BANCFIRST CORPORATION The following discussion and analysis of our financial condition as ofSeptember 30, 2021 andDecember 31, 2020 and results of operations for the three and nine months endedSeptember 30, 2021 should be read in conjunction with our consolidated financial statements and notes to the financial statements for the year endedDecember 31, 2020 , and the other information included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Certain risks, uncertainties and other factors, including those set forth under "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K, and "Item 1A, Risk Factors" in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from the results discussed in the forward-looking statements appearing in this discussion and analysis.
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. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: ? The COVID-19 pandemic's adverse effects on us and our customers, employees and third-party service providers; the adverse impacts of the pandemic on our business, financial position, operations and prospects may be material. It is not possible to accurately predict the extent, severity or duration of the pandemic or when normal economic and operation conditions will return. ? The likelihood the Durbin Amendment will impact non-interest income. ? The effect of governments' stimulus programs. ? Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company's assessment of that impact. ? Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs. ? Inflation, interest rates, energy prices, securities markets and monetary fluctuations. ? The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company must comply. ? Impairment of the Company's goodwill or other intangible assets. ? Changes in consumer spending, borrowing and savings habits. ? Changes in the financial performance and/or condition of the Company's borrowers. ? Technological changes. ? Acquisitions and integration of acquired businesses. ? The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as thePublic Company Accounting Oversight Board , theFinancial Accounting Standards Board and other accounting standard setters. ? The Company's success at managing the risks involved in the foregoing items.
Actual results may differ materially from forward-looking statements.
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THE COVID-19 PANDEMIC
The COVID-19 pandemic and actions taken in response to it have negatively
impacted the global economy and all financial markets since March 31, 2020 .
Although the Company is not able to estimate the impact of the COVID-19 pandemic
and the resultant economic circumstances on a long-term basis at this time, the
COVID-19 pandemic could materially affect the Company's financial and
operational results. The Company is closely monitoring its loan portfolio for
effects related to COVID-19. See Item 1.A. Risk Factors in the Company's Annual
Report on Form 10-K for the year ended December 31, 2020 , for further
discussion.
SUMMARY
The Company's net income for the third quarter of 2021 was $38.8 million ,
compared to $20.9 million for the third quarter of 2020. Diluted net income per
common share was $1.16 and $0.63 for the third quarter of 2021 and 2020,
respectively. The Company recorded a provision for credit losses of $1.5 million
for the third quarter of 2021, compared to a provision for credit losses of
$18.7 million for the third quarter of 2020.
Net income was $129.5 million , or $3.88 diluted earnings per share, for the nine
months ended September 30, 2021 , compared to net income of $64.2 million , or
$1.94 diluted earnings per share, for the nine months ended September 30, 2020 .
The Company recorded a net benefit from reversal of provisions for credit losses
of $8.5 million for the nine months ended September 30, 2021 compared to a
provision for credit losses of $57.7 million for the nine months ended September
30, 2020 .
The Company's net interest income for the third quarter of 2021 increased to
$80.2 million , compared to $75.9 million for the third quarter of 2020, as a
result of an increase of $6.2 million in fee income from Paycheck Protection
Program (PPP) loan forgiveness. The net interest margin for the third quarter
was 3.09%, compared to 3.40% a year ago. Noninterest income for the third
quarter of 2021 totaled $39.8 million , compared to $34.6 million for the third
quarter of 2020. The increase in noninterest income was attributable to $2.9
million in rental income from other real estate property, a $2.1 million
increase in income from debit card interchange fees and a $1.5 million increase
in insurance commissions. Noninterest expense for the third quarter of 2021
increased to $70.2 million , compared to $66.1 million for the third quarter of
2020, because of the increase in approximately $2.0 million related to other
real estate property operating costs and $1.0 million in net occupancy and
depreciation primarily from the Company's move to its new corporate
headquarters. The Company's effective tax rate was 19.7% for the third quarter
of 2021 compared to 18.4% for the third quarter of 2020.
