BancFirst Corp. Director PAUL B JR ODOM bought 7500 shares on 08-25-2011 at $ 34.5
BancFirst Corporation (the â€śCompanyâ€ť) is an Oklahoma business corporation and a financial holding company under Federal law. It conducts virtually all of its operating activities through its principal wholly-owned subsidiary, BancFirst (the â€śBankâ€ť or â€śBancFirstâ€ť), a state-chartered bank headquartered in Oklahoma City, Oklahoma. The Company also owns 100% of the common securities of BFC Capital Trust II and 100% of the common securities of Union National Statutory Trust I, both Delaware business trusts; 100% of Exchange National Bank of Moore in Moore, Oklahoma; 100% of Okemah National Bank in Okemah, Oklahoma; 100% of Council Oak Partners LLC, an Oklahoma limited liability company engaging in investing activities, and 100% of BancFirst Insurance Services, Inc., an Oklahoma business corporation operating as an independent insurance agency. The Company plans to merge Exchange National Bank of Moore and Okemah National Bank into BancFirst during 2011.
The Company was incorporated as United Community Corporation in July 1984 for the purpose of becoming a bank holding company. In June 1985, it merged with seven Oklahoma bank holding companies that had operated under common ownership and the Company has conducted business as a bank holding company since that time. Over the next several years the Company acquired additional banks and bank holding companies, and in November 1988 the Company changed its name to BancFirst Corporation. Effective April 1, 1989, the Company consolidated its 12 subsidiary banks and formed BancFirst. Over the intervening decades, the Company has continued to expand through acquisitions and de-novo branches. The Company currently has 89 banking locations serving 50 communities throughout Oklahoma.
The Companyâ€™s strategy focuses on providing a full range of commercial banking services to retail customers and small to medium-sized businesses in both the non-metropolitan trade centers of Oklahoma and the metropolitan markets of Oklahoma City, Tulsa, Lawton, Muskogee, Norman and Shawnee. The Company operates as a â€śsuper community bankâ€ť, managing its community banking offices on a decentralized basis, which permits them to be responsive to local customer needs. Underwriting, funding, customer service and pricing decisions are made by presidents in each market within the Companyâ€™s strategic parameters. At the same time, the Company generally has a larger lending capacity, broader product line and greater operational scale than its principal competitors in the non-metropolitan market areas (which typically are independently-owned community banks). In the metropolitan markets served by the Company, the Companyâ€™s strategy is to focus on the needs of local businesses that are not served adequately by larger institutions.
The Bank maintains a strong community orientation by, among other things, selecting members of the communities in which the Bankâ€™s branches operate to local consulting boards that assist in marketing and providing feedback on the Bankâ€™s products and services to meet customer needs. As a result of the development of broad banking relationships with its customers and community branch network, the Bankâ€™s lending and investing activities are funded almost entirely by core deposits.
The Bank centralizes virtually all of its processing, support and investment functions in order to achieve consistency and operational efficiencies. The Bank maintains centralized control functions such as operations support, bookkeeping, accounting, loan review, compliance and internal auditing to ensure effective risk management. The Bank also provides centrally certain specialized financial services that require unique expertise.
The Bank provides a wide range of retail and commercial banking services, including: commercial, real estate, agricultural and consumer lending; depository and funds transfer services; collections; safe deposit boxes; cash management services; retail brokerage services; and other services tailored for both individual and corporate customers. The Bank also offers trust services and acts as executor, administrator, trustee, transfer agent and in various other fiduciary capacities. Through its Technology and Operations Center, the Bank provides item processing, research and other correspondent banking services to financial institutions and governmental units.
The Bankâ€™s primary lending activity is the financing of business and industry in its market areas. Its commercial loan customers are generally small to medium-sized businesses engaged in light manufacturing, local wholesale and retail trade, commercial and residential real estate development and construction, services, agriculture, and the energy industry. Most forms of commercial lending are offered, including commercial mortgages, other forms of asset-based financing and working capital lines of credit. In addition, the Bank offers Small Business Administration (â€śSBAâ€ť) guaranteed loans through BancFirst Commercial Capital, a division established in 1991.
