Form 10-Q

FORM 10-Q

 


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


(Mark One)

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

For the quarterly period ended June 30, 2007

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 0-14384

 


BancFirst Corporation

(Exact name of registrant as specified in charter)

 


 

Oklahoma   73-1221379

(State or other Jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

101 N. Broadway, Oklahoma City, Oklahoma

73102-8401

(Address of principal executive offices)

(Zip Code)

(405) 270-1086

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal

year, if changed since last report)

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

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

As of July 31, 2007 there were 15,724,536 shares of the registrant’s Common Stock outstanding.

 



PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEET

(Unaudited)

(Dollars in thousands, except per share data)

 

     June 30,    

December 31,

2006

 
     2007     2006    

ASSETS

      

Cash and due from banks

   $ 139,858     $ 158,848     $ 148,487  

Interest-bearing deposits with banks

     2,343       15,666       6,470  

Federal funds sold

     461,000       272,430       335,000  

Securities (market value: $459,130, $434,551 and $432,945, respectively)

     459,271       434,696       432,910  

Loans:

      

Total loans (net of unearned interest)

     2,345,838       2,339,959       2,325,548  

Allowance for loan losses

     (27,568 )     (28,227 )     (27,700 )
                        

Loans, net

     2,318,270       2,311,732       2,297,848  

Premises and equipment, net

     85,012       76,330       82,336  

Other real estate owned

     926       2,329       1,379  

Intangible assets, net

     8,560       6,599       7,294  

Goodwill

     34,285       31,675       32,512  

Accrued interest receivable

     26,354       22,469       25,680  

Other assets

     65,987       56,915       48,658  
                        

Total assets

   $ 3,601,866     $ 3,389,689     $ 3,418,574  
                        

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Deposits:

      

Noninterest-bearing

   $ 915,057     $ 898,488     $ 866,787  

Interest-bearing

     2,236,496       2,056,472       2,107,518  
                        

Total deposits

     3,151,553       2,954,960       2,974,305  

Short-term borrowings

     35,858       33,860       23,252  

Accrued interest payable

     7,562       6,688       7,988  

Other liabilities

     14,478       18,118       11,531  

Long-term borrowings

     1,064       2,660       1,339  

Junior subordinated debentures

     26,804       51,804       51,804  

Minority interest

     —         1,169       —    
                        

Total liabilities

     3,237,319       3,069,259       3,070,219  
                        

Commitments and contingent liabilities

      

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, 20,000,000 shares authorized; shares issued and outstanding: 15,724,536, 15,716,195 and 15,764,310; respectively

     15,725       15,718       15,764  

Capital surplus

     62,291       59,227       61,418  

Retained earnings

     287,515       250,486       271,073  

Accumulated other comprehensive income (loss), net of income tax of $(530), $(2,703) and $54, respectively

     (984 )     (5,001 )     100  
                        

Total stockholders’ equity

     364,547       320,430       348,355  
                        

Total liabilities and stockholders’ equity

   $ 3,601,866     $ 3,389,689     $ 3,418,574  
                        

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


BANCFIRST CORPORATION

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2007     2006     2007     2006  

INTEREST INCOME

        

Loans, including fees

   $ 47,216     $ 44,221     $ 93,731     $ 86,357  

Securities:

        

Taxable

     4,688       4,302       9,088       8,832  

Tax-exempt

     344       382       705       777  

Federal funds sold

     6,039       3,336       10,864       5,444  

Interest-bearing deposits with banks

     29       117       65       233  
                                

Total interest income

     58,316       52,358       114,453       101,643  
                                

INTEREST EXPENSE

        

Deposits

     19,817       14,999       38,497       28,095  

Short-term borrowings

     551       459       949       889  

Long-term borrowings

     19       44       39       99  

Junior subordinated debentures

     492       1,103       1,157       2,206  
                                

Total interest expense

     20,879       16,605       40,642       31,289  
                                

Net interest income

     37,437       35,753       73,811       70,354  

Provision for loan losses

     132       917       101       1,598  
                                

Net interest income after provision for loan losses

     37,305       34,836       73,710       68,756  
                                

NONINTEREST INCOME

        

Trust revenue

     1,413       1,462       2,871       2,939  

Service charges on deposits

     7,432       7,336       14,042       13,911  

Securities transactions

     339       139       566       139  

Income from sales of loans

     480       499       1,220       905  

Insurance commissions and premiums

     1,703       1,826       2,942       3,255  

Other

     3,868       3,470       7,476       6,992  
                                

Total noninterest income

     15,235       14,732       29,117       28,141  
                                

NONINTEREST EXPENSE

        

Salaries and employee benefits

     18,937       17,346       37,727       34,964  

Occupancy and fixed assets expense, net

     2,047       1,941       4,125       4,002  

Depreciation

     1,761       1,678       3,570       3,236  

Amortization of intangible assets

     255       234       507       464  

Data processing services

     655       611       1,319       1,236  

Net expense (income) from other real estate owned

     104       44       15       (11 )

Marketing and business promotion

     1,578       1,509       3,159       3,213  

Early Extinguishment of Debt

     —         —         1,894       —    

Other

     6,281       7,463       12,723       14,014  
                                

Total noninterest expense

     31,618       30,826       65,039       61,118  
                                

Income before taxes

     20,922       18,742       37,788       35,779  

Income tax expense

     (7,520 )     (6,533 )     (13,263 )     (12,689 )
                                

Net income

     13,402       12,209       24,525       23,090  

Other comprehensive income, net of tax:

        

Unrealized gains (losses) on securities

     (2,149 )     (932 )     (1,452 )     (1,943 )

Reclassification adjustment for (gains) losses included in net income

     220       (89 )     368       (90 )
                                

Comprehensive income

   $ 11,473     $ 11,188     $ 23,441     $ 21,057  
                                

NET INCOME PER COMMON SHARE

        

Basic

   $ 0.85     $ 0.78     $ 1.56     $ 1.47  
                                

Diluted

   $ 0.83     $ 0.76     $ 1.52     $ 1.44  
                                

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

 

2


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(Dollars in thousands, except per share data)

 

     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2007     2006     2007     2006  

COMMON STOCK

        

Issued at beginning of period

   $ 15,722     $ 15,688     $ 15,764     $ 15,637  

Shares issued

     3       30       14       81  

Shares acquired and canceled

     —         —         (53 )     —    
                                

Issued at end of period

   $ 15,725     $ 15,718     $ 15,725     $ 15,718  
                                

CAPITAL SURPLUS

        

Balance at beginning of period

   $ 61,868     $ 58,196     $ 61,418     $ 57,264  

Common stock issued

     423       1,031       873       1,963  
                                

Balance at end of period

   $ 62,291     $ 59,227     $ 62,291     $ 59,227  
                                

RETAINED EARNINGS

        

Balance at beginning of period

   $ 276,943     $ 240,794     $ 271,073     $ 232,416  

Net income

     13,402       12,209       24,525       23,090  

Dividends on common stock

     (2,830 )     (2,517 )     (5,670 )     (5,020 )

Common stock acquired and canceled

     —         —         (2,413 )     —    
                                

Balance at end of period

   $ 287,515     $ 250,486     $ 287,515     $ 250,486  
                                

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

        

Unrealized gains/(losses) on securities:

        

Balance at beginning of period

   $ 945     $ (3,980 )   $ 100     $ (2,968 )

Net change

     (1,929 )     (1,021 )     (1,084 )     (2,033 )
                                

Balance at end of period

   $ (984 )   $ (5,001 )   $ (984 )   $ (5,001 )
                                

Total stockholders’ equity

   $ 364,547     $ 320,430     $ 364,547     $ 320,430  
                                

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

 

3


BANCFIRST CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended
June 30,
 
     2007     2006  

CASH FLOWS FROM OPERATING ACTIVITIES

   $ 27,612     $ 20,191  
                

CASH FLOWS FROM INVESTING ACTIVITIES

    

