banf-10q_20170630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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

 

(I.R.S. Employer

incorporation or organization)

 

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      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      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

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        

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

As of July 28, 2017 there were 15,916,719 shares of the registrant’s Common Stock outstanding.

 

 

 

 


PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

 

2017

 

 

 

2016

 

 

 

(unaudited)

 

 

(see Note 1)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

183,753

 

 

$

183,921

 

Interest-bearing deposits with banks

 

 

1,533,147

 

 

 

1,666,540

 

Federal funds sold

 

 

 

 

 

700

 

Securities (fair value: $451,435 and $469,871, respectively)

 

 

451,402

 

 

 

469,833

 

Loans held for sale

 

 

9,061

 

 

 

9,318

 

Loans (net of unearned interest)

 

 

4,578,393

 

 

 

4,400,232

 

Allowance for loan losses

 

 

(49,005

)

 

 

(48,693

)

Loans, net of allowance for loan losses

 

 

4,529,388

 

 

 

4,351,539

 

Premises and equipment, net

 

 

127,819

 

 

 

126,771

 

Other real estate owned

 

 

3,940

 

 

 

3,526

 

Intangible assets, net

 

 

12,203

 

 

 

13,330

 

Goodwill

 

 

54,042

 

 

 

54,042

 

Accrued interest receivable and other assets

 

 

141,834

 

 

 

139,432

 

Total assets

 

$

7,046,589

 

 

$

7,018,952

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

2,551,158

 

 

$

2,526,842

 

Interest-bearing

 

 

3,684,524

 

 

 

3,721,215

 

Total deposits

 

 

6,235,682

 

 

 

6,248,057

 

Short-term borrowings

 

 

1,000

 

 

 

500

 

Accrued interest payable and other liabilities

 

 

29,486

 

 

 

27,342

 

Junior subordinated debentures

 

 

31,959

 

 

 

31,959

 

Total liabilities

 

 

6,298,127

 

 

 

6,307,858

 

 

 

 

 

 

 

 

 

 

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, 40,000,000 shares authorized; shares issued and

   outstanding: 15,909,219 and 15,810,935, respectively

 

 

15,909

 

 

 

15,811

 

Capital surplus

 

 

121,349

 

 

 

117,541

 

Retained earnings

 

 

610,758

 

 

 

577,648

 

Accumulated other comprehensive income, net of income tax of $(281)

and $(59), respectively

 

 

446

 

 

 

94

 

Total stockholders' equity

 

 

748,462

 

 

 

711,094

 

Total liabilities and stockholders' equity

 

$

7,046,589

 

 

$

7,018,952

 

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2017

 

 

 

2016

 

 

 

2017

 

 

 

2016

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

54,763

 

 

$

51,046

 

 

$

108,398

 

 

$

101,241

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,906

 

 

 

1,344

 

 

 

3,667

 

 

 

2,671

 

Tax-exempt

 

 

178

 

 

 

243

 

 

 

365

 

 

 

498

 

Federal funds sold

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Interest-bearing deposits with banks

 

 

4,425

 

 

 

1,852

 

 

 

7,865

 

 

 

3,654

 

Total interest income

 

 

61,273

 

 

 

54,485

 

 

 

120,296

 

 

 

108,064

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

4,300

 

 

 

3,092

 

 

 

8,025

 

 

 

6,172

 

Short-term borrowings

 

 

4

 

 

 

2

 

 

 

7

 

 

 

3

 

Junior subordinated debentures

 

 

530

 

 

 

523

 

 

 

1,057

 

 

 

1,045

 

Total interest expense

 

 

4,834

 

 

 

3,617

 

 

 

9,089

 

 

 

7,220

 

Net interest income

 

 

56,439

 

 

 

50,868

 

 

 

111,207

 

 

 

100,844

 

Provision for loan losses

 

 

1,841

 

 

 

2,804

 

 

 

1,913

 

 

 

6,907

 

Net interest income after provision for loan losses

 

 

54,598

 

 

 

48,064

 

 

 

109,294

 

 

 

93,937

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust revenue

 

 

2,894

 

 

 

2,602

 

 

 

5,846

 

 

 

5,067

 

Service charges on deposits

 

 

16,448

 

 

 

15,485

 

 

 

32,226

 

 

 

30,195

 

Securities transactions (includes accumulated other comprehensive income reclassifications of $(142), $0, $(142) and $100, respectively)

 

 

(330

)

 

 

(65

)

 

 

(330

)

 

 

35

 

Income from sales of loans

 

 

816

 

 

 

695

 

 

 

1,448

 

 

 

1,257

 

Insurance commissions

 

 

3,728

 

 

 

3,255

 

 

 

8,291

 

 

 

7,390

 

Cash management

 

 

2,799

 

 

 

2,732

 

 

 

5,553

 

 

 

5,050

 

(Loss)/gain on sale of other assets

 

 

(25

)

 

 

55

 

 

 

(49

)

 

 

59

 

Other

 

 

1,653

 

 

 

1,298

 

 

 

3,083

 

 

 

2,621

 

Total noninterest income

 

 

27,983

 

 

 

26,057

 

 

 

56,068

 

 

 

51,674

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

31,547

 

 

 

30,008

 

 

 

62,201

 

 

 

59,365

 

Occupancy, net

 

 

2,992

 

 

 

3,071

 

 

 

5,966

 

 

 

5,898

 

Depreciation

 

 

2,392

 

 

 

2,567

 

 

 

4,812

 

 

 

5,097

 

Amortization of intangible assets

 

 

547

 

 

 

580

 

 

 

1,094

 

 

 

1,161

 

Data processing services

 

 

1,097

 

 

 

1,174

 

 

 

2,292

 

 

 

2,389

 

Net expense/(income) from other real estate owned

 

 

202

 

 

 

35

 

 

 

252

 

 

 

(1,106

)

Marketing and business promotion

 

 

1,559

 

 

 

1,624

 

 

 

3,774

 

 

 

3,479

 

Deposit insurance

 

 

542

 

 

 

855

 

 

 

1,130

 

 

 

1,694

 

Other

 

 

8,075

 

 

 

7,806

 

 

 

17,020

 

 

 

16,034

 

Total noninterest expense

 

 

48,953

 

 

 

47,720

 

 

 

98,541

 

 

 

94,011

 

Income before taxes

 

 

33,628

 

 

 

26,401

 

 

 

66,821

 

 

 

51,600

 

Income tax expense

 

 

10,446

 

 

 

8,908

 

 

 

21,589

 

 

 

17,528

 

Net income

 

$

23,182

 

 

$

17,493

 

 

$

45,232

 

 

$

34,072

 

NET INCOME PER COMMON SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.46

 

 

$

1.12

 

 

$

2.85

 

 

$

2.19

 

Diluted

 

$

1.42

 

 

$

1.10

 

 

$

2.78

 

 

$

2.15

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on securities, net of tax of $(280), $(345), $(167) and $(719), respectively

 

 

443

 

 

 

546

 

 

 

265

 

 

 

1,137

 

Reclassification adjustment for losses/(gains) included in net income, net of tax of $(55), $0, $(55) and $39, respectively

 

 

87

 

 

 

 

 

 

87

 

 

 

(61

)

Other comprehensive gains, net of tax of $(335), $(345), $(222) and $(680), respectively

 

 

530

 

 

 

546

 

 

 

352

 

 

 

1,076

 

Comprehensive income

 

$

23,712

 

 

$

18,039

 

 

$

45,584

 

 

$

35,148

 

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

3


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued at beginning of period

 

$

15,891

 

 

$

15,528

 

 

$

15,811

 

 

$

15,597

 

Shares issued

 

 

18

 

 

 

32

 

 

 

98

 

 

 

63

 

Shares acquired and canceled

 

 

 

 

 

 

 

 

 

 

 

(100

)

Issued at end of period

 

$

15,909

 

 

$

15,560

 

 

$

15,909

 

 

$

15,560

 

CAPITAL SURPLUS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

120,435

 

 

$

103,978

 

 

$

117,541

 

 

$

102,865

 

Common stock issued

 

 

671

 

 

 

996

 

 

 

3,343

 

 

 

1,867

 

Tax effect of stock options

 

 

 

 

 

252

 

 

 

 

 

 

43

 

Stock-based compensation arrangements

 

 

243

 

 

 

450

 

 

 

465

 

 

 

901

 

Balance at end of period

 

$

121,349

 

 

$

105,676

 

 

$

121,349

 

 

$

105,676

 

RETAINED EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

593,631

 

 

$

541,098

 

 

$

577,648

 

 

$

535,521

 

Net income

 

 

23,182

 

 

 

17,493

 

 

 

45,232

 

 

 

34,072

 

Dividends on common stock ($0.38, $0.36, $0.76 and $0.72 per share, respectively)

 

 

(6,055

)

 

 

(5,600

)

 

 

(12,122

)

 

 

(11,179

)

Common stock acquired and canceled

 

 

 

 

 

 

 

 

 

 

 

(5,423

)

Balance at end of period

 

$

610,758

 

 

$

552,991

 

 

$

610,758

 

 

$

552,991

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(84

)

 

$

2,057

 

 

$

94

 

 

$

1,527

 

Net change

 

 

530

 

 

 

546

 

 

 

352

 

 

 

1,076

 

Balance at end of period

 

$

446

 

 

$

2,603

 

 

$

446

 

 

$

2,603

 

Total stockholders’ equity

 

$

748,462

 

 

$

676,830

 

 

$

748,462

 

 

$

676,830

 

 

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

 

4


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

45,232

 

 

$

34,072

 

Adjustments to reconcile to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

1,913

 

 

 

6,907

 

Depreciation and amortization

 

 

5,906

 

 

 

6,258

 

Net amortization of securities premiums and discounts

 

 

(103

)

 

 

184

 

Realized securities losses/(gains)

 

 

330

 

 

 

(35

)

Gain on sales of loans

 

 

(1,448

)

 

 

(1,257

)

Cash receipts from the sale of loans originated for sale

 

 

97,146

 

 

 

86,121

 

Cash disbursements for loans originated for sale

 

 

(95,477

)

 

 

(81,566

)

Deferred income tax benefit

 

 

(723

)

 

 

(1,917

)

Loss/(gain) on other assets

 

 

62

 

 

 

(1,316

)

Increase in interest receivable

 

 

(1,107

)

 

 

(1,040

)

Increase in interest payable

 

 

126

 

 

 

14

 

Amortization of stock-based compensation arrangements

 

 

465

 

 

 

901

 

Excess tax benefit from stock-based compensation arrangements

 

 

(1,784

)

 

 

 

Other, net

 

 

3,234

 

 

 

(4,867

)

Net cash provided by operating activities

 

$

53,772

 

 

$

42,459

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Net decrease in federal funds sold

 

 

700

 

 

 

Purchases of held for investment securities

 

 

(220

)

 

 

(215

)

Purchases of available for sale securities

 

 

(42,006

)

 

 

(8,553

)

Proceeds from maturities, calls and paydowns of held for investment securities

 

 

644

 

 

 

690

 

Proceeds from maturities, calls and paydowns of available for sale securities

 

 

60,360

 

 

 

102,677

 

Proceeds from sales of available for sale securities

 

 

 

 

 

300

 

Net change in loans

 

 

(181,851

)

 

 

(98,555

)

Purchases of premises, equipment and computer software

 

 

(6,568

)

 

 

(5,048

)

Proceeds from the sale of other real estate owned and other assets

 

 

2,088

 

 

 

7,020

 

Net cash used in investing activities

 

 

(166,853

)

 

 

(1,684

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net change in deposits

 

 

(12,375

)

 

 

(29,376

)

Net increase in short-term borrowings

 

 

500

 

 

 

3,000

 

Issuance of common stock, net

 

 

3,441

 

 

 

1,973

 

Common stock acquired

 

 

 

 

 

(5,523

)

Cash dividends paid

 

 

(12,046

)

 

 

(11,204

)

Net cash used in financing activities

 

 

(20,480

)

 

 

(41,130

)

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

 

 

(133,561

)

 

 

(355

)

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

 

 

1,850,461

 

 

 

1,598,177

 

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

 

$

1,716,900

 

 

$

1,597,822

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

8,963

 

 

$

7,207

 

Cash paid during the period for income taxes

 

$

20,450

 

 

$

17,900

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Unpaid common stock dividends declared

 

$

6,045

 

 

$

5,590

 

 

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 accounting principles generally accepted in the United State of America (U.S. GAAP) and general practice within the banking industry. A summary of significant accounting policies can be found in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., BancFirst Risk and Insurance Company, and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc. and BancFirst Agency, Inc.  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 unaudited interim consolidated financial statements.

