Item 1. Financial Statements
Item 1. Financial Statements.
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31,
December 31,
2021
2020
(unaudited)
(see Note 1)
ASSETS
Cash and due from banks
$
274,092
$
280,518
Interest-bearing deposits with banks
2,788,316
1,336,394
Debt securities held for investment (fair value: $ 2,953 and $ 2,984 , respectively)
2,956
2,964
Debt securities available for sale at fair value
517,587
552,232
Loans held for sale
21,718
53,719
Loans held for investment (net of unearned interest)
6,358,390
6,394,506
Allowance for credit losses
( 90,860
)
( 91,366
)
Loans, net of allowance for credit losses
6,267,530
6,303,140
Premises and equipment, net
263,452
261,677
Other real estate owned
30,167
32,179
Intangible assets, net
18,206
18,999
Goodwill
149,922
149,922
Accrued interest receivable and other assets
215,359
220,613
Total assets
$
10,549,305
$
9,212,357
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing
$
4,276,145
$
3,790,900
Interest-bearing
5,095,795
4,273,804
Total deposits
9,371,940
8,064,704
Short-term borrowings
3,750
1,100
Accrued interest payable and other liabilities
52,140
51,864
Junior subordinated debentures
26,804
26,804
Total liabilities
9,454,634
8,144,472
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: 32,771,013 and 32,719,852 , respectively
32,771
32,720
Capital surplus
157,450
156,574
Retained earnings
898,026
871,161
Accumulated other comprehensive income, net of income tax of $ 2,177
and $ 2,513 , respectively
6,424
7,430
Total stockholders' equity
1,094,671
1,067,885
Total liabilities and stockholders' equity
$
10,549,305
$
9,212,357
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
March 31,
2021
2020
INTEREST INCOME
Loans, including fees
$
77,662
$
76,518
Securities:
Taxable
1,693
2,586
Tax-exempt
70
98
Interest-bearing deposits with banks
595
4,769
Total interest income
80,020
83,971
INTEREST EXPENSE
Deposits
2,322
9,400
Short-term borrowings
1
7
Junior subordinated debentures
491
491
Total interest expense
2,814
9,898
Net interest income
77,206
74,073
Provision for credit losses
—
19,583
Net interest income after provision for credit losses
77,206
54,490
NONINTEREST INCOME
Trust revenue
3,102
3,655
Service charges on deposits
19,100
18,804
Securities transactions (includes no accumulated other comprehensive income reclassifications)
95
50
Income from sales of loans
2,010
781
Insurance commissions
5,989
5,676
Cash management
3,003
4,320
Gain on sale of other assets
2,639
86
Other
3,997
1,773
Total noninterest income
39,935
35,145
NONINTEREST EXPENSE
Salaries and employee benefits
39,577
39,756
Occupancy, net
4,348
3,546
Depreciation
3,877
3,491
Amortization of intangible assets
793
964
Data processing services
1,678
1,692
Net loss/(income) from other real estate owned
1,510
( 2,135
)
Marketing and business promotion
1,879
2,355
Deposit insurance
876
136
Other
10,425
11,580
Total noninterest expense
64,963
61,385
Income before taxes
52,178
28,250
Income tax expense
9,658
5,642
Net income
$
42,520
$
22,608
NET INCOME PER COMMON SHARE
Basic
$
1.30
$
0.69
Diluted
$
1.27
$
0.68
OTHER COMPREHENSIVE (LOSS) GAIN
Unrealized (losses)/gains on securities, net of tax of $ 336 and $( 2,176 ) respectively
( 1,006
)
6,425
Comprehensive income
$
41,514
$
29,033
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
March 31,
2021
2020
COMMON STOCK
Issued at beginning of period
$
32,720
$
32,694
Shares issued for stock options
51
12
Shares acquired and canceled
—
( 59
)
Issued at end of period
$
32,771
$
32,647
CAPITAL SURPLUS
Balance at beginning of period
$
156,574
$
153,353
Common stock issued for stock options
1,258
220
Net cash settlement of options
( 958
)
—
Stock-based compensation arrangements
576
426
Balance at end of period
$
157,450
$
153,999
RETAINED EARNINGS
Balance at beginning of period
$
871,161
$
815,488
Net income
42,520
22,608
Cumulative effect of change in accounting principle, net of tax of $ 925 (Note 2)
—
2,270
Dividends on common stock ($ 0.34 and $ 0.32 per share, respectively)
( 11,134
)
( 10,472
)
Net cash settlement of options
( 4,521
)
—
Common stock acquired and canceled
—
( 3,039
)
Balance at end of period
$
898,026
$
826,855
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized (losses)/gains on securities:
Balance at beginning of period
$
7,430
$
3,454
Net change
( 1,006
)
6,425
Balance at end of period
$
6,424
$
9,879
Total stockholders’ equity
$
1,094,671
$
1,023,380
The accompanying Notes are an integral part of these consolidated financial statements.