Net cash and due from banks used for acquisitions and dispositions

     (3,991 )     —    

Purchases of securities:

    

Held for investment

     (3,773 )     (11,902 )

Available for sale

     (80,168 )     (80,874 )

Maturities of securities:

    

Held for investment

     4,705       4,147  

Available for sale

     49,569       104,644  

Proceeds from sales and calls of securities:

    

Held for investment

     614       1,985  

Available for sale

     966       407  

Net increase in federal funds sold

     (126,000 )     (186,380 )

Purchase of life insurance

     (15,000 )     —    

Purchases of loans

     (2,606 )     (24,378 )

Proceeds from sales of loans

     28,998       38,060  

Net other increase in loans

     (48,017 )     (33,237 )

Purchases of premises and equipment

     (7,062 )     (10,499 )

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

     4,067       5,289  
                

Net cash used by investing activities

     (197,698 )     (192,738 )
                

CASH FLOWS FROM FINANCING ACTIVITIES

    

Net increase in demand, transaction and savings deposits

     148,554       114,294  

Net increase in certificates of deposits

     28,694       36,147  

Net (decrease) increase in short-term borrowings

     12,606       (3,316 )

Net decrease in long-term borrowings

     (275 )     (1,458 )

Prepayment of Jr. Subordinated Debentures

     (25,000 )     —    

Issuance of common stock

     887       2,044  

Acquisition of common stock

     (2,466 )     —    

Cash dividends paid

     (5,670 )     (5,020 )
                

Net cash provided by financing activities

     157,330       142,691  
                

Net decrease in cash and due from banks

     (12,756 )     (29,856 )

Cash and due from banks at the beginning of the period

     154,957       204,370  
                

Cash and due from banks at the end of the period

   $ 142,201     $ 174,514  
                

SUPPLEMENTAL DISCLOSURE

    

Cash paid during the period for interest

   $ 41,068     $ 30,067  
                

Cash paid during the period for income taxes

   $ 11,951     $ 10,468  
                

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

 

4


BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) GENERAL

The accompanying consolidated financial statements include the accounts of BancFirst Corporation, Century Life Assurance Company, Council Oak Partners, LLC, Wilcox Jones & McGrath, Inc., and BancFirst and its subsidiaries (the “Company”). The operating subsidiaries of BancFirst are Council Oak Investment Corporation, Citibanc Insurance Agency, Inc., BancFirst Agency, Inc., Lenders Collection Corporation, BancFirst Community Development Corporation, Council Oak Real Estate, Inc. and PremierSource LLC. PremierSource LLC was sold in August 2006 and Century Life Assurance Company was sold effective October 2006. 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 consolidated financial statements.

The unaudited interim financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2006, the date of the most recent annual report.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for loan losses, income taxes and the fair values of financial instruments. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.

(2) RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is expected to increase the relevance and comparability in financial reporting of income taxes because all tax positions accounted for in accordance with Statement 109 will be evaluated for recognition, derecognition, and measurement using consistent criteria. Finally, the disclosure provisions of this interpretation will provide more information about the uncertainty in income tax assets and liabilities. This interpretation is effective for fiscal years beginning after December 15, 2006 and earlier adoption is encouraged. The Company adopted this new standard effective January 1, 2007. The Company has evaluated the effect of this pronouncement and determined that the adoption of this interpretation did not have a material effect on the Company’s consolidated financial statements.

In September 2006, the FASB issued FAS No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Adoption of FAS 157 is not expected to have a material impact on the Company’s results of operations or financial condition.

On September 13, 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, companies might evaluate the materiality of financial-statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatements present in the Company’s balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are

 

5


material according to either the income statement or balance sheet approach. The Company adopted this new standard effective December 31, 2006. The Company has considered SAB 108 and determined that the adoption of SAB 108 did not have a material effect on the Company’s consolidated financial statements.

In February 2007, the FASB issued FAS No. 159 (“FAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.” FAS 159 allows entities to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities that are not otherwise required to be measured at fair value, with changes in fair value recognized in earnings as they occur. FAS 159 also requires entities to report those financial assets and financial liabilities measure at fair value in a manner that separates those reported fair values from the carrying amounts of similar assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, FAS 159 establishes presentation and disclosure requirements designed to improve comparability between entities that elect different measurement attributes for similar assets and liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted if an entity also early adopts the provisions of FAS 157. The Company has not yet determined if, or to what extent, the Company will elect to use the fair value option to value financial assets and liabilities or the impact that the implementation of FAS 159 will have on the Company’s consolidated financial statements.

(3) RECENT DEVELOPMENTS; MERGERS, ACQUISITIONS AND DISPOSALS

In September 2005, the Company organized a Community Development Entity known as BancFirst Community Development Corporation and funded the entity with $1 million of equity. The entity was organized to make certain investments in low to moderate income communities and to apply for an allocation of New Markets Tax Credits designed to assist in the development of communities in accordance with the guidelines established for Community Development Entities. The Company did not receive an allocation of tax credits for the 2006 year, however the Company reapplied for an allocation for 2007 and expects a determination to be made in the fall of 2007.

In March 2006, the Company organized a new subsidiary known as Council Oak Real Estate, Inc. and funded the entity with $4.5 million of equity. The entity was organized to make certain investments in real estate.

On June 30, 2006, the Company entered into an agreement to sell its 50% ownership in PremierSource, LLC (“PremierSource”). The Company opted to sell this interest to consolidate its insurance sales platform into a single wholly-owned subsidiary. The Company did not have a controlling interest in PremierSource and accounted for the subsidiary on the equity method of accounting. The sale of PremierSource was completed during August 2006 and the Company had an investment in PremierSource of approximately $274,000 at the time of sale. The sale of PremierSource, including future revenue sharing payments, and the loss of future earnings from operating PremierSource did not have a significant impact on the results of the Company’s operations for 2006 and is not expected to have a significant impact on the results of the Company’s operations for 2007.

In August 2006, the Company completed the acquisition of First Bartlesville Bank (“First Bartlesville”), Bartlesville, Oklahoma for cash of approximately $5.6 million. First Bartlesville had total assets of approximately $46.6 million. As a result of the acquisition, First Bartlesville became a wholly-owned subsidiary of BancFirst Corporation and was merged into BancFirst in December 2006. The acquisition was accounted for as a purchase. Accordingly, the effects of the acquisition are included in the Company’s consolidated financial statements from the date of the acquisition forward. The acquisition did not have a material effect on the results of operations of the Company for 2006 or 2007.

On September 6, 2006, the Company entered into an agreement to sell its 75% ownership in Century Life Assurance Company (“Century Life”) to American Underwriters Life Insurance Company. The Company decided to sell this subsidiary as the product line was not strategic for the Company. The effective date of the sale was October 1, 2006. Century Life reported approximately $945,000 of revenues and $111,000 of net income for the third quarter of 2006, and the Company reported a pre-tax gain on the sale approximating $640,000 during the fourth quarter of 2006. The resulting gain on the sale and the loss of future earnings from operating Century Life did not have a significant impact on the results of the Company’s operations for 2006 or 2007.

In November 2006, the Company announced its intent to exercise the optional prepayment terms of its 9.65%

 

6


Junior Subordinated Debentures. The securities were redeemed effective January 15, 2007 for a redemption price equal to 104.825% of the aggregate $25,000,000 liquidation amount of the trust securities plus all accrued and unpaid interest to the redemption date. As a result of the prepayment, the Company incurred a loss of approximately $1.2 million after taxes at the time of the redemption. The loss reflects the premium paid and the acceleration of the unamortized issuance costs.