The accompanying unaudited interim 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, 2016, should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

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, 2016, 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.

Recent Accounting Pronouncements

Standards Adopted During Current Period:

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. The Company opted for early adoption of ASU 2017-08, as was permitted, on January 1, 2017. ASU 2017-08 did not have a significant impact on the Company’s financial statements and no prior periods were adjusted.

In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control.” ASU 2016-17 updates ASU No. 2015-02 to amend the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (“VIE”) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. ASU 2016-17 was adopted on January 1, 2017 and did not have a significant impact on the Company’s financial statements and no prior periods were adjusted.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was

6


available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also allows entities to make an entity-wide accounting policy election to account for forfeitures when they occur, which the Company has elected to do. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was adopted on January 1, 2017 and did not have a significant impact on the Company’s financial statements. In addition, ASU 2016-09 was applied prospectively and no prior periods were adjusted. The excess tax benefit for share-based payment awards that were exercised during the six months ended June 30, 2017 was approximately $1.8 million.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40).”  ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about the Company’s ability to continue as a going concern and related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date the financial statements are issued.  ASU 2014-15 was adopted on January 1, 2017. Adoption of ASU 2014-15 did not have a significant effect on the Company’s financial statements.

Standards Not Yet Adopted:

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in this update provide guidance about types of changes to the terms or conditions of share-based payment awards that would require an entity to apply modification accounting under ASC 718. ASU 2017-09 will be effective on January 1, 2018 and is not expected to have a significant impact on the Company’s financial statements. Early adoption is permitted with prospective applications.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 removes the second step of goodwill testing. ASU 2017-04 will be effective on January 1, 2020 and is not expected to have a significant impact on the Company’s financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business. ASU 2017-01 will be effective on January 1, 2018 and is not expected to have a significant impact on the Company’s financial statements.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provides guidance stating that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 will be effective on January 1, 2018 and is not expected to have a significant impact on the Company’s financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 will be effective on January 1, 2018. Early adoption is permitted with retrospective applications. The Company is currently evaluating the potential impact of ASU 2016-15 on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. The Company is currently evaluating the potential impact of ASU 2016-13 on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases - (Topic 842).” ASU 2016-02 requires that lessees recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Adoption of ASU 2016-02 is not expected to have a significant effect on the Company’s financial statements.

7


In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10).” ASU 2016-01 require all equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in the fair value recognized through net income. In addition, the amendment will require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is not permitted. Adoption of ASU 2016-01 is not expected to have a significant effect on the Company’s financial statements.

In January of 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customer (Topic 606).” ASU 2014-09 implements a comprehensive new revenue recognition standard that will supersede substantially all existing revenue recognition guidance. The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in a manner that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, which comprises a significant portion of the Company’s revenue stream. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606).” ASU 2015-14 is an amendment to defer the effective date of ASU 2014-09. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Adoption of ASU 2014-09 may require the Company to amend how it recognizes certain recurring revenue streams related to trust fees, which are recorded in non-interest expense; however, the Company does not expect the adoption of ASU 2014-09 to have a significant impact on the Company’s financial statements.

 

 

(2)

RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

 

Effective June 1, 2017, the Company organized a new captive insurance company named BancFirst Risk and Insurance Company ("the Captive"). The Captive is a wholly-owned subsidiary of BancFirst Corporation and is regulated by the Oklahoma Insurance Department. It insures certain risks of the Company and has entered into reinsurance agreements with a risk-sharing pool.

 

 

(3)

SECURITIES

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

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

(Dollars in thousands)

 

Held for investment, at cost (fair value: $3,975 and $4,403, respectively)

 

$

3,942

 

 

$

4,365

 

Available for sale, at fair value

 

 

447,460

 

 

 

465,468

 

Total

 

$

451,402

 

 

$

469,833

 

 

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

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

June 30, 2017

 

(Dollars in thousands)

 

Mortgage backed securities (1)

 

$

217

 

 

$

12

 

 

$

 

 

$

229

 

States and political subdivisions

 

 

3,225

 

 

 

22

 

 

 

(1

)

 

 

3,246

 

Other securities

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

3,942

 

 

$

34

 

 

$

(1

)

 

$

3,975

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities (1)

 

$

252

 

 

$

17

 

 

$

 

 

$

269

 

States and political subdivisions

 

 

3,613

 

 

 

25

 

 

 

(4

)

 

 

3,634

 

Other securities

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

4,365

 

 

$

42

 

 

$

(4

)

 

$

4,403

 

8


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

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

June 30, 2017

 

(Dollars in thousands)

 

U.S. treasuries

 

$

284,791

 

 

$

867

 

 

$

(271

)

 

$

285,387

 

U.S. federal agencies

 

 

98,311

 

 

 

397

 

 

 

(310

)

 

 

98,398

 

Mortgage backed securities (1)

 

 

19,052

 

 

 

246

 

 

 

(513

)

 

 

18,785

 

States and political subdivisions

 

 

38,129

 

 

 

865

 

 

 

(59

)

 

 

38,935

 

Other securities (2)

 

 

6,450

 

 

 

189

 

 

 

(684

)

 

 

5,955

 

Total

 

$

446,733

 

 

$

2,564

 

 

$

(1,837

)

 

$

447,460

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

268,763

 

 

$

700

 

 

$

(920

)

 

$

268,543

 

U.S. federal agencies

 

 

129,674

 

 

 

373

 

 

 

(405

)

 

 

129,642

 

Mortgage backed securities (1)

 

 

19,949

 

 

 

290

 

 

 

(567

)

 

 

19,672

 

States and political subdivisions

 

 

40,335

 

 

 

836

 

 

 

(129

)

 

 

41,042

 

Other securities (2)

 

 

6,594

 

 

 

125

 

 

 

(150

)

 

 

6,569

 

Total

 

$

465,315

 

 

$

2,324

 

 

$

(2,171

)

 

$

465,468

 

 

 

(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.

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Estimated

Fair

Value

 

 

Amortized

Cost

 

 

Estimated

Fair

Value

 

 

 

(Dollars in thousands)

 

Held for Investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual maturity of debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within one year

 

$

1,672

 

 

$

1,683

 

 

$

1,561

 

 

$

1,568

 

After one year but within five years

 

 

1,593

 

 

 

1,603

 

 

 

1,937

 

 

 

1,951

 

After five years but within ten years

 

 

667

 

 

 

674

 

 

 

707

 

 

 

723

 

After ten years

 

 

10

 

 

 

15

 

 

 

160

 

 

 

161

 

Total

 

$

3,942

 

 

$

3,975

 

 

$

4,365

 

 

$

4,403

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual maturity of debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within one year

 

$

66,022

 

 

$

66,105

 

 

$

66,542

 

 

$

66,662

 

After one year but within five years

 

 

308,283

 

 

 

308,913

 

 

 

320,150

 

 

 

319,839

 

After five years but within ten years

 

 

5,849

 

 

 

6,184

 

 

 

5,830

 

 

 

6,152

 

After ten years

 

 

60,129

 

 

 

60,303

 

 

 

66,199

 

 

 

66,246

 

Total debt securities

 

 

440,283

 

 

 

441,505

 

 

 

458,721

 

 

 

458,899

 

Equity securities

 

 

6,450

 

 

 

5,955

 

 

 

6,594

 

 

 

6,569

 

Total

 

$

446,733

 

 

$

447,460

 

 

$

465,315

 

 

$

465,468

 

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, 2017

 

 

December 31, 2016

 

 

 

(Dollars in thousands)

 

Book value of pledged securities

 

$

394,974

 

 

$

439,692

 

 

9


 

(4)

LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category:

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

 

(Dollars in thousands)

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

927,616

 

 

 

20.26

%

 

$

828,260

 

 

 

18.82

%

Oil & gas production and equipment

 

 

96,230

 

 

 

2.10

 

 

 

84,228

 

 

 

1.91

 

Agriculture

 

 

135,298

 

 

 

2.96

 

 

 

144,751

 

 

 

3.29

 

State and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

81,164

 

 

 

1.77

 

 

 

33,793

 

 

 

0.77

 

Tax-exempt

 

 

48,840

 

 

 

1.07

 

 

 

47,283

 

 

 

1.07

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

412,367

 

 

 

9.01

 

 

 

420,884

 

 

 

9.57

 

Farmland

 

 

201,535

 

 

 

4.40

 

 

 

197,872

 

 

 

4.50

 

One to four family residences

 

 

859,980

 

 

 

18.78

 

 

 

846,360

 

 

 

19.24

 

Multifamily residential properties

 

 

46,995

 

 

 

1.03

 

 

 

57,806

 

 

 

1.31

 

Commercial

 

 

1,455,612

 

 

 

31.79

 

 

 

1,426,643

 

 

 

32.42

 

Consumer

 

 

280,345

 

 

 

6.12

 

 

 

279,704

 

 

 

6.36

 

Other (not classified above)

 

 

32,411

 

 

 

0.71

 

 

 

32,648

 

 

 

0.74

 

Total loans

 

$

4,578,393

 

 

 

100.00

%

 

$

4,400,232

 

 

 

100.00

%

The Company’s commercial and industrial loan category includes a small percentage of loans to companies that provide ancillary services to the oil and gas industry, such as transportation, preparation contractors and equipment manufacturers. The balance of these loans was approximately $70 million at June 30, 2017 and approximately $56 million at December 31, 2016.

