BancFirst (BANF) - 2023 Q2 - Quarterly Report

PART I – Financial Information Financial Statements (Unaudited) Unaudited financial statements show total assets decreased to $12.0 billion, while Q2 2023 net income increased to $55.0 million due to higher net interest income Consolidated Balance Sheets Total assets decreased to $12.02 billion due to lower deposits, while loans and stockholders' equity increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $12,020,265 | $12,387,863 | | Cash and interest-bearing deposits | $2,409,142 | $3,168,910 | | Loans, net of allowance | $7,201,772 | $6,850,835 | | Debt securities available for sale | $1,569,427 | $1,538,221 | | Total Liabilities | $10,679,474 | $11,137,027 | | Total deposits | $10,475,180 | $10,974,228 | | Total Stockholders' Equity | $1,340,791 | $1,250,836 | Consolidated Statements of Comprehensive Income Q2 2023 net income increased to $55.0 million, driven by higher net interest income, with six-month net income reaching $112.5 million Income Statement Highlights (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $105,926 | $86,867 | $215,082 | $162,374 | | Provision for credit losses | $2,824 | $501 | $5,146 | $3,437 | | Total noninterest income | $47,974 | $42,598 | $95,802 | $86,248 | | Total noninterest expense | $81,110 | $73,717 | $161,427 | $146,229 | | Net Income | $55,010 | $44,707 | $112,543 | $80,622 | | Diluted EPS | $1.64 | $1.34 | $3.36 | $2.42 | Consolidated Statements of Stockholders' Equity Stockholders' equity grew to $1.34 billion, primarily from net income, despite dividend payouts, with stable accumulated other comprehensive loss - For the six months ended June 30, 2023, retained earnings increased by $86.2 million, reflecting net income of $112.5 million less common stock dividends of $26.3 million[13] - Accumulated other comprehensive loss was $(71.0) million as of June 30, 2023, a slight improvement from $(71.6) million at the beginning of the period[14] Consolidated Statements of Cash Flow Net cash decreased by $759.8 million, primarily due to cash used in financing activities from deposit outflows and investing activities from loan growth Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $129,180 | $119,840 | | Net cash used in investing activities | $(369,160) | $(898,501) | | Net cash (used in) provided by financing activities | $(519,788) | $2,607,980 | | Net (decrease)/increase in cash | $(759,768) | $1,829,319 | Notes to Consolidated Financial Statements Notes detail accounting policies, recent developments, and provide in-depth information on financial statement components, including new accounting standards and regulatory applications - The Company adopted ASU 2022-02, which eliminated Troubled Debt Restructuring (TDR) accounting, and ASU 2023-02 for tax equity investments, neither of which had a significant impact on the consolidated financial statements[22][24] - On July 28, 2023, the Company's subsidiary BancFirst applied to become a Federal Reserve System member bank, changing its primary regulator from the FDIC[25] - The loan portfolio grew to $7.3 billion at June 30, 2023, from $6.9 billion at year-end 2022, with commercial real estate and commercial non-real estate loans being the largest segments[39] - The allowance for credit losses (ACL) stood at $96.9 million, or 1.33% of total loans, as of June 30, 2023, consistent with the year-end 2022 ratio[61][176] - As of June 30, 2023, the Company, along with its subsidiaries BancFirst, Pegasus, and Worthington, were all categorized as 'well capitalized' under regulatory guidelines[92][93] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2023 performance to increased net interest income and loan growth, despite asset decrease from deposit shifts and anticipated Durbin Amendment impact Summary of Financial Performance Q2 2023 net income rose to $55.0 million with an expanded net interest margin, while total assets decreased due to deposit shifts Q2 2023 vs Q2 2022 Performance | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Income (in millions) | $55.0 | $44.7 | | Diluted EPS ($) | $1.64 | $1.34 | | Net Interest Income (in millions) | $105.9 | $86.9 | | Net Interest Margin (%) | 3.87 | 3.05 | - A significant future headwind is the Durbin Amendment, which is expected to reduce annual pretax income from debit card interchange fees by approximately $23 million starting July 1, 2023[141] - Total assets decreased by $367.6 million from year-end 2022, while loans grew by $357.7 million. Deposits decreased by $499.0 million, as funds moved to off-balance sheet sweep accounts, which increased by $567.7 million[143] Results of Operations H1 2023 net interest income increased significantly due to rising rates and loan growth, while noninterest income and expenses also rose Key Performance Ratios (Six Months Ended June 30) | Ratio | 2023 | 2022 | | :--- | :--- | :--- | | Return on average assets | 1.87% | 1.32% | | Return on average stockholders' equity | 17.43% | 13.74% | | Net interest margin | 3.88% | 2.92% | | Efficiency ratio | 51.93% | 58.82% | - Net interest income for the first six months of 2023 increased by $52.7 million (32.5%) compared to the same period in 2022, driven by rising short-term interest rates and loan growth[156] - The company anticipates a reduction of approximately $23 million in annual pretax income from debit card interchange fees starting July 1, 2023, due to crossing the $10 billion asset threshold (Durbin Amendment)[164] - Noninterest expense for H1 2023 increased by $15.2 million, primarily due to a $9.8 million growth in salaries and employee benefits[166] Financial Position Total assets decreased to $12.0 billion due to deposit outflows to sweep accounts, while loans and stockholders' equity increased, maintaining strong credit quality Selected Balance Sheet Data (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total assets | $12,020,265 | $12,387,863 | | Total loans | $7,307,475 | $6,949,795 | | Deposits | $10,475,180 | $10,974,228 | | Stockholders' equity | $1,340,791 | $1,250,836 | - The decrease in cash and deposits was primarily due to the movement of demand deposits into the Company's off-balance sheet sweep account product, which grew by $567.7 million to $4.3 billion since year-end 2022[171][187] - Total loans increased by $357.7 million (5.1%) from year-end 2022, with 71% of the growth from the Oklahoma subsidiary and 29% from Texas subsidiaries[175] - The allowance for credit losses to total loans remained stable at 1.33% at both June 30, 2023, and December 31, 2022, indicating strong overall credit quality[176] Quantitative and Qualitative Disclosure About Market Risk No significant changes in market risk disclosures have occurred since the December 31, 2022 annual report - There have been no significant changes in the Company's disclosures regarding market risk since December 31, 2022[193] Controls and Procedures Management concluded disclosure controls and procedures are effective, with no material changes to internal controls over financial reporting during the quarter - The Company's CEO and CFO concluded that as of June 30, 2023, the disclosure controls and procedures are effective[194] - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are likely to materially affect, these controls[194] PART II – Other Information Legal Proceedings The company is involved in various legal actions, but management expects no material adverse effect on financial statements - The Company is a defendant in various legal actions from normal business activities, but does not expect any resulting liability to have a material adverse effect on its financial statements[195] Risk Factors New material risk factors include adverse effects from banking industry developments, impacting customer confidence, deposit outflows, and net interest margin - A new material risk factor has been identified concerning recent bank failures and negative media attention in the banking industry[196][197] - These developments have negatively impacted customer confidence, potentially causing uninsured deposits to move to larger banks and increasing competition for deposits[197] - Increased competition for deposits is causing a shift from non-interest bearing to interest-bearing products, which could reduce the company's future net interest margin[197] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - None[198] Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications, XBRL data, and incorporated documents - The report includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and Inline XBRL data files (Exhibits 101, 104)[203][204][205][206] - The BancFirst Corporation 2023 Restricted Stock Unit Plan is incorporated by reference as Exhibit 10.1[202]