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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, 1999 Commission File Number 0-14384
BANCFIRST CORPORATION
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(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1221379
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Broadway, Suite 200, Oklahoma City, Oklahoma 73102
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (405) 270-1086
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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
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(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
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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.
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The aggregate value of the Common Stock held by nonaffiliates of the
registrant as of February 29, 2000 was approximately $79,818,000.
As of February 29, 2000, there were 8,105,440 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the May 25, 2000 Annual Meeting of
Stockholders of registrant (the "2000 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
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1. Business 3
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
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
7A. Quantitative and Qualitative Disclosures About Market Risk 11
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants 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. 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 principal 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 the common securities of BFC Capital Trust I, a Delaware Business Trust
organized in January 1997, and at December 31, 1999 owned 100% of First State
Bank, an Oklahoma state-chartered bank.
The Company was incorporated as United Community Corporation in July 1984
for the purpose of becoming a bank holding company. In June 1985, it merged
with seven Oklahoma bank holding companies that had operated under common
ownership and the Company has conducted business as a bank holding company since
that time. Over the next several years the Company acquired additional banks
and bank holding companies, and in November 1988 the Company changed its name to
BancFirst Corporation. Effective April 1, 1989, the Company consolidated its 12
subsidiary banks and formed BancFirst. BancFirst currently has 78 banking
locations serving 40 communities throughout 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, Lawton, Muskogee, Norman and Shawnee. The Company
operates 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 that are 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; retail brokerage services; and other services tailored for
both individual and corporate customers. The Bank also offers trust services and
acts as executor, administrator, trustee, transfer agent and in various other
fiduciary capacities. Through Unitech, its operations division, the Bank
provides, item processing, research and other correspondent banking services to
financial institutions and governmental units.
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.
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Consumer lending activities of the Bank consist of traditional forms of
financing for automobiles, both direct and indirect, residential mortgage loans,
home equity loans and other personal loans. In addition, the Bank is one of
Oklahoma's largest providers of guaranteed student loans.
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 principal subsidiaries: BancFirst Investment
Corporation, a small business investment corporation; 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 Express Financial
Corporation (formerly National Express Corporation), a money order company. All
of these companies are Oklahoma corporations.
The Company had approximately 1,246 full-time equivalent employees as of
December 31, 1999. Its principal executive offices are located at 101 North
Broadway, Oklahoma City, Oklahoma 73102, telephone number (405) 270-1086.
Market Areas and Competition
The banking environment in Oklahoma is very competitive. The geographic
dispersion of the 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 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 that are 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 beneficially own approximately 64% 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, the Affiliates have the ability to control the business and affairs
of the Company.
4
Recent Development
In March 2000, BancFirst Corporation received approval from the Federal
Reserve Board to become a financial holding company under the new
Gramm-Leach-Bliley financial services modernization law. This will provide the
Company the ability to expand into new financial activities such as insurance
underwriting, securities underwriting and dealing, and mutual fund distribution.
Supervision and Regulation
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to bank holding companies and their subsidiaries
and provides certain specific information relevant to the Company. This
regulatory framework is intended primarily for the protection of depositors and
not for the protection of the Company's stockholders. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to those provisions. A change in the
statutes, regulations or regulatory policies applicable to the Company or its
subsidiaries may have a material effect on the business of the Company.
Bank Holding Company Regulation
Recent Legislation-The Gramm-Leach-Bliley Act
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act of
1999 (the "Gramm-Leach-Bliley Act") into law. Effective as of March 11, 2000,
the Gramm-Leach-Bliley Act allows bank holding companies meeting management,
capital and Community Reinvestment Act ("CRA") standards to engage in a
substantially broader range of nonbanking activities than was previously
permissible, including insurance underwriting and making merchant banking
investments in commercial and financial companies; allows insurers and other
financial services companies to acquire banks; removes various restrictions that
previously applied to bank holding company ownership of securities firms and
mutual fund advisory companies; and establishes the overall regulatory structure
applicable to bank holding companies that also engage in insurance and
securities operations. For a bank holding company to engage in the broader
range of activities that are permitted by the Gramm-Leach-Bliley Act, (1) all of
its depository institutions must be well capitalized and well managed and (2) it
must file a declaration with the Board of Governors of the Federal Reserve
System that it elects to be a "financial holding company" (FHC"). In addition,
to commence any new permitted by the Gramm-Leach-Bliley Act and to acquire any
company engaged in any new activities permitted by the Gramm-Leach-Bliley Act,
each insured depository institution of the financial holding company must have
received at least a "satisfactory" rating in its most recent examination under
the CRA. In March 2000, the Company filed its declaration with the Federal
Reserve Board to become an FHC, but has not yet commenced any new activities as
an FHC.
Under the Gramm-Leach-Bliley Act, a bank holding company that elects to
become an FHC may engage in any activity that the Board of Governors of the
Federal Reserve System, in consultation with Secretary of the Treasury,
determines by regulation or order is (i) financial in nature, (ii) incidental to
any such financial activity, or (iii) complementary to any such financial
activity and does not pose a substantial risk to the safety or soundness of
depository institutions or the financial system generally. The act specifies
certain activities that are deemed to be financial in nature, including:
. securities underwriting, dealing and market making
. sponsoring mutual funds and investment companies
. insurance underwriting and agency
. merchant banking activities
. activities currently permitted for bank holding companies by the Federal
Reserve under section 4(c)(8) of the Bank Holding Company Act.
The Gramm-Leach-Bliley Act also modified laws related to financial privacy
and community reinvestment. The new financial privacy provisions generally
prohibit financial institutions, including the Company, from disclosing
nonpublic personal financial information to third parties unless customers have
the opportunity to "opt out" of the disclosure.
5
The Gramm-Leach-Bliley Act preserves the role of the Board of Governors as
the umbrella supervisor for holding companies while at the same time
incorporating a system of functional regulation designed to take advantage of
the strengths of the various federal and state regulators. In particular, the
Gramm-Leach-Bliley Act replaces the broad exemption from Securities and Exchange
Commission regulation that banks previously enjoyed with more limited
exemptions, and it reaffirms that states are the regulators for the insurance
activities of all persons, including federally-chartered banks.
General
As an FHC, the Corporation is regulated under the Bank Holding Company Act
of 1956, as amended by the Gramm-Leach-Bliley Act (the "BHCA"), and is subject
to the supervision of the Federal Reserve Board. BancFirst is organized as a
state-chartered banking association which is subject to regulation, supervision
and examination by the Oklahoma State Banking Department (the "Banking
Department"). BancFirst is also subject to regulation by the Federal Deposit
Insurance Company (the "FDIC") and other federal and state regulatory agencies.
In addition to banking laws, regulations and regulatory agencies, the Company
and its subsidiaries and affiliates are subject to various other laws and
regulations and supervision and examination by other regulatory agencies, all of
which directly or indirectly affect the operations and management of the Company
and its ability to make distributions. The following discussion summarizes
certain aspects of those laws and regulations that affect the Company.
Under the BHCA, bank holding companies that are not FHCs generally may not
acquire the ownership or control of more than 5% of the voting shares, or
substantially all the assets, of any company, including a bank or another bank
holding company, without the Federal Reserve Board's prior approval. Also, bank
holding companies generally may engage only in banking and other activities that
are determined by the Federal Reserve Board to be closely related to banking.
The Federal Reserve Board has by regulation determined that such activities
include operating a mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; servicing
loans and other extensions of credit; providing investment and financial advice;
acting as an insurance agent for certain types of credit-related insurance;
owning and operating savings and loan associations; and leasing personal
property on a full pay-out, nonoperating basis. In the event a bank holding
company elects to become an FHC, it would no longer be subject to the general
requirements of the BHCA that it obtain the Federal Reserve Board's approval
prior to acquiring more than 5% of the voting shares, or substantially all of
the assets, of a company that is not a bank or bank holding company. A bank
holding company that does not qualify as an FHC is generally limited in the
types of activities in which it may engage to those that the Federal Reserve
Board had recognized as permissible for bank holding companies prior to the date
of enactment of the Gramm-Leach-Bliley Act.
Control Acquisitions
Subject to certain exceptions, the Change in Bank Control Act (the "Control
Act") and regulations promulgated thereunder by the Federal Reserve Board
require any person acting directly or indirectly, or through or in concert with
one or more persons, to give the Federal Reserve 60 days' written notice before
acquiring control of a bank holding company. Transactions which are presumed to
constitute the acquisition of control include the acquisition of any voting
securities of a bank holding company having securities registered under section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if,
after the transaction, the acquiring person (or persons acting in concert) owns,
controls or holds with power to vote 25% or more of any class of voting
securities of the institution. The acquisition may not be consummated
subsequent to such notice if the Federal Reserve Board issues a notice within 60
days, or within certain extensions of such period, disapproving the same.
Interstate Banking and Branching
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), a bank holding company may
acquire banks in states other than its home state without regard to the
permissibility of such acquisitions under state law, but subject to any state
requirement that the bank has been organized and operating for a minimum period
of time, not to exceed five years, and the requirement that the bank holding
company, prior to or following the proposed acquisition, controls no more than
10 percent of the total amount of deposits of insured depository institutions in
the United States and no more than 30 percent of such deposits in that state (or
such lesser or greater amount set by state law).
6
Subject to certain restrictions, the Interstate Banking and Branching Act
also authorizes banks to merge across state lines, thereby creating interstate
branches, without regard to whether such transactions are prohibited by the law
of any state, unless the home state of one of the banks had "opted out" of
interstate branching by enacting specific legislation prior to June 1, 1997, in
which case out-of-state banks would generally not be able to branch into that
state, and banks headquartered in that state would not be permitted to branch
into other states. Oklahoma elected to "opt-in" to interstate branching
effective May 1997 and established a 12.25% deposit cap which was subsequently
increased to 15%. Furthermore, pursuant to the Interstate Banking and Branching
Act, a bank may open new branches in a state in which it does not already have
banking operations if such state enacts a law permitting such de novo branching.
As a result of legislation passed by the Oklahoma legislature in 1999, Oklahoma
state-chartered banks such as BancFirst are able to establish an unlimited
number of de novo branches in Oklahoma.
Support for Bank Subsidiaries
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 Company
Improvement Act of 1991 ("FDICIA"), 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 "FDICIA 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.
Capital Adequacy Guidelines
The Federal Reserve Board, the Comptroller and the FDIC have issued
substantially similar risk-based and leverage capital guidelines applicable to
United States banking organizations. In addition, these regulatory agencies may
from time to time require that a banking organization maintain capital above the
minimum levels, whether because of its financial condition or actual or
anticipated growth. The Federal Reserve Board risk-based guidelines define a
three-tier capital framework. Tier 1 capital consists of common and qualifying
preferred stockholders' equity, less certain intangibles and other adjustments.
Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital,
subordinated and other qualifying debt, and the allowance for credit losses up
to 1.25 percent of risk-weighted assets. Tier 3 capital includes subordinated
debt that is unsecured, fully paid, has an original maturity of at least two
years, is not redeemable before maturity without prior approval by the Federal
Reserve and includes a lock-in clause precluding payment of either interest or
principal if the payment would cause the issuing bank's risk-based capital ratio
to fall or remain below the required minimum. The sum of Tier 1 and Tier 2
capital less investments in unconsolidated subsidiaries represents qualifying
total capital, at least 50 percent of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to
one of four categories of risk-weights, based primarily on relative credit risk.
The minimum Tier 1 capital ratio is 4 percent and the minimum total capital
ratio is 8 percent. The Company's Tier 1 and total risk-based capital ratios
under these guidelines at December 31, 1999 were 11.15% and 12.45%,
respectively. At December 31, 1999, the Company had no subordinated debt that
qualified as Tier 3 capital.
The Federal Reserve Board also requires bank holding companies to maintain
a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 3%.
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
7
regarding the Company's recent historical capital ratios, see "Financial
Review-Capital Resources".
FDICIA and Related Regulations
General. FDICIA, among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5 percent of the bank's assets at the time it became
"undercapitalized" or the amount needed to comply with the plan. Furthermore, in
the event of the bankruptcy of the parent holding company, such guarantee would
take priority over the parent's general unsecured creditors. In addition, FDICIA
requires the various regulatory agencies to prescribe certain non-capital
standards for safety and soundness relating generally to operations and
management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized) identified by FDICIA, using the total risk-based
capital, Tier 1 risk-based capital and leverage capital ratios as the relevant
capital measures, and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. Such regulations establish various degrees of corrective action to
be taken when an institution is considered undercapitalized.
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; (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.
Under the regulations, a "well capitalized" institution must have a Tier 1
capital ratio of at least 6 percent, a total capital ratio of at least 10
percent and a leverage ratio of at least 5 percent and not be subject to a
capital directive order. Under these guidelines, BancFirst is considered well
capitalized.
Banking agencies have also adopted final regulations which mandate that
regulators take into consideration (i) concentrations of credit risk; (ii)
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its off-balance-
sheet position); and (iii) risks from non-traditional activities, as well as an
institution's ability to manage those risks, when determining the adequacy of an
institution's capital. That evaluation will be made as a part of the
institution's regular safety and soundness examination. In
8
addition, the banking agencies have amended their regulatory capital guidelines
to incorporate a measure for market risk. The revised guidelines did not have a
material impact on the Company or BancFirst's regulatory capital ratios or their
well capitalized status.
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. Additionally, 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 and Depositor Preference
BancFirst is insured by the FDIC and is required to pay certain fees and
premiums to the Bank Insurance Fund. These deposit insurance premiums are
assessed through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums on deposits based upon their level of capital and supervisory
evaluation, with the well-capitalized banks with the highest supervisory rating
paying lower or no premiums and the critically undercapitalized banks paying up
to 0.27% of deposits.
Additionally, deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution are afforded a
priority over other general unsecured claims against such institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of
the institution by any receiver.
State Regulation
General. 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
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. Oklahoma also permits the
acquisition of an unlimited number of wholly-owned bank subsidiaries so long as
aggregate deposits at the time of acquisition in a multi-bank holding company do
not exceed 15% of all deposits in Oklahoma financial institutions insured by the
federal government, exclusive of credit union deposits.
State Bank Holding Company Regulation. Under Oklahoma law, any bank holding
company or other company which submits an application to the Federal Reserve
Board for approval of the acquisition of a state or
9
national bank located in Oklahoma must submit a copy of such application to the
Oklahoma Bank Board. Subject to certain exceptions for supervisory acquisitions
and certain other limited exceptions, Oklahoma law further provides that it
shall be unlawful for a multi-bank holding company to acquire direct or indirect
ownership or control of any financial institution with deposits insured by the
FDIC or the National Credit Union Administration ("NCUA") and located in
Oklahoma if such acquisition results in such multi-bank holding company having
direct or indirect ownership or control of banks located in Oklahoma, the total
deposits of which at the time of such acquisition exceed 15% of aggregate
deposits of all financial institutions with deposits insured by the FDIC and the
NCUA.
