (97     (22     (206     (75     (176     (65     (641
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     498        264        (392     42        144        (135     421   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 14,349      $ 10,006      $ 8,558      $ 2,282      $ 1,854      $ 387      $ 37,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balances:

              

Individually evaluated for impairment

   $ 2,986      $ 2,760      $ 1,436      $ 302      $ 196      $ —        $ 7,680   

Collectively evaluated for impairment

     11,363        7,246        7,122        1,980        1,658        387        29,756   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 14,349      $ 10,006      $ 8,558      $ 2,282      $ 1,854      $ 387      $ 37,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans-Ending balances:

              

Individually evaluated for impairment

   $ 38,278      $ 20,710      $ 8,377      $ 2,455      $ 109      $ —        $ 69,929   

Collectively evaluated for impairment

     1,102,773        700,439        689,039        197,972        155,875        137,508        2,983,606   

Loans acquired with deteriorated credit quality

     —          —          —          —          —          11,904        11,904   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 1,141,051      $ 721,149      $ 697,416      $ 200,427      $ 155,984      $ 149,412      $ 3,065,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

14


ALLL

 
     Non-Residential
Real Estate
    Residential
Real
Estate
    Non-
Consumer
Non-Real
Estate
    Consumer
Non-Real
Estate
    Other
Loans
    Acquired
Loans
    Total  
     (Dollars in thousands)  

Three Months Ended June 30, 2011

              

Allowance for credit losses:

              

Balance at March 31, 2011

   $ 12,979      $ 9,612      $ 9,165      $ 2,258      $ 1,699      $ 423      $ 36,136   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (136     (312     (179     (223     (22     (302     (1,174

Recoveries

     7        39        29        36        5        1        117   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (129     (273     (150     (187     (17     (301     (1,057
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     801        41        319        166        30        656        2,013   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 13,651      $ 9,380      $ 9,334      $ 2,237      $ 1,712      $ 778      $ 37,092   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2011

              

Allowance for credit losses:

              

Balance at December 31, 2010

   $ 13,142      $ 8,957      $ 9,587      $ 2,301      $ 1 ,758      $ —        $ 35,745   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (269     (501     (184     (328     (122     (331     (1,735

Recoveries

     16        95        84        68        7        11        281   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (253     (406     (100     (260     (115     (320     (1,454
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provisions charged to operations

     762        829        (153     196        69        1,098        2,801   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 13,651      $ 9,380      $ 9,334      $ 2,237      $ 1,712      $ 778      $ 37,092   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balances:

              

Individually evaluated for impairment

   $ 3,694      $ 2,314      $ 2,021      $ 297      $ 285      $ —        $ 8,611   

Collectively evaluated for impairment

     9,957        7,066        7,313        1,940        1,427        778        28,481   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 13,651      $ 9,380      $ 9,334      $ 2,237      $ 1,712      $ 778      $ 37,092   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans-Ending balances:

              

Individually evaluated for impairment

   $ 42,486      $ 19,049      $ 12,085      $ 2,467      $ 413      $ —        $ 76,500   

Collectively evaluated for impairment

     938,216       670,120        700,353        196,111        159,824        110,957        2,775,581   

Loans acquired with deteriorated credit quality

     —          —          —          —          —          9,763        9,763   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 980,702      $ 689,169      $ 712,438      $ 198,578      $ 160,237      $ 120,720      $ 2,861,844   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfers from Loans

Transfers from loans to other real estate owned and repossessed assets are non-cash transactions, and are not included in the statements of cash flow.

Transfers from loans to other real estate owned and repossessed assets during the periods presented, are summarized as follows:

 

     Six Months Ended
June 30,
 
     2012      2011  
     (Dollars in thousands)  

Other real estate owned

   $ 1,284       $ 3,145   

Repossessed assets

     295         913   
  

 

 

    

 

 

 

Total

   $ 1,579       $ 4,058   
  

 

 

    

 

 

 

 

15


(5) INTANGIBLE ASSETS

The following is a summary of intangible assets:

 

     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
 
     (Dollars in thousands)  

As of June 30, 2012

       

Core deposit intangibles

   $ 14,800       $ (6,402   $ 8,398   

Customer relationship intangibles

     5,657         (1,812     3,845   

Mortgage servicing intangibles

     986         (71     915   
  

 

 

    

 

 

   

 

 

 

Total

   $ 21,443       $ (8,285   $ 13,158   
  

 

