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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995 Commission File Number 0-14384
BANCFIRST CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1221379
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 NORTH BROADWAY, SUITE 200, OKLAHOMA CITY, OKLAHOMA 73102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 270-1086
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00
PAR VALUE PER SHARE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
-----
The aggregate value of the Common Stock held by nonaffiliates of the
registrant as of February 29, 1996 was approximately $66,460,000.
As of February 29, 1996, there were 6,232,955 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the May 23, 1996 Annual Meeting of
Stockholders of registrant (the "1996 Proxy Statement") to be filed pursuant
to Regulation 14A are incorporated by reference into Part III of this report.
FORM 10-K
CROSS-REFERENCE INDEX
ITEM PART I PAGE
---- ------------------------------------------------------------------------ ----
1. Description of Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
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5. Market for the Registrant's Common Stock and Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
8. Financial Statements and Supplementary Data 12
9. Disagreements on Accounting and Financial Disclosure 12
PART III
------------------------------------------------------------------------
10. Directors and Executive Officers of the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial Owners and Management 12
13. Certain Relationships and Related Transactions 12
PART IV
------------------------------------------------------------------------
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 15
Financial Information Appendix A
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
BancFirst Corporation (the "Company") is an Oklahoma business
corporation and a bank holding company under Federal law. It conducts
virtually all of its operating activities through its wholly-owned
subsidiary, BancFirst (the "Bank" or "BancFirst"), a state-chartered, Federal
Reserve member bank headquartered in Oklahoma City, Oklahoma. BancFirst
Corporation also owns 100% of BancFirst Investment Corporation, a small
business investment corporation.
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 holding company
since that time. Over the next several years the Company acquired an
additional five banks, 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. BancFirst currently has 50 banking
locations operating in 26 communities across central and eastern Oklahoma.
The Company's strategy focuses on providing a full range of commercial
banking services to retail customers and small to medium-sized businesses
both in the non-metropolitan trade centers of Oklahoma and the metropolitan
markets of Oklahoma City, Tulsa, Norman, Muskogee and Shawnee. The Company is
positioned as a "super community bank," 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 Company's
strategic parameters. At the same time, the Company generally has a larger
lending capacity, broader product line and greater operational efficiencies
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 Company's strategy is to focus on the
needs of local businesses not served effectively by larger institutions.
The Bank maintains a strong community orientation by, among other
things, appointing selected members of the communities in which the Bank's
branches are located to a local consulting board that assists in introducing
prospective customers to the Bank and in developing or modifying products and
services to meet customer needs. As a result of the development of broad
banking relationships with its customers and the convenience and service of
the Bank's multiple offices, the Bank's lending and investing activities are
funded almost entirely by core deposits.
The Bank centralizes virtually all of its back office, support and
investment functions in order to achieve consistency and cost efficiencies in
the delivery of products and services. The Bank centrally provides services
such as data processing, operations support, bookkeeping, accounting, loan
review, compliance and internal auditing to the Bank's community banking
offices to enhance their ability to compete effectively. The Bank also
provides certain specialized financial services centrally that require unique
expertise. The community banking offices assist the Bank in maintaining its
competitive position by actively participating in the development of new
products and services needed by their customers and in making desirable
changes to existing products and services.
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; 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 Unitech, its operations division, the Bank
provides proof, item processing, statement preparation, research and other
correspondent banking services to financial institutions, both affiliated and
unaffiliated.
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The Bank'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, 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 ("SBA") guaranteed
loans through BancFirst Commercial Capital, a division established in 1991.
The Bank's residential mortgage lending activities prior to 1992
consisted primarily of short- to intermediate-term loans for purchasing
personal residences, or loans for commercial or consumer purposes secured by
residential mortgages. In early 1992, the Bank established a mortgage loan
department to originate traditional mortgage loans through its network of
banking locations and sell such loans in the secondary market with the
servicing released.
Consumer lending activities of the Bank consist of traditional forms of
financing for automobile and personal loans. The Bank also is one of
Oklahoma's largest providers of guaranteed student loans through its student
loan department formed in 1991.
The Bank's range of deposit services include checking accounts, NOW
accounts, savings accounts, money market 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
("FDIC"). In addition, certain Bank employees are licensed insurance agents
qualified to offer tax deferred annuities.
Trust services offered through BancTrust, the Bank's trust division,
consist primarily of investment management and administration of trusts for
individuals, corporations and employee benefit plans. Investment options
include collective equity and fixed income funds managed by BancTrust and
advised by a nationally recognized investment management firm.
BancFirst has the following subsidiaries: Citibanc Insurance Agency,
Inc., a credit life insurance agency, which in turn owns BancFirst Agency,
Inc., a title insurance agency; Lenders Collection Corporation, which is
engaged in collection of troubled loans assigned to it by BancFirst; and
National Express Corporation, a money order company. All of these companies
are Oklahoma corporations.
The Company had approximately 693 full-time equivalent employees as of
December 31, 1995. Its principal executive offices are located at 101 North
Broadway, Suite 200, 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 Company'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, 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, interest rates paid on
deposits, 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 "super community bank." 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
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, subject to a tiered approval process for larger
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credits. 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 Company's strategy is to be more responsive to, and more focused on, the
needs of local businesses not served effectively by larger institutions.
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
Bank's products and services.
CONTROL OF THE COMPANY
Affiliates of the Company own beneficially approximately 55.67% of the
shares of the Common Stock outstanding. Under Oklahoma law, 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, such affiliates have the ability to control the
business and affairs of the Company.
RECENT DEVELOPMENTS
STOCK REPURCHASE PROGRAM
In March 1995, the Company adopted a Stock Repurchase Program
authorizing management to repurchase up to 200,000 shares of the Company's
Common Stock. The program is to be used for purchases of stock by the
Company's Employee Stock Ownership and Thrift Plan, and may also be used to
enhance earnings per share, provide stock for the exercise of stock options
under the Company's Stock Option Plan or to provide additional liquidity for
the stock. Stock purchases under the program must satisfy certain criteria
regarding effects on earnings per share and book value dilution, resulting
equity ratios and the price to book value of comparable size institutions.
STATE NATIONAL BANK
In March 1995, BancFirst acquired State National Bank of Marlow,
Oklahoma ("State National Bank"), which had total assets of $102 million.
The acquisition was for cash of approximately $18 million, with an additional
$500,000 placed in escrow pending the resolution of certain matters. State
National Bank was immediately merged into the Bank. The acquisition was
accounted for as a purchase. Accordingly, the effect of the transaction is
included in the Company's consolidated financial statements from the date of
the acquisition forward. A core deposit intangible of $406,000 and goodwill
of $810,000 were recorded for the acquisition. Subsequent payments from the
escrow, if any, to the former shareholders of State National Bank will
increase the goodwill recorded.
COMMERCE BANCORPORATION, INC.
In June 1995, the Company entered into an agreement of merger with
Commerce Bancorporation, Inc. of McLoud, Oklahoma ("Commerce Bancorp"), which
has approximately $18 million in assets. Commerce Bancorp is controlled by
certain executive officers of the Company. Under the terms of the agreement,
156,510 shares of BancFirst Corporation Common Stock would be issued for the
Commerce Bancorp common stock outstanding. The merger is subject to
regulatory and shareholder approvals and is expected to be completed in 1996.
The merger would be accounted for as a book value purchase, which is
similar to the pooling of interests method, although the effect of the merger
is included in the Company's consolidated financial statements from the date
of the acquisition forward.
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JOHNSTON COUNTY BANCSHARES, INC.
In December 1995, the Company acquired all the assets and assumed all
the liabilities of Johnston County Bancshares, Inc. of Tishomingo, Oklahoma
("Johnston County Bancshares"), which had total assets of $10 million.
Johnston County Bancshares was controlled by certain executive officers and
directors of the Company. The acquisition was accomplished through the
exchange of 28,831 shares of Common Stock for all of the outstanding common
and preferred stock of Johnston County Bancshares. The minority shares of
Johnston County Bancshares' subsidiary bank were purchased for $120,000. The
acquisition was accounted for as a book value purchase, which is similar to
the pooling of interests method, although the effect of the acquisition is
included in the Company's consolidated financial statements from the date of
the acquisition forward.
CITY BANKSHARES, INC.
In March 1996, the Company acquired City Bankshares, Inc. of Oklahoma
City, Oklahoma ("City Bankshares"), which had $130 million in total assets.
The acquisition was for cash of approximately $19.1 million, with City
Bankshares and its subsidiary, City Bank, being merged into BancFirst.
C-Teq, Inc., an 85% owned data processing subsidiary of City Bankshares, was
spun off to the shareholders of City Bankshares prior to the acquisition.
BancFirst also entered into an agreement with the CEO of City Bankshares
whereby BancFirst paid the CEO $1.25 million in exchange for an agreement not
to compete with BancFirst for a period of four years. The acquisition will
be accounted for as a purchase. Accordingly, the effect of the acquisition
will be included in the Company's consolidated financial statements from the
date of the acquisition forward.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
The Company is registered as a bank holding company and is subject to
the regulations of the Federal Reserve Board under the Bank Holding Company
Act of 1956, as amended ("BHCA"). Bank holding companies are required to
file periodic reports with and are subject to examination by the Federal
Reserve Board. The Federal Reserve Board has issued regulations under the
BHCA that require a bank holding company to serve as a source of financial
and managerial strength to its subsidiary banks. Pursuant to such
regulations, the Federal Reserve Board may require the Company to stand ready
to use its resources to provide adequate capital funds to its banking
subsidiaries during periods of financial stress or adversity. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Improvement Act"), a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal
banking agency, up to specified limits. See "Improvement Act and Related
Regulations," below. Under the BHCA, the Federal Reserve Board has the
authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon the Federal Reserve Board's determination that such activity
or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
The BHCA prohibits the Company from acquiring direct or indirect control
of more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve
Board. The BHCA also prohibits the Company from acquiring control of any
bank operating outside the State of Oklahoma unless such action is
specifically authorized by the statutes of the state where the bank to be
acquired is located. Similar restrictions apply to acquisition of control of
shares of stock of the Company or BancFirst by other bank holding companies.
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of
any class of voting stock of any company engaged in a nonbanking
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business unless such business is determined by the Federal Reserve Board to
be so closely related to banking as to be a proper incident thereto. The
BHCA does not place territorial restrictions on the activities of such
nonbanking-related activities. In determining whether a particular activity
is a proper incident to banking or managing or controlling banks, the Federal
Reserve Board must consider whether performance of an activity by an
affiliate of a bank holding company can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition or
gains in efficiency. The benefits of activity must also outweigh possible
adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
CAPITAL ADEQUACY GUIDELINES
The Federal Reserve Board is the federal regulatory and examining
authority for bank holding companies. The Federal Reserve Board has adopted
capital adequacy guidelines for bank holding companies, to which the Company
is subject.
Bank holding companies, such as the Company, and their bank subsidiaries
are required to maintain three capital ratios which measure capital adequacy.
Capital is separated into "Tier I Capital" (as applied to the Company,
common stockholders' equity, less certain intangible assets) and "Tier 2
Capital" (as applied to the Company, a limited amount of the general loan
allowance).
The first two ratios, which are based on the degree of credit risk in
the Company's assets, provide for weighting assets based on assigned risk
factors and include off-balance-sheet items such as loan commitments and
stand-by letters of credit. The ratio of total capital (Tier I Capital plus
Tier 2 Capital) to risk-weighted assets and off-balance-sheet commitments and
contingencies must be at least 8.0% and the ratio of Tier I Capital to
risk-weighted assets and off-balance-sheet commitments must be at least 4.0%.
The capital leverage ratio supplements the risk-based capital
guidelines. Banks and bank holding companies are to maintain a minimum ratio
of Tier I Capital to average adjusted total assets of 3.0%.
These ratio requirements are minimums. Any institution operating at or
near those levels would be expected by the regulators to have
well-diversified risk, including no undue interest rate risk exposures,
excellent asset quality, high liquidity, and good earnings and, in general,
would have to be considered a strong banking organization. All other
organizations and any institutions experiencing or anticipating significant
growth are expected to maintain capital ratios at least one to two percent
above the minimum levels, and higher capital ratios can be required if
warranted by particular circumstances or risk profile.
For information regarding the Company's recent historical capital
ratios, see "Selected Financial Data". BancFirst is subject to similar
capital requirements.
The Improvement Act directs that each federal banking agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value
to book value for publicly traded shares, and such other standards as the
agency deems appropriate. The Federal Reserve Board and the FDIC, in
consultation with the other federal banking agencies, have adopted a final
rule and guidelines with respect to external and internal audit procedures
and internal controls in order to implement those provisions of the
Improvement Act intended to facilitate the early identification of problems
in financial management of depository institutions. The Federal Reserve
Board and the FDIC have also issued proposed rules prescribing standards
relating to certain other of the management and operational standards listed
above. The full impact of such rule and guidelines and proposed standards on
the Company and the Bank cannot yet be ascertained.
5
PROPOSED FDIC REGULATIONS CONCERNING ADVERSE CONTRACTS
The FDIC has provided advance notice of a proposed rule which would
affect contracts between a bank holding company (or its non-depository
subsidiaries or related interests under common control), and its insured
depository institution affiliates. The FDIC proposed establishing a
rebuttable regulatory presumption that certain types of contracts between an
insured depository institution and any company which directly or indirectly
controls it (or which is under common control with it) are unsafe and
unsound. The types of contracts to be covered by such a presumption would
include those related to: (1) making or purchasing loans; (2) servicing
loans; (3) performing trust functions; (4) providing bookkeeping or data
processing services; (5) furnishing management services; (6) selling or
transferring any department or subsidiary; (7) making payments for intangible
assets; or (8) transferring any asset for less than fair market value, as
evidenced by an independent written appraisal, or prepaying any liability
more than 30 days prior to its due date. The FDIC has also proposed
regulations that would prohibit any insured depository institution from
entering into any contract with any person to provide goods, products or
services, if such contract is determined to adversely affect the safety or
soundness of the insured institution. The proposed regulations would
authorize enforcement actions against both the contractor and the
institution, including cease-and-desist orders, civil money penalties, and
prohibition orders barring contractors from dealing with all insured
depository institutions.
IMPROVEMENT ACT AND RELATED REGULATIONS
PROMPT CORRECTIVE ACTION RULE. The Improvement Act requires each
Federal banking agency to specify within nine months after the date of
enactment of the statute, by regulation, the levels at which an insured
institution would be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." In October 1992, each of the Federal banking agencies
issued uniform final regulations defining such capital levels. Under these
regulations, a bank would be considered "well capitalized" if it has (i) a
total risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and
(iv) is not subject to any order or written directive to meet and maintain a
specific capital level. An "adequately capitalized" bank is defined under
the regulations as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier I risk-based capital ratio of 4% or greater, (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of a bank with
the highest composite regulatory examination rating) and (iv) does not meet
the definition of a well capitalized bank. A bank would be considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less
than 8%, (ii) a Tier I risk-based capital ratio of less than 4% or (iii) a
leverage ratio of less than 4% (or 3% in the case of a bank with the highest
regulatory examination rating of 1); (B) "significantly undercapitalized" if
the bank has (i) a total risk-based capital ratio of less than 6%, (ii) a
Tier I risk-based capital ratio of less than 3% or (iii) a leverage ratio of
less than 3%; and (C) "critically undercapitalized" if the bank has a ratio
of tangible equity to total assets of equal to or less than 2%.
Notwithstanding the foregoing, the applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require an
"adequately capitalized" or "undercapitalized" institution to comply with
supervisory actions as if it were in the next lower category. Such a
reclassification could be made if the regulatory agency determines that the
institution is in an unsafe or unsound condition (which could include
unsatisfactory examination ratings).
Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration
plans to the appropriate Federal banking regulator and are subject to
restrictions on operations, including prohibitions on branching, engaging in
new activities, paying management fees, making capital distributions such as
dividends, and growing without regulatory approval. Moreover, in order for
an undercapitalized institution's capital restoration plan to be accepted by
its applicable Federal banking regulator, a company controlling such
undercapitalized depository institution will be required to guarantee its
subsidiary's compliance with the capital restoration plan up to an amount
equal to the lesser of 5% of such subsidiary institution's assets or the
amount of the capital deficiency when such institution first fails to meet
the plan. Effective
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as of December 19, 1993, loans to undercapitalized institutions from the
Federal Reserve Banks are generally restricted.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable Federal banking regulator are
subject to one or more of the following sanctions: (i) forced sale of shares
to raise capital, or, where grounds exist for the appointment of a receiver
or conservator, a forced merger; (ii) restrictions on transactions with
affiliates; (iii) limitations on interest rates paid on deposits; (iv)
further restrictions on growth or required shrinkage; (v) replacement of
directors or senior executive directors, subject to certain grandfather
provisions for those elected prior to the enactment of the Improvement Act;
(vi) prohibitions on the receipt of correspondent deposits; (vii)
restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution;
or (ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital standards and may be increased
only with the applicable Federal banking regulator's prior written approval.
The applicable Federal banking regulator is required to impose a forced sale
of shares or merger, restrictions on affiliate transactions and restrictions
on rates paid on deposits unless it determines that such actions would not
further an institution's capital improvement.
In addition to the foregoing, a critically undercapitalized institution
would be prohibited from making any payment of principal or interest on
subordinated debt without the concurrence of its regulator and the FDIC,
beginning 60 days after the institution becomes critically undercapitalized.
A critically undercapitalized institution may not, without FDIC approval: (i)
enter into material transactions outside of the ordinary course of business;
(ii) extend credit on highly leveraged transactions; (iii) amend its charter
or bylaws; (iv) make any material change in its accounting methods; (v)
engage in any covered transactions with affiliates; (vi) pay excessive
compensation or bonus (as defined); or (vii) pay rates on liabilities
significantly in excess of market rates.