Consumer lending activities of the Bank consist of traditional forms of financing for automobiles, residential mortgage loans, home equity loans, and other personal loans. Residential loans consist primarily of home loans in non-metropolitan areas which are generally shorter in duration than typical mortgages and reprice within five years.
The Bankâ€™s range of deposit services include checking accounts, Negotiable Order of Withdrawal (â€śNOWâ€ť) accounts, savings accounts, money market accounts, sweep accounts, club accounts, individual retirement accounts and certificates of deposit. Overdraft protection and autodraft services are also offered. Deposits of the Bank are insured by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation (â€śFDICâ€ť). In addition, certain Bank employees are licensed insurance agents qualified to offer tax deferred annuities.
Trust services offered through the Bankâ€™s Trust and Investment Management Division (the â€śTrust Divisionâ€ť) consist primarily of investment management and administration of trusts for individuals, corporations and employee benefit plans. Investment options include pooled equity and fixed income funds managed by the Trust Division and advised by nationally recognized investment management firms. In addition, the Trust Division serves as bond trustee and paying agent for various Oklahoma municipalities and governmental entities.
BancFirst has the following principal subsidiaries: Council Oak Investment Corporation, a small business investment corporation, Council Oak Real Estate, Inc., a real estate investment company, BancFirst Agency, Inc., a credit life insurance agency, Lenders Collection Corporation, which is engaged in collection of troubled loans assigned to it by BancFirst, and BancFirst Community Development Corporation, a certified community development entity. All of these companies are Oklahoma corporations.
The Company had approximately 1,532 full-time equivalent employees at December 31, 2010, compared to approximately 1,428 full-time equivalent employees at December 31, 2009. Its principal executive offices are located at 101 North Broadway, Oklahoma City, Oklahoma 73102, telephone number (405) 270-1086.
Market Areas and Competition
The banking environment in Oklahoma is very competitive. The geographic dispersion of the Companyâ€™s banking locations presents several different levels and types of competition. In general, however, each location competes with other banking institutions, savings and loan associations, brokerage firms, personal loan finance companies and credit unions within their respective market areas. The communities in which the Bank maintains offices are generally local trade centers throughout Oklahoma. The major areas of competition include interest rates charged on loans, underwriting terms and conditions, interest rates paid on deposits, fees on non-credit services, levels of service charges on deposits, completeness of product line and quality of service.
Management believes the Company is in an advantageous competitive position operating as a â€śsuper community bank.â€ť Under this strategy, the Company provides a broad line of financial products and services to small to medium-sized businesses and consumers through full service community banking offices with decentralized management, while achieving operating efficiency and product scale through product standardization and centralization of processing and other functions. Each full service banking office has senior management with significant lending experience who exercise substantial autonomy over credit and pricing decisions. This decentralized management approach, coupled with continuity of service by the same staff members, enables the Bank to develop long-term customer relationships, maintain high quality service and respond quickly to customer needs. The majority of its competitors in the non-metropolitan areas are much smaller, and neither offer the range of products and services nor have the lending capacity of BancFirst. In the metropolitan communities, the Companyâ€™s strategy is to be more responsive to, and more focused on, the needs of local businesses that are not served effectively by larger institutions. As reported by the FDIC, the Companyâ€™s market share of deposits for Oklahoma was 6.25% as of June 30, 2010 and 5.64% as of June 30, 2009.
Marketing to existing and potential customers is performed through a variety of media advertising, direct mail and direct personal contacts. The Company monitors the needs of its customer base through its Product Development Group, which develops and enhances products and services in response to such needs. Sales, customer service and product training are coordinated with incentive programs to motivate employees to cross-sell the Bankâ€™s products and services.
The Company has four principal business units: metropolitan banks, community banks, other financial services, and executive, operations and support. For more information on the Companyâ€™s Operating Segments see Note (22), â€śSegment Informationâ€ť to the Companyâ€™s Consolidated Financial Statements.
Control of the Company
Affiliates of the Company beneficially own approximately 53% of the outstanding shares of the Companyâ€™s common stock outstanding as of February 28, 2011. Under Oklahoma law and the Companyâ€™s Certificate of Incorporation, holders of a majority of the outstanding shares of common stock are able to elect all of the directors and approve significant corporate actions, including business combinations. Accordingly, the affiliates have the ability to control the business and affairs of the Company.