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.
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. Additional legislation, judicial and administrative decisions also
may affect the ability of banks to compete with each other as well as with other
businesses. These statutes and decisions may tend to make the operations of
various financial institutions more similar and increase competition among banks
and other financial institutions or limit the ability of banks to compete with
other businesses. Management currently cannot predict whether and, if so, when
any such changes might occur or the impact any such changes would have upon the
income or operations of the Company or its subsidiaries, or upon the Oklahoma
regional banking environment.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
BancFirst 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 BancFirst
Common Stock as reported in the NASDAQ/NMS consolidated transaction reporting
system and (ii) the quarterly dividends declared on BancFirst Common Stock.
10
Price Range
-------------------------------------------
Cash
Dividends
High Low Declared
------- ------- -----------
1999
First Quarter $36.375 $32.625 $ 0.14
Second Quarter $36.750 $29.000 $ 0.14
Third Quarter $37.500 $31.125 $ 0.14
Fourth Quarter $37.125 $30.125 $ 0.16
1998
First Quarter $41.000 $32.375 $ 0.12
Second Quarter $48.500 $39.500 $ 0.12
Third Quarter $48.000 $32.500 $ 0.12
Fourth Quarter $41.500 $34.000 $ 0.14
As of February 29, 2000 there were approximately 520 holders of record of
the Common Stock.
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-3 of the attached Appendix.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference from "Financial Review" contained on pages A-2
through A-15 of the attached Appendix.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference from "Financial Review - Market Risk" contained
on page A-14 of the attached Appendix.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of BancFirst Corporation and its
subsidiaries, are incorporated by reference from pages A-16 through A-45 of the
attached Appendix, and include the following:
a. Reports 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
11
Item 9. Changes in and Disagreements with Accountants 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 2000 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 2000 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 2000 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 2000 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 2000 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:
Reports of Independent Accountants
Consolidated Balance Sheet at December 31, 1999 and 1998
Consolidated Statement of Income for the three years ended December
31, 1999
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1999
Consolidated Statement of Cash Flows for the three years ended
December 31, 1999
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from pages A-
16 through A-45 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.
12
(3) The following Exhibits are filed with this Report or are incorporated
by reference as set forth below:
Exhibit
Number Exhibit
- ------- -------
2.1 Purchase and Assumption Agreement between NationsBank, N.A. and
BancFirst dated September 26, 1997 (filed as Exhibit 2.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
2.2 Merger Agreement dated May 6, 1998 between BancFirst Corporation and
AmQuest Financial Corp. (filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
3.1 Second Amended and Restated Certificate of Incorporation of BancFirst
(filed as Exhibit 1 to BancFirst's 8-A/A filed July 23, 1998 and
incorporated herein by reference).
3.2 Certificate of Designations of Preferred Stock (filed as Exhibit 2.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and incorporated herein by reference).
3.3 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).
4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated
as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated February 4, 1997 and incorporated herein by
reference).
4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated February 4, 1997 and
incorporated herein by reference).
4.3 Series A Capital Securities Guarantee Agreement dated as of February
4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form
8-K dated February 4, 1997 and incorporated herein by reference).
4.4 Rights Agreement, dated as of February 25, 1999, between BancFirst
Corporation and BancFirst, as Rights Agent, including as Exhibit A the
form of Certificate of Designations of the Company setting forth the
terms of the Preferred Stock, as Exhibit B the form of Right
Certificate and as Exhibit C the form of Summary of Rights Agreement
(filed as Exhibit 1 to the Company's 8-K dated February 25, 1999 and
incorporated herein by reference).
10.1 United Community Company (now BancFirst Company) Stock Option Plan
(filed as Exhibit 10.09 to the Company's Registration Statement on
Form S-4, file No. 33-13016 and incorporated herein by reference).
10.2 BancFirst Company Employee Stock Ownership and Thrift Plan (filed as
Exhibit 10.12 to the Company'sAnnual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
10.3 1988 Incentive Stock Option Plan of Security Corporation as assumed by
BancFirst Corporation (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8, File No. 333-65129 and
incorporated herein by reference).
10.4 1993 Incentive Stock Option Plan of Security Corporation as assumed by
BancFirst Corporation (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8, File No. 333-65129 and
incorporated herein by reference).
10.5 1995 Non-Employee Director Stock Plan of AmQuest Financial Corp. as
assumed by BancFirst Corporation (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8, File No. 333-65129 and
incorporated herein by reference).
13
16.1 Letter on change in certifying accountant (filed as Exhibit 16 to the
Company's Form 8-K dated September 23, 1999 and incorporated herein by
reference).
22.1* Subsidiaries of Registrant.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Arthur Andersen LLP.
27.1* Financial Data Schedule for the year ended December 31, 1999.
99.1 Stock Repurchase Program (filed as Exhibit 99.1 to the Company's Form
8-K dated November 18, 1999 and incorporated herein by reference).
- ---------------
* Filed herewith.
(b) A report on Form 8-K was filed by the Company on November 29, 1999,
reporting the adoption of a Stock Repurchase Program to purchase up to
300,000 shares of the Company's common stock.
14
SIGNATURES
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, 2000 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, 2000.
/s/ H.E. Rainbolt /s/ David E. Rainbolt
- -------------------------------- --------------------------------
H. E. Rainbolt David E. Rainbolt
Chairman of the Board President, Chief Executive
(Principal Executive Officer) Officer and Director
(Principal Executive Officer)
- -------------------------------- --------------------------------
Marion Bauman C. L. Craig, Jr.
Director Director
/s/ James R. Daniel /s/ K. Gordon Greer
- -------------------------------- --------------------------------
James R. Daniel K. Gordon Greer
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer (Principal Executive Officer)
/s/ Robert A. Gregory
- -------------------------------- --------------------------------
Robert A. Gregory John C. Hugon
Vice Chairman of the Board Director
(Principal Executive Officer)
/s/ J. R. Hutchens, Jr. /s/ William O. Johnstone
- -------------------------------- --------------------------------
J. R. Hutchens, Jr. William O. Johnstone
Director Vice Chairman of the Board
(Principal Executive Officer)
/s/ J. Ralph McCalmont /s/ Tom H. McCasland, Jr.
- -------------------------------- --------------------------------
J. Ralph McCalmont Tom H. McCasland, Jr.
Director Director
15
- -------------------------------- --------------------------------
Melvin Moran Paul B. Odom, Jr.
Director Director
/s/ Joe T. Shockley, Jr. /s/ Randy Foraker
- -------------------------------- --------------------------------
Joe T. Shockley, Jr. Randy Foraker
Executive Vice President, Senior Vice President,
Chief Financial Officer and Director Controller and Treasurer
(Principal Financial Officer) (Principal Accounting Officer)
16
APPENDEX A
BancFirst Corporation
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Pages
---------------
Financial Review A-2 to A-15
Selected Consolidated Financial Data A-3
Reports of Independent Accountants A-16
Consolidated Balance Sheet A-17
Consolidated Statement of Income A-18
Consolidated Statement of Stockholders' Equity A-19
Consolidated Statement of Cash Flows A-20
Notes to Consolidated Financial Statements A-21 to A-45
A-1
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, 1999
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and the Selected Consolidated Financial Data included herein.
SUMMARY
BancFirst Corporation's net income for 1999 was $23.9 million, representing
the Company's ninth consecutive year of record earnings. Diluted earnings per
share grew 21% to $2.75 from $2.27 for 1998. Other profitability measures
improved with return on average assets increasing to 1.06% from 1.00% for 1998,
and return on average equity increasing to 12.96% from 10.95% for 1998.
Total assets were relatively unchanged from 1998 at $2.34 billion, although
total loans increased $117 million, or 8.71%, to $1.46 billion. Total deposits
increased $57.9 million, or 2.86%. Stockholders' equity decreased $37.2 million
to $165 million, or 18.42%, due to stock repurchases discussed below. Average
stockholders' equity to average assets decreased to 8.20%, from 9.09% for 1998.
Asset quality remained high in 1999 with nonperforming and restructured
assets to total assets of only 0.61%, compared to 0.60% for 1998. The allowance
for loan losses to nonperforming and restructured loans increased to 183.47% at
year-end 1999 from 158.69% at the end of 1998.
The Company used most of 1999 to absorb and consolidate the
acquisitions that were completed in 1998. In February 1999, the Company sold a
branch in Anadarko, Oklahoma with approximately $16 million in deposits that had
been acquired in the merger with AmQuest Financial Corp. ("AmQuest"). In June
1999, the Company completed a Dutch auction issuer tender offer and repurchased
1,186,502 shares of its common stock for $38 per share, or a total of $45
million. A new stock repurchase program for up to 300,000 shares was also
adopted in November 1999 and 55,783 shares were repurchased by year end. In
December 1999, the Company acquired approximately $106 million in assets and
assumed approximately $109 million in liabilities from First State Bank of
Oklahoma City, Oklahoma.
BancFirst is Oklahoma's largest state-chartered bank and the second
largest Oklahoma-based bank. The Company has 78 banking locations serving 40
communities across Oklahoma. In March 2000, BancFirst Corporation received
approval from the Federal Reserve Board to become a financial holding company
under the new Gramm-Leach-Bliley financial services modernization law. This
will provide the Company the ability to expand into new financial activities
such as insurance underwriting, securities underwriting and dealing, and mutual
fund distribution.
A-2
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
At and for the Year Ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
Income Statement Data
Net interest income $ 93,235 $ 92,752 $ 84,221 $ 77,965 $ 66,387
Provision for loan losses 2,521 2,211 2,888 2,181 1,617
Noninterest income 28,707 24,019 21,508 20,001 17,399
Noninterest expense 81,453 80,482 71,455 62,386 53,926
Net income 23,949 21,550 20,905 21,150 18,243
Balance Sheet Data
Total assets $2,335,807 $2,335,883 $2,016,463 $1,863,056 $1,627,959
Securities 596,715 582,649 510,426 477,191 469,416
Total loans (net of unearned interest) 1,455,481 1,338,879 1,249,705 1,125,278 947,090
Allowance for loan losses 22,548 19,659 17,458 16,569 14,821
Deposits 2,082,696 2,024,800 1,761,210 1,654,333 1,436,707
Long-term borrowings 26,392 12,966 7,051 12,636 1,918
9.65% Capital Securities 25,000 25,000 25,000 -- --
Stockholders' equity 164,714 201,917 181,245 165,579 150,771
Per Common Share Data
As restated for poolings of interests:
Net income - basic $ 2.79 $ 2.32 $ 2.26 $ 2.29 $ 1.95
Net income - diluted 2.75 2.27 2.21 2.22 1.91
As previously reported:
Net income - basic 2.79 2.32 2.48 2.41 2.07
Net income - diluted 2.75 2.27 2.41 2.32 2.01
Cash dividends 0.58 0.50 0.42 0.34 0.29
Book value 20.30 21.73 19.62 17.82 16.12
Tangible book value 17.34 19.14 17.56 15.89 14.89
Selected Financial Ratios
Performance ratios:
Return on average assets 1.06% 1.00% 1.09% 1.21% 1.22%
Return on average stockholders' equity 12.96 10.95 12.14 13.61 13.32
Cash dividend payout ratio 20.79 21.55 18.58 14.85 14.87
Net interest spread 3.87 3.94 4.09 4.23 4.08
Net interest margin 4.67 4.83 4.93 5.05 4.91
Efficiency ratio
(excluding restructuring charges in 1998) 66.80 67.29 67.58 63.68 64.36
Balance Sheet Ratios:
Average loans to deposits 68.61% 68.83% 70.12% 67.29% 65.61%
Average earning assets to total assets 90.11 90.17 90.28 90.09 90.15
Average stockholders' equity to average assets 8.20 9.09 8.95 8.90 9.15
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.85% 0.93% 0.68% 0.98% 0.83%
Nonperforming and restructured assets to total assets 0.61 0.60 0.51 0.70 0.60
Allowance for loan losses to total loans 1.55 1.47 1.40 1.47 1.56
Allowance for loan losses to nonperforming 183.47 158.69 206.55 150.85 187.51
and restructured loans
Net chargeoffs to average loans 0.16 0.14 0.20 0.13 0.10
A-3
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
December 31, 1999 December 31, 1998 December 31, 1997
---------------------------------- -------------------------------- -----------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------------------------------- -------------------------------- ----------------------------
ASSETS
Earning assets:
Loans (1) $1,355,332 $121,406 8.96% $1,290,557 $121,700 9.43% $1,181,421 $111,786 9.46%
Investments - taxable 517,844 30,964 5.98 527,213 32,698 6.20 452,738 28,951 6.39
Investments - tax exempt 50,627 3,303 6.52 43,269 3,356 7.76 45,773 3,504 7.65
Federal funds sold 106,362 5,299 4.98 91,736 4,835 5.27 57,787 3,150 5.45
---------- -------- ---------- -------- ---------- --------
Total earning assets 2,030,165 160,972 7.93 1,952,775 162,589 8.33 1,737,719 147,391 8.48
---------- -------- ---------- -------- ---------- --------
Nonearning assets:
Cash and due from banks 123,527 114,137 99,966
Interest receivable and 119,646 116,910 104,255
other assets
Allowance for loan losses (20,257) (18,138) (17,185)
Total nonearning assets 222,916 212,909 187,036
---------- ---------- ----------
Total assets $2,253,081 $2,165,684 $1,924,755
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 36,256 796 2.20% $ 104,006 2,572 2.47% $ 156,478 4,055 2.59%
Savings deposits 667,015 18,691 2.80 547,887 14,386 2.63 450,491 13,531 3.00
Time deposits 848,819 41,353 4.87 826,172 45,988 5.57 745,308 40,199 5.40
Short-term borrowings 32,766 1,628 4.97 40,191 2,161 5.38 19,932 1,093 5.48
Long-term borrowings 20,642 1,234 5.98 13,123 734 5.59 10,849 648 5.97
9.65% Capital Securities 25,000 2,447 9.79 25,000 2,449 9.80 22,683 2,214 9.76
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities 1,630,498 66,149 4.06 1,556,379 68,290 4.39 1,405,741 61,740 4.39
---------- -------- ---------- -------- ---------- --------
Interest-free funds:
Demand deposits 423,347 396,802 332,513
Interest payable and other 14,380 15,642 14,246
liabilities
Stockholders' equity 184,856 196,861 172,255
---------- ---------- ----------
Total interest free
funds 622,583 609,305 519,014
---------- ---------- ----------
Total liabilities
and stockholders'
equity $2,253,081 $2,165,684 $1,924,755
========== ========== ==========
Net interest income $ 94,823 $ 94,299 $ 85,651
========== ========== =========
Net interest spread 3.87% 3.94% 4.09%
=========== =========== ========
Net interest margin 4.67% 4.83% 4.93%
=========== =========== ========
(1) Nonaccrual loans are included in the average loan balances and any interest
on such nonaccrual loans is recognized on a cash basis.
