UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

101 N. Broadway, Oklahoma City, Oklahoma

 

73102-8405

(Address of principal executive offices)

 

(Zip Code)

(405) 270-1086

(Registrant’s telephone number, including area code)

N/A

(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      No  .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      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

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        

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

As of October 31, 2018 there were 32,753,690 shares of the registrant’s Common Stock outstanding.

 

 

 

 


PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

 

2018

 

 

 

2017

 

 

 

(unaudited)

 

 

(see Note 1)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

185,009

 

 

$

216,104

 

Interest-bearing deposits with banks

 

 

1,607,157

 

 

 

1,541,771

 

Federal funds sold

 

 

600

 

 

 

700

 

Securities held for investment (fair value: $1,447 and $2,303, respectively)

 

 

1,440

 

 

 

2,292

 

Securities available for sale at fair value

 

 

475,640

 

 

 

467,703

 

Loans held for sale

 

 

4,739

 

 

 

6,173

 

Loans (net of unearned interest)

 

 

4,947,528

 

 

 

4,721,995

 

Allowance for loan losses

 

 

(51,875

)

 

 

(51,666

)

Loans, net of allowance for loan losses

 

 

4,895,653

 

 

 

4,670,329

 

Premises and equipment, net

 

 

170,167

 

 

 

134,088

 

Other real estate owned

 

 

6,827

 

 

 

4,136

 

Intangible assets, net

 

 

17,257

 

 

 

11,082

 

Goodwill

 

 

79,733

 

 

 

54,042

 

Accrued interest receivable and other assets

 

 

158,216

 

 

 

144,736

 

Total assets

 

$

7,602,438

 

 

$

7,253,156

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

2,662,304

 

 

$

2,550,150

 

Interest-bearing

 

 

3,980,827

 

 

 

3,864,895

 

Total deposits

 

 

6,643,131

 

 

 

6,415,045

 

Short-term borrowings

 

 

2,200

 

 

 

900

 

Accrued interest payable and other liabilities

 

 

40,347

 

 

 

29,623

 

Junior subordinated debentures

 

 

31,959

 

 

 

31,959

 

Total liabilities

 

 

6,717,637

 

 

 

6,477,527

 

 

 

 

 

 

 

 

 

 

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: 32,749,690 and 31,894,563, respectively

 

 

32,750

 

 

 

31,895

 

Capital surplus

 

 

149,242

 

 

 

107,481

 

Retained earnings

 

 

707,481

 

 

 

638,580

 

Accumulated other comprehensive loss, net of income tax of $(1,597)

and $(795), respectively

 

 

(4,672

)

 

 

(2,327

)

Total stockholders' equity

 

 

884,801

 

 

 

775,629

 

Total liabilities and stockholders' equity

 

$

7,602,438

 

 

$

7,253,156

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

66,788

 

 

$

56,090

 

 

$

195,311

 

 

$

164,488

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,246

 

 

 

1,763

 

 

 

6,100

 

 

 

5,430

 

Tax-exempt

 

 

145

 

 

 

187

 

 

 

478

 

 

 

552

 

Federal funds sold

 

 

89

 

 

 

6

 

 

 

288

 

 

 

7

 

Interest-bearing deposits with banks

 

 

8,165

 

 

 

4,972

 

 

 

21,272

 

 

 

12,837

 

Total interest income

 

 

77,433

 

 

 

63,018

 

 

 

223,449

 

 

 

183,314

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

11,171

 

 

 

5,247

 

 

 

28,150

 

 

 

13,272

 

Short-term borrowings

 

 

42

 

 

 

6

 

 

 

85

 

 

 

13

 

Junior subordinated debentures

 

 

547

 

 

 

532

 

 

 

1,626

 

 

 

1,589

 

Total interest expense

 

 

11,760

 

 

 

5,785

 

 

 

29,861

 

 

 

14,874

 

Net interest income

 

 

65,673

 

 

 

57,233

 

 

 

193,588

 

 

 

168,440

 

Provision for loan losses

 

 

747

 

 

 

3,276

 

 

 

2,286

 

 

 

5,189

 

Net interest income after provision for loan losses

 

 

64,926

 

 

 

53,957

 

 

 

191,302

 

 

 

163,251

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust revenue

 

 

3,281

 

 

 

3,083

 

 

 

9,806

 

 