 

    

 

 

   

 

 

 

(6) JUNIOR SUBORDINATED DEBENTURES

The following is a summary of the Junior Subordinated Debentures:

     June 30,
2012
     December 31,
2011
            

Issue

   Amount      Amount      Rate   Maturity  
     (Dollars in thousands)  

BFC II

   $ 26,804       $ 26,804       7.20%     03/31/2034   

UNST I

     —           2,062       3 month LIBOR + 1.65%     03/15/2036   

FBCST I

     —           7,217       3 month LIBOR + 2.85%     12/17/2033   
  

 

 

    

 

 

      

Total

   $ 26,804       $ 36,083        
  

 

 

    

 

 

      

Refer to Note (11) in BancFirst Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011, for further disclosures related to Junior Subordinated Debentures.

On June 15, 2012, BancFirst Corporation redeemed the Union National Statutory Trust I (“UNST I”) Junior Subordinated Debentures at par value.

On June 18, 2012, BancFirst Corporation redeemed the FBC Financial Corp. Statutory Trust I (“FBCST I”) Junior Subordinated Debentures at par value.

(7) STOCK-BASED COMPENSATION

The Company adopted a nonqualified incentive stock option plan (the “BancFirst ISOP”) in May 1986. The Company amended the BancFirst ISOP to increase the number of shares to be issued under the plan to 2,800,000 shares in May 2011. At June 30, 2012, 64,860 shares were available for future grants. The BancFirst ISOP will terminate on December 31, 2014. The options are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options expire at the end of fifteen years from the date of grant. Options outstanding as of June 30, 2012 will become exercisable through the year 2018. The option price must be no less than 100% of the fair market value of the stock relating to such option at the date of grant.

In June 1999, the Company adopted the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “BancFirst Directors’ Stock Option Plan”). Each non-employee director is granted an option for 10,000 shares. The Company amended the BancFirst Directors’ Stock Option Plan to increase the number of shares to be issued under the plan to 205,000 shares in May 2009. At June 30, 2012, 30,000 shares were available for future grants. The options are exercisable beginning one year from the date of grant at the rate of 25% per year for four years, and expire at the end of fifteen years from the date of grant. Options outstanding as of June 30, 2012 will become exercisable through the year 2015. The option price must be no less than 100% of the fair value of the stock relating to such option at the date of grant.

The Company currently uses newly issued stock to satisfy stock-based exercises, but reserves the right to use treasury stock purchased under the Company’s Stock Repurchase Program (the “SRP”) in the future.

The following table is a summary of the activity under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:

 

16


 

     Options     Wgtd. Avg.
Exercise
Price
     Wgtd. Avg.
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value
 
     (Dollars in thousands, except per share data)  

Six Months Ended June 30, 2012

  

Outstanding at December 31, 2011

     1,298,431      $ 30.14        

Options granted

     —          —          

Options exercised

     (42,133     17.13        

Options canceled, forfeited, or expired

     —          —          
  

 

 

        

Outstanding at June 30, 2012

     1,256,298        30.58         8.39  Yr    $ 14,237   
  

 

 

      

 

 

   

 

 

 

Exercisable at June 30, 2012

     699,848        24.44         5.27  Yr    $ 12,223   
  

 

 

      

 

 

   

 

 

 

The following table is a summary of the Company’s non-vested options as of June 30, 2012, and any changes during the six months ended June 30, 2012:

 

     Options  

Non-vested at December 31, 2011

     591,700   

Options granted

     —     

Options vested

     (35,250

Options forfeited

     —     
  

 

 

 

Non-vested at June 30, 2012

     556,450   
  

 

 

 

The following table has additional information regarding options granted and options exercised under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan:

 

     Three Months Ended
June  30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  
     (Dollars in thousands, except per share data)  

Weighted average grant-date fair value per share of options granted

   $ —         $ 11.36       $ —         $ 12.48   

Total intrinsic value of options exercised

     617         —           1,749         405   

Cash received from options exercised

     239         —           722         438   

Tax benefit realized from options exercised

     239         —           677         157   

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility, and the expected term. The fair value of each option is expensed over its vesting period.