During the first quarter of 2007 the Company entered into an agreement to acquire Armor Assurance Company (Armor), an insurance agency in Muskogee, Oklahoma for cash of approximately $3.3 million and a $372,000 note payable in three equal annual installments. The transaction was consummated in April 2007. Armor had total assets of approximately $364,000. As a result of the acquisition, Armor was merged with the Company’s existing property casualty agency, Wilcox & Jones, to form Wilcox, Jones & McGrath.

In June 2007, the Company entered into an agreement to sell one of its investments held by Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst, that resulted in a one-time gain of approximately $7.8 million. The transaction was consummated on August 1, 2007. The Company intends to make a $1 million contribution to its charitable foundation with the funds from the gain. This one-time gain, net of related expenses, income taxes and the intended contribution is expected to have a net income effect of approximately $3.9 million.

In July 2007, the Company was awarded the $3 million bond claim by their fidelity bond carrier for the $3.3 million cash shortfall that was reported in the second quarter of 2005. See Note 14 – Commitments and Contingent Liabilities for further details.

(4) SECURITIES

The table below summarizes securities held for investment and securities available for sale (dollars in thousands).

 

     June 30,   

December 31,

2006

     2007    2006   

Held for investment at cost (market value; $24,696, $36,196 and $26,087, respectively)

   $ 24,837    $ 36,341    $ 26,052

Available for sale, at market value

     434,434      398,355      406,858
                    

Total

   $ 459,271    $ 434,696    $ 432,910
                    

The table below summarizes the maturity of securities (dollars in thousands).

 

     June 30,   

December 31,

2006

     2007    2006   

Contractual maturity of debt securities:

        

Within one year

   $ 120,713    $ 97,657    $ 95,492

After one year but within five years

     256,206      289,112      275,721

After five years

     68,574      35,036      49,171
                    

Total debt securities

     445,493      421,805      420,384

Equity securities

     13,778      12,891      12,526
                    

Total

   $ 459,271    $ 434,696    $ 432,910
                    

The Company held 133 and 86 debt securities available for sale that had unrealized gains as of June 30, 2007 and 2006, respectively. These securities had a market value totaling approximately $69.9 million and $6.4 million, respectively, and unrealized gains totaling approximately $299,000 and $200,000, respectively. The Company also held 185 and 252 debt securities available for sale that had unrealized losses at June 30, 2007 and 2006, respectively. These securities had a market value totaling $327.5 million and $360.3 million and unrealized losses totaling $5.4 million and $9.9 million, respectively. These unrealized losses occurred due to increases in interest rates and spreads and not as a result of a decline in credit quality. The Company has both the intent and ability to hold these debt securities until the unrealized losses are recovered.

 

7


(5) LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a schedule of loans outstanding by category (dollars in thousands):

 

     June 30,    

December 31

2006

 
     2007     2006    
     Amount    Percent     Amount    Percent     Amount    Percent  

Commercial and industrial

   $ 447,817    19.09 %   $ 429,759    18.37 %   $ 400,858    17.24 %

Oil & gas production & equipment

     85,975    3.67       97,997    4.19       97,090    4.18  

Agriculture

     73,834    3.15       72,208    3.09       80,743    3.47  

State and political subdivisions:

               

Taxable

     5,384    0.23       2,609    0.11       3,131    0.14  

Tax-exempt

     9,135    0.39       12,193    0.52       12,328    0.53  

Real Estate:

               

Construction

     206,743    8.81       224,458    9.59       223,561    9.61  

Farmland

     86,380    3.68       79,435    3.39       83,904    3.61  

One to four family residences

     514,428    21.93       518,118    22.14       516,727    22.22  

Multifamily residential properties

     17,755    0.76       11,567    0.49       11,415    0.49  

Commercial

     618,812    26.38       596,209    25.48       610,133    26.24  

Consumer

     255,500    10.89       268,066    11.46       258,133    11.10  

Other

     24,075    1.02       27,340    1.17       27,525    1.17  
                                       

Total loans

   $ 2,345,838    100.00 %   $ 2,339,959    100.00 %   $ 2,325,548    100.00 %
                                       

Loans held for sale (included above)

   $ 10,340      $ 10,776      $ 9,935   
                           

The Company’s loans are mostly to customers within Oklahoma and over half of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained 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. The amount of estimated loss due to credit risk in the Company’s loan portfolio is provided for in the allowance for loan losses. The amount of the allowance required to provide for all existing losses in the loan portfolio is an estimate based upon evaluations of loans, appraisals of collateral and other estimates which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated allowance for loan losses in the near term.

 

8


Changes in the allowance for loan losses are summarized as follows (dollars in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2007     2006     2007     2006  

Balance at beginning of period

   $ 27,493     $ 27,789     $ 27,700     $ 27,517  
                                

Charge-offs

     (226 )     (709 )     (714 )     (1,376 )

Recoveries

     169       230       481       488  
                                

Net charge-offs

     (57 )     (479 )     (233 )     (888 )
                                

Provisions charged to operations

     132       917       101       1,598  
                                

Balance at end of period

   $ 27,568     $ 28,227     $ 27,568     $ 28,227  
                                

The net charge-offs by category are summarized as follows (dollars in thousands):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2007     2006    2007     2006

Commercial, financial and other

   $ (39 )   $ 7    $ (50 )   $ 223

Real estate – construction

     (1 )     15      (24 )     66

Real estate – mortgage

     19       260      9       293

Consumer

     78       197      298       306
                             

Total

   $ 57     $ 479    $ 233     $ 888
                             

(6) NONPERFORMING AND RESTRUCTURED ASSETS

Below is a summary of nonperforming and restructured assets (dollars in thousands):

 

     June 30,    

December 31,

2006

 
     2007     2006    

Past due over 90 days and still accruing

   $ 1,276     $ 612     $ 1,884  

Nonaccrual

     13,372       7,244       9,371  

Restructured

     912       727       715  
                        

Total nonperforming and restructured loans

     15,560       8,583       11,970  

Other real estate owned and repossessed assets

     1,098       2,657       1,675  
                        

Total nonperforming and restructured assets

   $ 16,658     $ 11,240     $ 13,645  
                        

Nonperforming and restructured loans to total loans

     0.66 %     0.37 %     0.51 %
                        

Nonperforming and restructured assets to total assets

     0.46 %     0.33 %     0.40 %
                        

 

9


(7) INTANGIBLE ASSETS AND GOODWILL

The following is a summary of intangible assets (dollars in thousands):

 

     June 30,    

December 31,

2006

 
     2007     2006    
     Gross
Carrying
Amount
   Accumulated
Amortization
    Gross
Carrying
Amount
   Accumulated
Amortization
    Gross
Carrying
Amount
   Accumulated
Amortization
 

Core deposit intangibles

   $ 7,280    $ (2,424 )   $ 7,972    $ (3,456 )   $ 8,897    $ (3,623 )

Customer relationship

               

intangibles

     4,081      (377 )     2,308      (225 )     2,308      (288 )
                                             

Total

   $ 11,361    $ (2,801 )   $ 10,280    $ (3,681 )   $ 11,205    $ (3,911 )
                                             

Amortization of intangible assets and estimated amortization of intangible assets are as follows (dollars in thousands):

 

Amortization:

  

Three months ended June 30, 2007

   $ 255

Three months ended June 30, 2006

     234

Six months ended June 30, 2007

     507

Six months ended June 30, 2006

     464

Year ended December 31, 2006

     981

Estimated Amortization:

  

Year ended December 31,

  

2007

   $ 968

2008

     898

2009

     898

2010

     898

2011

     898

 

10


The following is a summary of goodwill by business segment:

 

     Metropolitan
Banks
   Community
Banks
   Other
Financial
Services
   Executive,
Operations
& Support
   Eliminations    Consolidated
     (dollars in thousands)

Three Months Ended:

                 

June 30, 2007

                 