A-4
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, which is the Company's principal source of operating
revenue, increased $524,000 on a taxable equivalent basis in 1999 compared to an
increase of $8.65 million in 1998. The net interest margin on a taxable
equivalent basis for 1999 was 4.67%, down from 4.83% for 1998 and 4.93% for
1997. Changes in the volume of earning assets and interest-bearing liabilities,
and changes in interest rates determine the changes in net interest income. The
Volume/Rate Analysis summarizes the relative contribution of each of these
components to the increases in net interest income in 1999 and 1998. The
increase in 1999 was primarily due to loan growth, which was largely offset by a
decrease due to changes in interest rates. Average loans rose $64.8 million, or
5.02%, while average net earning assets increased only $3.27 million, or 0.83%.
The continued low interest rate environment in 1999 resulted in a flatter yield
curve and lower yields on the Company's assets. These changes resulted in a
decrease in the net interest margin of 16 basis points. In 1998, average loans
increased 9.24% and average net earning assets increased 19.28%. Declining
interest rates reduced the yield on the Company's assets only slightly. These
changes in 1998 resulted in only a 10 basis point decrease in the net interest
margin.
VOLUME/RATE ANALYSIS Change in 1999 Change in 1998
--------------------------------------------- ---------------------------------------------
Taxable Equivalent Basis Due to
Volume Due to Due to Due to
Total (1) Rate Total Volume (1) Rate
------------- ------------- -------------- --------------- --------------- ------------
(Dollars in thousands)
INCREASE (DECREASE)
Interest Income:
Loans $ (294) $ 6,108 $(6,402) $ 9,914 $10,326 $ (412)
Investments - taxable (1,734) (581) (1,153) 3,747 4,762 (1,015)
Investments - tax exempt (53) 571 (624) (148) (192) 44
Federal funds sold 464 771 (307) 1,685 1,858 (173)
------------- ---------- -------------- --------------- ------------ ------------
Total interest income (1,617) 6,869 (8,486) 15,198 16,754 (1,556)
------------- ---------- -------------- --------------- ------------ ------------
Interest Expense:
Transaction deposits (1,776) (1,675) (101) (1,483) (1,360) (123)
Savings deposits 4,305 3,128 1,177 855 2,926 (2,071)
Time deposits (4,635) 1,261 (5,896) 5,789 4,363 1,426
Short-term borrowings (533) (399) (134) 1,068 1,111 (43)
Long-term borrowings 499 420 79 86 136 (50)
9.65% Capital Securities (1) -- (1) 235 226 9
------------- ---------- -------------- --------------- ------------ ------------
Total interest expense (2,141) 2,735 (4,876) 6,550 7,402 (852)
------------- ---------- -------------- --------------- ------------ ------------
Net interest income $ 524 $ 4,134 $(3,610) $ 8,648 $ 9,352 $ (704)
============= ========== ============== =============== ============ ============
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 1999, 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, 1999. At that date, interest-bearing liabilities
exceeded earning assets by $646 million in the three month interval. The
Company's negative gap position increased in 1999 and 1998 as a result of the
majority of its earning asset growth having a maturity or repricing frequency of
one to five years. This negative gap position assumes that the Company's core
savings and transaction deposits are immediately rate sensitive and reflects
Management's perception that the yield curve will be positively sloped over the
long term. When the yield curve flattens, as it did in 1998 and 1999, the
Company's net interest margin would be expected to decline,
A-5
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.
ANALYSIS OF INTEREST RATE SENSITIVITY Interest Rate Noninterest Rate
Sensitive Sensitive
----------------------------------- --------------------------------
December 31, 1999 0 to 3 Months 4 to 12 Months 1 to 5 Years Over 5 Years Total
------------------ ---------------- --------------- ---------------- -------------
EARNING ASSETS
Loans $ 663,883 $ 146,644 $441,379 $ 203,575 $1,455,481
Federal funds sold and interest bearing
deposits 53,381 -- -- -- 53,381
Securities 24,523 82,925 404,189 85,078 596,715
---------- --------- --------- --------- ----------
Total $ 741,787 $ 229,569 $845,568 $ 288,653 $2,105,577
========== ========= ========= ========= ==========
FUNDING SOURCES
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 244,815 $ 244,815
Savings and transaction deposits 740,122 -- -- -- 740,122
Time deposits of $100 or more 169,154 68,748 19,538 -- 257,440
Time deposits under $100 455,899 143,952 25,152 -- 625,003
Short-term borrowings 22,091 -- -- -- 22,091
Long-term borrowings 878 2,827 14,524 8,163 26,392
9.65% Capital Securities -- -- -- 25,000 25,000
Stockholders' equity -- -- -- 164,714 164,714
---------- --------- --------- --------- ----------
Total $1,388,144 $ 215,527 $ 59,214 $ 442,692 $2,105,577
========== ========= ========= ========= ==========
Interest sensitivity gap $ (646,357) $ 14,042 $786,354 $(154,039)
Cumulative gap $ (646,357) $(632,315) $154,039 $ --
Cumulative gap as a percentage
of total earning assets (30.70)% (30.03)% 7.32% -- %
(1) Represents the amount of demand deposits required to support earning
assets in excess of interest-bearing liabilities and stockholders' equity.
Provision for Loan Losses
The provision for loan losses was $2.52 million for 1999 compared to $2.21
million for 1998, and $2.89 million for 1997. These relatively low levels of
provisions reflect the Company's strong asset quality. The amounts provided for
the last three years primarily relate to loan growth and net loan charge-offs.
The Company establishes a 1% allowance for losses on non-classified loans, which
results in additional provisions for loan growth. Net loan charge-offs were
$2.13 million for 1999, compared to $1.85 million for 1998 and $2.31 million for
1997. The net charge-offs for 1999 and 1998 were equivalent to only 0.16% and
0.14% of average loans, respectively. A more detailed discussion of the
allowance for loan losses is provided under "Loans."
Noninterest Income
Noninterest income increased $4.69 million in 1999, or 19.52%, compared to
an increase of $2.51 million, or 11.67% in 1998 and $1.51 million, or 7.53%, in
1997. 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 have been implemented which are expected to produce
continued growth in noninterest income.
Service charges on deposits increased $1.82 million, or 12.43%, compared to
increases of 11.24% and 12.30% in 1998 and 1997, respectively. In 1997 and
1998, the Company implemented strategies to improve the charging and collection
of various service charges. These strategies, along with deposit growth, have
continued to produce higher revenues. Other noninterest income increased $2.64
million,
A-6
or 28.13%, in 1999, after increasing 12.24% in 1998 and 3.46% in 1997. The
primary causes of the increases were a $900,000 gain on the sale of a branch in
1999, increased fees from cash management services, mortgage loan originations,
gains on sales of mortgage loans and higher trust revenues.
Net gains on securities transactions were $244,000 in 1999, compared to
$12,000 in 1998, and $2,000 in 1997. The Company's practice is to hold its
securities to maturity and it does not engage in trading activities. In 1999, a
portion of an investment made by the Company's small business investment company
was redeemed at a gain. The small gains in previous years 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."
Noninterest Expense
Total noninterest expense increased in 1999 by 1.21% to $81.5 million,
compared to increases of 12.63% for 1998 and 14.54% for 1997. Noninterest
expense in 1998 included $3.1 million of acquisition and restructuring costs.
The increases in 1999 and 1998, excluding these acquisition and restructuring
costs, were 5.26% and 8.29%, respectively. 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 decreased in 1999 due to consolidation of facilities from
acquisitions. Depreciation and amortization have increased each year due to
acquisitions. Data processing expenses have decreased slightly each year
because of efficiencies achieved with the acquisitions. Net expense from other
real estate owned of $164,000 was recognized for 1999, compared to net income of
$111,000 for 1998 and net expense of $298,000 for 1997. These amounts are
reflective of the Company's efforts to maintain a low level of nonperforming
assets, with gains on sales of properties being recognized in 1998.
Income Taxes
Income tax expense increased to $14 million in 1999, from $12.5 million for
1998 and $10.5 million for 1997. The primary reasons for the difference between
the Company's effective tax rate and the federal statutory rate are
nondeductible amortization and state tax expense, which have both been
increasing.
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.
FINANCIAL POSITION
Cash and Federal Funds Sold
Cash 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.
Cash and federal funds sold decreased $140 million compared to December 31,
1998, due largely to a lower level of temporary deposits at year-end 1999 and a
lower level of federal funds purchased from correspendent banks. In 1998, cash
and federal funds sold increased $155 million as compared to year-end 1997 due
to an inflow of temporary deposits and higher federal funds sold. Based on
average balances, however, there were increases of $24 million and $48.1 million
for 1999 and 1998, respectively, more appropriately reflecting the growth of the
Company. Consequently, comparisons of year-end balances of cash and federal
funds sold are not necessarily reflective of the overall trend.
A-7
Securities
Total securities increased $14.1 million, or 2.41%, compared to an increase
of $72.2 million, or 14.15%, in 1998. The increases in 1999 and 1998 were
primarily due to acquisitions.
Securities available for sale represented 78.30% of the total securities
portfolio at year-end 1999, compared to 77.55% at year-end 1998. These levels
reflect the Company's strategy of maintaining a very liquid portfolio.
Securities available for sale had a net unrealized loss of $5.14 million at
year-end 1999, compared to a $8.25 million net unrealized gain the preceding
year. These gains and losses are included, net of tax, in the Company's
stockholders' equity as a net unrealized loss of $3.51 million for 1999 and a
net unrealized gain of $5.43 million for 1998.
SECURITIES December 31
--------------------------------------------------
1999 1998 1997
-------------- -------------- -------------
(Dollars in thousands)
Held for Investment
U.S. Treasury and other federal $ 79,564 $ 87,520 $106,396
agencies
States and political subdivisions 49,917 43,283 47,819
Other securities -- -- 53
-------------- -------------- -------------
Total $129,481 $130,803 $154,268
============== ============== =============
Estimated market value $128,275 $132,804 $156,210
============== ============== =============
Available for Sale
U.S. Treasury and other federal $449,468 $438,935 $342,679
agencies
States and political subdivisons 2,861 2,499 3,361
Other securities 14,905 10,412 10,118
-------------- -------------- -------------
Total $467,234 $451,846 $356,158
============== ============== =============
The Maturity Distribution of Securities summarizes the maturity and
weighted average taxable equivalent yields of the securities portfolio. The
Company manages its securities portfolio for liquidity and as a tool to execute
its asset/liability management strategy. Consequently, the average maturity of
the portfolio is relatively short. Securities maturing within five years
represents 85.74% of the total portfolio.
MATURITY DISTRIBUTION After One Year After Five Years
OF SECURITIES But But
December 31, 1999 Within One Year Within Five Years Within Ten Years After Ten Years Total
------------------------------------- -----------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------------------------------------- -----------------------------------------------------------
(Dollars in thousands)
Held for Investment
U.S. Treasury and other federal $ 10,814 5.59% $ 34,150 6.60% $31,183 7.09% $ 3,417 6.81% $ 79,564 6.66%
agencies
State and political subdivisions 7,283 7.28 22,929 6.91 14,023 6.93 5,682 7.05 49,917 6.99
Other securities -- -- -- -- -- -- -- -- -- --
----------- -------- -------- -------- ---------
Total $ 18,097 6.27 $ 57,079 6.72 $45,206 7.04 $ 9,099 6.96 $129,481 6.79
=========== ======== ======== ======== =========
Percentage of total 13.98% 44.08% 34.91% 7.03% 100.00%
=========== ======== ======== ======== =========
Available for Sale
U.S. Treasury and other federal $ 87,293 6.03% $346,898 5.80% $11,109 7.18% $ 4,168 7.09% $449,468 5.89%
agencies
State and political subdivisions 2,050 7.53 212 7.46 273 7.08 326 9.00 2,861 7.65
Other securities 8 -- -- -- -- -- 14,897 7.04 14,905 7.04
----------- -------- -------- -------- ---------
Total $ 89,351 6.06 $347,110 5.80 $11,382 7.18 $19,391 7.08 $467,234 5.94
=========== ======== ======== ======== =========
Percentage of total 19.12% 74.29% 2.44% 4.15% 100.00%
=========== ======== ======== ======== =========
Total securities $107,448 6.10% $404,189 5.93% $56,588 7.07% $28,490 7.04% $596,715 6.12%
=========== ======== ======== ======== =========
Percentage of total 18.00% 67.74% 9.48% 4.78% 100.00%
=========== ======== ======== ======== =========
A-8
Loans
The Company has generated significant loan growth from both acquisitions
and internal originations. Total loans increased $117 million, or 8.71%, in
1999, and $89.2 million, or 7.14%, in 1998. Internal growth is being generated
primarily in the Oklahoma City and Tulsa metropolitan markets, and by
specialized lending activities such as indirect automobile loans, guaranteed
student loans, SBA guaranteed loans, residential mortgage loans and home equity
loans.
Composition
The Company's loan portfolio is diversified among various types of
commercial and individual borrowers. Commercial loans are comprised principally
of loans to companies in light manufacturing, retail and service industries.
Over half of the loan growth in 1999 was in commercial loans. Construction and
development loans totaled only $85.6 million, or 5.88% of total loans as of the
end of 1999. Real estate loans are relatively evenly divided between mortgages
on personal residences and loans secured by commercial and other types of
properties. Installment loans are comprised mostly of loans to individuals for
the purchase of vehicles and student loans. Loans secured by real estate have
always been a large portion of the Company's loan portfolio. In 1999, this
percentage was 52.93% compared to 55.22% for 1998. The Company is subject to
risk of future market fluctuations in property values relating to these loans.
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.
LOANS BY CATEGORY December 31,
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------- ----------------------------------------------------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
------------ ------ --------- ------- ----------- -------- -------- ------- -------- ------
(Dollars in thousands)
Commercial, financial and
other $ 433,416 29.78% $ 361,222 26.98% $ 342,779 27.43% $ 309,042 27.46% $255,655 26.99%
Real estate - construction 85,634 5.88 75,907 5.67 54,858 4.39 45,813 4.07 36,043 3.81
Real estate - mortgage 684,838 47.05 663,448 49.55 611,163 48.90 533,253 47.39 461,295 48.71
Consumer 251,593 17.29 238,302 17.80 240,905 19.28 237,170 21.08 194,097 20.49
------------- ------ ---------- ------ ----------- ------ ---------- ------ -------- ------
Total $1,455,481 100.00% $1,338,879 100.00% $1,249,705 100.00% $1,125,278 100.00% $947,090 100.00%
============= ====== ========== ====== =========== ====== ========== ====== ======== ======
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, over
half of the commercial real estate and other commercial loans had adjustable
interest rates at year-end 1999. 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.