The following table is a summary of the Company’s recorded stock-based compensation expense:

 

     Three Months
Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  
     (Dollars in thousands)  

Stock-based compensation expense

   $ 357      $ 271      $ 798      $ 646   

Tax

     (138     (105     (309     (250
  

 

 

   

 

 

   

 

 

   

 

 

 

Stock-based compensation expense, net of tax

   $ 219      $ 166      $ 489      $ 396   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company will continue to amortize the remaining fair value of stock options over the remaining vesting period of approximately seven years. The following table shows the remaining fair value of stock options:

 

     June 30, 2012  
     (Dollars in thousands)  

Fair value of stock options

   $ 5,675   

 

 

17


The following table shows the assumptions used for computing stock-based compensation expense under the fair value method:

 

     Six Months Ended
June  30,
 
     2012     2011  

Risk-free interest rate

     1.78     3.61

Dividend yield

     2.00     2.00

Stock price volatility

     38.72     25.26

Expected term

     10 Yrs      10 Yrs 

The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S. Treasury security with a maturity similar to the expected term of the options. The dividend yield is the expected yield for the expected term. The stock price volatility is estimated from the recent historical volatility of the Company’s stock. The expected term is estimated from the historical option exercise experience.

(8) STOCKHOLDERS’ EQUITY

In November 1999, the Company adopted a Stock Repurchase Program (the “SRP”). The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options, and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company’s Executive Committee.

The following table is a summary of the shares under the program:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

Number of shares repurchased

     6,787         117,176         6,787         117,176   

Average price of shares repurchased

   $ 37.70       $ 37.75       $ 37.70       $ 37.75   

Shares remaining to be repurchased

     234,964         426,724         234,964         426,724   

The Company and BancFirst are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and FDIC. These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’s and BancFirst’s assets, liabilities, and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s financial statements. Management believes, as of June 30, 2012, that the Company and BancFirst met all capital adequacy requirements to which they are subject. The required capital amounts and the Company’s and BancFirst’s respective ratios are shown in the following table:

 

18


 

     Actual     For Capital
Adequacy
Purposes
    To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  
     (Dollars in thousands)  

As of June 30, 2012:

               

Total Capital

               

(to Risk Weighted Assets)-

               

BancFirst Corporation

   $ 500,048         14.62   $ 273,588         8.00     N/A         N/A   

BancFirst

     475,563         13.94     272,894         8.00   $ 341,118         10.00

Tier 1 Capital

               

(to Risk Weighted Assets)-

               

BancFirst Corporation

   $ 462,612         13.53   $ 136,794         4.00     N/A         N/A   

BancFirst

     438,127         12.84     136,447         4.00   $ 204,671         6.00

Tier 1 Capital

               

(to Total Assets)-

               

BancFirst Corporation

   $ 462,612         8.24   $ 170,193         3.00     N/A         N/A   

BancFirst

     438,127         7.81     169,614         3.00   $ 282,690         5.00

As of June 30, 2012, BancFirst was considered to be “well capitalized” and there are no conditions or events since the most recent notification of BancFirst’s capital category that management believes would materially change its category under capital requirements existing as of the report date. To be well capitalized under Federal bank regulatory agency definitions, a depository institution must have a Tier 1 Ratio of at least 6%, a combined Tier 1 and Tier 2 Ratio of at least 10%, and a Leverage Ratio of at least 5%. The Company’s trust preferred securities have continued to be included in Tier 1 capital as the Company’s total assets do not exceed $10 billion.

 

19


(9) NET INCOME PER COMMON SHARE

Basic and diluted net income per common share are calculated as follows:

 

     Income
(Numerator)
     Shares
(Denominator)
     Per Share
Amount
 
     (Dollars in thousands, except per share data)  

Three Months Ended June 30, 2012

        

Basic

        

Income available to common stockholders

   $ 11,729         15,155,525       $ 0.77   
        

 

 

 

Effect of stock options

     —           271,271      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 11,729         15,426,796       $ 0.76   
  

 

 

    

 

 

    

 

 

 

Three Months Ended June 30, 2011

        

Basic

        

Income available to common stockholders

   $ 10,115         15,364,738       $ 0.66   
        

 

 

 

Effect of stock options

     —           287,215      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 10,115         15,651,953       $ 0.65   
  

 

 

    

 

 

    

 

 

 

Six Months Ended June 30, 2012

        

Basic

        

Income available to common stockholders

   $ 25,734         15,145,066       $ 1.70   
        

 

 

 

Effect of stock options

     —           276,608      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 25,734         15,421,674       $ 1.67   
  

 

 

    

 

 

    

 

 

 

Six Months Ended June 30, 2011

        

Basic

        