Balance at beginning of period

   $ 6,150    $ 23,253    $ 2,485    $ 624    —      $ 32,512

Acquisitions

     —        —        1,773      —      —        1,773
                                       

Balance at end of period

   $ 6,150    $ 23,253    $ 4,258    $ 624    —      $ 34,285
                                       

June 30, 2006

                 

Balance at beginning of period

   $ 6,150    $ 22,416    $ 2,485    $ 624    —      $ 31,675

Acquisitions

     —        —        —        —      —        —  
                                       

Balance at end of period

   $ 6,150    $ 22,416    $ 2,485    $ 624    —      $ 31,675
                                       

Six Months Ended:

                 

June 30, 2007

                 

Balance at beginning of period

   $ 6,150    $ 23,253    $ 2,485    $ 624    —      $ 32,512

Acquisitions

     —        —        1,773      —      —        1,773
                                       

Balance at end of period

   $ 6,150    $ 23,253    $ 4,258    $ 624    —      $ 34,285
                                       

June 30, 2006

                 

Balance at beginning of period

   $ 6,150    $ 22,201    $ 2,485    $ 624    —      $ 31,460

Adjustments

     —        215      —        —      —        215
                                       

Balance at end of period

   $ 6,150    $ 22,416    $ 2,485    $ 624    —      $ 31,675
                                       

(8) CAPITAL

The Company is subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System. These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’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 consolidated financial statements. The required minimums and the Company’s respective ratios are shown below. The reduction in the ratios from December 31, 2006 was related to the early redemption of the trust preferred securities.

 

    

Minimum

Required

    June 30,    

December 31,

2006

 
       2007     2006    
           (dollars in thousands)  

Tier 1 capital

     $ 348,663     $ 339,306     $ 359,430  

Total capital

     $ 377,602     $ 368,267     $ 388,581  

Risk-adjusted assets

     $ 2,690,441     $ 2,615,062     $ 2,620,376  

Leverage ratio

   3.00 %     9.80 %     10.13 %     10.64 %

Tier 1 capital ratio

   4.00 %     12.96 %     12.98 %     13.72 %

Total capital ratio

   8.00 %     14.03 %     14.08 %     14.83 %

As of June 30, 2007 and 2006, and December 31, 2006, BancFirst was considered to be “well capitalized”. There are no conditions or events since the most recent notification of the Company’s capital category that management believes would change its category.

 

11


(9) STOCK REPURCHASE PLAN

In November 1999, the Company adopted a new Stock Repurchase Program (the “SRP”) authorizing management to repurchase up to 600,000 shares of the Company’s common stock. The SRP was amended in May 2001 to increase the shares authorized to be purchased by 555,832 shares and was amended again in August 2002 to increase the number of shares authorized to be purchased by 364,530 shares. The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options, and to provide liquidity for shareholders wishing to sell their stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and must be approved by the Company’s Executive Committee. The stock repurchase plan has been temporarily suspended until completion of the “modified Dutch auction” described in Note 15 – Tender Offer. At June 30, 2007 there were 233,052 shares remaining that could be repurchased under the SRP. Below is a summary of the shares repurchased under the program.

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2007    2006    2007    2006

Number of shares repurchased

   —      —        53,000    —  

Average price of shares repurchased

   —      —      $ 46.47    —  

(10) SHARE-BASED COMPENSATION

BancFirst Corporation adopted a nonqualified incentive stock option plan (the “BancFirst ISOP”) in May 1986. In May 2006, the Company amended the BancFirst ISOP to increase the number of shares to be issued under the plan to 2,500,000. At June 30, 2007, 90,860 shares were available for future grants. The BancFirst ISOP will terminate December 31, 2011. The options are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options granted prior to 1996 expire at the end of eleven years from the date of the grant. Options granted after January 1, 1996 expire at the end of fifteen years from the date of grant. Options outstanding as of June 30, 2007 will become exercisable through the year 2014. The option price must be no less than 100% of the fair market value of the stock relating to such option at the date of grant.

In June 1999, the Company adopted the BancFirst Corporation Non-Employee Directors’ Stock Option Plan (the “BancFirst Directors’ Stock Option Plan”). Each non-employee director is granted an option for 10,000 shares. In May 2006, the Company amended the BancFirst Directors’ Stock Option Plan to increase the number of shares to be issued under the plan to 180,000 shares. At June 30, 2007, 35,000 shares were available for future grants. The options are exercisable beginning one year from the date of grant at the rate of 25% per year for four years, and expire at the end of fifteen years from the date of grant. Options outstanding as of June 30, 2007 will become exercisable through the year 2011. 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.

Below is a summary of the activity under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan (dollars in thousands, except per share data):

 

     Six Months Ended June 30, 2007
     Options     Wgtd. Avg.
Exercise Price
   Wgtd. Avg.
Remaining
Contractual Term
   Aggregate
Intrinsic
Value

Outstanding at January 1, 2007

   1,140,517     $ 24.41      

Options granted

   99,500       46.75      

Options exercised

   (11,500 )     13.90      

Options canceled

   —         —        
              

Outstanding at June 30, 2007

   1,228,517       26.32    10.01    $ 20,265
                    

Exercisable at June 30, 2007

   566,201       17.64    8.16    $ 14,255
                    

 

12


Below is additional information regarding options granted and options exercised under both the BancFirst ISOP and the BancFirst Directors’ Stock Option Plan (dollars in thousands, except per share data):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2007    2006    2007    2006

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

   $ 16.50    $ 14.74    $ 17.57    $ 11.72

Total intrinsic value of options exercised

     42      743      388      2,212

Cash received from options exercised

     34      486      160      1,094

Tax benefit realized from options exercised

     16      287      150      856

Effective January 1, 2006 the Company adopted, on a modified prospective basis, the fair value provisions of FAS 123R. 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.

For the three months ended June 30, 2007 and 2006, the Company recorded share-based employee compensation expense of approximately $199,000 and $150,000, respectively, net of tax and approximately $373,000 and $292,000 for the six months ended June 30, 2007 and 2006, respectively.

The Company will continue to amortize the remaining fair value of these stock options of approximately $3.2 million, net of tax, over the remaining vesting period of approximately seven years. Share-based employee compensation expense under the fair value method was measured using the following assumptions for the options granted:

 

     Three Months Ended June 30,  
     2007     2006  

Risk-free interest rate

   4.73 %   4.95 %

Dividend yield

   1.50 %   2.00 %

Stock price volatility

   25.85 %   25.38 %

Expected term

   10  Yrs   10  Yrs

The risk-free interest rate is determined by reference to the spot zero-coupon rate for the U.S. Treasury security with a maturity similar to the expected term of the options. The dividend yield is the expected yield for the expected term. The stock price volatility is estimated from the recent historical volatility of the Company’s stock. The expected term is estimated from the historical option exercise experience.

(11) COMPREHENSIVE INCOME

The only component of comprehensive income reported by the Company is the unrealized gain or loss on securities available for sale. The amount of this unrealized gain or loss, net of tax, has been presented in the statement of income for each period as a component of other comprehensive income. Below is a summary of the tax effects of this unrealized gain or loss.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2007     2006     2007     2006  
     (dollars in thousands)  

Unrealized gain (loss) during the period:

        

Before-tax amount

   $ (3,307 )   $ (1,441 )   $ (2,234 )   $ (2,997 )

Tax (expense) benefit

     1,158       509       782       1,054  
                                

Net-of-tax amount

   $ (2,149 )   $ (932 )   $ (1,452 )   $ (1,943 )
                                

 

13


The amount of unrealized gain or loss, net of tax, included in accumulated other comprehensive income is summarized below.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2007     2006     2007     2006  
     (dollars in thousands)  

Unrealized gain (loss) on securities:

        

Beginning balance

   $ 945     $ (3,980 )   $ 100     $ (2,968 )

Current period change

     (2,149 )     (932 )     (1,452 )     (1,943 )

Reclassification adjustment for (gains) losses included in net income

     220       (89 )     368       (90 )
                                