BROKERED DEPOSITS. In May 1992, the FDIC issued regulations
implementing provisions of the Improvement Act regulating brokered deposits.
"Brokered deposits" are defined as deposits solicited through deposit brokers
or deposits which an insured depository institution attracts by offering
significantly above-market interest rates (as defined). Under the new
regulations, "well capitalized" banks may accept brokered deposits without
restriction, "adequately capitalized" banks may accept brokered deposits with
a waiver from the FDIC (subject to certain restrictions imposed on payment of
rates), while "undercapitalized" banks may not accept brokered deposits.
"Well capitalized" banks are defined in the regulations as those with a Tier
I risk-based capital to risk-weighted assets ratio of not less than 6%, a
Tier I leverage capital to total book assets ratio of not less than 5%, and a
total risk-based capital to risk-weighted assets ratio of not less than 10%.
"Adequately capitalized" banks are those that at least meet their regulatory
capital requirements but are not "well capitalized," as defined in the
previous sentence. BancFirst does not accept brokered deposits.
OTHER MATTERS. The Improvement Act requires the Federal banking
agencies to review and, under certain circumstances, prescribe more stringent
accounting and reporting requirements than those required by generally
accepted accounting principles. Such agencies also are required to develop
regulations requiring disclosure of contingent assets and liabilities and, to
the extent feasible and practicable, supplement disclosure of the estimated
fair market value of assets and liabilities.
The foregoing necessarily is a general description of certain provisions
of the Improvement Act and does not purport to be complete. Moreover, many
of the provisions of the Improvement Act will be implemented through the
adoption of regulations by the various Federal banking agencies. Several of
the significant provisions of the legislation will not become effective until
several years after enactment. The effect of the Improvement Act on the
Company and BancFirst will not be fully ascertainable until after these
regulations are adopted.
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REGULATORY RESTRICTIONS ON DIVIDENDS
BancFirst, as a member bank of the Federal Reserve System, may not
declare a dividend without the approval of the Federal Reserve Board unless
the dividend to be declared by BancFirst does not exceed the total of (i)
BancFirst's net profits (as defined and interpreted by regulation) for the
current year to date plus (ii) its retained net profits (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus. In addition, BancFirst can only pay dividends to the
extent that its retained net profits (including the portion transferred to
surplus) exceed its bad debts (as defined by regulation). Under the Federal
Deposit Insurance Act, no dividends may be paid by an insured bank if the
bank is in arrears in the payment of any insurance assessment due to the FDIC.
Under these provisions BancFirst may declare during 1996, without prior
regulatory approval, aggregate dividends of $16.1 million, plus net profits
earned to the date of such dividend declaration in 1996.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. See "Capital Adequacy
Guidelines," above. Adherence to such standards further limits the ability
of banks to pay dividends.
The payment of dividends by any subsidiary bank may also be affected by
other regulatory requirements and policies, such as the maintenance of
adequate capital. If, in the opinion of the applicable regulatory authority,
a bank under its jurisdiction is engaged in, or is about to engage in, an
unsafe or unsound practice (which, depending on the financial condition of
the bank, could include the payment of dividends), such authority may
require, after notice and hearing, that such bank cease and desist from such
practice. The Federal Reserve Board has formal and informal policies which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
DEPOSIT INSURANCE
The Improvement Act also required that the FDIC insurance assessments
move from flat-rate premiums to a system of risk-based premium assessments,
in order to recapitalize the Bank Insurance Fund (the "BIF") at a reserve
ratio specified in the Improvement Act. Beginning in January 1993, BIF
members have paid an annual assessment rate of between 23 and 31 cents per
$100 of domestic deposits, depending on the risk classification assigned by
the FDIC to the BIF member. The FDIC was also granted authority under the
Improvement Act to impose special assessments on insured depository
institutions to repay FDIC borrowings from the United States Treasury or
other sources. Effective June 1, 1995, the assessment rates were dropped to
4 cents for the lowest risk classification up to 31 cents for the highest
risk classification. Effective January 1, 1996, the rates were dropped to a
range of zero to 27 cents.
STATE REGULATION
BancFirst is an Oklahoma-chartered state bank. Accordingly, BancFirst's
operations are subject to various requirements and restrictions of state law
relating to loans, lending limits, interest rates payable on deposits,
investments, mergers and acquisitions, borrowings, dividends, capital
adequacy, and other matters. Because BancFirst is a member of the Federal
Reserve System, Oklahoma law provides that BancFirst must maintain reserves
against deposits as required by the Federal Reserve Act.
BancFirst is subject to primary supervision, periodic examination and
regulation by the Oklahoma State Banking Department and the Federal Reserve
Board. The Oklahoma State Bank Commissioner is authorized by statute to
accept a Federal Reserve System examination in lieu of a state examination.
In practice, the Federal Reserve Board and the Oklahoma State Banking
Department alternate examinations of BancFirst. If, as a result of an
examination of a bank, the Oklahoma State Banking Department determines that
the financial condition, capital resources, asset quality, earnings
prospects, management, liquidity, or other aspects of the bank's operations are
8
unsatisfactory or that the management of the bank is violating or has
violated any law or regulation, various remedies, including the remedy of
injunction, are available to the Oklahoma State Banking Department.
Since 1983, Oklahoma law has permitted a bank holding company to own or
control more than one bank, but each additional bank acquisition may not
cause such bank holding company's controlled banks to hold combined deposits
which exceed 11% of the aggregate deposits of all insured financial
institutions in Oklahoma. Additionally, under Oklahoma's interstate banking
law, out-of-state bank holding companies are permitted to acquire Oklahoma
banks or bank holding companies; however, further branching by an acquired
Oklahoma bank is prohibited for a four-year period from the date of its
acquisition by an out-of-state bank holding company unless that company's
principal place of business is in a state which has enacted reciprocal
legislation authorizing Oklahoma bank holding companies to acquire banks or
bank holding companies in such state.
The branching rights of all state and national banks located in Oklahoma
are limited by the Oklahoma Banking Code. A bank may establish and maintain
up to two de novo branches which may be located (i) within the same city as
the main bank, or (ii) within 25 miles of the main bank if located in a city
or town which has no main office of a state or national bank. In addition, a
state or national bank located in Oklahoma may form branches anywhere in
Oklahoma by acquiring an unlimited number of other Oklahoma banks, savings
and loan associations or their branches, provided that such acquisitions will
not result in the acquiring bank's direct or indirect ownership or control of
more than 11% of the aggregate deposits of all insured financial institutions
in Oklahoma. A bank located in Oklahoma may also establish two de novo
off-premises limited-purpose facilities (generally referred to as
"drive-ins"), one of which must be located within not more than 1,000 feet of
the bank's main office and the second to be located within three miles of the
bank's main office. Such facilities may be of unlimited size, and all
banking functions may be performed there except the on-premises approval of
loans. BancFirst recently utilized its statutory authority to establish a de
novo branch in Oklahoma City, but still retains its authority to establish
one de novo branch and two de novo limited purpose facilities with respect to
its main office in Oklahoma City.
GOVERNMENTAL MONETARY AND FISCAL POLICIES
The commercial banking business is affected directly by the monetary
policies of the Federal Reserve Board and by the fiscal policies of federal,
state and local governments. The Federal Reserve Board, in fulfilling its
role of stabilizing the nation's money supply, utilizes several operating
tools, all of which directly impact commercial bank operations. The primary
tools used by the Federal Reserve Board are changes in reserve requirements
on member bank deposits and other borrowings, open market operations in the
U.S. Government securities market, and control over the availability and cost
of members' direct borrowings from the "discount window."
Banks act as financial intermediaries in the debt capital markets and
are active participants in these markets daily. As a result, changes in
governmental monetary and fiscal policies have a direct impact upon the level
of loans and investments, the availability of sources of lendable funds, and
the interest rates earned from and paid on these instruments. It is not
possible to predict accurately the future course of such government policies
and the residual impact upon the operations of the Company.
RECENTLY ENACTED FEDERAL LEGISLATION
The recently enacted federal Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994 will increase the ability of the Company and other
bank holding companies to make interstate acquisitions and to operate their
subsidiary banks. Commencing on September 29, 1995, adequately capitalized
and adequately managed bank holding companies are permitted to acquire
banks located anywhere in the United States without regard to the provisions
of any state laws prohibiting such acquisitions. Interstate acquisitions
will not be permitted, however, if the potential acquirer would control more
than ten percent of the insured deposits in the United States or more than 30
percent of insured deposits in the home state of the bank to be acquired or
in any state in which such bank has a branch. States may enact statutes
increasing the 30 percent limit and may also lower such limit if they do so
on a non-discriminatory basis. States will also be permitted to prohibit
acquisitions of banks that have been
9
established for fewer than five years. The Board of Governors of the Federal
Reserve System is required to consider the applicant's record under the
federal Community Reinvestment Act in determining whether to approve an
interstate banking acquisition.
The new statute also permits, after June 1, 1997, interstate branch
banking in all states by adequately capitalized and adequately managed banks,
but a state may enact specific legislation before June 1, 1997 prohibiting
interstate branch banking in that state, in which event banks headquartered
in the state will not be permitted to branch into other states. A state may
also enact legislation permitting non-discriminatory interstate branch
banking in such state before June 1, 1997. Applications for interstate
branching authority will be subjected to regulatory scrutiny of compliance
with both federal and state community reinvestment statutes with respect to
all of the banks involved in the proposed transaction.
The Company is unable to predict with any certainty the effect any such
legislation would have on the Company, its subsidiaries or their respective
activities.
PENDING AND PROPOSED LEGISLATION
There are various pending and proposed bills in Congress that, among
other things, could restructure the federal supervision of financial
institutions. The Company is unable to predict with any certainty the effect
any such legislation would have on the Company, its subsidiaries or their
respective activities.
ITEM 2. PROPERTIES.
The principal offices of the Company are located at 101 North Broadway,
Suite 200, Oklahoma City, Oklahoma 73102. The Company owns substantially all
of the properties and buildings in which its various offices and facilities
are located. These properties include 37 full service branches and 13
limited service detached facilities. BancFirst also owns properties for
future expansion. There are no significant encumbrances on any of these
properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as a defendant in various legal actions
arising from the conduct of its normal business activities. Although the
amount of any liability that could arise with respect to these actions cannot
be accurately predicted, in the opinion of the Company, any such liability
will not have a material adverse effect on the consolidated financial
position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth quarter of the
year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the Nasdaq National Market
System ("NASDAQ/NMS") and is traded under the symbol "BANF." The following
table sets forth, for the periods indicated, (i) the high and low sales
prices of the Common Stock as reported in the NASDAQ/NMS consolidated
transaction reporting system and (ii) the quarterly dividends declared on the
Common Stock.
10
PRICE RANGE CASH
----------------- DIVIDENDS
HIGH LOW DECLARED
-------- ------- ---------
1995
First Quarter . . . . . . . . . $15 3/4 $13 3/4 $0.07
Second Quarter. . . . . . . . . $15 3/4 $14 1/2 $0.07
Third Quarter . . . . . . . . . $20 $15 $0.07
Fourth Quarter. . . . . . . . . $22 1/2 $18 $0.08
1994
First Quarter . . . . . . . . . $15 1/2 $12 1/4 $0.06
Second Quarter. . . . . . . . . $16 1/2 $12 3/4 $0.06
Third Quarter . . . . . . . . . $17 1/4 $14 3/4 $0.06
Fourth Quarter. . . . . . . . . $15 1/4 $13 3/4 $0.07
As of February 29, 1996, there were approximately 365 holders of record
of the Common Stock.
Prior to 1992, dividends on the Company's preferred stock and common
stock were limited by depressed earnings, regulatory commitments and loan
covenants. In October 1992, the Company's Floating Rate Preferred Stock was
redeemed. In December 1992, the Company paid all accumulated 10% Preferred
Stock dividends in arrears and resumed the semi-annual dividend on the 10%
Preferred Stock. In addition, the Company resumed quarterly common stock
dividends in December 1992. The 10% Preferred Stock was redeemed in February
1994. Future dividend payments will be determined by the Company's Board of
Directors in light of the earnings and financial condition of the Company and
the Bank, their capital needs, applicable governmental policies and
regulations and such other factors as the Board of Directors deems
appropriate.
BancFirst Corporation is a legal entity separate and distinct from the
Bank, and its ability to pay dividends is substantially dependent upon
dividend payments received from the Bank. Various laws, regulations and
regulatory policies limit the Bank's ability to pay dividends to BancFirst
Corporation, as well as BancFirst Corporation's ability to pay dividends to
its shareholders. See "Liquidity and Funding" and "Capital Resources" under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of Business - "Supervision and Regulation" and Note
14 of the Notes to Consolidated Financial Statements for further information
regarding limitations on the payment of dividends by BancFirst Corporation
and the Bank.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from "Selected Consolidated Financial Data"
contained on page A-2 of the attached Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Incorporated by reference from "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained on pages A-3 through
A-14 of the attached Appendix.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of BancFirst Corporation and its
subsidiaries, are incorporated by reference from pages A-15 through A-39 of
the attached Appendix, and include the following:
a. Report of Independent Accountants
b. Consolidated Balance Sheet
c. Consolidated Statement of Income
d. Consolidated Statement of Stockholders' Equity
e. Consolidated Statement of Cash Flows
f. Notes to Consolidated Financial Statements
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no material disagreements between the Company and its
independent accountants on accounting and financial disclosure matters which
are required to be reported under this Item for the period for which this
report is filed.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 401 of Regulation S-K will be contained
in the 1996 Proxy Statement under the caption "Election of Directors" and is
hereby incorporated by reference. The information required by Item 405 of
Regulation S-K will be contained in the 1996 Proxy Statement under the
caption "Compliance with Section 16(a) of the Securities Exchange Act of
1934" and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 402 of Regulation S-K will be contained
in the 1996 Proxy Statement under the caption "Compensation of Directors and
Executive Officers" and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 403 of Regulation S-K will be contained
in the 1996 Proxy Statement under the caption "Stock Ownership" and is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-K will be contained
in the 1996 Proxy Statement under the caption "Transactions with Management"
and is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants
12
Consolidated Balance Sheet at December 31, 1995 and 1994
Consolidated Statement of Income for the three years ended
December 31, 1995
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1995
Consolidated Statement of Cash Flows for the three years ended
December 31, 1995
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from
pages A-15 through A-39 of the attached Appendix.
(2) All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
(3) The following Exhibits are filed with this Report or are incorporated
by reference as set forth below:
EXHIBIT
NUMBER EXHIBIT
------- ----------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated October 28, 1994
among BancFirst, State National Bank, Marlow, and certain
shareholders of State National Bank (filed as Exhibit 2.4 to
the Company's Report on Form 10-Q for the quarter ended
September 30, 1994 and incorporated herein by reference).
2.2 Agreement and Plan of Reorganization dated September 16,
1995 between BancFirst and City Bankshares, Inc. (filed as
Exhibit 2.2 to the Company's Report on Form 10-Q for the
quarter ended September 30, 1995 and incorporated herein by
reference).
2.3 Agreement dated September 16, 1995 between BancFirst and
William O. Johnstone (filed as Exhibit 2.3 to the Company's
Report on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation (filed as
Exhibit No. 33 to the Company's Registration Statement on
Form S-2, File No. 33-58804, and incorporated herein by reference).
3.2 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation (filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference).
3.3 Amended By-Laws (filed as Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10.10 United Community Corporation (now BancFirst Corporation) Stock Option
Plan (filed as Exhibit No. 10.09 to the Company's Registration
Statement on Form S-4, file No. 33-13016 and incorporated herein by
reference).
10.11 BancFirst Corporation Employee Stock Ownership and Thrift Plan
(filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 and incorporated herein
by reference).
13
EXHIBIT
NUMBER EXHIBIT
------- ----------------------------------------------------------------
22.1* Subsidiaries of Registrant.
27.1* Financial Data Schedule.
_______________________
* Filed herewith.
(b) No reports on Form 8-K have been filed by the Company during the fourth
quarter of the year ended December 31, 1995.
14
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
March 29, 1996 BANCFIRST CORPORATION
(Registrant)
/s/ David E. Rainbolt
---------------------------------------
David E. Rainbolt
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1996.