Supervision and Regulation
Banking is a complex, highly regulated industry. The Companyâ€™s growth and earnings performance and those of the Bank can be affected not only by management decisions and general and local economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. These authorities include, but are not limited to, the Board of Governors of the Federal Reserve System (the â€śFederal Reserve Boardâ€ť), the FDIC and the Oklahoma State Banking Department.
The primary goals of the bank regulatory framework are to maintain a safe and sound banking system and to facilitate the conduct of sound monetary policy. This regulatory framework is intended primarily for the protection of a financial institutionâ€™s depositors, rather than the institutionâ€™s shareholders and creditors. The following discussion describes certain of the material elements of the regulatory framework applicable to bank holding companies and financial holding companies and their subsidiaries and provides certain specific information relevant to the Company, which is both a bank holding company and a financial holding company. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed. Further, such statutes, regulations and policies are continually under review by Congress and state legislatures, and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to the Company, including changes in interpretation or implementation thereof, could have a material effect on the Companyâ€™s business.
As a financial holding company and a bank holding company, the Company is regulated under the Bank Holding Company Act of 1956 (the â€śBank Holding Company Actâ€ť), as amended by the 1999 financial modernization legislation known as the Gramm-Leach-Bliley Act (the â€śGLB Actâ€ť), as well as other federal and state laws governing the banking business. The GLB Act preserves the role of the Federal Reserve Board as the umbrella supervisor for both financial holding companies and bank holding companies while at the same time incorporating a system of functional regulation designed to take advantage of the strengths of the various federal and state regulators. In particular, the GLB Act replaces with more limited exemptions the broad exemption from Securities and Exchange Commission (â€śSECâ€ť) regulation that banks previously enjoyed, and it reaffirms that states are the regulators for the insurance activities of all persons who conduct such activities, including banks.
The Companyâ€™s banking subsidiary is subject to regulation and supervision by various regulatory authorities, including the Oklahoma State Banking Department and the FDIC. The Company and its subsidiaries and affiliates are also subject to various other laws, regulations, supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of the Company and its ability to make distributions to shareholders.
Additionally, the Companyâ€™s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (the â€śExchange Actâ€ť). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act and, as a company whose shares are traded on the NASDAQ Global Select Market System, the rules of the NASDAQ Stock Market, Inc. (the â€śNASDAQâ€ť).
Bank Holding Company Activities
â€śFinancial in Natureâ€ť Requirement
As a bank holding company that has elected to become a financial holding company pursuant to the Bank Holding Company Act, the Company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature. â€śFinancial in natureâ€ť activities include securities underwriting, dealing and market making, sponsoring mutual funds and investment companies, insurance underwriting and agency, merchant banking, and other activities that the Federal Reserve Board, in consultation with the Secretary of the U.S. Treasury, determines from time to time to be financial in nature or incidental to such financial activity or is complementary to a financial activity and does not pose a safety and soundness risk.
Federal Reserve Board approval is not required for the Company to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. Prior Federal Reserve Board approval is required before the Company may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association.
Because the Company is a financial holding company, if its subsidiary bank receives a rating under the Community Reinvestment Act of 1977, as amended (â€śCRAâ€ť), of less than satisfactory, the Company will be prohibited, until the rating is raised to satisfactory or better, from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations, except that the Company could engage in new activities, or acquire companies engaged in activities, that are closely related to banking under the Bank Holding Company Act. In addition, if the Federal Reserve Board finds that the Companyâ€™s subsidiary bank is not well capitalized or well managed, the Company would be required to enter into an agreement with the Federal Reserve Board to comply with all applicable capital and management requirements and which may contain additional limitations or conditions. Until corrected, the Company would not be able to engage in any new activity or acquire companies engaged in activities that are not closely related to banking under the Bank Holding Company Act without prior Federal Reserve Board approval. If the Company fails to correct any such condition within a prescribed period, the Federal Reserve Board could order the Company to divest of its banking subsidiary or, in the alternative, to cease engaging in activities other than those closely related to banking under the Bank Holding Company Act. Although the Company is a financial holding company, it continues to maintain its status as a bank holding company for purposes of other Federal Reserve Board regulations.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
BancFirst Corporationâ€™s net income for the second quarter of 2011 was $10.1 million compared to $11.0 million for the second quarter of 2010. Diluted net income per share was $0.65 and $0.71 for the second quarter of 2011 and 2010, respectively. For the first six months of 2011, net income was $21.5 million compared to $20.3 million for the first six months of 2010. Diluted net income per share for the first six months of 2011 was $1.37 compared to $1.30 for the first six months of 2010.