Ending balance

   $ (984 )   $ (5,001 )   $ (984 )   $ (5,001 )
                                

(12) NET INCOME PER COMMON SHARE

Basic and diluted net income per common share are calculated as follows (dollars in thousands, except per share data):

 

    

Income

(Numerator)

   Shares
(Denominator)
   Per Share
Amount

Three Months Ended June 30, 2007

        

Basic

        

Income available to common stockholders

   $ 13,402    15,723,483    $ 0.85
            

Effect of stock options

     —      333,285   
              

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 13,402    16,056,768    $ 0.83
                  

Three Months Ended June 30, 2006

        

Basic

        

Income available to common stockholders

   $ 12,209    15,702,060    $ 0.78
            

Effect of stock options

     —      378,363   
              

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 12,209    16,080,423    $ 0.76
                  

Six Months Ended June 30, 2007

        

Basic

        

Income available to common stockholders

   $ 24,525    15,751,110    $ 1.56
            

Effect of stock options

     —      349,110   
              

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 24,525    16,100,220    $ 1.52
                  

Six Months Ended June 30, 2006

        

Basic

        

Income available to common stockholders

   $ 23,090    15,684,466    $ 1.47
            

Effect of stock options

     —      376,725   
              

Diluted

        

Income available to common stockholders plus assumed exercises of stock options

   $ 23,090    16,061,192    $ 1.44
                  

 

14


Below is the number and average exercise prices of options that were excluded from the computation of diluted net income per share for each period because the options’ exercise prices were greater than the average market price of the common shares.

 

     Shares    Average
Exercise
Price

Three Months Ended June 30, 2007

   237,016    $ 46.20

Three Months Ended June 30, 2006

   3,646    $ 43.76

Six Months Ended June 30, 2007

   208,276    $ 46.18

Six Months Ended June 30, 2006

   3,646    $ 43.76

 

15


(13) SEGMENT INFORMATION

The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The four principal business units are metropolitan banks, community banks, other financial services, and executive, operations and support. Metropolitan and community banks offer traditional banking products such as commercial and retail lending, and a full line of deposit accounts. Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Other financial services are specialty product business units including guaranteed small business lending, guaranteed student 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.

The results of operations and selected financial information for the four business units are as follows (dollars in thousands):

 

     Metropolitan
Banks
   Community
Banks
  

Other

Financial
Services

  

Executive,

Operations
& Support

    Eliminations     Consolidated

Three Months Ended:

               

June 30, 2007

               

Net interest income (expense)

   $ 11,583    $ 24,207    $ 2,094    $ (432 )   $ (15 )   $ 37,437

Noninterest income

     2,115      7,622      4,739      14,910       (14,151 )     15,235

Income before taxes

     7,543      15,377      3,007      9,179       (14,184 )     20,922

June 30, 2006

               

Net interest income (expense)

   $ 11,241    $ 24,476    $ 1,858    $ (1,808 )   $ (14 )   $ 35,753

Noninterest income

     2,024      7,321      4,781      13,410       (12,804 )     14,732

Income before taxes

     7,011      15,820      2,066      6,620       (12,775 )     18,742

Six Months Ended:

               

June 30, 2007

               

Net interest income (expense)

   $ 22,731    $ 47,703    $ 4,002    $ (596 )   $ (29 )   $ 73,811

Noninterest income

     4,006      14,557      9,143      28,678       (27,267 )     29,117

Income before taxes

     14,527      29,802      5,609      15,114       (27,264 )     37,788

June 30, 2006

               

Net interest income (expense)

   $ 21,830    $ 48,206    $ 4,104    $ (3,757 )   $ (29 )   $ 70,354

Noninterest income

     3,996      14,010      8,978      25,847       (24,690 )     28,141

Income before taxes

     13,651      30,184      4,675      11,915       (24,646 )     35,779

Total Assets:

               

June 30, 2007

   $ 1,126,799    $ 2,290,303    $ 156,130    $ 468,299     $ (439,665 )   $ 3,601,866

June 30, 2006

   $ 1,217,161    $ 2,211,016    $ 187,331    $ 172,000     $ (397,819 )   $ 3,389,689

December 31, 2006

   $ 1,208,016    $ 2,277,419    $ 160,543    $ 211,325     $ (438,729 )   $ 3,418,574

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 revenues related to other financial services are allocated to the banks whose customers receive the services and, therefor, are not reflected in the income for other financial services. 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.

 

16


(14) COMMITMENTS AND CONTINGENT LIABILITIES

In the second quarter of 2005, the Company reported a $3.3 million cash shortfall at one of its branches. The Company notified its fidelity bond carrier of the pending claim and that a thorough investigation would ensue. Based on the facts available at the time and outside consultation, the Company recorded as an expense its deductible on the coverage of $250 thousand and a receivable for the bond claim of approximately $3 million during the second quarter.

During the third quarter of 2005, it became apparent that the Company’s investigation was going to take much longer than management and the Company’s consultant originally expected. Specifically, the time frame for ongoing criminal investigation of the matter and the possibility of litigation amongst the parties had created uncertainty as to the timing of any recovery under the fidelity bond. While management still expected a significant recovery under its fidelity bond coverage, the amount and timing of the recovery was no longer reasonably estimable. As a result, the Company believed it was prudent to write off, and recognize as an expense, the $3 million bond claim receivable.

In July 2007, the fidelity bond carrier awarded the Company the $3 million bond claim. The recovery will be included in other non-interest income during the third quarter of 2007.

(15) TENDER OFFER

On August 3, 2007, the Company commenced a modified Dutch Auction self-tender offer for up to 500,000 shares, of its common stock, representing approximately 3.18% of the total shares outstanding. The tender offer price range is from $39.50 to $45.00 per share. Shareholders may specify the number of shares and prices within the tender offer price range at which they are willing to tender their shares. The Company will determine the final purchase price that will enable it to purchase up to the maximum number of shares from those shareholders who agreed to sell shares at or below the purchase price. All shares purchased will be purchased at the final price. If more than 500,000 shares are tendered at or below the purchase price, the excess will be prorated among those shareholders whose shares are being purchased. Cash on hand will be used by the Company to pay for the purchase of the stock.

 

17


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

BANCFIRST CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY

Net income for the second quarter of 2007 was $13.4 million, compared to $12.2 million for the second quarter of 2006. Diluted net income per share was $0.83, compared to $0.76 for the second quarter of 2006. For the first six months of 2007, net income was $24.5 million, compared to $23.1 million for the first six months of 2006. Diluted net income per share for the first six months of 2007 was $1.52 compared to $1.44 for the first six months of 2006.

Total assets at June 30, 2007 increased to $3.6 billion, up $183 million from December 31, 2006 and up $212 million from June 30, 2006. Total loans at June 30, 2007 increased to $2.35 billion, up $20.3 million from December 31, 2006 and up $5.9 million from June 30, 2006. Total deposits at June 30, 2007 were $3.15 billion, up $177.2 million from December 31, 2006 and up $196.6 million from June 30, 2006. Stockholders’ equity was $365 million at June 30, 2007, up $16 million from December 31, 2006 and up $44 million compared to June 30, 2006.

In June 2007, the Company entered into an agreement to sell one of its investments held by Council Oak Investment Corporation, a wholly-owned subsidiary of BancFirst, that resulted in a one-time gain of approximately $7.8 million. The transaction was consummated on August 1, 2007. The Company intends to make a $1 million contribution to its charitable foundation with the funds from the gain. This one-time gain, net of related expenses, income taxes and the intended contribution is expected to have a net income effect of approximately $3.9 million.

During the first quarter of 2007 the Company entered into an agreement to acquire Armor Assurance Company (Armor), an insurance agency in Muskogee, Oklahoma for cash of approximately $3.3 million and a $372,000 note payable in three equal annual installments. The transaction was consummated in April 2007. Armor had total assets of approximately $364,000. As a result of the acquisition, Armor was merged with the Company’s existing property casualty agency, Wilcox & Jones, to form Wilcox, Jones & McGrath.