/s/ H. E. Rainbolt /s/ Robert A. Gregory
- ------------------------------ ----------------------------------------
H. E. Rainbolt Robert A. Gregory
Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
/s/ J. Ralph McCalmont /s/ David E. Rainbolt
- ------------------------------ ----------------------------------------
J. Ralph McCalmont David E. Rainbolt
Vice Chairman of the Board President, Chief Executive
(Principal Executive Officer) Officer and Director
(Principal Executive Officer)
- ------------------------------ ----------------------------------------
John T. Hannah Melvin Moran
Director Director
/s/ RANDY P. FORAKER
- ------------------------------ ----------------------------------------
J. R. Hutchens, Jr. Randy P. Foraker
Director Senior Vice President, Controller
and Secretary/Treasurer
(Principal Accounting Officer)
15
APPENDIX A
BANCFIRST CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Pages
-----
Selected Consolidated Financial Data. . . . . . . . . . . . . A-2
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . A-3 - A-14
Report of Independent Accountants . . . . . . . . . . . . . . A-15
Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . A-16
Consolidated Statement of Income. . . . . . . . . . . . . . . A-17
Consolidated Statement of Stockholders' Equity. . . . . . . . A-18
Consolidated Statement of Cash Flows. . . . . . . . . . . . . A-19
Notes to Consolidated Financial Statements. . . . . . . . . . A-20 - A-39
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- -------- -------- --------
INCOME STATEMENT DATA:
Net interest income . . . . . . . . . . . . . . . $ 43,689 $ 38,936 $ 32,971 $ 30,041 $ 26,096
Provision for possible loan losses. . . . . . . . 855 380 251 700 952
Noninterest income. . . . . . . . . . . . . . . . 12,500 11,218 10,547 8,612 7,918
Noninterest expense. . . . . . . . . . . . . . . 34,932 31,631 29,151 26,792 27,007
Income before extraordinary items . . . . . . . . 12,839 11,597 10,154 8,955 4,211
Net income. . . . . . . . . . . . . . . . . . . . 12,839 11,597 11,472 11,161 6,555
Accumulated preferred dividends . . . . . . . . . -- (55) (386) (908) (1,083)
Net income applicable to common stockholders. . . 12,839 11,542 11,086 10,253 5,472
BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . . . . . . . . $1,048,338 $872,915 $823,234 $705,097 $680,576
Total loans (net of unearned interest). . . . . . 625,162 522,314 466,356 382,498 329,442
Allowance for possible loan losses. . . . . . . . 10,646 9,729 9,027 7,202 5,967
Securities. . . . . . . . . . . . . . . . . . . . 263,113 223,044 231,546 204,001 224,386
Deposits. . . . . . . . . . . . . . . . . . . . . 923,169 784,851 736,686 636,633 611,389
Long-term borrowings. . . . . . . . . . . . . . . 918 -- -- -- --
10% Preferred Stock . . . . . . . . . . . . . . . -- -- 3,898 3,829 3,829
Floating Rate Preferred Stock . . . . . . . . . . -- -- -- -- 10,000
Common stockholders' equity . . . . . . . . . . . 98,343 81,961 76,052 46,929 33,337
PER COMMON SHARE DATA:
Income before extraordinary items . . . . . . . . $ 2.01 $ 1.80 $ 1.77 $ 1.70 $ 0.65
Net income. . . . . . . . . . . . . . . . . . . . 2.01 1.80 2.01 2.17 1.13
Cash dividends. . . . . . . . . . . . . . . . . . 0.29 0.25 0.21 0.05 --
Book value. . . . . . . . . . . . . . . . . . . . 15.80 13.21 12.27 9.94 6.52
Tangible book value . . . . . . . . . . . . . . . 14.50 11.93 11.02 8.31 5.28
SELECTED FINANCIAL RATIOS:
PERFORMANCE RATIOS:
Return on average assets. . . . . . . . . . . . . 1.33% 1.34% 1.54% 1.62% 0.94%
Return on average stockholders' equity. . . . . . 14.13 14.36 17.03 21.58 15.07
Cash dividend payout ratio. . . . . . . . . . . . 14.43 13.89 10.45 2.30 --
Net interest spread . . . . . . . . . . . . . . . 4.34 4.56 4.54 4.50 3.80
Net interest margin . . . . . . . . . . . . . . . 5.20 5.20 5.14 5.08 4.48
Efficiency ratio. . . . . . . . . . . . . . . . . 62.17 63.07 66.99 69.31 79.40
BALANCE SHEET RATIOS:
Average loans to deposits . . . . . . . . . . . . 67.02% 63.39% 61.82% 56.78% 52.39%
Average earning assets to total assets. . . . . . 88.31 88.05 88.47 88.58 87.77
Average earning assets to interest-bearing
liabilities . . . . . . . . . . . . . . . . . . 124.21 123.76 122.39 117.11 113.52
ASSET QUALITY RATIOS:
Nonperforming and restructured loans to total
loans . . . . . . . . . . . . . . . . . . . . . 0.79% 0.71% 1.00% 0.99% 1.29%
Nonperforming and restructured assets to
total assets. . . . . . . . . . . . . . . . . . 0.55 0.70 1.08 1.61 2.00
Allowance for possible loan losses to
total loans . . . . . . . . . . . . . . . . . . 1.70 1.86 1.94 1.88 1.81
Allowance for possible loan losses to
nonperforming and restructured loans. . . . . . 216.73 261.53 193.21 190.88 140.53
Net chargeoffs to average loans . . . . . . . . . 0.08 0.00 0.06 0.07 0.42
CAPITAL RATIOS:
Average stockholders' equity to assets. . . . . . 9.43% 9.34% 9.06% 7.50% 6.26%
Leverage ratio. . . . . . . . . . . . . . . . . . 8.55 9.08 9.06 7.41 7.44
Tier I risk-based capital ratio . . . . . . . . . 14.76 15.41 16.57 13.80 13.12
Total risk-based capital ratio. . . . . . . . . . 16.02 16.67 17.83 15.06 13.94
A-2
FINANCIAL REVIEW
The following discussion is an analysis of the financial condition and
results of operations of the Company for the three years ended December 31,
1995 and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and the Selected Consolidated Financial Data
included herein.
SUMMARY
The Company reported its fifth consecutive year of record earnings in
1995 and surpassed its goal of reaching $1 billion in total assets.
BancFirst, the Company's subsidiary bank, became the first state-chartered
bank in Oklahoma to cross $1 billion in assets and also became the fourth
largest bank in the state. With the addition of two new communities in 1995,
BancFirst serves 26 communities in Oklahoma, more than any other bank.
Net income for 1995, rose to $12.8 million, from $11.6 million for 1994
and $11.5 million for 1993. The corresponding earnings per share was $2.01
for 1995, up from $1.80 for 1994 and $2.01 for 1993, which included $0.24 per
share for an accounting change for income taxes. Return on average assets was
1.33% for 1995, compared to 1.34% for 1994 and 1.37% for 1993, excluding the
accounting change. Return on average stockholders' equity was again affected
by an increase in average equity for the year, resulting in a return of
14.13%, compared to 14.36% for 1994 and 15.08% for 1993, excluding the
accounting change.
Total assets increased $175 million, to $1.05 billion, as a result of
acquisitions and internal growth. Total loans increased $103 million,
including internal growth of over 10%. Total deposits increased $138 million
from both acquisitions and internal growth. Stockholders' equity increased
$16.4 million, including a $5.67 million increase in the net unrealized gain
on securities available for sale. Average stockholders' equity to average
assets was 9.43%, up from 9.34% for 1994.
Asset quality continued to improve during the year. Nonperforming and
restructured assets to total assets dropped to 0.55% from 0.70% for 1994. The
allowance for possible loan losses to nonperforming and restructured loans was
216.73% at year end 1995 and 261.53% at the end of 1994.
In 1995, the Company completed acquisitions of State National Bank of
Marlow, Oklahoma ("State National Bank"), which had $102 million in assets,
and Johnston County Bancshares, Inc. of Tishomingo, Oklahoma ("Johnston County
Bancshares") which had $10 million in assets. The acquisition of State
National Bank gives the Company a basis for further expansion in southwestern
Oklahoma, while the acquisition of Johnston County Bancshares complements the
Company's existing location in Madill, Oklahoma.
In March 1996, the Company acquired City Bankshares, Inc. of
Oklahoma City, Oklahoma ("City Bankshares") which had assets of approximately
$130 million. City Bankshares' seven locations in Oklahoma City significantly
expand the Company's branch network. At the same time, the Company opened a
de novo branch in Oklahoma City, giving it a total of nine locations in this
important metropolitan area.
In June 1995, the Company entered into an agreement of merger with
Commerce Bancorporation, Inc. of McLoud, Oklahoma ("Commerce Bancorp"), which
has approximately $18 million in total assets. The merger with Commerce
Bancorp will complement the Company's existing locations in Shawnee, Oklahoma.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is the Company's principal source of operating
revenue. Net interest income increased 12.2% in 1995 to $43.7 million, after
increasing 18.1% in 1994 and 9.75% in 1993. The net interest margin on a
taxable equivalent basis for 1995 was 5.20%, equal to the margin for 1994 and
up from 5.14% for 1993. The Company's net interest margin has benefitted in
recent years from generally stable interest rates combined with relatively
strong loan demand. It is therefore reasonable to expect that the Company's
relatively high net interest margin may decline as interest rates return to
more historical levels in absence of a continuation of this trend. The
Company's average net interest margin since 1985 has been 4.73%.
A-3
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------- ------------------------- --------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
ASSETS: BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------- ------- ------- ------ ------- ------- ------
Earning Assets:
Loans (1) . . . . . . . . . . . . . . . . $577,887 $58,199 10.07% $493,300 $45,995 9.32% $412,306 $37,907 9.19%
Investments - taxable . . . . . . . . . . 233,777 13,937 5.96 225,257 12,214 5.42 197,263 11,325 5.74
Investments - tax exempt. . . . . . . . . 11,059 945 8.55 10,445 925 8.86 11,356 1,025 9.03
Federal funds sold. . . . . . . . . . . . 28,515 1,673 5.87 32,991 1,350 4.09 36,957 1,099 2.97
-------- ------- -------- ------- -------- -------
Total earning assets. . . . . . . . . . 851,238 74,754 8.78 761,993 60,484 7.94 657,882 51,356 7.81
-------- ------- -------- ------- -------- -------
Nonearning assets:
Cash and due from banks . . . . . . . . . 67,348 59,400 48,721
Interest receivable and other . . . . . . 55,543 53,392 45,522
Allowance for possible loan losses. . . . (10,162) (9,372) (8,488)
-------- -------- --------
Total nonearning assets . . . . . . . . 112,729 103,420 85,755
-------- -------- --------
Total assets. . . . . . . . . . . . . . $963,967 $865,413 $743,637
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits. . . . . . . . . . . $179,435 5,882 3.28% $173,647 4,899 2.82% $146,187 4,139 2.83%
Savings deposits. . . . . . . . . . . . . 154,482 5,848 3.79 156,920 4,828 3.08 124,798 3,780 3.03
Time deposits . . . . . . . . . . . . . . 346,807 18,435 5.32 284,625 11,054 3.88 263,101 9,385 3.57
Short-term borrowings . . . . . . . . . . 4,403 253 5.75 527 19 3.60 446 10 2.24
Note payable. . . . . . . . . . . . . . . -- -- -- -- -- -- 3,000 245 8.17
Line of credit. . . . . . . . . . . . . . -- 16 NM -- 38 NM -- -- --
Long-term borrowings. . . . . . . . . . . 216 14 6.48 -- -- -- -- -- --
-------- ------- -------- ------- -------- -------
Total interest-bearing. . . . . . . . . 685,343 30,448 4.44 615,719 20,838 3.38 537,532 17,559 3.27
-------- ------- -------- ------- -------- -------
Interest-free funds:
Demand deposits . . . . . . . . . . . . . 181,495 163,002 132,847
Interest payable and other. . . . . . . . 6,259 5,903 5,904
Stockholders' equity. . . . . . . . . . . 90,870 80,789 67,354
-------- -------- --------
Total interest-free funds . . . . . . . 278,624 249,694 206,105
-------- -------- --------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . $963,967 $865,413 $743,637
-------- -------- --------
-------- -------- --------
Net interest income . . . . . . . . . . . . $44,306 $39,646 $33,797
------- ------- -------
------- ------- -------
Net interest spread . . . . . . . . . . . . 4.34% 4.56% 4.54%
---- ---- ----
---- ---- ----
Net interest margin . . . . . . . . . . . . 5.20% 5.20% 5.14%
---- ---- ----
---- ---- ----
(1) Nonaccrual loans are included in the
average loan balances and any
interest on such nonaccrual loans is
recognized on a cash basis.
NM - Not Meaningful.
A-4
Changes in the volume of earning assets and interest-bearing liabilities,
and changes in interest rates determine the change in net interest income.
The substantial increases in net interest income in recent years have been due
to volume changes rather than changes in interest rates. The Volume/Rate
Analysis summarizes the relative contribution of each of these components to
the increases in net interest income in 1995 and 1994. The increase in net
interest income in 1995 can be primarily attributed to the increase in loan
volume. Average loans rose 17.1% and average loans to deposits increased to
67.02% from 63.39% for 1994. Rising interest rates in 1995 produced a
negative rate variance. The principal factor in the increase in net interest
income in 1994 was a 19.6% increase in average loans, which produced a
positive volume variance.
CHANGE IN 1995 CHANGE IN 1994
----------------------------- ---------------------------
DUE TO DUE TO
VOLUME DUE TO VOLUME DUE TO
TOTAL (1) RATE TOTAL (1) RATE
-------- ------- -------- ------- ------- -------
(Dollars in thousands)
INCREASE (DECREASE) IN:
INTEREST INCOME:
Loans. . . . . . . . . . . . . . . . . $ 12,202 $ 7,903 $ 4,299 $ 8,088 $ 7,049 $ 1,039
Securities-taxable . . . . . . . . . . 1,723 763 960 889 1,311 (422)
Securities-tax-exempt. . . . . . . . . 20 60 (40) (100) (77) (23)
Federal funds sold . . . . . . . . . . 324 (183) 507 251 (118) 369
-------- ------- -------- ------- ------- -------
Total interest income. . . . . . . . 14,269 8,543 5,726 9,128 8,165 963
-------- ------- -------- ------- ------- -------
INTEREST EXPENSE:
Transaction deposits . . . . . . . . . 983 162 821 760 783 (23)
Savings deposits . . . . . . . . . . . 1,020 (91) 1,111 1,048 984 64
Time deposits. . . . . . . . . . . . . 7,383 2,457 4,926 1,669 782 887
Short-term borrowings. . . . . . . . . 234 14 220 9 2 7
Line of credit and note payable. . . . (22) -- (22) (207) (207) --
Long-term borrowings . . . . . . . . . 14 -- 14 -- -- --
-------- ------- -------- ------- ------- -------
Total interest expense . . . . . . . 9,612 2,542 7,070 3,279 2,344 935
-------- ------- -------- ------- ------- -------
Net interest income. . . . . . . . . . . $4,657 $ 6,001 $ (1,344) $ 5,849 $ 5,821 $ 28
-------- ------- -------- ------- ------- -------
-------- ------- -------- ------- ------- -------
(1) The change in interest due to change in mix has been allocated in total
to volume changes.
Interest rate sensitivity analysis measures the sensitivity of the
Company's net interest margin to changes in interest rates by analyzing the
repricing relationship between its earning assets and interest-bearing
liabilities. This analysis is limited by the fact that it presents a static
position as of a single day and is not necessarily indicative of the
Company's position at any other point in time, and does not take into account
the sensitivity of yields and rates of specific assets and liabilities to
changes in market rates. In 1995, Management continued its strategy of
creating manageable negative interest sensitivity gaps. This approach takes
advantage of the Company's stable core deposit base and the relatively short
maturity and repricing frequency of its loan portfolio, as well as the
historical existence of a positive yield curve, which enhances the net
interest margin over the long term. Although interest rate risk is increased
on a controlled basis by this position, it is somewhat mitigated by the
Company's high level of liquidity.
The Analysis of Interest Rate Sensitivity presents the Company's earning
assets and interest-bearing liabilities based on maturity and repricing
frequency at December 31, 1995. At this date, interest-bearing liabilities
exceeded earning assets by $183 million in the three month interval. This
negative gap position asssumes that the Company's core savings and
transaction deposits are immediately rate sensitive and reflects Management's
perception that the yield curve will be positive over the long term. In 1991
through 1993 the yield curve became steeper as short-term interest rates
decreased significantly. This condition resulted in higher net interest
margins for the Company. In 1994 and 1995, the yield curve flattened as
short-term interest rates rose. As the yield curve flattens, the Company's
net interest margin would be expected to decline, unless the Company adjusts
its interest sensitivity gap position, or employs other strategies to control
the rise in rates on interest-bearing liabilities or to increase the yield on
earning assets. Beginning in late 1992, the proceeds of maturing securities
were increasingly used to fund the growth of the Company's floating rate loan
portfolio, thereby decreasing its zero to 12 months negative gap position
from 21.72% at the end of 1992 to 13.06% at the end of 1994, mitigating to
some extent the effect of rising interest rates. In 1995, the 12 months
negative gap increased to 18.06%, due to increases in short-term borrowings
and time deposits.
A-5
INTEREST RATE NONINTEREST RATE
SENSITIVE SENSITIVE
--------------------- ---------------------
0 to 3 4 to 12 1 to 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
--------- --------- --------- --------- ---------
(Dollars in thousands)
EARNINGS ASSETS:
Loans . . . . . . . . . . . . . . . . . . . $ 259,115 $ 158,973 $ 143,943 $ 63,131 $ 625,162
Federal funds sold. . . . . . . . . . . . . 30,085 -- -- -- 30,085
Securities. . . . . . . . . . . . . . . . . 49,728 39,718 142,464 31,203 263,113
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . . $ 338,928 $ 198,691 $ 286,407 $ 94,334 $ 918,360
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FUNDING SOURCES:
Noninterest-bearing demand deposits (1) . . $ -- $ -- $ -- $ 73,823 $ 73,823
Savings and transaction deposits. . . . . . 352,123 -- -- -- 352,123
Time deposits of $100 or more . . . . . . . 53,663 33,742 5,652 -- 93,057
Time deposits under $100. . . . . . . . . . 107,781 137,400 36,210 -- 281,391
Short-term borrowings . . . . . . . . . . . 8,705 10,000 -- -- 18,705
Long-term borrowings. . . . . . . . . . . . 27 34 245 612 918
Stockholders' equity. . . . . . . . . . . . -- -- -- 98,343 98,343
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . . $ 522,299 $ 181,176 $ 42,107 $ 172,778 $ 918,360
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Interest sensitivity gap. . . . . . . . . . . $(183,371) $ 17,515 $ 244,300 $ (78,444)
Cumulative gap. . . . . . . . . . . . . . . . $(183,371) $(165,856) $ 78,444 --
Cumulative gap as a percentage
of total earning assets . . . . . . . . . . (19.97)% (18.06)% 8.54% --
(1) Represents the amount of demand deposits required to support earning
assets in excess of interest-bearing liabilities and stockholders' equity.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses increased to $855,000 for 1995
from $380,000 for 1994, and $251,000 for 1993. These relatively low levels
of provisions reflect the significant decrease in the level of problem loans
since 1990. The Company reported net loan charge-offs of $452,000 for 1995
compared to net recoveries of $5,000 for 1994 and charge-offs of $249,000 for
1993. The net charge-offs for 1995 and 1993 were equivalent to only 0.08%
and 0.06%, respectively, of average loans. A more detailed discussion of the
allowance for possible loan losses is provided under "Loans."