At September 30, 2021 , the Company's total assets were $11.3 billion , an
increase of $2.1 billion from December 31, 2020 . Loans totaled $6.0 billion , a
decrease of $410.3 million from December 31, 2020 stemming from a net decrease
of approximately $451.5 million in PPP loans and the sale of approximately $21
million of loans from the Company's Hugo, Oklahoma branch, along with pay downs
on loans. The decrease in loans were partially offset by the Company's purchase
of approximately $149 million in loans from the First National Bank and Trust
Company of Vinita, Oklahoma . Deposits totaled $10.0 billion , an increase of $1.9
billion from the December 31, 2020 total. The increase in assets and deposits
was predominantly related to PPP and other government stimulus payments. At
September 30, 2021 , the Company had PPP loans held for investment of $201.2
million , net of unamortized processing fees of $6.7 million . The Company's total
stockholders' equity at September 30, 2021 was $1.1 billion , an increase of
$79.0 million over December 31, 2020 . Off-balance sheet sweep accounts totaled
$2.7 billion at September 30, 2021 compared to $2.8 billion at December 31,
2020 .
Nonaccrual loans represent 0.44% of total loans at September 30, 2021 , down from
0.58% at December 31, 2020 . Net charge-offs were 0.01% of average loans for the
third quarter of 2021, compared to 0.03% in the third quarter of 2020. The
allowance for credit losses to total loans was 1.43% at September 30, 2021
compared to 1.42% at December 31, 2020 . The allowance for credit losses to
nonaccrual loans was 324.96% at September 30, 2021 compared to 243.35% at
December 31, 2020 .
See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company's recent developments, including mergers and acquisitions.
OnJune 17, 2021 , the Company completed a private placement, under Regulation D of the Securities Act of 1933, of$60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 (the "Subordinated Notes") to various institutional accredited investors. See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company's subordinated notes.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
There have been no changes in the Company's disclosures regarding recently
issued accounting pronouncements since
31
--------------------------------------------------------------------------------SEGMENT INFORMATION
See Note (12) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.
RESULTS OF OPERATIONS
Average Balances, Income, Expenses and Rates
The following table presents, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances are derived from daily averages.
BANCFIRST CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
(Unaudited)
Taxable Equivalent Basis
(Dollars in thousands)
Three Months Ended September 30,
2021 2020
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans (1) $ 6,103,533 $ 80,370 5.22 %
536,690 1,484 1.10 591,933 2,032 1.36 Debt securities - tax exempt
6,336 45 2.83 33,785 166 1.95
Federal funds sold and
interest-bearing deposits with
banks 3,682,313 1,441 0.16 1,567,437 422 0.11
Total earning assets 10,328,872 83,340 3.20 8,864,499 79,364 3.55
Nonearning assets:
Cash and due from banks 269,153 241,160
Interest receivable and other
assets 696,567 619,570
Allowance for credit losses (83,969 ) (88,823 )
Total nonearning assets 881,751 771,907
Total assets $ 11,210,623 $ 9,636,406
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 881,043 $ 161 0.07 % $ 678,447 $ 125 0.07 %
Savings deposits 3,825,687 989 0.10 3,393,158 890 0.10
Time deposits 659,490 838 0.50 699,074 1,839 1.04
Short-term borrowings 2,713 - 0.10 3,117 - 0.05
Long-term borrowings - - - 2,119 - -
Subordinated debt 85,964 1,031 4.76 26,804 491 7.27
Total interest-bearing
liabilities 5,454,897 3,019 0.22 4,802,719 3,345 0.28 Interest-free funds: Noninterest-bearing deposits
4,547,944 3,722,973
Interest payable and other
liabilities 61,794 60,574
Stockholders' equity 1,145,988 1,050,140
Total interest free funds 5,755,726 4,833,687
Total liabilities and
stockholders' equity $ 11,210,623 $ 9,636,406
Net interest income $ 80,321 $ 76,019
Net interest spread 2.98 % 3.27 %
Effect of interest free funds 0.11 % 0.13 %
Net interest margin 3.09 % 3.40 %
For these computations, information is shown on a taxable-equivalent basis assuming a 21% tax rate. (1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.