MATURITY AND RATE SENSITIVITY Maturing
OF LOANS After One
December 31, 1999 Within But Within After
One Year Five Years Five Years Total
--------------- --------------- --------------- --------------
(Dollars in thousands)
Commercial, financial and other $ 273,585 $ 132,508 $ 27,232 $ 433,416
Real estate - construction 62,878 13,231 9,525 85,634
Real estate - mortgage (excluding loans
Secured by 1 to 4 family residential properties) 90,172 153,041 109,883 353,096
--------------- --------------- --------------- --------------
Total $ 426,635 $ 298,780 $ 146,731 $ 872,146
=============== =============== =============== ==============
Loans with predetermined interest rates $ 147,615 $ 152,239 $ 54,322 $ 354,176
Loans with adjustable interest rates 279,020 146,541 92,409 517,970
--------------- --------------- --------------- --------------
Total $ 426,635 $ 298,780 $ 146,731 $ 872,146
=============== =============== =============== ==============
Percentage of total 48.92% 34.26% 16.82% 100.00%
=============== =============== =============== ==============
A-9
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 increased in 1996 and 1998 primarily
as a result of acquisitions. The increase in 1999 was due to a slight increase
in other real estate owned and repossessed assets. Nonperforming and
restructured loans as a percentage of total loans was 0.85% at year-end 1999,
compared to 0.93% at year-end 1998 and 0.68% at year-end 1997. It is reasonable
to expect that in the long run the level of nonperforming 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 $331,000 in 1999 and $344,000 in
1998. Only a small amount of this interest was ultimately 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
loan losses. At year-end 1999, the allowance for loan losses as a percentage of
nonperforming and restructured loans was 183.47%, compared to 158.69% at the end
of 1998 and 206.55% at the end of 1997.
NONPERFORMING AND RESTRUCTURED ASSETS December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ----------- ----------- ------------
(Dollars in thousands)
Past due over 90 days and still accruing $ 1,666 $ 2,792 $ 1,600 $ 2,943 $ 979
Nonaccrual 9,565 8,308 6,416 7,319 6,148
Restructured 1,059 1,288 436 722 777
----------- ---------- ----------- ----------- ------------
Total nonperforming and restructured loans 12,290 12,388 8,452 10,984 7,904
Other real estate owned and repossessed assets 1,945 1,639 1,766 1,977 1,883
----------- ---------- ----------- ----------- ------------
Total nonperforming and restructured assets $14,235 $14,027 $10,218 $12,961 $9,787
=========== ========== =========== =========== ============
Nonperforming and restructured loans to total loans 0.85% 0.93% 0.68% 0.98% 0.83%
=========== ========== =========== =========== ============
Nonperforming and restructured assets to total assets 0.61% 0.60% 0.51% 0.70% 0.60%
=========== ========== =========== =========== ============
Other real estate owned and repossessed assets increased in 1999 to $1.95
million from $1.64 million at year-end 1998. The Company places a substantial
amount of emphasis on disposing 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. BancFirst had
approximately $33 million of these loans, which are not included in
nonperforming and restructured assets, at December 31, 1999. 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.
A-10
Allowance for Loan Losses
The allowance for 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 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 net charge-offs and loan loss provisions to return to more
historically normal levels.
The Company's net charge-offs have been low in recent years. In 1999, the
Company recognized $2.13 million of net charge-offs, which was only 0.16% of
average loans, compared to $1.85 million of net charge-offs, or 0.14% of average
loans, for 1998.
ANALYSIS OF ALLOWANCE FOR Year Ended December 31,
LOAN LOSSES ----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------------- ---------------- -----------
(Dollars in thousands)
Balance at beginning of year $ 19,659 $ 17,458 $ 16,569 $ 14,821 $ 13,627
---------- ----------- ---------------- ---------------- -----------
Charge-offs:
Commercial (1,035) (1,805) (1,182) (743) (657)
Real estate (368) (212) (238) (118) (170)
Consumer (1,499) (989) (1,670) (968) (880)
Other (199) (171) (80) (120) (78)
---------- ----------- ---------------- ---------------- -----------
Total charge-offs (3,101) (3,177) (3,169) (1,949) (1,785)
---------- ----------- ---------------- ---------------- -----------
Recoveries:
Commercial 409 811 320 114 436
Real estate 153 223 202 161 156
Consumer 318 258 315 247 231
Other 89 34 25 35 25
---------- ----------- ---------------- ---------------- -----------
Total recoveries 969 1,326 862 557 848
---------- ----------- ---------------- ---------------- -----------
Net (charge-offs) recoveries (2,132) (1,851) (2,307) (1,392) (937)
Provisions charged to operations 2,521 2,211 2,888 2,181 1,617
Additions from acquisitions 2,500 1,841 308 959 514
---------- ----------- ---------------- ---------------- -----------
Balance at end of year $ 22,548 $ 19,659 $ 17,458 $ 16,569 $ 14,821
========== =========== ================ ================ ===========
Average loans $1,355,332 $1,290,557 $1,181,421 $1,047,771 $894,412
========== =========== ================ ================ ===========
Total loans $1,455,481 $1,338,879 $1,249,705 $1,125,278 $947,090
========== =========== ================ ================ ===========
Net charge-offs to average loans 0.16% 0.14% 0.20% 0.13% 0.10%
========== =========== ================ ================ ===========
Allowance to total loans 1.55% 1.47% 1.40% 1.47% 1.56%
========== =========== ================ ================ ===========
Allocation of the allowance by category of
loans:
Commercial, financial and other $ 6,612 $ 5,277 $ 4,358 $ 4,506 $ 3,503
Real estate - construction 1,364 1,400 1,085 972 889
Real estate - mortgage 10,161 9,406 7,883 7,090 6,326
Consumer 3,513 3,229 2,924 2,999 2,463
Unallocated 897 347 1,208 1,002 1,640
---------- ----------- ---------------- ---------------- -----------
Total $ 22,548 $ 19,659 $ 17,458 $ 16,569 $ 14,821
========== =========== ================ ================ ===========
Percent of loans in each category to total
loans:
Commercial, financial and other 29.78% 26.98% 27.43% 27.46% 26.99%
Real estate - construction 5.88 5.67 4.39 4.07 3.81
Real estate - mortgage 47.05 49.55 48.90 47.39 48.71
Consumer 17.29 17.80 19.28 21.08 20.49
---------- ----------- ---------------- ---------------- -----------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
========== =========== ================ ================ ===========
A-11
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, competition with other financial
institutions and alternative investments available to customers. Through
interest rates paid, competitive service charges 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.
The Company's core deposits provide it with a stable, low-cost funding
source. Total deposits increased $57.9 million in 1999, and $264 million in
1998, primarily from acquisitions. Demand deposits as a percentage of total
deposits have been increasing since 1994. Core deposits were 89.07% of total
deposits in 1999 compared to 90.39% in 1998. Since 1996, interest-bearing
transaction deposits have decreased and savings deposits have increased as a
result of a new product introduced by the Company which sweeps excess funds in
transaction accounts into a savings account.
ANALYSIS OF AVERAGE Year Ended December 31,
----------------------------------------------------------------------------------------------
DEPOSITS 1999 1998 1997 1996 1995
------------- --------------- ------------------- -------------- -------------------
Average Balances (Dollars in thousands)
Demand deposits $ 423,347 $ 396,802 $ 332,513 $ 306,311 $ 256,903
Interest-bearing transaction 36,256 104,006 156,478 233,312 311,884
deposits
Savings deposits 667,015 547,887 450,491 339,897 209,398
Time deposits under $100,000 632,995 646,003 562,415 517,264 452,173
------------- --------------- ------------------- -------------- -------------------
Total core deposits 1,759,613 1,694,698 1,501,897 1,396,784 1,230,358
Time deposits of $100,000 or more 215,824 180,169 182,893 160,217 132,892
------------- --------------- ------------------- -------------- -------------------
Total deposits $1,975,437 $1,874,867 $1,684,790 $1,557,001 $1,363,250
============= =============== =================== ============== ===================
% of % of % of % of % of
Percentages of Total Deposits Total Rate Total Rate Total Rate Total Rate Total Rate
--------- ------- --------- ------- --------- ------ -------- ----- --------- -----
And Average Rates Paid
Demand deposits 21.43% 21.16% 19.74% 19.67% 18.84%
Interest-bearing transaction 1.84 2.20% 5.55 2.47% 9.29 2.59% 14.98 2.70% 22.88 3.12%
deposits
Savings deposits 33.76 2.80 29.22 2.63 26.74 3.00 21.83 3.09 15.36 3.64
Time deposits under $100,000 32.04 4.87 34.46 5.49 33.37 5.39 33.23 5.33 33.17 5.34
--------- --------- --------- -------- ---------
Total core deposits 89.07 90.39 89.14 89.71 90.25
Time deposits of $100,000 or more 10.93 4.88 9.61 5.84 10.86 5.41 10.29 5.41 9.75 5.54
--------- --------- --------- -------- ---------
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
========= ========= ========= ======== =========
Average rate paid on
Interest-bearing deposits 3.92% 4.26% 4.26% 4.24% 4.42%
======= ======= ====== ===== =====
The Company has not utilized brokered deposits. Approximately 87% of its
time deposits of $100,000 or more at December 31, 1999 mature in one year or
less.
MATURITY OF CERTIFICATES OF DEPOSIT December 31,
$100,000 or More 1999
-------------------
(In thousands)
Three months or less $114,154
Over three months through six months 53,219
Over six months through twelve months 57,032
Over twelve months 33,035
-------------------
Total $257,440
===================
A-12
Short-term borrowings, consisting mainly of federal funds purchased and
repurchase agreements, are another source of funds for the Company. The level of
these borrowings is determined by various factors, including customer demand and
the Company's ability to earn a favorable spread on the funds obtained. Short-
term borrowings totaled $22.1 million at December 31, 1999, compared to $54.8
million at December 31, 1998. In 1998, the Company expanded its correspondent
banking activities. The increase in that year in short-term borrowings is due
largely to federal funds purchased by correspondent banks. The level of federal
funds purchased decreased in 1999.
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. These borrowings are collateralized by a pledge of residential first
mortgages. Long-term borrowings increased to $26.4 million in 1999 from $13
million in 1998.
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 1999, the Bank paid five common stock dividends totaling $23 million and
two preferred stock dividends totaling $1.93 million.
Capital Resources
Stockholders' equity totaled $165 million at year-end 1999, compared to
$202 million at year-end 1998 and $181 million at year-end 1997. The decrease
in stockholders' equity in 1999 is primarily the net result of stock repurchases
and net earnings retained. Other changes were due to stock option exercises,
dividends and the change in the unrealized gain or loss on securities. The
increase in 1998 was primarily due to net earnings retained. The Company's
average equity capital ratio at year-end 1999 was 8.20%, compared to 9.09% for
1998 and 8.95% for 1997. At December 31, 1999, the Company's leverage ratio was
7.32% and its total risk-based capital ratio was 12.45%, compared to minimum
requirements of 3% and 8%, respectively. Banking institutions are generally
expected to maintain capital well above the minimum levels.
In June 1999, the Company completed a Dutch auction issuer tender offer and
purchased 1,186,502 shares of its common stock at the maximum offer price of
$38.00 per share. Cash on hand and two borrowings totaling $7.6 million under a
line of credit were used to fund the purchase of the stock.
In November 1999, the Company adopted a new Stock Repurchase Program (the
"New SRP") authorizing management to repurchase up to 300,000 shares of the
Company's common stock. The New SRP may be used as a means to increase earnings
per share and return on equity, to purchase treasury stock for the exercise of
stock options or for distributions under the Deferred Stock Compensation Plan,
to provide liquidity for optionees to dispose of stock from exercises of their
stock options, and to provide liquidity for shareholders wishing to sell their
stock. The timing, price and amount of stock repurchases under the New SRP may
be determined by management and must be approved by the Company's Executive
Committee. During 1999, the Company purchased and canceled 55,783 shares at an
average price of $35.77 per share.
In January 1997, BancFirst Corporation established BFC Capital Trust I, a
trust formed under the Delaware Business Trust Act. In February 1997, the Trust
issued $25 million of aggregate liquidation amount of 9.65% Capital Securities,
Series A. The proceeds from the sale of the Capital Securities were invested in
9.65% Junior Subordinated Deferrable Interest Debentures, Series A (the
"Debentures") of BancFirst Corporation. The Series A Capital Securities and
Debentures were subsequently exchanged for Series B Capital Securities and
Debentures, pursuant to a Registration Rights Agreement. The terms of the
Series A and Series B securities are identical in all material respects.
Distributions on the Capital Securities are payable January 15 and July 15 of
each year. Such distributions may be deferred for up to ten consecutive semi-
annual periods. The stated maturity date of the Capital Securities is January
15, 2027, but they are subject to mandatory redemption pursuant to optional
prepayment terms. The Capital Securities represent an undivided interest in the
Debentures, are guaranteed by BancFirst Corporation, and are presented as long-
term debt in the Company's consolidated financial statements, but qualify as
Tier 1 regulatory capital. During any deferral period or during any event of
default, BancFirst Corporation may not declare or pay any dividends on any of
its capital stock.
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
A-13
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 2000.
Market Risk
Market risk is defined as the risk of loss related to financial instruments
from changes in interest rates, foreign currency exchange rates and commodity
prices. The Company's market risk arises principally from its lending,
investing, deposit and borrowing activities. The Company is not exposed to
market risk from foreign exchange rates and commodity prices. Management
monitors and controls interest rate risk through sensitivity analysis and its
strategy of creating manageable negative interest sensitivity gaps, as described
under "Net Interest Income" above. The Company does not use derivitive
financial instruments to manage its interest rate risk exposure.
The table below presents the Company's financial instruments that are
sensitive to changes in interest rates, their expected maturities and their
estimated fair values at December 31, 1999.
MARKET RISK
Avg. Expected Maturity / Principal Repayments at December 31, Fair
December 31, 1999 ------------------------------------------------------------
Rate 2000 2001 2002 2003 2004 Thereafter Balance Value
------ ---------- ----------------------------------------------------------------------------
Interest Sensitive Assets
Loans, net 9.01% $561,791 $195,960 $171,463 $141,624 $91,617 $293,026 $1,455,481 $1,452,805
Federal funds sold and interest
bearing deposits 5.30 53,381 -- -- -- -- -- 53,381 53,381
Securities 6.12 107,448 142,640 106,058 82,776 72,715 85,078 596,715 595,509
Interest Sensitive Liabilities
Savings and transaction deposits 2.85 740,122 -- -- 740,122 740,122
Time deposits 4.95 757,799 97,534 20,384 3,968 2,758 -- 882,443 881,854
Short-term borrowings 5.15 22,091 -- -- -- -- -- 22,091 22,091
Long-term borrowings 6.16 3,704 3,704 3,704 4,340 2,777 8,163 26,392 25,562
9.65% Capital Securities 9.79 -- -- -- -- -- 25,000 25,000 24,070
Off Balance Sheet Items
Loan commitments -- -- -- -- -- -- -- 2,045
Letter of credit -- -- -- -- -- -- -- 103
The expected maturities and principle repayments are based upon the
contractual terms of the instruments. Prepayments have been estimated for
certain instruments with predictable prepayment rates. Savings and transaction
deposits are assumed to mature all in the first year as they are not subject to
withdrawal restrictions and any assumptions regarding decay rates would be very
subjective. The actual maturities and principle repayments for the financial
instruments could vary substantially from the contractual terms and assumptions
used in the analysis.