SECURITIES TRANSACTIONS
Net gains on securities transactions were $111,000 in 1995, compared to
$5,000 in 1994, and $204,000 in 1993. The Company's practice is to hold its
securities to maturity and it does not engage in trading activities. The
small gains from securities transactions have primarily been from securities
that have been called or from disposing of securities acquired in mergers
which had a higher than acceptable level of risk. A more detailed discussion
of securities is provided under "Securities."
OTHER NONINTEREST INCOME
Noninterest income, excluding securities transactions, increased in 1995
by $1.18 million, or 10.5%, compared to an increase of $870,000, or 8.4%, in
1994 and $1.94 million, or 22.5%, in 1993. Noninterest income has become an
increasingly important source of revenue. The Company's fee income has
increased each year since 1987 due to improved pricing strategies, enhanced
product lines and bank acquisitions. New products and strategies are being
implemented which are expected to produce continued growth in noninterest
income.
In 1995, service charges on deposits increased only $228,000, or 2.98%,
compared to increases of 16.4% and 15.5% in 1994 and 1993, respectively.
Rising interest rates during the year increased earnings credits allowed to
customers on account analysis, thereby reducing commercial service charges.
Other noninterest income increased
A-6
$948,000, or 26.5%, in 1995, compared to a decrease of 5.4% in 1994 and an
increase of 32.3% in 1993. The primary causes of the increase were higher
fees from mortgage originations, higher gains on sales of mortgage loans and
higher fees from money order sales.
NONINTEREST EXPENSE
Total noninterest expense increased in 1995 by 10.4% to $34.9 million,
compared to increases of 8.5% for 1994 and 8.8% for 1993. Salaries and
employee benefits have increased over the past three years due to
acquisitions, higher salary levels, additional staff for new product lines
and increased loan demand. Occupancy and fixed asset expense, depreciation
and amortization all increased due to acquisitions. Data processing services
decreased in 1995 from the renegotiation of the data processing contract.
Only $89,000 of expense for other real estate owned was recognized for 1995,
compared to income from other real estate owned recognized for 1994. These
amounts are reflective of the Company's efforts to reduce nonperforming
assets. Other noninterest income decreased due to the reduction of FDIC
premiums in the last half of 1995.
INCOME TAXES
Income tax expense increased to $7.56 million from $6.55 million for
1994 and $3.96 million for 1993. The tax expense for 1994 reflects the
return of the Company to a fully taxable basis, with a limited amount of net
operating loss carryforwards available to reduce taxable income. The
remainder of the Company's state tax net operating loss carryforwards were
fully utilized in 1994.
In January 1993, the Company adopted Statement of Financial Standards
No. 109, "Accounting for Income Taxes." The cumulative effect on prior years
of the change in accounting for income taxes of $1.32 million was recorded
with a corresponding increase in the Company's deferred tax asset. The
Company realized current taxable income for 1993, which was partially offset
by the utilization of net operating loss carryforwards and alternative
minimum tax credit carryforwards. Deferred tax expense was recognized for
the change in temporary differences during the year, which was partially
offset by an adjustment to the deferred tax asset to reflect the increase in
the federal statutory tax rate from 34% to 35%.
Prior to 1993, the Company had net operating loss carryforwards for
financial and tax reporting purposes. Consequently, its income tax expense
or benefit primarily related to matters other than the provision of taxes for
current operations.
Since banks have traditionally carried large amounts of tax-exempt
securities and loans, certain financial information is prepared on a taxable
equivalent basis to facilitate analysis of yields and changes in components
of earnings. Average balance sheets, income statements and other financial
statistics on a taxable equivalent basis have been presented for this purpose.
IMPACT OF INFLATION
The impact of inflation on financial institutions differs significantly
from that of industrial or commercial companies. The assets of financial
institutions are predominantly monetary, as opposed to fixed or nonmonetary
assets such as premises, equipment and inventory. As a result, there is
little exposure to inflated earnings by understated depreciation charges or
significantly understated current values of assets. Although inflation can
have an indirect effect by leading to higher interest rates, financial
institutions are in a position to monitor the effects on interest costs and
yields and respond to inflationary trends through management of interest rate
sensitivity. Inflation can also have an impact on noninterest expenses such
as salaries and employee benefits, occupancy, services and other costs.
A-7
FINANCIAL POSITION
CASH AND FEDERAL FUNDS SOLD
Cash and due from banks consists of cash and cash items on hand,
deposits and other amounts due from other banks, and reserves deposited with
the Federal Reserve Bank. Federal funds sold consists of overnight
investments of excess funds with other financial institutions. The amount of
cash and federal funds sold carried by the Company is a function of the
availability of funds presented to other institutions for clearing, the
Company's requirements for liquidity, operating cash and reserves, available
yields, and interest rate sensitivity management. Balances of these items
can fluctuate widely based on these various factors. At December 31, 1995,
cash and federal funds sold increased $33.6 million, or 41.1% due to funds
temporarily deposited by customers which were not immediately available for
investment. In 1994, cash and federal funds sold decreased $7.6 million, or
8.5%, as compared to year-end 1993, as a result of loan growth that exceeded
increases from bank acquisitions.
SECURITIES
During 1995, total securities increased $40 million, or 17.9%, compared
to a decrease of $8.5 million, or 3.67%, in 1994. The increase in 1995 was
due to acquisitions, while the decrease in 1994 was due to maturities of
securities being used to fund loan growth.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS
115"), effective January 1, 1994. FAS 115 requires that investments in debt
securities be classified and accounted for in three categories: held for
investment, available for sale, and trading. As a result of adopting FAS
115, the Company transferred approximately $183 million from securities held
for investment to securities available for sale. These securities were
adjusted to market value, resulting in an initial unrealized net gain of
$2.64 million which increased stockholders' equity $1.72 million on an
after-tax basis. During 1994, the unrealized net gain became an unrealized
net loss of $6.33 million and the amount included in stockholders' equity
decreased $5.83 million to an unrealized net loss of $4.11 million. During
1995, the unrealized net loss beame an unrealized net gain of $2.4 million
and the amount included in stockholders' equity increased $5.67 million to an
unrealized net gain of $1.56 million. Prior to January 1, 1994, all
securities were classified as held for investment.
DECEMBER 31,
----------------------------
1995 1994 1993
----------------------------
(Dollars in thousands)
HELD FOR INVESTMENT
U. S. Treasury and other federal agencies . . $ 30,352 $ 9,505 $ 215,608
States and political subdivisions . . . . . . 10,478 9,191 10,606
Other securities. . . . . . . . . . . . . . . 1,175 2,083 5,332
-------- -------- ---------
Total . . . . . . . . . . . . . . . . . . . $ 42,005 $ 20,779 $ 231,546
-------- -------- ---------
-------- -------- ---------
Estimated market value. . . . . . . . . . . . $ 42,577 $ 20,395 $ 234,851
-------- -------- ---------
-------- -------- ---------
AVAILABLE FOR SALE
U. S. Treasury and other federal agencies . . $216,431 $200,141
States and political subdivisions . . . . . . 657 747
Other securities. . . . . . . . . . . . . . . 4,020 1,377
-------- --------
Total . . . . . . . . . . . . . . . . . . . $221,108 $202,265
-------- --------
-------- --------
The Maturity Distribution of Securities summarizes the maturity and
weighted average taxable equivalent yields of the securities portfolios at
December 31, 1995. The average maturity of the portfolio has been shortened
significantly in recent years as part of the Company's asset/liability
management strategy. However, the average maturity increased in 1995 due to
securities added by acquisitions. The percentage of securities maturing
within five years, decreased from 90.2% in 1994 to 81.77% in 1995.
A-8
AFTER ONE YEAR AFTER FIVE YEARS
BUT BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- -------- ----- ------- ----- ------- ----- -------- -----
HELD FOR INVESTMENT (Dollars in thousands)
U. S. Treasury and other
federal agencies . . . . . $ 2,559 6.33% $ 6,343 7.37% $18,513 6.49% $ 2,937 7.36% $ 30,352 6.74%
State and political
subdivisions . . . . . . . 1,257 5.21 6,159 5.55 2,201 5.71 861 6.19 10,478 5.60
Other securities . . . . . 1,100 6.55 -- -- 75 6.76 -- -- 1,175 6.56
------- -------- ------- ------- --------
Total . . . . . . . . . . $ 4,916 6.09 $ 12,502 6.47 $20,789 6.41 $ 3,798 7.09 $ 42,005 6.45
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Percentage of total . . . 11.71% 29.76% 49.49% 9.04% 100.00%
------- -------- ------- ------- --------
------- -------- ------- ------- --------
AVAILABLE FOR SALE
U. S. Treasury and other
federal agencies . . . . . $50,323 4.82% $147,230 6.22% $ 8,190 7.02% $10,688 6.87% $216,431 5.96%
State and political
subdivisions . . . . . . . 36 3.44 139 4.01 173 4.51 309 5.28 657 4.71
Other securities . . . . . -- -- -- -- -- -- 4,020 5.96 4,020 5.96
------- -------- ------- ------- --------
Total . . . . . . . . . . $50,359 4.82 $147,369 6.22 $ 8,363 6.97 $15,017 6.59 $221,108 5.96
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Percentage of total . . . 22.78% 66.65% 3.78% 6.79% 100.00%
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Total securities . . . . . $55,275 4.93% $159,871 6.24% $29,152 6.57% $18,815 6.69% $263,113 6.03%
------- -------- ------- ------- --------
------- -------- ------- ------- --------
Percentage of total . . . 21.01% 60.76% 11.08% 7.15% 100.00%
------- -------- ------- ------- --------
------- -------- ------- ------- --------
LOANS
Total loans have increased in each of the last six years. The increase
was $103 million, or 19.7%, in 1995, compared to $56 million, or 12%, in
1994. These increases resulted from acquisitions and the successful
implementation of the Company's various strategies to develop loan growth.
In 1995, $49 million in loans were added by bank acquisitions, compared to
$23 million in 1994. Continued growth in the Oklahoma City and Tulsa
offices, and specialized lending activities such as guaranteed student loans,
SBA guaranteed loans and residential mortgage loans contributed to the
internal growth.
COMPOSITION
The Company's loan portfolio is diversified among commercial and
individual borrowers. Commercial loans are comprised principally of loans to
companies in light manufacturing, retail and service industries.
Construction and development loans totaled only $27.6 million, or 4.42% of
total loans as of the end of 1995, while oil and gas production loans totaled
only $6.53 million, or 1.04% of total loans at such date. Real estate loans
are relatively equally divided between loans on commercial real estate and
mortgages on personal residences. Installment loans are comprised mostly of
loans to individuals for the purchase of vehicles and student loans. Loans
secured by real estate have been a large proportion of the loan portfolio for
a number of years; however, since 1989 the percentage of total loans secured
by real estate has decreased slightly. In 1995, this percentage was 53.3%
compared to 56.6% for 1989. Although the percentage of the portfolio
represented by real estate loans has declined, the Company remains subject to
risk from future market fluctuations in property values. The Company
attempts to manage this risk through rigorous loan underwriting standards,
training of loan officers and close monitoring of the values of individual
properties.
The majority of the commercial real estate and other commercial loans
have maturities of one year or less. However, many of these loans are
renewed at existing or similar terms after scheduled principal reductions.
Also, approximately 69% of the commercial real estate and other commercial
loans had adjustable interest rates at year-
A-9
end 1995. The short maturities and adjustable interest rates on these loans
allow the Company to maintain the majority of its loan portfolio near market
interest rates.
DECEMBER 31,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ----------------- ----------------- ----------------- ----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- ------ -------- ------ -------- ------ ------- ------
(Dollars in thousands)
Commercial, financial
and other. . . . . . . . $180,923 28.94 $156,718 30.00% $131,088 28.11% $115,037 30.08% $ 87,145 26.45%
Real estate --
construction . . . . . . 27,620 4.42 29,760 5.70 19,258 4.13 10,028 2.62 9,294 2.82
Real estate --
mortgage . . . . . . . . 305,456 48.86 242,143 46.36 229,143 49.13 185,982 48.62 170,045 51.62
Consumer . . . . . . . . 111,163 17.78 93,693 17.94 86,867 18.63 71,451 18.68 62,958 19.11
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans. . . . . . $625,162 100.00% $522,314 100.00% $466,356 100.00% $382,498 100.00% $329,442 100.00%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
MATURING
--------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
(Dollars in thousands)
Commercial, financial and other . . . . . . . . . . . . . $146,935 $33,988 $ -- $180,923
Real estate -- construction . . . . . . . . . . . . . . . 25,205 2,415 -- 27,620
Real estate -- mortgage (excluding loans secured by 1-4
family residential properties). . . . . . . . . . . . . . 118,362 29,073 -- 147,435
-------- ------- ------ --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $290,502 $65,476 $ -- $355,978
-------- ------- ------ --------
-------- ------- ------ --------
Loans with predetermined interest rates . . . . . . . . . $ 81,976 $29,764 $ -- $111,740
Loans with adjustable interest rates. . . . . . . . . . . 208,526 35,712 -- 244,238
-------- ------- ------ --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $290,502 $65,476 $ -- $355,978
-------- ------- ------ --------
-------- ------- ------ --------
Percentage of total . . . . . . . . . . . . . . . . . . . 81.61% 18.39% --% 100.00%
-------- ------- ------ --------
-------- ------- ------ --------
The information relating to the maturity and rate sensitivity of loans
is based upon original loan terms and is not adjusted for "rollovers." In
the ordinary course of business, loans maturing within one year may be
renewed, in whole or in part, at interest rates prevailing at the date of
renewal.
NONPERFORMING AND RESTRUCTURED LOANS
Nonperforming and restructured loans totaled $4.91 million at December
31, 1995, compared to $3.72 million at December 31, 1994. Nonperforming and
restructured loans as a percentage of total loans was 0.79% compared to 0.71%
for 1994. From a historical perspective, nonperforming loans peaked in 1986
and have gradually decreased since that time. However, it is reasonable to
expect that over the next several years the level of nonperpforming loans and
loan losses will rise to more historical norms as a result of economic and
credit cycles.
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 collectibility of interest and/or principal is in serious doubt.
Interest income is recognized on certain of these loans on a cash basis if
the full collection of the remaining principal balance is reasonably
expected. Otherwise, interest income is not recognized until the principal
balance is fully collected. Total interest income which was not accrued on
nonaccrual loans outstanding at year end was approximately $166,000 in 1995
and $145,000 in 1994. Only a small amount of this interest was actually
collected.
The classification of a loan as nonperforming does not necessarily
indicate that loan principal and interest will ultimately be uncollectible.
The Company's experience is that a significant portion of both principal and
interest is eventually recovered. However, the above normal risk associated
with nonperforming loans is considered in the determination of the allowance
for possible loan losses. At year-end 1995, the allowance for possible loan
losses as a percentage of nonperforming and restructured loans was 217%,
compared to 262% at year-end 1994.
A-10
DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------- -------
(Dollars in thousands)
Past due over 90 days and still accruing . . . . . . . $ 500 $ 351 $ 590 $ 378 $ 897
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . 3,724 2,715 3,278 2,370 2,739
Restructured . . . . . . . . . . . . . . . . . . . . 688 654 804 1,025 610
------ ------ ------ ------- -------
Total nonperforming and restructured loans . . . . . . 4,912 3,720 4,672 3,773 4,246
Other real estate owned and repossessed assets . . . . 858 2,354 4,220 7,574 9,345
------ ------ ------ ------- -------
Total nonperforming and restructured assets . . . . . $5,770 $6,074 $8,892 $11,347 $13,591
------ ------ ------ ------- -------
------ ------ ------ ------- -------
Nonperforming and restructured loans to total loans. . 0.79% 0.71% 1.00% 0.99% 1.29%
------ ------ ------ ------- -------
------ ------ ------ ------- -------
Nonperforming assets to total assets . . . . . . . . 0.55% 0.70% 1.08% 1.61% 2.00%
------ ------ ------ ------- -------
------ ------ ------ ------- -------
Other real estate owned and repossessed assets have decreased from a high
of $21.3 million at year-end 1989 to $858,000 at year-end 1995, as a result of
a substantial effort by the Company to dispose of these assets. To encourage
local management to sell the other real estate as quickly as possible and to
ensure that it is carried at a conservative value, the Company's policy is to
write other real estate down annually by the greater of 10% of its remaining
carrying value or the difference between its remaining carrying value and its
estimated market value.
Potential problem loans are performing loans to borrowers with a weakened
financial condition, or which are experiencing unfavorable trends in their
financial condition, which causes management to have concerns as to the
ability of such borrowers to comply with the existing repayment terms. These
loans, which are not included in nonperforming and restructured assets,
totaled $12.3 million at December 31, 1995. In general, these loans are well
collateralized and have no identifiable loss potential. Loans which are
considered to have identifiable loss potential are placed on nonaccrual
status, are allocated a specific allowance for loss or are directly charged-
down, and are reported as nonperforming.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses reflects Management's assessment
of the risk of loss inherent in the Company's loan portfolio. The allowance
and its adequacy is determined through consideration of many factors,
including evaluation of known problem loans, levels of adversely classified,
past due and nonperforming loans, loan loss experience, and economic
conditions. To facilitate Management's assessment, the Company's Asset
Quality Department performs periodic loan reviews at each of the Company's
locations. The process of determining the adequacy of the allowance for
possible loan losses, however, necessarily involves the exercise of judgment
and consideration of numerous subjective factors and, accordingly, there can
be no assurance that the current level of the allowance will prove adequate in
light of future developments and economic conditions. As loan quality changes
with economic and credit cycles, it would be reasonable to expect the
Company's loan loss provisions to return to more historically normal levels.
