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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, 2000 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
incorporation or organization) Identification No.)
101 North Broadway, 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. ____
The aggregate value of the Common Stock held by nonaffiliates of the
registrant as of February 28, 2001 was approximately $136,046,000.
As of February 28, 2001, there were 8,319,889 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the May 24, 2001 Annual Meeting of
Stockholders of registrant (the "2001 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
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5. Market for the Registrant's Common Stock and Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
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 11
Disclosure
PART III
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10. Directors and Executive Officers of the Registrant 11
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial Owners and Management 12
13. Certain Relationships and Related Transactions 12
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 14
Financial Information Appendix A
2
PART I
Item 1. Business.
General
BancFirst Corporation (the "Company") is an Oklahoma business
corporation and a financial holding company under Federal law. It conducts
virtually all of its operating activities through its principal wholly-owned
subsidiary, BancFirst (the "Bank" or "BancFirst"), a state-chartered, Federal
Reserve member bank headquartered in Oklahoma City, Oklahoma. The Company also
owns 100% of the common securities of BFC Capital Trust I, a Delaware Business
Trust organized in January 1997, 100% of First Southwest Bank, an Oklahoma
state-chartered bank, 75% of Century Life Assurance Company, an Oklahoma
chartered insurance company, and Council Oak Partners LLC, an Oklahoma limited
liability company engaged in merchant banking.
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. The Company has continued to expand
through acquisitions and de-novo branches. BancFirst currently has 80 banking
locations serving 43 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.
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.
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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. In addition, BancFirst owns Mojave Asset Management Company and
Desert Asset Management Company, which in turn own Delamar Asset Management
Limited Partnership. These three subsidiaries are Nevada companies and are
engaged in investing in loan participations.
The Company had approximately 1,407 full-time equivalent employees as
of December 31, 2000. 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 57% 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.
Recent Developments
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.
4
In January 2001, BancFirst Corporation completed the acquisition of 75%
of the outstanding common stock of Century Life Assurance Company ("Century
Life") from Pickard Limited Partnership, a Rainbolt family partnership. Century
Life underwrites credit life insurance, credit accident and health insurance,
and ordinary life insurance. The Rainbolt family and affiliated entities
collectively are the largest shareholders of the Company and two members of the
family serve as the Company's Chairman and CEO. The purchase price was $5.43
million. At December 31, 2000, Century Life had total assets of $23 million and
total stockholders' equity of $6.96 million. The acquisition will be accounted
for as a book value purchase. Accordingly, the acquisition will be recorded
based on the book value of Century Life and the effects of the acquisition will
be included in the Company's consolidated financial statements from the date of
the acquisition forward. The acquisition is not expected to have a material
effect on the results of operations of the Company for 2001.
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
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.
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.
5
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.
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.
Bank Holding Company Act and Other Applicable Laws
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). Legislation passed by the
Oklahoma legislature in 2000 eliminated the previously existing requirement that
Oklahoma banks be in existence for a minimum of five years before being acquired
by, or merged into, another bank, or acquired by an existing bank holding
company, and increased the "deposit cap" from 15% to 20%, with the result that a
business combination involving banks may not result in the control by the
combined institution of more than 20% of the total deposits of insured
depositary institutions located in Oklahoma.
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 that was subsequently
increased to 20%. 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.
Oklahoma law permits de novo branching and, accordingly, 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, 2000 were 11.21% and 12.50%,
respectively. At December 31, 2000, 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 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
7
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 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
8
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
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 20% of the total amount of deposits of insured depository
institutions located in Oklahoma.
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.
9
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.
Item 2. Properties.
The principal offices of the Company are located at 101 North Broadway,
Oklahoma City, Oklahoma 73102. The Company owns substantially all of the
properties and buildings in which its various offices and facilities are
located. These properties include two main banks and 78 branches. BancFirst also
owns properties for future expansion. There are no significant encumbrances on
any of these properties.
Item 3. Legal Proceedings.
The Company has been named as a defendant in various legal actions
arising from the conduct of its normal business activities. Although the amount
of any liability that could arise with respect to these actions cannot be
accurately predicted, in the opinion of the Company, any such liability will not
have a material adverse effect on the consolidated financial position of the
Company.
Item 4. Submission of Matters to Vote of Security Holders.
There were no matters submitted to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 2000.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
The Company's Common Stock is listed on the Nasdaq National Market
System ("NASDAQ/NMS") and is traded under the symbol "BANF". The following table
sets forth, for the periods indicated, (i) the high and low sales prices of the
Company's Common Stock as reported in the NASDAQ/NMS consolidated transaction
reporting system and (ii) the quarterly dividends declared on the Common Stock.
Price Range
------------------------------------
Cash
Dividends
High Low Declared
---------- --------- ------------
2000
First Quarter $ 34.250 $ 24.750 $ 0.16
Second Quarter $ 32.625 $ 25.000 $ 0.16
Third Quarter $ 34.250 $ 28.438 $ 0.16
Fourth Quarter $ 44.000 $ 31.813 $ 0.18
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
10
As of February 28, 2001 there were approximately 475 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-16 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-15 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-17 through A-46 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
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 2001 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 2001 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 2001 Proxy Statement under the caption "Compensation of
Directors and Executive Officers" and is hereby incorporated by reference.
11
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 2001 Proxy Statement under the caption "Security Ownership of
Certain Beneficial Owners and Management" 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 2001 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, 2000 and 1999
Consolidated Statement of Income for the three years ended
December 31, 2000
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 2000
Consolidated Statement of Cash Flows for the three years ended
December 31, 2000
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from pages
A-17 through A-46 of the attached Appendix.
(2) All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) The following Exhibits are filed with this Report or are
incorporated by reference as set forth below:
Exhibit
Number Exhibit
------ -------
2.1 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).
12
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 Corporation (now BancFirst Corporation) 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 Corporation Employee Stock Ownership and Thrift Plan
(filed as Exhibit 10.12 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
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).
10.6* BancFirst Corporation Non-Employee Directors' Stock Option
Plan.
10.7* BancFirst Corporation Directors' Deferred Stock Compensation
Plan.
10.8* Stock Purchase Agreement dated November 14, 2000 among
BancFirst Corporation, Pickard Limited Partnership and Century
Life Assurance Company.
22.1* Subsidiaries of Registrant.
23.1* Consent of PricewaterhouseCoopers LLP.
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) No reports on Form 8-K were filed by the Company during the fourth
quarter ended December 31, 2000.
13
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, 2001 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, 2001.
/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)
/s/ Marion C. Bauman /s/ C. L. Craig, Jr.
- ------------------------------------- ----------------------------
Marion C. Bauman C. L. Craig, Jr.
Director Director
/s/ James R. Daniel
_____________________________________ ----------------------------
William H. Crawford James R. Daniel
Director Vice Chairman of the Board
(Principal Executive Officer
/s/ K. Gordon Greer /s/ Robert A. Gregory
- ------------------------------------- ----------------------------
K. Gordon Greer Robert A. Gregory
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
/s/ John C. Hugon
- ------------------------------------- ____________________________
John C. Hugon J. R. Hutchens, Jr.
Director Director
______________________________________ _____________________________
William O. Johnstone J. Ralph McCalmont
Vice Chairman of the Board Director
(Principal Executive Officer)
14
_____________________________________ ____________________________
Tom H. McCasland, Jr. Melvin Moran
Director Director
/s/ Paul B. Odom, Jr.
- ------------------------------------- ____________________________
Paul B. Odom, Jr. David Ragland
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)
15
APPENDIX A
BancFirst Corporation
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Pages
------------
Financial Review A-2 to A-16
Selected Consolidated Financial Data A-3
Reports of Independent Accountants A-17 to A-18
Consolidated Balance Sheet A-19
Consolidated Statement of Income A-20
Consolidated Statement of Stockholders' Equity A-21
Consolidated Statement of Cash Flows A-22
Notes to Consolidated Financial Statements A-23 to A-46
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, 2000
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 2000 was $26.2 million, an
increase of 9.5% over the $23.9 million for 1999. This represents the Company's
tenth consecutive year of record earnings. Diluted earnings per share grew 16%
to $3.19 from $2.75 for 1999. Other profitability measures also improved with
return on average assets increasing to 1.10% from 1.06% for 1999, and return on
average equity increasing to 14.89% from 12.96% for 1999.
Total assets increased to $2.57 billion, or 10%. Total loans grew by
$211 million, or 14.5%, to $1.67 billion. Total deposits grew $185 million, or
8.8%, to $2.27 billion. Stockholders' equity increased $32.2 million to $197
million. Tangible book value per share increased by 19% to $20.63.
Asset quality remained high in 2000 with nonperforming and
restructured assets to total assets decreasing to 0.56%, compared to 0.61% for
1999. The allowance for loan losses to nonperforming and restructured loans was
207.85% at year-end 2000, compared to 183.47% at the end of 1999.
In March 2000, BancFirst Corporation became a financial holding
company under the new Gramm-Leach-Bliley financial services modernization law.
This will allow the Company to expand into new financial activities such as
insurance sales and underwriting, securities underwriting and dealing, and
merchant banking. In October 2000, the Company completed its acquisition of
First Southwest Corporation of Frederick, Oklahoma ("First Southwest") which had
total assets of approximately $118 million. The Company also completed the
acquisition of 75% of the outstanding common stock of Century Life Assurance
Company ("Century Life"), an underwriter of credit life insurance, credit
accident and health insurance, and ordinary life insurance, in January 2001.
Century Life has total assets of approximately $23 million.
The Company's principal subsidiary, BancFirst, is Oklahoma's largest
state-chartered bank and is the second largest Oklahoma-based bank. The Company
has 80 banking locations serving 43 communities across Oklahoma.