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BANCFIRST CORPORATION
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
(Unaudited)
Taxable Equivalent Basis
(Dollars in thousands)
Nine Months Ended September 30,
2021 2020
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans (1) $ 6,267,176 $ 240,733 5.14 %
531,109 4,779 1.20 556,557 6,665 1.60 Debt securities - tax exempt
13,530 222 2.20 28,579 485 2.26
Federal funds sold and
interest-bearing deposits with
banks 3,064,852 2,861 0.12 1,509,493 5,586 0.49
Total earning assets 9,876,667 248,595 3.37 8,470,850 245,116 3.85
Nonearning assets:
Cash and due from banks 270,724 210,558
Interest receivable and other
assets 688,223 603,167
Allowance for credit losses (89,116 ) (69,603 )
Total nonearning assets 869,831 744,122
Total assets $ 10,746,498 $ 9,214,972
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 835,363 $ 465 0.07 % $ 755,835 $ 809 0.14 %
Savings deposits 3,675,121 3,034 0.11 3,230,145 8,482 0.35
Time deposits 658,306 2,814 0.57 699,211 6,713 1.28
Short-term borrowings 2,595 1 0.07 3,306 8 0.33
Long-term borrowings - - - 1,478 - -
Subordinated debt 46,957 2,100 5.98 26,804 1,474 7.33
Total interest-bearing
liabilities 5,218,342 8,414 0.22 4,716,779 17,486 0.49 Interest-free funds: Noninterest-bearing deposits
4,363,925 3,414,106
Interest payable and other
liabilities 50,469 46,175
Stockholders' equity 1,113,762 1,037,912
Total interest free funds 5,528,156 4,498,193
Total liabilities and
stockholders' equity $ 10,746,498 $ 9,214,972
Net interest income $ 240,181 $ 227,630
Net interest spread 3.15 % 3.36 %
Effect of interest free funds 0.10 % 0.22 %
Net interest margin 3.25 % 3.58 %
For these computations, information is shown on a taxable-equivalent basis assuming a 21% tax rate. (1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis.
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Selected income statement data and other selected data for the comparable periods were as follows:
BANCFIRST CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Income Statement Data
Net interest income $ 80,190 $ 75,852 $ 239,759 $ 227,133
Provision for/(benefit from) credit
losses 1,483 18,740 (8,466 ) 57,656
Securities transactions 150 - 417 (545 )
Total noninterest income 39,786 34,575 124,339 101,802
Salaries and employee benefits 42,267 41,995 123,836 123,977
Total noninterest expense 70,214 66,083 209,200 192,119
Net income 38,750 20,890 129,462 64,228
Per Common Share Data
Net income - basic $ 1.18 $ 0.64 $ 3.95 $ 1.97
Net income - diluted 1.16 0.63 3.88 1.94
Cash dividends 0.36 0.34 1.04 0.98
Performance Data
Return on average assets 1.37 % 0.86 % 1.61 % 0.93 %
Return on average stockholders'
equity 13.42 7.89 15.54 8.24
Cash dividend payout ratio 30.51 53.13 26.33 49.75
Net interest spread 2.98 3.27 3.15 3.36
Net interest margin 3.09 3.40 3.25 3.58
Efficiency ratio 58.52 59.84 57.46 58.41
Net charge-offs to average loans 0.01 0.03 0.08 0.05
Net Interest Income
For the three months ended September 30, 2021 , net interest income, which is the
Company's principal source of operating revenue, increased $4.3 million or 5.7%
compared to the three months ended September 30, 2020 . Net interest income
increased for the third quarter of 2021, as a result of an increase of $6.2
million in fee income from PPP loan forgiveness. Net interest margin is the
ratio of taxable-equivalent net interest income to average earning assets for
the period. As shown in the preceding table, the Company's net interest margin
for the third quarter of 2021 decreased compared to the third quarter of 2020.
This decrease in margin was due to larger balances in interest-bearing deposits
with banks during the quarter.