4
BANCFIRST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
42,520
$
22,608
Adjustments to reconcile to net cash provided by operating activities:
Provision for credit losses
—
19,583
Depreciation and amortization
4,670
4,455
Net amortization of securities premiums and discounts
369
( 461
)
Realized securities gains
( 95
)
( 50
)
Gain on sales of loans
( 2,010
)
( 781
)
Cash receipts from the sale of loans originated for sale
114,517
56,879
Cash disbursements for loans originated for sale
( 98,043
)
( 61,258
)
Deferred income tax benefit
( 738
)
( 1,211
)
Gain on sale of other assets
( 2,584
)
( 2,183
)
Decrease in interest receivable
235
196
Decrease in interest payable
( 329
)
( 543
)
Amortization of stock-based compensation arrangements
576
426
Excess tax benefit from stock-based compensation arrangements
( 1,551
)
( 95
)
Other, net
10,833
( 2,302
)
Net cash provided by operating activities
68,370
35,263
INVESTING ACTIVITIES
Net cash received from acquisitions, net of cash paid
—
18,397
Net cash paid from sale of assets and liabilities, net of cash received
( 13,733
)
—
Net increase in federal funds sold
—
1,000
Purchases of held for investment debt securities
—
( 295
)
Purchases of available for sale debt securities
( 210,662
)
( 234,059
)
Proceeds from maturities, calls and paydowns of held for investment debt securities
7
237
Proceeds from maturities, calls and paydowns of available for sale debt securities
243,597
142,818
Purchase of equity securities
( 171
)
( 39
)
Proceeds from paydowns and sales of equity securities
194
408
Net change in loans
32,053
( 308,102
)
Purchases of premises, equipment and computer software
( 7,718
)
( 11,349
)
Purchase of tax credits
( 1,262
)
( 219
)
Other, net
2,858
4,988
Net cash provided by (used in) investing activities
45,163
( 386,215
)
FINANCING ACTIVITIES
Net change in deposits
1,344,608
44,559
Net change in short-term borrowings
2,650
300
Issuance of common stock in connection with stock options, net
1,309
232
Common stock acquired
—
( 3,098
)
Net cash settlement of options
( 5,479
)
—
Cash dividends paid
( 11,125
)
( 10,462
)
Net cash provided by financing activities
1,331,963
31,531
Net increase/(decrease) in cash, due from banks and interest-bearing deposits
1,445,496
( 319,421
)
Cash, due from banks and interest-bearing deposits at the beginning of the period
1,616,912
1,868,281
Cash, due from banks and interest-bearing deposits at the end of the period
$
3,062,408
$
1,548,860
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
$
3,155
$
10,410
Cash paid during the period for income taxes
$
1,300
$
1,175
Noncash investing and financing activities:
Fair value of assets acquired in acquisitions
$
—
$
47,838
Liabilities assumed in acquisitions
$
—
$
45,040
Unpaid common stock dividends declared
$
11,134
$
10,463
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 States 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, 2020.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., Pegasus Bank and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BFTower, LLC, BFC-PNC LLC, 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 U.S. GAAP for interim financial information and the instructions for Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). 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, 2020, 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.
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 credit 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.
(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS
On February 19, 2021, the Company entered into a purchase and assumption agreement with The First National Bank and Trust Company of Vinita, Oklahoma to purchase certain of its assets and assume its deposits and certain other obligations. The First National Bank and Trust Company of Vinita is a nationally chartered bank with banking locations in Vinita and Grove, Oklahoma. These banking locations would become branches of BancFirst. As of December 31, 2020, the First National Bank and Trust Company of Vinita had approximately $ 285 million in total assets, $ 209 million in loans, and $ 258 million in deposits. The purchase and assumption is expected to be completed during the second quarter of 2021 and is subject to regulatory approval.
On January 22, 2021, the Company sold approximately $ 21 million in loans and approximately $ 38 million in deposits from its Hugo, Oklahoma branch to AmeriState Bank in Atoka, Oklahoma. A gain on the transaction of $ 2.5 million is reflected in the first quarter of 2021.
6
( 3 )
SECURITIES
The following table summarizes the amortized cost and estimated fair values of debt securities held for investment:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
March 31, 2021
(Dollars in thousands)
Mortgage backed securities (1)
$
51
$
3
$
—
$
54
States and political subdivisions
2,405
3
( 9
)
2,399
Other securities
500
—
—
500
Total
$
2,956
$
6
$
( 9
)
$
2,953
December 31, 2020
Mortgage backed securities (1)
$
59
$
3
$
—
$
62
States and political subdivisions
2,405
18
( 1
)
2,422
Other securities
500
—
—
500
Total
$
2,964
$
21
$
( 1
)
$
2,984
The following table summarizes the amortized cost and estimated fair values of debt securities available for sale:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
March 31, 2021
(Dollars in thousands)
U.S. treasuries
$
445,813
$
8,155
$
( 182
)
$
453,786
U.S. federal agencies
19,166
1
( 58
)
19,109
Mortgage backed securities (1)
14,877
372
—
15,249
States and political subdivisions
15,789
269
( 18
)
16,040
Asset backed securities
13,341
62
—
13,403
Total
$
508,986
$
8,859
$
( 258
)
$
517,587
December 31, 2020
U.S. treasuries
$
465,416
$
9,820
$
—
$
475,236
U.S. federal agencies
19,697
1
( 60
)
19,638
Mortgage backed securities (1)
15,268
428
—
15,696
States and political subdivisions
28,571
377
—
28,948
Asset backed securities
13,337
—
( 623
)
12,714
Total
$
542,289
$
10,626
$
( 683
)
$
552,232
(1)
Primarily consists of FHLMC, FNMA, GNMA and mortgage backed securities through U.S. agencies.
7
The maturities of debt 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.
March 31, 2021
December 31, 2020
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
Estimated
Fair
Value
(Dollars in thousands)
Held for Investment
Contractual maturity of debt securities:
Within one year
$
862
$
862
$
807
$
809
After one year but within five years
2,089
2,085
2,091
2,110
After five years but within ten years
4
5
65
64
After ten years
1
1
1
1
Total
$
2,956
$
2,953
$
2,964
$
2,984
Available for Sale
Contractual maturity of debt securities:
Within one year
$
110,317
$
111,484
$
339,752
$
341,102
After one year but within five years
359,388
366,433
162,401
171,135
After five years but within ten years
5,914
6,049
3,753
3,910
After ten years
33,367
33,621
36,383
36,085
Total debt securities
$
508,986
$
517,587
$
542,289
$
552,232
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:
March 31, 2021
December 31, 2020
(Dollars in thousands)
Book value of pledged securities
$
459,251
$
490,833
8
( 4 )
LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
Loans held for investment are summarized by portfolio segment as follows:
March 31, 2021
December 31, 2020
Amount
Amount
(Dollars in thousands)
BancFirst
Real estate:
Commercial real estate owner occupied
$
636,652
$
641,987
Commercial real estate non-owner occupied
959,988
971,158
Construction and development < 60 months
258,585
229,615
Construction residential real estate < 60 months
196,096
206,195
Residential real estate first lien
844,149
853,316
Residential real estate all other
165,513
168,081
Farmland
251,875
252,958
Commercial and agricultural non-real estate
1,101,518
1,159,810
Consumer non-real estate
348,988
355,405
Oil and gas
172,300
179,355
Other loans (2)
878,233
822,078
Pegasus Bank
544,493
554,548
Total (1)
$
6,358,390
$
6,394,506
(1) Excludes accrued interest receivable of $ 24.7 million at March 31, 2021 and $ 26.0 million at December 31, 2020, that is recorded in accrued interest receivable and other assets.