Income available to common stockholders

   $ 21,470         15,362,764       $ 1.40   
        

 

 

 

Effect of stock options

     —           295,723      
  

 

 

    

 

 

    

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 21,470         15,658,487       $ 1.37   
  

 

 

    

 

 

    

 

 

 

The following table shows the number and average exercise price of options that were excluded from the computation of diluted net income per common share for each period because the options’ exercise prices were greater than the average market price of the common shares:

 

     Shares      Average
Exercise  Price
 

Three Months Ended June 30, 2012

     607,200       $ 38.70   

Three Months Ended June 30, 2011

     537,008       $ 38.94   

Six Months Ended June 30, 2012

     607,200       $ 38.70   

Six Months Ended June 30, 2011

     503,857       $ 38.80   

(10) FAIR VALUE MEASUREMENTS

Accounting standards define fair value as the price that would be received to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date.

FASB ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

20


    Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

    Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset and liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

    Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category includes certain impaired loans, foreclosed assets, other real estate, goodwill and other intangible assets.

Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis

A description of the valuation methodologies and key inputs used to measure financial assets and financial liabilities at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to the following categories of the Company’s financial assets and financial liabilities.

Securities Available for Sale

Securities classified as available for sale are reported at fair value. U.S. Treasuries are valued using Level 1 inputs. Other securities available for sale including U.S. Federal agencies, mortgage backed securities, and states and political subdivisions are valued using prices from an independent pricing service utilizing Level 2 data. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The Company also invests in equity securities classified as available for sale for which observable information is not readily available. These securities are reported at fair value utilizing Level 3 inputs. For these securities, management determines the fair value based on replacement cost, the income approach or information provided by outside consultants or lead investors.

The Company reviews the prices for Level 1 and Level 2 securities supplied by the independent pricing service for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities that are esoteric or that have complicated structures. The Company’s entire portfolio consists of traditional investments including U.S. Treasury obligations, Federal agency mortgage pass-through securities, general obligation municipal bonds and a small amount of municipal revenue bonds. Pricing for such instruments is fairly generic and is easily obtained. For in-state bond issues that have relatively low issue sizes and liquidity, the Company utilizes the same parameters adjusted for the specific issue. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from third party sources.

Derivatives

Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains dealer and market quotations to value its oil and gas swaps and options. The Company utilizes dealer quotes and observable market data inputs to substantiate internal valuation models.

Loans Held For Sale

The Company originates mortgage loans to be sold. At the time of origination, the acquiring bank has already been determined and the terms of the loan, including interest rate, have already been set by the acquiring bank, allowing the Company to originate the loan at fair value. Mortgage loans are generally sold within 30 days of origination. Loans held for sale are valued using Level 2 inputs. Gains or losses recognized upon the sale of the loans are determined on a specific identification basis.

 

21


Mortgage Servicing Intangibles

The Company acquired these Mortgage Servicing Intangibles with the acquisition of 1st Bank Oklahoma on July 12, 2011. The Company estimates the fair value of the Mortgage Servicing Intangibles with its carrying amount, based on the present value of future cash flows over several interest rate scenarios, which are then discounted at risk-adjusted rates. The Company considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. When available, fair value estimates and assumptions are compared to observable market data and the recent market activity and actual portfolio experience.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2012 and 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

     Level 1
Inputs
     Level 2
Inputs
     Level 3
Inputs
     Total Fair
Value
 
     (Dollars in thousands)  

June 30, 2012

           

Securities available for sale

   $ —         $ 544,813       $ 10,487       $ 555,300   

Derivative assets

     —           7,652         —           7,652   

Derivative liabilities

     —           5,648         —           5,648   

Loans held for sale

     —           16,612         —           16,612   

Mortgage servicing intangibles

     —           —           915         915   

June 30, 2011

           

Securities available for sale

   $ 35,096       $ 506,811       $ 12,498       $ 554,405   

Derivative assets

     —           6,663         —           6,663   

Derivative liabilities

     —           5,136         —           5,136   

Loans held for sale

     —           11,258         —           11,258   

Mortgage servicing intangibles

     —           —           —           —     

The changes in Level 3 assets measured at estimated fair value on a recurring basis during the six months ended June 30, 2012 and 2011 were as follows:

 

     Six Months Ended
June 30,
 
     2012     2011  
     (Dollars in thousands)  

Balance at the beginning of the year

   $ 13,225      $ 10,837   

Purchases, issuances and settlements

     1,770        —     

Sales

     (534     (189

(Losses) gains included in earnings

     (596     20   

Total unrealized (losses) gains

     (2,463     1,830   
  

 

 

   

 

 

 

Balance at the end of the period

   $ 11,402      $ 12,498   
  

 

 

   

 

 

 

The Company’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period. During the six months ended June 30, 2012 and 2011, the Company did not transfer any securities between levels in the fair value hierarchy.