Net interest income for the nine months ended September 30, 2021 increased $12.6
million or 5.6% compared to the nine months ended September 30, 2020 . Net
interest income increased for the nine months ended September 30, 2021 , as a
result of an increase of $24.2 million in fee income from PPP loan forgiveness
and the drop in average interest rates on deposits. As shown in the preceding
table, the Company's net interest margin for the nine months ended September 30,
2021 decreased compared to the nine months ended September 30, 2020 , due to
larger balances and lower average rates on interest-bearing deposits with banks
during the period.
The Company's net interest income and net interest margin have been, and the
Company currently expects them to continue to be, impacted by the decreases in
interest rates stemming from the Federal Reserve's response to the COVID-19
pandemic. Our expectation is that interest rates will increase slightly in the
upcoming year.
Benefit from and Provision for Credit Losses
For the third quarter of 2021, the Company recorded a provision for credit losses of$1.5 million , compared to a provision for credit losses of$18.7 million for the third quarter of 2020. The Company's provision for the third quarter of 2021 supported a stable reserve as COVID continues to impact some businesses inOklahoma andTexas despite a decline in COVID cases. The elevated provision during the third quarter of 2020 was based on the Company's evaluation of the level of uncertainty and lack of clarity of the timing of an end to the COVID-19 pandemic, as well as the magnitude of the government's stimulus response to it. The Company establishes an allowance as an estimate of the expected credit losses in the loan portfolio at the balance sheet date. Management believes the allowance for credit losses is appropriate based upon management's best estimate of expected losses within the existing loan portfolio. Should any of the factors considered by management in evaluating the appropriate level of the allowance for credit losses 34 -------------------------------------------------------------------------------- change, the Company's estimate of expected credit losses could also change, which could affect the amount of future provisions for credit losses. Net loan charge-offs were$10,000 for the third quarter of 2021, compared to net loan charge-offs of$2.1 million for the third quarter of 2020. The rate of net charge-offs to average total loans, as presented in the preceding table, continues to be at a low level. For the nine months endedSeptember 30, 2021 , the Company recorded a net benefit from reversal of provision for credit losses of$8.5 million compared to a provision for credit losses of$57.7 million for nine months endedSeptember 30, 2020 . Net loan charge-offs were$4.7 million , compared to$3.1 million for the same period of the prior year. The Company's reversal of provision for the nine months endedSeptember 30, 2021 was based on improvements in economic conditions and the Company's outlook for certain economic indicators. The elevated provision during the nine months endedSeptember 30, 2020 was based on the Company's evaluation of the level of uncertainty and lack of clarity of the timing of an end to the COVID-19 pandemic, as well as the magnitude of the government's stimulus response to it.
Noninterest Income
Noninterest income, as presented in the preceding table, increased by$5.2 million for the third quarter of 2021 compared to the third quarter of 2020. The increase in noninterest income was attributable to$2.9 million in rental income from other real estate property, a$2.1 million increase in income from debit card interchange fees and a$1.5 million increase in insurance commissions. Noninterest income included non-sufficient funds fees totaling$6.8 million and$6.4 million for the three months endedSeptember 30, 2021 and 2020, respectively. This represents 17.2% and 18.6% of the Company's noninterest income for the respective periods. In addition, the Company had debit card interchange fees totaling$11.7 million and$9.7 million during the three months endedSeptember 30, 2021 and 2020, respectively. This represents 29.5% and 27.9% of the Company's noninterest income for the respective periods. For the third quarter of 2021 compared to the third quarter of 2020, government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased both customer liquidity and interchange volume resulting in higher debit card interchange fees. Noninterest income increased by$22.5 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase in noninterest income was due to a purchase gain of$4.8 million associated with The First National Bank and Trust Company ofVinita, Oklahoma , a gain from the sale of the Company'sHugo, Oklahoma branch of$2.5 million , a$7.3 million increase in income from debit card interchange fees,$7.5 million in rental income from other real estate property, and a$2.4 million increase in insurance commissions, which were partially offset by a$4.5 million decrease in income from sweep fees. In addition, the Company earned$5.7 million on the sale of loans for the nine months endedSeptember 30, 2021 compared to$4.2 million for the nine months endedSeptember 30, 2020 . The income from sales of loans increased due to the increase in volume of mortgage loans originated because of record low mortgage rates. Noninterest income included non-sufficient fund fees totaling$18.0 million and$19.7 million during the nine months endedSeptember 30, 2021 and 2020, respectively. This represents 14.4% and 19.3% of the Company's noninterest income for the respective periods. In addition, the Company had debit card interchange fees totaling$34.3 million and$27.0 million during the nine months endedSeptember 30, 2021 and 2020, respectively. This represents 27.6% and 26.5% of the Company's noninterest income for the respective periods. Government assistance funds that flowed into the market, including PPP loans and stimulus payments to households, increased both customer liquidity and interchange volume. This activity resulted in lower non-sufficient funds fees and higher debit card interchange fees for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Prior to the COVID-19 pandemic, there was minimal likelihood that the Company would surpass$10 billion in total assets for several years. However, with the CARES Act, including PPP loans, stimulus payments to households, and artificially high household savings rates, our deposits and assets have grown dramatically beyond reasonably foreseeable levels. To the extent the COVID-19 pandemic and the effects of the aforementioned stimulus programs continue, it is likely the Company will exceed$10 billion in total assets atDecember 31, 2021 . Pursuant to the Durbin Amendment of the Dodd-Frank Act, based on current run rates, this would trigger an approximate reduction of annual pretax income from debit card interchange fees of between$20 to$22 million beginningJuly 1, 2022 . The Company is undergoing efforts through the use of our existing sweep product to reduce total assets below$10 billion atDecember 31, 2021 , but the success of these efforts is uncertain.
Noninterest Expense
Noninterest expense, as presented in the preceding table, increased by$4.1 million for third quarter of 2021 compared to the third quarter of 2020. The increase in noninterest expenses was due to$2.0 million related to other real estate property operating costs and approximately$1.0 million in net occupancy and depreciation primarily from the Company's move to its new corporate headquarters. For the nine months endedSeptember 30, 2021 , noninterest expense increased by$17.1 million compared to the nine months endedSeptember 30, 2020 . The increase in noninterest expenses was due to approximately$6.6 million related to other real estate 35
-------------------------------------------------------------------------------- property operating costs,$4.0 million in acquisition related expenses, approximately$3.5 million in net occupancy and depreciation primarily from the Company's move to its new corporate headquarters, and a$1.3 million increase in deposit insurance. The nine months endedSeptember 30, 2020 included a$2.3 million gain on the sale of other real estate owned, compared to approximately$245,000 for the nine months endedSeptember 30, 2021 , that reduced noninterest expense. Income Taxes
The Company's effective tax rate was 19.7% for the third quarter of 2021, compared to 18.4% for the third quarter of 2020. The lower effective tax rate for the third quarter of 2020 was due to a greater effect of tax credits on lower reported income.
The Company's effective tax rate on income before taxes was 20.8% for the nine months endedSeptember 30, 2021 , compared to 18.9% for the nine months endedSeptember 30, 2020 . The lower effective tax rate for the first nine months of 2020 was due to a greater effect of tax credits on lower reported income.
The reasons for the difference between the Company's effective tax rate and the federal statutory rate were tax-exempt income, nondeductible amortization, federal and state tax credits and state tax expense.