(2) Includes PPP loans held for investment of $ 713.7 million, net of unamortized processing fees of $ 23.3 million at March 31, 2021 and $ 652.7 million, net of unamortized processing fees of $ 14.5 million at December 31, 2020.
Other loans. Other loans consist of loans approved by the Small Business Administration (“SBA”), which include loans funded through the Paycheck Protection Program (“PPP”). Since PPP loans are fully guaranteed by the SBA, there is no expected credit loss related to these loans. In April 2020, the Company began originating loans to qualified small businesses under the PPP administered by the SBA. During the three months ended March 31, 2021, $ 9.8 million of processing fees were recognized as interest income related to the PPP loans.
BancFirst’s loans are mostly to customers within Oklahoma and approximately 52 % 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.
BancFirst’s commercial and agricultural non-real estate and oil and gas loan categories include upstream and midstream energy loans, and loans to companies that provide ancillary services to the energy industry, such as transportation, preparation contractors and equipment manufacturers. The balance of upstream energy loans was approximately $ 183 million at March 31, 2021 and approximately $ 191 million at December 31, 2020. The balance of midstream energy loans was approximately $ 33 million at March 31, 2021 and approximately $ 50 million at December 31, 2020. The balance of the ancillary services energy loans was approximately $ 67 million at March 31, 2021 and approximately $ 59 million at December 31, 2020.
Pegasus Bank’s loans are mostly to customers within Texas and approximately $ 294 million or 54 % of the loans are secured by real estate at March 31, 2021. Pegasus Bank’s commercial and agricultural non-real estate loans were approximately $ 228 million at March 31, 2021 and approximately $ 262 million at December 31, 2020. Pegasus Bank’s commercial and agricultural non-real estate loan category includes upstream energy loans, and loans to companies that provide ancillary services to the energy industry, such as transportation, preparation contractors and equipment manufacturers. The balance of upstream energy loans was approximately $ 109 million at March 31, 2021 and approximately $ 107 million at December 31, 2020. The balance of midstream energy loans was approximately $ 11 million at both March 31, 2021 and December 31, 2020. The balance of the ancillary services energy loans was approximately $ 15 million at March 31, 2021 and approximately $ 13 million at December 31, 2020.
Accounting policies related to appraisals, and charge-offs are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
9
Troubled Debt Restructur ings , Other Real Estate Owned and Repossessed Assets and Held for Sale Assets
The following is a summary of troubled debt restructurings and other real estate owned and repossessed assets:
March 31,
December 31,
2021
2020
(Dollars in thousands)
Troubled debt restructurings
$
7,801
$
7,784
Other real estate owned and repossessed assets
$
30,320
$
32,480
The Company charges interest on principal balances outstanding on troubled debt restructurings during deferral periods. The current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings were not considered to be material.
During the first quarter of 2021, the Company sold property held in other real estate owned for a total loss of $ 55,000 , compared to a total gain of $ 2.2 million in the first quarter of 2020.
Nonaccrual loans
Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $ 521,000 for the three months ended March 31, 2021 and approximately $ 332,000 for the three months ended March 31, 2020.
Nonaccrual loans guaranteed by government agencies totaled approximately $ 6.6 million at March 31, 2021 and approximately $ 7.8 million at December 31, 2020.
The following table is a summary of amounts included in nonaccrual loans, segregated by portfolio segment.
March 31, 2021
December 31, 2020
(Dollars in thousands)
BancFirst
Real estate:
Commercial real estate owner occupied
$
969
$
1,404
Commercial real estate non-owner occupied
4,794
4,719
Construction and development < 60 months
91
95
Construction residential real estate < 60 months
—
—
Residential real estate first lien
3,163
3,615
Residential real estate all other
1,293
1,362
Farmland
5,848
7,901
Commercial and agricultural non-real estate
12,391
12,782
Consumer non-real estate
212
268
Oil and gas
—
—
Other loans
6,565
5,399
Pegasus Bank
—
—
Total
$
35,326
$
37,545
10
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents an age analysis of our loans held for investment:
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 March 31, 2021
BancFirst
Real estate:
Commercial real estate owner occupied
$
601
$
80
$
739
$
1,420
$
635,232
$
636,652
$
—
Commercial real estate non-owner occupied
4,757
—
108
4,865
955,123
959,988
33
Construction and development < 60 months
419
45
—
464
258,121
258,585
—
Construction residential real estate < 60 months
1,510
—
—
1,510
194,586
196,096
—
Residential real estate first lien
5,444
706
2,927
9,077
835,072
844,149
1,022
Residential real estate all other
1,588
30
1,338
2,956
162,557
165,513
173
Farmland
614
140
4,242
4,996
246,879
251,875
14
Commercial and agricultural non-real estate
1,164
374
5,019
6,557
1,094,961
1,101,518
1,326
Consumer non-real estate
1,589
330
430
2,349
346,639
348,988
365
Oil and gas
61
—
—
61
172,239
172,300
—
Other loans
221
428
3,897
4,546
873,687
878,233
2,349
Pegasus Bank
—
1,747
—
1,747
542,746
544,493
—
Total
$
17,968
$
3,880
$
18,700
$
40,548
$
6,317,842
$
6,358,390
$
5,282
As of December 31, 2020
BancFirst
Real estate:
Commercial real estate owner occupied
$
1,096
$
108
$
1,164
$
2,368
$
639,619
$
641,987
$
—
Commercial real estate non-owner occupied
323
—
34
357
970,801
971,158
35
Construction and development < 60 months
511
86
—
597
229,018
229,615
—
Construction residential real estate < 60 months
1,106
—
282
1,388
204,807
206,195
282
Residential real estate first lien
5,428
1,463
2,978
9,869
843,447
853,316
945
Residential real estate all other
520
55
1,606
2,181
165,900
168,081
384
Farmland
1,297
344
6,223
7,864
245,094
252,958
135
Commercial and agricultural non-real estate
2,788
1,794
4,345
8,927
1,150,883
1,159,810
465
Consumer non-real estate
2,154
501
534
3,189
352,216
355,405
386
Oil and gas
—
—
—
—
179,355
179,355
—
Other loans
951
1,223
6,618
8,792
813,286
822,078
2,170
Pegasus Bank
—
—
—
—
554,548
554,548
—
Total
$
16,174
$
5,574
$
23,784
$
45,532
$
6,348,974
$
6,394,506
$
4,802
Due to the impacts of the COVID-19 pandemic, the Company had approximately $ 88 million in modified loans as of March 31, 2021 and $ 81.7 million in modified loans as of December 31, 2020, most of which were secured by commercial real estate. These modifications were undertaken in response to Section 4013 of the CARES Act and the regulatory intent outlined in the Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus and to provide businesses financial flexibility until the economy has time to recover to a more normal level of activity. However, these modifications, which typically involve payment modifications and forbearance, also have the effect of delaying recognition of loans that may ultimately be permanently impaired. The timing and extent of such consequences are difficult to ascertain at this time and are dependent on the duration of the COVID-19 pandemic, the level and success of the government’s economic stimulus, and further regulatory guidance. These modified loans are included in Current Loans in the table above.