Year 2000 Exposure
Many computer systems and devices using embedded computer chips currently in
operation worldwide use only two digits to specify the year. There is a
significant risk that these systems and devices could produce inaccurate
results, or may not function properly, beginning January 1, 2000 when two-digit
year numbers could be processed as being in the previous century. The Company
is exposed to the risk that not only the systems and devices it uses will
malfunction, but also those of its customers, suppliers and other parties with
whom it conducts business. Such malfunctions could expose the Company to losses
from operational errors and failures, as well as customer claims, lawsuits and
regulatory penalties for noncompliance. While the extent of these possible
losses can not be estimated, such losses could have a material adverse effect on
the Company's results of operations, liquidity and financial condition.
During 1997, the Company commenced a Year 2000 Project to conduct a
comprehensive review of its outside data processing services, internal computer
systems and other mechanical and computerized equipment. The purpose of the
project was to determine and plan for necessary changes to assure that its
systems and equipment would function properly in the year 2000. The project also
included communications with other parties to determine the extent to which the
parties are addressing the issue and the exposure to the Company in the event
the parties failed to adequately plan for and resolve the issue.
A-14
The plan developed by the Company consisted of the following five phases:
1. Awareness
2. Assessment
3. Renovation
4. Validation
5. Implementation
All five phases of the plan were completed. Testing of mission critical
applications was completed in March 1999. An evaluation of Year 2000 credit
risk has been completed. Contingency plans were prepared for each mission
critical application.
Since January 1, 2000, the Company has tested its critical systems and the
tests have not revealed any year 2000 problems. In addition, the Company's
operations have not experienced any year 2000-related problems. The Company
will continue to analyze its systems and services that utilize date-embedded
codes that may experience operational problems as various functions are
utilized, or as other potential problem dates arrive throughout the year. The
Company will continue to communicate with third party vendors of systems
software and equipment, suppliers of telecommunications capacity and equipment,
customers and others with which it does business to coordinate year 2000
compliance.
The total cost of addressing the Year 2000 issue was not material. The
Company's core business applications are provided by a data processing company
that devoted substantial resources to assuring that the applications were
certified as Year 2000 compliant by the end of 1998. Certain of the other
systems either have been replaced, or were already going to be replaced with
newer technology, and their replacement was not accelerated due the Year 2000
issue. Also, no significant information technology projects were deferred
because of the Year 2000 issue.
Future Application Of Accounting Standards
See Note (1) of the Notes to Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
Segment Information
See Note (20) of the Notes to Consolidated Financial Statements for
disclosures regarding the Company's operating business segments.
Forward Looking Statements
The Company may make forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995) with respect to earnings,
credit quality, year 2000 compliance, corporate objectives, interest rates and
other financial and business matters. The Company cautions readers that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, including economic conditions, the performance of financial
markets and interest rates; legislative and regulatory actions and reforms;
competition; as well as other factors, all of which change over time. Actual
results may differ materially from forward-looking statements.
A-15
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BancFirst Corporation:
We have audited the accompanying consolidated balance sheet of BancFirst
Corporation and its subsidiaries as of December 31, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BancFirst
Corporation and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
March 27, 2000
To the Board of Directors and Stockholders of BancFirst Corporation:
In our opinion, based upon our audits and the report of other auditors, the
consolidated balance sheet and the related consolidated statements of income,
stockholders' equity and of cash flows as of and for each of the two years in
the period ended December 31, 1998 present fairly, in all material respects, the
financial position, results of operations and cash flows of BancFirst
Corporation and its subsidiaries as of and for each of the two years in the
period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States. 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 did not audit the
financial statements of AmQuest Financial Corporation which statements reflect
total assets of $577,074,000 at December 31, 1997 and total revenues of
$46,350,000 for the year then ended. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for AmQuest
Financial Corporation, is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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 and the report of other auditors provide a reasonable
basis for the opinion expressed above. We have not audited the consolidated
financial statements of BancFirst Corporation for any period subsequent to
December 31, 1998.
PRICEWATERHOUSECOOPERS LLP
Oklahoma City, Oklahoma
April 2, 1999
To the Board of Directors and Stockholders of BancFirst Corporation:
We have audited the consolidated statement of financial condition of AmQuest
Financial Corp. (an Oklahoma corporation) and its subsidiaries as of December
31, 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1997, prior to the restatement (and therefore not presented herein) for the
pooling-of-interests business combination as discussed in Note 2. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmQuest Financial
Corp. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
January 23, 1998 (except
with respect to the matter
discussed in Note 15, as to
which the date is March 2, 1998)
A-16
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
--------------------------------
1999 1998
-------------- --------------
ASSETS
Cash and due from banks $ 126,691 $ 132,286
Interest-bearing deposits with banks 1,715 11
Federal funds sold 51,666 187,369
Securities (market value: $595,509 and $584,650 respectively) 596,715 582,649
Loans:
Total loans (net of unearned interest) 1,455,481 1,338,879
Allowance for loan losses (22,548) (19,659)
-------------- --------------
Loans, net 1,432,933 1,319,220
Premises and equipment, net 52,467 47,558
Other real estate owned 1,612 1,057
Intangible assets, net 24,087 24,095
Accrued interest receivable 20,771 19,589
Other assets 27,150 22,049
-------------- --------------
Total assets $2,335,807 $2,335,883
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 460,131 $ 463,391
Interest-bearing 1,622,565 1,561,409
-------------- --------------
Total deposits 2,082,696 2,024,800
Short-term borrowings 22,091 54,841
Long-term borrowings 26,392 12,966
9.65% Capital Securities 25,000 25,000
Accrued interest payable 8,421 8,315
Other liabilities 6,493 8,044
-------------- --------------
Total liabilities 2,171,093 2,133,966
-------------- --------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1.00 par (shares issued and outstanding: 8,112,170 and
9,291,929, respectively) 8,112 9,292
Capital surplus 46,766 45,148
Retained earnings 113,344 142,046
Accumulated other comprehensive income (loss) net of income tax (expense)
benefit of $1,636 and ($2,822), respectively (3,508) 5,431
-------------- --------------
Total stockholders' equity 164,714 201,917
-------------- --------------
Total liabilities and stockholders' equity $2,335,807 $2,335,883
============== ==============
See accompanying notes to consolidated financial statements.
A-17
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
Year Ended December 31,
-------------------------------------------------------
1999 1998 1997
--------------- ---------------- ----------------
INTEREST INCOME
Loans, including fees $120,974 $121,319 $111,553
Securities:
Taxable 30,964 32,698 28,730
Tax-exempt 2,147 2,190 2,314
Federal funds sold 5,247 4,828 3,358
Interest-bearing deposits with banks 52 7 6
--------------- ---------------- ----------------
Total interest income 159,384 161,042 145,961
--------------- ---------------- ----------------
INTEREST EXPENSE
Deposits 60,840 62,946 57,784
Short-term borrowings 1,628 2,161 1,094
Long-term borrowings 1,234 734 648
9.65% Capital Securities 2,447 2,449 2,214
--------------- ---------------- ----------------
Total interest expense 66,149 68,290 61,740
--------------- ---------------- ----------------
Net interest income 93,235 92,752 84,221
Provision for loan losses 2,521 2,211 2,888
--------------- ---------------- ----------------
Net interest income after provision
for loan losses 90,714 90,541 81,333
--------------- ---------------- ----------------
NONINTEREST INCOME
Service charges on deposits 16,453 14,634 13,155
Securities transactions 244 12 2
Other 12,010 9,373 8,351
--------------- ---------------- ----------------
Total noninterest income 28,707 24,019 21,508
--------------- ---------------- ----------------
NONINTEREST EXPENSE
Salaries and employee benefits 45,764 44,360 39,377
Occupancy and fixed assets expense, net 5,082 5,131 4,541
Depreciation 4,884 4,772 4,185
Amortization 3,643 3,313 2,852
Data processing services 2,150 2,176 2,178
Net (income) expense from other real estate owned 164 (111) 298
Restructuring charges -- 1,912 --
Other 19,766 18,929 18,024
--------------- ---------------- ----------------
Total noninterest expense 81,453 80,482 71,455
--------------- ---------------- ----------------
Income before taxes 37,968 34,078 31,386
Income tax expense (14,019) (12,528) (10,481)
--------------- ---------------- ----------------
Net income 23,949 21,550 20,905
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities (8,939) 3,643 982
--------------- ---------------- ----------------
Comprehensive income $ 15,010 $ 25,193 $ 21,887
=============== ================ ================
NET INCOME PER COMMON SHARE
Basic $2.79 $2.32 $2.26
=============== ================ ================
Diluted $2.75 $2.27 $2.21
=============== ================ ================
See accompanying notes to consolidated financial statements.
A-18
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------------
COMMON STOCK
Issued at beginning of year 9,291,929 $ 9,292 9,614,004 $ 9,614 9,668,913 $ 9,669
Shares issued 82,299 82 53,416 53 60,600 61
Shares acquired and canceled (1,262,058) (1,262) (375,491) (375) (115,509) (116)
----------- ----------- ---------- ----------- --------- ----------
Issued at end of year 8,112,170 $ 8,112 9,291,929 $ 9,292 9,614,004 $ 9,614
=========== =========== ========== =========== ========= ==========
CAPITAL SURPLUS
Balance at beginning of year $ 45,148 $ 44,104 $ 44,275
Common stock issued 1,618 1,090 991
Treasury stock sold -- 319 39
Common stock canceled -- (365) (1,201)
----------- ----------- ----------
Balance at end of year $ 46,766 $ 45,148 $ 44,104
=========== =========== ==========
RETAINED EARNINGS
Balance at beginning of year $142,046 $131,146 $116,200
Net income 23,949 21,550 20,905
Dividends on common stock ($0.58, $0.50, and (4,890) (4,200) (3,168)
$0.42 per share, respectively)
Common stock canceled (47,761) (6,450) (2,791)
----------- ----------- ----------
Balance at end of year $113,344 $142,046 $131,146
=========== =========== ==========
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Unrealized gains (losses) on securities:
Balance at beginning of year $ 5,431 $ 1,788 $ 806
Net change (8,939) 3,643 982
----------- ----------- ----------
Balance at end of year $ (3,508) $ 5,431 $ 1,788
=========== =========== ==========
TREASURY STOCK
Balance at beginning of year -- $ -- 377,129 $ (5,407) 379,346 $ (5,371)
Common stock acquired -- -- -- -- 3,431 (67)
Common stock sold -- -- (46,061) 253 (5,648) 31
Common stock canceled -- -- (331,068) 5,154 -- --
----------- ----------- ---------- ----------- --------- ----------
Balance at end of year -- $ -- -- $ -- 377,129 $ (5,407)
=========== =========== ========== =========== ========= ==========
Total stockholders' equity $164,714 $201,917 $181,245
=========== =========== ==========
See accompanying notes to consolidated financial statements.
A-19
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
December 31,
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 1997
------------- ------------ ------------
Net income $ 23,949 $ 21,550 $ 20,905
Adjustments to reconcile to net cash provided by operating
activities:
Provision for loan losses 2,521 2,211 2,888
Depreciation and amortization 8,527 8,085 7,037
Net amortization of securities premiums and discounts 407 (714) (735)
Unrealized losses on fixed assets -- 1,402 --
Unrealized losses on other real estate owned 89 120 73
Increase in interest receivable (437) (1,687) (507)
Increase (decrease) in interest payable (234) (2,427) 1,782
Increase in deferred tax asset (282) (856) (923)
Other, net 5,237 (1,675) (2,936)
------------- ------------ ------------
Net cash provided by operating activities 29,303 26,009 33,456
------------- ------------ ------------
INVESTING ACTIVITIES
Net cash and due from banks provided by (used for) acquisitions 4,158 39,642 (15,237)
and divestitures
Purchases of securities:
Held for investment (36,583) (24,145) (42,686)
Available for sale (113,123) (173,296) (109,303)
Maturities of securities:
Held for investment 54,842 49,660 45,732
Available for sale 96,240 99,043 86,856
Proceeds from sales of securities:
Held for investment 806 1,986 644
Available for sale -- 9,180 173
Net (increase) decrease in federal funds sold 135,703 (123,466) 13,384
Purchases of loans (15,113) (8,967) (4,775)
Proceeds from sales of loans 146,398 156,946 119,484
Net other increase in loans (195,195) (165,825) (206,180)
Purchases of premises and equipment (9,588) (9,106) (5,578)
Proceeds from the sale of other real estate owned and repossessed 2,905 2,913 3,749
assets
Other, net 2,040 2,671 (1,148)
------------- ------------ ------------
Net cash used for investing activities 73,490 (142,764) (112,589)
------------- ------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in demand, transaction and savings deposits (21,697) 91,515 5,624
Net increase (decrease) in certificates of deposits (13,449) 22,891 53,398
Net increase (decrease) in short-term borrowings (32,750) 32,110 2,060
Net increase in long-term borrowings 13,426 2,915 415
Issuance of 9.65% Capital Securities -- -- 23,972
Issuance of common stock 1,700 1,105 482
Acquisition of common stock (49,023) (2,036) (4,175)
Cash dividends paid (4,890) (4,013) (3,045)
------------- ------------ ------------
Net cash provided by financing activities (106,683) 144,487 78,731
------------- ------------ ------------
Net increase (decrease) in cash and due from banks (3,890) 27,732 (402)
Cash and due from banks at the beginning of the year 132,297 104,565 104,967
------------- ------------ ------------
Cash and due from banks at the end of the year $ 128,406 $ 132,297 $ 104,565
============= ============ ============
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 66,043 $ 64,010 $ 61,754
============= ============ ============
Cash paid during the year for income taxes $ 12,996 $ 13,552 $ 11,765
============= ============ ============
See accompanying notes to consolidated financial statements.
A-20
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(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 and its subsidiaries, First State Bank for a
portion of 1999, and Kingfisher Bank & Trust Co. for 1999 and a portion of 1998.
The operating subsidiaries of BancFirst are BancFirst Investment Corporation,
Lenders Collection Corporation and Express Financial 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 1998 and 1997 have been reclassified to conform with the 1999
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. These estimates relate principally to the determination
of the allowance for loan losses, income taxes and the fair value of financial
instruments. Such estimates and assumptions may change over time and actual
amounts realized may differ from those reported.