 

8,929

 

Service charges on deposits

 

 

18,103

 

 

 

16,633

 

 

 

52,293

 

 

 

48,859

 

Securities transactions (includes accumulated other comprehensive income reclassifications of $9, $0, $9 and $(142), respectively)

 

 

(64

)

 

 

(22

)

 

 

37

 

 

 

(352

)

Income from sales of loans

 

 

800

 

 

 

732

 

 

 

2,253

 

 

 

2,180

 

Insurance commissions

 

 

5,207

 

 

 

4,603

 

 

 

14,333

 

 

 

12,894

 

Cash management

 

 

3,383

 

 

 

2,804

 

 

 

9,785

 

 

 

8,357

 

Gain (loss) on sale of other assets

 

 

195

 

 

 

29

 

 

 

348

 

 

 

(20

)

Other

 

 

1,896

 

 

 

1,307

 

 

 

4,493

 

 

 

4,390

 

Total noninterest income

 

 

32,801

 

 

 

29,169

 

 

 

93,348

 

 

 

85,237

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

35,051

 

 

 

31,471

 

 

 

104,017

 

 

 

93,672

 

Occupancy, net

 

 

3,386

 

 

 

3,298

 

 

 

10,184

 

 

 

9,264

 

Depreciation

 

 

2,733

 

 

 

2,493

 

 

 

7,572

 

 

 

7,305

 

Amortization of intangible assets

 

 

740

 

 

 

547

 

 

 

2,232

 

 

 

1,641

 

Data processing services

 

 

1,418

 

 

 

1,110

 

 

 

3,816

 

 

 

3,402

 

Net expense from other real estate owned

 

 

64

 

 

 

68

 

 

 

109

 

 

 

320

 

Marketing and business promotion

 

 

1,997

 

 

 

1,790

 

 

 

5,998

 

 

 

5,564

 

Deposit insurance

 

 

597

 

 

 

553

 

 

 

1,856

 

 

 

1,683

 

Other

 

 

9,823

 

 

 

9,270

 

 

 

30,171

 

 

 

26,290

 

Total noninterest expense

 

 

55,809

 

 

 

50,600

 

 

 

165,955

 

 

 

149,141

 

Income before taxes

 

 

41,918

 

 

 

32,526

 

 

 

118,695

 

 

 

99,347

 

Income tax expense

 

 

9,035

 

 

 

10,816

 

 

 

25,606

 

 

 

32,405

 

Net income

 

$

32,883

 

 

$

21,710

 

 

$

93,089

 

 

$

66,942

 

NET INCOME PER COMMON SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.01

 

 

$

0.68

 

 

$

2.85

 

 

$

2.11

 

Diluted

 

$

0.98

 

 

$

0.67

 

 

$

2.78

 

 

$

2.06

 

OTHER COMPREHENSIVE (LOSS)/INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses)/gains on securities, net of tax of $352, $178, $1,005 and $11, respectively

 

$

(1,027

)

 

$

(282

)

 

$

(2,956

)

 

$

(17

)

Reclassification adjustment for losses included in net income, net of tax of $2, $0, $2 and $(55), respectively

 

 

(7

)

 

 

 

 

 

(7

)

 

 

87

 

Other comprehensive (losses)/gains, net of tax of $354, $178, $802 and $(44), respectively

 

 

(1,034

)

 

 

(282

)

 

 

(2,963

)

 

 

70

 

Comprehensive income

 

$

31,849

 

 

$

21,428

 

 

$

90,126

 

 

$

67,012

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued at beginning of period

 

$

32,731

 

 

$

31,818

 

 

$

31,895

 

 

$

31,622

 

Shares issued for stock options

 

 

19

 

 

 

45

 

 

 

122

 

 

 

241

 

Shares issued for acquisitions

 

 

 

 

 

 

 

 

733

 

 

 

 

Issued at end of period

 

$

32,750

 

 

$

31,863

 

 

$

32,750

 

 

$

31,863

 

CAPITAL SURPLUS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

148,494

 

 

$

105,440

 

 

$

107,481

 

 

$

101,730

 

Common stock issued for stock options

 

 

395

 

 

 

811

 

 

 

2,015

 

 

 

4,056

 

Common stock issued for acquisitions

 

 

 

 

 

 

 

 

38,765

 

 

 

 

