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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, 2001 Commission File Number 0-14384
BANCFIRST CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1221379
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Broadway, Oklahoma City, Oklahoma 73102
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (405) 270-1086
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00
Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate value of the Common Stock held by nonaffiliates of the
registrant as of February 28, 2002 was approximately $128,276,000.
As of February 28, 2002, there were 8,180,991 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the May 23, 2002 Annual Meeting of
Stockholders of registrant (the "2002 Proxy Statement") to be filed pursuant to
Regulation 14A are incorporated by reference into Part III of this report.
FORM 10-K
CROSS-REFERENCE INDEX
Item PART I Page
- -------- ------------------------------------------------------------------------ -------
1. 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
------------------------------------------------------------------------
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
------------------------------------------------------------------------
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, 75% of Century Life Assurance company, an Oklahoma chartered
insurance company, 100% of Council Oak Partners LLC, an Oklahoma limited
liability company engaged in merchant banking, and 100% of Council Oak Capital,
Inc., a corporation organizing to be a registered broker/dealer.
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 82 banking
locations serving 41 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 provides centralized 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
centrally certain specialized financial services 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.
3
Consumer lending activities of the Bank consist of traditional forms of
financing for automobiles, both direct and indirect, residential mortgage loans,
home equity loans, and other personal loans. In addition, the Bank is one of
Oklahoma's largest providers of guaranteed student loans.
The Bank's range of deposit services include checking accounts, NOW
accounts, savings accounts, money market accounts, sweep accounts, club
accounts, individual retirement accounts and certificates of deposit. Overdraft
protection and autodraft services are also offered. Deposits of the Bank are
insured by the Bank Insurance Fund administered by the Federal Deposit Insurance
Corporation ("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
nationally recognized investment management firms.
BancFirst has the following principal subsidiaries: Council Oak Investment
Corporation, a small business investment corporation; Citibanc Insurance Agency,
Inc., a credit life insurance agency, which in turn owns BancFirst Agency, Inc.,
an 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 1,447 full-time equivalent employees as of
December 31, 2001. 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, brokerage firms, personal
loan finance companies and credit unions within their respective market areas.
The communities in which the Bank maintains offices are generally local trade
centers throughout Oklahoma. The major areas of competition include interest
rates charged on loans, 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 56.98% of the
shares of the Common Stock outstanding. Under Oklahoma law, holders of a
majority of the outstanding shares of Common Stock are able to elect all of the
directors and approve significant corporate actions, including business
combinations. Accordingly, the affiliates have the ability to control the
business and affairs of the Company.
4
Recent Developments
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 was accounted for
as a book value purchase. Accordingly, the acquisition was recorded based on the
book value of Century Life and the effects of the acquisition was included in
the Company's consolidated financial statements from the date of the acquisition
forward. The acquisition did not have a material effect on the results of
operations of the Company for 2001.
Supervision and Regulation
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to bank holding companies and financial
holding companies and their subsidiaries and provides certain specific
information relevant to the Company, which is both a bank holding company and a
financial holding company. 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
In March 2000, the Company became a "financial holding company" ("FHC")
within the meaning of the Gramm-Leach-Bliley Act of 1999 (the
"Gramm-Leach-Bliley Act"), which allows bank holding companies 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. 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 Community Reinvestment Act (the
"CRA").
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
6
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 Oklahoma-chartered 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.
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, Oklahoma
state-chartered banks such as BancFirst are able to establish an unlimited
number of de novo branches in Oklahoma.
Support for Bank Subsidiaries
The Federal Reserve Board has issued regulations under the BHCA that
require a bank holding company to serve as a source of financial and managerial
strength to its subsidiary banks. Pursuant to such regulations, the Federal
Reserve Board may require the Company to stand ready to use its resources to
provide adequate capital funds to its banking subsidiaries during periods of
financial stress or adversity. Under the Federal Deposit Insurance Company
Improvement Act of 1991 ("FDICIA"), a bank holding company is required to
guarantee the compliance of any insured depository institution subsidiary that
may become "undercapitalized" (as defined in the statute) with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency, up to specified limits. See "FDICIA and Related Regulations,"
below. Under the BHCA, the Federal Reserve Board has the authority to require a
bank holding company to terminate any activity or relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve Board's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
Capital Adequacy Guidelines
The Federal Reserve Board, the Comptroller and the FDIC have issued
substantially similar risk-based and leverage capital guidelines applicable to
United States banking organizations. In addition, these regulatory agencies may
from time to time require that a banking organization maintain capital above the
minimum levels, whether because of its financial condition or actual or
anticipated growth. The Federal Reserve Board risk-based guidelines define a
three-tier capital framework. Tier 1 capital consists of common and qualifying
preferred stockholders' equity, less certain intangibles and other adjustments.
Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital,
subordinated and other qualifying debt, and the allowance for credit losses up
to 1.25 percent of risk-weighted assets. Tier 3 capital includes subordinated
debt that is unsecured, fully paid, has an original maturity of at least two
years, is not redeemable before maturity without prior approval by the Federal
Reserve and includes a lock-in clause precluding payment of either interest or
principal if the payment would cause the issuing bank's risk-based capital ratio
to fall or remain below the required minimum. The sum of Tier 1 and Tier 2
capital less investments in unconsolidated subsidiaries represents qualifying
total capital, at least 50 percent of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one
of four categories of risk-weights, based primarily on relative credit risk. The
minimum Tier 1 capital ratio is 4 percent and the minimum total capital ratio is
8 percent. The Company's Tier 1 and total risk-based capital ratios under these
guidelines at December 31, 2001 were 11.09% and 12.37%, respectively. At
December 31, 2001, the Company had no subordinated debt that qualified as Tier 3
capital.
The Federal Reserve Board also requires bank holding companies such as the
Company 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. At December 31, 2001, the Company's
leverage ratio was 7.93%.
FDICIA and Related Regulations
7
General. FDICIA, among other things, identifies five capital categories
for insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5 percent of the bank's assets at the time it became
"undercapitalized" or the amount needed to comply with the plan. Furthermore, in
the event of the bankruptcy of the parent holding company, such guarantee would
take priority over the parent's general unsecured creditors. In addition, FDICIA
requires the various regulatory agencies to prescribe certain non-capital
standards for safety and soundness relating generally to operations and
management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized) identified by FDICIA, using the total risk-based
capital, Tier 1 risk-based capital and leverage capital ratios as the relevant
capital measures, and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. Such regulations establish various degrees of corrective action to
be taken when an institution is considered undercapitalized.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable Federal banking regulator are
subject to one or more of the following sanctions: (i) forced sale of shares to
raise capital, or, where grounds exist for the appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) limitations on interest rates paid on deposits; (iv) further restrictions
on growth or required shrinkage; (v) replacement of directors or senior
executive directors; (vi) prohibitions on the receipt of correspondent deposits;
(vii) restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution; or
(ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital standards and may be increased only
with the applicable Federal banking regulator's prior written approval. The
applicable Federal banking regulator is required to impose a forced sale of
shares or merger, restrictions on affiliate transactions and restrictions on
rates paid on deposits unless it determines that such actions would not further
an institution's capital improvement. In addition to the foregoing, a critically
undercapitalized institution would be prohibited from making any payment of
principal or interest on subordinated debt without the concurrence of its
regulator and the FDIC, beginning 60 days after the institution becomes
critically undercapitalized. A critically undercapitalized institution may not,
without FDIC approval: (i) enter into material transactions outside of the
ordinary course of business; (ii) extend credit on highly leveraged
transactions; (iii) amend its charter or bylaws; (iv) make any material change
in its accounting methods; (v) engage in any covered transactions with
affiliates; (vi) pay excessive compensation or bonus (as defined); or (vii) pay
rates on liabilities significantly in excess of market rates.
Under the regulations, a "well capitalized" institution must have a Tier 1
capital ratio of at least 6 percent, a total capital ratio of at least 10
percent and a leverage ratio of at least 5 percent and not be subject to a
capital directive order. Under these guidelines, BancFirst is considered well
capitalized.
Banking agencies have also adopted final regulations which mandate that
regulators take into consideration (i) concentrations of credit risk; (ii)
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its
off-balance-sheet position); and (iii) risks from non-traditional activities, as
well as an institution's ability to manage those risks, when determining the
adequacy of an institution's capital. That evaluation will be made as a part of
the institution's regular safety and soundness examination. In 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.