Adversely classified loans have declined every year since 1986, excluding
bank acquisitions, primarily as a result of the improving state economy and
the Company's efforts to reduce the level of problem loans. Total adversely
classified loans (which includes nonperforming loans, certain restructured
loans and potential problem loans described above) were $15.8 million at the
end of 1995, compared to $16.3 million for 1994 and $17.6 million at the end
of 1993. The percentage of classified loans to total loans was 2.53% for
1995, 3.12% for 1994 and 3.77% for 1993.
Net charge-offs as a percentage of average loans decreased each year
since 1989, with $5,000 of net recoveries recognized in 1994, reflecting the
decrease in problem loans over such period. In 1995, the Company recognized
$452,000 of net charge-offs, which was only 0.08% of average loans.
A-11
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands)
Balance at beginning of year . . . . . . . . . . . . $ 9,729 $ 9,027 $ 7,202 $ 5,967 $ 6,400
-------- -------- -------- -------- --------
Charge-offs:
Commercial . . . . . . . . . . . . . . . . . . . . (457) (285) (218) (285) (734)
Real estate . . . . . . . . . . . . . . . . . . . (130) (116) (436) (317) (936)
Consumer . . . . . . . . . . . . . . . . . . . . (348) (450) (417) (330) (365)
Other . . . . . . . . . . . . . . . . . . . . . . (78) (68) (83) (103) (367)
-------- -------- -------- -------- --------
Total charge-offs . . . . . . . . . . . . . . . (1,013) (919) (1,154) (1,035) (2,402)
-------- -------- -------- -------- --------
RECOVERIES:
Commercial . . . . . . . . . . . . . . . . . . . . 232 400 431 428 541
Real estate . . . . . . . . . . . . . . . . . . . 154 341 251 239 241
Consumer . . . . . . . . . . . . . . . . . . . . 150 148 185 93 143
Other . . . . . . . . . . . . . . . . . . . . . . 25 35 38 43 92
-------- -------- -------- -------- --------
Total recoveries . . . . . . . . . . . . . . . . 561 924 905 803 1,017
-------- -------- -------- -------- --------
Net (charge-offs) recoveries . . . . . . . . . . . . (452) 5 (249) (232) (1,385)
Provisions charged to operations . . . . . . . . . . 855 380 251 700 952
Additions from acquisitions . . . . . . . . . . . . 514 317 1,823 767 --
-------- -------- -------- -------- --------
Balance at end of year . . . . . . . . . . . . . . . $ 10,646 $ 9,729 $ 9,027 $ 7,202 $ 5,967
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average loans . . . . . . . . . . . . . . . . . . . $577,887 $493,300 $412,306 $350,882 $327,397
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total loans. . . . . . . . . . . . . . . . . . . . . $625,162 $522,314 $466,356 $382,498 $329,442
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net charge-offs to average loans . . . . . . . . . . 0.08% 0.00% 0.06% 0.07% 0.42%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Allowance to total loans . . . . . . . . . . . . . . 1.70% 1.86% 1.94% 1.88% 1.81%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
ALLOCATION OF THE ALLOWANCE BY CATEGORY OF LOANS:
Commercial, financial and other . . . . . . . . . $ 505 $ 720 $ 647 $ 333 $ 413
Real estate--construction . . . . . . . . . . . . 466 564 747 -- 6
Real estate--mortgage . . . . . . . . . . . . . . 917 927 729 872 295
Consumer . . . . . . . . . . . . . . . . . . . . . 188 149 155 156 250
Unallocated . . . . . . . . . . . . . . . . . . . 8,570 7,369 6,749 5,841 5,003
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . $ 10,646 $ 9,729 $ 9,027 $ 7,202 $ 5,967
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS:
Commercial, financial and other . . . . . . . . . 28.94% 30.00% 28.11% 30.08% 26.45%
Real estate--construction . . . . . . . . . . . . 4.42 5.70 4.13 2.62 2.82
Real estate--mortgage. . . . . . . . . . . . . . . 48.86 46.36 49.13 48.62 51.62
Consumer . . . . . . . . . . . . . . . . . . . . . 17.78 17.94 18.63 18.68 19.11
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . 100.00% 100.00% 100.00% 100.00% 100.00%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
The Company adopted Statement of Financing Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), in January
1995. This new accounting standard requires that impaired loans be measured
based upon the present value of future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable that the
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The Company's impaired loans are
collateral dependent. Accordingly, the amount of impairment is measured based
upon the fair value of the underlying collateral and is included in the
allowance for possible loan losses. The adoption of FAS 114 did not have a
material effect on the financial position or results of operations of the
Company.
LIQUIDITY AND FUNDING
The Company's principal source of liquidity and funding is its diverse
deposit base generated from customer relationships. The availability of
deposits is affected by economic conditions and competition with other
financial institutions and alternative investments. Through interest rates
offered, competitive pricing and other banking services offered, the Company
can, to a limited extent, control its level of deposits. The level and
maturity of deposits necessary to support the Company's lending and
investment functions is determined through monitoring loan demand and through
its asset/liability management process.
A-12
The level of deposits has fluctuated in recent years due to various
factors, including acquisitions and competition. In prior years, because of
its relatively low loan to deposit ratio, the Company has been highly liquid
and has not needed to retain deposits unless a favorable spread could be
earned on the funds. However, loan growth and securities pledging
requirements have reached a level which now make it desirable for the Company
to generate internal deposit growth. Excluding acquisitions, total deposits
increased $46.2 million in 1995, and $15.6 million in 1994. Including
acquisitions, total deposits increased $138 million in 1995 and $48.2 million
in 1994.
The Company's core deposit base, which consists of all deposits except
time deposits of $100,000 or more, has been growing in recent years. Average
core deposits have increased $207 million, or 37%, since 1991 and were 89.6%
of average total deposits in 1995, compared to 90.5% in 1991. The average
level of demand deposits has also been growing, both in amount and percentage
of total deposits. These factors have provided the Company with a relatively
stable, low-cost funding source.
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- ------------
(Dollars in thousands)
AVERAGE BALANCES
Demand deposits . . . . . . . . . . . . . $181,495 $163,002 $132,847 $110,512 $107,800
Interest-bearing transaction deposits . . 179,435 173,647 146,187 126,165 110,862
Savings deposits . . . . . . . . . . . . 154,482 156,920 124,798 106,826 97,041
Time deposits under $100,000 . . . . . . 257,052 228,429 213,895 228,656 249,547
------------- ------------- ------------- ------------- ------------
Total core deposits . . . . . . . . . 772,464 721,998 617,727 572,159 565,250
Time deposits of $100,000 or more . . . . 89,755 56,196 49,206 45,811 59,653
------------- ------------- ------------- ------------- ------------
Total deposits. . . . . . . . . . . . $862,219 $778,194 $666,933 $617,970 $624,903
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
PERCENTAGES OF TOTAL DEPOSITS % OF % OF % OF % OF % OF
AND AVERAGE RATES PAID TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE
------ ---- ----- ---- ----- ---- ----- ---- ----- ----
Demand deposits . . . . . . . . . . . . . 21.05% 20.95% 19.92% 17.88% 17.25%
Interest-bearing transaction deposits . . 20.81 3.28% 22.32 2.82% 21.92 2.83% 20.42 3.05% 17.74 4.35%
Savings deposits . . . . . . . . . . . . 17.92 3.79 20.16 3.08 18.71 3.03 17.29 3.32 15.53 4.77
Time deposits under $100,000 . . . . . . 29.81 5.32 29.35 3.87 32.07 3.56 37.00 4.48 39.93 6.27
------ ------ ------ ------ ------
Total core deposits . . . . . . . . . 89.59 92.78 92.62 92.59 90.45
Time deposits of $100,000 or more . . . . 10.41 5.32 7.22 3.96 7.38 3.58 7.41 4.36 9.55 6.10
------ ------ ------ ------ ------
Total deposits . . . . . . . . . . . 100.00% 100.00% 100.00% 100.00% 100.00%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Average rate paid on
interest-bearing deposits . . . . . . . 4.43% 3.38% 3.24% 3.87% 5.56%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
The level of time deposits of $100,000 or more has been steadily
decreasing since 1989 and represented 10.41% of average total deposits at
year-end 1995. The Company has not utilized brokered deposits. Approximately
94% of its time deposits of $100,000 or more at December 31, 1995 mature in
one year or less.
December 31,
1995
--------------
(In thousands)
Three months or less. . . . . . . . . . . . . . $53,286
Over three through six months . . . . . . . . . 17,119
Over six through twelve months . . . . . . . . 16,623
Over twelve months . . . . . . . . . . . . . . 6,029
-------
Total . . . . . . . . . . . . . . . . . . . . $93,057
-------
-------
A-13
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. Federal funds purchased and
repurchase agreements totaled $3.71 million in 1995, compared to $171,000 in
1994.
In 1995, the Bank became a member of the Federal Home Loan Bank of
Topeka, Kansas (the "FHLB") and began borrowing from the FHLB at favorable
interest rates. A total of $15 million was borrowed on a short-term basis
and $918,000 was borrowed on a long-term basis to match-fund certain
long-term fixed-rate loans. These borrowings are secured by a pledge of
residential first mortgages.
The Bank is highly liquid. This liquidity positions the Bank to respond
to increased loan demand and other requirements for funds, or to decreases in
funding sources. Cash flows from operations, investing activities and other
funding sources have provided the funds for the increased loan activity.
The liquidity of BancFirst Corporation is dependent upon dividend
payments from the Bank and its ability to obtain financing. Banking
regulations limit bank dividends based upon net earnings retained by the bank
and minimum capital requirements. Dividends in excess of these limits
require regulatory approval. During 1995, the Bank paid four dividends
totaling $5.08 million.
CAPITAL RESOURCES
Stockholders' equity totaled $98.3 million at year-end 1995, compared to
$82 million at year-end 1994 and $80 million at year-end 1993. Stockholders'
equity has generally increased each year since 1983, except for losses
recognized in 1989 and 1990. The increase in 1995 was due to earnings
retained and an increase in the net unrealized gain on securities available
for sale. In 1994, stockholders' equity was reduced by the redemption of the
$3.9 million issue of 10% Preferred Stock and $4.11 million of unrealized
securities losses. The large increase in 1993 was due to the Company's
public stock offering completed in April 1993 and earnings retained for the
year. The Company's average equity capital ratio at year-end 1995 was 9.43%,
compared to 9.34% for 1994 and 9.06% for 1993.
At December 31, 1995, the Company's leverage ratio was 8.55% and its
total risk-based capital ratio was 16.02%. The minimum leverage ratio is 3%
and the minimum total risk-based capital ratio is 8%. The standards are
considered to be minimum requirements and banking institutions are generally
expected to maintain capital well above the minimum levels.
In March 1995, the Company adopted a Stock Repurchase Program (the
"SRP") authorizing management to repurchase up to 200,000 shares of the
Company's common stock. The SRP is to be used for purchases of stock by the
Company's ESOP and may also be used to enhance earnings per share, provide
stock for the exercise of stock options under the Company's ISOP or to
provide additional liquidity for the stock. Stock purchases under the SRP
must satisfy certain criteria regarding effects on earnings per share and
book value dilution, resulting equity ratios and the price to book value of
comparable size institutions. During 1995, the Company purchased and
canceled 62,440 shares and the ESOP purchased 30,684 shares.
Future dividend payments will be determined by the Company's Board of
Directors in light of the earnings and financial condition of the Company and
the Bank, their capital needs, applicable governmental policies and
regulations and such other factors as the Board of Directors deems
appropriate. While no assurance can be given as to the Company's ability to
pay dividends, Management believes that, based upon the anticipated
performance of the Company, regular dividend payments will continue in 1996.
A-14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BancFirst Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of BancFirst
Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Oklahoma City, Oklahoma
March 27, 1996
A-15
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
DECEMBER 31,
---------------------
1995 1994
---------- --------
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . $ 85,352 $ 53,564
Interest-bearing deposits with banks . . . . . . . . . . 1 -
Securities:
Held for investment, at cost (market value: $42,577
and $20,395, respectively). . . . . . . . . . . . . . 42,005 20,779
Available for sale, at market value. . . . . . . . . . 221,108 202,265
Federal funds sold . . . . . . . . . . . . . . . . . . . 30,085 28,260
Loans:
Total loans (net of unearned interest) . . . . . . . . 625,162 522,314
Allowance for possible loan losses . . . . . . . . . . (10,646) (9,729)
---------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . . 614,516 512,585
Premises and equipment, net. . . . . . . . . . . . . . . 28,308 26,462
Other real estate owned. . . . . . . . . . . . . . . . . 781 2,183
Intangible assets, net . . . . . . . . . . . . . . . . . 8,106 7,960
Accrued interest receivable. . . . . . . . . . . . . . . 10,403 8,518
Other assets . . . . . . . . . . . . . . . . . . . . . . 7,673 10,339
---------- --------
Total assets . . . . . . . . . . . . . . . . . . . . $1,048,338 $872,915
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . . . . . . . . . . $ 196,59 $168,426
Interest-bearing . . . . . . . . . . . . . . . . . . . 726,572 616,425
---------- --------
Total deposits . . . . . . . . . . . . . . . . . . . 923,169 784,851
Short-term borrowings. . . . . . . . . . . . . . . . . . 18,705 117
Long-term borrowings . . . . . . . . . . . . . . . . . . 918 -
Accrued interest payable . . . . . . . . . . . . . . . . 3,237 2,089
Other liabilities. . . . . . . . . . . . . . . . . . . . 3,966 3,897
---------- --------
Total liabilities. . . . . . . . . . . . . . . . . . 949,995 790,954
---------- --------
Commitments and contingent liabilities . . . . . . . . .
Stockholders' equity:
Common stock (shares issued: 6,225,455 and 6,202,814,
respectively) . . . . . . . . . . . . . . . . . . . . 6,225 6,203
Capital surplus. . . . . . . . . . . . . . . . . . . . 34,769 34,259
Retained earnings. . . . . . . . . . . . . . . . . . . 55,792 45,611
Unrealized securities gains (losses), net of tax . . . 1,557 (4,112)
---------- --------
Total stockholders' equity . . . . . . . . . . . . . 98,343 81,961
---------- --------
Total liabilities and stockholders' equity . . . . . $1,048,338 $872,915
---------- --------
---------- --------
See accompanying notes to consolidated financial statements.