Net interest income for the second quarter of 2011 was $38.0 million compared to $35.7 million for the second quarter of 2010. The increase was attributable to the increase in the Companyâ€™s average earning assets. Average earning assets grew $666.9 million from a year ago, which consisted of $268.2 million from acquisitions and the remainder from internal growth. The Companyâ€™s net interest margin for the second quarter of 2011 was 3.17% versus 3.44% a year ago as interest rates remain at historically low levels. Provision for loan losses was $2.0 million for the second quarter of 2011 compared to $871,000 for the second quarter of 2010. Loans grew by approximately $65 million during the second quarter of 2011, which generated a portion of the loan loss provision in the quarter. Noninterest income totaled $19.7 million for the second quarter of 2011, an increase of $2.7 million from a year ago. Included in this quarterâ€™s noninterest income was a securities gain of $1.2 million on the sale of an investment made by the Companyâ€™s venture capital subsidiary, Council Oak Investment Corporation. Noninterest expense was $39.6 million for the second quarter of 2011 compared to $34.5 million for the second quarter of 2010. The increase in noninterest expense was primarily related to the Companyâ€™s 2010 acquisitions, which added approximately $2.2 million of noninterest expense. In addition, the Company had a write down on other real estate of $660,000 and a one-time merger related expense of $800,000.
Total assets at June 30, 2011 were $5.3 billion, up $639.4 million or 13.8% from June 30, 2010. Compared to year-end 2010, total assets grew by $207.2 million or 4.1%. Total loans at June 30, 2011 were $2.9 billion, an increase of $68.5 million from June 30, 2010 and an increase of $49.9 million from December 31, 2010. At June 30, 2011 total deposits were $4.7 billion, up $584.6 million or 14.2% compared to June 30, 2010 and up $198.2 million or 4.4% from December 31, 2010. The Companyâ€™s liquidity remains strong as its average loan-to-deposit ratio was 60.5% at June 30, 2011 compared to 69.5% at June 30, 2010. Stockholdersâ€™ equity was $470.4 million at June 30, 2011, an increase of $24.8 million from June 30, 2010 and $11.8 million from December 31, 2010. Average stockholdersâ€™ equity to average assets was 9.00% at June 30, 2011, compared to 9.81% at June 30, 2010.
Asset quality has improved somewhat in 2011, as measured by a ratio of nonperforming and restructured assets to total assets of 0.75% at June 30, 2011, compared to 1.12% at June 30, 2010 and 1.01% for the year ended December 31, 2010. The Company sold a commercial property held in other real estate owned valued at $6.9 million in the first quarter of 2011. The allowance for loan losses equaled 154.7% of nonperforming and restructured loans at June 30, 2011, versus 88.3% at June 30, 2010 and 127.2% at December 31, 2010. Quarterly net charge-offs to average loans remained low at 0.15% at June 30, 2011, compared to 0.09% at June 30, 2010 and 0.09% at December 31, 2010. The allowance for loan losses as a percentage of total loans was 1.30% at June 30, 2011 compared to 1.32% at June 30, 2010 and 1.27% at December 31, 2010.
On July 12, 2011, the Company acquired FBC Financial Corporation and its subsidiary bank, 1 st Bank Oklahoma with banking locations in Claremore, Tulsa, Verdigris, and Inola, Oklahoma. The Company paid a premium of $1.5 million above the equity capital of FBC Financial Corporation. At June 30, 2011, 1 st Bank Oklahoma had approximately $256 million in total assets, $117 million in loans, $187 million in deposits and $24 million in equity capital. The bank will operate under its present name until it is merged into BancFirst, which is expected to be during the first quarter of 2012. The acquisition is not expected to have a material effect on the Companyâ€™s consolidated financial statements.