The Company’s loans are mostly to customers within Oklahoma and over 65% of the loans are secured by real estate.  Credit risk on loans is managed through limits on amounts loaned to individual and related 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 Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Nonperforming and Restructured Assets

The following is a summary of nonperforming and restructured assets:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Past due 90 days or more and still accruing

 

$

2,217

 

 

$

1,962

 

Nonaccrual

 

 

19,607

 

 

 

31,798

 

Restructured

 

 

3,561

 

 

 

1,713

 

Total nonperforming and restructured loans

 

 

25,385

 

 

 

35,473

 

Other real estate owned and repossessed assets

 

 

4,211

 

 

 

3,866

 

Total nonperforming and restructured assets

 

$

29,596

 

 

$

39,339

 

Nonaccrual loans, accruing loans past due 90 days or more and restructured loans are shown in the table above. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $886,000 for the six months ended June 30, 2017 and approximately $982,000 for the six months ended June 30, 2016.

The Company charges interest on principal balances outstanding on restructured loans during deferral periods. The current and future financial effects of the recorded balance of loans considered to be restructured were not considered to be material.

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,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

641

 

 

$

713

 

Non-residential real estate other

 

 

1,865

 

 

 

5,688

 

Residential real estate permanent mortgage

 

 

886

 

 

 

1,116

 

Residential real estate all other

 

 

4,829

 

 

 

5,089

 

Commercial and financial:

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

3,542

 

 

 

4,464

 

Consumer non-real estate

 

 

271

 

 

 

265

 

Other loans

 

 

4,928

 

 

 

8,370

 

Acquired loans

 

 

2,645

 

 

 

6,093

 

Total

 

$

19,607

 

 

$

31,798

 

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

 

 

 

Age Analysis of Past Due Loans

 

 

 

30-59

Days

Past Due

 

 

60-89

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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

3,991

 

 

$

145

 

 

$

730

 

 

$

4,866

 

 

$

586,223

 

 

$

591,089

 

 

$

229

 

Non-residential real estate other

 

 

1,354

 

 

 

70

 

 

 

267

 

 

 

1,691

 

 

 

1,126,418

 

 

 

1,128,109

 

 

 

29

 

Residential real estate permanent mortgage

 

 

1,504

 

 

 

483

 

 

 

781

 

 

 

2,768

 

 

 

327,963

 

 

 

330,731

 

 

 

482

 

Residential real estate all other

 

 

4,872

 

 

 

294

 

 

 

1,011

 

 

 

6,177

 

 

 

751,940

 

 

 

758,117

 

 

 

287

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

4,133

 

 

 

671

 

 

 

1,771

 

 

 

6,575

 

 

 

1,201,751

 

 

 

1,208,326

 

 

 

564

 

Consumer non-real estate

 

 

1,562

 

 

 

505

 

 

 

554

 

 

 

2,621

 

 

 

281,536

 

 

 

284,157

 

 

 

388

 

Other loans

 

 

555

 

 

 

4,941

 

 

 

4,869

 

 

 

10,365

 

 

 

134,183

 

 

 

144,548

 

 

 

101

 

Acquired loans

 

 

728

 

 

 

113

 

 

 

416

 

 

 

1,257

 

 

 

132,059

 

 

 

133,316

 

 

 

137

 

Total

 

$

18,699

 

 

$

7,222

 

 

$

10,399

 

 

$

36,320

 

 

$

4,542,073

 

 

$

4,578,393

 

 

$

2,217

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

2,255

 

 

$

96

 

 

$

150

 

 

$

2,501

 

 

$

569,130

 

 

$

571,631

 

 

$

 

Non-residential real estate other

 

 

611

 

 

 

16

 

 

 

418

 

 

 

1,045

 

 

 

1,122,351

 

 

 

1,123,396

 

 

 

 

Residential real estate permanent mortgage

 

 

2,742

 

 

 

649

 

 

 

1,273

 

 

 

4,664

 

 

 

320,749

 

 

 

325,413

 

 

 

513

 

Residential real estate all other

 

 

2,559

 

 

 

531

 

 

 

1,416

 

 

 

4,506

 

 

 

743,723

 

 

 

748,229

 

 

 

369

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

1,269

 

 

 

1,628

 

 

 

741

 

 

 

3,638

 

 

 

1,047,547

 

 

 

1,051,185

 

 

 

608

 

Consumer non-real estate

 

 

2,046

 

 

 

760

 

 

 

419

 

 

 

3,225

 

 

 

280,652

 

 

 

283,877

 

 

 

274

 

Other loans

 

 

5,345

 

 

 

958

 

 

 

7,775

 

 

 

14,078

 

 

 

127,404

 

 

 

141,482

 

 

 

45

 

Acquired loans

 

 

825

 

 

 

310

 

 

 

408

 

 

 

1,543

 

 

 

153,476

 

 

 

155,019

 

 

 

153

 

Total

 

$

17,652

 

 

$

4,948

 

 

$

12,600

 

 

$

35,200

 

 

$

4,365,032

 

 

$

4,400,232

 

 

$

1,962

 

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

11


agreement. If a loan is impaired, a specific valuation allowance may be allocated, if necessary, so that the loan is reported, net of allowance for loss, 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.

 

The following table presents impaired loans, segregated by class of loans. During the six month period ended June 30, 2017, $2.3 million of interest income was recognized on impaired loans subsequent to their classification as impaired. During previous periods 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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

1,065

 

 

$

958

 

 

$

31

 

 

$

1,060

 

Non-residential real estate other

 

 

1,967

 

 

 

1,894

 

 

 

184

 

 

 

2,057

 

Residential real estate permanent mortgage

 

 

1,623

 

 

 

1,418

 

 

 

104

 

 

 

1,483

 

Residential real estate all other

 

 

5,420

 

 

 

5,195

 

 

 

1,555

 

 

 

5,136

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

13,725

 

 

 

7,257

 

 

 

1,454

 

 

 

6,401

 

Consumer non-real estate

 

 

790

 

 

 

754

 

 

 

117

 

 

 

776

 

Other loans

 

 

6,471

 

 

 

5,030

 

 

 

689

 

 

 

5,523

 

Acquired loans

 

 

4,747

 

 

 

3,020

 

 

 

 

 

 

4,967

 

Total

 

$

35,808

 

 

$

25,526

 

 

$

4,134

 

 

$

27,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

894

 

 

$

806

 

 

$

101

 

 

$

825

 

Non-residential real estate other

 

 

7,742

 

 

 

5,688

 

 

 

574

 

 

 

5,854

 

Residential real estate permanent mortgage

 

 

1,878

 

 

 

1,683

 

 

 

124

 

 

 

1,612

 

Residential real estate all other

 

 

5,871

 

 

 

5,614

 

 

 

1,538

 

 

 

5,445

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

12,015

 

 

 

6,272

 

 

 

1,457

 

 

 

6,478

 

Consumer non-real estate

 

 

686

 

 

 

650

 

 

 

133

 

 

 

788

 

Other loans

 

 

9,799

 

 

 

8,415

 

 

 

1,870

 

 

 

8,062

 

Acquired loans

 

 

8,780

 

 

 

6,581

 

 

 

 

 

 

6,041

 

Total

 

$

47,665

 

 

$

35,709

 

 

$

5,797

 

 

$

35,105

 

 

Credit Risk Monitoring and Loan Grading

The Company considers various factors to monitor the credit 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.

An internal risk grading system is used to indicate the credit risk of loans. 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 disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

12


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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

474,155

 

 

$

101,757

 

 

$

14,536

 

 

$

641

 

 

$

 

 

$

591,089

 

Non-residential real estate other

 

 

941,448

 

 

 

169,968

 

 

 

14,759

 

 

 

1,934

 

 

 

 

 

 

1,128,109

 

Residential real estate permanent mortgage

 

 

289,912

 

 

 

33,676

 

 

 

5,805

 

 

 

1,338

 

 

 

 

 

 

330,731

 

Residential real estate all other

 

 

607,861

 

 

 

134,189

 

 

 

10,918

 

 

 

5,149

 

 

 

 

 

 

758,117

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

947,575

 

 

 

234,258

 

 

 

22,652

 

 

 

3,841

 

 

 

 

 

 

1,208,326

 

Consumer non-real estate

 

 

263,875

 

 

 

17,473

 

 

 

2,093

 

 

 

716

 

 

 

 

 

 

284,157

 

Other loans

 

 

137,753

 

 

 

5,450

 

 

 

1,115

 

 

 

230

 

 

 

 

 

 

144,548

 

Acquired loans

 

 

76,955

 

 

 

34,875

 

 

 

18,390

 

 

 

3,096

 

 

 

 

 

 

133,316

 

Total

 

$

3,739,534

 

 

$

731,646

 

 

$

90,268

 

 

$

16,945

 

 

$

 

 

$

4,578,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

464,504

 

 

$

89,978

 

 

$

16,220

 

 

$

929

 

 

$

 

 

$

571,631

 

Non-residential real estate other

 

 

933,743

 

 

 

169,561

 

 

 

14,404

 

 

 

5,688

 

 

 

 

 

 

1,123,396

 

Residential real estate permanent mortgage

 

 

284,893

 

 

 

32,889

 

 

 

5,987

 

 

 

1,644

 

 

 

 

 

 

325,413

 

Residential real estate all other

 

 

614,338

 

 

 

119,018

 

 

 

9,382

 

 

 

5,491

 

 

 

 

 

 

748,229

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

856,318

 

 

 

170,865

 

 

 

19,101

 

 

 

4,901

 

 

 

 

 

 

1,051,185

 

Consumer non-real estate

 

 

263,442

 

 

 

17,154

 

 

 

2,640

 

 

 

641

 

 

 

 

 

 

283,877

 

Other loans

 

 

132,254

 

 

 

5,376

 

 

 

1,514

 

 

 

2,338

 

 

 

 

 

 

141,482

 

Acquired loans

 

 

92,946

 

 

 

42,668

 

 

 

12,888

 

 

 

6,517

 

 

 

 

 

 

155,019

 

Total

 

$

3,642,438

 

 

$

647,509

 

 

$

82,136

 

 

$

28,149

 

 

$

 

 

$

4,400,232

 

Allowance for Loan Losses Methodology

The allowance for loan losses (“ALL”) methodology is disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

13


The following table details activity in the ALL 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.