A-16
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
INTEREST INCOME
Loans, including fees. . . . . . . . . . . . $ 57,914 $45,609 $ 37,433
Interest-bearing deposits with banks . . . . 14 - -
Securities:
Taxable. . . . . . . . . . . . . . . . . . 13,924 12,184 11,325
Tax-exempt . . . . . . . . . . . . . . . . 614 631 667
Federal funds sold . . . . . . . . . . . . . . 1,673 1,350 1,099
---------- ---------- ----------
Total interest income. . . . . . . . . . 74,139 59,774 50,524
---------- ---------- ----------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . 30,167 20,780 17,298
Short-term borrowings. . . . . . . . . . . . 253 19 10
Note payable . . . . . . . . . . . . . . . . - - 245
Line of Credit . . . . . . . . . . . . . . . 16 39 -
Long-term borrowings . . . . . . . . . . . . 14 - -
---------- ---------- ----------
Total interest expense . . . . . . . . . . 30,450 20,838 17,553
---------- ---------- ----------
Net interest income. . . . . . . . . . . . . 43,689 38,936 32,971
Provision for possible loan losses . . . . . 855 380 251
---------- ---------- ----------
Net interest income after provision for
possible loan losses. . . . . . . . . . . 42,834 38,556 32,720
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposits. . . . . . . . . 7,869 7,641 6,566
Securities transactions. . . . . . . . . . . 111 5 204
Other. . . . . . . . . . . . . . . . . . . . 4,520 3,572 3,777
---------- ---------- ----------
Total noninterest income . . . . . . . . . 12,500 11,218 10,547
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits . . . . . . . 19,909 17,228 15,094
Occupancy and fixed assets expense, net. . . 2,049 1,787 1,804
Depreciation . . . . . . . . . . . . . . . . 1,871 1,749 1,443
Amortization . . . . . . . . . . . . . . . . 1,453 1,262 1,134
Data processing services . . . . . . . . . . 1,164 1,359 1,194
Net (income) expense from other real estate
owned . . . . . . . . . . . . . . . . . . . 89 (312) 547
Other. . . . . . . . . . . . . . . . . . . . 8,397 8,558 7,935
---------- ---------- ----------
Total noninterest expense. . . . . . . . . 34,932 31,631 29,151
---------- ---------- ----------
Income before taxes and cumulative effect of
change in accounting principle. . . . . . . 20,402 18,143 14,116
Income tax expense . . . . . . . . . . . . . (7,563) (6,546) (3,962)
---------- ---------- ----------
Income before cumulative effect of change in
accounting principle. . . . . . . . . . . . 12,839 11,597 10,154
Cumulative effect on prior years from
adoption of new accounting principle for
income taxes. . . . . . . . . . . . . . . . - - 1,318
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . $ 12,839 $ 11,597 $ 11,472
---------- ---------- ----------
---------- ---------- ----------
PER SHARE DATA (PRIMARY AND FULLY DILUTED)
Income before cumulative effect of change in
accounting principle. . . . . . . . . . . . $ 2.01 $ 1.80 $ 1.77
Cumulative effect on prior years from
adoption of new accounting principle for
income taxes. . . . . . . . . . . . . . . . - - 0.24
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 2.01 $ 1.80 $ 2.01
---------- ---------- ----------
---------- ---------- ----------
Average common stock and common stock
equivalents . . . . . . . . . . . . . . . . 6,391,424 6,399,518 5,513,009
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
A-17
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993
------------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- ------- --------- --------
10% PREFERRED STOCK
Issued at beginning of year . . - - 779,668 $ 3,898 765,739 $ 3,829
Shares issued . . . . . . . . . - - - - 15,809 79
Shares acquired and canceled. . - - (779,668) (3,898) (1,880) (10)
--------- -------- --------- ------- --------- --------
Issued at end of year . . . . . - - - $ - 779,66 $ 3,898
--------- -------- --------- ------- --------- --------
--------- -------- --------- ------- --------- --------
COMMON STOCK
Issued at beginning of year . . 6,202,814 $ 6,203 6,198,439 $ 6,198 4,816,982 $ 4,817
Shares issued . . . . . . . . . 85,081 85 4,375 5 1,478,618 1,478
Shares acquired and canceled. . (62,44) (63) - - (97,16) (97)
--------- -------- --------- ------- --------- --------
Issued at end of year . . . . . 6,225,455 $ 6,225 6,202,814 $ 6,203 6,198,439 $ 6,198
--------- -------- --------- ------- --------- --------
--------- -------- --------- ------- --------- --------
CAPITAL SURPLUS
Balance at beginning of year. . $ 34,259 $34,234 $ 16,484
Common stock issued . . . . . . 620 25 17,750
Shares acquired and canceled. . (110) - -
-------- ------- --------
Balance at end of year. . . . . $ 34,769 $34,259 $ 34,234
-------- ------- --------
-------- ------- --------
RETAINED EARNINGS
Balance at beginning of year. . $ 45,611 $35,620 $ 26,227
Net income. . . . . . . . . . . 12,839 11,597 11,472
Dividends on 10% Preferred
Stock ($0.07 and $0.50 per
share in 1994 and 1993,
respectively). . . . . . . . . - (55) (386)
Dividends on common stock
($0.29, $0.25 and $0.21 per
share, respectively) . . . . . (1,801) (1,551) (1,186)
Common stock canceled . . . . . (857) - (507)
-------- ------- --------
Balance at end of year. . . . . $ 55,792 $45,611 $ 35,620
-------- ------- --------
-------- ------- --------
UNREALIZED SECURITIES LOSSES
Balance at beginning of year. . $(4,112) $ -
Net change. . . . . . . . . . . 5,669 (4,112)
-------- -------
Balance at end of year. . . . . $ 1,557 $(4,112)
-------- -------
-------- -------
TREASURY STOCK
10% Preferred Stock:
Held at beginning of year . . - $ - - $ - 940 $ (50)
Shares acquired . . . . . . . - - - - - -
Shares canceled . . . . . . . - - - - (940) 5
--------- -------- --------- ------- --------- --------
Held at end of year . . . . . - $ - - $ - - $ -
--------- -------- --------- ------- --------- --------
--------- -------- --------- ------- --------- --------
Common Stock:
Held at beginning of year . . - $ - - $ - 96,798 $ (599)
Shares acquired . . . . . . . - - - - - -
Shares canceled . . . . . . . - - - - (96,798) 599
--------- -------- --------- ------- --------- --------
Held at end of year . . . . . - $ - - $ - - $ -
--------- -------- --------- ------- --------- --------
--------- -------- --------- ------- --------- --------
Total treasury stock. . . . . $ - $ - $ -
-------- ------- --------
-------- ------- --------
Total stockholders' equity. . $ 98,343 $81,961 $ 79,950
-------- ------- --------
-------- ------- --------
See accompanying notes to consolidated financial statements.
A-18
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . $ 12,839 $ 11,597 $ 11,472
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for possible losses. . . . . . . 985 380 251
Depreciation and amortization. . . . . . . 3,324 3,011 2,577
Net amortization of securities
premiums and discounts. . . . . . . . . . 966 1,783 1,560
Unrealized losses on other real estate
owned . . . . . . . . . . . . . . . . . . 111 4 343
(Increase) decrease in interest
receivable . . . . . . . . . . . . . . . (1,208) (681) 193
Increase (decrease) in interest payable. . 808 530 (394)
(Increase) decrease in deferred tax
asset . . . . . . . . . . . . . . . . . . (398) 477 (568)
Other, net . . . . . . . . . . . . . . . . (1,489) (1,765) (27)
-------- -------- --------
Net cash provided by operating
activities. . . . . . . . . . . . . . . 15,938 15,336 15,407
-------- -------- --------
INVESTING ACTIVITIES
Cash and due from banks provided by/(used
for) acquisitions . . . . . . . . . . . . . (15,524) 414 3,733
Purchases of securities. . . . . . . . . . . (62,348) (71,577) (82,349)
Maturities of securities . . . . . . . . . . 71,925 63,154 87,676
Proceeds from sales of securities. . . . . . 4,239 14,517 872
Net decrease in federal funds sold . . . . . 8,482 13,281 6,103
Purchases of loans . . . . . . . . . . . . . (16,395) (9,968) (11,460)
Proceeds from sales of loans . . . . . . . . 56,741 51,298 55,318
Net other increase in loans. . . . . . . . . (93,480) (73,949) (77,403)
Purchases of premises and equipment. . . . . (2,941) (9,158) (2,390)
Proceeds from the sale of other real
estate owned and repossessed assets . . . . 1,448 3,613 3,243
Purchase of minority interest. . . . . . . . - (1,121) (645)
Other, net . . . . . . . . . . . . . . . . . 347 (236) 252
-------- -------- --------
Net cash used for investing activities . . (47,506) (19,732) (17,050)
-------- -------- --------
FINANCING ACTIVITIES
Net increase in demand, transaction and
savings deposits. . . . . . . . . . . . . . 20,109 7,742 41,866
Net increase (decrease) in certificates
of deposits . . . . . . . . . . . . . . . . 26,138 7,784 (38,565)
Net increase (decrease) in short-term
borrowings. . . . . . . . . . . . . . . . . 18,588 (818) 869
Principal repayments on notes payable. . . . - - (12,000)
Net increase in long-term borrowings . . . . 918 - -
Issuance of common stock . . . . . . . . . . 370 30 14,448
Purchase and retirement of common stock. . . (1,029) - -
Redemption of 10% Preferred Stock. . . . . . - (3,953) -
Cash dividends paid. . . . . . . . . . . . . (1,737) (1,683) (1,196)
Other, net . . . . . . . . . . . . . . . . . - - (12)
-------- -------- --------
Net cash provided by financing activities. 63,357 9,102 5,410
-------- -------- --------
Net increase in cash and due from banks. . . 31,789 4,706 3,767
Cash and due from banks at the beginning
of the year . . . . . . . . . . . . . . . . 53,564 48,858 45,091
-------- -------- --------
Cash and due from banks at the end of the
year. . . . . . . . . . . . . . . . . . . . $ 85,353 $ 53,564 $ 48,858
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest . . . $ 29,301 $ 20,228 $ 17,533
-------- -------- --------
-------- -------- --------
Cash paid during the year for income taxes . $ 7,649 $ 5,579 $ 3,889
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
A-19
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancFirst Corporation and its
subsidiaries (the "Company") conform to generally accepted accounting
principles and general practice within the banking industry. A summary of
the significant accounting policies follows.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of BancFirst Corporation, BancFirst Investment Corporation, BancFirst,
Lenders Collection Corporation and National Express Corporation. All
significant intercompany accounts and transactions have been eliminated.
Assets held in a fiduciary or agency capacity are not assets of the Company
and, accordingly, are not included in the consolidated financial statements.
Certain amounts for 1994 and 1993 have been reclassified to conform with the
1995 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles inherently involves the use of estimates and
assumptions which affect the amounts reported in the financial statements and
the related disclosures. Such estimates and assumptions may change over time
and actual amounts realized may differ from those reported.
SECURITIES
The Company's practice is to hold its securities to maturity and it does
not engage in trading activities. Any sales of securities are to execute the
Company's asset/liability management strategy, to eliminate a perceived
credit risk in a specific security, or to provide liquidity. After January
1, 1994, securities that are being held for indefinite periods of time, or
that may be sold as part of the Company's asset/liability management
strategy, to provide liquidity or for other reasons, are classified as
available for sale and are stated at estimated market value. Unrealized
gains or losses on securities available for sale are reported as a component
of stockholders' equity, net of income tax. Securities for which the Company
has the intent and ability to hold to maturity are classified as held for
investment and are stated at cost, adjusted for amortization of premiums and
accretion of discounts computed under the interest method, unless such
investments are considered permanently impaired, in which case they are
adjusted to the lower of cost or market. Prior to January 1, 1994, all
securities were classified as held for investment. Gains or losses from sales
of securities are based upon the book value of the specific securities sold.
LOANS
Loans are stated at the principal amount outstanding. Interest income
on certain installment loans is recorded by use of a method which produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on all other loans is recognized based upon the principal amount
outstanding.
A loan is placed on nonaccrual status when, in the opinion of
management, the future collectibility of interest and/or principal is in
serious doubt. Interest income is recognized on certain of these loans on a
cash basis if the full collection of the remaining principal balance is
reasonably expected. Otherwise, interest income is not recognized until the
principal balance is fully collected.
A-20
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is increased by annual provisions
charged to operating expense and is reduced by net loan charge-offs. The
provision for loan losses charged to operating expense is based on past loan
loss experience and other factors which, in Management's judgment, deserve
current recognition in estimating possible loan losses. Such other factors
considered by Management include evaluations of known problem loans, levels
of adversely classified and nonperforming loans, and general economic
conditions.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), in January
1995. This new accounting standard requires that impaired loans be measured
based upon the present value of future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable that the
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The Company's impaired loans are
collateral dependent. Accordingly, the amount of impairment is measured
based upon the fair value of the underlying collateral and is included in the
allowance for possible loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operating expense and is computed
using the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to expense as incurred while
improvements are capitalized. When assets are sold or otherwise retired, the
cost and applicable accumulated depreciation are removed from the respective
accounts and any resulting gain or loss is reflected in operations.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
These properties are carried at fair market value based upon appraisals.
Losses arising at the time of classification of such properties as other real
estate owned are charged directly to the allowance for possible loan losses.
Losses from declines in value of the properties subsequent to classification
as other real estate owned are charged directly to operating expense.
INTANGIBLE ASSETS
Core deposit intangibles are amortized on a straight-line basis over the
estimated useful lives of the core deposits. The excess of cost over the
fair value of assets acquired (goodwill) is amortized on a straight-line
basis over fifteen to twenty years. Organization cost and trademarks are
amortized on a straight-line basis over five years and fifteen years,
respectively.
INCOME TAXES
The Company files a consolidated income tax return. In January 1993,
the Company adopted Statement of Financial Accounting Standards No. 109 ("FAS
109"), "Accounting for Income Taxes." The adoption of FAS 109 changed the
method of accounting for income taxes from the deferred method to an asset
and liability approach. Under the asset and liability approach, deferred
taxes are recognized for the future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, based
upon the tax rates expected to apply to taxable income in the periods when
the related temporary differences are expected to be realized. Prior to
1993, deferred income taxes were recognized for the differences between the
period in which certain income and expense items were recognized for
financial statement purposes and the period in which they affected taxable
income.
A-21
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, less
preferred dividends requirement, by the weighted average of common shares and
common stock equivalents outstanding, as restated for shares issued in
business combinations accounted for as poolings of interests, if any.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers cash
and due from banks as cash equivalents.
In 1995, in connection with the acquisitions of State National Bank of
Marlow, Oklahoma ("State National Bank") and Johnston County Bancshares, Inc.
of Tishomingo, Oklahoma ("Johnston County Bancshares"), the Company paid cash
of $17,960, including retirement of debt, issued common stock of $335,
acquired assets of $112,049 and assumed liabilities of $92,755. The
statement of cash flows for 1995 is presented net of the stock issued, assets
acquired and liabilities assumed.
In 1994, in connection with the acquisition of First City Bank of Tulsa,
Oklahoma ("First City Bank"), the Company paid cash of $4,029, acquired
assets of $37,177 and assumed liabilities of $33,132. The statement of cash
flows for 1994 is presented net of the assets acquired and liabilities
assumed.
In 1993, in connection with the acquisition of United Bank and Trust of
Norman and the mergers with Coweta Bancshares, Inc., First Stratford
Bancorporation, Inc. and Weatherford Bancorporation, Inc. the Company issued
common and preferred stock of $4,878, acquired assets of $103,338 and assumed
liabilities of $100,008. The statement of cash flows for 1993 is presented
net of the stock issued, assets acquired and liabilities assumed.
(2) FORMATION OF BANCFIRST CORPORATION, MERGERS AND ACQUISITIONS
BancFirst Corporation was incorporated in Oklahoma in July 1984. In
June 1985, it merged with seven Oklahoma bank holding companies and has
conducted business as a bank holding company since that time. Additional
mergers and acquisitions have been completed and, as a result, BancFirst
Corporation is the surviving corporation along with the aforementioned
subsidiaries, while the holding companies, banks and other companies that
were merged or acquired ceased to exist as separate companies.
In February 1993, BancFirst purchased the majority of the assets and
assumed the majority of the liabilities of United Bank and Trust Company of
Norman, Oklahoma, by assuming net liabilities, including acquisition costs,
of $1,617. The assets acquired had a total value of $32,670. A core deposit
intangible of $520 and goodwill of $1,097 were recorded in the acquisition.
The acquisition was accounted for as a purchase. Accordingly, the effect of
the acquisition is included in the Company's consolidated financial
statements from the date of the acquisition forward. The acquisition did not
have a material effect on the results of operations of the Company.
On December 31, 1993 the Company completed mergers with Coweta
Bancshares, Inc., First Stratford Bancorporation, Inc. and Weatherford
Bancorporation, Inc. (the "Merged Companies"). The mergers were accomplished
through the exchange of 406,091 shares of common stock and 15,809 shares of
10% Preferred Stock for all of the outstanding common and preferred stock of
the Merged Companies. The Company and its officers and directors owned from
64% to 100% of the outstanding common stock of each of the Merged Companies.
The mergers were accounted for as a book value purchase, which is similar to
the pooling of interests method, although the effect of the mergers is
included in the Company's consolidated financial statements from the date of
the mergers forward. The Merged Companies had total assets of approximately
A-22
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
$72,000 at the time of the mergers and the mergers did not have a material
effect on the results of operations of the Company for 1993.
In March 1994, the Company acquired First City Bank which had total
assets of $37,177. The acquisition was for cash of $4,029, with First City
Bank being merged into BancFirst. In a related transaction, the Company
purchased the building in which First City Bank was located for $3,472. The
acquisitions were accounted for as purchases. Accordingly, the effect of the
acquisitions are included in the Company's consolidated financial statements
from the date of the acquisitions forward. The acquisitions did not have a
material effect on the operations of the Company.
In April 1994, the Company acquired certain of the assets of National
Express Money Orders, Inc., a money order company operating in Oklahoma and
Texas. The new business is operated as a subsidiary of BancFirst under the
name National Express Corporation. The acquisition was for cash and was
accounted for as a purchase. Accordingly, the effect of the acquisition is
included in the Company's consolidated financial statements from the date of
the acquisition forward. The assets acquired were not material in relation
to the Company's financial position and the acquisition did not have a
material effect on the operations of the Company.
In July 1994, BancFirst Corporation purchased the minority interest in
its bank subsidiary, BancFirst, for $1,121, which was 1.1 times the book
value of the respective shares of BancFirst common stock at June 30, 1994.
The excess of the cost over the book value of the stock acquired was $103.
In March 1995, the Company acquired State National Bank which had total
assets of $101,998. The acquisition was for cash of $17,485, with an
additional $500 placed in escrow pending the resolution of certain matters.
State National Bank was immediately merged into BancFirst. The acquisition
was accounted for as a purchase. Accordingly, the effect of the transaction
is included in the Company's consolidated financial statements from the date
of the acquisition forward. A core deposit intangible of $406 and goodwill
of $810 were recorded for the acquisition. Subsequent payments from the
escrow, if any, to the former shareholders of State National Bank will
increase the goodwill recorded. Pro forma condensed results of operations,
as though State National Bank had been acquired January 1, 1994, are as
follows:
UNAUDITED
------------------
YEAR ENDED
DECEMBER 31,
------------------
1995 1994
------- -------
Net interest income. . . . . . . . . . . . . $44,350 $42,160
Net income . . . . . . . . . . . . . . . . . $13,018 $12,296
Net income per common share and common
stock equivalent. . . . . . . . . . . . . . $ 2.04 $ 1.91
In December 1995, the Company acquired all the assets and assumed all
the liabilities of Johnston County Bancshares, Inc. of Tishomingo, Oklahoma
("Johnston County Bancshares"), which had total assets of $10,051. Johnston
County Bancshares was controlled by certain executive officers and directors
of the Company. The acquisition was accomplished through the exchange of
28,831 shares of common stock for all of outstanding common and preferred
stock of Johnston County Bancshares. The minority shares of Johnston County
Bancshares' subsidiary bank were purchased for $120. The acquisition was
accounted for as a book value purchase, which is similar to the pooling of
interests method, although the effect of the acquisition is included in the
Company's consolidated financial statements from the date of the acquisition
forward. The acquisition did not have a material effect on the results of
operations of the Company for 1995.
A-23
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In June 1995, the Company entered into an agreement of merger with
Commerce Bancorporation, Inc. of McLoud, Oklahoma ("Commerce Bancorp"), which
was approximately $18,000 in assets. Commerce Bancorp is controlled by
certain executive officers of the Company. Under the terms of the agreement,
156,510 shares of BancFirst Corporation common stock would be issued for the
Commerce Bancorp common stock outstanding. The merger is subject to
regulatory and shareholder approvals and is expected to be completed in 1996.