On December 15, 2010, the Company completed the acquisition of OK Bancorporation, Inc., and its subsidiary bank, The Okemah National Bank. At acquisition, The Okemah National Bank had approximately $73 million in total assets, $32 million in loans, $62 million in deposits, and $9 million in equity capital. The bank will operate as The Okemah National Bank until it is merged into BancFirst, which is expected to be during the fourth quarter of 2011. The acquisition did not have a material effect on the Companyâ€™s consolidated financial statements.
On December 10, 2010, the Company completed the acquisition of Exchange Bancshares of Moore, Inc., and its subsidiary bank, Exchange National Bank of Moore. At acquisition, Exchange National Bank of Moore had approximately $147 million in total assets, $47 million in loans, $116 million in deposits, and $10 million in equity capital. Exchange National Bank of Moore operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on June 17, 2011. The acquisition did not have a material effect on the Companyâ€™s consolidated financial statements.
On October 8, 2010, the Company completed the acquisition of Union National Bancshares, Inc., and its subsidiary bank, Union Bank of Chandler with offices in Chandler and Tulsa, Oklahoma. At acquisition, Union Bank of Chandler had approximately $134 million in total assets, $90 million in loans, $117 million in deposits, and $15 million in equity capital. Union Bank of Chandler operated as a subsidiary of BancFirst Corporation until it was merged into BancFirst on November 12, 2010. The acquisition did not have a material effect on the Companyâ€™s consolidated financial statements.
The Company recorded a total of $13.3 million of goodwill and core deposit intangibles as a result of the three acquisitions completed in 2010. The combined acquisitions added approximately $371 million in total assets, $169 million in loans and $295 million in deposits. The effects of these acquisitions are included in the consolidated financial statements of the Company from the date of acquisition forward. The Company does not believe these acquisitions, individually or in aggregate are material to the Companyâ€™s consolidated financial statements.
Effective June 30, 2010, the Company ceased participation in the Transaction Account Guarantee Program (â€śTAGPâ€ť) for extended coverage of noninterest-bearing transaction deposit accounts. Accordingly, the standard insurance amount was in effect for the Companyâ€™s deposit accounts through December 31, 2010. In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for temporary unlimited coverage for non-interest-bearing transaction accounts. The separate coverage for non-interest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012.
On April 1, 2010, the Companyâ€™s insurance agency BancFirst Insurance Services, Inc., also operating as Wilcox & McGrath, Inc., completed its acquisition of RBC Agency, Inc., which has offices in Shawnee and Stillwater. BancFirst Insurance Services, Inc. has offices in Oklahoma City, Tulsa, Lawton and Muskogee. The acquisition did not have a material effect on the Companyâ€™s consolidated financial statements.
On March 21, 2010, Congress passed student loan reform legislation centralizing student lending in a governmental agency, which as of June 30, 2010 resulted in an end to the student loan programs provided by the Company. As of June 30, 2011, the Company had approximately $51.6 million of student loans held for investment remaining in the loan portfolio.
Provision for Loan Losses
The Companyâ€™s provision for loan losses increased $1.1 million or 131.1% for the three months ended June 30, 2011, compared to the three months ended June 30, 2010. A portion of the increase in the loan loss provision during the quarter was due to an increase in loans of approximately $65 million. Net loan charge-offs were $1.1 million for the three months ended June 30, 2011, compared to $649,000 for the three months ended June 30, 2010. The rate of net charge-offs to average total loans is presented above.
The Companyâ€™s provision for loan losses increased $1.0 million or 58.5% for the first six months of 2011, compared to the same period of 2010. Net loan charge-offs were $1.5 million for the six months ended June 30, 2011, compared to $1.1 million for the six months ended June 30, 2010.
Noninterest income increased $2.6 million or 15.6% for the three months ended June 30, 2011 compared to the same period in 2010. Included in this quarterâ€™s noninterest income was a securities gain of $1.2 million on the sale of an investment made by the Companyâ€™s venture capital subsidiary, Council Oak Investment Corporation. In addition, noninterest income was higher in 2011 due to higher trust and commercial deposit revenues, insurance commissions and treasury management services.