8
Regulatory Restrictions on Dividends
BancFirst, as a member bank of the Federal Reserve System, may not declare
a dividend without the approval of the Federal Reserve Board unless the dividend
to be declared by BancFirst does not exceed the total of (i) BancFirst's net
profits (as defined and interpreted by regulation) for the current year to date
plus (ii) its retained net profits (as defined and interpreted by regulation)
for the preceding two years, less any required transfers to surplus. In
addition, BancFirst can only pay dividends to the extent that its retained net
profits (including the portion transferred to surplus) exceed its bad debts (as
defined by regulation). Under the Federal Deposit Insurance Act, no dividends
may be paid by an insured bank if the bank is in arrears in the payment of any
insurance assessment due to the FDIC. Additionally, state and federal regulatory
authorities have adopted standards for the maintenance of adequate levels of
capital by banks. See "Capital Adequacy Guidelines," above. Adherence to such
standards further limits the ability of banks to pay dividends. The payment of
dividends by any subsidiary bank may also be affected by other regulatory
requirements and policies, such as the maintenance of adequate capital. If, in
the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in, or is about to engage in, an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
has formal and informal policies which provide that insured banks and bank
holding companies should generally pay dividends only out of current operating
earnings.
Deposit Insurance and Assessments
BancFirst is insured by the FDIC and is required to pay certain fees and
premiums to the Bank Insurance Fund ("BIF"). 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. BancFirst is currently being assessed at the lowest rate
of zero percent.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), beginning
in 1997 banks insured under the BIF were required to pay a part of the interest
on bonds issued by the Financing Corporation ("FICO") in the late 1980s to
recapitalize the defunct Federal Savings and Loan Insurance Corporation. Before
the Funds Act, FICO payments were made only by depository institutions which
were members of the Savings Association Insurance Fund (the "SAIF"). Under the
Funds Act, until January 1, 2000, BIF members were assessed for FICO payments
at only one-fifth the rate of assessment on SAIF members. The Funds Act required
that, as of January 1, 2000, all BIF- and SAIF-insured institutions pay FICO
assessments at the same rate. For the first quarter of 2002, FICO rates have
been set at .0182% for both BIF and SAIF members. The FICO assessment rates for
both BIF and SAIF members for 2001 were:
Fourth Quarter .0184%
Third Quarter .0188%
Second Quarter .0190%
First Quarter .0196%
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
9
policies and the residual impact upon the operations of the Company.
Pending and Proposed Legislation
There are various pending and proposed bills in Congress that, among other
things, could restructure the federal supervision of financial institutions. The
Company is unable to predict with any certainty the effect any such legislation
would have on the Company, its subsidiaries or their respective activities.
Additional legislation, judicial and administrative decisions also may affect
the ability of banks to compete with each other as well as with other
businesses. These statutes and decisions may tend to make the operations of
various financial institutions more similar and increase competition among banks
and other financial institutions or limit the ability of banks to compete with
other businesses. Management currently cannot predict whether and, if so, when
any such changes might occur or the impact any such changes would have upon the
income or operations of the Company or its subsidiaries, or upon the Oklahoma
regional banking environment.
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 the main banks and 81 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, 2001.
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
------------ ------------ -----------
2001
First Quarter $ 42.031 $ 37.625 $ 0.18
Second Quarter $ 40.260 $ 38.370 $ 0.18
Third Quarter $ 44.000 $ 34.100 $ 0.18
Fourth Quarter $ 38.750 $ 33.750 $ 0.18
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
10
As of February 28, 2002 there were approximately 435 holders of record of
the Common Stock.
Future dividend payments will be determined by the Company's Board of
Directors in light of the earnings and financial condition of the Company and
the Bank, their capital needs, applicable governmental policies and regulations
and such other factors as the Board of Directors deems appropriate.
BancFirst Corporation is a legal entity separate and distinct from the
Bank, and its ability to pay dividends is substantially dependent upon dividend
payments received from the Bank. Various laws, regulations and regulatory
policies limit the Bank's ability to pay dividends to BancFirst Corporation, as
well as BancFirst Corporation's ability to pay dividends to its shareholders.
See "Liquidity and Funding" and "Capital Resources" under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Business - Supervision and Regulation" and Note 14 of the Notes
to Consolidated Financial Statements for further information regarding
limitations on the payment of dividends by BancFirst Corporation and the Bank.
Item 6. Selected Financial Data.