11
Credit Quality Indicators
The Company considers credit quality indicators to monitor the credit risk in the loan portfolio including volume and severity of loan delinquencies, nonaccrual loans, internal grading of loans, historical credit 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 and the table summarizing our gross loans held for investment by year of origination and internally assigned credit grades as of December 31, 2020, are disclosed in Note (5) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The Company’s revolving loans that are converted to term loans are not material and therefore have not been presented.
The following table summarizes our gross loans held for investment by year of origination and internally assigned credit grades as of March 31, 2021:
12
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving Loans Amortized Cost Basis
Total
(Dollars in thousands)
As of March 31, 2021
BancFirst
Commercial real estate owner occupied
Grade 1
$ 23,563
$ 146,668
$ 86,383
$ 63,000
$ 37,685
$ 117,044
$ 16,271
$ 490,614
Grade 2
4,208
40,127
30,459
10,616
9,613
37,459
4,201
136,683
Grade 3
9
3,825
30
466
483
3,573
—
8,386
Grade 4
—
34
63
317
—
248
307
969
Total commercial real estate owner occupied loans
27,780
190,654
116,935
74,399
47,781
158,324
20,779
636,652
Commercial real estate non-owner occupied
Grade 1
50,243
236,739
154,498
73,368
64,959
143,281
11,514
734,602
Grade 2
7,968
58,067
45,308
26,102
17,806
47,430
4,929
207,610
Grade 3
6,738
785
3,063
519
1,609
81
—
12,795
Grade 4
—
4,719
86
—
—
176
—
4,981
Total commercial real estate non-owner occupied loans
64,949
300,310
202,955
99,989
84,374
190,968
16,443
959,988
Construction and development < 60 months
Grade 1
45,528
92,005
60,758
11,413
3,686
3,077
7,971
224,438
Grade 2
4,073
11,256
11,272
1,116
746
758
803
30,024
Grade 3
2,053
1,795
131
8
45
—
—
4,032
Grade 4
—
—
62
8
21
—
—
91
Total construction and development < 60 months
51,654
105,056
72,223
12,545
4,498
3,835
8,774
258,585
Construction residential real estate < 60 months
Grade 1
44,635
107,546
155
69
20
36
10,678
163,139
Grade 2
7,530
23,822
—
110
—
462
200
32,124
Grade 3
286
547
—
—
—
—
—
833
Total construction residential real estate < 60 months
52,451
131,915
155
179
20
498
10,878
196,096
Residential real estate first lien
Grade 1
68,977
214,495
122,472
74,112
58,362
166,467
—
704,885
Grade 2
5,180
26,051
15,445
19,158
11,149
42,497
—
119,480
Grade 3
687
2,590
2,548
2,128
1,721
5,593
—
15,267
Grade 4
49
412
659
498
200
2,699
—
4,517
Total residential real estate first lien
74,893
243,548
141,124
95,896
71,432
217,256
—
844,149
Residential real estate all other
Grade 1
3,747
19,180
12,583
9,427
5,641
16,013
29,371
95,962
Grade 2
605
3,502
1,833
1,333
1,623
2,393
53,936
65,225
Grade 3
105
146
466
288
87
351
1,296
2,739
Grade 4
—
217
—
558
95
695
22
1,587
Total residential real estate all other
4,457
23,045
14,882
11,606
7,446
19,452
84,625
165,513
Farmland
Grade 1
12,125
46,945
25,602
16,291
13,155
35,907
9,321
159,346
Grade 2
4,126
11,817
30,125
6,254
5,959
13,371
8,506
80,158
Grade 3
1,399
2,217
287
74
842
1,116
2,007
7,942
Grade 4
—
414
14
3,188
296
239
278
4,429
Total farmland
17,650
61,393
56,028
25,807
20,252
50,633
20,112
251,875
Commercial and agricultural non-real estate
Grade 1
117,733
144,961
128,177
92,010
63,617
60,998
230,768
838,264
Grade 2
17,356
61,227
31,397
15,072
4,523
21,254
56,833
207,662
Grade 3
1,610
7,452
1,269
11,220
1,915
572
20,044
44,082
Grade 4
—
565
1,501
541
233
1,240
7,430
11,510
Total commercial and agricultural non-real estate
136,699
214,205
162,344
118,843
70,288
84,064
315,075
1,101,518
Consumer non-real estate
Grade 1
47,697
139,148
78,071
33,990
11,288
4,788
6,700
321,682
Grade 2
4,182
11,293
4,782
2,869
775
608
288
24,797
Grade 3
125
476
781
335
193
64
4
1,978
Grade 4
2
133
182
76
41
96
1
531
Total consumer non-real estate
52,006
151,050
83,816
37,270
12,297
5,556
6,993
348,988
Oil and gas
Grade 1
71,423
36,838
62
74
—
4,071
14,562
127,030
Grade 2
8,431
8,706
651
—
—
—
9,619
27,407
Grade 3
17,737
126
—
—
—
—
—
17,863
Total oil and gas
97,591
45,670
713
74
—
4,071
24,181
172,300
13
Other loans
Grade 1
715,454
34,146
30,287
25,272
18,653
24,729
21,773
870,314
Grade 2
—
—
265
17
2,676
2,589
933
6,480
Grade 3
—
—
—
15
1
194
71
281
Grade 4
—
141
—
—
294
148
575
1,158
Total other loans
715,454
34,287
30,552
25,304
21,624
27,660
23,352
878,233
Pegasus Bank
Grade 1
30,903
93,796
57,518
25,501
17,290
54,093
117,769
396,870
Grade 2
10,555
24,966
22,483
3,524
19,199
8,146
57,185
146,058
Grade 3
121
117
—
—
—
1,327
—
1,565
Total Pegasus Bank
41,579
118,879
80,001
29,025
36,489
63,566
174,954
544,493
Total loans held for investment
$ 1,337,163
$ 1,620,012
$ 961,728
$ 530,937
$ 376,501
$ 825,883
$ 706,166
$ 6,358,390
Allowance for Credit Losses Methodology
On January 1, 2020, the Company adopted ASC 326, which replaces the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model. Upon adoption, the allowance for credit losses was decreased by $ 3.2 million, with no impact to the consolidated statement of income.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist by identifying by portfolio segments, the applicable weighted average life and measuring the allowance for credit losses using the vintage loss analysis adjusted for qualitative factors. The weighted average life of the Company’s loans segments are disclosed in Note (1) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The following table details activity in the allowance for credit losses on 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.