In November 2006, the Company announced its intent to exercise the optional prepayment terms of its 9.65% Junior Subordinated Debentures. The securities were redeemed effective January 15, 2007 for a redemption price equal to 104.825% of the aggregate $25,000,000 liquidation amount of the trust securities plus all accrued and unpaid interest to the redemption date. As a result of the prepayment, the Company incurred a loss of approximately $1.2 million after taxes at the time of the redemption. The loss reflects the premium paid and the acceleration of the unamortized issuance costs.

On September 6, 2006, the Company entered into an agreement to sell its 75% ownership in Century Life Assurance Company (“Century Life”) to American Underwriters Life Insurance Company. The Company decided to sell this subsidiary as the product line was not strategic for the Company. The effective date of the sale was October 1, 2006. Century Life reported approximately $945,000 of revenues and $111,000 of net income for the third quarter of 2006, and the Company reported a pre-tax gain on the sale approximating $640,000 during the fourth quarter of 2006. The resulting gain on the sale and the loss of future earnings from operating Century Life did not have a significant impact on the results of the Company’s operations for 2006 or 2007.

In August 2006, the Company completed the acquisition of First Bartlesville Bank (“First Bartlesville”), Bartlesville, Oklahoma for cash of approximately $5.6 million. First Bartlesville had total assets of approximately $46.6 million. As a result of the acquisition, First Bartlesville became a wholly-owned subsidiary of BancFirst Corporation and was merged into BancFirst in December 2006. The acquisition was accounted for as a purchase. Accordingly, the effects of the acquisition are included in the Company’s consolidated financial statements from the date of the acquisition forward. The acquisition did not have a material effect on the results of operations of the Company for 2006 or 2007.

On June 30, 2006, the Company entered into an agreement to sell its 50% ownership in PremierSource, LLC (“PremierSource”). The Company opted to sell this interest to consolidate its insurance sales platform into a single wholly-owned subsidiary. The Company did not have a controlling interest in PremierSource and accounted for the subsidiary on the equity method of accounting. The sale of PremierSource was completed during August 2006 and the Company had an investment in PremierSource of approximately $274,000 at the time of sale. The sale of PremierSource, including future revenue sharing payments, and the loss of future earnings from operating PremierSource did not have a significant impact on the results of the Company’s operations for 2006 and is not expected to have a significant impact on the results of the Company’s operations for 2007.

 

18


RESULTS OF OPERATIONS

Second Quarter

Net interest income for the second quarter of 2007 was $37.4 million, up $1.7 million from the second quarter of 2006. While the net interest spread for the second quarter decreased 24 basis points to 3.62%, the net interest margin only decreased 10 basis points to 4.68% due to the higher interest rate environment. The company’s average earning assets reached $3.2 billion during the second quarter, an increase of $188 million over June 30 a year ago. Most of the growth in earnings assets was in Federal Funds Sold, up $175.8 million while loans grew $6 million from the second quarter of 2006. The growth in loans and earning assets was supported by deposit growth of $197 million from customer relationships. The loan loss provision was $132,000, down $785,000 from the same period a year ago. Net loan charge-offs were $57,000 for the second quarter of 2007, compared to $479,000 for the second quarter of 2006. While total nonperforming and restructured loans increased to $15.6 million from $8.6 million a year ago, nonperforming loans, 0.46% of assets, and net charge-offs, 0.01% of loans, remain at historically low levels.

Noninterest income totaled $15.2 million, an increase of $503,000 or 3.4%. The increase was due to growth in revenues from transaction accounts, electronic banking services and increase on cash value of life insurance. Noninterest expenses were $31.6 million, an increase of $792,000 or 2.57%. During the quarter the Company benefited from expense reimbursements and other expense reductions approximating $650,000, primarily resulting from lower health care costs and reimbursement of loan fees. The overall increase in noninterest expense was due primarily to the opening of five new branches within the last year. Income tax expense increased $987,000 compared to the second quarter of 2006. The effective tax rate on income before taxes was 35.9%, compared to 34.9% for the second quarter of 2006.

Year-To-Date

Net interest income for the first six months of 2007 was $73.8 million, up $3.5 million over the first six months of 2006. While the net interest spread for the six months of 2007 decreased 24 basis points to 3.67%, the net interest margin only decreased 6 basis points to 4.72% due to the higher interest rate environment. While average earning assets increased by $187.6 million between the first six months of 2007 and the first six months of 2006, average loans increased by $23.8 million in the same period while Federal Funds Sold increase an average of $169.6 million. The increase in average earning assets was substantially funded by an increase in total average deposits of approximately $165.1 million between the first six months of 2007 and the first six months of 2006. The increase in earning assets in lower yielding Federal Funds Sold combined with higher costs of funds compressed our net interest spread while the rising rate environment during this time helped support our net interest margin with only a slight decrease.

The Company provided $101,000 for loan losses in the first six months of 2007, compared to $1.6 million for the same period of 2006. The decrease in the provision for loan losses is a result of the company’s high credit quality and modest loan growth. Net charge-offs were $233,000 for the first six months of 2007 compared to $888,000 for the same period a year ago. The net charge-offs represent an annualized rate of 0.02% of average total loans for the first six months of 2007 versus 0.08% for the first six months of 2006.

Noninterest income of $29.1 million for the first six months of 2007 increased $976,000 compared to the same period in 2006 due to an increase in cash management and electronic banking services, securities transactions, and increased revenues from the acquisition of Armor during the second quarter of 2007. Noninterest expense increased $3.9 million to $65.0 million compared to the first six months of 2006. Noninterest expense included a $1.9 million one time pre-tax expense for the early redemption of the trust preferred securities and expense reimbursements and other expense reductions of approximately $650,000. The remaining increase of approximately $2.65 million was due in part to the opening of five new branches within the last year. Income tax expense increased $574,000 compared to the first six months of 2006. The effective tax rate on income before taxes remained consistent at 35.1% compared to 35.5% for the first six months of 2006.

 

19


FINANCIAL POSITION

The aggregate of cash and due from banks, interest-bearing deposits with banks, and federal funds sold increased $312.8 million from December 31, 2006, and $156.3 million from June 30, 2006. The increases resulted from growth in federal funds sold of $375.0 million since December 31, 2006 and $188.6 million since June 30, 2006.

Total securities increased $26.4 million compared to December 31, 2006 and $24.6 million compared to June 30, 2006. The size of the Company’s securities portfolio is a function of liquidity management and excess funds available for investment. The Company has maintained a short maturity on its securities portfolio to manage rate exposure and to provide funds for loan growth. The net unrealized gain on securities available for sale, before taxes, was $2.1 million at the end of the second quarter of 2007, compared to an unrealized gain of $154,000 at December 31, 2006 and an unrealized loss of $7.7 million at June 30, 2006. The average taxable equivalent yield on the securities portfolio for the second quarter of 2007 increased to 4.76% from 4.58% for the same quarter of 2006.

Total loans increased $20.3 million from December 31, 2006, and increased $5.9 million from June 30, 2006. The allowance for loan losses decreased $132,000 from year-end 2006 and $659,000 from the second quarter of 2006. The allowance as a percentage of total loans was 1.18%, 1.19% and 1.21% at June 30, 2007, December 31, 2006 and June 30, 2006, respectively. The allowance to nonperforming and restructured loans at the same dates was 177.18%, 231.41% and 328.88%, respectively.

Nonperforming and restructured loans totaled $15.6 million at June 30, 2007, compared to $12.0 million at December 31, 2006 and $8.6 million at June 30, 2006. The ratio of nonperforming and restructured loans to total loans for the same periods was 0.66%, 0.51% and 0.37%, respectively. The level of nonperforming loans and loan losses may rise over time as a result of economic and credit cycles.