Incorporated by reference from "Selected Consolidated Financial Data"
contained on page A-3 of the attached Appendix.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated by reference from "Financial Review" contained on pages A-2
through A-15 of the attached Appendix.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference from "Financial Review - Market Risk" contained
on page A-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-16 through A-43 of the
attached Appendix, and include the following:
a. Report of Independent Accountants
b. Consolidated Balance Sheet
c. Consolidated Statement of Income
d. Consolidated Statement of Stockholders' Equity
e. Consolidated Statement of Cash Flows
f. Notes to Consolidated Financial Statements
Item 9. 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 2002 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 2002 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 2002 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 2002 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 2002 Proxy Statement under the caption "Transactions with Management" and
is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 2001 and 2000
Consolidated Statement of Income for the three years ended December
31, 2001
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 2001
Consolidated Statement of Cash Flows for the three years ended
December 31, 2001
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from pages
A-16 through A-43 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
------ --------------------------------------------------------------
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).
12
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 (filed as Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and
incorporated herein by reference).
10.7 BancFirst Corporation Directors' Deferred Stock Compensation
Plan (filed as Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and
incorporated herein by reference).
10.8 Stock Purchase Agreement dated November 14, 2000 among
BancFirst Corporation, Pickard Limited Partnership and Century
Life Assurance Company (filed as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2000 and incorporated herein by reference).
21.1* Subsidiaries of Registrant.
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).
99.2* Letter dated March 28, 2002 to Securities and Exchange
Commission regarding representations from Arthur Andersen LLP.
* Filed herewith.
(b) No reports on Form 8-K were filed by the Company during the fourth quarter
ended December 31, 2001.
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, 2002 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, 2002.
/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
- ---------------------------------------- -----------------------------------
Marion C. Bauman Dennis L. Brand
Director Executive Vice President and Director
(Principal Executive Officer)
/s/ C. L. Craig, Jr.
- ---------------------------------------- -----------------------------------
C. L. Craig, Jr. William H. Crawford
Director Director
/s/ James R. Daniel /s/ K. Gordon Greer
- ---------------------------------------- -----------------------------------
James R. Daniel K. Gordon Greer
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer (Principal Executive Officer)
/s/ Robert A. Gregory /s/ John C. Hugon
- ---------------------------------------- -----------------------------------
Robert A. Gregory John C. Hugon
Vice Chairman of the Board Director
(Principal Executive Officer)
- ---------------------------------------- -----------------------------------
J. R. Hutchens, Jr. William O. Johnstone
Director Vice Chairman of the Board
(Principal Executive Officer)
14
- ---------------------------------------- -----------------------------------
J. Ralph McCalmont Tom H. McCasland, Jr.
Director Director
- ---------------------------------------- -----------------------------------
Melvin Moran Ronald J. Norick
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-15
Selected Consolidated Financial Data A-3
Report of Independent Accountants A-16
Consolidated Balance Sheet A-17
Consolidated Statement of Income A-18
Consolidated Statement of Stockholders' Equity A-19
Consolidated Statement of Cash Flows A-20
Notes to Consolidated Financial Statements A-21 to A-43
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, 2001
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 achieved its eleventh year of record earnings in
2001, with net income of $28 million, which was an increase of 6.65% over the
$26.2 million of net income for 2000. This growth in earnings was achieved
despite a shrinking net interest margin, and was produced by growth in net
earning assets, growth in noninterest income, and lower provisions for loan
losses. Diluted earnings per share grew 4.7% to $3.34 from $3.19 for 2000.
Return on average assets decreased to 1.05% from 1.10% for 2000, mainly due to
the lower net interest margin. Return on average equity decreased to 13.32% from
14.89% for 2000 as a result of growth in average stockholders' equity.
Total assets increased to $2.76 billion, or 7.27%. Total loans grew $51.1
million, or 3.07%, to $1.72 billion. Total deposits grew $134 million, or 5.91%,
to $2.4 billion. Stockholders' equity increased $26.2 million, or 13.3%, to $223
million. Tangible book value per share increased to $24.34 from $20.63 at the
end of 2000, an increase of 18%.
Asset quality remained high in 2001 with nonperforming and restructured
assets to total assets increasing slightly to 0.58%, from 0.56% at year-end
2000. The allowance for loan losses to nonperforming and restructured loans was
184.24% at December 31, 2001, compared to 207.85% at the end of 2000.
In January 2001, the Company 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. Century Life had 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 82 banking locations serving 41 communities across Oklahoma.
