BancFirst (BANF) - 2021 Q2 - Quarterly Report

Part I – Financial Information This part presents the company's unaudited financial statements, management's analysis, and market risk disclosures Item 1. Financial Statements The unaudited statements show significant asset growth to $11.0 billion and doubled net income due to acquisitions and credit loss reversals Consolidated Balance Sheet Highlights (as of June 30, 2021 vs. Dec 31, 2020) | Account | June 30, 2021 (Unaudited) (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $11,015,287 | $9,212,357 | | Loans, net | $6,107,267 | $6,303,140 | | Interest-bearing deposits with banks | $3,373,099 | $1,336,394 | | Total Liabilities | $9,883,696 | $8,144,472 | | Total Deposits | $9,728,389 | $8,064,704 | | Subordinated debt | $85,959 | $26,804 | | Total Stockholders' Equity | $1,131,591 | $1,067,885 | Consolidated Income Statement Highlights (Three Months Ended June 30) | Account | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $82,363 | $77,208 | | (Benefit from) provision for credit losses | $(9,949) | $19,333 | | Total Noninterest Income | $44,618 | $32,082 | | Total Noninterest Expense | $74,023 | $64,651 | | Net Income | $48,192 | $20,730 | | Diluted EPS | $1.45 | $0.63 | - Net cash from operating activities increased to $134.2 million for the six months ended June 30, 2021, up from $82.6 million in the prior year period[20] - A significant increase in net change in deposits provided $1.44 billion in cash from financing activities[20] Notes to Consolidated Financial Statements Notes detail accounting policies, a $6.0 million acquisition gain, new debt, and improved capital adequacy ratios - On May 20, 2021, the Company acquired approximately $284 million in assets and assumed $256 million in deposits, resulting in a bargain purchase gain of approximately $6.0 million[28] - On June 17, 2021, the Company completed a private placement of $60 million in 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036, structured to qualify as Tier 2 capital[27][82] Loan Portfolio Composition (June 30, 2021 vs. Dec 31, 2020) | Loan Category | June 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Commercial real estate | $1,651,090 | $1,613,145 | | Residential real estate | $1,028,847 | $1,021,397 | | Commercial and agricultural non-real estate | $1,105,777 | $1,159,810 | | Other loans (includes PPP) | $543,034 | $822,078 | | Oil and gas | $130,459 | $179,355 | | Total Loans | $6,191,230 | $6,394,506 | Allowance for Credit Losses (ACL) Activity (Six Months Ended June 30, 2021) | Description | Amount (in thousands) | | :--- | :--- | | Beginning Balance (Jan 1, 2021) | $91,366 | | Initial allowance on PCD loans | $7,272 | | Net Charge-offs | $(4,726) | | (Benefit from) Provision for credit losses | $(9,949) | | Ending Balance (June 30, 2021) | $83,963 | Capital Adequacy Ratios (BancFirst Corporation) as of June 30, 2021 | Ratio | Actual | Required for Capital Adequacy | | :--- | :--- | :--- | | Common Equity Tier 1 Capital Ratio | 14.79% | 4.50% | | Tier 1 Capital Ratio | 15.19% | 6.00% | | Total Capital Ratio | 17.35% | 8.00% | | Tier 1 Leverage Ratio | 9.23% | 4.00% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 net income driven by credit loss reversals, despite compressed interest margins and new asset-related risks Results of Operations Q2 2021 results show higher net interest income from PPP fees, a significant credit loss provision reversal, and increased noninterest income - Net interest income for Q2 2021 increased by $5.2 million (6.7%) compared to Q2 2020, largely driven by $12.0 million in fee income from PPP loan forgiveness[150] - The Company recorded a net benefit from reversal of provisions for credit losses of $9.9 million in Q2 2021, compared to a provision of $19.3 million in Q2 2020[153] - Noninterest income for Q2 2021 increased by $12.5 million, primarily due to a $6.0 million purchase gain from the Vinita acquisition and a $2.7 million increase in debit card interchange fees[156] - Noninterest expense for Q2 2021 increased by $9.4 million, driven by $4.0 million in acquisition-related expenses and costs for the new corporate headquarters[161] Financial Position Total assets reached $11.0 billion due to deposit growth, while the loan portfolio decreased and credit quality improved - The increase in cash and interest-bearing deposits with banks by $2.0 billion was primarily related to the increase in deposits from PPP and other government stimulus payments[167] - The decrease in total loans was primarily due to a net decrease of approximately $284 million in PPP loans and the sale of a $21 million loan portfolio[171] Key Balance Sheet Changes (June 30, 2021 vs. Dec 31, 2020) | Account | June 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total Assets | $11,015,287 | $9,212,357 | +$1,802,930 | | Total Loans | $6,207,262 | $6,448,225 | -$240,963 | | Deposits | $9,728,389 | $8,064,704 | +$1,663,685 | | Stockholders' Equity | $1,131,591 | $1,067,885 | +$63,706 | Asset Quality Ratios | Ratio | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Nonaccrual loans to total loans | 0.48% | 0.58% | | Allowance for credit losses to total loans | 1.35% | 1.42% | | Allowance for credit losses to nonaccrual loans | 281.73% | 243.35% | Quantitative and Qualitative Disclosures About Market Risk Disclosures regarding market risk remain unchanged from the most recent annual report - There have been no significant changes in the Company's disclosures regarding market risk since December 31, 2020[188] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective[189] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[189] Part II – Other Information This part reviews legal proceedings, new risk factors, equity sales, and filed exhibits Legal Proceedings The company faces various legal actions from normal business, none of which are expected to have a material adverse effect - The Company is a defendant in various legal actions from normal business activities, but management believes any liability will not have a material adverse effect on its financial statements[191] Risk Factors A new material risk factor arises from exceeding the $10 billion asset threshold, potentially impacting debit card fee income - A new material risk factor is the potential impact of the Durbin Amendment, as the Company's assets exceeded $10 billion at June 30, 2021[192] - If assets remain above $10 billion at year-end, the company anticipates a reduction of annual pretax income from debit card interchange fees by $17 to $20 million, beginning July 1, 2022[192] - The asset growth is attributed to the CARES Act, PPP loans, and stimulus payments, and the success of efforts to reduce total assets below the threshold is uncertain[192] 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 reported[193] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents and required certifications - Key exhibits filed include the Restated Certificate of Incorporation, amended stock option and compensation plans, and required CEO/CFO certifications[195][197]