Financial Assets and Financial Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and financial liabilities are reported at fair value utilizing Level 3 inputs.

Impaired loans are reported at the fair value of the underlying collateral if repayment is dependent on liquidation of the collateral. The impaired loans are adjusted to fair value through a specific allocation of the allowance for loan losses.

 

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Foreclosed assets, upon initial recognition, are measured and adjusted to fair value through a charge-off to the allowance for possible loan losses based upon the fair value of the foreclosed asset.

Other real estate owned is revalued at fair value subsequent to initial recognition, with any losses recognized in net expense from other real estate owned.

The following table summarizes assets measured at fair value on a nonrecurring basis and the related gains or losses recognized during the period:

 

     Level 1      Level 2      Level 3      Total Fair
Value
     Gains
(Losses)
 
     (Dollars in thousands)  

Six Months Ended June 30, 2012

  

Impaired loans

     —           —         $ 43,125       $ 43,125       $ —     

Foreclosed assets

     —           —         $ 135       $ 135       $ (86

Other real estate owned

     —           —         $ 10,088       $ 10,088       $ (1,067

Six Months Ended June 30, 2011

  

Impaired loans

     —           —         $ 19,281       $ 19,281       $ —     

Foreclosed assets

     —           —         $ 510       $ 510       $ 1   

Other real estate owned

     —           —         $ 14,991       $ 14,991       $ 291   

Estimated Fair Value of Financial Instruments

The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instruments that are not recorded at fair value. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents Include: Cash and Due from Banks; Federal Funds Sold and Interest-Bearing Deposits

The carrying amount of these short-term instruments is a reasonable estimate of fair value.

Securities Held for Investment

For securities held for investment, which are generally traded in secondary markets, fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities making adjustments for credit or liquidity if applicable.

Loans

For certain homogeneous categories of loans, such as some residential mortgages, fair values are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits

The fair values of transaction and savings accounts are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using the rates currently offered for deposits of similar remaining maturities.

 

23


Short-term Borrowings

The amounts payable on these short-term instruments are reasonable estimates of fair value.

Long-term Borrowings

The fair values of fixed-rate long-term borrowings are estimated using the rates that would be charged for borrowings of similar remaining maturities.

Junior Subordinated Debentures

The fair values of junior subordinated debentures are estimated using the rates that would be charged for junior subordinated debentures of similar remaining maturities.

Loan Commitments and Letters of Credit

The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the terms of the agreements. The fair values of letters of credit are based on fees currently charged for similar agreements.

The estimated fair values of the Company’s financial instruments are as follows:

 

     June 30,  
     2012      2011  
     Carrying
Amount
    Fair Value      Carrying
Amount
    Fair Value  
     (Dollars in thousands)  

FINANCIAL ASSETS

         

Cash and cash equivalents

   $ 1,763,908      $ 1,763,908       $ 1,571,199      $ 1,571,199   

Securities held for investment

     19,734        20,104         25,654        26,225   

Loans:

         

Loans (net of unearned interest)

     3,065,439           2,861,844     

Allowance for loan losses

     (37,436        (37,092  
  

 

 

      

 

 

   

Loans, net

     3,028,003        3,092,725         2,824,752        2,843,098   

FINANCIAL LIABILITIES

         

Deposits

     5,099,648        5,121,335         4,701,999        4,732,880   

Short-term borrowings

     6,340        6,340         1,400        1,400   

Long-term borrowings

     11,329        11,431         32,121        32,620   

Junior subordinated debentures

     26,804        28,970         28,866        31,997   

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

         

Loan commitments

       1,321           1,058   

Letters of credit

       428           441   

Non-financial Assets and Non-financial Liabilities Measured at Fair Value

The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include intangible assets and other non-financial long-lived assets measured at fair value and adjusted for impairment. These items are evaluated at least annually for impairment. The overall levels of non-financial assets and non-financial liabilities were not considered to be significant to the Company at June 30, 2012 or 2011.