The merger would be accounted for as a book value purchase, which is similar
to the pooling of interests method, although the effect of the merger is
included in the Company's consolidated financial statements from the date of
the acquisition forward.
In March 1996, BancFirst acquired City Bankshares, Inc. of Oklahoma
City, Oklahoma ("City Bankshares"), which had $130,000 in total assets. The
acquisition was for cash of $19,125, with City Bankshares and its subsidiary,
City Bank, being merged into BancFirst. C-Teq, Inc., an 85% owned data
processing subsidiary of City Bankshares, was spun off to the shareholders of
City Bankshares prior to the acquisition. BancFirst also entered into an
agreement with the CEO of City Bankshares whereby BancFirst paid the CEO
$1,250 in exchange for an agreement not to compete with BancFirst for a
period of four years. The acquisition will be accounted for as a purchase.
Accordingly, the effect of the acquisition will be included in the Company's
consolidated financial statements from the date of the acquisition forward.
(3) DUE FROM BANKS AND FEDERAL FUNDS SOLD
The Company maintains accounts with various other financial institutions
and the Federal Reserve Bank, primarily for the purpose of clearing cash
items. Also, it sells federal funds to certain of these institutions on an
overnight basis. As a result, the Company had concentrations of credit risk
in two institutions totaling $33,903 at December 31, 1995 and in three
institutions totaling $42,996 at December 31, 1994. These institutions are
selected based on the strength of their financial condition and their
creditworthiness. No collateral is required on such balances.
The Company is required, as a matter of law, to maintain a reserve
balance on deposit with the Federal Reserve Bank. The average amount of
reserves maintained for each of the years ended December 31, 1995 and 1994
was approximately $26,546 and $24,110, respectively.
(4) SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS
115"), effective January 1, 1994. FAS 115 requires that investments in debt
securities be classified and accounted for in three categories: held for
investment, available for sale, and trading. As a result of adopting FAS
115, the Company transferred approximately $183,000 from securities held for
investment to securities available for sale. These securities were adjusted
to market value, resulting in an initial unrealized net gain of $2,640 which
increased stockholders' equity $1,716 on an after-tax basis. During 1994,
the unrealized net gain became an unrealized net loss of $6,327 and the
amount included in stockholders' equity decreased $5,828 to an unrealized net
loss of $4,112. During 1995, the unrealized net loss became an unrealized net
gain of $2,397 and the amount included in stockholders' equity increased
$5,669 to an unrealized net gain of $1,557. Prior to January 1, 1994, all
securities were classified as held for investment.
A-24
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The table below summarizes the book values and estimated market values
of securities held for investment:
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ----------- ---------
DECEMBER 31, 1995
U.S. Treasury. . . . . . . . . . . . . . $ 2,395 $ 5 $ (1) $ 2,399
Other federal agencies . . . . . . . . . 27,957 381 (59) 28,279
States and political subdivisions. . . . 10,478 263 (15) 10,726
Other securities . . . . . . . . . . . . 1,175 1 (3) 1,173
-------- ------ ----- --------
Total. . . . . . . . . . . . . . . . . $ 42,005 $ 650 $ (78) $ 42,577
-------- ------ ----- --------
-------- ------ ----- --------
DECEMBER 31, 1994
U.S. Treasury. . . . . . . . . . . . . . $ 2,691 $ - $ (54) $ 2,637
Other federal agencies . . . . . . . . . 6,814 45 (272) 6,587
States and political subdivisions. . . . 9,191 73 (173) 9,091
Other securities . . . . . . . . . . . . 2,083 - (3) 2,080
-------- ------ ----- --------
Total. . . . . . . . . . . . . . . . . $ 20,779 $ 118 $(502) $ 20,395
-------- ------ ----- --------
-------- ------ ----- --------
DECEMBER 31, 1993
U.S. Treasury. . . . . . . . . . . . . . $175,420 $1,803 $(223) $177,000
Other federal agencies . . . . . . . . . 40,188 1,256 (66) 41,378
States and political subdivisions. . . . 10,606 545 (24) 11,127
Other securities . . . . . . . . . . . . 5,332 17 (3) 5,346
-------- ------ ----- --------
Total. . . . . . . . . . . . . . . . . $231,546 $3,621 $(316) $234,851
-------- ------ ----- --------
-------- ------ ----- --------
The table below summarizes the cost and estimated market values of
securities available for sale:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ----------- ---------
DECEMBER 31, 1995
U.S. Treasury. . . . . . . . . . . . . . $170,388 $2,179 $ (444) $172,123
Other federal agencies . . . . . . . . . 43,641 912 (245) 44,308
States and political subdivisions. . . . 662 - (5) 657
Other securities . . . . . . . . . . . . 4,020 - - 4,020
-------- ------ ------- --------
Total. . . . . . . . . . . . . . . . . $218,711 $3,091 $ (694) $221,108
-------- ------ ------- --------
-------- ------ ------- --------
DECEMBER 31, 1994
U.S. Treasury. . . . . . . . . . . . . . $178,192 $ 24 $(5,825) $172,391
Other federal agencies . . . . . . . . . 28,209 82 (541) 27,750
States and political subdivisions. . . . 814 - (67) 747
Other securities . . . . . . . . . . . . 1,377 - - 1,377
-------- ------ ------- --------
Total. . . . . . . . . . . . . . . . . $208,592 $ 106 $(6,433) $202,265
-------- ------ ------- --------
-------- ------ ------- --------
A-25
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The maturities of securities held for investment and available for sale
are summarized below. Actual maturities may differ from contractual
maturities due to obligations that are called or prepaid.
DECEMBER 31,
----------------------------------------
1995 1994
------------------- -------------------
ESTIMATED ESTIMATED
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
HELD FOR INVESTMENT
Contractual maturity of debt securities:
Within one year. . . . . . . . . . . . . $ 4,916 $ 4,902 $ 4,242 $ 4,231
After one year but within five years . . 12,502 12,748 10,452 10,339
After five years but within ten years. . 20,789 21,030 4,654 4,456
After ten years. . . . . . . . . . . . . 3,798 3,897 1,431 1,369
-------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . $ 42,005 $ 42,577 $ 20,779 $ 20,395
-------- -------- -------- --------
-------- -------- -------- --------
ESTIMATED ESTIMATED
MARKET BOOK MARKET
COST VALUE VALUE VALUE
-------- --------- -------- ---------
AVAILABLE FOR SALE
Contractual maturity of debt securities:
Within one year. . . . . . . . . . . . . $ 50,455 $ 50,359 $ 66,312 $ 65,827
After one year but within five years . . 144,962 147,369 126,009 120,663
After five years but within ten years. . 8,231 8,363 2,792 2,750
After ten years. . . . . . . . . . . . . 11,043 10,997 12,102 11,648
-------- -------- -------- --------
Total debt securities. . . . . . . . . 214,691 217,088 207,215 200,888
Equity securities. . . . . . . . . . . . . 4,020 4,020 1,377 1,377
-------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . $218,711 $221,108 $208,592 $202,265
-------- -------- -------- --------
-------- -------- -------- --------
Sales of securities are summarized below:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------ ------- -----
Proceeds. . . . . . . . . . . . $4,239 $14,517 $872
Gross gains realized. . . . . . 172 74 24
Gross losses realized . . . . . 61 69 -
Securities having book values of $197,904, $160,556 and $151,606 at
December 31, 1995, 1994 and 1993, respectively, were pledged to secure public
funds on deposit, repurchase agreements and for other purposes as required or
permitted by law.
A-26
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(5) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a schedule of loans outstanding by category:
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
Commercial and industrial. . . . . $132,003 21.12 % $112,750 21.59 %
Agriculture. . . . . . . . . . . . 27,222 4.35 24,492 4.69
State and political subdivisions:
Taxable. . . . . . . . . . . . . 686 0.11 950 0.18
Tax-exempt . . . . . . . . . . . 5,901 0.94 6,121 1.17
Oil and gas production . . . . . . 6,531 1.04 6,049 1.16
Real Estate:
Construction . . . . . . . . . . 27,620 4.42 29,760 5.70
Farmland . . . . . . . . . . . . 15,051 2.41 15,289 2.93
One to four family residences. . 158,104 25.29 116,655 22.33
Multifamily residential
properties. . . . . . . . . . . 8,686 1.39 10,863 2.08
Commercial . . . . . . . . . . . 123,698 19.79 99,336 19.02
Consumer . . . . . . . . . . . . . 75,715 12.11 62,542 11.97
Guaranteed student loans . . . . . 34,968 5.59 30,491 5.84
Credit card receivables. . . . . . 1,266 0.20 1,451 0.28
Other. . . . . . . . . . . . . . . 8,676 1.39 6,480 1.24
-------- --------
626,127 523,229
Unearned interest. . . . . . . . . (965) (0.15) (915) (0.18)
-------- ------ -------- ------
Total loans. . . . . . . . . . . $625,162 100.00 % $522,314 100.00 %
-------- ------ -------- ------
-------- ------ -------- ------
The Company's loans are mostly to customers within Oklahoma and over
half of the loans are secured by real estate. Credit risk on loans is
managed through limits on amounts loaned to individual borrowers,
underwriting standards and loan monitoring procedures. The amounts and types
of collateral obtained to secure loans is based upon the Company's
underwriting standards and management's credit evaluation. Collateral
varies, but may include real estate, equipment, accounts receivable,
inventory, livestock and securities. The Company's interest in collateral is
secured through filing mortgages and liens, and in some cases, by possession
of the collateral. The amount of estimated loss due to credit risk in the
Company's loan portfolio is provided for in the allowance for possible loan
losses. The amount of the allowance required to provide for all existing
losses in the loan portfolio is an estimate based upon evaluations of loans,
appraisals of collateral and other estimates which are subject to rapid
change due to changing economic conditions and the economic prospects of
borrowers. It is reasonably possible that a material change could occur in
the estimated allowance for possible loan losses in the near term.
A-27
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Changes in the allowance for possible loan losses are summarized as
follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------ ------
Balance at beginning of year. . . . . . . . . $9,729 $9,027 $7,202
------- ------ ------
Charge-offs . . . . . . . . . . . . . . . . . (1,013) (919) (1,154)
Recoveries. . . . . . . . . . . . . . . . . . 561 924 905
------- ------ ------
Net (charge-offs) recoveries. . . . . . . . (452) 5 (249)
------- ------ ------
Provisions charged to operations. . . . . . . 855 380 251
Additions from acquisitions . . . . . . . . . 514 317 1,823
------- ------ ------
Total additions . . . . . . . . . . . . . . 1,369 697 2,074
------- ------ ------
Balance at end of year. . . . . . . . . . . . $10,646 $9,729 $9,027
------- ------ ------
------- ------ ------
BancFirst has made loans in the ordinary course of business, to the
executive officers and directors of the Company and to certain affiliates of
these executive officers and directors. Management believes that all such
loans were made on substantially the same terms as those prevailing at the
time for comparable transactions with other persons and do not represent more
than a normal risk of collectibility or present other unfavorable features.
A summary of these loans is as follows:
BALANCE BALANCE
YEAR ENDED BEGINNING AMOUNTS END OF
DECEMBER 31, OF YEAR ADDITIONS COLLECTED YEAR
------------ --------- --------- --------- -------
1993 $1,070 $222 $242 $1,050
1994 1,050 581 441 1,190
1995 1,190 750 387 1,553
Interest income attributable to related party loans amounted to $94, $63 and
$68, in 1995, 1994 and 1993, respectively.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), in January
1995. This new accounting standard requires that impaired loans be measured
based upon the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable that all
amounts due will not be collected according to the contractual terms of the
loan agreement. At December 31, 1995, the Company had recognized an
impairment of $2,076 for loans which had a recorded investment totaling
$5,685. Such impairment is included in the allowance for possible loan losses.
A-28
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
DECEMBER 31,
---------------------
1995 1994
-------- --------
Land. . . . . . . . . . . . . . . . . . $ 6,293 $ 5,883
Buildings . . . . . . . . . . . . . . . 29,033 26,644
Furniture, fixtures and equipment . . . 14,134 14,195
Accumulated depreciation. . . . . . . . (21,152) (20,260)
-------- --------
Total . . . . . . . . . . . . . . . . $ 28,308 $ 26,462
-------- --------
-------- --------
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
DECEMBER 31,
---------------
1995 1994
------ ------
Excess of cost over fair value of assets acquired . . . $6,451 $6,298
Core deposit intangibles. . . . . . . . . . . . . . . . 1,641 1,641
Organization costs. . . . . . . . . . . . . . . . . . . 4 9
Trademarks. . . . . . . . . . . . . . . . . . . . . . . 10 12
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . $8,106 $7,960
------ ------
------ ------
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $93,057
and $57,327 at December 31, 1995 and 1994, respectively.
(9) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
DECEMBER 31,
--------------
1995 1994
------- ----
Federal funds purchased. . . . . . . . . $ 205 $ --
Repurchase agreements. . . . . . . . . . 3,500 117
Federal Home Loan Bank borrowings. . . . 15,000 --
------- ----
Total. . . . . . . . . . . . . . . . . $18,705 $117
------- ----
------- ----
Federal funds purchased represents a borrowing of overnight funds from
another financial institution.
The Company enters into sales of securities to certain of its customers
with simultaneous agreements to repurchase. These agreements represent an
overnight borrowing of funds.
A-29
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The borrowings from the Federal Home Loan Bank of Topeka, Kansas consist
of the following:
(a) $5,000 borrowing at 5.91%; due February 20, 1996; secured by a pledge
of residential first mortgages.
(b) $10,000 borrowing at 5.92%; due May 22, 1996; secured by a pledge of
residential first mortgages.
(10) LINE OF CREDIT
In August 1993, the Company entered into a $10,000 line of credit
agreement to be used specifically for acquisitions. The line of credit
matured June 1, 1995 and was not renewed. Borrowings under the line of credit
would bear interest at prime rate. Collateral for the line of credit
consisted of the shares of BancFirst common stock owned by BancFirst
Corporation. The line of credit agreement contained restrictive covenants
regarding the issuance of additional capital stock, additional indebtedness,
liens and encumbrances, salaries, dividends and mergers. No advances were
made under the line of credit.
(11) LONG-TERM BORROWINGS
In 1995 the Company began borrowing from the Federal Home Loan Bank of
Topeka, Kansas in order to match-fund certain long-term fixed rate loans. The
terms of such borrowings are as follows:
(a) $810 advance at 6.64%; interest payable monthly; semiannual principal
payments of $27 starting March 31, 1996 and ending on September 29,
2010; secured by a pledge of residential first mortgages.
(b) $108 advance at 6.32%; interest payable monthly; semiannual principal
payments of $4 starting June 30, 1996 and ending on December 8, 2010;
secured by a pledge of residential first mortgages.
(12) INCOME TAXES
The components of the Company's income tax expense are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
Current taxes: Federal. . . . . . . . . $(6,993) $(5,554) $(3,144)
State. . . . . . . . . . (904) (638) --
Deferred taxes. . . . . . . . . . . . . 334 (354) (818)
------- ------- -------
Income tax expense. . . . . . . . . . (7,563) (6,546) (3,962)
Cumulative effect on prior years from
adoption of new accounting principle
for income taxes . . . . . . . . . . . -- -- 1,318
------- ------- -------
Total income taxes. . . . . . . . . . $(7,563) $(6,546) $(2,644)
------- ------- -------
------- ------- -------
Income tax expense applicable to securities transactions approximated
$19, $2 and $9 for the years ended December 31, 1995, 1994 and 1993,
respectively.
The tax expense for 1994 reflects the return of the Company to a fully
taxable basis. The remainder of the Company's state tax net operating loss
carryforwards were fully utilized in 1994 and state tax expense of $638 was
recognized.
A-30
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In January 1993, the Company adopted FAS 109. The cumulative effect on
prior years of the change in accounting for income taxes was recorded with a
corresponding increase in the Company's deferred tax asset. The Company
realized current taxable income for 1993, which was partially offset by the
utilization of tax net operating loss carryforwards and alternative minimum
tax credit carryforwards. Deferred tax expense was recognized for the change
in temporary differences during the year, which was partially offset by an
adjustment to the deferred tax asset to reflect the increase in the federal
statutory tax rate from 34% to 35%.
At December 31, 1995, the Company had net operating loss carryforwards
for tax purposes of approximately $516. If not utilized, the tax net
operating loss carryforwards will expire as follows: $7 in 1999, $155 in
2000, $167 in 2001, $41 in 2003, and $146 in 2004.