36
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FINANCIAL POSITION
BANCFIRST CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
September
30, December 31,
2021 2020
(unaudited)
Balance Sheet Data
Total assets $ 11,302,771 $ 9,212,357
Total loans (net of unearned interest) 6,037,886 6,448,225
Allowance for credit losses 86,463 91,366 Debt securities 529,484 555,196 Deposits 9,992,044 8,064,704 Stockholders' equity 1,146,874 1,067,885 Book value per share 35.21 32.64 Tangible book value per share (non-GAAP)(1) 30.04 27.47 Reconciliation of Tangible Book Value per Common Share (non-GAAP)(2) Stockholders' equity$ 1,146,874 $ 1,067,885 Less goodwill 149,922 149,922 Less intangible assets, net 18,325 18,999 Tangible stockholders' equity (non-GAAP)$ 978,627 $ 898,964 Common shares outstanding 32,572,217
32,719,852
Tangible book value per share (non-GAAP)$ 30.04 $ 27.47 Selected Financial Ratios Balance Sheet Ratios: Average loans to deposits (year-to-date) 65.74 % 78.28 % Average earning assets to total assets (year-to-date) 91.91 91.90 Average stockholders' equity to average assets (year-to-date) 10.36 11.17 Asset Quality Data Loans past due 90 days and still accruing$ 5,186 $ 4,802 Nonaccrual loans (3) 26,607 37,545 Restructured loans 7,073 7,784 Total nonperforming and restructured loans 38,866 50,131 Other real estate owned and repossessed assets 39,060 32,480 Total nonperforming and restructured assets 77,926 82,611 Asset Quality Ratios: Nonaccrual loans to total loans 0.44 % 0.58 % Nonperforming and restructured loans to total loans 0.64 0.78 Nonperforming and restructured assets to total assets 0.69 0.90 Allowance for credit losses to total loans 1.43 1.42 Allowance for credit losses to nonperforming and restructured loans 222.46 182.26 Allowance for credit losses to nonaccrual loans 324.96 243.35 (1) Refer to the "Reconciliation of Tangible Book Value per Common Share (non-GAAP)" Table. (2) Tangible book value per common share is stockholders' equity less goodwill and intangible assets, net, divided by common shares outstanding. This amount is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate the financial condition and capital strength of the Company. This measure should not be considered a substitute for operating results determined in accordance with GAAP. (3) Government Agencies guarantee approximately$3.1 million of nonaccrual loans atSeptember 30, 2021 .
Cash and Interest-Bearing Deposits with Banks
The aggregate of cash and due from banks and interest-bearing deposits with banks increased by$2.5 billion or 154.2% to$4.1 billion , fromDecember 31, 2020 toSeptember 30, 2021 . The increase was primarily related to the increase in deposits from PPP and other government stimulus payments.
Securities
AtSeptember 30, 2021 , total debt securities decreased$25.7 million , or 4.6% compared toDecember 31, 2020 . The size of the Company's securities portfolio is determined by the Company's liquidity and asset/liability management. The net unrealized gain on debt securities available for sale, before taxes, was$6.4 million atSeptember 30, 2021 , compared to a net unrealized gain of$9.9 million atDecember 31, 2020 . These unrealized gains are included in the Company's stockholders' equity as accumulated other comprehensive income, net of income tax, in the amounts of a gain of$4.9 million atSeptember 30, 2021 and a gain of$7.4 million atDecember 31, 2020 . 37 --------------------------------------------------------------------------------
See Note (3) of the Notes to Consolidated Financial Statements for disclosures regarding the Company's Securities.
Loans
AtSeptember 30, 2021 , total loans decreased$410.3 million or 6.4% compared toDecember 31, 2020 . The decrease in loans resulted from a net decrease of approximately$451.5 million in PPP loans and the sale of approximately$21 million of loans from the Company'sHugo, Oklahoma branch along with pay downs on loans. The decrease in loans were partially offset by the Company's purchase of approximately$149 million in loans, from The First National Bank and Trust Company ofVinita, Oklahoma . AtSeptember 30, 2021 , the balance of total PPP loans was$201.2 million , net of unamortized processing fees of$6.7 million .
See Note (4) of the Notes to Consolidated Financial Statements for disclosures regarding the Company's loan portfolio segments.