Stock-based compensation arrangements

 

 

353

 

 

 

354

 

 

 

981

 

 

 

819

 

Balance at end of period

 

$

149,242

 

 

$

106,605

 

 

$

149,242

 

 

$

106,605

 

RETAINED EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

684,425

 

 

$

610,758

 

 

$

638,580

 

 

$

577,648

 

Net income

 

 

32,883

 

 

 

21,710

 

 

 

93,089

 

 

 

66,942

 

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

 

(618

)

 

 

 

Dividends on common stock ($0.30, $0.21, $0.72 and $0.59 per share, respectively)

 

 

(9,827

)

 

 

(6,686

)

 

 

(23,570

)

 

 

(18,808

)

Balance at end of period

 

$

707,481

 

 

$

625,782

 

 

$

707,481

 

 

$

625,782

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

Unrealized gains on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(3,638

)

 

$

446

 

 

$

(2,327

)

 

$

94

 

Net change

 

 

(1,034

)

 

 

(282

)

 

 

(2,963

)

 

 

70

 

Cumulative effect of change in accounting principle

 

 

 

 

 

 

 

 

618

 

 

 

 

Balance at end of period

 

$

(4,672

)

 

$

164

 

 

$

(4,672

)

 

$

164

 

Total stockholders’ equity

 

$

884,801

 

 

$

764,414

 

 

$

884,801

 

 

$

764,414

 

 

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

 

4


BANCFIRST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(Dollars in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

93,089

 

 

$

66,942

 

Adjustments to reconcile to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

2,286

 

 

 

5,189

 

Depreciation and amortization

 

 

9,804

 

 

 

8,946

 

Net amortization of securities premiums and discounts

 

 

(141

)

 

 

(108

)

Realized securities (gains)/losses

 

 

(37

)

 

 

352

 

Gain on sales of loans

 

 

(2,253

)

 

 

(2,180

)

Cash receipts from the sale of loans originated for sale

 

 

145,840

 

 

 

163,128

 

Cash disbursements for loans originated for sale

 

 

(142,207

)

 

 

(163,460

)

Deferred income tax provision (benefit)

 

 

83

 

 

 

(1,690

)

(Gain)/loss on other assets

 

 

(341

)

 

 

66

 

Increase in interest receivable

 

 

(2,380

)

 

 

(1,651

)

Increase in interest payable

 

 

764

 

 

 

188

 

Amortization of stock-based compensation arrangements

 

 

981

 

 

 

819

 

Excess tax benefit from stock-based compensation arrangements

 

 

(1,067

)

 

 

(2,229

)

Other, net

 

 

(4,994

)

 

 

2,513

 

Net cash provided by operating activities

 

 

99,427

 

 

 

76,825

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Net cash received from acquisitions, net of cash paid

 

 

6,248

 

 

 

Net decrease/(increase) in federal funds sold

 

 

22,948

 

 

 

(11,300

)

Purchases of held for investment securities

 

 

(225

)

 

 

(220

)

Purchases of available for sale securities

 

 

(168,971

)

 

 

(54,456

)

Proceeds from maturities, calls and paydowns of held for investment securities

 

 

1,077

 

 

 

1,517

 

Proceeds from maturities, calls and paydowns of available for sale securities

 

 

121,581

 

 

 

72,853

 

Proceeds from sales of available for sale securities

 

 

31,286

 

 

 

Purchase of equity securities

 

 

(2,118

)

 

 

Proceeds from paydowns and sales of equity securities

 

 

1,414

 

 

 

Net change in loans

 

 

81,000

 

 

 

(251,883

)

Purchases of premises, equipment and computer software

 

 

(44,398

)

 

 

(11,495

)

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

 

 

3,899

 

 

 

2,846

 

Net cash provided by/(used in) investing activities

 

 

53,741

 

 

 

(252,138

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net change in deposits

 

 

(101,874

)

 

 

53,989

 

Net increase in short-term borrowings

 

 

1,300

 

 

 

1,600

 

Issuance of common stock in connection with stock options, net

 

 

2,137

 

 

 

4,297

 

Cash dividends paid

 

 

(20,440

)

 

 

(18,091

)

Net cash (used in)/provided by financing activities

 

 

(118,877

)

 

 

41,795

 

Net increase/(decrease) in cash, due from banks and interest-bearing deposits

 

 