A-2
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
At and for the Year Ended December 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Income Statement Data
Net interest income $ 102,335 $ 93,235 $ 92,752 $ 84,221 $ 77,965
Provision for loan losses 4,045 2,521 2,211 2,888 2,181
Noninterest income 29,902 28,707 24,019 21,508 20,001
Noninterest expense 87,724 81,453 80,482 71,455 62,386
Net income 26,217 23,949 21,550 20,905 21,150
Balance Sheet Data
Total assets $ 2,570,255 $ 2,335,807 $ 2,335,883 $ 2,016,463 $ 1,863,056
Securities 560,551 596,715 582,649 510,426 477,191
Total loans (net of unearned interest) 1,666,338 1,455,481 1,338,879 1,249,705 1,125,278
Allowance for loan losses 25,380 22,548 19,659 17,458 16,569
Deposits 2,267,397 2,082,696 2,024,800 1,761,210 1,654,333
Long-term borrowings 26,613 26,392 12,966 7,051 12,636
9.65% Capital Securities 25,000 25,000 25,000 25,000 --
Stockholders' equity 196,958 164,714 201,917 181,245 165,579
Per Common Share Data
As previously reported:
Net income - basic $ 3.22 $ 2.79 $ 2.32 $ 2.48 $ 2.41
Net income - diluted 3.19 2.75 2.27 2.41 2.32
As restated for poolings of interests:
Net income - basic 3.22 2.79 2.32 2.26 2.29
Net income - diluted 3.19 2.75 2.27 2.21 2.22
Cash dividends 0.66 0.58 0.50 0.42 0.34
Book value 23.65 20.30 21.73 19.62 17.82
Tangible book value 20.63 17.34 19.14 17.56 15.89
Selected Financial Ratios
Performance ratios:
Return on average assets 1.10% 1.06% 1.00% 1.09% 1.21%
Return on average stockholders' equity 14.89 12.96 10.95 12.14 13.61
Cash dividend payout ratio 20.50 20.79 21.55 18.58 14.85
Net interest spread 3.94 3.87 3.94 4.09 4.23
Net interest margin 4.84 4.67 4.83 4.93 5.05
Efficiency ratio (excluding restructuring charges in 1998) 66.34 66.80 67.29 67.58 63.68
Balance Sheet Ratios:
Average loans to deposits 73.07% 68.61% 68.83% 70.12% 67.29%
Average earning assets to total assets 90.11 90.11 90.17 90.28 90.09
Average stockholders' equity to average assets 7.38 8.20 9.09 8.95 8.90
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.73% 0.85% 0.93% 0.68% 0.98%
Nonperforming and restructured assets to total assets 0.56 0.61 0.60 0.51 0.70
Allowance for loan losses to total loans 1.52 1.55 1.47 1.40 1.47
Allowance for loan losses to nonperforming
and restructured loans 207.85 183.47 158.69 206.55 150.85
Net chargeoffs to average loans 0.17 0.16 0.14 0.20 0.13
A-3
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
December 31, 2000 December 31, 1999 December 31, 1998
-------------------------------- ------------------------------- -------------------------------
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) $1,542,795 $145,913 9.46% $1,355,332 $121,406 8.96% $1,290,577 $121,700 9.43%
Investments - taxable 527,241 33,018 6.26 517,844 30,964 5.98 527,213 32,698 6.20
Investments - tax exempt 50,869 3,386 6.66 50,627 3,303 6.52 43,269 3,356 7.76
Federal funds sold 29,649 1,814 6.12 106,362 5,299 4.98 91,736 4,835 5.27
----------- -------- ---------- -------- ---------- --------
Total earning assets 2,150,554 184,131 8.56 2,030,165 160,972 7.93 1,952,775 162,589 8.33
----------- -------- ---------- -------- ---------- --------
Nonearning assets:
Cash and due from banks 129,212 123,527 114,137
Interest receivable and other
assets 130,707 119,646 116,910
Allowance for loan losses (23,939) (20,257) (18,138)
----------- ---------- ----------
Total nonearning assets 235,980 222,916 212,909
----------- ---------- ----------
Total assets $2,386,534 $2,253,081 $2,165,684
=========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 60,409 1,870 3.10% $ 36,256 796 2.20% $ 104,006 2,572 2.47%
Savings deposits 698,059 22,383 3.21 667,015 18,691 2.80 547,887 14,386 2.63
Time deposits 890,944 49,721 5.58 848,819 41,353 4.87 826,172 45,988 5.57
Short-term borrowings 31,712 1,898 5.99 32,766 1,628 4.97 40,191 2,161 5.38
Long-term borrowings 26,903 1,735 6.45 20,642 1,234 5.98 13,123 734 5.59
9.65% Capital Securities 25,000 2,447 9.79 25,000 2,447 9.79 25,000 2,449 9.80
----------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities 1,733,027 80,054 4.62 1,630,498 66,149 4.06 1,556,379 68,290 4.39
----------- -------- ---------- -------- ---------- --------
Interest-free funds:
Demand deposits 461,870 423,347 396,802
Interest payable and other
liabilities 15,584 14,380 15,642
Stockholders' equity 176,053 184,856 196,861
----------- ---------- ----------
Total interest free funds 653,507 622,583 609,305
----------- ---------- ----------
Total liabilities
and stockholders' equity $2,386,534 $2,253,081 $2,165,684
=========== ========== ==========
Net interest income $104,077 $ 94,823 $ 94,299
======== ======== ========
Net interest spread 3.94% 3.87% 3.94%
======== ======== ========
Net interest margin 4.84% 4.67% 4.83%
======== ======== ========
(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 $8.7 million on a taxable equivalent basis in 2000
compared to an increase of $524,000 in 1999. The net interest margin on a
taxable equivalent basis for 2000 was 4.81%, compared to 4.67% for 1999 and
4.83% for 1998. 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 2000 and 1999. The
increase in 2000 was primarily due to loan growth, which was partially offset by
a decrease due to changes in interest rates. Average loans rose $187 million, or
13.8%, while average net earning assets increased only $17.9 million, or 4.48%.
Rising interest rates and a relatively flat yield curve contributed to the
negative rate variance. In 1999, average loans increased $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.
VOLUME/RATE ANALYSIS Change in 2000 Change in 1999
---------------------------------- ----------------------------------
Taxable Equivalent Basis Due to Due to Due to Due to
Total Volume(1) Rate Total Volume(1) Rate
-------- --------- -------- ------- --------- --------
(Dollars in thousands)
INCREASE (DECREASE)
Interest Income:
Loans $ 23,950 $ 16,792 $ 7,158 $ (294) $ 6,108 $ (6,402)
Investments - taxable 2,054 562 1,492 (1,734) (581) (1,153)
Investments - tax exempt 83 16 67 (53) 571 (624)
Federal funds sold (3,485) (3,822) 337 464 771 (307)
-------- -------- -------- ------- -------- --------
Total interest income 22,602 13,548 9,054 (1,617) 6,869 (8,486)
-------- -------- -------- ------- -------- --------
Interest Expense:
Transaction deposits 1,074 530 544 (1,776) (1,675) (101)
Savings deposits 3,692 870 2,822 4,305 3,128 1,177
Time deposits 8,368 2,052 6,316 (4,635) 1,261 (5,896)
Short-term borrowings 270 (53) 323 (533) (399) (134)
Long-term borrowings 501 374 127 499 420 79
9.65% Capital Securities -- -- -- (1) -- (1)
-------- -------- -------- ------- -------- --------
Total interest expense 13,905 3,773 10,132 (2,141) 2,735 (4,876)
-------- -------- -------- ------- -------- --------
Net interest income $ 8,697 $ 9,775 $ (1,078) $ 524 $ 4,134 $ (3,610)
======== ======== ======== ======= ======== ========
(1) Changes due to changes in the mix of earning assets and interest-
bearing liabilities have been combined with the changes due to
volume.
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 2000, 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, 2000. At that date, interest-bearing liabilities
exceeded earning assets by $891 million in the three month interval. The
Company's negative gap position increased in 2000 and 1999 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
A-5
the long term. When the yield curve flattens, as it did in 1998 through 2000,
the Company's net interest margin would be expected to decline, unless the
Company adjusts its interest sensitivity gap position or employs other
strategies to control the rise in rates on interest-bearing liabilities or to
increase the yield on earning assets.
ANALYSIS OF INTEREST RATE SENSITIVITY Interest Rate Sensitive Noninterest Rate Sensitive
---------------------------- ---------------------------
December 31, 2000 0 to 3 4 to 12 1 to 5 Over 5
Months Months Years Years Total
---------- --------- --------- --------- ----------
EARNING ASSETS
Loans $ 559,596 $ 254,095 $ 619,242 $ 233,405 $1,666,338
Federal funds sold and interest
bearing deposits 66,563 -- -- -- 66,563
Securities 51,625 100,176 320,861 87,889 560,551
---------- --------- --------- --------- ----------
Total $ 677,784 $ 354,271 $ 940,103 $ 321,294 $2,293,452
========== ========= ========= ========= ==========
FUNDING SOURCES
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 249,962 $ 249,962
Savings and transaction deposits 804,643 -- -- -- 804,643
Time deposits of $100 or more 221,502 59,459 886 -- 281,847
Time deposits under $100 504,151 161,589 5,397 -- 671,137
Short-term borrowings 37,292 -- -- -- 37,292
Long-term borrowings 1,034 3,201 15,613 6,765 26,613
9.65% Capital Securities -- -- -- 25,000 25,000
Stockholders' equity -- -- -- 196,958 196,958
---------- --------- --------- --------- ----------
Total $1,568,622 $ 224,249 $ 21,896 $ 478,685 $2,293,452
========== ========= ========= ========= ==========
Interest sensitivity gap $ (890,838) $ 130,022 $ 918,207 $(157,391)
Cumulative gap $ (890,838) $(760,816) $ 157,391 $ --
Cumulative gap as a percentage
of total earning assets (38.84)% (33.17)% 6.86% --%
(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 $4.05 million for 2000 compared to
$2.52 million for 1999, and $2.21 million for 1998. 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 as an estimate of the inherent
losses on non-classified loans, which results in additional provisions due to
loan growth. Net loan charge-offs were $2.69 million for 2000, compared to $2.13
million for 1999 and $1.85 million for 1998. The net charge-offs for 2000 and
1999 were equivalent to only 0.17% and 0.16% of average loans, respectively. A
more detailed discussion of the allowance for loan losses is provided under
"Loans."