(11) DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into oil and gas swaps and options contracts to accommodate the business needs of its customers. Upon the origination of an oil or gas swap or option contract with a customer, the Company simultaneously enters into an offsetting contract with a counterparty to mitigate the exposure to fluctuations in oil and gas prices. These derivatives are not designated as hedged instruments and are recorded on the Company’s consolidated balance sheet at fair value.

 

24


The Company utilizes dealer quotations and observable market data inputs to substantiate internal valuation models. The notional amounts and estimated fair values of oil and gas derivative positions outstanding are presented in the following table:

 

     June 30, 2012  

Oil and Natural Gas Swaps and Options

   Notional Units    Notional
Amount
    Estimated
Fair  Value
 
     (Notional amounts and dollars in thousands)  
Oil        

Derivative assets

   Barrels      633      $ 5,062   

Derivative liabilities

   Barrels      (633     (3,838
Natural Gas        

Derivative assets

   MMBTUs      4,627        2,590   

Derivative liabilities

   MMBTUs      (4,627     (1,810

Total Fair Value

   Included in     
  

 

    

Derivative assets

   Other assets        7,652   

Derivative liabilities

   Other liabilities        5,648   

The following table is a summary of the Company’s recognized income related to the activity, which was included in other noninterest income:

 

     Three Months Ended
June  30,
     Six Months Ended
June  30,
 
     2012      2011      2012      2011  
     (Dollars in thousands)  

Derivative income

   $  141       $  74       $  350       $  198   

The Company’s credit exposure on oil and gas swaps and options varies based on the current market prices of oil and natural gas. Other than credit risk, changes in the fair value of customer positions will be offset by equal and opposite changes in the counterparty positions. The net positive fair value of the contracts is the profit derived from the activity and is unaffected by market price movements.

Customer credit exposure is managed by strict position limits and is primarily offset by first liens on production while the remainder is offset by cash. Counterparty credit exposure is managed by selecting highly rated counterparties (rated A- or better by Standard and Poor’s) and monitoring market information.

The following table is a summary of the Company’s net credit exposure relating to oil and gas swaps and options with bank counterparties:

 

     June 30, 2012  
     (Dollars in
thousands)
 

Credit exposure

   $  7,201   

The Company entered into a $30 million five year guaranty with a counterparty on June 4, 2008 for the timely payment of the obligations of its subsidiary Bank related to the settlement of oil and gas positions.

(12) SEGMENT INFORMATION

The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The four principal business units are metropolitan banks, community banks, other financial services, and executive, operations and support. Metropolitan and community banks offer traditional banking products such as commercial and retail lending, and a full line of deposit accounts. Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Other financial services are specialty product business units including guaranteed small business lending, residential mortgage lending, trust services, securities brokerage, electronic banking and insurance. The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units.

 

25


The results of operations and selected financial information for the four business units are as follows:

 

     Metropolitan
Banks
     Community
Banks
     Other
Financial
Services
     Executive,
Operations
& Support
    Eliminations     Consolidated  
     (Dollars in thousands)  

Three Months Ended:

               

June 30, 2012

               

Net interest income (expense)

   $ 13,354       $ 26,384       $ 1,721       $ (590   $ —        $ 40,869   

Noninterest income

     2,672         10,721         6,214         13,245        (12,488     20,364   

Income before taxes

     8,220         14,944         2,011         5,686        (12,439     18,422   

June 30, 2011

               

Net interest income (expense)

   $ 12,311       $ 24,921       $ 1,759       $ (985   $ —        $ 38,006   

Noninterest income

     2,706         9,647         6,427         11,616        (10,717     19,679   

Income before taxes

     6,398         13,616         3,132         3,603        (10,687     16,062   

Six Months Ended:

               

June 30, 2012

               

Net interest income (expense)

   $ 26,517       $ 53,015       $ 3,434       $ (1,280   $ —        $ 81,686   

Noninterest income

     5,353         20,856         16,078         28,626        (27,112     43,801   

Income before taxes

     16,652         30,199         8,398         12,219        (27,002     40,466   

June 30, 2011

               

Net interest income (expense)

   $ 24,483       $ 49,058       $ 3,751       $ (1,997   $ —        $ 75,295   

Noninterest income

     5,512         18,685         11,581         24,264        (22,633     37,409   

Income before taxes

     14,880         26,836         5,632         9,090        (22,542     33,896   

Total Assets:

               

June 30, 2012

   $ 1,801,752       $ 3,688,931       $ 130,762       $ 607,662      $ (557,396   $ 5,671,711   

