BancFirst (BANF) - 2020 Q3 - Quarterly Report

PART I – Financial Information Item 1. Financial Statements (Unaudited) The company's unaudited statements show asset growth to $9.6 billion and decreased net income due to higher credit loss provisions Consolidated Balance Sheet Highlights (unaudited) | Account | Sep 30, 2020 ($ in thousands) | Dec 31, 2019 ($ in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 9,618,868 | 8,565,758 | +12.3% | | Loans, net | 6,505,967 | 5,607,905 | +16.0% | | Allowance for credit losses | 106,126 | 54,238 | +95.7% | | Total Deposits | 8,495,891 | 7,483,635 | +13.5% | | Total Stockholders' Equity | 1,043,752 | 1,004,989 | +3.9% | Consolidated Income Statement Highlights (unaudited) | Account | Q3 2020 ($ in thousands) | Q3 2019 ($ in thousands) | Nine Months 2020 ($ in thousands) | Nine Months 2019 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 75,852 | 72,287 | 227,133 | 207,982 | | Provision for credit losses | 18,740 | 2,758 | 57,656 | 6,875 | | Net Income | 20,890 | 33,368 | 64,228 | 99,372 | | Diluted EPS | $0.63 | $1.00 | $1.94 | $2.98 | - The company adopted the new credit loss standard, ASC 326 (CECL), on January 1, 2020, resulting in a net increase to retained earnings of $2.3 million, net of tax[19][21] Notes to Consolidated Financial Statements Notes detail the CECL adoption impact, PPP loan origination, loan modifications, and an increase in nonaccrual loans - On March 5, 2020, the Company acquired The Citizens State Bank of Okemah, adding approximately $47.8 million in assets and $45.0 million in deposits, resulting in $1.3 million of goodwill[57] - As of September 30, 2020, the Company had $830.3 million in PPP loans held for investment, net of $22.5 million in unamortized fees[70] - The Company has modified $104.5 million in loans under the CARES Act as of September 30, 2020, which are not currently classified as nonaccrual[55] Allowance for Credit Losses Activity (Nine Months Ended Sep 30, 2020) | Description | Amount ($ in thousands) | | :--- | :--- | | Balance at Dec 31, 2019 | 54,238 | | Impact of CECL adoption | (3,195) | | Provision for credit losses | 57,656 | | Net charge-offs | (3,075) | | Other | 502 | | Balance at Sep 30, 2020 | 106,126 | Nonaccrual Loans by Segment | Segment | Sep 30, 2020 ($ in thousands) | Dec 31, 2019 ($ in thousands) | | :--- | :--- | :--- | | Commercial real estate non-owner occupied | 20,476 | 1,815 | | Commercial and agricultural non-real estate | 37,554 | 2,915 | | Farmland | 10,517 | N/A | | Total Nonaccrual Loans | 82,385 | 17,965 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses pandemic impacts, increased credit loss provisions, and risks from asset growth nearing $10 billion - The COVID-19 pandemic and low energy prices are expected to cause worsening economic conditions, potentially leading to increased credit stress in the energy portfolio[151] - A significant risk is the potential to exceed $10 billion in total assets, which would trigger the Durbin Amendment and cause an estimated annual loss of $16 to $18 million in debit card interchange fees[173][215] Key Performance Ratios | Ratio | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Return on average assets | 0.86% | 1.65% | 0.93% | 1.71% | | Return on average stockholders' equity | 7.89% | 13.80% | 8.24% | 14.14% | | Net interest margin | 3.40% | 3.89% | 3.58% | 3.88% | | Efficiency ratio | 59.84% | 57.63% | 58.41% | 56.51% | Asset Quality Ratios | Ratio | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Nonaccrual loans to total loans | 1.24% | 0.32% | | Allowance for credit losses to total loans | 1.59% | 0.96% | | Allowance for credit losses to nonaccrual loans | 128.82% | 301.91% | Quantitative and Qualitative Disclosure About Market Risk The company maintains an asset-sensitive position, with net interest income expected to benefit from rising interest rates - The company's interest rate position is asset-sensitive, meaning net interest income is expected to benefit from rising interest rates[205] Interest Rate Sensitivity Analysis (Projected NII Change over 12 months) | Rate Shock | As of Sep 30, 2020 | As of Dec 31, 2019 | | :--- | :--- | :--- | | +100 bps | +1.05% | +1.97% | | +200 bps | +2.94% | +4.08% | | -100 bps | Not Provided | -2.84% | Controls and Procedures Management concluded disclosure controls were effective, noting changes to internal controls due to the adoption of CECL - Disclosure controls and procedures were deemed effective by the CEO and CFO[209] - The adoption of ASC 326 (CECL) necessitated changes to internal controls over financial reporting related to the allowance for credit losses[209] PART II – Other Information Legal Proceedings Ongoing legal actions from normal business activities are not expected to have a material adverse financial effect - The company states that ongoing legal actions are not expected to have a material adverse effect on its financial condition[211] Risk Factors Key risks include the uncertain impact of the COVID-19 pandemic and potential fee income loss from exceeding $10 billion in assets - The ultimate impact of the COVID-19 pandemic on business, financial results, and credit losses is highly uncertain and cannot be predicted[212][213] - Loan modifications of $104.5 million under the CARES Act may delay the recognition of impaired loans, potentially increasing credit impairment when relief measures cease[214] - A heightened possibility exists of exceeding $10 billion in total assets by year-end 2020, which would trigger the Durbin Amendment and cause an estimated annual loss of $16 to $18 million in debit card interchange fees[215] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None reported[217] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and various corporate agreements - The filing includes CEO and CFO certifications pursuant to Sarbanes-Oxley Act rules (Exhibits 31.1, 31.2, 32)[231] - The report incorporates by reference various agreements and plan documents, including those related to acquisitions, stock option plans, and deferred compensation plans[219][231]