A-2
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
At and for the Year Ended December 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Income Statement Data
Net interest income $ 104,932 $ 102,335 $ 93,235 $ 92,752 $ 84,221
Provision for loan losses 1,780 4,045 2,521 2,211 2,888
Noninterest income 36,908 29,902 28,707 24,019 21,508
Noninterest expense 96,620 87,724 81,453 80,482 71,455
Net income 27,961 26,217 23,949 21,550 20,905
Balance Sheet Data
Total assets $ 2,757,045 $ 2,570,255 $ 2,335,807 $ 2,335,883 $ 2,016,463
Securities 544,291 560,551 596,715 582,649 510,426
Total loans (net of unearned interest) 1,717,433 1,666,338 1,455,481 1,338,879 1,249,705
Allowance for loan losses 24,531 25,380 22,548 19,659 17,458
Deposits 2,401,328 2,267,397 2,082,696 2,024,800 1,761,210
Long-term borrowings 24,090 26,613 26,392 12,966 7,051
9.65% Capital Securities 25,000 25,000 25,000 25,000 25,000
Stockholders' equity 223,168 196,958 164,714 201,917 181,245
Per Common Share Data
As previously reported:
Net income - basic $ 3.38 $ 3.22 $ 2.79 $ 2.32 $ 2.48
Net income - diluted 3.34 3.19 2.75 2.27 2.41
As restated for poolings of interests:
Net income - basic 3.38 3.22 2.79 2.32 2.26
Net income - diluted 3.34 3.19 2.75 2.27 2.21
Cash dividends 0.72 0.66 0.58 0.50 0.42
Book value 27.02 23.65 20.30 21.73 19.62
Tangible book value 24.34 20.63 17.34 19.14 17.56
Selected Financial Ratios
Performance ratios:
Return on average assets 1.05% 1.10% 1.06% 1.00% 1.09%
Return on average stockholders' equity 13.32 14.89 12.96 10.95 12.14
Cash dividend payout ratio 21.30 20.50 20.79 21.55 18.58
Net interest spread 3.57 3.94 3.87 3.94 4.09
Net interest margin 4.44 4.84 4.67 4.83 4.93
Efficiency ratio (excluding restructuring charges in 1998) 68.12 66.34 66.80 67.29 67.58
Balance Sheet Ratios:
Average loans to deposits 72.12% 73.07% 68.61% 68.83% 70.12%
Average earning assets to total assets 90.11 90.11 90.11 90.17 90.28
Average stockholders' equity to average assets 7.86 7.38 8.20 9.09 8.95
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.78% 0.73% 0.85% 0.93% 0.68%
Nonperforming and restructured assets to total assets 0.58 0.56 0.61 0.60 0.51
Allowance for loan losses to total loans 1.43 1.52 1.55 1.47 1.40
Allowance for loan losses to nonperforming
and restructured loans 184.24 207.85 183.47 158.69 206.55
Net chargeoffs to average loans 0.16 0.17 0.16 0.14 0.20
A-3
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
December 31, 2001 December 31, 2000 December 31, 1999
-------------------------------- ------------------------------- ---------------------------------
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) $1,684,460 $144,928 8.60% $1,542,795 $145,913 9.46% $1,355,332 $121,406 8.96%
Investments - taxable 500,820 29,513 5.89 527,241 33,018 6.26 517,844 30,964 5.98
Investments - tax exempt 50,126 3,420 6.82 50,869 3,386 6.66 50,627 3,303 6.52
Federal funds sold 172,605 6,657 3.86 29,649 1,814 6.12 106,362 5,299 4.98
---------- -------- ---------- -------- ---------- -------
Total earning assets 2,408,011 184,518 7.66 2,150,554 184,131 8.56 2,030,165 160,972 7.93
---------- -------- ---------- -------- ---------- -------
Nonearning assets:
Cash and due from banks 144,320 129,212 123,527
Interest receivable and other
assets 145,159 130,707 119,646
Allowance for loan losses (25,143) (23,939) (20,257)
---------- ---------- ----------
Total nonearning assets 264,336 235,980 222,916
---------- ---------- ----------
Total assets $2,672,347 $2,386,534 $2,253,081
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 349,613 5,777 1.65% $ 351,559 7,855 2.23% $ 335,662 6,937 2.07%
Savings deposits 451,156 13,514 3.00 406,909 16,398 4.03 367,609 12,550 3.41
Time deposits 1,006,792 52,718 5.24 890,944 49,721 5.58 848,819 41,353 4.87
Short-term borrowings 41,817 1,632 3.90 31,712 1,898 5.99 32,766 1,628 4.97
Long-term borrowings 25,638 1,623 6.33 26,903 1,735 6.45 20,642 1,234 5.98
9.65% Capital Securities 25,000 2,447 9.79 25,000 2,447 9.79 25,000 2,447 9.79
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities 1,900,016 77,711 4.09 1,733,027 80,054 4.62 1,630,498 66,149 4.06
---------- -------- ---------- -------- ---------- --------
Interest-free funds:
Demand deposits 528,186 461,870 423,347
Interest payable and other 34,219 15,584 14,380
liabilities
Stockholders' equity 209,926 176,053 184,856