A reconciliation of tax expense at the federal statutory tax rate
applied to income before taxes follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
Tax expense at the federal statutory tax rate. . . . $(7,141) $(6,344) $(4,841)
(Increase) decrease in tax expense from:
Tax-exempt income, net . . . . . . . . . . . . . . 400 500 546
Excess cost amortization . . . . . . . . . . . . . (332) (288) (248)
Alternative minimum tax credit carryforward
utilized . . . . . . . . . . . . . . . . . . . . . -- 58 384
Adoption of new accounting principle for
income taxes . . . . . . . . . . . . . . . . . . . -- -- 1,318
State tax expense, net of federal tax benefit. . . . (600) (396) --
Other, net. . . . . . . . . . . . . . .. . . . . . . 110 (76) 197
------- ------- -------
Total tax expense. . . . . . . . . . . . . . . . . . $(7,563) $(6,546) $(2,644)
------- ------- -------
------- ------- -------
A-31
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The net deferred tax asset consisted of the following:
DECEMBER 31,
-------------------
1995 1994
------- -------
Provisions for possible loan losses. . . . . . . $ 3,120 $ 2,681
Unrealized net loss on
securities available for sale. . . . . . . . . . -- 2,214
Write-downs of other real estate owned . . . . . 139 161
Net operating loss carryforwards . . . . . . . . 181 208
Provision for contingent losses. . . . . . . . . 76 88
Other. . . . . . . . . . . . . . . . . . . . . . 229 210
------- -------
Gross deferred tax assets. . . . . . . . . . . . 3,745 5,562
------- -------
Unrealized net gain on securities available
for sale. . . . . . . . . . . . . . . . . . . . (838) --
Depreciation . . . . . . . . . . . . . . . . . . (820) (868)
Other. . . . . . . . . . . . . . . . . . . . . . (236) (182)
------- -------
Gross deferred tax liabilities . . . . . . . . . (1,894) (1,050)
------- -------
Net deferred tax asset . . . . . . . . . . . . . $ 1,851 $ 4,512
------- -------
------- -------
(13)EMPLOYEE BENEFITS
In May 1986, the Company adopted the BancFirst Corporation Employee
Stock Ownership and Thrift Plan (the "ESOP") effective January 1, 1985. The
ESOP covers all eligible employees, as defined in the ESOP of the Company and
its subsidiaries. The ESOP allows employees to defer up to 12% of their base
salary, of which the Company may match 50%, but not to exceed 3% of their
base salary. In addition, the Company may make discretionary contributions
to the ESOP, as determined by the Company's Board of Directors. The
aggregate amounts of contributions by the Company to the ESOP for the years
ended December 31, 1995, 1994 and 1993, were approximately $621, $582 and
$595, respectively.
The Company also adopted a nonqualified incentive stock option plan (the
"ISOP") in May 1986. The maximum number of common shares approved to be
issued under the ISOP is 500,000. The options are exercisable beginning four
years from the date of grant at the rate 25% per year for four years and
expire at the end of fifteen years from the date of grant. Options currently
outstanding will become exercisable through the year 2005. The option price
must be no less than 100% of the fair market value of the stock relating to
such option. A summary of the number of options outstanding follows.
A-32
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
Beginning of year . . . . . . . . . . . . . . . . 421,625 381,000 400,000
Options issued (average option price $17.23,
$14.19 and $16.06, respectively) . . . . . . . . 25,000 45,000 11,000
Options exercised (average option price
$6.59, $6.79 and $6.80, respectively). . . . . . (56,250) (4,375) (25,000)
Options canceled. . . . . . . . . . . . . . . . . (6,250) -- (5,000)
------- ------- -------
End of year . . . . . . . . . . . . . . . . . . . 384,125 421,625 381,000
------- ------- -------
------- ------- -------
At December 31, 1995 there were 209,875 options eligible to be exercised
at an option price per share of $6.50 to $7.00.
(14) STOCKHOLDERS' EQUITY
The following is a description of the capital stock of the Company:
(a) 10% Preferred Stock: cumulative dividends, non-voting; $5
par value, redeemable at the Company's option at $5 per share plus
accumulated dividends; 900,000 shares authorized. Shares issued
were 779,668 shares at December 31, 1993 and 765,739 at December
31, 1992. Shares outstanding were 779,668 shares at December 31,
1993 and 764,799 shares at December 31, 1992. This issue of
preferred stock was redeemed in February 1994 for the par value
plus accumulated dividends of $0.07 per share.
(b) Senior Preferred Stock: $1.00 par value; 10,000,000 shares
authorized; no shares issued or outstanding. Shares may be issued
with such voting, dividend, redemption, sinking fund, conversion,
exchange, liquidation and other rights as shall be determined by
the Company's Board of Directors, without approval of the
stockholders. The Senior Preferred Stock would have a preference
over BancFirst common stock as to payment of dividends, as to the
right to distribution of assets upon redemption of such shares or
upon liquidation of the Company.
(c) Common stock: $1 par value; 6,800,000 shares authorized. Shares
issued and outstanding were 6,202,814 shares at December 31, 1994 and
6,198,439 shares at December 31, 1993.
In March 1995, the Company adopted a Stock Repurchase Program (the
"SRP") authorizing management to repurchase up to 200,000 shares of the
Company's common stock. The SRP is to be used for purchases of stock by the
Company's ESOP, and may also be used to enhance earnings per share, provide
stock for the exercise of stock options under the Company's ISOP or to
provide additional liquidity for the stock. Stock purchases under the SRP
must satisfy certain criteria regarding effects on earnings per share and
book value dilution, resulting equity ratios and the price to book value of
comparable size institutions. During 1995, the Company purchased and
canceled 62,440 shares and the ESOP purchased 30,684 shares.
In April 1993, the Company completed a public offering of its common
stock and issued 1,010,950 new shares. The offering price was $15.00 per
share and the net proceeds to the Company, after expenses of the offering,
was approximately $13,900. A portion of the proceeds was used to retire the
Company's note payable.
A-33
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In connection with the acquisition of Arbuckle Bancorp, Inc. in 1987,
45,634 shares of common stock were placed in escrow to be issued over a
three-year period upon the satisfaction of certain conditions. Stock issued
from the escrow was recorded at the fair market value as of the date of
issuance and increased the excess of cost over the fair value of assets
acquired. During 1991, 5,285 shares were issued with a value of $15 and 11
fractional shares were paid in cash. During 1993, certain matters regarding
the escrowed stock were resolved, and 21,973 shares were issued with a value
of $352 and 15 fractional shares were paid in cash. The escrow was then
terminated.
Dividends accumulated and unpaid on the 10% Preferred Stock as of
December 31, 1993 totaled $195, or the equivalent of $0.03 per common share
outstanding. The 10% Preferred Stock dividends accumulated and unpaid as of
December 31, 1993 were paid on the scheduled due date in January 1994. In
February 1994, the 10% Preferred Stock was retired.
BancFirst Corporation's ability to pay dividends is dependent upon
dividend payments received from BancFirst. Banking regulations limit bank
dividends based upon net earnings retained and minimum capital requirements.
Dividends in excess of these requirements require regulatory approval.
(15) NET INCOME PER COMMON SHARE
Net income per common share is calculated as follows:
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . $12,839 $11,597 $11,472
------- ------- -------
Less preferred dividends:
10% Preferred Stock. . . . . . . . . . . . . . . -- (55) (386)
------- ------- -------
Net income applicable to common shareholders . . . $12,839 $11,542 $11,086
------- ------- -------
------- ------- -------
Average common shares and common stock
equivalents outstanding (in thousands). . . . . . 6,391 6,400 5,513
------- ------- -------
------- ------- -------
Net income per common share (primary and
fully diluted) . . . . . . . . . . . . . . . . . . $2.01 $1.80 $2.01
------- ------- -------
------- ------- -------
Average common shares and common stock equivalents for 1995 and 1994
includes shares relating to stock options exercisable within the next five
years.
A-34
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(16) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31,
-----------------
1995 1994
------- -------
ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 3,232 $ 307
Investment in subsidiaries, at equity. . 91,247 76,605
Intangible assets. . . . . . . . . . . . 3,845 4,659
Deferred tax asset . . . . . . . . . . . 197 210
Other assets . . . . . . . . . . . . . . 563 593
------- -------
Total assets . . . . . . . . . . . . . $99,084 $82,374
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities. . . . . . . . . . . . . . . $ 741 $ 413
Stockholders' equity . . . . . . . . . . 98,343 81,961
------- -------
Total liabilities and
stockholders' equity. . . . . . . . . $99,084 $82,374
------- -------
------- -------
STATEMENT OF INCOME
YEAR ENDED DECEMBER
---------------------------
1995 1994 1993
------- ------- -------
OPERATING INCOME
Dividends from subsidiaries. . . . . . . $ 5,075 $ 4,236 $ 5,642
Interest . . . . . . . . . . . . . . . . 37 22 137
Other. . . . . . . . . . . . . . . . . . 58 2 65
------- ------- -------
Total operating income . . . . . . . . 5,170 4,260 5,844
------- ------- -------
OPERATING EXPENSE
Interest . . . . . . . . . . . . . . . . 16 39 245
Amortization . . . . . . . . . . . . . . 814 811 751
Other. . . . . . . . . . . . . . . . . . 41 31 38
------- ------- -------
Total operating expense. . . . . . . . 871 881 1,034
------- ------- -------
Income before income taxes, equity in
undistributed earnings of subsidiaries
and cumulative effect of change in
accounting principle. . . . . . . . . . . 4,299 3,379 4,810
Allocated income tax benefit . . . . . . . 222 364 1,040
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries and
cumulative effect of change in
accounting principle. . . . . . . . . . . 4,521 3,743 5,850
Equity in undistributed earnings of
subsidiaries. . . . . . . . . . . . . . . 8,318 7,854 4,304
------- ------- -------
Income before cumulative effect of change
in accounting principle . . . . . . . . . 12,839 11,597 10,154
Cumulative effect on prior years from
adoption of new accounting principle
for income taxes. . . . . . . . . . . . . -- -- 1,318
------- ------- -------
Net income . . . . . . . . . . . . . . . $12,839 $11,597 $11,472
------- ------- -------
------- ------- -------
A-35
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . $ 12,839 $ 11,597 $ 11,472
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization . . . . . . 814 811 751
Net income of subsidiaries. . . . . . . . (13,393) (12,180) (10,198)
Minority interest in income of
subsidiaries . . . . . . . . . . . . . . -- 90 252
(Increase) decrease in deferred
tax asset. . . . . . . . . . . . . . . . (13) 14 2,050
Other, net. . . . . . . . . . . . . . . . 766 (590) (3,741)
-------- -------- --------
Net cash provided (used) by operating
activities . . . . . . . . . . . . . . . . 1,013 (258) 586
-------- -------- --------
INVESTING ACTIVITIES
Cash dividends received from
subsidiaries . . . . . . . . . . . . . . . 5,075 4,236 5,642
Purchases of stock of subsidiaries. . . . . -- (1,121) (3,145)
Net cash from acquisitions and mergers. . . (320) -- 141
Other, net. . . . . . . . . . . . . . . . . (447) (24) --
-------- -------- --------
Net cash provided by investing activities . 4,308 3,091 2,638
-------- -------- --------
FINANCING ACTIVITIES
Principal repayments on notes payable . . . -- -- (13,983)
Issuance of common stock. . . . . . . . . . 370 30 14,096
Redemption of 10% Preferred Stock . . . . . -- (3,953) --
Purchases of common stock . . . . . . . . . (1,029) -- (1,613)
Cash dividends paid . . . . . . . . . . . . (1,737) (1,683) (1,196)
-------- -------- --------
Net cash used by financing activities . . . (2,396) (5,606) (2,696)
-------- -------- --------
Net increase (decrease) in cash . . . . . . . 2,925 (2,773) 528
Cash at the beginning of the year . . . . . . 307 3,080 2,552
-------- -------- --------
Cash at the end of the year . . . . . . . . . $ 3,232 $ 307 $ 3,080
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest. . . . $ 16 $ 54 $ 326
-------- -------- --------
-------- -------- --------
Cash received during the year for
income taxes, net. . . . . . . . . . . . . . $ (296) $ (220) $ (796)
-------- -------- --------
-------- -------- --------
A-36
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(17) RELATED PARTY TRANSACTIONS
BancFirst provides item processing and correspondent services to
affiliated institutions. At December 31, 1995 and 1994, balances due to
these institutions totaled $673 and $224, respectively. Service charges to
these affiliate institutions for December 31, 1995, 1994 and 1993 totaled
$121, $131 and $312, respectively.
The Company purchases supplies, furniture and equipment from an
affiliated company. During the years ended December 31, 1995, 1994 and 1993,
such purchases totaled $95, $179 and $341, respectively.
The Company also sells credit life and credit accident and health
insurance policies for an affiliated insurance company. The Company retains
a 40% commission for such sales, which is the maximum amount permitted by
law. Net premiums paid to the affiliated insurance company for the years
ended December 31, 1995, 1994 and 1993 were $763, $564 and $602, respectively.
Refer to note (5) for information regarding loan transactions with
related parties.
(18) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments and standby
letters of credit which involve elements of credit and interest rate risk to
varying degrees. The Company's exposure to credit loss in the event of
nonperformance by the other party to the instrument is represented by the
instrument's contractual amount. To control this credit risk, the Company
uses the same underwriting standards as it uses for loans recorded on the
balance sheet. The amounts of financial instruments with off-balance-sheet
risk are as follows:
DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- --------
Loan commitments . . . . . $117,418 $102,590 $ 50,308
Letters of credit. . . . . 8,386 10,953 8,347
Loan commitments are agreements to lend to a customer, as long as there
is no violation of any condition established in the contract. Letters of
credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. These instruments generally have
fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the instruments are expected to expire without being
drawn upon, the total amounts do not necessarily represent commitments that
will be funded in the future.
The Company leases office space in two buildings and two parcels of land
on which it owns buildings. These leases expire at various dates through
2016. The future minimum rental payments under these leases are as follows:
A-37
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
YEAR ENDING DECEMBER 31:
1996 $ 137
1997 141
1998 141
1999 141
2000 149
Later years 996
------
Total $1,705
------
------
Rental expense on all property and equipment rented, including those
rented on a monthly or temporary basis, totaled $133, $176 and $293 during
1995, 1994 and 1993, respectively.
The Company is a defendant in legal actions arising from normal business
activities. During 1992, the Company accrued estimated amounts to settle
certain of these actions. During 1995, one of these actions was resolved in
the Company's favor and the accrual was reversed. Management believes that
all other legal actions against the Company are without merit or that the
ultimate liability, if any, resulting from them will not materially affect
the Company's financial position or results of operations.
(19) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values reported below for financial instruments are based on a
variety of factors. In some cases, fair values represent quoted market
prices for identical or comparable instruments. In other cases, fair values
have been estimated based on assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates reflecting varying
degrees of risk. Accordingly, the fair values may not represent actual
values of the financial instruments that could have been realized as of year
end or that will be realized in the future.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND DUE FROM BANKS; FEDERAL FUNDS SOLD
The carrying amount of these short-term instruments is a reasonable
estimate of fair value.
SECURITIES
For securities, fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
LOANS
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. For residential mortgage loans held for sale, guaranteed
student loans and participations in pools of credit card receivables, the
carrying amount is a reasonable estimate of fair value. The fair value of
other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
A-38
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
DEPOSIT LIABILITIES
The fair value of transaction and savings accounts is the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
SHORT-TERM BORROWINGS
The amount payable on these short-term instruments is a reasonable
estimate of fair value.
LONG-TERM BORROWINGS
The fair value of fixed-rate long-term borrowings is estimated using the
rates that would be charged for borrowings of similar remaining maturities.
LOAN COMMITMENTS AND LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the terms of
the agreements. The fair value of letters of credit is based on fees
currently charged for similar agreements.
The estimated fair values of the Company's financial instruments are
as follows:
DECEMBER 31,
----------------------------------------
1995 1994
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
FINANCIAL ASSETS
Cash and due from banks . . . . . . . . . . . . . . $ 85,353 $ 85,353 $ 53,564 $ 53,564
Federal funds sold. . . . . . . . . . . . . . . . . 30,085 30,085 28,260 28,260
Securities. . . . . . . . . . . . . . . . . . . . . 263,113 263,685 223,044 222,660
Loans:
Loans (net of unearned interest). . . . . . . . . 625,162 522,314
Allowance for possible loan losses. . . . . . . . (10,646) (9,729)
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . 614,516 615,974 512,585 508,911
FINANCIAL LIABILITIES
Deposits. . . . . . . . . . . . . . . . . . . . . . 923,169 923,368 784,851 783,193
Short-term borrowings . . . . . . . . . . . . . . . 18,705 18,705 117 117
Long-term borrowings. . . . . . . . . . . . . . . . 918 918
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments . . . . . . . . . . . . . . . . . . 769 672
Letters of credit. . . . . . . . . . . . . . . . . . 63 81
A-39
INDEX TO EXHIBITS
EXHIBIT PAGE NUMBER AT WHICH EXHIBIT
NUMBER DESCRIPTION APPEARS IN SEQUENTIALLY NUMBERED PAGES
- ------ ------------------------------------ -----------------------------------------
2.1 Agreement and Plan of Reorganization Exhibit 2.4 to the Company's Report on
dated October 28, 1994 among Form 10-Q for the quarter ended
BancFirst, State National Bank, September 30, 1994 and incorporated herein
Marlow, and certain shareholders of by reference.
State National Bank.
2.2 Agreement and Plan of Reorganization Exhibit 2.2 to the Company's Report on
dated September 16, 1995 between Form 10-Q for the quarter ended
BancFirst and City Bankshares, Inc. September 30, 1995 and incorporated
herein by reference.
2.3 Agreement dated September 16, 1995 Exhibit 2.3 to the Company's Report on
between BancFirst and William O. Form 10-Q for the quarter ended
Johnstone. September 30, 1995 and incorporated
herein by reference.
3.1 Amended and Restated Certificate of Exhibit No. 33 to the Company's
Incorporation. Registration Statement on Form S-2, File
No. 33-58804, and incorporated herein by
reference.
3.2 Certificate of Amendment to the Exhibit 3.2 to the Company's Annual
Amended and Restated Certificate of Report on Form 10-K for the fiscal year
Incorporation. ended December 31, 1993 and
incorporated herein by reference.
3.3 Amended By-Laws. Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1992 and
incorporated herein by reference.
10.10 United Community Corporation (now Exhibit No. 10.09 to the Company's
BancFirst Corporation) Stock Option Registration Statement on Form S-4, file
Plan. No. 33-13016 and incorporated herein by
reference.
10.11 BancFirst Corporation Employee Stock Exhibit 10.12 to the Company's Annual
Ownership and Thrift Plan. Report on Form 10-K for the fiscal year
ended December 31, 1992 and
incorporated herein by reference.
22.1 Subsidiaries of Registrant. Page 58
27.1 Financial Data Schedule Page 60