Noninterest Income
Noninterest income increased $1.2 million in 2000, or 4.16%, compared
to increases of $4.69 million, or 19.52%, in 1999 and $2.51 million, or 11.67%,
in 1998. 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.
Trust revenues have grown due to continued development of these
products and services. Service charges on deposits have increased as a result of
strategies implemented to improve the charging and collection of various service
charges, and because of growth in deposits. Income from sales of loans decreased
in both 2000 and 1999 due to a slowdown in mortgage originations. Other
noninterest
A-6
income increased only $281,000 in 2000, after increasing $2.92 million in 1999.
Other noninterest income in 1999 included a $900,000 gain on the sale of a
branch. Growth in cash management and other services contributed to the
remaining increases in other noninterest income.
Net gains on securities transactions were $244,000 in 1999 and $12,000
in 1998. 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 2000 by $6.27 million, or 7.7%,
compared to increases of $971,000, or 1.21%, for 1999 and $9.03 million, 12.63%
for 1998. 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 assets expense decreased in 1999 due to
consolidation of facilities from acquisitions. Depreciation and amortization
have increased each year due to acquisitions. Net expense from other real estate
owned of $400,000 was recognized for 2000, compared to net expense of $164,000
for 1999 and net income of $111,000 for 1998. 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 $14.3 million in 2000, from $14 million
for 1999 and $12.5 million for 1998. 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. The Company implemented tax
minimization strategies in 2000 which resulted in a lower effective tax rate.
Since banks have traditionally carried large amounts of tax-exempt
securities and loans, certain financial information is prepared on a taxable
equivalent basis to facilitate analysis of yields and changes in components of
earnings. Average balance sheets, income statements and other financial
statistics on a taxable equivalent basis have been presented for this purpose.
Impact of Inflation
The impact of inflation on financial institutions differs significantly
from that of industrial or commercial companies. The assets of financial
institutions are predominantly monetary, as opposed to fixed or nonmonetary
assets such as premises, equipment and inventory. As a result, there is little
exposure to inflated earnings by understated depreciation charges or
significantly understated current values of assets. Although inflation can have
an indirect effect by leading to higher interest rates, financial institutions
are in a position to monitor the effects on interest costs and yields and
respond to inflationary trends through management of interest rate sensitivity.
Inflation can also have an impact on noninterest expenses such as salaries and
employee benefits, occupancy, services and other costs.
A-7
FINANCIAL POSITION
Cash and Federal Funds Sold
Cash 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 increased $48.9 million as compared to December 31,
1999 due to a higher level of temporary deposits and higher federal funds
purchased from correspondent banks. Cash and federal funds sold decreased $140
million at December 31, 1999 compared to year end 1998. Based on average
balances, however, cash and federal funds sold decreased $71 million in 2000 and
increased $24 million in 1999. Consequently, comparisons of year-end balances of
cash and federal funds sold are not necessarily reflective of the overall trend.
The decrease in 2000 was largely due to a decrease in federal funds sold to help
fund loan growth, while the increase in 1999 was the result of temporarily
investing increased funds from deposits and short-term borrowings in federal
funds sold.
Securities
Total securities decreased $36.2 million, or 6.06%, compared to an
increase of $14.1 million, or 2.41%, in 1999. The decrease in 2000 was due to
funds from maturities of securities being used to fund loan growth. The increase
in 1999 was primarily due to acquisitions.
Securities available for sale represented 80.91% of the total
securities portfolio at year-end 2000, compared to 78.30% at year-end 1999.
These levels reflect the Company's strategy of maintaining a very liquid
portfolio. Securities available for sale had a net unrealized gain of $2.9
million at year-end 2000, compared to a $5.14 million net unrealized loss the
preceding year. These gains and losses are included, net of tax, in the
Company's stockholders' equity as a net unrealized gain of $1.53 million for
2000 and a net unrealized loss of $3.51 million for 1999.
SECURITIES December 31
--------------------------------------
2000 1999 1998
--------- --------- ---------
(Dollars in thousands)
Held for Investment
U.S. Treasury and other federal agencies $ 59,433 $ 79,564 $ 87,520
States and political subdivisions 47,558 49,917 43,283
Other securities -- -- --
--------- --------- ---------
Total $ 106,991 $ 129,481 $ 130,803
========= ========= =========
Estimated market value $ 107,874 $ 128,275 $ 132,804
========= ========= =========
Available for Sale
U.S. Treasury and other federal agencies $ 433,224 $ 449,468 $ 438,935
States and political subdivisons 7,144 2,861 2,499
Other securities 13,192 14,905 10,412
--------- --------- ---------
Total $ 453,560 $ 467,234 $ 451,846
========= ========= =========
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 84.32% of the total portfolio.
A-8
MATURITY DISTRIBUTION After One Year After Five Years
OF SECURITIES But But
Within Five Within Ten
December 31, 2000 Within One Year Years 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 agencies $ 6,868 5.78% $ 23,407 6.59% $26,467 7.40% $ 2,691 7.50% $ 59,433 6.90%
State and political
subdivisions 6,290 6.98 22,576 6.98 13,947 7.07 4,745 7.77 47,558 7.09
Other securities -- -- -- -- -- -- -- -- -- --
-------- -------- ------- -------- --------
Total $ 13,158 6.35 $ 45,983 6.78 $40,414 7.29 $ 7,436 7.67 $106,991 6.98
======== ======== ======= ======== ========
Percentage of total 12.30% 42.98% 37.77% 6.95% 100.00%
======== ======== ======= ======== ========
Available for Sale
U.S. Treasury and other
federal agencies $136,143 5.79% $271,559 6.03% $22,305 7.10% $ 3,217 7.49% $433,224 6.02%
State and political
subdivisions 2,500 6.32 3,319 7.85 801 7.88 524 7.86 7,144 7.32
Other securities -- -- -- -- -- -- 13,192 8.11 13,192 8.11
-------- -------- ------- -------- --------
Total $138,643 5.80 $274,878 6.05 $23,106 7.13 $ 16,933 7.98 $453,560 6.10
======== ======== ======= ======== ========
Percentage of total 30.57% 60.61% 5.09% 3.73% 100.00%
======== ======== ======= ======== ========
Total securities $151,801 5.85% $320,861 6.15% $63,520 7.23% $ 24,369 7.89% $560,551 6.27%
======== ======== ======= ======== ========
Percentage of total 27.08% 57.24% 11.33% 4.35% 100.00%
======== ======== ======= ======== ========
Loans
The Company has generated significant loan growth from both
acquisitions and internal originations. Total loans increased $211 million, or
14.49%, in 2000, and $117 million, or 8.71%, in 1999. Internal growth is being
generated primarily by commercial lending in the Oklahoma City and Tulsa
metropolitan markets, and by specialized lending activities such as indirect
automobile loans, home equity loans, guaranteed student loans, SBA guaranteed
loans and residential mortgage 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.
Nearly half of the loan growth in 2000 was in commercial loans. Most of the
remaining growth was in residential and commercial mortgage loans. Construction
and development loans totaled only $84.6 million, or 5.08% of total loans as of
the end of 2000. 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 2000, this
percentage was 51.40% compared to 52.93% for 1999. 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,
----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------- ------------------ ------------------- ------------------ -----------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
--------- ------ --------- ----- -------- ------- -------- ------- -------- ------
(Dollars in thousands)
Commercial, financial
and other $ 534,743 32.09% $ 433,416 29.78% $ 361,222 26.98% $ 342,779 27.43% $ 309,042 27.46%
Real estate -
construction 84,637 5.08 85,634 5.88 75,907 5.67 54,858 4.39 45,813 4.07
Real estate - mortgage 771,783 46.32 684,838 47.05 663,448 49.55 611,163 48.90 533,253 47.39
Consumer 275,175 16.51 251,593 17.29 238,302 17.80 240,905 19.28 237,170 21.08
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total $1,666,338 100.00% $1,455,481 100.00% $1,338,879 100.00% $1,249,705 100.00% $1,125,278 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
A-9
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 2000. 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 OF LOANS Maturing
-------------------------------------------
December 31, 2000 After One
Within But Within After
One Year Five Years Five Years Total
------------ ----------- ------------ -------------
(Dollars in thousands)
Commercial, financial and other $297,722 $188,098 $ 48,923 $ 534,743
Real estate - construction 62,606 15,333 6,698 84,637
Real estate - mortgage (excluding loans
Secured by 1 to 4 family residential properties) 99,761 116,916 182,646 399,323
------------ ------------- ------------ -------------
Total $460,089 $320,347 $ 238,267 $1,018,703
============ ============= ============ =============
Loans with predetermined interest rates $189,452 $190,941 $ 106,582 $ 486,975
Loans with adjustable interest rates 270,637 129,406 131,685 531,728
------------ ------------- ------------ -------------
Total $460,089 $320,347 $ 238,267 $1,018,703
============ ============= ============ =============
Percentage of total 45.16% 31.45% 23.39% 100.00%
============ ============= ============ =============
The information relating to the maturity and rate sensitivity of loans
is based upon original loan terms and is not adjusted for "rollovers." In the
ordinary course of business, loans maturing within one year may be renewed, in
whole or in part, at interest rates prevailing at the date of renewal.