---------- ---------- ----------
Total interest free-funds 772,331 653,507 622,583
---------- ---------- ----------
Total liabilities
and stockholders' equity $2,672,347 $2,386,534 $2,253,081
========== ========== ==========
Net interest income $106,807 $104,077 $ 94,823
======== ======== ========
Net interest spread 3.57% 3.94% 3.87%
======= ======= =====
Net interest margin 4.44% 4.84% 4.67%
======= ======= =====
(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 $2.73 million on a taxable equivalent basis in 2001, compared
to an increase of $9.25 million in 2000. The net interest margin on a taxable
equivalent basis for 2001 was 4.44%, compared to 4.84% for 2000 and 4.67% for
1999. 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 2001 and 2000. The
increase in 2001 was primarily due to growth in loans and federal funds sold,
which was mostly offset by a negative rate variance. Average loans grew $142
million, or 9.18%, and federal funds sold rose $143 million, or 482%. Falling
interest rates and a relatively flat, and sometimes inverted, yield curve
contributed to the negative rate variance of $8.98 million. The net interest
margin decreased 40 basis points as a result. In 2000, average loans increased
$187 million, or 13.83%, while average net earning assets increased only $17.9
million, or 4.47%. This resulted in positive mix and volume variances, which
were partially offset by a negative rate variance. The net interest margin
increased 17 basis points for 2000.
VOLUME/RATE ANALYSIS Change in 2001 Change in 2000
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 $ (985) $ 13,398 $ (14,383) $ 24,507 $ 16,792 $ 7,715
Investments - taxable (3,505) (1,655) (1,850) 2,054 562 1,492
Investments - tax exempt 34 (49) 83 83 16 67
Federal funds sold 4,843 8,746 (3,903) (3,485) (3,822) 337
-------- -------- -------- -------- -------- -------
Total interest income 387 20,440 (20,053) 23,159 13,548 9,611
-------- -------- -------- -------- -------- -------
Interest Expense:
Transaction deposits (2,078) (43) (2,035) 1,074 530 544
Savings deposits (2,884) 1,783 (4,667) 3,692 870 2,822
Time deposits 2,997 6,465 (3,468) 8,368 2,052 6,316
Short-term borrowings (266) 605 (871) 270 (53) 323
Long-term borrowings (112) (82) (30) 501 374 127
9.65% Capital Securities -- -- -- -- -- --
-------- -------- -------- -------- -------- -------
Total interest expense (2,343) 8,728 (11,071) 13,905 3,773 10,132
-------- -------- -------- -------- -------- -------
Net interest income $ 2,730 $ 11,712 $ (8,982) $ 9,254 $ 9,775 $ (521)
======== ======== ======== ======== ======== =======
(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 2001, 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, 2001. At that date, interest-bearing liabilities
exceeded earning assets by $836 million in the three month interval. The
Company's negative gap position decreased in 2001 due to an increase in federal
funds sold and interest bearing deposits that reprice immediately. The negative
gap position increased in 2000 as a result of the majority of the earning asset
growth having a maturity or repricing frequency of one to five years. This
negative gap position assumes that the Company's core savings and transaction
deposits are immediately rate sensitive and reflects management's perception
that the yield curve will be positively sloped over the long
A-5
term. When the yield curve flattens, as it did in 1998 through 2001, 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, 2001 0 to 3 4 to 12 1 to 5 Over 5
Months Months Years Years Total
----------- --------- ---------- --------- ----------
EARNING ASSETS
Loans $ 584,316 $ 290,998 $ 653,649 $ 188,470 $1,717,433
Federal funds sold and interest
bearing deposits 220,528 -- -- -- 220,528
Securities 17,594 90,730 389,045 46,922 544,291
----------- --------- ---------- --------- ----------
Total $ 822,438 $ 381,728 $1,042,694 $ 235,392 $2,482,252
=========== ========= ========== ========= ==========
FUNDING SOURCES
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 355,683 $ 355,683
Savings and transaction deposits 834,745 -- -- -- 834,745
Time deposits of $100 or more 246,125 56,213 -- -- 302,338
Time deposits under $100 524,638 140,499 -- -- 665,137
Short-term borrowings 52,091 -- -- -- 52,091
Long-term borrowings 1,046 3,569 15,171 4,304 24,090