Allowance for Credit Losses
Balance at
beginning of
period
Charge-
offs
Recoveries
Net
charge-offs
Provision
for credit losses on loans
Balance at
end of
period
(Dollars in thousands)
Three Months Ended March 31, 2021
BancFirst
Real estate:
Commercial real estate owner occupied
$
7,035
$
—
$
—
$
—
$
( 440
)
$
6,595
Commercial real estate non-owner occupied
11,842
( 38
)
—
( 38
)
5,151
16,955
Construction and development < 60 months
2,560
—
3
3
180
2,743
Construction residential real estate < 60 months
627
—
—
—
356
983
Residential real estate first lien
2,570
( 43
)
15
( 28
)
50
2,592
Residential real estate all other
2,230
( 16
)
3
( 13
)
( 344
)
1,873
Farmland
3,136
—
—
—
( 59
)
3,077
Commercial and agricultural non-real estate
32,400
( 104
)
26
( 78
)
363
32,685
Consumer non-real estate
3,377
( 413
)
112
( 301
)
180
3,256
Oil and gas
17,851
—
—
—
( 5,720
)
12,131
Other loans
3,182
( 52
)
—
( 52
)
60
3,190
Pegasus Bank
4,556
—
1
1
223
4,780
Total
$
91,366
$
( 666
)
$
160
$
( 506
)
$
—
$
90,860
14
Allowance for Credit Losses
Balance at
beginning of
period
Impact of CECL adoption
Initial allowance on loans purchased with credit deterioration
Charge-
offs
Recoveries
Net
charge-offs
Provision for credit losses on loans
Balance at
end of
period
(Dollars in thousands)
Three Months Ended March 31, 2020
BancFirst
Real estate:
Commercial real estate owner occupied
$
5,625
$
( 2,806
)
$
432
$
—
$
—
$
—
$
1,293
$
4,544
Commercial real estate non-owner occupied
8,358
( 5,507
)
—
—
—
—
3,084
5,935
Construction and development < 60 months
2,214
( 1,056
)
—
( 3
)
—
( 3
)
( 19
)
1,136
Construction residential real estate < 60 months
1,933
( 778
)
—
( 1
)
—
( 1
)
464
1,618
Residential real estate first lien
8,692
( 3,831
)
7
( 152
)
2
( 150
)
1,474
6,192
Residential real estate all other
2,767
( 1,408
)
—
( 25
)
27
2
931
2,292
Farmland
2,821
( 1,408
)
1
—
—
—
374
1,788
Commercial and agricultural non-real estate
13,462
13,195
62
( 87
)
17
( 70
)
7,344
33,993
Consumer non-real estate
3,252
( 622
)
—
( 321
)
57
( 264
)
1,019
3,385
Oil and gas
1,883
( 1,346
)
—
—
—
—
2,746
3,283
Other loans
2,632
( 116
)
—
—
2
2
233
2,751
Pegasus Bank
599
2,488
—
( 571
)
7
( 564
)
640
3,163
Total
$
54,238
$
( 3,195
)
$
502
$
( 1,160
)
$
112
$
( 1,048
)
$
19,583
$
70,080
Purchased Credit Deteriorated Loans
The Company has previously purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The Company did not purchase credit-deteriorated loans during the three-month period ended March 31, 2021. The credit-deteriorated loans purchased during the three-month period ended March 31, 2020 were as follows:
Loans acquired
with deteriorated
credit quality
(Dollars in thousands)
For the period ended March 31, 2020
Purchase price of loans at acquisition
$
1,761
Allowance for credit losses at acquisition
502
Par value of acquired loans at acquisition
$
2,263
15
Collateral Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. During the three months ended March 31, 2021 and 2020, no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent. The following table summarizes collateral-dependent gross loans held for investment by collateral type and the related specific allocation as follows:
Collateral Type
Real Estate
Business Assets
Energy Reserves
Other Assets
Total
Specific Allocation
(Dollars in thousands)
As of March 31, 2021
BancFirst
Real estate:
Commercial real estate owner occupied
$
423
$
—
$
—
$
—
$
423
$
176
Commercial real estate non-owner occupied
4,719
—
—
—
4,719
1,000
Construction and development < 60 months
—
—
—
—
—
—
Construction residential real estate < 60 months
—
—
—
—
—
—
Residential real estate first lien
805
—
—
—
805
138
Residential real estate all other
631
—
—
—
631
550
Farmland
3,215
—
—
—
3,215
1,113
Commercial and agricultural non-real estate
—
8,310
—
1,317
9,627
4,129
Consumer non-real estate
—
—
—
50
50
11
Oil and gas
—
—
—
—
—
—
Other loans
—
17
—
—
17
16
Pegasus Bank
1,255
—
—
—
1,255
222
Total collateral-dependent loans held for investment
$
11,048
$
8,327
$
—
$
1,367
$
20,742
$
7,355
Collateral Type
Real Estate
Business Assets
Energy Reserves
Other Assets
Total
Specific Allocation
(Dollars in thousands)
As of December 31, 2020
BancFirst
Real estate:
Commercial real estate owner occupied
$
848
$
—
$
—
$
—
$
848
$
226
Commercial real estate non-owner occupied
4,719
—
—
—
4,719
1,000
Construction and development < 60 months
—
—
—
—
—
—
Construction residential real estate < 60 months
—
—
—
—
—
—
Residential real estate first lien
860
—
—
—
860
151
Residential real estate all other
866
—
—
—
866
616
Farmland
3,258
—
—
—
3,258
1,114
Commercial and agricultural non-real estate
—
8,460
—
413
8,873
2,813
Consumer non-real estate
—
—
—
109
109
58
Oil and gas
—
—
—
—
—
—
Other loans
—
13
—
—
13
12
Pegasus Bank
1,257
—
—
—
1,257
222
Total collateral-dependent loans held for investment
$
11,808
$
8,473
$
—
$
522
$
20,803
$
6,212
Non-Cash Transfers from Loans and Premises and Equipment