Nonperforming and Restructured Loans
Nonperforming and restructured assets increased in 1996 and 1998
primarily as a result of acquisitions. Since 1998, nonperforming and
restructured assets have increased only $314,000, or 2.24%, even though total
loans have increased over 24%. Nonperforming and restructured loans as a
percentage of total loans was 0.73% at year-end 2000, compared to 0.85% at year-
end 1999 and 0.93% at year-end 1998. 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 $379,000 in 2000 and $331,000 in 1999.
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 2000, the allowance for loan losses as a percentage of
nonperforming and restructured loans was 207.85%, compared to 183.47% at the end
of 1999 and 158.69% at the end of 1998.
A-10
NONPERFORMING AND RESTRUCTURED ASSETS December 31,
------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Past due over 90 days and still accruing $ 2,790 $ 1,666 $ 2,792 $ 1,600 $ 2,943
Nonaccrual 8,852 9,565 8,308 6,416 7,319
Restructured 569 1,059 1,288 436 722
--------- --------- --------- --------- ---------
Total nonperforming and restructured loans 12,211 12,290 12,388 8,452 10,984
Other real estate owned and repossessed assets 2,130 1,945 1,639 1,766 1,977
--------- --------- --------- --------- ---------
Total nonperforming and restructured assets $ 14,341 $ 14,235 $ 14,027 $ 10,218 $ 12,961
========= ========= ========= ========= =========
Nonperforming and restructured loans to total loans 0.73% 0.85% 0.93% 0.68% 0.98%
========= ========= ========= ========= =========
Nonperforming and restructured assets to total assets 0.56% 0.61% 0.60% 0.51% 0.70%
========= ========= ========= ========= =========
Other real estate owned and repossessed assets increased in 2000 to
$2.13 million from $1.95 million at year-end 1999. 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 $39.8 million of these loans, which are not included in
nonperforming and restructured assets, at December 31, 2000. In general, these
loans are well collateralized and have no identifiable loss potential. Loans
which are considered to have identifiable loss potential are placed on
nonaccrual status, are allocated a specific allowance for loss or are directly
charged-down, and are reported as nonperforming.
Allowance for 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.
A-11
The Company's net charge-offs have been low in recent years. In 2000,
the Company recognized $2.69 million of net charge-offs, which was only 0.17% of
average loans, compared to $2.13 million of net charge-offs, or 0.16% of average
loans, for 1999.
ANALYSIS OF ALLOWANCE FOR Year Ended December 31,
-----------------------------------------------------------------------
LOAN LOSSES 2000 1999 1998 1997 1996
------------- -------------- ------------- -------------- -------------
(Dollars in thousands)
Balance at beginning of year $ 22,548 $ 19,659 $ 17,458 $ 16,569 $ 14,821
------------ ------------- ------------ ------------- ------------
Charge-offs:
Commercial (1,062) (1,035) (1,805) (1,182) (743)
Real estate (815) (368) (212) (238) (118)
Consumer (2,481) (1,499) (989) (1,670) (968)
Other (19) (199) (171) (80) (120)
------------ ------------- ------------ ------------- ------------
Total charge-offs (4,377) (3,101) (3,177) (3,169) (1,949)
------------ ------------- ------------ ------------- ------------
Recoveries:
Commercial 544 409 811 320 114
Real estate 353 153 223 202 161
Consumer 770 318 258 315 247
Other 19 89 34 25 35
------------ ------------- ------------ ------------- ------------
Total recoveries 1,686 969 1,326 862 557
------------ ------------- ------------ ------------- ------------
Net (charge-offs) recoveries (2,691) (2,132) (1,851) (2,307) (1,392)
Provisions charged to operations 4,045 2,521 2,211 2,888 2,181
Additions from acquisitions 1,478 2,500 1,841 308 959
------------ ------------- ------------ ------------- ------------
Balance at end of year $ 25,380 $ 22,548 $ 19,659 $ 17,458 $ 16,569
============ ============= ============ ============= ============
Average loans $ 1,542,795 $ 1,355,332 $ 1,290,557 $ 1,181,421 $ 1,047,771
============ ============= ============ ============= ============
Total loans $ 1,666,338 $ 1,455,481 $ 1,338,879 $ 1,249,705 $ 1,125,278
============ ============= ============ ============= ============
Net charge-offs to average loans 0.17% 0.16% 0.14% 0.20% 0.13%
============ ============= ============ ============= ============
Allowance to total loans 1.52% 1.55% 1.47% 1.40% 1.47%
============ ============= ============ ============= ============
Allocation of the allowance by category of loans:
Commercial, financial and other $ 8,161 $ 6,612 $ 5,277 $ 4,358 $ 4,506
Real estate - construction 1,178 1,364 1,400 1,085 972
Real estate - mortgage 10,262 10,161 9,406 7,883 7,090
Consumer 3,586 3,513 3,229 2,924 2,999
Unallocated 2,193 897 347 1,208 1,002
------------ ------------- ------------ ------------- ------------
Total $ 25,380 $ 22,548 $ 19,659 $ 17,458 $ 16,569
============ ============= ============ ============= ============
Percentage of loans in each category to total loans:
Commercial, financial and other 32.09% 29.78% 26.98% 27.43% 27.46%
Real estate - construction 5.08 5.88 5.67 4.39 4.07
Real estate - mortgage 46.32 47.05 49.55 48.90 47.39
Consumer 16.51 17.29 17.80 19.28 21.08
------------ ------------- ------------ ------------- ------------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
============ ============= ============ ============= ============
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 $185 million in 2000, and $57.9 million in
1999, from both acquisitions and internal growth. Demand deposits as a
percentage of total deposits have been increasing since 1994. Core deposits were
88.94% of total deposits in 2000 compared to 89.07% in 1999. Since 1996,
interest-bearing
A-12
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 2000 1999 1998 1997 1996
----------------- ----------------- ---------------- ---------------- -----------------
Average Balances (Dollars in thousands)
Demand deposits $ 461,870 $ 423,347 $ 396,802 $ 332,513 $ 306,311
Interest-bearing transaction deposits 60,409 36,256 104,006 156,478 233,312
Savings deposits 698,059 667,015 547,887 450,491 339,897
Time deposits under $100,000 657,535 632,995 646,003 562,415 517,264
---------------- ---------------- --------------- --------------- ----------------
Total core deposits 1,877,873 1,759,613 1,694,698 1,501,897 1,396,784
Time deposits of $100,000 or more 233,409 215,824 180,169 182,893 160,217
---------------- ---------------- --------------- --------------- ----------------
Total deposits $ 2,111,282 $ 1,975,437 $ 1,874,867 $ 1,684,790 $ 1,557,001
================ ================ =============== =============== ================
% 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 21.88% 21.43% 21.16% 19.74% 19.67%
Interest-bearing transaction deposits 2.86 3.10% 1.84 2.20% 5.55 2.47% 9.29 2.59% 14.98 2.70%
Savings deposits 33.06 3.21 33.76 2.80 29.22 2.63 26.74 3.00 21.83 3.09
Time deposits under $100,000 31.14 5.45 32.04 4.87 34.46 5.49 33.37 5.39 33.23 5.33
-------- ------- ------- ------- --------
Total core deposits 88.94 89.07 90.39 89.14 89.71
Time deposits of $100,000 or more 11.06 5.94 10.93 4.88 9.61 5.84 10.86 5.41 10.29 5.41
-------- ------- ------- -------- --------
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======= ======= ======= ========
Average rate paid on
Interest-bearing deposits 4.48% 3.92% 4.26% 4.26% 4.24%
====== ====== ====== ====== ======
The Company has not utilized brokered deposits. Approximately 85% of
its time deposits of $100,000 or more at December 31, 2000 mature in one year or
less.
MATURITY OF CERTIFICATES OF DEPOSIT December 31,
$100,000 or More 2000
----------------
(In thousands)
Three months or less $ 106,447
Over three months through six months 57,541
Over six months through twelve months 75,659
Over twelve months 42,200
-------------
Total $ 281,847
=============
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 $37.3 million at December 31, 2000, compared to
$22.1 million in December 31, 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 $26.6 million in 2000 from
$26.4 million in 1999.
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
A-13
in excess of these limits require regulatory approval. During 2000, the Bank
declared five common stock dividends totaling $10.54 million and two preferred
stock dividends totaling $1.93 million.
Capital Resources
Stockholders' equity totaled $197 million at year-end 2000, compared to
$165 million at year-end 1999 and $202 million at year-end 1998. Stockholders'
equity increased in 2000 due to net earnings retained, and common stock issued
for the acquisition of First Southwest and for stock option exercises. The
decrease in stockholders' equity in 1999 was primarily the net result of stock
repurchases and net earnings retained. The increase in 1998 was primarily due to
net earnings retained. The Company's average equity capital ratio for 2000 was
7.38%, compared to 8.2% for 1999 and 9.09% for 1998. At December 31, 2000, the
Company's leverage ratio was 7.67% and its total risk-based capital ratio was
12.5%, 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 Stock Repurchase Program (the
"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 SRP may be
determined by management and must be approved by the Company's Executive
Committee. During 2000, the Company purchased and canceled 108,379 shares at an
average price of $30.99. In 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 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 2001.
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.