 

 

 

ALL

 

 

 

Balance at

beginning of

period

 

 

Charge-

offs

 

 

Recoveries

 

 

Net

charge-offs

 

 

Provisions

charged to

operations

 

 

Balance at

end of

period

 

 

 

(Dollars in thousands)

 

Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

5,562

 

 

$

(40

)

 

$

3

 

 

$

(37

)

 

$

160

 

 

$

5,685

 

Non-residential real estate other

 

 

10,788

 

 

 

(25

)

 

 

1

 

 

 

(24

)

 

 

(284

)

 

 

10,480

 

Residential real estate permanent mortgage

 

 

3,130

 

 

 

(36

)

 

 

10

 

 

 

(26

)

 

 

44

 

 

 

3,148

 

Residential real estate all other

 

 

8,659

 

 

 

(16

)

 

 

6

 

 

 

(10

)

 

 

263

 

 

 

8,912

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

12,810

 

 

 

(471

)

 

 

61

 

 

 

(410

)

 

 

1,243

 

 

 

13,643

 

Consumer non-real estate

 

 

2,725

 

 

 

(234

)

 

 

32

 

 

 

(202

)

 

 

183

 

 

 

2,706

 

Other loans

 

 

2,958

 

 

 

(56

)

 

 

1

 

 

 

(55

)

 

 

103

 

 

 

3,006

 

Acquired loans

 

 

1,289

 

 

 

(1

)

 

 

8

 

 

 

7

 

 

 

129

 

 

 

1,425

 

Total

 

$

47,921

 

 

$

(879

)

 

$

122

 

 

$

(757

)

 

$

1,841

 

 

$

49,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

5,602

 

 

$

(72

)

 

$

4

 

 

$

(68

)

 

$

151

 

 

$

5,685

 

Non-residential real estate other

 

 

10,793

 

 

 

(26

)

 

 

2

 

 

 

(24

)

 

 

(289

)

 

 

10,480

 

Residential real estate permanent mortgage

 

 

3,129

 

 

 

(156

)

 

 

11

 

 

 

(145

)

 

 

164

 

 

 

3,148

 

Residential real estate all other

 

 

8,622

 

 

 

(73

)

 

 

17

 

 

 

(56

)

 

 

346

 

 

 

8,912

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

12,421

 

 

 

(677

)

 

 

979

 

 

 

302

 

 

 

920

 

 

 

13,643

 

Consumer non-real estate

 

 

2,804

 

 

 

(468

)

 

 

83

 

 

 

(385

)

 

 

287

 

 

 

2,706

 

Other loans

 

 

4,045

 

 

 

(1,274

)

 

 

5

 

 

 

(1,269

)

 

 

230

 

 

 

3,006

 

Acquired loans

 

 

1,277

 

 

 

(14

)

 

 

58

 

 

 

44

 

 

 

104

 

 

 

1,425

 

Total

 

$

48,693

 

 

$

(2,760

)

 

$

1,159

 

 

$

(1,601

)

 

$

1,913

 

 

$

49,005

 

14


 

 

 

ALL

 

 

 

Balance at

beginning of

period

 

 

Charge-

offs

 

 

Recoveries

 

 

Net

charge-offs

 

 

Provisions

charged to

operations

 

 

Balance at

end of

period

 

 

 

(Dollars in thousands)

 

Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

4,832

 

 

$

(9

)

 

$

 

 

$

(9

)

 

$

73

 

 

$

4,896

 

Non-residential real estate other

 

 

10,211

 

 

 

(3

)

 

 

1

 

 

 

(2

)

 

 

93

 

 

 

10,302

 

Residential real estate permanent mortgage

 

 

3,164

 

 

 

(49

)

 

 

21

 

 

 

(28

)

 

 

67

 

 

 

3,203

 

Residential real estate all other

 

 

7,989

 

 

 

(70

)

 

 

7

 

 

 

(63

)

 

 

367

 

 

 

8,293

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

12,813

 

 

 

(502

)

 

 

35

 

 

 

(467

)

 

 

1,095

 

 

 

13,441

 

Consumer non-real estate

 

 

2,553

 

 

 

(134

)

 

 

38

 

 

 

(96

)

 

 

292

 

 

 

2,749

 

Other loans

 

 

2,790

 

 

 

(149

)

 

 

7

 

 

 

(142

)

 

 

729

 

 

 

3,377

 

Acquired loans

 

 

219

 

 

 

(13

)

 

 

11

 

 

 

(2

)

 

 

88

 

 

 

305

 

Total

 

$

44,571

 

 

$

(929

)

 

$

120

 

 

$

(809

)

 

$

2,804

 

 

$

46,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

4,661

 

 

$

(10

)

 

$

 

 

$

(10

)

 

$

245

 

 

$

4,896

 

Non-residential real estate other

 

 

9,921

 

 

 

(4

)

 

 

2

 

 

 

(2

)

 

 

383

 

 

 

10,302

 

Residential real estate permanent mortgage

 

 

3,148

 

 

 

(99

)

 

 

38

 

 

 

(61

)

 

 

116

 

 

 

3,203

 

Residential real estate all other

 

 

6,725

 

 

 

(137

)

 

 

11

 

 

 

(126

)

 

 

1,694

 

 

 

8,293

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

11,754

 

 

 

(1,305

)

 

 

46

 

 

 

(1,259

)

 

 

2,946

 

 

 

13,441

 

Consumer non-real estate

 

 

2,642

 

 

 

(355

)

 

 

76

 

 

 

(279

)

 

 

386

 

 

 

2,749

 

Other loans

 

 

2,648

 

 

 

(282

)

 

 

13

 

 

 

(269

)

 

 

998

 

 

 

3,377

 

Acquired loans

 

 

167

 

 

 

(17

)

 

 

16

 

 

 

(1

)

 

 

139

 

 

 

305

 

Total

 

$

41,666

 

 

$

(2,209

)

 

$

202

 

 

$

(2,007

)

 

$

6,907

 

 

$

46,566

 

 

The following table details the amount of ALL by class of loans for the period presented, detailed on the basis of the impairment methodology used by the Company.

 

 

 

ALL

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually

evaluated for

impairment

 

 

Collectively

evaluated for

impairment

 

 

Individually

evaluated for

impairment

 

 

Collectively

evaluated for

impairment

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied.

 

$

569

 

 

$

5,116

 

 

$

716

 

 

$

4,886

 

Non-residential real estate other

 

 

739

 

 

 

9,741

 

 

 

1,119

 

 

 

9,674

 

Residential real estate permanent mortgage

 

 

391

 

 

 

2,757

 

 

 

422

 

 

 

2,707

 

Residential real estate all other

 

 

2,305

 

 

 

6,607

 

 

 

2,160

 

 

 

6,462

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

3,517

 

 

 

10,126

 

 

 

3,317

 

 

 

9,104

 

Consumer non-real estate

 

 

400

 

 

 

2,306

 

 

 

478

 

 

 

2,326

 

Other loans

 

 

656

 

 

 

2,350

 

 

 

1,812

 

 

 

2,233

 

Acquired loans

 

 

12

 

 

 

1,413

 

 

 

495

 

 

 

782

 

Total

 

$

8,589

 

 

$

40,416

 

 

$

10,519

 

 

$

38,174

 

15


The following table details the loans outstanding by class of loans for the period presented, on the basis of the impairment methodology used by the Company.

 

 

 

Loans

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

Individually

evaluated for

impairment

 

 

Collectively

evaluated for

impairment

 

 

Loans acquired

with deteriorated

credit quality

 

 

Individually

evaluated for

impairment

 

 

Collectively

evaluated for

impairment

 

 

Loans acquired

with deteriorated

credit quality

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-residential real estate owner occupied

 

$

15,177

 

 

$

575,912

 

 

$

 

 

$

17,149

 

 

$

554,482

 

 

$

 

Non-residential real estate other

 

 

16,692

 

 

 

1,111,417

 

 

 

 

 

 

20,092

 

 

 

1,103,304

 

 

 

 

Residential real estate permanent mortgage

 

 

7,144

 

 

 

323,587

 

 

 

 

 

 

7,631

 

 

 

317,782

 

 

 

 

Residential real estate all other

 

 

16,067

 

 

 

742,050

 

 

 

 

 

 

14,873

 

 

 

733,356

 

 

 

 

Commercial and financial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-consumer non-real estate

 

 

26,194

 

 

 

1,182,132

 

 

 

 

 

 

24,002

 

 

 

1,027,183

 

 

 

 

Consumer non-real estate

 

 

2,809

 

 

 

281,348

 

 

 

 

 

 

3,203

 

 

 

280,674

 

 

 

 

Other loans

 

 

572

 

 

 

143,976

 

 

 

 

 

 

2,254

 

 

 

139,228

 

 

 

 

Acquired loans

 

 

15,834

 

 

 

111,830

 

 

 

5,652

 

 

 

13,459

 

 

 

135,616

 

 

 

5,944

 

Total

 

$

100,489

 

 

$

4,472,252

 

 

$

5,652

 

 

$

102,663

 

 

$

4,291,625

 

 

$

5,944

 

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,

 

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Other real estate owned

 

$

1,513

 

 

$

1,210

 

Repossessed assets

 

 

612

 

 

 

750

 

Total

 

$

2,125

 

 

$

1,960

 

 

During the six months ended June 30, 2016, the Company had gains on the sale of other real estate owned totaling $1.3 million that is included in net expense from other real estate owned on the consolidated statements of comprehensive income.

 

 

(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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangibles

 

$

17,447

 

 

$

(7,531

)

 

$

9,916

 

Customer relationship intangibles

 

 

5,699

 

 

 

(3,593

)

 

 

2,106

 

Mortgage servicing intangibles

 

 

454

 

 

 

(273

)

 

 

181

 

Total

 

$

23,600

 

 

$

(11,397

)

 

$

12,203

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangibles

 

$

17,447

 

 

$

(6,611

)

 

$

10,836

 

Customer relationship intangibles

 

 

5,699

 

 

 

(3,419

)

 

 

2,280

 

Mortgage servicing intangibles

 

 

473

 

 

 

(259

)

 

 

214

 

Total

 

$

23,619

 

 

$

(10,289

)

 

$

13,330

 

16


The following is a summary of goodwill by business segment:

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Executive,

 

 

 

 

 

 

 

Metropolitan

 

 

Community

 

 

Financial

 

 

Operations

 

 

 

 

 

 

 

Banks

 

 

Banks

 

 

Services

 

 

& Support

 

 

Consolidated

 

 

 

(Dollars in thousands)

 

Six month ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning and end of period

 

$

8,078

 

 

$

40,050

 

 

$

5,464

 

 

$

450

 

 

$

54,042

 

Additional information for intangible assets can be found in Note (7) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

 

(6)

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 3,200,000 shares in May 2016. At June 30, 2017, 190,735 shares were available for future grants. The BancFirst ISOP will terminate on December 31, 2019. 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, 2017 will become exercisable through the year 2024. 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.

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 260,000 shares in May 2016. At June 30, 2017, 40,000 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, 2017 will become exercisable through the year 2020. 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 shares for stock option exercises, but reserves the right to use shares 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:

 

 

 

 

 

 

 

 

 

 

 

Wgtd. Avg.

 

 

 

 

 

 

 

 

 

 

Wgtd. Avg.

 

 

Remaining

 

Aggregate

 

 

 

 

 

 

 

Exercise

 

 

Contractual

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

Value

 

 

 

(Dollars in thousands, except option data)

 

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

707,450

 

 

$

44.92

 

 

 

 

 

 

 

Options granted

 

 

25,000

 

 

 

91.39

 

 

 

 

 

 

 

Options exercised

 

 

(93,325

)

 

 

34.90

 

 

 

 

 

 

 

Outstanding at June 30, 2017

 

 

639,125

 

 

 

48.20

 

 

9.74 Yrs

 

$

30,933

 

Exercisable at June 30, 2017

 

 

277,250

 

 

 

38.77

 

 

6.85 Yrs

 

$

16,034

 

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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands except per share data)

 

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

 

$

21.92

 

 

$

11.29

 

 

$

21.92

 

 

$

11.40

 

Total intrinsic value of options exercised

 

 

1,032

 

 

 

891

 

 

 

5,645

 

 

 

1,670

 

Cash received from options exercised

 

 

647

 

 

 

1,001

 

 

 

3,257

 

 

 

1,876

 

Tax benefit realized from options exercised

 

 

399

 

 

 

345

 

 

 

2,183

 

 

 

646

 

17


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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Stock-based compensation expense

 

$

282

 

 

$

450

 

 

$

465

 

 

$

901

 

Tax benefit

 

 

109

 

 

 

174

 

 

 

180

 

 

 

348

 

Stock-based compensation expense, net of tax

 

$

173

 

 

$

276

 

 

$

285

 

 

$

553

 

The Company will continue to amortize the unearned stock-based compensation expense over the remaining vesting period of approximately seven years.  The following table shows the unearned stock-based compensation expense:

 

 

 

June 30, 2017

 

 

 

(Dollars in thousands)

 

Unearned stock-based compensation expense

 

$

2,858

 

The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the periods presented:

 

 

 

Six Months Ended

June 30,

 

 

2017

 

2016

Risk-free interest rate

 

2.15 to 2.38%

 

1.46 to 2.02%

Dividend yield

 

2.00%

 

2.00%

Stock price volatility

 

22.57 to 23.13%

 

20.41 to 20.64%

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.