December 31, 2011

   $ 1,738,426       $ 3,660,239       $ 153,872       $ 602,577      $ (546,289   $ 5,608,825   

June 30, 2011

   $ 1,656,064       $ 3,401,037       $ 151,220       $ 605,726      $ (546,602   $ 5,267,445   

The financial information for each business unit is presented on the basis used internally by management to evaluate performance and allocate resources. The Company utilizes a transfer pricing system to allocate the benefit or cost of funds provided or used by the various business units. Certain services provided by the support group to other business units, such as item processing, are allocated at rates approximating the cost of providing the services. Eliminations are adjustments to consolidate the business units and companies. Capital expenditures are generally charged to the business unit using the asset.

 

26


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, 2011 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 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 $11.7 million or $0.76 diluted earnings per share for the second quarter of 2012 and $25.7 million or $1.67 diluted earnings per share for the six months ended June 30, 2012. These results compared to net income of $10.1 million or $0.65 diluted earnings per share for the second quarter of 2011 and $21.5 million or $1.37 diluted earnings per share for the six months ended June 30, 2011.

Net interest income for the second quarter of 2012 was $40.9 million, up $2.9 million or 7.5% from the second quarter in 2011. The increase was attributable to growth in the Company’s average loans which totaled $3.1 billion, up $251.6 million from the prior year. The Company’s average earning assets rose to $5.3 billion as a result of internal growth combined with the acquisition made in July 2011. The Company’s net interest margin for the second quarter of 2012 was 3.14% versus 3.17% a year ago as interest rates remain at historically low levels. The Company’s loan loss provision for the second quarter was $248,000 down from $2.0 million for the same period in 2011. Nonperforming and restructured assets were 0.89% of total assets compared to 0.92% at March 31, 2012 and 0.71% at December 31, 2011. Net charge-offs were 0.06% compared to 0.15% for the same period a year ago. Noninterest income totaled $20.4 million which was up $685,000 from a year ago. Excluding security gains, core noninterest income increased $1.8 million or 9.7% from the prior year. The increases in revenues resulted primarily from growth in trust services, commercial deposit revenues, insurance commissions and treasury management services. Noninterest expense for the second quarter was $42.6 million compared to $39.6 million a year ago. The increase in noninterest expense is related to the acquisition made in July 2011 and net expense on other real estate of $922,000.

At June 30, 2012, the Company’s total assets were $5.7 billion, up $62.9 million or 1.1% over December 31, 2011. Total loans were $3.1 billion, up $51.9 million or 1.7% from December 31, 2011. At June 30, 2012, total deposits were $5.1 billion, up $61.9 million from December 31, 2011. Stockholders’ equity was $499.6 million at June 30, 2012, an increase of $16.5 million or 3.4% over December 31, 2011.

On January 19, 2012, Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst, completed the sale of one of its investments that resulted in a pretax gain of approximately $4.5 million.

On July 12, 2011, the Company completed the acquisition of FBC Financial Corporation and its subsidiary bank, 1st Bank Oklahoma with banking locations in Claremore, Verdigris, and Inola, Oklahoma. The Company paid a premium of $1.5 million above the equity capital of FBC Financial Corporation. At acquisition, 1st Bank Oklahoma had approximately $217 million in total assets, $116 million in loans, $178 million in deposits and $18 million in equity capital. 1st Bank Oklahoma operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on February 17, 2012. The acquisition did not have a material effect on the Company’s consolidated financial statements.

The Federal Reserve enacted a final rule on June 29, 2011 establishing the debit card interchange rate at $0.21 per transaction and five basis points multiplied by the value of the transaction that was effective on October 1, 2011 for banks exceeding $10 billion in assets. Although the rule does not apply directly to the Company, the possible competitive response may have an impact on the Company’s pricing of these services.