Transfers from loans and premises and equipment 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 and premises and equipment to other real estate owned and repossessed assets during the periods presented are summarized as follows:
16
Three Months Ended
March 31,
2021
2020
(Dollars in thousands)
Other real estate owned
$
357
$
2,342
Repossessed assets
220
318
Total
$
577
$
2,660
( 5 )
INTANGIBLE ASSETS AND GOODWILL
The following is a summary of intangible assets:
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(Dollars in thousands)
As of March 31, 2021
Core deposit intangibles
$
28,963
$
( 11,366
)
$
17,597
Customer relationship intangibles
3,350
( 2,741
)
609
Total
$
32,313
$
( 14,107
)
$
18,206
As of December 31, 2020
Core deposit intangibles
$
33,411
$
( 15,076
)
$
18,335
Customer relationship intangibles
3,350
( 2,686
)
664
Total
$
36,761
$
( 17,762
)
$
18,999
The following is a summary of goodwill by business segment:
Other
Executive,
Metropolitan
Community
Pegasus
Financial
Operations
Banks
Banks
Bank
Services
& Support
Consolidated
(Dollars in thousands)
Three months ended March 31, 2021
Balance at beginning and end of period
$
13,767
$
61,212
$
68,855
$
5,464
$
624
$
149,922
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, 2020.
(6) LEASES
Lessee
The Company has operating leases, which primarily consist of office space in buildings, ATM locations, storage facilities, parking lots, equipment and land on which it owns certain buildings.
Rent expense for all operating leases, including those rented on a monthly or temporary basis totaled approximately $ 503,000 and approximately $ 463,000 for the three months ended March 31, 2021 and March 31, 2020, respectively.
As of March 31, 2021, right of use lease asset included in accrued interest receivable and other assets on the balance sheet totaled $ 4.1 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $ 4.0 million. There have been no significant changes in our expected future minimum lease payments since December 31, 2020. The future minimum lease payments are disclosed in Note (20) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. As of March 31, 2021, our operating leases have a weighted-average remaining lease term of 3.3 years and a weighted-average discount rate of 3.1 percent.
17
Maturity of Operating Lease Liabilities
March 31, 2021
(Dollars in thousands)
2021 (nine months)
$
1,059
2022
1,217
2023
713
2024
352
2025
285
Thereafter
891
Total lease payments
4,517
Less imputed Interest
( 525
)
Operating lease liability
$
3,992
Lessor
The Company is a lessor of operating leases, which primarily consist of office space in buildings and parking lots. These assets are classified on the balance sheet as premises and equipment. The Company had operating lease revenue of $ 1.4 million for both the three months ended March 31, 2021 and March 31, 2020. Lease revenue is included in occupancy, net on the consolidated statement of comprehensive income.
Future Minimum Lease Payments to be received
The Company does not have operating leases that extend beyond 2031. The following table presents the scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases:
March 31, 2021
(Dollars in thousands)
2021 (nine months)
$
2,641
2022
2,886
2023
2,665
2024
2,601
2025
1,975
2026-2031
6,151
Total future minimum lease payments
$
18,919
( 7 )
STOCK-BASED COMPENSATION
The Company has had a nonqualified incentive stock option plan the BancFirst Corporation Stock Option Plan (the “Employee Plan”) since May 1986. At March 31, 2021, there were 167,500 shares available for future grants. The Employee Plan will terminate on December 31, 2024 , if not extended. The options vest and are exercisable beginning four years from the date of grant at the rate of 25 % per year for four years . Options expire no later than the end of fifteen years from the date of grant . 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 has had the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “Non-Employee Directors’ Plan”) since June 1999. Each non-employee director is granted an option for 10,000 shares. At March 31, 2021, there were 30,000 shares available for future grants. The Non-Employee Directors’ Plan will terminate on December 31, 2024 , if not extended. The options vest and are exercisable beginning one year from the date of grant at the rate of 25 % per year for four years , and expire no later than the end of fifteen years from the date of grant. 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.
Although not required or expected, the Company may settle some options in cash on a limited basis at the discretion of the Company. During the three months ended March 31, 2021, the Company had cash settlements for 121,330 shares for a total cost of $ 3.6 million that did not increase the outstanding shares of the Company.
18
The following table is a summary of the activity under both the Employee Plan and the Non-Employee Directors’ Plan:
Wgtd. Avg.
Wgtd. Avg.