In May 1999, the Company adopted the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “BancFirst Deferred Stock Compensation Plan”). The Company amended the BancFirst Deferred Stock Compensation Plan to increase the number of shares to be issued under the plan to 111,110 shares in May 2016. Under the plan, directors and members of the community advisory boards of the Company and its subsidiaries may defer up to 100% of their board fees. They are credited for each deferral with a number of stock units based on the current market price of the Company’s stock, which accumulate in an account until such time as the director or community board member terminates serving as a board member. Shares of common stock of the Company are then distributed to the terminating director or community board member based upon the number of stock units accumulated in his or her account. There were 4,959 shares of common stock distributed from the BancFirst Deferred Stock Compensation Plan during the six months ended June 30, 2017.

A summary of the accumulated stock units is as follows:

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accumulated stock units

 

 

67,226

 

 

 

70,022

 

Average price

 

$

43.69

 

 

$

41.74

 

 

 

 

(7)

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

18


as treasury stock. The timing, price and amount of stock repurchases may be determined by management within the limitations of the SRP. During the third quarter of 2016 the SRP was amended to increase the remaining shares to be repurchased to 150,000.

The following table is a summary of the shares under the program, all share repurchased in 2016 where purchased in the first three months of the year:

 

 

 

Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

Number of shares repurchased

 

 

 

 

 

100,000

 

Average price of shares repurchased

 

$

 

 

$

55.23

 

Shares remaining to be repurchased

 

 

150,000

 

 

 

66,276

 

The Company and BancFirst are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“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 that as of June 30, 2017, the Company and BancFirst met all capital adequacy requirements to which they are subject.  The actual and required capital amounts and ratios are shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

Required

 

 

 

 

 

To Be Well

 

 

 

 

 

 

 

 

 

 

 

For Capital

 

 

With

 

 

Capitalized Under

 

 

 

 

 

 

 

 

 

 

 

Adequacy

 

 

Capital Conservation

 

 

Prompt Corrective

 

 

 

Actual

 

 

Purposes

 

 

Buffer

 

 

Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

As of June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

763,741

 

 

 

15.51%

 

 

$

394,051

 

 

 

8.00%

 

 

$

455,621

 

 

 

9.250%

 

 

N/A

 

 

N/A

 

BancFirst

 

 

685,395

 

 

 

13.93%

 

 

 

393,644

 

 

 

8.00%

 

 

 

455,151

 

 

 

9.250%

 

 

$

492,055

 

 

 

10.00%

 

Common Equity Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

683,736

 

 

 

13.88%

 

 

$

221,653

 

 

 

4.50%

 

 

$

283,224

 

 

 

5.750%

 

 

N/A

 

 

N/A

 

BancFirst

 

 

616,390

 

 

 

12.53%

 

 

 

221,425

 

 

 

4.50%

 

 

 

282,932

 

 

 

5.750%

 

 

$

319,836

 

 

 

6.50%

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

714,736

 

 

 

14.51%

 

 

$

295,538

 

 

 

6.00%

 

 

$

357,108

 

 

 

7.250%

 

 

N/A

 

 

N/A

 

BancFirst

 

 

636,390

 

 

 

12.93%

 

 

 

295,233

 

 

 

6.00%

 

 

 

356,740

 

 

 

7.250%

 

 

$

393,644

 

 

 

8.00%

 

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Total Assets)-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BancFirst Corporation

 

$

714,736

 

 

 

10.15%

 

 

$

281,701

 

 

 

4.00%

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

BancFirst

 

 

636,390

 

 

 

9.05%

 

 

 

281,404

 

 

 

4.00%

 

 

N/A

 

 

N/A

 

 

$

351,755

 

 

 

5.00%

 

As of June 30, 2017, the most recent notification from the Federal Reserve Bank of Kansas City and the FDIC categorized BancFirst as “well capitalized” under the regulatory framework from prompt corrective action. The Company’s trust preferred securities have continued to be included in Tier 1 capital as the Company’s total assets do not exceed $15 billion. There are no conditions or events since the most recent notifications of BancFirst’s capital category that management believes would materially change its category under capital requirements existing as of the report date.

Basel III Capital Rules

Under the Basel III Capital Rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

Management believes that, as of June 30, 2017, the Company and BancFirst would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis as if such requirements were currently in effect.

19


 

 

(8)

NET INCOME PER COMMON SHARE

Basic and diluted net income per common share based on weighted-average shares outstanding are calculated as follows:

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per Share

Amount

 

 

 

(Dollars in thousands, except per share data)

 

Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

23,182

 

 

 

15,903,805

 

 

$

1.46

 

Dilutive effect of stock options

 

 

 

 

 

357,883

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed

   exercises of stock options

 

$

23,182

 

 

 

16,261,688

 

 

$

1.42

 

Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

17,493

 

 

 

15,549,811

 

 

$

1.12

 

Dilutive effect of stock options

 

 

 

 

 

292,674

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed

   exercises of stock options

 

$

17,493

 

 

 

15,842,485

 

 

$

1.10

 

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

45,232

 

 

 

15,884,414

 

 

$

2.85

 

Dilutive effect of stock options

 

 

 

 

 

365,581

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed

   exercises of stock options

 

$

45,232

 

 

 

16,249,995

 

 

$

2.78

 

Six Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

34,072

 

 

 

15,542,114

 

 

$

2.19

 

Dilutive effect of stock options

 

 

 

 

 

288,563

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders plus assumed

   exercises of stock options

 

$

34,072

 

 

 

15,830,677

 

 

$

2.15

 

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, 2017

 

 

19,505

 

 

$

90.64

 

Three Months Ended June 30, 2016

 

 

241,945

 

 

 

58.52

 

Six Months Ended June 30, 2017

 

 

9,807

 

 

 

90.64

 

Six Months Ended June 30, 2016

 

 

239,198

 

 

 

58.55

 

 

 

(9)

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.

20


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:

 

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, repossessed assets, other real estate owned, 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, registered mortgage backed securities and state 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 private label mortgage backed securities and 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 portfolio primarily 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 for pricing mentioned in the preceding paragraph adjusted for the specific issue. Periodically, the Company will validate 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


The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of the periods presented, 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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

285,387

 

 

$

 

 

$

 

 

$

285,387

 

U.S. federal agencies

 

 

 

 

 

98,398

 

 

 

 

 

 

98,398

 

Mortgage-backed securities

 

 

 

 

 

5,767

 

 

 

13,018

 

 

 

18,785

 

States and political subdivisions

 

 

 

 

 

38,935

 

 

 

 

 

 

38,935

 

Other securities

 

 

 

 

 

 

 

 

5,955

 

 

 

5,955

 

Derivative assets

 

 

 

 

 

256

 

 

 

 

 

 

256

 

Derivative liabilities

 

 

 

 

 

116

 

 

 

 

 

 

116

 

Loans held for sale

 

 

 

 

 

9,061

 

 

 

 

 

 

9,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

268,543

 

 

$

 

 

$

 

 

$

268,543

 

U.S. federal agencies

 

 

 

 

 

129,642

 

 

 

 

 

 

129,642

 

Mortgage-backed securities

 

 

 

 

 

4,856

 

 

 

14,816

 

 

 

19,672

 

States and political subdivisions

 

 

 

 

 

41,042

 

 

 

 

 

 

41,042

 

Other securities

 

 

 

 

 

 

 

 

6,569

 

 

 

6,569

 

Derivative assets

 

 

 

 

 

1,569

 

 

 

 

 

 

1,569

 

Derivative liabilities

 

 

 

 

 

1,306

 

 

 

 

 

 

1,306

 

Loans held for sale

 

 

 

 

 

9,318

 

 

 

 

 

 

9,318

 

The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows:

 

 

 

Six Months Ended

June 30,

 

 

Twelve Months Ended

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Balance at the beginning of the year

 

$

21,385

 

 

$

21,124

 

Purchases

 

 

293

 

 

 

1,096

 

Settlements

 

 

(1,905

)

 

 

(191

)

Sales

 

 

 

 

 

(429

)

Losses included in earnings

 

 

(330

)

 

 

(111

)

Total unrealized losses

 

 

(470

)

 

 

(104

)

Balance at the end of the period

 

$

18,973

 

 

$

21,385

 

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, 2017 and 2016, 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. In no case does the fair value of an impaired loan exceed the fair value of the underlying collateral. The impaired loans are adjusted to fair value through a specific allocation of the allowance for loan losses or a direct charge-down of the loan.

Repossessed 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.

22


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. The fair value represents end of period values, which approximate fair value measurements that occurred on various measurement dates throughout the period:

 

 

 

Total Fair Value

 

 

 

Level 3

 

 

 

(Dollars in thousands)

 

As of and for the Year-to-date Period Ended June 30, 2017

 

 

 

 

Impaired loans (less specific allowance)

 

$

21,392

 

Repossessed assets

 

 

238

 

Other real estate owned

 

 

1,329

 

 

 

 

 

 

As of and for the Year-to-date Period Ended December 31, 2016

 

 

 

 

Impaired loans (less specific allowance)

 

$

29,912

 

Repossessed assets

 

 

340

 

Other real estate owned

 

 

1,480

 

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.

Short-term Borrowings

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

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.

23


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 that are reported at amortized cost in the Company’s consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,716,900

 

 

$

1,716,900

 

 

$

1,851,161

 

 

$

1,851,161

 

Securities held for investment

 

 

3,442

 

 

 

3,475

 

 

 

3,722

 

 

 

3,760

 

Level 3 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held for investment

 

 

500

 

 

 

500

 

 

 

643

 

 

 

643

 

Loans, net of allowance for loan losses

 

 

4,529,388

 

 

 

4,534,977

 

 

 

4,351,539

 

 

 

4,367,363

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2 inputs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

6,235,682

 

 

 

6,306,671

 

 

 

6,248,057

 

 

 

6,313,622

 

Short-term borrowings

 

 

1,000

 

 

 

1,000

 

 

 

500

 

 

 

500

 

Junior subordinated debentures

 

 

31,959

 

 

 

35,830

 

 

 

31,959

 

 

 

34,339

 

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan commitments

 

 

 

 

 

 

1,780

 

 

 

 

 

 

 

1,718

 

Letters of credit

 

 

 

 

 

 

443

 

 

 

 

 

 

 

424

 

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 (excluding mortgage service rights, which are valued semi-annually) 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 measured at fair value on a nonrecurring basis were not considered to be significant to the Company at June 30, 2017 or December 31, 2016.