9.65% Capital Securities -- -- -- 25,000 25,000
Stockholders' equity -- -- -- 223,168 223,168
----------- --------- ---------- --------- ----------
Total $ 1,658,645 $ 200,281 $ 15,171 $ 608,155 $2,482,252
=========== ========= ========== ========= ==========
Interest sensitivity gap $ (836,207) $ 181,447 $1,027,523 $(372,763)
Cumulative gap $ (836,207) $(654,760) $ 372,763 $ --
Cumulative gap as a percentage
of total earning assets (33.69)% (26.38)% 15.02% --%
(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 decreased to $1.78 million for 2001,
compared to $4.05 million for 2000 and $2.52 million for 1999. 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 $2.63 million for 2001, compared
to $2.69 million for 2000 and $2.13 million for 1999. These net charge-offs were
equivalent to only 0.16%, 0.17% and 0.16% of average loans for 2001, 2000 and
1999, respectively. A more detailed discussion of the allowance for loan losses
is provided under "Loans."
Noninterest Income
Noninterest income increased $7.01 million in 2001, or 23.43%, compared to
increases of $1.2 million, or 4.16%, in 2000, and $4.69 million, or 19.52%, in
1999. 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, acquisitions and internal deposit
growth. 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 2001 and 2000 due to lower mortgage originations. Other noninterest
income increased $4.14 in 2001, compared to an increase of $281,000 in 2000, due
principally to revenues of Century Life. Other noninterest income in 1999
included a $900,000 gain on the sale of a branch.
A-6
Net gains on securities transactions were $221,000 in 2001 and $244,000 in
1999. The Company's practice is to hold its securities to maturity and it does
not engage in trading activities. The net gains in 2001 were mainly due to calls
of debt securities. In 1999, a portion of an investment made by the Company's
small business investment company was redeemed at a gain. A more detailed
discussion of securities is provided under "Securities."
Noninterest Expense
Total noninterest expense increased in 2001 by $8.9 million, or 10.14%,
compared to increases of $6.27 million, or 7.7%, for 2000 and $971,000, or 1.21%
for 1999. Salaries and employee benefits have increased over the years due to
acquisitions, higher salary levels and benefits costs, additional staff for new
product lines and increased loan demand. Occupancy and fixed assets expense, and
depreciation have increased as a result of more facilities from acquisitions and
new branches opened. Amortization decreased in 2001 because of core deposit
premiums and goodwill that became fully amortized. Amortization increased in
prior years to acquisitions. Net expense from other real estate owned of
$153,000 was recognized for 2001, compared to $400,000 for 2000 and $164,000 for
1999. These amounts are reflective of the Company's efforts to maintain a low
level of nonperforming assets. Other noninterest expenses increased $4.15
million in 2001, partly from $2.27 million of expenses from Century Life's
insurance business.
Income Taxes
Income tax expense increased to $15.5 million in 2001, from $14.3 million
for 2000 and $14 million for 1999. The effective tax rates for 2001, 2000 and
1999 were 35.63%, 35.22% and 36.92%, respectively. The Company implemented tax
minimization strategies in 2000 which resulted in a lower effective tax rate.
The primary reasons for the difference between the Company's effective tax rate
and the federal statutory rate are tax-exempt income, nondeductible amortization
and state tax expense.
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 $144 million as compared to December 31,
2000, as a result of funds from deposit growth and other sources being held
liquid rather than being invested longer term. Cash and federal funds sold
increased $48.9 million at December 31, 2000 compared to year end 1999, due to a
higher level of temporary deposits and higher federal funds purchased from
correspondent banks.
Securities
Total securities decreased $16.3 million, or 2.9%, compared to an decrease
of $36.2 million, or 6.06%, in 2000. The decreases in 2000 were due to funds
from maturities of securities being used to fund loan growth. Also, as noted
above, funds from deposit growth and other sources in 2001 were held liquid
rather than being invested longer term in securities.