Securities
The Company does not engage in securities trading activities. Any sales of
securities are for the purpose of executing the Company's asset/liability
management strategy, eliminating a perceived credit risk in a specific security,
or providing liquidity. 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. 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 that produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on all other performing 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-21
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Allowance for Loan Losses
The allowance for 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 judgement, deserve current recognition
in estimating 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.
A loan is considered 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 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 the lower of the book value of the related loan or
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 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 forty years, depending upon when the goodwill originated. Trademarks
are amortized on a straight-line basis over fifteen years.
Income Taxes
The Company files a consolidated income tax return. Deferred taxes are
recognized under the asset and liability approach based upon the future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using the tax rates expected to apply to taxable
income in the periods when the related temporary differences are expected to be
realized.
A-22
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income, less
any preferred dividends requirement, by the weighted average of common shares
outstanding, as restated for shares issued in business combinations accounted
for as poolings of interests, if any. Diluted earnings per common share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers cash and
due from banks, and interest-bearing deposits with banks as cash equivalents.
Acquisitions accounted for as purchases or as book value purchases are presented
net of any stock issued, assets acquired and liabilities assumed.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those financial
instruments at fair value. The accounting for changes in the fair value of a
derivative instrument depends on the intended use of the derivative and its
resulting designation. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of FASB Statement No. 133 - an amendment
of FASB Statement No. 133." This Statement defers the effective date of FASB
Statement No. 133 to all fiscal quarters of fiscal years beginning after June
15, 2000. The Company does not expect that the adoption of this standard will
have a material impact on its consolidated financial statements.
A-23
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(2) FORMATION OF BANCFIRST CORPORATION; MERGERS, ACQUISITIONS AND DISPOSALS
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 March 1997, the Company acquired 22.8% of the common stock outstanding
of First Ada Bancshares, Inc. for cash of $4,954. First Ada Bancshares, Inc. has
approximately $170,000 in total assets. This investment is accounted for under
the equity method of accounting and did not have a material effect on the
results of operations of the Company for 1997.
In March 1998, BancFirst completed the purchase of 13 branches from
NationsBank, N.A. and concurrently sold three of the branches to another
Oklahoma financial institution. The purchase and sale resulted in BancFirst
purchasing loans and other assets of approximately $32,800, assuming deposits of
approximately $132,100 and paying a premium on deposits of approximately $9,100.
The transaction was accounted for as a purchase. Accordingly, the effects of
the purchase are included in the Company's consolidated financial statements
from the date of the purchase forward. BancFirst subsequently sold an
additional four of the branches during 1998. These branches had loans and other
assets of approximately $2,500, and deposits of approximately $54,000. These
transactions did not have a material effect on the results of operations of the
Company for 1998.
In May 1998, the Company completed a merger with Lawton Security
Bancshares, Inc. ("Lawton Security Bancshares"), which had approximately $92,000
in total assets. The merger was effected through the exchange of 414,790 shares
of BancFirst Corporation common stock for all of the Lawton Security Bancshares
common stock outstanding, and was accounted for as a pooling of interests.
Accordingly, the consolidated accounts of Lawton Security Bancshares have been
combined with the accounts of the Company and are included in the Company's
consolidated financial statements for all periods presented.
In October 1998, the Company completed a merger with AmQuest Financial
Corp. ("AmQuest") of Duncan, Oklahoma, which had approximately $526,000 in total
assets. The merger was effected through the exchange of 2,522,594 shares of
BancFirst Corporation common stock for all of the AmQuest common stock
outstanding, and was accounted for as a pooling of interests. Accordingly, the
consolidated accounts of AmQuest have been combined with the accounts of the
Company and are included in the Company's consolidated financial statements for
all periods presented. The Company recorded estimated restructuring charges of
$1,912 upon consummation of the merger in October 1998. These charges consist of
termination benefits of $345 for 37 employees terminated and $1,567 for loss on
facilities and other assets to be sold or abandoned. Other merger and conversion
related expenses estimated at $1,200 were incurred. Additionally, the Company
restated AmQuest's allowance for loan losses to conform to its own methodology;
accordingly, the allowance for loan losses was increased by $1,400, which was
applied retroactively to prior periods.
Prior to the merger with BancFirst Corporation, AmQuest had made
acquisitions of its own. In March 1996, AmQuest purchased certain assets and
assumed certain liabilities of the Anadarko, Oklahoma branch of First Southwest
Bank. The net purchase price of $398 resulted in total intangible assets of $81.
In April 1997, AmQuest acquired American National Bank of Lawton, which had
total assets of approximately $61,000, for cash of $12,073. This resulted in
total intangible assets of $4,083. Both of these transactions were accounted for
as purchases. Accordingly, the effects of the acquisitions are included in the
Company's consolidated financial statements from the dates of the acquisitions
forward. The acquisitions did not have a material effect on the results of
operations of the Company.
In December 1998, the Company completed the acquisition of Kingfisher
Bancorp, Inc. which had total assets of approximately $91,000. The acquisition
was for cash of $12,000 and was accounted for as a purchase. Accordingly, the
effects of the acquisition are included in the Company's consolidated financial
statements from the date of the acquisition forward. A core deposit intangible
of $286 and goodwill of $1,871 were recorded in the acquisition. The acquisition
did not have a material effect on the results of operations of the Company for
1998.
A-24
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In February 1999, the Company sold the previously mentioned Anadarko,
Oklahoma branch, which had deposits of approximately $15,500. The sale resulted
in a pretax gain of approximately $900.
In December 1999, the Company completed the purchase of certain assets and
assumption of certain liabilities of First State Bank of Oklahoma City,
Oklahoma. Under the terms of the agreement, the Company organized a new wholly-
owned bank under the First State Bank name. The new First State Bank acquired
approximately $106,000 of assets, assumed approximately $109,000 of liabilities,
and recorded $2,615 of intangible assets. The purchase and assumption was
accounted for as a purchase. Accordingly, the effects of the acquisition are
included in the Company's consolidated financial statements from the date of the
acquisition forward. The acquisition did not have a material effect on the
results of the operations of the Company for 1999.
(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 $62,026 at December 31, 1999 and in four institutions
totaling $142,220 at December 31, 1998. 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
in the form of vault cash or on deposit with the Federal Reserve Bank. The
average amount of reserves maintained for each of the years ended December 31,
1999 and 1998 was approximately $34,183 and $29,151, respectively.
(4) SECURITIES
The table below summarizes securities held for investment and securities
available for sale:
December 31,
-------------------------
1999 1998
----------- -----------
Held for investment at cost (market value; $128,275 and
$132,804, respectively) $129,481 $130,803
Available for sale, at market value 467,234 451,846
----------- -----------
Total $596,715 $582,649
=========== ===========
A-25
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The table below summarizes the amortized cost and estimated market values of
securities held for investment:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- ------------------- ---------------- --------------
December 31, 1999
U.S. Treasury $ 7,880 $ -- $ (106) $ 7,774
Other federal agencies 18,218 -- (49) 18,169
Mortgage backed securities 53,466 191 (512) 53,145
States and political subdivisions 49,917 239 (969) 49,187
Other securities -- -- -- --
--------------- ------------------- ---------------- --------------
Total $129,481 $ 430 $(1,636) $128,275
=============== =================== ================ ==============
December 31, 1998
U.S. Treasury $ 24,513 $ 74 $ (28) $ 24,559
Other federal agencies 5,042 48 -- 5,090
Mortgage backed securities 57,965 908 (207) 58,666
States and political subdivisions 43,283 1,227 (21) 44,489
Other securities -- -- -- --
--------------- ------------------- ---------------- --------------
Total $130,803 $2,257 $ (256) $132,804
=============== =================== ================ ==============
The table below summarizes the amortized cost and estimated market values
of securities available for sale:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ---------------- ----------------- -------------
December 31, 1999
U.S. Treasury $203,279 $ 150 $(1,246) $202,183
Other federal agencies 226,794 24 (5,406) 221,412
Mortgage backed securities 25,917 138 (182) 25,873
States and political subdivisions 2,860 10 (9) 2,861
Other securities 13,528 1,377 -- 14,905
------------- ---------------- ----------------- -------------
Total $472,378 $1,699 $(6,843) $467,234
============= ================ ================= =============
December 31, 1998
U.S. Treasury $267,040 $6,549 $ (7) $273,582
Other federal agencies 121,936 1,777 (359) 123,354
Mortgage backed securities 41,734 398 (133) 41,999
States and political subdivisions 2,471 32 (4) 2,499
Other securities 10,412 -- -- 10,412
------------- ---------------- ----------------- -------------
Total $443,593 $8,756 $ (503) $451,846
============= ================ ================= =============
A-26
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. For purposes of the maturity table,
mortgage-backed securities, which are not due at a single maturity date, have
been allocated over maturity groupings based on the weighted-average contractual
maturities of underlying collateral.
December 31,
-----------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Amortized Estimated Amortized Estimated
Cost Market Cost Market
Value Value
-------------- -------------- -------------- --------------
Held for Investment
Contractual maturity of debt securities:
Within one year $ 18,097 $ 18,017 $ 34,155 $ 34,315
After one year but within five years 57,079 56,643 69,226 70,121
After five years but within ten years 45,206 44,766 18,726 19,426
After ten years 9,099 8,849 8,696 8,942
-------------- -------------- -------------- --------------
Total $129,481 $128,275 $130,803 $132,804
============== ============== ============== ==============
Available for Sale
Contractual maturity of debt securities:
Within one year $ 89,430 $ 89,351 $ 97,990 $ 98,560
After one year but within five years 353,539 347,110 322,347 329,994
After five years but within ten years 11,363 11,382 9,247 9,320
After ten years 4,525 4,494 3,597 3,560
-------------- -------------- -------------- --------------
Total debt securities 458,857 452,337 433,181 441,434
Equity securities 13,521 14,897 10,412 10,412
-------------- -------------- -------------- --------------
Total $472,378 $467,234 $443,593 $451,846
============== ============== ============== ==============
Sales of securities are summarized below:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
------------- ----------- -----------
Proceeds $ 468 $ 11,166 $ 817
Gross gains realized 244 12 2
Gross losses realized -- -- --
Securities having book values of $463,025, $359,000 and $279,513 at
December 31, 1999, 1998 and 1997, respectively, were pledged as collateral for
public funds on deposit, repurchase agreements and for other purposes as
required or permitted by law.
A-27
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(5) LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a schedule of loans outstanding by category:
December 31, 1999 December 31, 1998
--------------------------- ---------------------------
Amount Percent Amount Percent
------------- ---------- ------------- ----------
Commercial and industrial $ 343,304 23.59% $ 274,497 20.50%
Agriculture 57,447 3.95 62,655 4.68
State and political subdivisions:
Taxable 1,641 0.11 822 0.06
Tax-exempt 14,428 0.99 6,370 0.48
Real Estate:
Construction 85,634 5.88 75,907 5.67
Farmland 38,419 2.64 39,500 2.95
One to four family residences 331,742 22.79 318,882 23.82
Multifamily residential properties 21,517 1.48 19,412 1.45
Commercial 293,160 20.14 285,654 21.33
Consumer 251,593 17.29 238,302 17.80
Other 16,596 1.14 16,878 1.26
------------- ---------- ------------- ----------
Total loans $1,455,481 100.00% $1,338,879 100.00%
============= ========== ============= ==========
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 are based upon the Company's underwriting standards and
management's credit evaluation. Collateral varies, but may include real estate,
equipment, accounts receivable, inventory, livestock and securities. The
Company's interest in collateral is secured through filing mortgages and liens,
and in some cases, by possession of the collateral. The amount of estimated loss
due to credit risk in the Company's loan portfolio is provided for in the
allowance for loan losses. The amount of the allowance required to provide for
all existing losses in the loan portfolio is an estimate based upon evaluations
of loans, appraisals of collateral and other estimates which are subject to
rapid change due to changing economic conditions and the economic prospects of
borrowers. It is reasonably possible that a material change could occur in the
estimated allowance for loan losses in the near term.
A-28
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Changes in the allowance for loan losses are summarized as follows:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Balance at beginning of year $19,659 $17,458 $16,569
----------- ----------- -----------
Charge-offs (3,101) (3,177) (3,169)
Recoveries 969 1,326 862
----------- ----------- -----------
Net charge-offs (2,132) (1,851) (2,307)
----------- ----------- -----------
Provisions charged to operations 2,521 2,211 2,888
Additions from acquisitions 2,500 1,841 308
----------- ----------- -----------
Total additions 5,021 4,052 3,196
----------- ----------- -----------
Balance at end of year $22,548 $19,659 $17,458
=========== =========== ===========
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 of Collections/ End of
December 31, Year Additions Terminations Year
-------------- -------------- ----------- -------------- ---------
1997 $ 12,012 $ 14,864 $ (6,969) $ 19,907
1998 $ 19,907 $ 3,303 $ (13,491) $ 9,719
1999 $ 9,719 $ 1,616 $ (5,436) $ 5,899
Below is a summary of impaired loans and the amounts included in the
allowance for loan losses for impaired loans. No material amounts of interest
income were collected on nonaccrual loans for 1999 or 1998.
Year Ended
December 31,
---------------------
1999 1998
--------- ---------
Allowance for loss on impaired loans $2,312 $1,944
Recorded balance of impaired loans 9,057 8,978
A-29
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,
----------------------
1999 1998
---------- ----------
Land $ 11,816 $ 10,882
Buildings 50,649 45,038
Furniture, fixtures and equipment 31,309 30,864
Accumulated depreciation (41,307) (39,226)
---------- ----------
Total $ 52,467 $ 47,558
========== ==========
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
December 31,
----------------------
1999 1998
---------- ----------
Excess of cost over fair value of assets acquired $ 21,681 $ 21,533
Core deposit intangibles 2,401 2,555
Trademarks 5 7
---------- ----------
Total $ 24,087 $ 24,095
========== ==========
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $257,440
and $226,629 at December 31, 1999 and 1998, respectively. At December 31, 1999,
the scheduled maturities of certificates of deposit are as follows:
2000 $ 757,799
2001 97,534
2002 20,384
2003 3,968
2004 and thereafter 2,758
-----------
Total $ 882,443
===========
(9) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
December 31,
-------------------------
1999 1998
---------- ----------
Federal funds purchased $ 12,798 $ 45,065
Repurchase agreements 6,293 9,737
TT&L note -- 39
Notes payable 3,000 --
---------- ----------
Total $ 22,091 $ 54,841
========== ==========
Weighted average interest rate 5.15% 4.49%
========== ==========
Federal funds purchased represents borrowings of overnight funds from other
financial institutions.
A-30
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
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.
The TT&L note is a demand note issued to the U.S. Treasury.
The notes payable at December 31, 1999 consisted of two advances on a
$12,000 revolving line of credit with another bank, that were paid in January
2000. Advances under the line of credit bear interest at one of three specified
rates, at the option of the Company. Interest is due quarterly and at maturity,
or at the end of various interest periods which may be selected by the Company.