Noninterest income for the six months ended June 30, 2011 increased $4.4 million or 13.4% compared to the same period in 2010 for the reasons mentioned above.
The Company had income from check card usage totaling $7.1 million and $6.2 million during the six months ended June 30, 2011 and 2010, respectively. The Federal Reserve enacted a final rule on June 29, 2011 establishing the interchange rate at $0.21 per transaction and five basis points multiplied by the value of the transaction that will be effective on October 1, 2011 for banks with asset size greater than $10 billion. Because of the uncertainty regarding how this new rate will affect interchange rates for banks with assets below $10 billion, the Company cannot determine the ultimate impact this change may have on check card income for future periods, if any.
Noninterest expense increased $5.1 million or 14.8% for the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in noninterest expense was primarily related to the Companyâ€™s 2010 acquisitions, which added approximately $2.2 million of noninterest expense. In addition, the Company had a write down on other real estate of $660,000 and a one-time merger related expense of $800,000.
Noninterest expense increased $6.6 million or 9.5% for the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in noninterest expense was primarily related to the Companyâ€™s 2010 acquisitions, which added approximately $4.2 million of noninterest expense, a write down on other real estate of $660,000, and a one-time merger related expense of $800,000, partially offset by a gain on the sale of other real estate of approximately $988,000.
The Companyâ€™s effective tax rate on income before taxes was 37.0% for the second quarter of 2011, compared to 36.2% for the second quarter of 2010. The increase was a result of higher pretax earnings and Federal tax credits that were fully utilized during 2010, which was the final year for these credits.
The Companyâ€™s effective tax rate on income before taxes was 36.7% for the first six months of 2011, compared to 35.1% for the first six months of 2010. The increase was a result of higher pretax earnings and Federal tax credits that were fully utilized during 2010, which was the final year for these credits.
At June 30, 2011, total securities increased $2.5 million compared to June 30, 2010 and decreased $163.5 million compared to December 31, 2010. The size of the Companyâ€™s securities portfolio is a function of pledging requirements, liquidity management and excess funds available for investment. The Company has historically maintained a liquid securities portfolio to provide funds for loan growth. Over the past two years, the Companyâ€™s traditional deposits grew when funds from commercial sweep balances flowed into the bank. This excess liquidity has been maintained at the Federal Reserve since these deposits are expected to be transitory and will most likely revert to sweep accounts when interest rates rise. The net unrealized gain on securities available for sale, before taxes, was $14.8 million at June 30, 2011, compared to a net unrealized gain of $17.0 million at June 30, 2010 and a net unrealized gain of $13.0 million at December 31, 2010. These unrealized gains are included in the Companyâ€™s stockholdersâ€™ equity as accumulated other comprehensive income, net of income tax, in the amounts of $9.7 million, $11.1 million and $8.5 million respectively.
At June 30, 2011, total loans were up $68.5 million or 2.5% from June 30, 2010 and $49.9 million or 1.8% from December 31, 2010. The increase compared to a year ago was due primarily to the Companyâ€™s recent acquisitions partially offset by the sale of approximately $144 million of student loans during 2010. At June 30, 2011, the allowance for loan losses was relatively constant compared to June 30, 2010, and increased by $1.3 million or 3.8% from year-end 2010. The allowance for loan losses as a percentage of total loans and the allowance to nonperforming and restructured loans are shown in the preceding table.
Nonperforming and Restructured Assets
Nonperforming and restructured assets totaled $39.5 million at June 30, 2011, compared to $51.7 million at June 30, 2010 and $51.3 million at December 31, 2010. Nonperforming and restructured assets include loans which are considered to have identifiable probable loss potential. These loans are placed on nonaccrual status and are allocated a specific allowance or directly charged down. The Companyâ€™s nonaccrual loans are primarily commercial and real estate loans. An other real estate owned property valued at $6.9 million was sold in the first quarter of 2011. Nonperforming and restructured assets as a percentage of total loans is shown in the preceding table.