Total deposits increased by $177 million compared to December 31, 2006, and by $197 million compared to June 30, 2006. The Company’s deposit base continues to be comprised substantially of core deposits, with large denomination certificates of deposit being only 8.78% of total deposits at June 30, 2007, compared to 8.70% at December 31, 2006 and 8.74% at June 30, 2006.

Short-term borrowings increased $12.6 million from December 31, 2006, and $2.0 million from June 30, 2006. Fluctuations in short-term borrowings are a function of federal funds purchased from correspondent banks, customer demand for repurchase agreements and liquidity needs of the bank.

Long-term borrowings decreased $275,000 from year-end 2006 and $1.6 million from the second quarter of 2006. The Company uses these borrowings primarily to match-fund, long-term fixed rate loans.

Stockholders’ equity increased $16 million from year-end 2006 and $44 million from the second quarter of 2006, due to accumulated earnings offset by dividends. Average stockholders’ equity to average assets for the second quarter of 2007 was 10.11%, compared to 9.46% for the second quarter of 2006. The Company’s leverage ratio and total risk-based capital ratio were 9.80% and 14.03%, respectively, at June 30, 2007, well in excess of the regulatory minimums.

On August 3, 2007, the Company commenced a modified Dutch Auction self-tender offer for up to 500,000 shares, of its common stock, representing approximately 3.18% of the total shares outstanding. The tender offer price range is from $39.50 to $45.00 per share. Shareholders may specify the number of shares and prices within the tender offer price range at which they are willing to tender their shares. The Company will determine the final purchase price that will enable it to purchase up to the maximum number of shares from those shareholders who agreed to sell shares at or below the purchase price. All shares purchased will be purchased at the final price. If more than 500,000 shares are tendered at or below the purchase price, the excess will be prorated among those shareholders whose shares are being purchased. Cash on hand will be used by the Company to pay for the purchase of the stock.

 

20


FUTURE APPLICATION OF ACCOUNTING STANDARDS

See note (2) of the Notes to Consolidated Financial Statements for a discussion of recently issued and newly adopted accounting pronouncements.

SEGMENT INFORMATION

See note (13) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.

FORWARD LOOKING STATEMENTS

The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management’s current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions, the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Actual results may differ materially from forward-looking statements.

 

21


BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2007     2006     2007     2006  

Per Common Share Data

        

Net income – basic

   $ 0.85     $ 0.78     $ 1.56     $ 1.47  

Net income – diluted

     0.83       0.76       1.52       1.44  

Cash dividends

     0.18       0.16       0.36       0.32  

Performance Data

        

Return on average assets

     1.51 %     1.46 %     1.41 %     1.40 %

Return on average stockholders’ equity

     14.93       15.49       13.90       14.76  

Cash dividend payout ratio

     21.18       20.51       23.08       21.77  

Net interest spread

     3.62       3.86       3.67       3.91  

Net interest margin

     4.68       4.78       4.72       4.78  

Efficiency ratio

     60.03       61.06       63.19       62.05  

Net charge-offs to average total loans

     0.01       0.08       0.02       0.08  
      June 30,    

December 31,

2006

 
      2007     2006    

Balance Sheet Data

 

     

Book value per share

 

  $ 23.18     $ 20.39     $ 22.10  

Tangible book value per share

 

    20.46       17.95       19.57  

Average loans to deposits (year-to-date)

 

    76.23 %     79.75 %     79.19 %

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

 

    90.75       89.86       90.20  

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

 

    10.14       9.46       9.68  

Asset Quality Ratios

 

     

Nonperforming and restructured loans to total loans

 

    0.66 %     0.37 %     0.51 %

Nonperforming and restructured assets to total assets

 

    0.46       0.33       0.40  

Allowance for loan losses to total loans

 

    1.18       1.21       1.19  

Allowance for loan losses to nonperforming and restructured loans

 

    177.18       328.88       231.41  

 

22


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

     Three Months Ended June 30,  
     2007     2006  
     Average
Balance
    Interest
Income/
Expense
   Average
Yield/
Rate
    Average
Balance
    Interest
Income/
Expense
   Average
Yield/
Rate
 

ASSETS

              

Earning assets:

              

Loans (1)

   $ 2,333,455     $ 47,302    8.13 %   $ 2,311,525     $ 44,335    7.69 %

Securities - taxable

     400,811       4,688    4.69       389,171       4,302    4.43  

Securities - tax exempt

     36,443       530    5.83       38,619       587    6.10  

Federal funds sold

     462,048       6,068    5.27       286,253       3,453    4.84  
                                  

Total earning assets

     3,232,757       58,588    7.27       3,025,568       52,677    6.98  
                                  

Nonearning assets:

              

Cash and due from banks

     144,695            167,156       

Interest receivable and other assets

     212,790            191,083       

Allowance for loan losses

     (27,550 )          (27,852 )     
                          

Total nonearning assets

     329,935            330,387       
                          

Total assets

   $ 3,562,692          $ 3,355,955       
                          

LIABILITIES AND STOCKHOLDERS EQUITY

              

Interest-bearing liabilities:

              

Transaction deposits

   $ 397,553     $ 728    0.73 %   $ 435,789     $ 861    0.79 %

Savings deposits

     1,044,205       10,146    3.90       870,589       7,199    3.32  

Time deposits

     783,520       8,944    4.58       735,145       6,939    3.79  

Short-term borrowings

     43,610       551    5.07       38,759       459    4.75  

Long-term borrowings

     1,022       19    7.46       2,916       44    6.05  

Junior subordinated debentures

     26,804       491    7.35       51,804       1,103    8.54  
                                  

Total interest-bearing liabilities

     2,296,714       20,879    3.65       2,135,002       16,605    3.12  
                                  

Interest-free funds:

              

Noninterest-bearing deposits

     885,271            879,794       

Interest payable and other liabilities

     20,674            24,956       

Stockholders’ equity

     360,033            316,203       
                          

Total interest free funds

     1,265,978            1,220,953       
                          

Total liabilities and stockholders’ equity

   $ 3,562,692          $ 3,355,955       
                          

Net interest income

     $ 37,709        $ 36,072   
                      

Net interest spread

        3.62 %        3.86 %
                      

Net interest margin

        4.68 %        4.78 %
                      

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

 

23


BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)

 

     Six Months Ended June 30,  
     2007     2006  
    

Average

Balance

   

Interest

Income/

Expense

  

Average

Yield/

Rate

   

Average

Balance

   

Interest

Income/

Expense

  

Average

Yield/

Rate

 
              
              

ASSETS

              

Earning assets:

              

Loans (1)

   $ 2,336,054     $ 93,932    8.11 %   $ 2,312,211     $ 86,583    7.55 %

Securities - taxable

     395,170       9,088    4.64       397,279       8,832    4.48  

Securities - tax exempt

     35,802       1,084    6.11       39,544       1,196    6.10  

Federal funds sold

     416,274       10,929    5.29       246,679       5,677    4.64  
                                  

Total earning assets

     3,183,300       115,033    7.29       2,995,713       102,288    6.89  
                                  

Nonearning assets:

              

Cash and due from banks

     143,088            171,323       

Interest receivable and other assets

     208,855            194,598       

Allowance for loan losses

     (27,600 )          (27,715 )     
                          

Total nonearning assets

     324,343            338,206       
                          

Total assets

   $ 3,507,643          $ 3,333,919       
                          

LIABILITIES AND STOCKHOLDERS’ EQUITY

              

Interest-bearing liabilities:

              

Transaction deposits

   $ 408,671     $ 1,580    0.78 %   $ 438,570     $ 1,640    0.75 %

Savings deposits

     1,012,233       19,496    3.88       856,663       13,328    3.14  

Time deposits

     775,095       17,421    4.53       728,937       13,127    3.63  

Short-term borrowings

     37,885       949    5.05       39,580       889    4.53  

Long-term borrowings

     1,076       39    7.31       3,290       99    6.07  

Junior subordinated debentures

     28,876       1,157    8.08       51,804       2,206    8.59  
                                  

Total interest-bearing liabilities

     2,263,836       40,642    3.62       2,118,844       31,289    2.98  
                                  

Interest-free funds:

              

Noninterest-bearing deposits

     868,412            875,131       

Interest payable and other liabilities

     19,600            24,527       

Stockholders’ equity

     355,795            315,417       
                          

Total interest free funds

     1,243,807            1,215,075       
                          

Total liabilities and stockholders’ equity

   $ 3,507,643          $ 3,333,919       
                          

Net interest income

     $ 74,391        $ 70,999   
                      

Net interest spread

        3.67 %        3.91 %
                      

Net interest margin

        4.72 %        4.78 %
                      

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

 

24


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in the Registrant’s disclosures regarding market risk since December 31, 2006, the date of its annual report to stockholders.