A-14
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, 2000.
MARKET RISK Expected Maturity / Principal Repayments at December 31,
Avg. ------------------------------------------------------------ Fair
December 31, 2000 Rate 2001 2002 2003 2004 2005 Thereafter Balance Value
------ --------- --------- ------- --------- -------- ------------- --------- -----------
Interest Sensitive Assets
Loans, net 9.50% $554,790 $212,183 $185,736 $152,186 $99,540 $461,903 $1,666,338 $1,668,297
Federal funds sold and
interest bearing deposits 6.77 66,563 -- -- -- -- -- 66,563 66,563
Securities 6.27 151,801 115,041 103,456 76,226 26,138 87,889 560,551 561,434
Interest Sensitive
Liabilities
Savings and transaction
deposits 3.16 804,643 -- -- -- -- -- 804,643 804,643
Time deposits 5.91 809,480 100,378 35,416 4,053 3,639 18 952,984 954,116
Short-term borrowings 5.30 37,292 -- -- -- -- -- 37,292 37,292
Long-term borrowings 6.33 4,235 4,271 4,907 3,343 3,092 6,765 26,613 26,661
9.65% Capital Securities 9.79 -- -- -- -- -- 25,000 25,000 22,125
Off Balance Sheet Items
Loan commitments -- -- -- -- -- -- -- 2,200
Letter of credit -- -- -- -- -- -- -- 134
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.
A-15
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, 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-16
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BancFirst Corporation:
We have audited the accompanying consolidated balance sheets of BancFirst
Corporation and its subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years 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 audits.
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 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 BancFirst
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
March 21, 2001
A-17
To the Board of Directors and Stockholders of BancFirst Corporation:
In our opinion, the consolidated statements of income, stockholders' equity and
of cash flows for the year ended December 31, 1998 present fairly, in all
material respects, the results of operations and cash flows of BancFirst
Corporation and its subsidiaries for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, 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
audit provides a reasonable basis for our opinion. 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
A-18
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
December 31,
---------------------------
2000 1999
------------- -------------
ASSETS
Cash and due from banks $ 162,455 $ 126,691
Interest-bearing deposits with banks 663 1,715
Federal funds sold 65,900 51,666
Securities (market value: $561,434 and $595,509 respectively) 560,551 596,715
Loans:
Total loans (net of unearned interest) 1,666,338 1,455,481
Allowance for loan losses (25,380) (22,548)
------------ ------------
Loans, net 1,640,958 1,432,933
Premises and equipment, net 57,795 52,467
Other real estate owned 1,453 1,612
Intangible assets, net 25,156 24,087
Accrued interest receivable 27,288 20,771
Other assets 28,036 27,150
------------ ------------
Total assets $ 2,570,255 $ 2,335,807
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 509,770 $ 460,131
Interest-bearing 1,757,627 1,622,565
------------ ------------
Total deposits 2,267,397 2,082,696
Short-term borrowings 37,292 22,091
Long-term borrowings 26,613 26,392
9.65% Capital Securities 25,000 25,000
Accrued interest payable 10,302 8,421
Other liabilities 6,693 6,493
------------ ------------
Total liabilities 2,373,297 2,171,093
------------ ------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1.00 par (shares issued and outstanding: 8,326,638 and
8,112,170, respectively) 8,327 8,112
Capital surplus 56,169 46,766
Retained earnings 130,932 113,344
Accumulated other comprehensive income (loss), net of income tax
(expense) benefits, of ($1,366) and $1,636, respectively. 1,530 (3,508)
------------ ------------
Total stockholders' equity 196,958 164,714
------------ ------------
Total liabilities and stockholders' equity $ 2,570,255 $ 2,335,807
============ ============
See accompanying notes to consolidated financial statements.
A-19
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
Year Ended December 31,
------------------------------------
2000 1999 1998
--------- --------- ---------
INTEREST INCOME
Loans, including fees $ 145,356 $ 120,974 $ 121,319
Securities:
Taxable 33,018 30,964 32,698
Tax-exempt 2,201 2,147 2,190
Federal funds sold 1,714 5,247 4,828
Interest-bearing deposits with banks 100 52 7
--------- --------- ---------
Total interest income 182,389 159,384 161,042
--------- --------- ---------
INTEREST EXPENSE
Deposits 73,974 60,840 62,946
Short-term borrowings 1,898 1,628 2,161
Long-term borrowings 1,735 1,234 734
9.65% Capital Securities 2,447 2,447 2,449
--------- --------- ---------
Total interest expense 80,054 66,149 68,290
--------- --------- ---------
Net interest income 102,335 93,235 92,752
Provision for loan losses 4,045 2,521 2,211
--------- --------- ---------
Net interest income after provision
for loan losses 98,290 90,714 90,541
--------- --------- ---------
NONINTEREST INCOME
Trust revenue 3,130 2,535 2,132
Service charges on deposits 17,493 16,453 14,634
Securities transactions -- 244 12
Income from sales of loans 1,186 1,663 2,346
Other 8,093 7,812 4,895
--------- --------- ---------
Total noninterest income 29,902 28,707 24,019
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 49,208 45,764 44,360
Occupancy and fixed assets expense, net 5,768 5,082 5,131
Depreciation 5,186 4,884 4,772
Amortization 3,249 3,044 2,785
Data processing services 2,505 2,150 2,176
Net (income) expense from other real estate owned 400 164 (111)
Restructuring charges -- -- 1,912
Other 21,408 20,365 19,457
--------- --------- ---------
Total noninterest expense 87,724 81,453 80,482
--------- --------- ---------
Income before taxes 40,468 37,968 34,078
Income tax expense (14,251) (14,019) (12,528)
--------- --------- ---------
Net income 26,217 23,949 21,550
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities 5,038 (8,939) 3,643
--------- --------- ---------
Comprehensive income $ 31,255 $ 15,010 $ 25,193
========= ========= =========
NET INCOME PER COMMON SHARE
Basic $ 3.22 $ 2.79 $ 2.32
========= ========= =========
Diluted $ 3.19 $ 2.75 $ 2.27
========= ========= =========
See accompanying notes to consolidated financial statements.
A-20
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Year Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998
----------------------- ------------------------ -----------------------
Shares Amount Shares Amount Shares Amount
----------- ---------- ----------- --------- ----------- ----------
COMMON STOCK
Issued at beginning of year 8,112,170 $ 8,112 9,291,929 $ 9,292 9,614,004 $ 9,614
Shares issued 322,847 323 82,299 82 53,416 53
Shares acquired and canceled (108,379) (108) (1,262,058) (1,262) (375,491) (375)
----------- ---------- ---------- --------- ----------- ----------
Issued at end of year 8,326,638 $ 8,327 8,112,170 $ 8,112 9,291,929 $ 9,292
=========== ========== ========== ========= =========== ==========
CAPITAL SURPLUS
Balance at beginning of year $ 46,766 $ 45,148 $ 44,104
Common stock issued 9,403 1,618 1,090
Treasury stock sold -- -- 319
Common stock canceled -- -- (365)
---------- ---------- ----------
Balance at end of year $ 56,169 $ 46,766 $ 45,148
========== ========== ==========
RETAINED EARNINGS
Balance at beginning of year $ 113,344 $ 142,046 $ 131,146
Net income 26,217 23,949 21,550
Dividends on common stock ($0.66, $0.58,
and $0.50 per share, respectively) (5,378) (4,890) (4,200)
Common stock canceled (3,251) (47,761) (6,450)
---------- ---------- ----------
Balance at end of year $ 130,932 $ 113,344 $ 142,046
========== ========== ==========
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Unrealized gains (losses) on securities:
Balance at beginning of year $ (3,508) $ 5,431 $ 1,788
Net change 5,038 (8,939) 3,643
---------- ---------- ----------
Balance at end of year $ 1,530 $ (3,508) $ 5,431
========== ========== ==========
TREASURY STOCK
Balance at beginning of year -- $ -- -- $ -- 377,129 $ (5,407)
Common stock acquired -- -- -- -- -- --
Common stock sold -- -- -- -- (46,061) 253
Common stock canceled -- -- -- -- (331,068) 5,154
----------- ---------- ---------- ---------- ----------- ----------
Balance at end of year -- $ -- -- $ -- -- $ --
=========== ========== ========== ========== =========== ==========
Total stockholders' equity $ 196,958 $ 164,714 $ 201,917
========== ========== ==========
See accompanying notes to consolidated financial statements.