Potential problem loans are loans which are not now considered nonperforming, but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms which would result in the loan being classified as nonperforming. The Company had approximately $7.5 million of these loans at June 30, 2011 compared to $6.1 million at June 30, 2010 and $10.1 million at December 31, 2010.
At June 30, 2011 total deposits increased $584.6 million compared to June 30, 2010, and $198.2 million compared to December 31, 2010. The increase from June 30, 2010 was due to acquisitions and internal growth. The Companyâ€™s core deposits provide it with a stable, low-cost funding source. The Companyâ€™s deposit base continues to be comprised substantially of core deposits, with certificates of deposit exceeding $100,000 being only 8.8% of total deposits at June 30, 2011, compared to 8.5% at June 30, 2010 and 9.1% at December 31, 2010.
Short-term borrowings consist primarily of Federal funds purchased and repurchase agreements and are another source of funds for the Company. Fluctuations in short-term borrowings are a function of Federal funds purchased from correspondent banks, customer demand for repurchase agreements and the liquidity needs of the bank. Short-term borrowings decreased $700,000 from June 30, 2010, and $5.8 million from December 31, 2010.
The Company has a line of credit from the Federal Home Loan Bank (â€śFHLBâ€ť) of Topeka, Kansas to use for liquidity or to match-fund certain long-term fixed rate loans. The Companyâ€™s assets, including residential first mortgages of $455 million, are pledged as collateral for the borrowings under the line of credit. As of June 30, 2011, the Company had approximately $17.6 million in advances outstanding due to acquisitions during 2010. On October 8, 2010, the Company completed the acquisition of Union National Bancshares, Inc., and its subsidiary bank, Union Bank of Chandler, which had $765,000 in FHLB advances outstanding as of that date. On December 10, 2010, the Company completed the acquisition of Exchange Bancshares of Moore, Inc., and its subsidiary bank, Exchange National Bank of Moore, which had $19 million in FHLB advances outstanding as of that date. The advances mature at varying dates through 2014. The Company had no FHLB borrowings as of June 30, 2010.
On December 13, 2010, the Company borrowed $14.5 million from a commercial bank for a three year term. The loan has an interest rate of 3% per annum, payable quarterly on the first day of March, June, September and December until the maturity date of November 30, 2013. Scheduled principal payments are due on or before November 30, 2011 and November 30, 2012 equal to 25% of the unpaid principal amount outstanding. The loan may be prepaid in whole or in part without fee or penalty at any time. The proceeds were used to fund a portion of the Companyâ€™s recent acquisitions. The Company made an advance payment of $6.0 million on July 22, 2011 reducing the principal balance to $8.5 million.
Capital Resources and Liquidity
At June 30, 2011 stockholdersâ€™ equity increased $24.8 million from June 30, 2010 and $11.8 million from December 31, 2010 due to net earnings retained, stock option exercises, and unrealized gains on securities, partially offset by dividends, stock buybacks and unrealized losses on securities. The Companyâ€™s leverage ratio and total risk-based capital ratio were 8.33% and 15.06%, respectively, at June 30, 2011, well in excess of the regulatory minimums.
On July 12, 2011 the Company acquired $7.3 million of Trust Preferred securities related to the acquisition of FBC Financial Corporation.
See Note (10) of the Notes to Consolidated Financial Statements for a discussion of capital ratio requirements.
There have not been material changes from the liquidity and funding discussion included in Managementâ€™s Discussion and Analysis in the Companyâ€™s Annual Report on Form 10-K for the year ended December 31, 2010.
On July 12, 2011, the Company assumed $7.3 million of Trust Preferred Securities related to the acquisition of FBC Financial Corporation. In addition, on July 22, 2011, the Company made an advance payment of $6.0 million on the commercial bank loan described above. As both of these events occurred subsequent to June 30, 2011, they were not included in the consolidated financial statements included in this report.
Except for the items described above, there have not been material changes in the resources required for scheduled repayments of contractual obligations from the table of Contractual Cash Obligations included in Managementâ€™s Discussion and Analysis which was included in the Companyâ€™s Annual Report on Form 10-K for the year ended December 31, 2010.