Allowance for Credit Losses
OnJanuary 1, 2020 , the Company adopted ASC 326, which replaces the incurred loss methodology with an expected loss methodology that is referred to as CECL. The decrease in the allowance for credit loss during 2021 was primarily driven by a reversal of provision during the second quarter of 2021, and a lower provision in the third quarter of 2021 based on sustained improvements in the economy, both nationally and inOklahoma andTexas , which reduced the amount of expected credit loss within the loan portfolio. This reduction was partially offset by additional allowance for credit loss required by newly acquired loans purchased with credit deterioration.
Nonaccrual and Restructured Assets
At
Nonaccrual loans totaled$26.6 million atSeptember 30, 2021 , compared to$37.5 million atDecember 31, 2020 . AtSeptember 30, 2021 , the Company's nonaccrual loans decreased$10.9 million fromDecember 31, 2020 , due to resolutions of several loans, which were offset by$7.2 million of nonaccrual loans acquired from The First National Bank and Trust Company ofVinita, Oklahoma . The Company's nonaccrual loans are primarily commercial and agricultural non-real estate and farmland. Nonaccrual loans negatively impact the Company's net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectability of both interest and principal is in serious doubt. Interest income is not recognized until the principal balance is fully collected. However, if the full collection of the remaining principal balance is not in doubt, interest income is recognized on certain of these loans on a cash basis. Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately$1.7 million for the nine months endedSeptember 30, 2021 and$2.1 million for the nine months endedSeptember 30, 2020 . Only a small amount of this interest is expected to be ultimately collected. Approximately$3.1 million of nonaccrual loans were guaranteed by government agencies atSeptember 30, 2021 . Restructured loans totaled$7.1 million atSeptember 30, 2021 compared to$7.8 million atDecember 31, 2020 . The Company charges interest on principal balances outstanding during deferral periods. As a result, the current and future financial effects of the recorded balance of loans considered to be troubled debt restructurings whose terms were modified during the period were not considered to be material. The classification of a loan as nonperforming does not necessarily indicate that loan principal and interest will ultimately be uncollectible; although, in an economic downturn, the Company's experience has been that the level of collections declines. The above normal risk associated with nonperforming loans has been considered in the determination of the allowance for credit losses. AtSeptember 30, 2021 , the allowance for credit losses as a percentage of nonperforming and restructured loans was 222.46%, compared to 182.26%, atDecember 31, 2020 . The level of nonperforming loans and credit losses could rise over time as a result of adverse economic conditions. Other real estate owned (OREO) and repossessed assets totaled$39.1 million atSeptember 30, 2021 , compared to$32.5 million atDecember 31, 2020 . Other real estate owned consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure and premises held for sale. AtSeptember 30, 2021 , the Company's OREO increased$6.8 million fromDecember 31, 2020 , and included approximately$4.0 million from the repossession of one commercial real estate property,$2.4 million from the decommissioning of the Company's previous headquarters, and approximately$600,000 acquired from The First National Bank and Trust Company ofVinita, Oklahoma . As of bothSeptember 30, 2021 andDecember 31, 2020 , other real estate owned included a commercial real estate property recorded at approximately$28 million . Other real estate owned and repossessed assets are carried at the lower of the book values of the related loans or fair values based upon appraisals, less estimated costs to sell. Write-downs arising at the time of reclassification of such properties from loans to other real estate owned are charged directly to the allowance for credit losses. Any losses on bank premises designated to be sold are charged to operating expense at the time of transfer from premises to other 38 --------------------------------------------------------------------------------
real estate owned. Decreases in values of properties subsequent to their classification as other real estate owned are charged to operating expense.
Intangible Assets,
Identifiable intangible assets and goodwill totaled
OnMay 20, 2021 , the Company recorded a core deposit intangible of approximately$1.7 million because of the purchase of assets and assumption of liabilities from The First National Bank and Trust Company ofVinita, Oklahoma . See Note (2) of the Notes to Consolidated Financial Statements for disclosure regarding the Company's recent developments, including mergers and acquisitions.