A-21
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
December 31,
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999 1998
---------- --------- ----------
Net income $ 26,217 $ 23,949 $ 21,550
Adjustments to reconcile to net cash provided by operating activities:
Provision for loan losses 4,045 2,521 2,211
Depreciation and amortization 8,435 8,527 8,085
Net amortization of securities premiums and discounts 89 407 (714)
Unrealized losses on fixed assets -- -- 1,402
Unrealized losses on other real estate owned 465 89 120
Increase in interest receivable (4,660) (437) (1,687)
Increase (decrease) in interest payable 1,362 (234) (2,427)
Increase in deferred tax asset (866) (282) (856)
Other, net (3,872) 5,237 (1,675)
---------- --------- ----------
Net cash provided by operating activities 31,215 29,303 26,009
---------- --------- ----------
INVESTING ACTIVITIES
Net cash and due from banks provided by (used for) acquisitions and
divestitures (1,831) 4,158 39,642
Purchases of securities:
Held for investment (29,232) (36,583) (24,145)
Available for sale (38,460) (113,123) (173,296)
Maturities of securities:
Held for investment 21,285 54,842 49,660
Available for sale 114,963 96,240 99,043
Proceeds from sales and calls of securities:
Held for investment 2,889 806 1,986
Available for sale -- -- 9,180
Net (increase) decrease in federal funds sold (11,134) 135,703 (123,466)
Purchases of loans (2,527) (15,113) (8,967)
Proceeds from sales of loans 138,181 146,398 156,946
Net other increase in loans (273,248) (195,195) (165,825)
Purchases of premises and equipment (10,716) (9,588) (9,106)
Proceeds from the sale of other real estate owned and repossessed assets 4,780 2,905 2,913
Other, net 2,899 2,040 2,671
---------- --------- ----------
Net cash provided (used) for investing activities (82,151) 73,490 (142,764)
---------- --------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in demand, transaction and savings deposits 76,174 (21,697) 91,515
Net increase (decrease) in certificates of deposits 3,362 (13,449) 22,891
Net increase (decrease) in short-term borrowings 15,201 (32,750) 32,110
Net increase (decrease) in long-term borrowings (1,577) 13,426 2,915
Issuance of common stock 1,225 1,700 1,105
Acquisition of common stock (3,359) (49,023) (2,036)
Cash dividends paid (5,378) (4,890) (4,013)
---------- --------- ----------
Net cash provided (used) by financing activities 85,648 (106,683) 144,487
---------- --------- ----------
Net increase (decrease) in cash and due from banks 34,712 (3,890) 27,732
Cash and due from banks at the beginning of the year 128,406 132,297 104,565
---------- --------- ----------
Cash and due from banks at the end of the year $ 163,118 $ 128,406 $ 132,297
========== ========= ==========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 78,173 $ 66,043 $ 64,010
========== ========= ==========
Cash paid during the year for income taxes $ 15,806 $ 12,996 $ 13,552
========== ========= ==========
See accompanying notes to consolidated financial statements.
A-22
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, and First Southwest
Bank. The operating subsidiaries of BancFirst are BancFirst Investment
Corporation, Citibanc Insurance Agency, Inc., Lenders Collection Corporation,
Express Financial Corporation, Mojave Asset Management Company, Desert Asset
Management Company and Delamar Asset Management Limited Partnership. 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 1999 and 1998 have been reclassified to conform with the 2000
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-23
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Allowance for Loan Losses
The allowance for loan losses is increased by 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.
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 options, convertible
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.
A-24
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Recent Accounting Pronouncements
The Financial Accounting Standards Board (the "FASB") Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended by Statements 137 and 138, was adopted by
the Company on January 1, 2001. This Statement established 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. The
adoption of this standard did not have a material effect on the Company's
consolidated financial statements.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -A Replacement of FASB Statement No. 125".
This Statement is effective for transfers occurring after March 31, 2001 and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The Company does not expect the adoption
of this standard will have material effect on its consolidated financial
statements.
In February 2001, the FASB issued a revised exposure draft for a
proposed Statement of Financial Accounting Standards entitled "Business
Combinations and Intangible Assets - Accounting for Goodwill." The proposed
Statement would prohibit the use of the pooling of interests method of
accounting for business combinations for transactions initiated after issuance
of the final Statement. It would also eliminate amortization of goodwill
acquired in a business combination and would establish a new method of testing
goodwill for impairment. Under this new standard, goodwill would be reviewed for
impairment when an event or series of events occur indicating that the goodwill
might be impaired. Goodwill impairment losses would be aggregated and presented
as a separate line item in the operating section of the income statement. If
adopted, the proposed Statement would have a material effect on the consolidated
financial statements of the Company by eliminating goodwill amortization from
its income statement and from the calculations of net income per share.
(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 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.
A-25
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
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.
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.
In February 1999, the Company sold a branch in Anadarko, Oklahoma,
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.
In March 2000, BancFirst Corporation became a financial holding company
under the new Gramm-Leach-Bliley financial services modernization law. This will
allow the Company to expand into new financial activities such as insurance
sales and underwriting, securities underwriting and dealing, and merchant
banking.
In October 2000, BancFirst Corporation completed the acquisition of
First Southwest Corporation of Frederick, Oklahoma ("First Southwest") which had
total assets of approximately $118,000. All of the outstanding shares of First
Southwest common stock were exchanged for 266,681 shares of BancFirst
Corporation common stock and approximately $4,335 of cash. The acquisition 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. Total intangible assets of $4,279 were recorded for the
purchase. The acquisition did not have a material effect on the results of
operations of the Company for 2000.
A-26
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In January 2001, BancFirst Corporation completed the acquisition of 75%
of the outstanding common stock of Century Life Assurance Company ("Century
Life") from Pickard Limited Partnership, a Rainbolt family partnership. Century
Life underwrites credit life insurance, credit accident and health insurance,
and ordinary life insurance. The Rainbolt family is the largest shareholder of
BancFirst Corporation and two members of the family are the Chairman and the CEO
of BancFirst Corporation. The purchase price was $5,429. At December 31, 2000,
Century Life had total assets of $22,964 and total stockholders' equity of
$6,956. The acquisition will be accounted for as a book value purchase.
Accordingly, the acquisition will be recorded based on the book value of Century
Life and the effects of the acquisition will be included in the Company's
consolidated financial statements from the date of the acquisition forward. The
acquisition is not expected to have a material effect on the results of
operations of the Company for 2001.
(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
four institutions totaling $85,778 at December 31, 2000 and in two institutions
totaling $62,026 at December 31, 1999. 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, 2000 and 1999 was approximately $23,002 and $34,183, respectively.
(4) SECURITIES
The table below summarizes securities held for investment and
securities available for sale:
December 31,
-----------------------
2000 1999
----------- -----------
Held for investment at cost (market value; $107,874 and
$128,275, respectively) $106,991 $129,481
Available for sale, at market value 453,560 467,234
----------- -----------
Total $560,551 $596,715
=========== ===========
A-27
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, 2000
U.S. Treasury $ 3,796 $ -- $ (18) $ 3,778
Other federal agencies 16,808 494 (5) 17,297
Mortgage backed securities 38,829 380 (230) 38,979
States and political subdivisions 47,558 649 (387) 47,820
Other securities -- -- -- --
------------ ----------- ----------- ----------
Total $ 106,991 $ 1,523 $ (640) $ 107,874
============ =========== =========== ===========
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
============ =========== =========== ============
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, 2000
U.S. Treasury $ 147,018 $ 469 $ (103) $ 147,384
Other federal agencies 246,471 1,891 (922) 247,440
Mortgage backed securities 38,210 376 (186) 38,400
States and political subdivisions 7,066 81 (3) 7,144
Other securities 11,899 1,377 (84) 13,192
------------ ----------- ----------- ----------
Total $ 450,664 $ 4,194 $ (1,298) $ 453,560
============ =========== =========== ==========
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
============ =========== =========== ---------
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.
A-28
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
December 31,
----------------------------------------------------
2000 1999
-------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------- ---------- ----------- ------------
Held for Investment
Contractual maturity of debt securities:
Within one year $ 13,158 $ 13,139 $ 18,097 $ 18,017
After one year but within five years 45,983 46,103 57,079 56,643
After five years but within ten years 40,414 41,141 45,206 44,766
After ten years 7,436 7,491 9,099 8,849
----------- ---------- ----------- ------------
Total $ 106,991 $ 107,874 $ 129,481 $ 128,275
=========== ========== =========== ============
Available for Sale
Contractual maturity of debt securities:
Within one year $ 138,806 $ 138,643 $ 89,430 $ 89,351
After one year but within five years 273,385 274,878 353,539 347,110
After five years but within ten years 22,812 23,106 11,363 11,382
After ten years 3,762 3,741 4,525 4,494
----------- ---------- ----------- ------------
Total debt securities 438,765 440,368 458,857 452,337
Equity securities 11,899 13,192 13,521 14,897
----------- ---------- ----------- ------------
Total $ 450,664 $ 453,560 $ 472,378 $ 467,234
=========== ========== =========== ============
Sales of securities are summarized below:
Year Ended December 31,
----------------------------
2000 1999 1998
-------- ------ --------
Proceeds $ 250 $ 468 $ 11,166
Gross gains realized -- 244 12
Gross losses realized -- -- --
Securities having book values of $405,991, $463,025 and $359,000 at
December 31, 2000, 1999 and 1998, respectively, were pledged as collateral for
public funds on deposit, repurchase agreements and for other purposes as
required or permitted by law.
A-29
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, 2000 December 31, 1999
----------------------- ------------------------
Amount Percent Amount Percent
------------ ---------- ------------- ----------
Commercial and industrial $ 394,534 23.68% $ 343,304 23.59%
Agriculture 91,263 5.48 57,447 3.95
State and political subdivisions:
Taxable 47 0.01 1,641 0.11
Tax-exempt 17,232 1.03 14,428 0.99
Real Estate:
Construction 84,637 5.08 85,634 5.88
Farmland 56,695 3.40 38,419 2.64
One to four family residences 372,460 22.35 331,742 22.79
Multifamily residential properties 19,869 1.19 21,517 1.48
Commercial 322,759 19.37 293,160 20.14
Consumer 275,175 16.51 251,593 17.29
Other 31,667 1.90 16,596 1.14
----------- -------- ----------- ---------
Total loans $1,666,338 100.00% $1,455,481 100.00%
=========== ======== =========== =========
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.