34,291

 

 

 

(133,518

)

Cash, due from banks and interest-bearing deposits at the beginning of the period

 

 

1,757,875

 

 

 

1,850,461

 

Cash, due from banks and interest-bearing deposits at the end of the period

 

$

1,792,166

 

 

$

1,716,943

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

29,096

 

 

$

14,688

 

Cash paid during the period for income taxes

 

$

24,255

 

 

$

32,051

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Stock issued in acquisitions

 

$

39,498

 

 

$

 

Cash consideration for acquisitions

 

$

24,722

 

 

$

 

Fair value of assets acquired in acquisitions

 

$

377,320

 

 

$

 

Liabilities assumed in acquisitions

 

$

338,860

 

 

$

 

Unpaid common stock dividends declared

 

$

9,823

 

 

$

6,686

 

 

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, 2017.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of BancFirst Corporation, Council Oak Partners, LLC, BancFirst Insurance Services, Inc., BancFirst Risk and Insurance Company and BancFirst and its subsidiaries. The principal operating subsidiaries of BancFirst are Council Oak Investment Corporation, Council Oak Real Estate, Inc., BFTower, 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 the instructions for Form 10-Q. 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, 2017, 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. There have been no significant changes in the accounting policies of the Company since December 31, 2017, the date of the most recent annual report.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, stockholders’ equity or comprehensive income.

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 loan 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.

Recent Accounting Pronouncements

Standards Adopted During Current Period:

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-2, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-2 allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-2 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company elected to early adopt the provisions of ASU 2018-2 and the amount to reclassify was immaterial to the Company’s financial statements. The Company’s policy is to release material stranded tax effects on a specific identification basis.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in this update provide guidance about types of changes to the terms of conditions of share-based payment awards that would require an entity to apply modification accounting under ASC 718. ASU 2017-09 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements and no prior periods were adjusted.

6


In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 removes the second step of goodwill testing. ASU 2017-04 is effective for fiscal years beginning after December 31, 2019 with early adoption permitted. The Company elected to early adopt ASU 2017-4 and it did not have a significant impact on the Company’s financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of a business. ASU 2017-01 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provides guidance stating that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements and no prior periods were adjusted.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 requires all equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in the fair value recognized through net income. The adoption of the guidance resulted in a $618,000 decrease to retained earnings and a $618,000 increase to accumulated other comprehensive income. Additional income of $41,200 was recorded in the consolidated statement of comprehensive income during 2018 as a result of changes to the accounting for equity investments. Further, the Company’s securities disclosures in Note (3) have been revised to exclude equity investments in 2018 and fair value disclosures in Note (9) have incorporated the revised disclosure requirements for financial investments. ASU 2016-01 also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. Accordingly, we refined the calculation used to determine the disclosed fair value of the Company’s loans held for investment as part of adopting this standard. The refined calculation did not have a significant impact on the Company’s fair value disclosures. ASU 2016-01 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.

In January 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customer (Topic 606).” ASU 2014-09 implements a comprehensive new revenue recognition standard that will supersede substantially all existing revenue recognition guidance. The new standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in a manner that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, which comprises a significant portion of the Company’s revenue stream. ASU 2014-09 was adopted on January 1, 2018 and did not have a significant impact on the Company’s financial statements.

Standards Not Yet Adopted:

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 removes, modifies and adds disclosure requirements on fair value measurements. ASU 2018-13 will be effective for the Company on January 1, 2020. Early adoption is permitted. In addition, early adoption of any removed or modified disclosures and delayed adoption of the additional disclosures until the effective date is also permitted.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact of ASU 2016-13 on its financial statements. In that regard, the Company has formed a task force under the direction of its Chief Financial Officer. The Company is currently developing an implementation plan to include assessment of process, portfolio segmentation, model development, system requirements and the identification of data and resource need, among other things.

 

7


In February 2016, the FASB issued ASU No. 2016-02, “Leases - (Topic 842).” ASU 2016-02 requires that lessees recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. The Company will adopt the new guidance using a modified retrospective basis and anticipates applying the optional practical expedients related to the transition. Based on leases outstanding and the Company’s preliminary assessment as of September 30, 2018, the Company expects the adoption of ASU 2016-02 to have an immaterial effect on its consolidated financial statements.