 

 

 

(10)

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, 2017

 

 

December 31, 2016

 

Oil and Natural Gas Swaps and Options

 

Notional Units

 

Notional

Amount

 

 

Estimated

Fair Value

 

 

Notional

Amount

 

 

Estimated

Fair Value

 

 

 

 

 

(Notional amounts and dollars in thousands)

 

Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative assets

 

Barrels

 

 

46

 

 

$

108

 

 

 

83

 

 

$

576

 

Derivative liabilities

 

Barrels

 

 

(46

)

 

 

(59

)

 

 

(83

)

 

 

(496

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative assets

 

MMBTUs

 

 

830

 

 

 

148

 

 

 

1,900

 

 

 

993

 

Derivative liabilities

 

MMBTUs

 

 

(830

)

 

 

(57

)

 

 

(1,900

)

 

 

(810

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Fair Value

 

Included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative assets

 

Other assets

 

 

 

 

 

 

256

 

 

 

 

 

 

 

1,569

 

Derivative liabilities

 

Other liabilities

 

 

 

 

 

 

(116

)

 

 

 

 

 

 

(1,306

)

 

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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Derivative income

 

$

 

 

$

6

 

 

$

5

 

 

$

11

 

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. The Company’s share of total profit is approximately 35%.

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, 2017

 

 

December 31, 2016

 

 

 

(Dollars in thousands)

 

Credit exposure

 

$

76

 

 

$

 

Balance Sheet Offsetting

Derivatives may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company’s derivative transactions with upstream financial institution counterparties and bank customers are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes.

 

(11)

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, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

17,832

 

 

$

37,047

 

 

$

1,698

 

 

$

(138

)

 

$

 

 

$

56,439

 

Noninterest income

 

 

3,945

 

 

 

13,660

 

 

 

7,456

 

 

 

25,644

 

 

 

(22,722

)

 

 

27,983

 

Income before taxes

 

 

11,784

 

 

 

24,509

 

 

 

3,119

 

 

 

16,720

 

 

 

(22,504

)

 

 

33,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

15,699

 

 

$

33,846

 

 

$

1,591

 

 

$

(268

)

 

$

 

 

$

50,868

 

Noninterest income

 

 

4,098

 

 

 

14,408

 

 

 

6,646

 

 

 

18,798

 

 

 

(17,893

)

 

 

26,057

 

Income before taxes

 

 

10,240

 

 

 

20,331

 

 

 

2,431

 

 

 

11,247

 

 

 

(17,848

)

 

 

26,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

36,352

 

 

$

72,170

 

 

$

3,193

 

 

$

(508

)

 

$

 

 

$

111,207

 

Noninterest income

 

 

7,767

 

 

 

26,937

 

 

 

15,766

 

 

 

50,116

 

 

 

(44,518

)

 

 

56,068

 

Income before taxes

 

 

24,858

 

 

 

47,228

 

 

 

6,764

 

 

 

32,231

 

 

 

(44,260

)

 

 

66,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (expense)

 

$

31,542

 

 

$

66,968

 

 

$

3,007

 

 

$

(673

)

 

$

 

 

$

100,844

 

Noninterest income

 

 

7,886

 

 

 

28,004

 

 

 

14,125

 

 

 

36,476

 

 

 

(34,817

)

 

 

51,674

 

Income before taxes

 

 

19,588

 

 

 

39,425

 

 

 

5,545

 

 

 

21,747

 

 

 

(34,705

)

 

 

51,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

$

2,506,852

 

 

$

4,432,649

 

 

$

97,894

 

 

$

824,524

 

 

$

(815,330

)

 

$

7,046,589

 

December 31, 2016

 

 

2,493,096

 

 

 

4,412,174

 

 

 

83,594

 

 

 

803,810

 

 

 

(773,722

)

 

 

7,018,952

 

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.

 

 

(12) SUBSEQUENT EVENT

 

Subsequent to June 30, 2017, the Company completed a two-for-one stock split of the Company’s outstanding shares of common stock. The stock is payable in the form of a dividend on or about July 31, 2017 to shareholders of record of the outstanding common stock as of the close of business record date of July 17, 2017.  Stockholders will receive one additional share for each share held on that date. This represents the second stock split for the Company since going public.

 

 

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, 2016 consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 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. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.

 

Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.

 

Inflation, interest rate, crude oil price, securities market and monetary fluctuations.

 

The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company must comply.

 

Impairment of the Company’s goodwill or other intangible assets.

 

Changes in consumer spending, borrowing and savings habits.

 

Changes in the financial performance and/or condition of the Company’s borrowers.

 

Technological changes.

 

Acquisitions and integration of acquired businesses.

 

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

 

The Company’s success at managing the risks involved in the foregoing items.

Actual results may differ materially from forward-looking statements.

27


SUMMARY

BancFirst Corporation’s net income was $23.2 million, or $1.42 diluted earnings per share, for the second quarter of 2017, compared to net income of $17.5 million, or $1.10 diluted earnings per share, for the second quarter of 2016. A lower effective tax rate and the resolution of a problem loan during the second quarter of 2017 added 7 cents per share. Net income was $45.2 million, or $2.78 diluted earnings per share, for the six months ended June, 30, 2017, compared to net income of $34.1 million, or $2.15 diluted earnings per share, for the six months ended June, 30, 2016. Net income for the first half of 2017 included the effects of favorable resolutions of three problem loans which resulted in principal recovery of $894,000 and unaccrued interest income of $2.7 million.

The Company’s net interest income for the second quarter of 2017 increased to $56.4 million, compared to $50.9 million for the second quarter of 2016. The net interest margin for the quarter was 3.43%, compared to 3.28% a year ago. The increase in margin was primarily due to the increase in the federal funds rate and the favorable resolution of an acquired loan, which added 2 basis points.  The Company’s provision for loan losses for the second quarter of 2017 decreased to $1.8 million, compared to $2.8 million a year ago. The decrease in the provision was due in part to an unusually high provision for a few commercial loans in the prior year. Net charge-offs were stable at 0.02% of average loans for the second quarter of both 2017 and 2016.  Noninterest income for the quarter totaled $28.0 million, compared to $26.1 million last year. Noninterest expense for the quarter totaled $49.0 million, compared to $47.7 million last year. The increase in noninterest expense was due to salary increases in 2017. The Company’s effective tax rate was 31.1% compared to 33.7% for the second quarter of 2016 adding approximately $875,000 to net income. The decrease in effective tax rate was due to a change in accounting standards related to stock based compensation.

At June 30, 2017, the Company’s total assets were largely unchanged at $7.0 billion, $27.6 million above the December 31, 2016 total. Securities of $451.4 million were down slightly from December 31, 2016. Loans totaled $4.6 billion, an increase of $177.9 million over December 31, 2016.  Deposits were flat totaling $6.2 billion at both June 30, 2017 and December 31, 2016. The Company’s total stockholders’ equity was $748.5 million, an increase of $37.4 million, or 5.3%, over December 31, 2016.

Asset quality remained strong during the second quarter of 2017. Nonperforming and restructured assets fell to 0.42% of total assets at June 30, 2017 compared to 0.56% at December 31, 2016. The decrease in nonperforming and restructured assets was largely due to the favorable resolution of three problem loans during the first half of 2017. The allowance to total loans was 1.07%, compared to 1.10% at year-end 2016. The allowance to nonperforming and restructured loans was 193.1% compared to 137.3% at year-end 2016.

On May 31, 2017, the Company announced that its Board of Directors approved a two-for-one stock split of the Company’s outstanding shares of common stock. The stock is payable in the form of a dividend on or about July 31, 2017 to shareholders of record of the outstanding common stock as of the close of business record date of July 17, 2017.  Stockholders will receive one additional share for each share held on that date. This represents the second stock split for the Company since going public.

 

Effective June 1, 2017, the Company organized a new wholly-owned captive insurance company named BancFirst Risk and Insurance. It insures certain risks of the Company and has entered into reinsurance agreements with a risk-sharing pool.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

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

SEGMENT INFORMATION

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

28


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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Income Statement Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

56,439

 

 

$

50,868

 

 

$

111,207

 

 

$

100,844

 

Provision for loan losses

 

 

1,841

 

 

 

2,804

 

 

 

1,913

 

 

 

6,907

 

Securities transactions

 

 

(330

)

 

 

(65

)

 

 

(330

)

 

 

35

 

Total noninterest income

 

 

27,983

 

 

 

26,057

 

 

 

56,068

 

 

 

51,674

 

Salaries and employee benefits

 

 

31,547

 

 

 

30,008

 

 

 

62,201

 

 

 

59,365

 

Total noninterest expense

 

 

48,953

 

 

 

47,720

 

 

 

98,541

 

 

 

94,011

 

Net income

 

 

23,182

 

 

 

17,493

 

 

 

45,232

 

 

 

34,072

 

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income – basic

 

$

1.46

 

 

$

1.12

 

 

$

2.85

 

 

$

2.19

 

Net income – diluted

 

 

1.42

 

 

 

1.10

 

 

 

2.78

 

 

 

2.15

 

Cash dividends

 

 

0.38

 

 

 

0.36

 

 

 

0.76

 

 

 

0.72

 

Performance Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.31

%

 

 

1.04

%

 

 

1.29

%

 

 

1.02

%

Return on average stockholders’ equity

 

 

12.52

 

 

 

10.42

 

 

 

12.44

 

 

 

10.23

 

Cash dividend payout ratio

 

 

26.03

 

 

 

32.00

 

 

 

26.67

 

 

 

32.84

 

Net interest spread

 

 

3.21

 

 

 

3.11

 

 

 

3.20

 

 

 

3.10

 

Net interest margin

 

 

3.43

 

 

 

3.28

 

 

 

3.41

 

 

 

3.27

 

Efficiency ratio

 

 

57.99

 

 

 

62.03

 

 

 

58.91

 

 

 

61.64

 

Net charge-offs to average loans

 

 

0.02

 

 

 

0.02

 

 

 

0.04

 

 

 

0.05

 

Net Interest Income

For the three months ended June 30, 2017, net interest income, which is the Company’s principal source of operating revenue, increased 11.0% compared to the three months ended June 30, 2016. Net interest margin, which is shown in the preceding table, is the ratio of taxable-equivalent net interest income to average earning assets for the period. The increase in the federal funds rate of 25 basis points during the fourth quarter of 2016 and the first and second quarters of 2017 and the favorable resolution of an acquired loan, contributed to the higher net interest income and margin in 2017. If interest rates and/or loan volume do not increase, management would expect its net interest margin to generally remain at current levels.

Net interest income for the six months ended June 30, 2017 increased 10.3% compared to the six months ended June 30, 2016. The net interest margin for the year-to-date increased compared to the same period of the previous year, as shown in the preceding table. The increase in the margin was primarily due to interest income of $2.3 million related to the favorable resolution of three problem loans, which added approximately 0.09% to the margin, and the increase in the federal funds rate of 25 basis points during the fourth quarter of 2016 and the first and second quarters of 2017.