Other assets includes the cash surrender value of key-man life insurance
policies totaling
Equity securities are reported in other assets on the balance sheet. The Company invests in equity securities without readily determinable fair values. These equity securities are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The realized and unrealized gains and losses are reported as securities transactions in the noninterest income section of the consolidated statements of comprehensive income. The balance of equity securities was$23.5 million atSeptember 30, 2021 and$21.2 million atDecember 31, 2020 . The Company reviews its portfolio of equity securities for impairment at least quarterly. The balance of these equity securities included equity interests of previous borrowers in the oil and gas industry, which were received through bankruptcy proceedings, which totaled approximately$13.1 million atSeptember 30, 2021 and approximately$11.1 million atDecember 31, 2020 .
During 2021, there have not been any material changes in the Company's low income housing tax credit investments and new market tax credit investments, which are included in other assets on the Company's balance sheet. See Note (6) of the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , for disclosures regarding these investments. Liquidity and Funding The Company's principal source of liquidity and funding is its broad deposit base generated from customer relationships. The availability of deposits is affected by economic conditions, competition with other financial institutions and alternative investments available to customers. Through interest rates paid, service charge levels and services offered, the Company can affect its level of deposits to a limited extent. The level and maturity of funding necessary to support the Company's lending and investment functions is determined through the Company's asset/liability management process. The Company currently does not rely heavily on long-term borrowings and does not utilize brokered CDs. The Company maintains federal funds lines of credit with other banks and could utilize the sale of loans, securities and liquidation of other assets as sources of liquidity and funding. There have not been any other material changes from the liquidity and funding discussion included in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Deposits
AtSeptember 30, 2021 , deposits totaled$10.0 billion , an increase of$1.9 billion or 23.9% from theDecember 31, 2020 total. The increase in deposits was primarily related to deposits of proceeds from the PPP and other government stimulus payments. The Company's core deposits provide it with a stable, low-cost funding source. The Company's core deposits as a percentage of total deposits were 98.5% atSeptember 30, 2021 and 98.2% atDecember 31, 2020 . Noninterest-bearing deposits to total deposits were 46.0% atSeptember 30, 2021 , compared to 47.0% atDecember 31, 2020 .
Subordinated Debt
OnJune 17, 2021 , the Company completed a private placement, under Regulation D of the Securities Act of 1933, of$60 million aggregate principal amount of 3.50% Fixed-to-Floating Rate Subordinated Notes due 2036 to various institutional accredited investors. See Note (7) of the Notes to Consolidated Financial Statements for a complete discussion of the Company's subordinated debt. Short-Term Borrowings Short-term borrowings, consisting primarily of federal funds purchased and repurchase agreements are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company's ability to earn a favorable spread on the funds obtained. Short-term borrowings were$3.5 million atSeptember 30, 2021 , compared to$1.1 million atDecember 31, 2020 . 39
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Long-Term Borrowings
The Company has a line of credit from theFederal Home Loan Bank ("FHLB") ofTopeka, Kansas to use for liquidity or to match-fund certain long-term fixed-rate loans. The Company's assets, including residential first mortgages of$862.4 million , are pledged as collateral for the borrowings under the line of credit. As ofSeptember 30, 2021 andDecember 31, 2020 , the Company had no advances outstanding under the line of credit from FHLB.
Capital Resources
Stockholders' equity totaled$1.1 billion at bothSeptember 30, 2021 andDecember 31, 2020 . In addition to net income of$129.5 million , other changes in stockholders' equity during the nine months endedSeptember 30, 2021 included$1.7 million related to common stock issuances and$1.6 million related to stock-based compensation, that were partially offset by$34.1 million in dividends,$11.7 million from the repurchase of the Company's stock,$5.5 million from settlement of options in cash, and a$2.6 million decrease in other comprehensive income. The Company's leverage ratio and total risk-based capital ratios atSeptember 30, 2021 , were well in excess of the regulatory requirements.
See Note (9) of the Notes to Consolidated Financial Statements for a discussion of capital ratios and requirements.
Liquidity Risk and Off-Balance Sheet Arrangements
There have not been any material changes in the Company's liquidity and
off-balance sheet arrangements included in Management's Discussion and Analysis
which was included in the Company's Annual Report on Form 10-K for the year
ended
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