 

 

(2) RECENT DEVELOPMENTS, INCLUDING MERGERS AND ACQUISITIONS

 

On August 31, 2018 the Company’s wholly-owned subsidiary, BFTower, LLC, purchased the Cotter Ranch Tower in Oklahoma City for its corporate headquarters. The contract price was $21.0 million. The Tower consists of an aggregate of 507,000 square feet, has 36 floors and is the second tallest building in Oklahoma City.

 

On January 11, 2018, the Company acquired First Wagoner Corp. and its subsidiary bank, First Bank & Trust Company, with locations in Carney, Grove, Ketchum, Luther, Tulsa and Wagoner. First Bank & Trust Company had approximately $290 million in total assets, $247 million in loans, $251 million in deposits and $36 million in equity capital. First Bank & Trust Company operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on February 16, 2018. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $6.3 million and goodwill of approximately $19.1 million. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of First Wagoner Corp. and its subsidiary bank, First Bank & Trust Company complements the Company’s community banking strategy by adding an additional five communities to its banking network in Oklahoma.

 

On January 11, 2018, the Company acquired First Chandler Corp. and its subsidiary bank, First Bank of Chandler, with two locations in Chandler. First Bank of Chandler had approximately $88 million in total assets, $66 million in loans, $79 million in deposits and $11 million in equity capital. First Bank of Chandler operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on September 16, 2018. As a result of the acquisition, the Company recorded a core deposit intangible of approximately $2.2 million and goodwill of approximately $6.6 million. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available. The effect of this acquisition was included in the consolidated financial statements of the Company from the date of acquisition forward. The acquisition did not have a material effect on the Company’s consolidated financial statements. The acquisition of First Chandler Corp. and its subsidiary bank, First Bank of Chandler complements the Company’s community banking strategy by increasing its banking network in Oklahoma.

 

On July 31, 2017, the Company completed a two-for-one stock split of the Company’s outstanding shares of common stock. The stock was payable in the form of a dividend on or about July 31, 2017 to shareholders of record of the outstanding common stock as of the close of business record date of July 17, 2017.  Stockholders received one additional share for each share held on that date. This was the second stock split for the Company since going public. All share and per share amounts in these consolidated financial statements and related notes have been retroactively adjusted to reflect this stock split for all periods presented.

 

 

(3)

SECURITIES

The following table summarizes securities held for investment and securities available for sale:

 

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

(Dollars in thousands)

 

Held for investment, at cost (fair value: $1,447 and $2,303, respectively)

 

$

1,440

 

 

$

2,292

 

Available for sale, at fair value

 

 

475,640

 

 

 

467,703

 

Total

 

$

477,080

 

 

$

469,995

 

8


 

The following table summarizes the amortized cost and estimated fair values of securities held for investment:

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

September 30, 2018

 

(Dollars in thousands)

 

Mortgage backed securities (1)

 

$

145

 

 

$

6

 

 

$

 

 

$

151

 

States and political subdivisions

 

 

795

 

 

 

1

 

 

 

 

 

 

796

 

Other securities

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

1,440

 

 

$

7

 

 

$

 

 

$

1,447

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities (1)

 

$

187

 

 

$

10

 

 

$

 

 

$

197

 

States and political subdivisions

 

 

1,605

 

 

 

3

 

 

 

(2

)

 

 

1,606

 

Other securities

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Total

 

$

2,292

 

 

$

13

 

 

$

(2

)

 

$

2,303

 

The following table summarizes the amortized cost and estimated fair values of securities available for sale:

 

 

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair

Value

 

September 30, 2018

 

(Dollars in thousands)

 

U.S. treasuries

 

$

403,213

 

 

$

 

 

$

(5,747

)

 

$

397,466

 

U.S. federal agencies

 

 

32,017

 

 

 

1

 

 

 

(178

)

 

 

31,840

 

Mortgage backed securities (1)

 

 

16,581

 

 

 

119

 

 

 

(566

)

 

 

16,134

 

States and political subdivisions

 

 

30,098

 

 

 

262

 

 

 

(160

)

 

 

30,200

 

Total

 

$

481,909

 

 

$

382

 

 

$

(6,651

)

 

$

475,640

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

314,905

 

 

$

 

 

$

(2,103

)

 

$

312,802

 

U.S. federal agencies

 

 

89,098

 

 

 

82

 

 

 

(329

)