Provision for Loan Losses

The Company’s provision for loan loss for the second quarter of 2017 decreased $963,000 or 34.3% compared to a year ago. The decrease in the provision was due in part to an unusually high provision for a few commercial loans in the prior year.  The Company establishes an allowance as an estimate of the probable inherent losses in the loan portfolio at the balance sheet date.  Management believes the allowance for loan losses is appropriate based upon management’s best estimate of probable losses that have been incurred within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the amount of future provisions for loan losses. Net loan charge-offs were $757,000 for the second quarter of 2017, compared to $809,000 for the second quarter of 2016. The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a very low level.

 

29


For the six months ended June 30, 2017, the Company’s provision for loan losses decreased $5.0 million or 72.3% compared to the six months ended June 30, 2016. The decrease in the provision was due in part to the resolution of three problem loans and an unusually high provision for a few commercial loans in the prior year. Net loan charge-offs were $1.6 million, compared to $2.0 million for the same period of the prior year.

Noninterest Income

Noninterest income totaled $28.0 million for the second quarter of 2017 compared to $26.1 million for the second quarter of 2016. Noninterest income included increases in trust revenue, insurance commissions, debit card usage fees and non-sufficient funds fees. The Company had fees from debit card usage totaling $6.6 million and $6.1 million during the three month periods ended June 30, 2017 and 2016, respectively. This represents 23.7% and 23.5% of the Company’s noninterest income for the three month periods ended June 30, 2017 and 2016, respectively. In addition, the Company had non-sufficient fund fees totaling $7.0 million and $6.5 million during the three month periods ended June 30, 2017 and 2016, respectively. This represents 25.1% of the Company’s noninterest income for both the three month periods ended June 30, 2017 and 2016.

 

Noninterest income for the six months ended June 30, 2017 totaled $56.1 million compared to $51.7 million for the six months ended June 30, 2016. Noninterest income included increases in trust revenue, insurance commissions, debit card usage fees and non-sufficient funds fees.  Fees from debit card usage totaled $12.9 million and $12.0 million during the six months ended June 30, 2017 and 2016, respectively. This represents 22.9% and 23.3% of the Company’s noninterest income for the six month periods ended June 30, 2017 and 2016, respectively. In addition, the Company had non-sufficient fund fees totaling $13.9 million and $12.7 million during the six months ended June 30, 2017 and 2016, respectively. This represents 24.8% and 24.5% of the Company’s noninterest income for the six month periods ended June 30, 2017 and 2016, respectively.

Noninterest Expense

For the three months ended June 30, 2017, noninterest expense totaled $49.0 million, compared to $47.7 million for the three months ended June 30, 2016. The increase in noninterest expense for the second quarter of 2017 was primarily due to salary increases.

For the six months ended June 30, 2017, noninterest expense totaled $98.5 million compared to $94.0 million for the six months ended June 30, 2016. The increase in noninterest expense for year-to-date 2017 was primarily due to salary increases and $1.3 million in gains on sale of other real estate owned that reduced expenses in 2016.

Income Taxes

The Company’s effective tax rate on income before taxes was 31.1% for the second quarter of 2017, compared to 33.7% for the second quarter of 2016. The decrease in the effective tax rate was primarily due to Accounting Standards Update 2016-09, which is a change in accounting standards related to stock based compensation.

 

The Company’s effective tax rate on income before taxes was 32.3% for the first six months of 2017, compared to 34.0% for the first six months of 2016.  The decrease in the effective tax rate was primarily due to Accounting Standards Update 2016-09, which is a change in accounting standards related to stock based compensation.

 

 

 

 

 

 

 

 

 

 

 

 

 

30


FINANCIAL POSITION

BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

Balance Sheet Data

 

 

 

 

 

 

 

 

Total assets

 

$

7,046,589

 

 

$

7,018,952

 

Total loans (net of unearned interest)

 

 

4,587,454

 

 

 

4,409,550

 

Allowance for loan losses

 

 

49,005

 

 

 

48,693

 

Securities

 

 

451,402

 

 

 

469,833

 

Deposits

 

 

6,235,682

 

 

 

6,248,057

 

Stockholders' equity

 

 

748,462

 

 

 

711,094

 

Book value per share

 

 

47.05

 

 

 

44.97

 

Tangible book value per share

 

 

42.88

 

 

 

40.71

 

Average loans to deposits (year-to-date)

 

 

70.80

%

 

 

71.44

%

Average earning assets to total assets (year-to-date)

 

 

93.45

 

 

 

93.10

 

Average stockholders’ equity to average assets (year-to-date)

 

 

10.35

 

 

 

10.11

 

Asset Quality Ratios

 

 

 

 

 

 

 

 

Nonperforming and restructured loans to total loans

 

 

0.55

%

 

 

0.80

%

Nonperforming and restructured assets to total assets

 

 

0.42

 

 

 

0.56

 

Allowance for loan losses to total loans

 

 

1.07

 

 

 

1.10

 

Allowance for loan losses to nonperforming and restructured loans

 

 

193.05

 

 

 

137.27

 

Cash and Interest-Bearing Deposits with Banks

The aggregate of cash and due from banks, interest-bearing deposits with banks and federal funds sold decreased $134.3 million, or 7.3% to $1.7 billion, from December 31, 2016 to June 30, 2017.  This decrease was due primarily to the increase in loans and no growth in deposits.

Securities

At June 30, 2017, total securities decreased $18.4 million, or 3.9% compared to December 31, 2016. The size of the Company’s securities portfolio is determined by the Company’s liquidity and asset/liability management. The net unrealized gain on securities available for sale, before taxes, was $727,000 at June 30, 2017, compared to $153,000 at December 31, 2016. These unrealized gains are included in the Company’s stockholders’ equity as accumulated other comprehensive income, net of income tax, in the amounts of $446,000 and $94,000, respectively.

Loans

At June 30, 2017, loans totaled $4.6 billion, an increase of $177.9 million over December 31, 2016. The 4.0% increase in loans was due to the continuation of internal loan growth.

Allowance for Loan Losses/Fair Value Adjustments on Acquired Loans

At June 30, 2017, the allowance for loan losses to total loans represented 1.07% of total loans, compared to 1.10% at December 31, 2016.

The fair value adjustment on acquired loans consists of an interest rate component to adjust the effective rates on the loans to market rates and a credit component to adjust for estimated credit exposures in the acquired loans. The credit component of the adjustment was $1.5 million at June 30, 2017 and $2.0 million at December 31, 2016, while the acquired loans outstanding were $133.3 million and $155.0 million, respectively.

31


Nonperforming and Restructured Assets

Nonperforming and restructured assets totaled $29.6 million at June 30, 2017, compared to $39.3 million at December 31, 2016. The Company’s level of nonperforming and restructured assets has continued to be relatively low. The decrease in nonperforming and restructured assets in 2017 was due to the resolution of three problem loans.

Nonaccrual loans totaled $19.6 million at June 30, 2017, compared to $31.8 million at December 31, 2016. The Company’s nonaccrual loans are primarily commercial and real estate loans. Nonaccrual loans negatively impact the Company’s net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of interest or principal or both is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $886,000 for the six months ended June 30, 2017 and $982,000 for the for the six months ended June 30, 2016.  Only a small amount of this interest is expected to be ultimately collected.

Other real estate owned and repossessed assets totaled $4.2 million at June 30, 2017, compared to $3.9 million at December 31, 2016.

Potential problem loans are performing loans to borrowers with a weakened financial condition, or which are experiencing unfavorable trends in their financial condition, which causes management to have concerns as to the ability of such borrowers to comply with the existing repayment terms.  The Company had approximately $6.3 million of these loans at June 30, 2017, compared to $7.5 million at December 31, 2016. Potential problem loans are not included in nonperforming and restructured loans.  In general, these loans are adequately collateralized and have no specific identifiable probable loss.  Loans which are considered to have identifiable probable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming.

Liquidity and Funding

Deposits

At both June 30, 2017 and December 31, 2016, deposits totaled $6.2 billion. The Company’s core deposits provide it with a stable, low-cost funding source. The Company’s core deposits as a percentage of total deposits were 94.8% at June 30, 2017 compared to 94.7% at December 31, 2016.  Noninterest-bearing deposits to total deposits were 40.9% at June 30, 2017, compared to 40.4% at December 31, 2016.

Short-Term Borrowings

Short-term borrowings, consisting primarily of federal funds purchased and repurchase agreements are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company’s ability to earn a favorable spread on the funds obtained. Short-term borrowings were $1.0 million at June 30, 2017, compared to $500,000 at December 31, 2016.

Long-Term Borrowings

The Company has a line of credit from the Federal Home Loan Bank (“FHLB”) of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed rate loans. The Company’s assets, including residential first mortgages of $681.4 million, are pledged as collateral for the borrowings under the line of credit. As of June 30, 2017 and December 31, 2016, the Company had no advances outstanding under the line of credit from FHLB. In addition, the Company has a revolving line of credit with the ability to draw up to $10.0 million with no advances outstanding. This line of credit has a variable rate based on prime rate minus 25 basis points and matures in 2020.

There have not been any other material changes from the liquidity and funding discussion included in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Capital Resources

Stockholders’ equity totaled $748.5 million at June 30, 2017, compared to $711.1 million at December 31, 2016. In addition to net income of $45.2 million, other increases in stockholders’ equity during the six months ended June 30, 2017 included $3.4 million related to stock option exercises, $465,000 related to stock-based compensation and $352,000 increase in other comprehensive income, that were partially offset by $12.1 million in dividends. The Company’s leverage ratio and total risk-based capital ratios at June 30, 2017 were well in excess of the regulatory requirements.

32


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

On January 20, 2017, the Company filed with the Securities and Exchange Commission (“SEC”) an automatic shelf registration statement on Form S-3, which became effective upon filing with the SEC. Under the shelf registration, the Company may offer and sell, from time to time, an indeterminate amount of its common stock in one or more future offerings.