Remaining
Aggregate
Exercise
Contractual
Intrinsic
Options
Price
Term
Value
(Dollars in thousands, except option data)
Three Months Ended March 31, 2021
Outstanding at December 31, 2020
1,343,080
$
35.28
Options granted
23,000
70.54
Options exercised
( 170,330
)
23.29
Outstanding at March 31, 2021
1,195,750
37.67
8.89 Yrs
$
39,485
Exercisable at March 31, 2021
552,500
25.92
7.33 Yrs
$
24,735
The following table has additional information regarding options exercised under both the Employee Plan and the Non-Employee Directors’ Plan:
Three Months Ended
March 31,
2021
2020
(Dollars in thousands)
Total intrinsic value of options exercised
$
7,303
$
389
Cash received from options exercised
3,966
201
Tax benefit realized from options exercised
1,860
99
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
March 31,
2021
2020
(Dollars in thousands)
Stock-based compensation expense
$
576
$
426
Tax benefit
147
109
Stock-based compensation expense, net of tax
$
429
$
317
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:
March 31, 2021
(Dollars in thousands)
Unearned stock-based compensation expense
$
5,113
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:
Three Months Ended
March 31,
2021
2020
Weighted average grant-date fair value per share of options granted
$
23.80
$
10.56
Risk-free interest rate
1.34 to 1.64%
1.13 %
Dividend yield
2.00 %
2.00 %
Stock price volatility
35.55 to 35.73%
22.84 %
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
19
estimated from the recent historical volatility of the Company’s stock. The expected term is estimated from the historical option exercise experience. The Company accounts for forfeitures as they occur.
The Company has had the BancFirst Corporation Directors’ Deferred Stock Compensation Plan (the “Deferred Stock Compensation Plan”) since May 1999. As of March 31, 2021, there are 19,717 shares available for future issuance under the Deferred Stock Compensation Plan. The Deferred Stock Compensation Plan will terminate on December 31, 2024 , if not extended. 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 2,161 and 1,307 shares of common stock distributed from the Deferred Stock Compensation Plan during the three months ended March 31, 2021 and March 31, 2020, respectively.
A summary of the accumulated stock units is as follows:
March 31,
December 31,
2021
2020
Accumulated stock units
148,343
148,278
Average price
$
29.14
$
28.57
( 8 )
STOCKHOLDERS’ EQUITY
In November 1999, the Company adopted the SRP. The SRP may be used as a means to increase earnings per share and return on equity. In addition, the SRP may be used to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options and to provide liquidity for stockholders wishing to sell their stock. All shares repurchased under the SRP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and approved by the Company’s Executive Committee.
The following table is a summary of the shares under the program:
Three Months Ended
March 31,
2021
2020
Number of shares repurchased
—
59,284
Average price of shares repurchased
$
—
$
52.26
Shares remaining to be repurchased
62,782
62,782
20
The Company, BancFirst and Pegasus Bank 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, BancFirst’s and Pegasus Bank’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 March 31, 2021, the Company, BancFirst and Pegasus Bank 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 March 31, 2021:
Total Capital
(to Risk Weighted Assets)-
BancFirst Corporation
$
1,024,295
16.41 %
$
499,314
8.00 %
$
655,350
10.50 %
N/A
N/A
BancFirst
919,705
16.27 %
452,334
8.00 %
593,688
10.50 %
$
565,417
10.00 %
Pegasus Bank
74,397
12.90 %
46,124
8.00 %
60,538
10.50 %
57,656
10.00 %
Common Equity Tier 1 Capital
(to Risk Weighted Assets)-
BancFirst Corporation
$
920,119
14.74 %
$
280,864
4.50 %
$
436,900
7.00 %
N/A
N/A
BancFirst
828,838
14.66 %
254,438
4.50 %
395,792
7.00 %
$
367,521
6.50 %
Pegasus Bank
69,519
12.06 %
25,945
4.50 %
40,359
7.00 %
37,476
6.50 %
Tier 1 Capital
(to Risk Weighted Assets)-
BancFirst Corporation
$
946,119
15.16 %
$
374,486
6.00 %
$
530,521
8.50 %
N/A
N/A
BancFirst
848,838
15.01 %
339,250
6.00 %
480,604
8.50 %
$
452,334
8.00 %
Pegasus Bank
69,519
12.06 %
34,593
6.00 %
49,007
8.50 %
46,124
8.00 %
Tier 1 Capital
(to Total Assets)-
BancFirst Corporation
$
946,119
9.45 %
$
400,544
4.00 %
N/A
N/A
N/A
N/A
BancFirst
848,838
9.36 %
362,698
4.00 %
N/A
N/A
$
453,372
5.00 %
Pegasus Bank
69,519
7.52 %
36,996
4.00 %
N/A
N/A
46,245
5.00 %
As of March 31, 2021, the most recent notification from the Federal Reserve Bank of Kansas City and the FDIC categorized BancFirst and Pegasus Bank as “well capitalized” under the prompt corrective action provisions. The Common Equity Tier 1 Capital of the Company, BancFirst and Pegasus Bank includes common stock and related paid-in capital and retained earnings. In connection with the adoption of the Basel III Capital Rules, the election was made to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1 Capital. Common Equity Tier 1 Capital for the Company, BancFirst and Pegasus Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. 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 notification of BancFirst and Pegasus Bank’s capital category that management believes would materially change its category under capital requirements existing as of the report date.
In April 2020, the Company began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility are included. The PPP loans the Company originated in 2020 and 2021 are included in the calculation of the Company’s leverage ratio as of March 31, 2021 as the Company did not utilize the PPP Facility for funding purposes.
21
( 9 )
NET INCOME PER COMMON SHARE
Basic and diluted net income per common share are calculated as follows:
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
(Dollars in thousands, except per share data)
Three Months Ended March 31, 2021
Basic
Income available to common stockholders
$
42,520
32,756,852
$
1.30
Dilutive effect of stock options
—
651,264
Diluted
Income available to common stockholders plus assumed
exercises of stock options
$
42,520
33,408,116
$
1.27
Three Months Ended March 31, 2020
Basic
Income available to common stockholders
$
22,608
32,679,587
$
0.69
Dilutive effect of stock options
—
607,772
Diluted
Income available to common stockholders plus assumed
exercises of stock options
$
22,608
33,287,359
$
0.68
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 were anti-dilutive for the period:
Shares
Three Months Ended March 31, 2021
110,144
Three Months Ended March 31, 2020
351,862
( 10 )
FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants on the measurement date.
FASB Accounting Standards Codification (“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 collaterally dependent 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.