 

27


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 (12) 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
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Income Statement Data

        

Net interest income

   $ 40,869      $ 38,006      $ 81,686      $ 75,295   

Provision for loan losses

     248        2,013        421        2,801   

Securities transactions

     226        1,316        4,258        1,324   

Total noninterest income

     20,364        19,679        43,801        37,409   

Salaries and employee benefits

     24,830        22,557        49,630        44,369   

Total noninterest expense

     42,563        39,610        84,600        76,007   

Net income

     11,729        10,115        25,734        21,470   

Per Common Share Data

        

Net income – basic

   $ 0.77      $ 0.66      $ 1.70      $ 1.40   

Net income – diluted

     0.76        0.65        1.67        1.37   

Cash dividends

     0.27        0.25        0.54        0.50   

Performance Data

        

Return on average assets

     0.83     0.77     0.91     0.83

Return on average stockholders’ equity

     9.46        8.59        10.44        9.24   

Cash dividend payout ratio

     35.06        37.88        31.76        35.71   

Net interest spread

     2.95        2.91        2.96        2.93   

Net interest margin

     3.14        3.17        3.16        3.19   

Efficiency ratio

     69.51        68.67        67.42        67.44   

Net charge-offs to average loans

     0.06        0.15        0.04        0.10   

Net Interest Income

For the three months ended June 30, 2012, net interest income, which is the Company’s principal source of operating revenue, increased $2.9 million, or 7.5%, compared to the three months ended June 30, 2011. The increase was attributable to the increase in the Company’s average loans, which were $3.1 billion, up $251.6 million from the prior year and $1.6 million from the ongoing operations of the Company’s July 2011 acquisition. In addition, interest expense decreased due to interest rates remaining at historically low levels. Net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period. The Company’s net interest margin decreased for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, as shown in the preceding table, which was due to continued low interest rates, the rolloff of higher yielding earning assets and an increase in earning assets at relatively low rates. If interest rates and/or loan volume do not increase, management expects continued compression of its net interest margin for the remainder of 2012 as higher yielding loans and securities mature and are replaced at current market rates.

 

28


Net interest income for the six months ended June 30, 2012 increased $6.4 million, or 8.5% compared to the six months ended June 30, 2011. The increase was due to the increase in the Company’s average loans and $3.3 million related to the ongoing operations of the Company’s July 2011 acquisition. The net interest margin for the six months ended June 30, 2012 decreased compared to the six months ended June 30, 2011 as shown in the preceding table.

Provision for Loan Losses

For the three months ended June 30, 2012, the Company’s provision for loan losses was $248,000, a decrease of $1.8 million compared to the same period a year ago. The decrease in the provision for loan losses during the second quarter of 2012 compared to the same quarter in 2011 is reflective of the decreasing trend in classified loans and a decrease in net charge-offs. Management believes the recorded amount of the allowance for loan losses is appropriate based upon management’s best estimate of probable losses that have been incurred within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for loan losses. Net loan charge-offs were $445,000 for the second quarter of 2012, compared to $1.1 million for the second quarter of 2011. The rate of net charge-offs to average total loans is presented in the preceding table.

For the six months ended June 30, 2012, the Company’s provision for loan losses was $421,000, a decrease of $2.4 million compared to the same period of 2011. Net loan charge-offs were $641,000 for the six months ended June 30, 2012, compared to $1.5 million for the six months ended June 30, 2011.

Noninterest Income

Noninterest income increased $685,000 or 3.5% for the three months ended June 30, 2012 compared to the same period in 2011. Noninterest income growth stemmed from the Company’s July 2011 acquisition which added $671,000 along with increased revenues from trust services, commercial deposit revenues, insurance commissions and treasury management services.

Noninterest income for the six months ended June 30, 2012 increased $6.4 million or 17.1% compared to the same period in 2011. The increases in revenues were primarily from a $4.5 million pretax securities gain from the sale of an investment by Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst. In addition, the ongoing operations of the Company’s July 2011 acquisition added $1.4 million, along with increased revenues from trust services, commercial deposit revenues, insurance commissions and treasury management services.

The Company had income from debit card usage totaling $8.2 million and $7.4 million during the six months ended June 30, 2012 and 2011, 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 income from debit card usage reported in future periods.

Noninterest Expense

For the three months ended June 30, 2012, noninterest expense increased $3.0 million or 7.5%, compared to the three months ended June 30, 2011. The increase in noninterest expense included $2.0 million of ongoing operating expenses related to the July 2011 bank acquisition and an increase in salaries and benefits excluding acquisitions of $1.4 million.

Noninterest expense included deposit insurance expense which totaled $724,000 for the three months ended June 30, 2012, compared to $764,000 for the three months ended June 30, 2011. The decrease in deposit insurance expense during the second quarter of 2012 compared to the same quarter of 2011 was primarily related to the April 1, 2011 change in the deposit insurance assessment base and a change in the method by which the assessment rate is determined, which is more fully discussed in the Company’s 2011 Form 10-K.