Any outstanding principal is due at the maturity of the note in April 2000. The
note may be renewed annually.
(10) LONG-TERM BORROWINGS
The Company borrows under a line of credit from the Federal Home Loan Bank
of Topeka, Kansas in order to match-fund certain long-term fixed rate loans.
Such advances are at rates of from 4.86% to 7.26% and mature from 2003 through
2014. Interest payments on the advances are due monthly. Semiannual principal
payments on the advances total $1,852 per year. Residential first mortgages are
pledged as collateral for the borrowings under the line of credit.
(11) 9.65% CAPITAL SECURITIES
In January 1997, BancFirst Corporation established BFC Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25,000 of aggregate liquidation amount of 9.65% Capital
Securities, Series A (the "Capital Securities"). The proceeds from the sale of
the Capital Securities were invested in 9.65% Junior Subordinated Deferrable
Interest Debentures, Series A (the "Debentures") of BancFirst Corporation. The
Series A Capital Securities and Debentures were subsequently exchanged for
Series B Capital Securities and Debentures, pursuant to a Registration Rights
Agreement. The terms of the Series A and Series B securities are identical in
all material respects. Distributions on the Capital Securities are payable
January 15 and July 15 of each year. Such distributions may be deferred for up
to ten consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and are presented as long-term debt in the Company's consolidated financial
statements, but qualify as Tier 1 regulator capital. During any deferral period
or during any event of default, BancFirst Corporation may not declare or pay any
dividends on any of its capital stock.
A-31
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(12) INCOME TAXES
The components of the Company's income tax expense are as follows:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Current taxes: Federal $ (12,748) $ (11,718) $ (10,574)
State (1,735) (1,433) (839)
Deferred taxes 464 623 932
----------- ----------- -----------
Total income taxes $ (14,019) $ (12,528) $ (10,481)
=========== =========== ===========
Income tax expense applicable to securities transactions approximated $86,
$4 and $1 for the years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, the Company had net operating loss carryforwards for
tax purposes of approximately $205. If not utilized, the tax net operating loss
carryforwards will expire as follows: $109 in 2001, and $96 in 2004.
A reconciliation of tax expense at the federal statutory tax rate applied
to income before taxes follows:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Tax expense at the federal statutory tax rate $(13,289) $(11,927) $(10,901)
(Increase) decrease in tax expense from:
Tax-exempt income, net 1,033 976 983
Excess cost amortization (851) (710) (752)
State tax expense, net of federal tax benefit (1,078) (898) (758)
Other, net 166 31 947
----------- ----------- -----------
Total tax expense $(14,019) $(12,528) $(10,481)
=========== =========== ===========
A-32
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The net deferred tax asset consisted of the following:
December 31,
----------------------------
1999 1998
------------ ------------
Provision for loan losses $ 6,726 $ 6,199
Unrealized net loss on securities available for sale 1,800 --
Discount on securities of banks acquired -- 116
Write-downs of other real estate owned 37 108
Net operating loss carryforwards 185 272
Deferred compensation 681 653
Other 122 514
------------ ------------
Gross deferred tax assets 9,551 7,862
------------ ------------
Unrealized net gain on securities available for sale -- (2,942)
Depreciation (2,282) (2,692)
Other (578) (561)
------------ ------------
Gross deferred tax liabilities (2,860) (6,195)
------------ ------------
Net deferred tax asset $ 6,691 $ 1,667
============ ============
(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,
1999, 1998 and 1997, were approximately $1,980, $1,000 and $1,050, respectively.
Both Lawton Security Bancshares and AmQuest had Section 401(k) plans. These
plans were merged into the ESOP effective January 1, 1999. Contributions to
these plans totaled $576 and $545 for the years ended December 31, 1998 and
1997.
BancFirst Corporation also adopted a nonqualified incentive stock option
plan (the "BancFirst ISOP") in May 1986. In 1998, the Company amended the
BancFirst ISOP to increase the number of shares to be issued under the plan to
850,000. The options are exercisable beginning four years from the date of
grant at the rate of 25% per year for four years. Options granted prior to 1996
expire at the end of eleven years from the date of grant. Options granted after
January 1, 1996 expire at the end of fifteen years from the date of grant.
Options outstanding as of December 31, 1999 will become exercisable through the
year 2006. The option price must be no less than 100% of the fair market value
of the stock relating to such option at the date of grant.
In June 1999, the Company adopted the BancFirst Corporation Non-Employee
Directors' Stock Option Plan (the "BancFirst Directors' Stock Option Plan"). A
total of 75,000 shares may be issued under the plan. Each non-employee director
is granted an option for 5,000 shares. The options are exercisable beginning
one year from the date of grant at the rate of 25% per year for four years, and
expire at the end of fifteen years from the date of grant. Options outstanding
as of December 31, 1999 will become exercisable through the year 2003. The
option price must be no less than 100% of the fair value of the stock relating
to such option at the date of grant.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for the BancFirst ISOP and the BancFirst Directors' Stock Option
Plan. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") was issued in 1995 which, if fully adopted
by the Company, would change the method the Company applies in recognizing the
cost of these plans. Adoption of the cost recognition provisions of FAS 123 is
optional and the Company has elected to not adopt such provisions. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
FAS 123 in 1995 are required and are presented below. A summary of the options
granted under both the BancFirst ISOP and the BancFirst Directors' Stock Option
Plan is as follows:
A-33
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997
-------------------- ------------------ -------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
--------- -------- -------- ------- --------- -------
Outstanding at beginning of year 494,125 $ 21.73 449,625 $ 17.14 501,750 $ 12.39
Options granted 121,000 33.86 113,000 34.22 88,500 30.99
Options exercised or repurchased (70,933) 6.85 (47,750) 7.63 (123,125) 6.87
Options canceled (10,500) 24.93 (20,750) 26.19 (17,500) 19.92
--------- --------- ---------
Outstanding at end of year 533,692 26.27 494,125 21.73 449,625 17.14
========= ========= =========
Exercisable at end of year 114,692 14.89 134,250 10.28 133,625 8.19
========= ========= =========
Weighted average fair value of options granted $ 14.24 $15.36 $ 10.16
========== ========= =========
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: a dividend yield of from 1.5% to 2.0%; risk-free interest rates are
different for each grant and range from 4.98% to 7.74%; the expected lives of
the options are from five to ten years; and volatility of the Company's stock
price is from 17.77% to 33.93% for all grants.
A summary of options outstanding under the BancFirst ISOP and the BancFirst
Directors' Stock Option Plan as of December 31, 1999 is as follows:
Options Outstanding Options Exercisable
----------------------------------------------------------------- ------------------------------------------------
Wgtd. Avg.
Remaining Wgtd. Avg. Wgtd. Avg.
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
----------------- ------------- --------------- ------------ ------------- -------------
$ 6.00 to $10.00 51,674 2.93 $ 7.31 51,674 $ 7.31
$12.88 to $18.63 67,018 5.68 $15.48 25,518 $15.19
$20.00 to $40.00 415,000 12.95 $30.37 37,500 $25.12
------------- -------------
$ 6.00 to $40.00 533,692 11.06 $26.26 114,692 $14.89
============= =============
The pro forma effect as if the Company had adopted the cost recognition
provisions of FAS 123 is as follows:
Year Ended December 31,
---------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------- --------------------------------- ---------------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
--------------- --------------- --------------- --------------- --------------- ---------------
APB 25 charge $ -- $ -- $ -- $ -- $ -- $ --
FAS 123 charge $ -- $ 609 $ -- $ 186 $ -- $ 95
Net income $23,949 $23,340 $21,550 $21,364 $20,905 $20,810
Net income per share:
Basic $ 2.79 $ 2.72 $ 2.32 $ 2.30 $ 2.26 $ 2.25
Diluted $ 2.75 $ 2.68 $ 2.27 $ 2.25 $ 2.21 $ 2.20
The effects of applying FAS 123 to the pro forma disclosure are not
indicative of future results. FAS 123 does not apply to grants of options prior
to 1995 and the Company anticipates making additional grants in the future.
A-34
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
AmQuest had four stock option plans. These plans have been assumed by the
Company, but no new options will be issued under the plans. Pro forma
disclosures, as if the cost recognition provision of FAS 123 had been applied,
have not been presented for these plans since such disclosures would not result
in material differences from the intrinsic value method. Three of the plans are
qualified incentive stock option plans for employees (the "AmQuest Employees
Stock Option Plans"). A total of 178,135 shares were authorized to be issued
under the plans. These options became fully vested at the time of the merger
and will expire at various dates through November 2006. A summary of the
options granted under the AmQuest Employees Stock Option Plans is as follows:
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997
--------------------------- ------------------------- ------------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
------------ -------- ----------- -------- ---------- ---------
Outstanding at beginning of year 73,885 $14.58 123,590 $13.54 132,420 $13.39
Options granted -- -- -- -- -- --
Options exercised or repurchased (33,668) 12.64 (47,784) 11.83 (2,969) 6.84
Options canceled -- -- (1,921) 15.73 (5,861) 13.62
------------ ----------- ----------
Outstanding at end of year 40,217 16.21 73,885 14.58 123,590 13.54
============ =========== ==========
A summary of options outstanding under the AmQuest Employees Stock Option
Plans as of December 31, 1999 is as follows:
Options Outstanding and Exercisable
------------------------------------------------------------------------
Wgtd. Avg.
Remaining Wgtd. Avg.
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
----------------- ------------- ------------- -----------
$10.69 to $17.05 40,217 6.55 $16.21
AmQuest's other stock option plan was for non-employee directors (the
"AmQuest Directors' Stock Option Plan"). The AmQuest Directors Stock Option Plan
was authorized to issue up to 118,755 shares and the options were fully
exercisable when granted. A summary of the options granted under the AmQuest
Directors Stock Option Plan is as follows:
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- ------------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
------------ --------- ----------- --------- ---------- ---------
Outstanding at beginning of year 8,719 $17.19 26,539 $17.10 18,459 $15.19
Options granted -- -- -- -- 10,933 20.62
Options exercised or repurchased (2,696) 16.73 (17,820) 17.05 (2,615) 18.30
Options canceled -- -- -- -- (238) 17.05
------------ ----------- ----------
Outstanding at end of year 6,023 17.40 8,719 17.19 26,539 17.10
============ =========== ==========
A-35
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
A summary of options outstanding under the AmQuest Directors Stock Option
Plan as of December 31, 1999 is as follows:
Options Outstanding and Exercisable
------------------------------------------------------------------------
Wgtd. Avg.
Remaining Wgtd. Avg.
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
----------------- ------------- ------------- -----------
$13.58 to $20.84 6,023 6.55 $17.40
In May 1999, the Company adopted the BancFirst Corporation Directors'
Deferred Stock Compensation Plan (the "Deferred Stock Compensation Plan"). Under
the plan, directors and members of the community advisory boards of the Company
and its subsidiaries may defer up to 100% of their board fees. They are credited
for each deferral with a number of stock units based on the current market price
of the Company's stock, which accumulate in an account until such time as the
director or community board member terminates serving as a board member. Shares
of common stock of the Company are then distributed to the terminating director
or community board member based upon the number of stock units accumulated in
his or her account. A total of 20,000 shares are authorized to be issued under
the plan. At December 31, 1999, there were 719 stock units accumulated with an
average price of $32.63.
(14) STOCKHOLDERS' EQUITY
The following is a description of the capital stock of the Company:
(a) 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 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.
(b) 10% Cumulative Preferred Stock: $5.00 par value, redeemable at
the Company's option at $5.00 per share plus accumulated dividends; non-
voting; cumulative dividends at the rate of 10% payable semi-annually on
January 15 and July 15; 900,000 shares authorized; no shares issued or
outstanding.
(c) Common stock: $1.00 par value; 15,000,000 shares authorized. At
December 31, 1999 and 1998, there were 8,112,170 shares, and 9,291,929
shares issued and outstanding, respectively.
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. In 1997 the SRP was amended to increase the shares authorized to
be repurchased to 350,000. The SRP was to be used for purchases of stock by the
Company's ESOP, and could 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 market liquidity for the stock. During 1997, the Company purchased
and canceled 37,900 shares and the ESOP purchased 20,000 shares. The SRP was
terminated in April 1998.
In June 1999, the Company completed a Dutch auction issuer tender offer and
purchased 1,186,502 shares of its common stock at the maximum offer price of
$38.00 per share. Cash on hand and two borrowings totaling $7,600 under a line
of credit were used to fund the purchase of the stock.
A-36
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In November 1999, the Company adopted a new Stock Repurchase Program (the
"New SRP") authorizing management to repurchase up to 300,000 shares of the
Company's common stock. The New SRP may be used as a means to increase earnings
per share and return on equity, to purchase treasury stock for the exercise of
stock options or for distributions under the Deferred Stock Compensation Plan,
to provide liquidity for optionees to dispose of stock from exercises of their
stock options, and to provide liquidity for shareholders wishing to sell their
stock. The timing, price and amount of stock repurchases under the New SRP may
be determined by management and must be approved by the Company's Executive
Committee. During 1999, the Company purchased and canceled 55,783 shares at an
average price of $35.77 per share.
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. At December 31, 1999,
approximately $10,848 of the equity of BancFirst was available for dividend
payments to BancFirst Corporation.
During any deferral period or any event of default on the 9.65% Capital
Securities, BancFirst Corporation may not declare or pay any dividends on any of
its capital stock.
The Company is subject to risk-based capital guidelines issued by the Board
of Governors of the Federal Reserve System. These guidelines are used to
evaluate capital adequacy and involve both quantitative and qualitative
evaluations of the Company's assets, liabilities, and certain off-balance-sheet
items calculated under regulatory practices. Failure to meet the minimum capital
requirements can initiate certain mandatory or discretionary actions by the
regulatory agencies that could have a direct material effect on the Company's
financial statements. The required minimums and the Company's respective ratios
are shown below.
December 31,
---------------------------
Minimum
Required 1999 1998
---------- ------------ -----------
Tier 1 capital $ 169,135 $ 197,390
Total capital $ 188,753 $ 214,656
Leverage ratio 3.00% 7.32% 8.54%
Tier 1 capital ratio 4.00% 11.15% 14.31%
Total capital ratio 8.00% 12.45% 15.57%
To be "well capitalized" under federal bank regulatory agency definitions,
a depository institution must have a Tier 1 ratio of at least 6%, a combined
Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5%. As
of December 31, 1999 and 1998, BancFirst was considered to be "well
capitalized". There are no conditions or events since the most recent
notification of BancFirst's capital category that management believes would
change its category.