22
Debt Securities Available for Sale
Debt securities classified as available for sale are reported at fair value. U.S. Treasuries are valued using Level 1 inputs. Other debt 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 debt securities for which observable information is not readily available. These debt securities are reported at fair value utilizing Level 3 inputs. For these debt securities, management determines the fair value based on replacement cost, the income approach or information provided by outside consultants or lead investors. Discount rates are primarily based on reference to interest rate spreads on comparable securities of similar duration and credit rating as determined by the nationally recognized rating agencies adjusted for a lack of trading volume. Significant unobservable inputs are developed by investment securities professionals involved in the active trading of similar securities.
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.
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)
March 31, 2021
Securities available for sale:
U.S. Treasury
$
453,786
$
—
$
—
$
453,786
U.S. federal agencies
—
19,109
—
19,109
Mortgage-backed securities
—
15,249
—
15,249
States and political subdivisions
—
15,885
155
16,040
Asset backed securities
—
13,403
—
13,403
December 31, 2020
Securities available for sale:
U.S. Treasury
$
475,236
$
—
$
—
$
475,236
U.S. federal agencies
—
19,638
—
19,638
Mortgage-backed securities
—
15,696
—
15,696
States and political subdivisions
—
28,793
155
28,948
Asset backed securities
—
—
12,714
12,714
The changes in Level 3 assets measured at estimated fair value on a recurring basis during the periods presented were as follows:
Three Months Ended
March 31,
Twelve Months Ended
December 31,
2021
2020
(Dollars in thousands)
Balance at the beginning of the year
$
12,869
$
12,714
Transfers to level 2
( 12,714
)
1,643
Settlements
—
( 1,473
)
Total unrealized gains/(losses)
—
( 15
)
Balance at the end of the period
$
155
$
12,869
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 three months ended March 31, 2021, the Company transferred securities from Level 3 to Level 2 due to a review of the
23
pricing models that determined some asset backed securities to be Level 2 . During the year ended December 31, 2020, the Company transferred securities from Level 2 to Level 3 due to a review of the pricing models that determined some state and political subdivisions bonds to be Level 3 .
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.
The Company invests in equity securities without readily determinable fair values and utilizes Level 3 inputs. These securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income.
Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is dependent on liquidation of the collateral. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. In no case does the fair value of a collateral dependent loan exceed the fair value of the underlying collateral. The collateral dependent loans are adjusted to fair value through a specific allocation of the allowance for credit 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 credit losses based upon the fair value of the repossessed asset.
Other real estate owned is revalued at fair value subsequent to initial recognition, with any losses recognized in net expense from other real estate owned.
The following table summarizes assets measured at fair value on a nonrecurring basis during the period presented. 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 March 31, 2021
Equity securities
$
21,275
Collateral dependent loans
3,707
Repossessed assets
91
Other real estate owned
332
As of and for the Year-to-date Period Ended December 31, 2020
Equity securities
$
21,203
Collateral dependent loans
11,347
Repossessed assets
291
Other real estate owned
32,066
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 and Interest-Bearing Deposits with Banks
The carrying amount of these short-term instruments is based on a reasonable estimate of fair value.
24
Debt Securities Held for Investment
For debt 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 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. At December 31, 2020, the Company’s principal subsidiary bank, BancFirst, had approximately $ 21.6 million in loans held for sale at its Hugo, Oklahoma branch that were sold to AmeriState Bank in Atoka, Oklahoma in the first quarter of 2021.
Loans
To determine the fair value of loans, the Company uses an exit price calculation, which takes into account factors such as liquidity, credit and the nonperformance risk of 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.
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.
25
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:
March 31,
December 31,
2021
2020
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(Dollars in thousands)
FINANCIAL ASSETS
Level 2 inputs:
Cash and cash equivalents
$
3,062,408
$
3,062,408
$
1,616,912
$
1,616,912
Debt securities held for investment
51
53
59
62
Loans held for sale
21,718
21,718
53,719
53,719
Level 3 inputs:
Debt securities held for investment
2,905
2,900
2,905
2,922
Loans, net of allowance for credit losses
6,267,530
6,269,096
6,303,140
6,347,803
FINANCIAL LIABILITIES
Level 2 inputs:
Deposits
9,371,940
9,394,515
8,064,704
8,084,695
Short-term borrowings
3,750
3,750
1,100
1,100
Junior subordinated debentures
26,804
28,948
26,804
30,535
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments
3,237
3,115
Letters of credit
542
722
Non-financial Assets and Non-financial Liabilities Measured at Fair Value
The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis. Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include intangible assets and other non-financial long-lived assets measured at fair value and adjusted for impairment. These items are evaluated at least annually for impairment. The overall levels of non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis were no t considered to be significant to the Company at March 31, 2021 or December 31, 2020.
(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 five principal business units are metropolitan banks, community banks, Pegasus Bank, other financial services and executive, operations and support. Metropolitan banks, community banks and Pegasus Bank 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. Pegasus Bank consists of banking locations in the Dallas metropolitan area. 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.
26
The results of operations and selected financial information for the five business units are as follows:
Metropolitan
Banks
Community
Banks
Pegasus Bank
Other
Financial
Services
Executive,
Operations
& Support
Eliminations
Consolidated
(Dollars in thousands)
Three Months Ended March 31, 2021
Net interest income
$
19,333
$
42,770
$
5,359
$
9,882
$
( 407
)
$
269
$
77,206
Noninterest income
5,144
14,976
384
11,575
49,731
( 41,875
)
39,935
Income before taxes
13,924
29,769
1,645
5,951
42,340
( 41,451
)
52,178
Three Months Ended March 31, 2020
Net interest income
$
22,184
$
44,498
$
5,608
$
1,583
$
200
$
—
$
74,073
Noninterest income
4,700
15,853
131
10,890
27,483
( 23,912
)
35,145
Income before taxes
10,413
24,436
1,598
5,759
9,403
( 23,359
)
28,250
Total Assets:
March 31, 2021
$
3,141,484
$
6,229,504
$
971,620
$
125,184
$
1,299,191
$
( 1,217,678
)
$
10,549,305
December 31, 2020
2,729,886
5,527,611
919,572
137,122
1,073,507
( 1,175,341
)
9,212,357
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.
27
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.