CONTRACTUAL OBLIGATIONS

There have not been any material changes in the resources required for scheduled repayments of contractual obligations from the table of Contractual Cash Obligations included in Management’s Discussion and Analysis which was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 

33


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

 

 

Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

4,504,890

 

 

$

54,980

 

 

 

4.90

%

 

$

4,296,172

 

 

$

51,216

 

 

 

4.78

%

Securities – taxable

 

 

426,396

 

 

 

1,906

 

 

 

1.79

 

 

 

457,021

 

 

 

1,344

 

 

 

1.18

 

Securities – tax exempt

 

 

32,135

 

 

 

275

 

 

 

3.44

 

 

 

41,015

 

 

 

372

 

 

 

3.64

 

Interest-bearing deposits w/ banks & FFS

 

 

1,676,871

 

 

 

4,426

 

 

 

1.06

 

 

 

1,459,623

 

 

 

1,852

 

 

 

0.51

 

Total earning assets

 

 

6,640,292

 

 

 

61,587

 

 

 

3.72

 

 

 

6,253,831

 

 

 

54,784

 

 

 

3.51

 

Nonearning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

175,372

 

 

 

 

 

 

 

 

 

 

 

176,042

 

 

 

 

 

 

 

 

 

Interest receivable and other assets

 

 

338,798

 

 

 

 

 

 

 

 

 

 

 

335,869

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(48,285

)

 

 

 

 

 

 

 

 

 

 

(44,520

)

 

 

 

 

 

 

 

 

Total nonearning assets

 

 

465,885

 

 

 

 

 

 

 

 

 

 

 

467,391

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,106,177

 

 

 

 

 

 

 

 

 

 

$

6,721,222

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction deposits

 

$

793,265

 

 

$

213

 

 

 

0.11

%

 

$

787,174

 

 

$

207

 

 

 

0.11

%

Savings deposits

 

 

2,272,227

 

 

 

2,778

 

 

 

0.49

 

 

 

2,088,482

 

 

 

1,691

 

 

 

0.32

 

Time deposits

 

 

681,797

 

 

 

1,309

 

 

 

0.77

 

 

 

708,242

 

 

 

1,194

 

 

 

0.68

 

Short-term borrowings

 

 

1,582

 

 

 

4

 

 

 

0.91

 

 

 

1,876

 

 

 

2

 

 

 

0.37

 

Junior subordinated debentures

 

 

31,959

 

 

 

530

 

 

 

6.65

 

 

 

31,959

 

 

 

523

 

 

 

6.56

 

Total interest-bearing liabilities

 

 

3,780,830

 

 

 

4,834

 

 

 

0.51

 

 

 

3,617,733

 

 

 

3,617

 

 

 

0.40

 

Interest-free funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

2,556,003

 

 

 

 

 

 

 

 

 

 

 

2,404,535

 

 

 

 

 

 

 

 

 

Interest payable and other liabilities

 

 

26,383

 

 

 

 

 

 

 

 

 

 

 

25,399

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

742,961

 

 

 

 

 

 

 

 

 

 

 

673,555

 

 

 

 

 

 

 

 

 

Total interest free funds

 

 

3,325,347

 

 

 

 

 

 

 

 

 

 

 

3,103,489

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

7,106,177

 

 

 

 

 

 

 

 

 

 

$

6,721,222

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

56,753

 

 

 

 

 

 

 

 

 

 

$

51,167

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.21

%

 

 

 

 

 

 

 

 

 

 

3.11

%

Effect of interest free funds

 

 

 

 

 

 

 

 

 

 

0.22

%

 

 

 

 

 

 

 

 

 

 

0.17

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.43

%

 

 

 

 

 

 

 

 

 

 

3.28

%

 

(1)

Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

 

34


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

 

 

 

Interest

 

 

Average

 

 

 

Average

 

 

Income/

 

 

Yield/

 

 

Average

 

 

Income/

 

 

Yield/

 

 

 

Balance

 

 

Expense

 

 

Rate

 

 

Balance

 

 

Expense

 

 

Rate

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

4,453,087

 

 

$

108,813

 

 

 

4.93

%

 

$

4,269,528

 

 

$

101,545

 

 

 

4.77

%

Securities – taxable

 

 

430,772

 

 

 

3,667

 

 

 

1.72

 

 

 

474,263

 

 

 

2,671

 

 

 

1.13

 

Securities – tax exempt

 

 

32,710

 

 

 

562

 

 

 

3.46

 

 

 

41,776

 

 

 

765

 

 

 

3.67

 

Interest-bearing deposits w/ banks & FFS

 

 

1,700,677

 

 

 

7,866

 

 

 

0.93

 

 

 

1,439,562

 

 

 

3,654

 

 

 

0.51

 

Total earning assets

 

 

6,617,246

 

 

 

120,908

 

 

 

3.68

 

 

 

6,225,129

 

 

 

108,635

 

 

 

3.50

 

Nonearning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

174,356

 

 

 

 

 

 

 

 

 

 

 

177,749

 

 

 

 

 

 

 

 

 

Interest receivable and other assets

 

 

337,963

 

 

 

 

 

 

 

 

 

 

 

336,356

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(48,368

)

 

 

 

 

 

 

 

 

 

 

(43,058

)

 

 

 

 

 

 

 

 

Total nonearning assets

 

 

463,951

 

 

 

 

 

 

 

 

 

 

 

471,047

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,081,197

 

 

 

 

 

 

 

 

 

 

$

6,696,176

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction deposits

 

$

794,497

 

 

$

424

 

 

 

0.11

%

 

$

789,647

 

 

$

408

 

 

 

0.10

%

Savings deposits

 

 

2,268,095

 

 

 

5,075

 

 

 

0.45

 

 

 

2,083,643

 

 

 

3,382

 

 

 

0.33

 

Time deposits

 

 

683,675

 

 

 

2,526

 

 

 

0.75

 

 

 

715,017

 

 

 

2,382

 

 

 

0.67

 

Short-term borrowings

 

 

1,725

 

 

 

7

 

 

 

0.87

 

 

 

1,494

 

 

 

3

 

 

 

0.37

 

Junior subordinated debentures

 

 

31,959

 

 

 

1,057

 

 

 

6.67

 

 

 

31,959

 

 

 

1,045

 

 

 

6.56

 

Total interest-bearing liabilities

 

 

3,779,951

 

 

 

9,089

 

 

 

0.48

 

 

 

3,621,760

 

 

 

7,220

 

 

 

0.40

 

Interest-free funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

2,543,015

 

 

 

 

 

 

 

 

 

 

 

2,382,159

 

 

 

 

 

 

 

 

 

Interest payable and other liabilities

 

 

25,137

 

 

 

 

 

 

 

 

 

 

 

24,512

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

733,094

 

 

 

 

 

 

 

 

 

 

 

667,745

 

 

 

 

 

 

 

 

 

Total interest free funds

 

 

3,301,246

 

 

 

 

 

 

 

 

 

 

 

3,074,416

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

7,081,197

 

 

 

 

 

 

 

 

 

 

$

6,696,176

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

111,819

 

 

 

 

 

 

 

 

 

 

$

101,415

 

 

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

3.20

%

 

 

 

 

 

 

 

 

 

 

3.10

%

Effect of interest free funds

 

 

 

 

 

 

 

 

 

 

0.21

%

 

 

 

 

 

 

 

 

 

 

0.17

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.41

%

 

 

 

 

 

 

 

 

 

 

3.27

%

(1)

Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in the Registrant’s disclosures regarding market risk since December 31, 2016, the date of its most recent annual report to stockholders.

 

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer, Chief Financial Officer and its Disclosure Committee, which includes the Company’s Executive Chairman, Chief Risk Officer, Chief Internal Auditor, Chief Asset Quality Officer, Controller and General Counsel, have evaluated, as of the last day of the period covered by this report, the Company’s disclosure controls and procedures.  Based on their evaluation they concluded that the disclosure controls and procedures of the Company are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms.

35


No changes were made to the Company’s internal control over financial reporting during the period covered by this report that materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

36


PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings.

The Company has been named as a defendant in various legal actions arising from the conduct of its normal business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse effect on the consolidated financial statements of the Company.

 

 

Item 1A. Risk Factors.

As of June 30, 2017, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

 

Item 3. Defaults Upon Senior Securities.

None.

 

 

Item 4. Mine Safety Disclosures.

None.

 

 

Item 5. Other Information.

None.

37


Item 6. Exhibits.

 

Exhibit
Number

 

Exhibit

3.1

 

Second Amended and Restated Certificate of Incorporation of BancFirst Corporation (filed as Exhibit 1 to the Company’s 8-A/A filed July 23, 1998 and incorporated herein by reference).

 

 

 

3.2

 

Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of BancFirst Corporation dated June 15, 2004 (filed as Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004 and incorporated herein by reference).

 

 

 

3.3

 

Amended and Restated By-Laws of BancFirst Corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 30, 2015 and incorporated herein by reference).

 

 

 

3.4

 

Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of BancFirst Corporation dated May 23, 2013 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 29, 2013 and incorporated herein by reference).

 

 

 

3.5

 

Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of BancFirst Corporation dated May 31, 2017 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 31, 2017 and incorporated herein by reference).

 

 

 

4.1

 

Instruments defining the rights of securities holders (see Exhibits 3.1, 3.2, 3.3 and 3.4 above).

 

 

 

4.2

 

Form of Amended and Restated Trust Agreement relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.5 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).

 

 

 

4.3

 

Form of 7.20% Cumulative Trust Preferred Security Certificate for BFC Capital Trust II (filed as Exhibit D to Exhibit 4.5 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).

 

 

 

4.4

 

Form of Indenture relating to the 7.20% Junior Subordinated Deferrable Interest Debentures of BancFirst Corporation issued to BFC Capital Trust II (filed as Exhibit 4.1 to the Company’s registration statement on Form S-3, File No. 333-112488 dated February 4, 2004, and incorporated herein by reference).

 

 

 

4.5

 

Form of Certificate of 7.20% Junior Subordinated Deferrable Interest Debenture of BancFirst Corporation (filed as Exhibit 4.2 to the Company’s registration statement on Form S-3, File No. 333-112488 dated February 4, 2004, and incorporated herein by reference).

 

 

 

4.6

 

Form of Guarantee of BancFirst Corporation relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.7 to the Company’s registration statement on Form S-3/A, File No. 333-112488 dated February 23, 2004, and incorporated herein by reference).

 

 

 

4.7

 

Form of Guarantee Agreement by and between CSB Bancshares, Inc. and Wilmington Trust Company (filed as Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).

 

 

 

4.8

 

Form of Indenture relating to the Floating Rate Junior Subordinated Deferrable Interest Debentures of CSB Bancshares, Inc., issued to Wilmington Trust Company (filed as Exhibit 4.8 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).

 

 

 

4.9

 

Form of First Supplemental Indenture relating to the Floating Rate Junior Subordinated Deferrable Interest Debentures by and between Wilmington Trust Company and BancFirst Corporation (filed as Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2015 and incorporated herein by reference).

 

 

 

  10.1

 

BancFirst Corporation Employee Stock Ownership and Trust Agreement adopted effective January 1, 2015 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2015 and incorporated herein by reference).

 

 

 

10.2

 

Fifth Amended and Restated BancFirst Corporation Directors’ Stock Option Plan (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 and incorporated herein by reference).

 

 

 

10.3

 

Fifth Amended and Restated BancFirst Corporation Directors’ Deferred Stock Compensation Plan (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 and incorporated herein by reference).

 

 

 

38


Exhibit
Number

 

Exhibit

10.4

 

Fourteenth Amended and Restated BancFirst Corporation Stock Option Plan (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016 and incorporated herein by reference).

 

 

 

10.5

 

Adoption Agreement for the BancFirst Corporation Thrift Plan adopted April 21, 2016 effective January 1, 2016. (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2016 and incorporated herein by reference).

 

 

 

31.1*

 

Chief Executive Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

 

 

 

31.2*

 

Chief Financial Officer’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

 

 

 

32.1*

 

CEO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

CFO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase

 

*

Filed herewith.

 

 

39


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

BANCFIRST CORPORATION

 

 

(Registrant)

 

 

 

Date:  July 31, 2017

 

/s/ David Harlow

 

 

David Harlow

 

 

President

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Date:  July 31, 2017

 

/s/ Kevin Lawrence

 

 

Kevin Lawrence

 

 

Executive Vice President

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

40