 

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer and Disclosure Committee, which includes the Company’s Chief Risk Officer, Chief Asset Quality Control Officer, Chief Internal Auditor, Senior Vice President of Corporate Finance, Holding Company Controller, Bank Controller and General Counsel, have evaluated, as of the last day of the period covered by this report, the Company’s disclosure controls and procedures. Based on their evaluation they concluded that the disclosure controls and procedures of the Company are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms. There have been no changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

PART II – OTHER INFORMATION

 

Item 4. Submission of Matters to a Vote of Security Holders.

At the Company’s Annual Meeting of Stockholders held on May 24, 2007, the following matters were voted upon, with the votes indicated below:

 

     Number of Shares

Description of Proposal

   Voted for    Withheld    Broker
non-votes

Proposal No. 1-Election of Directors

        

Class II Directors

        

William H. Crawford

   14,460,293    350,339    456,412

K. Gordon Greer

   14,460,193    350,439    456,412

Dr. Donald B. Halverstadt

   14,718,427    92,205    456,412

William O. Johnstone

   14,460,393    350,239    456,412

Dave R. Lopez

   14,802,995    7,637    456,412

Melvin Moran

   14,713,635    96,997    456,412

David E. Rainbolt

   14,728,203    82,429    456,412

Proposal No. 2-Ratification of Grant Thornton LLP as independent registered public accounting firm

   14,798,665    11,967    456,412

 

25


Item 6. Exhibits.

 

  (a) Exhibits

 

Exhibit

Number

 

Exhibit

  3.1   Second Amended and Restated Certificate of Incorporation (filed as Exhibit 1 to the Company’s Form 8-A/A filed July 23, 1998 and incorporated herein by reference).
  3.2   Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of BancFirst Corporation (filed as Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2004 and incorporated herein by reference).
  3.3   Certificate of Designations of Preferred Stock (filed as Exhbit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference).
  3.4   Amended By-Laws (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference).
  3.5   Amendment to the Second Amended and Restated Certificate of Incorporation (filed as Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 and incorporated herein by reference).
  3.6   Resolution of the Board of Directors amending Section XXVII of the Company’s By-Laws (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated February 26, 2004 and incorporated herein by reference).
  4.1   Instruments defining the rights of securities holders (see Exhibits 3.1, 3.2, 3.3 and 3.4 above).
  4.2   Amended and Restated Declaration of Trust of BFC Capital Trust I dated as of February 4, 1997 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference).
  4.3   Form of 9.65% Series B Cumulative Trust Preferred Security Certificates for BFC Capital Trust I (included as Exhibit D to Exhibit 4.2).
  4.4   Indenture dated as of February 4, 1997, relating to the 9.65% Junior Subordinated Deferrable Interest Debentures of BancFirst Corporation issued to BFC Capital Trust I (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference).
  4.5   Form of Certificate of 9.65% Series B Junior Subordinated Deferrable Interest Debenture of BancFirst Corporation (included as Exhibit A to Exhibit 4.4).
  4.6   Form of Series B Guarantee of BancFirst Corporation relating to the 9.65% Series B Cumulative Trust Preferred Securities of BFC Capital Trust I (filed as Exhibit 4.7 to the Company’s registration statement on Form S-4, File No. 333-25599, and incorporated herein by reference).
  4.7   Rights Agreement, dated as of February 25, 1999, between BancFirst Corporation and BancFirst, as Rights Agent, including Exhibit A the form of Certificate of Designations of the Company setting forth the terms of the Preferred Stock, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights Agreement (filed as Exhibit 1 to the Company’s 8-K dated February 29, 1999 and incorporated herein by reference).

 

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Exhibit

Number

 

Exhibit

  4.8   Form of Amended and Restated Trust Agreement relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.5 to the Company’s registration statement on Form S-3, File No. 333-112488, and incorporated herein by reference).
  4.9   Form of 7.20% Cumulative Trust Preferred Security Certificate for BFC Capital Trust II (included as Exhibit D to Exhibit 4.8).
  4.10   For of Indenture relating to the 7.20% Junior Subordinated Deferrable Interest Debentures of BancFirst Corporation issued to BFC Capital Trust II (filed as Exhibit 4.1 to the Company’s registration statement on Form S-3, File No. 333-112488, and incorporated herein by reference).
  4.11   Form of Certificate of 7.20% Junior Subordinated Deferrable Interest Debenture of BancFirst Corporation (included in Section 2.2 and Section 2.3 of Exhibit 4.10).
  4.12   Form of Guarantee of BancFirst Corporation relating to the 7.20% Cumulative Trust Preferred Securities of BFC Capital Trust II (filed as Exhibit 4.7 to the Company’s registration statement on Form S-3, File No. 333-112488, and incorporated herein by reference).
10.1   Eighth Amended and Restated BancFirst Corporation Stock Option Plan (filed as Exhibit 10.1 to the Company’s Quarter Report on Form 10-Q for the Quarter Ended September 30, 2006 and incorporated herein by reference).
10.2   Amended and Restated BancFirst Corporation Employee Stock Ownership and Thrift Plan, as amended by amendments dated September 19, 1992, November 21, 2002 and December 18, 2003 (filed as Exhibit 10.2 to the Company’s Annual Return on Form 10-K for the fiscal year ended December 31, 2004 and incorporated herein by reference).
10.3   1988 Incentive Stock Option Plan of Security Corporation as assumed by BancFirst Corporation (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference).
10.4   1993 Incentive Stock Option Plan of Security Corporation as assumed by BancFirst Corporation (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference).
10.5   1995 Non-Employee Director Stock Plan of AmQuest Financial Corp. as assumed by BancFirst Corporation (filed as Exhibit 4.3 to the Company’s Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference).
10.6   Amended and Restated BancFirst Corporation Non-Employee Directors’ Stock Option Plan (filed as exhibit 10.6 to the Company’s Quarter Report on Form 10-Q for the Quarter Ended June 30, 2006 and incorporated herein by reference).
10.7   Amended and Restated BancFirst Corporation Directors’ Deferred Stock Compensation Plan (filed as exhibit 10.7 to the Company’s Quarter Report on Form 10-Q for the Quarter Ended June 30, 2006 and incorporated herein by reference).
31.1*   CEO’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2*   CFO’s Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a).

 

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Exhibit

Number

 

Exhibit

32.1*   CEO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   CFO’s Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1   Stock Repurchase Program (filed as Exhibit 99.1 to the Company’s Form 8-K dated November 18, 1999 and incorporated herein by reference).

* Filed herewith.

 

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SIGNATURES

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

 

        BANCFIRST CORPORATION
   

(Registrant)

Date: August 7, 2007    

/s/ Joe T. Shockley, Jr.

   

(Signature)

    Joe T. Shockley, Jr.
    Executive Vice President
    Chief Financial Officer

 

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