A-37
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(15) NET INCOME PER COMMON SHARE
Basic and diluted net income per common share are calculated as follows:
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- ---------------
Year Ended December 31, 1999
-----------------------------
Basic
Income available to common stockholders $ 23,949 8,590,613 $ 2.79
===============
Effect of stock options -- 109,112
----------------- -----------------
Diluted
Income available to common stockholders
plus assumed exercises of stock options $ 23,949 8,699,725 $ 2.75
================= ================= ===============
Year Ended December 31, 1998
-----------------------------
Basic
Income available to common stockholders $ 21,550 9,276,526 $ 2.32
===============
Effect of stock options -- 233,010
----------------- -----------------
Diluted
Income available to common stockholders
plus assumed exercises of stock options $ 21,550 9,509,536 $ 2.27
================= ================= ===============
Year Ended December 31, 1997
-----------------------------
Basic
Income available to common stockholders $ 20,905 9,244,739 $ 2.26
===============
Effect of stock options -- 228,960
----------------- -----------------
Diluted
Income available to common stockholders
plus assumed exercises of stock options $ 20,905 9,473,699 $ 2.21
================= ================= ===============
Below is the number and average exercise price of options that were
excluded from the computation of diluted net income per common share for each
year because the options' exercise prices were greater than the average market
price of the common shares.
Average Exercise
Price
Shares
------------- -------------------
December 31, 1999 146,000 $ 34.43
December 31, 1998 -- $ --
December 31, 1997 41,500 $ 32.77
A-38
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(16) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
December 31,
ASSETS 1999 1998
------------- ---------------
Cash $ 2,957 $ 19,691
Securities 2,550 2,000
Loans (net of unearned interest) 1,103 3,744
Investment in subsidiaries, at equity 178,756 193,779
Intangible assets 3,295 4,184
Other assets 6,465 5,833
------------- ---------------
Total assets $ 195,126 $229,231
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 2,412 $ 2,314
Notes payable 3,000 --
9.65% Capital Securities 25,000 25,000
Stockholders' equity 164,714 201,917
------------- ---------------
Total liabilities and stockholders' equity $ 195,126 $229,231
============= ===============
STATEMENT OF INCOME
Year Ended December 31,
------------------------------------------
1999 1998 1997
----------- ---------- ---------------
OPERATING INCOME
Dividends from subsidiaries $18,624 $17,246 $ 17,754
Interest:
Loans 284 534 824
Securities 279 325 119
Interest-bearing deposits 458 659 483
Other 164 339 514
----------- ---------- ---------------
Total operating income 19,809 19,103 19,694
----------- ---------- ---------------
OPERATING EXPENSE
Interest 2,698 2,495 2,327
Amortization 1,079 1,084 1,130
Other 68 1,913 1,322
----------- ---------- ---------------
Total operating expense 3,845 5,492 4,779
----------- ---------- ---------------
Income before income taxes and equity in undistributed earnings of subsidiaries 15,964 13,611 14,915
Allocated income tax benefit 785 811 1,250
----------- ---------- ---------------
Income before equity in undistributed earnings of subsidiaries 16,749 14,422 16,165
Equity in undistributed earnings of subsidiaries 7,200 7,128 4,740
----------- ---------- ---------------
Net income $23,949 $21,550 $ 20,905
=========== ========== ===============
A-39
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
STATEMENT OF CASH FLOWS
Year Ended December 31,
1999 1998 1997
---------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,949 $ 21,550 $ 20,905
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization 1,094 1,122 1,225
Net income of subsidiaries (25,824) (24,374) (22,494)
Increase in dividends receivable (719) -- (965)
Other, net (325) 840 3,056
---------- ----------- -----------
Net cash provided (used) by operating activities (1,825) (862) 1,727
---------- ----------- -----------
INVESTING ACTIVITIES
Cash dividends received from subsidiaries 18,624 16,281 16,789
Purchases of stock of subsidiaries -- -- (29,015)
Sale of stock of subsidiaries 13,757 9,356 --
Net cash from acquisitions and mergers -- (13,537) --
Purchases of securities (2,550) -- --
Proceeds from maturities of securities 2,000 -- --
Net other decrease in loans 2,641 1,205 1,630
Other, net (168) -- 2
---------- ----------- -----------
Net cash provided (used) by investing activities 34,304 13,305 (10,594)
---------- ----------- -----------
FINANCING ACTIVITIES
Issuance of common stock 1,700 1,715 482
Issuance of 9.65% Capital Securities -- -- 23,972
Payments on notes payable 3,000 (1,930) --
Purchases of common stock (49,023) (2,036) (4,175)
Cash dividends paid (4,890) (4,200) (3,045)
---------- ----------- -----------
Net cash provided (used) by financing activities (49,213) (6,451) 17,234
---------- ----------- -----------
Net increase (decrease) in cash (16,734) 5,992 8,367
Cash at the beginning of the year 19,691 13,699 5,332
---------- ----------- -----------
Cash at the end of the year $ 2,957 $ 19,691 $ 13,699
========== =========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 2,698 $ 2,495 $ 1,201
Cash received during the year for income taxes, net $ (2,195) $ (858) $ (1,529)
========== =========== ===========
A-40
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(17) RELATED PARTY TRANSACTIONS
The Company purchases supplies, furniture and equipment from an affiliated
company. During the years ended December 31, 1999, 1998 and 1997, such
purchases totaled $109, $237 and $114, 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, 1999, 1998 and 1997 were $880, $706 and $645, 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,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Loan commitments $309,777 $309,163 $240,353
Letters of credit 13,750 15,383 16,131
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 three buildings and two parcels of land
on which it owns buildings. These leases expire at various dates through 2064.
The future minimum rental payments under these leases are as follows:
A-41
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Year Ending December 31:
2000 $1,011
2001 906
2002 708
2003 620
2004 397
Later years 3,703
------
Total $7,345
------
Rental expense on all property and equipment rented, including those rented
on a monthly or temporary basis, totaled $1,100, $1,065 and $899 during 1999,
1998 and 1997, respectively.
The Company is a defendant in legal actions arising from normal business
activities. In 1997, AmQuest accrued $1,250 related to a lawsuit filed in
December 1989 involving a bond issue. The lawsuit was settled in March 1998 and
the amount accrued was paid. 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,
results of operations or cash flows.
(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
participation 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-42
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,
----------------------------------------------------------
1999 1998
---------------------------- ---------------------------
Carrying Fair Value Carrying Fair
Amount Amount Value
------------ ------------ ------------ -----------
FINANCIAL ASSETS
Cash and due from banks $ 126,691 $ 126,691 $ 132,286 $ 132,286
Federal funds sold, and interest-bearing deposits 53,381 53,381 187,380 187,380
Securities 596,715 595,509 582,649 584,650
Loans:
Loans (net of unearned interest) 1,455,481 1,338,879
Allowance for loan losses (22,548) (19,659)
------------ ------------
Loans, net 1,432,933 1,430,257 1,319,220 1,327,124
FINANCIAL LIABILITIES
Deposits 2,082,696 2,082,107 2,024,800 2,026,481
Short-term borrowings 22,091 22,091 54,841 54,841
Long-term borrowings 26,392 25,562 12,966 13,062
9.65% Capital Securities 25,000 24,070 25,000 25,993
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments 2,045 2,040
Letters of credit 103 113
A-43
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(20) SEGMENT INFORMATION
The Company evaluates its performance with an internal profitability
measurement system that measures the profitability of its business units on a
pre-tax basis. The four principal business units were metropolitan banks,
community banks, other financial services, and executive, operations and
support. Metropolitan and community banks offer traditional banking products
such as commercial and retail lending, and a full line of deposit accounts.
Metropolitan banks consist of banking locations in the metropolitan Oklahoma
City and Tulsa areas. Community banks consist of banking locations in
communities throughout Oklahoma. Other financial services are specialty product
business units including guaranteed small business lending, guaranteed student
lending, residential mortgage lending, trust services, correspondent banking and
electronic banking. The executive, operations and support groups represent
executive management, operational support and corporate functions that are not
allocated to the other business units. The results of operations and selected
financial information for the four business units are as follows:
Other Executive,
Metropolitan Community Financial Operations
Banks Banks Services & Support Eliminations Consolidated
December 31, 1999
Net interest income $ 23,462 $ 68,044 $ 4,655 $ (2,918) $ (8) $ 93,235
(expense)
Provision for loan losses 807 1,509 127 78 -- 2,521
Noninterest income 4,561 16,066 5,498 28,491 (25,909) 28,707
Depreciation and 1,906 3,902 313 2,407 (1 ) 8,527
amortization
Other expenses 15,133 41,756 6,884 9,291 (138) 72,926
--------- ----------- --------- --------- -----------
Income before taxes $ 10,177 $ 36,943 $ 2,829 $ 13,797 (25,778) $ 37,968
========= =========== ========= ========= ===========
Total Assets $ 699,100 $ 1,644,878 $ 103,630 $ 79,379 (191,180) $ 2,335,807
========= =========== ========= ========= ===========
Capital expenditures $ 1,325 $ 4,857 $ 132 $ 2,237 -- $ 8,551
========= =========== ========= ========= ===========
December 31, 1998
Net interest income $ 19,969 $ 70,034 $ 4,127 $ (1,271) $ (107) $ 92,752
(expense)
Provision for loan losses 607 1,450 239 (85) -- 2,211
Noninterest income 3,613 15,844 3,575 27,039 (26,052) 24,019
Depreciation and 1,789 3,633 250 2,413 -- 8,085
amortization
Merger related costs -- -- -- 3,134 -- 3,134
Other expenses 13,199 43,861 4,850 8,644 (1,291) 69,263
--------- ----------- --------- --------- -----------
Income before taxes $ 7,987 $ 36,934 $ 2,363 $ 11,662 (24,868) $ 34,078
========= =========== ========= ========= ===========
Total Assets $ 486,965 $ 1,731,606 $ 107,665 $ 227,269 (217,622) $ 2,335,883
========= =========== ========= ========= ===========
Capital expenditures $ 2,951 $ 4,500 $ 606 $ 1,049 -- $ 9,106
========= =========== ========= ========= ===========
December 31, 1997
Net interest income $ 16,316 $ 66,535 $ 2,484 $ (1,075) $ (39) $ 84,221
(expense)
Provision for loan losses 224 2,577 87 -- -- 2,888
Noninterest income 3,274 14,093 2,976 23,756 (22,591) 21,508
Depreciation and 1,594 3,020 158 2,328 (63) 7,037
amortization
Other expenses 10,372 42,938 4,497 7,595 (984) 64,418
--------- ----------- --------- --------- -----------
Income before taxes $ 7,400 $ 32,093 $ 718 $ 12,758 (21,583) $ 31,386
========= =========== ========= ========= ===========
Total Assets $ 408,613 $ 1,569,414 $ 91,698 $ 152,663 (205,925) $ 2,016,463
========= =========== ========= ========= ===========
Capital expenditures $ 1,029 $ 2,953 $ 96 $ 1,500 -- $ 5,578
========= =========== ========= ========= ===========
A-44
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The financial information for each business unit is presented on the basis
used internally by management to evaluate performance and allocate resources.
The Company utilizes a transfer pricing system to allocate the benefit or cost
of funds provided or used by the various business units. Certain services
provided by the support group to other business units, such as item processing,
are allocated rates approximating the cost of providing the services.
Eliminations are adjustments to consolidate the business units and companies.
In 1998, the costs related to the AmQuest merger were segregated because of
their impact on the results of executive, operations and support. Capital
expenditures are generally charged to the business unit using the asset.
(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the unaudited quarterly results of operations for the years
ended December 31, 1999 and 1998 is as follows:
Quarter
-------------------------------------------------
1999 Fourth Third Second First
---- ---------- ---------- ---------- ----------
Net interest income $23,614 $23,223 $23,257 $23,141
Provision for loan losses 698 418 468 937
Noninterest income 6,988 7,261 6,589 7,869
Noninterest expense 20,719 20,470 20,249 20,015
Net income 5,829 6,030 5,868 6,222
Net income per common share:
Basic 0.71 0.74 0.66 0.67
Diluted 0.71 0.73 0.65 0.66
1998
----
Net interest income $23,254 $23,385 $23,836 $22,277
Provision for loan losses 344 596 482 789
Noninterest income 5,688 6,381 6,172 5,778
Noninterest expense 21,511 20,617 19,979 18,375
Net income 4,554 5,789 5,612 5,595
Net income per common share:
Basic 0.49 0.62 0.61 0.60
Diluted 0.48 0.61 0.59 0.59
A-45
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
2.1 Purchase and Assumption Agreement between NationsBank, N.A. and
BancFirst dated September 26, 1997 (filed as Exhibit 2.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
2.2 Merger Agreement dated May 6, 1998 between BancFirst Corporation and
AmQuest Financial Corp. (filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
3.1 Second Amended and Restated Certificate of Incorporation of BancFirst
(filed as Exhibit 1 to BancFirst's 8-A/A filed July 23, 1998 and
incorporated herein by reference).
3.2 Certificate of Designations of Preferred Stock (filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and incorporated herein by reference).
3.3 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).
4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated
as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated February 4, 1997 and incorporated herein by
reference).
4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated February 4, 1997 and
incorporated herein by reference).
4.3 Series A Capital Securities Guarantee Agreement dated as of February
4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form
8-K dated February 4, 1997 and incorporated herein by reference).
4.4 Rights Agreement, dated as of February 25, 1999, between BancFirst
Corporation and BancFirst, as Rights Agent, including as Exhibit A the
form of Certificate of Designations of the Company setting forth the
terms of the Preferred Stock, as Exhibit B the form of Right
Certificate and as Exhibit C the form of Summary of Rights Agreement
(filed as Exhibit 1 to the Company's 8-K dated February 25, 1999 and
incorporated herein by reference).
10.1 United Community Company (now BancFirst Company) Stock Option Plan
(filed as Exhibit 10.09 to the Company's Registration Statement on
Form S-4, file No. 33-13016 and incorporated herein by reference).
10.2 BancFirst Company Employee Stock Ownership and Thrift Plan (filed as
Exhibit 10.12 to the Company'sAnnual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
10.3 1988 Incentive Stock Option Plan of Security Corporation as assumed by
BancFirst Corporation (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8, File No. 333-65129 and
incorporated herein by reference).
10.4 1993 Incentive Stock Option Plan of Security Corporation as assumed by
BancFirst Corporation (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8, File No. 333-65129 and
incorporated herein by reference).
10.5 1995 Non-Employee Director Stock Plan of AmQuest Financial Corp. as
assumed by BancFirst Corporation (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8, File No. 333-65129 and
incorporated herein by reference).
Exhibit
Number Exhibit
- ------- -------
16.1 Letter on change in certifying accountant (filed as Exhibit 16 to the
Company's Form 8-K dated September 23, 1999 and incorporated herein by
reference).
22.1* Subsidiaries of Registrant.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Arthur Andersen LLP.
27.1* Financial Data Schedule for the year ended December 31, 1999.
99.1 Stock Repurchase Program (filed as Exhibit 99.1 to the Company's Form
8-K dated November 18, 1999 and incorporated herein by reference).
- ---------------
* Filed herewith.