Changes in the allowance for loan losses are summarized as follows:
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Balance at beginning of year $ 22,548 $ 19,659 $ 17,458
-------- -------- --------
Charge-offs (4,377) (3,101) (3,177)
Recoveries 1,686 969 1,326
-------- -------- --------
Net charge-offs (2,691) (2,132) (1,851)
-------- -------- --------
Provisions charged to operations 4,045 2,521 2,211
Additions from acquisitions 1,478 2,500 1,841
-------- -------- --------
Total additions 5,523 5,021 4,052
-------- -------- --------
Balance at end of year $ 25,380 $ 22,548 $ 19,659
======== ======== ========
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:
A-30
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Balance Balance
Year Ended Beginning of Collections/ End of
December 31, Year Additions Terminations Year
-------------------- ------------------ ------------- ----------------- ---------------
1998 $ 19,907 $ 3,303 $ (13,491) $ 9,719
1999 $ 9,719 $ 1,616 $ (5,436) $ 5,899
2000 $ 5,899 $ 9,563 $ (5,859) $ 9,603
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 2000 or 1999.
Year Ended
December 31,
----------------
2000 1999
------- -------
Allowance for loss on impaired loans $ 2,499 $ 2,312
Recorded balance of impaired loans 9,516 9,057
Transfers from loans to other real estate owned and repossessed assets
are noncash transactions, and are not included in the statement of cash flows.
Such transfers totaled $5,418 and $3,512 for the years ended December 31, 2000
and 1999, respectively.
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
December 31,
---------------------
2000 1999
---------- ---------
Land $ 12,923 $ 11,816
Buildings 56,440 50,649
Furniture, fixtures and equipment 33,976 31,309
Accumulated depreciation (45,544) (41,307)
---------- ---------
Total $ 57,795 $ 52,467
========== =========
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
December 31,
--------------------
2000 1999
---------- ---------
Excess of cost over fair value of assets acquired $ 22,704 $ 21,681
Core deposit intangibles 2,448 2,401
Trademarks 4 5
--------- ---------
Total $ 25,156 $ 24,087
========= =========
A-31
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled
$281,847 and $257,440 at December 31, 2000 and 1999, respectively. At December
31, 2000, the scheduled maturities of certificates of deposit are as follows:
2001 $ 809,480
2002 100,378
2003 35,416
2004 4,053
2005 and thereafter 3,657
----------
Total $ 952,984
==========
(9) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
December 31,
----------------------
2000 1999
---------- ----------
Federal funds purchased $ 8,066 $ 12,798
Repurchase agreements 28,226 6,293
Notes payable 1,000 3,000
-------- ---------
Total $ 37,292 $ 22,091
======== =========
Weighted average interest rate 5.30% 5.15%
======== =========
Federal funds purchased represents borrowings of overnight funds from
other financial institutions.
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 notes payable represent short-term advances on a $12,000 revolving
line of credit with another bank. 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 September 2001. 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 7.87% and mature from 2003
through 2015. Interest payments on the advances are due monthly. Semiannual
principal payments on the advances total $4,271 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
A-32
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
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.
(12) INCOME TAXES
The components of the Company's income tax expense are as follows:
Year Ended December 31,
-------------------------------
2000 1999 1998
--------------------- ---------
Current taxes: Federal $ (14,196) $ (12,748) $ (11,718)
State (684) (1,735) (1,433)
Deferred taxes 629 464 623
--------- --------- ---------
Total income taxes $ (14,251) $ (14,019) $ (12,528)
========= ========= =========
Income tax expense applicable to securities transactions approximated
$86 and $4 for the years ended December 31, 1999 and 1998, respectively.
At December 31, 2000, the Company had net operating loss carryforwards
for tax purposes of approximately $128. If not utilized, the tax net operating
loss carryforwards will expire as follows: $55 in 2001, and $73 in 2004.
A reconciliation of tax expense at the federal statutory tax rate
applied to income before taxes follows:
Year Ended December 31,
--------------------------------
2000 1999 1998
--------- --------- ---------
Tax expense at the federal statutory tax rate $ (14,164) $ (13,289) $ (11,927)
(Increase) decrease in tax expense from:
Tax-exempt income, net 1,132 1,033 976
Excess cost amortization (881) (851) (710)
State tax expense, net of federal tax benefit (579) (1,078) (898)
Other, net 241 166 31
--------- --------- ---------
Total tax expense $ (14,251) $ (14,019) $ (12,528)
========= ========= =========
A-33
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The net deferred tax asset consisted of the following:
December 31,
-----------------------
2000 1999
----------- -----------
Provision for loan losses $ 7,508 $ 6,726
Unrealized net loss on securities available for sale -- 1,636
Discount on securities of banks acquired 123 --
Write-downs of other real estate owned 53 37
Net operating loss carryforwards 67 185
Deferred compensation 601 681
Other 106 286
---------- -----------
Gross deferred tax assets 8,458 9,551
---------- -----------
Unrealized net gain on securities available for sale (1,336) --
Depreciation (2,453) (2,282)
Other (339) (578)
----------- -----------
Gross deferred tax liabilities (4,158) (2,860)
----------- -----------
Net deferred tax asset $ 4,300 $ 6,691
=========== ===========
(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, 2000,
1999 and 1998, were approximately $1,919, $1,980 and $1,000, 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 for the year ended December 31, 1998.
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, 2000 will become exercisable through the year
2007. 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, 2000 will become exercisable
through the year 2004. 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-34
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Year Ended December 31,
------------------------------------------------------------
2000 1999 1998
------------------- --------------------- -----------------
Avg. Avg. Avg.
Options Price Options Price Options Price
-------- --------- ------- -------- -------- --------
Outstanding at beginning of year 531,192 $ 26.23 494,125 $ 21.73 449,625 $ 17.14
Options granted 62,750 31.16 121,000 33.86 113,000 34.22
Options exercised or repurchased (34,297) 16.02 (70,933) 6.85 (47,750) 7.63
Options canceled (17,500) 32.34 (13,000) 26.61 (20,750) 26.19
-------- -------- --------
Outstanding at end of year 542,145 26.24 531,192 26.23 494,125 21.73
======== ======== ========
Exercisable at end of year 140,062 18.02 114,692 14.89 134,250 10.28
======== ======== ========
Weighted average fair value of options granted $ 22.26 $ 14.24 $ 15.36
======== ======== ========
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 90.52% for all grants.
A summary of options outstanding under the BancFirst ISOP and the
BancFirst Directors' Stock Option Plan as of December 31, 2000 is as follows:
Options Outstanding Options Exercisable
------------------------------------------------------------------ -------------------------------
Wgtd. Avg.
Remaining Wgtd. Avg.
Range of Exercise Number Contractual Exercise Number Wgtd. Avg.
Prices Outstanding Life in Years Price Exercisable Exercise Price
---------------------------------- --------------- --------------- --------------- ---------------
$ 6.00 to $10.00 39,169 1.99 $ 7.43 39,169 $ 7.43
$12.88 to $18.63 56,893 4.75 15.64 34,393 15.51
$20.00 to $40.00 446,083 11.92 30.47 66,500 25.56
------- -------
$ 6.00 to $40.00 542,145 10.44 27.25 140,062 18.02
======= =======
The pro forma effect as if the Company had adopted the cost recognition
provisions of FAS 123 is as follows:
Year Ended December 31,
--------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
---------- ---------- ---------- ---------- --------- ---------
APB 25 charge $ -- $ -- $ -- $ -- $ -- $ --
FAS 123 charge -- 765 -- 609 -- 186
Net income 26,217 25,452 23,949 23,340 21,550 21,364
Net income per share:
Basic $ 3.22 $ 3.12 $ 2.79 $ 2.72 $ 2.32 $ 2.30
Diluted 3.19 3.09 2.75 2.68 2.27 2.25
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-35
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,
-------------------------------------------------------------
2000 1999 1998
------------------- --------------------- ------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
-------- ------ --------- --------- -------- --------
Outstanding at beginning of year 40,217 $16.21 73,885 $14.58 123,590 $13.54
Options exercised or repurchased (21,860) 16.62 (33,668) 12.64 (47,784) 11.83
Options canceled -- -- -- -- (1,921) 15.73
-------- -------- -------
Outstanding at end of year 18,357 15.72 40,217 16.21 73,885 14.58
======== ======== =======
A summary of options outstanding under the AmQuest Employees Stock
Option Plans as of December 31, 2000 is as follows:
Options Outstanding and Exercisable
------------------------------------------------------------------
Wgtd. Avg.
Remaining
Range of Number Contractual Wgtd. Avg.
Exercise Prices Outstanding Life Exercise Price
---------------- ------------ ------------- ----------------
$13.58 to $17.05 18,357 5.32 $15.72
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,
--------------------------------------------------------------
2000 1999 1998
------------------- ------------------ ------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
--------- ------- -------- ------ ------- -------
Outstanding at beginning of year 6,023 $17.40 8,719 $17.19 26,539 $17.10
Options granted -- -- -- -- -- --
Options exercised or repurchased -- -- (2,696) 16.73 (17,820) 17.05
Options canceled -- -- -- -- -- --
--------- -------- -------
Outstanding at end of year 6,023 17.40 6,023 17.40 8,719 17.19
========= ======== =======
A-36
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
A summary of options outstanding under the AmQuest Directors Stock
Option Plan as of December 31, 2000 is as follows:
Options Outstanding and Exercisable
------------------------------------------------------------------
Wgtd. Avg.
Remaining
Range of Exercise Number Contractual Wgtd. Avg.
Prices Outstanding Life Exercise Price
----------------- --------------- --------------- ----------------
$13.58 to $20.84 6,023 5.55 $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, 2000, there were 4,291 stock units accumulated with an
average price of $30.33. 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, 2000 and 1999, there were 8,326,638 shares
and 8,112,170 shares issued and outstanding, respectively.
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-37
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In November 1999, the Company adopted a Stock Repurchase Program (the
"SRP") authorizing management to repurchase up to 300,000 shares of the
Company's common stock. The 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 SRP may be
determined by management and must be approved by the Company's Executive
Committee. Below is a summary of the shares repurchased under the program.
Year Ended
December 31,
-------------------------
2000 1999
----------- ------------
Number of shares repurchased 108,379 55,783
Average price of shares repurchased $ 30.99 $ 35.77
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, 2000, approximately $29,777 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 2000 1999
--------------- --------------- ---------------
Tier 1 capital
BancFirst Corporation $ 195,273 $ 169,135
BancFirst $ 164,846 $ 148,293
Total capital
BancFirst Corporation $ 217,708 $ 188,753
BancFirst $ 186,004 $ 166,940
Risk adjusted assets
BancFirst Corporation $ 1,741,664 $ 1,516,266
BancFirst $ 1,639,683 $ 1,440,184
Leverage ratio 3.00%
BancFirst Corporation 7.67% 7.32%
BancFirst 6.83% 6.75%
Tier 1 capital ratio 4.00%
BancFirst Corporation 11.21% 11.15%
BancFirst 10.05% 10.30%
Total capital ratio 8.00%
BancFirst Corporation 12.50% 12.45%
BancFirst 11.34% 11.59%
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, 2000 and 1999,
A-38
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
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.
(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, 2000
----------------------------
Basic
Income available to common stockholders $ 26,217 8,147,690 $ 3.22
=======
Effect of stock options -- 76,484
---------- ----------
Diluted
Income available to common stockholders
plus assumed exercises of stock options $ 26,217 8,224,174 $ 3.19
========== ========== =======
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
========== ========== =======
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
Shares Price
------------- -------------
December 31, 2000 251,540 $ 33.84
December 31, 1999 146,000 $ 34.43
December 31, 1998 -- $ --
A-39
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(16) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
December 31,
--------------------------
ASSETS 2000 1999
--------------------------
Cash $ 3,869 $ 2,957
Securities 1,825 2,550
Loans (net of unearned interest) -- 1,103
Investment in subsidiaries, at equity 207,796 178,756
Intangible assets 2,216 3,295
Other assets 9,555 6,465
--------- ---------
Total assets $ 225,261 $ 195,126
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 2,303 $ 2,412
Notes payable 1,000 3,000
9.65% Capital Securities 25,000 25,000
Stockholders' equity 196,958 164,714
--------- ---------
Total liabilities and stockholders' equity $ 225,261 $ 195,126
========= =========
STATEMENT OF INCOME
Year Ended December 31,
-------------------------------
OPERATING INCOME 2000 1999 1998
--------- --------- ---------
Dividends from subsidiaries $ 12,815 $ 18,624 $ 17,246
Interest:
Loans 4 284 534
Securities 278 279 325
Interest-bearing deposits 49 458 659
Other 10 164 339
--------- --------- --------
Total operating income 13,156 19,809 19,103
--------- --------- --------
OPERATING EXPENSE
Interest 2,516 2,698 2,495
Amortization 1,079 1,079 1,084
Other 385 68 1,913
--------- --------- --------
Total operating expense 3,980 3,845 5,492
--------- --------- --------
Income before income taxes and equity in undistributed
earnings of subsidiaries 9,176 15,964 13,611
Allocated income tax benefit 985 785 811
--------- --------- --------
Income before equity in undistributed earnings of subsidiaries 10,161 16,749 14,422
Equity in undistributed earnings of subsidiaries 16,056 7,200 7,128
--------- --------- --------
Net income $ 26,217 $ 23,949 $ 21,550
========= ========= =========
A-40
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
STATEMENT OF CASH FLOWS
Year Ended December 31,
-------------------------------
2000 1999 1998
-------- ------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 26,217 $ 23,949 $ 21,550
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 1,079 1,094 1,122
Equity in undistributed income of subsidiaries (16,056) (7,200) (8,093)
Increase in dividends receivable (4,066) (719) --
Other, net 1,197 (325) 840
---------- -------- --------
Net cash provided by operating activities 8,371 16,799 15,419
---------- -------- --------
INVESTING ACTIVITIES
Purchases of stock of subsidiaries (1,500) -- --
Sale of stock of subsidiaries 8,215 13,757 9,356
Net cash used for acquisitions and mergers (4,391) -- (13,537)
Purchases of securities (125) (2,550) --
Proceeds from maturities of securities 850 2,000 --
Net other decrease in loans 802 2,641 1,205
Other, net -- (168) --
---------- -------- --------
Net cash provided (used) by investing activities 3,851 15,680 (2,976)
---------- -------- --------
FINANCING ACTIVITIES
Issuance of common stock 1,225 1,700 1,715
Net increase (decrease) in notes payable (2,000) 3,000 (1,930)
Payment of long-term debt (1,798) -- --
Acquisition of common stock (3,359) (49,023) (2,036)
Cash dividends paid (5,378) (4,890) (4,200)
---------- -------- --------
Net cash used by financing activities (11,310) (49,213) (6,451)
---------- -------- --------
Net increase (decrease) in cash 912 (16,734) 5,992
Cash at the beginning of the year 2,957 19,691 13,699
---------- -------- --------
Cash at the end of the year $ 3,869 $ 2,957 $ 19,691
========== ======== ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 2,431 $ 2,698 $ 2,495
========== ======== ========
Cash received during the year for income taxes, net $ (705) $ (2,195) $ (858)
========== ======== ========
A-41
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, 2000, 1999 and 1998,
such purchases totaled $130, $109 and $237, 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, 2000, 1999 and 1998 were $852, $880 and $706, 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,
------------------------------------
2000 1999 1998
----------- ---------- -----------
Loan commitments $333,391 $309,777 $309,163
Letters of credit 17,838 13,750 15,383
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:
Year Ending December 31:
2001 $ 646
2002 634
2003 563
2004 388
2005 304
Later years 3,399
---------
Total $ 5,934
=========
Rental expense on all property and equipment rented, including those
rented on a monthly or temporary basis, totaled $792, $1,100 and $1,065 during
2000, 1999 and 1998, respectively.
The Company is a defendant in legal actions arising from normal
business activities. Management believes that all 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.
A-42
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(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.
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.
A-43
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The estimated fair values of the Company's financial instruments are as follows:
December 31,
----------------------------------------------
2000 1999
----------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ------- --------- --------
FINANCIAL ASSETS
Cash and due from banks $ 162,455 $ 162,455 $ 126,691 $ 126,691
Federal funds sold, and interest-bearing deposits 66,563 66,563 53,381 53,381
Securities 560,551 561,434 596,715 595,509
Loans:
Loans (net of unearned interest) 1,666,338 1,455,481
Allowance for loan losses (25,380) (22,548)
----------- ----------
Loans, net 1,640,958 1,642,917 1,432,933 1,430,257
FINANCIAL LIABILITIES
Deposits 2,267,397 2,268,529 2,082,696 2,082,107
Short-term borrowings 37,292 37,292 22,091 22,091
Long-term borrowings 26,613 26,661 26,392 25,562
9.65% Capital Securities 25,000 22,125 25,000 24,070
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments 2,200 2,045
Letters of credit 134 103
A-44
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,
electronic banking and insurance. 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, 2000
Net interest income (expense) $ 32,541 $ 69,189 $ 3,084 $ (2,479) $ -- $ 102,335
Provision for loan losses 3,070 878 186 (89) -- 4,045
Noninterest income 5,787 16,035 6,484 46,103 (44,507) 29,902
Depreciation and amortization 2,199 3,798 180 2,258 -- 8,435
Other expenses 19,902 42,522 6,917 9,948 -- 79,289
------------ ------------ ------------- -------------- ------------
Income before taxes $ 13,157 $ 38,026 $ 2,285 $ 31,507 (44,507) $ 40,468
============ ============ ============= ============== ============
Total Assets $ 800,448 $ 1,765,678 $ 110,900 $ 432,973 (539,744) $ 2,570,255
============ ============ ============= ============= ============
Capital expenditures $ 2,723 $ 6,519 $ 81 $ 1,393 -- $ 10,716
============ ============ ============= ============= ============
December 31, 1999
Net interest income (expense) $ 23,462 $ 68,044 $ 4,655 $ (2,918) $ (8) $ 93,235
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 amortization 1,906 3,902 313 2,407 (1) 8,527
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 (expense) $ 19,969 $ 70,034 $ 4,127 $ (1,271) $ (107) $ 92,752
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 amortization 1,789 3,633 250 2,413 -- 8,085
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
============ ============ ============= ============ ============
A-45
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, 2000 and 1999 is as follows:
Quarter
----------------------------------------
2000 Fourth Third Second First
---- --------- ---------- --------- --------
Net interest income $26,512 $25,630 $25,529 $24,662
Provision for loan losses 735 840 1,180 1,289
Noninterest income 7,729 7,703 7,213 7,258
Noninterest expense 23,416 22,021 21,301 20,987
Net income 6,720 6,956 6,383 6,157
Net income per common share:
Basic 0.81 0.86 0.79 0.76
Diluted 0.80 0.85 0.78 0.75
1999
----
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
A-46
INDEX TO EXHIBITS
Exhibit
Number Name of Exhibit
------ ---------------
2.1 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 Corporation (now BancFirst Corporation) 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 Corporation Employee Stock Ownership and Thrift Plan
(filed as Exhibit 10.12 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
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 Name of Exhibit
------ ---------------
10.6* BancFirst Corporation Non-Employee Directors' Stock Option Plan.
10.7* BancFirst Corporation Directors' Deferred Stock Compensation
Plan.
10.8* Stock Purchase Agreement dated November 14, 2000 among BancFirst
Corporation, Pickard Limited Partnership and Century Life
Assurance Company.
22.1* Subsidiaries of Registrant.
23.1* Consent of PricewaterhouseCoopers LLP
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.