Securities available for sale represented 86.79% of the total securities
portfolio at year-end 2001, compared to 80.91% at year-end 2000. These levels
reflect the Company's strategy of maintaining a very liquid portfolio.
Securities available for sale had a net unrealized gain of $13.9 million at
year-end 2001, compared to a $2.9 million net unrealized gain the preceding
year. These gains are included in the Company's stockholders' equity as net
unrealized gains of $9.19 million and $1.53 million, net of tax, for 2001 and
2000, respectively.
SECURITIES December 31
--------------------------------------
2001 2000 1999
--------- --------- ---------
(Dollars in thousands)
Held for Investment
U.S. Treasury and other federal agencies $ 28,324 $ 59,433 $ 79,564
States and political subdivisions 43,552 47,558 49,917
Other securities -- -- --
--------- --------- ---------
Total $ 71,876 $ 106,991 $ 129,481
========= ========= =========
Estimated market value $ 73,535 $ 107,874 $ 128,275
========= ========= =========
Available for Sale
U.S. Treasury and other federal agencies $ 454,279 $ 433,224 $ 449,468
States and political subdivisons 4,254 7,144 2,861
Other securities 13,882 13,192 14,905
--------- --------- ---------
Total $ 472,415 $ 453,560 $ 467,234
========= ========= =========
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 92.34% of the total portfolio.
A-8
After Five
MATURITY DISTRIBUTION After One Year Years
OF SECURITIES But But
Within Five Within Ten
December 31, 2001 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 $ 7,559 5.79% $ 15,740 6.94% $ 3,595 5.97% $ 1,430 7.20% $ 28,324 6.52%
State and political
subdivisions 8,204 7.68 19,560 6.94 12,540 7.60 3,248 7.70 43,552 7.33
Other securities -- -- -- -- -- -- -- -- -- --
-------- -------- ------- -------- --------
Total $ 15,763 6.77 $ 35,300 6.94 $16,135 7.24 $ 4,678 7.55 $ 71,876 7.01
======== ======== ======= ======== ========
Percentage of total 21.93% 49.11% 22.45% 6.51% 100.00%
======== ======== ======= ======== ========
Available for Sale
U.S. Treasury and other
federal agencies $ 88,875 5.77% $359,330 5.55% $ 4,845 5.99% $ 1,229 5.21% $454,279 5.60%
State and political
subdivisions 363 8.73 2,585 7.74 877 7.73 429 7.89 4,254 7.84
Other securities -- -- 415 6.28 -- -- 13,467 5.89 13,882 5.90
-------- -------- ------- -------- --------
Total $ 89,238 5.78 $362,330 5.57 $ 5,722 6.26 $ 15,125 5.89 $472,415 5.63
======== ======== ======= ======== ========
Percentage of total 18.89 % 76.70% 1.21% 3.20% 100.00 %
======== ======== ======= ======== ========
Total securities $105,001 5.93% $397,630 5.69% $21,857 6.99% $ 19,803 6.26% $544,291 5.82%
======== ======== ======= ======== ========
Percentage of total 19.29 % 73.05% 4.02% 3.64% 100.00%
======== ======== ======= ======== ========
Loans
The Company has generated significant loan growth from both internal
originations and acquisitions. Total loans increased $51.1 million, or 3.07%, in
2001, and $211 million, or 14.49%, in 2000. 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.
Most of the loan growth in 2001 was in commercial and residential real estate.
Nearly half of the loan growth in 2000 was in commercial loans. Construction and
development loans totaled only $84.5 million, or 4.92% of total loans as of the
end of 2001. 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 2001, this
percentage was 52.44% compared to 51.40% for 2000. 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,
-----------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------------- ------------------- ------------------- -------------------- -------------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
----------- ------- ---------- ------- ----------- ------- ----------- -------- ---------- -------
(Dollars in thousands)
Commercial, financial
and other $ 545,371 31.76% $ 534,743 32.09% $ 433,416 29.78% $ 361,222 26.98% $ 342,779 27.43%
Real estate -
construction 84,445 4.92 84,637 5.08 85,634 5.88 75,907 5.67 54,858 4.39
Real estate - mortgage 816,142 47.52 771,783 46.32 684,838 47.05 663,448 49.55 611,163 48.90
Consumer 271,475 15.80 275,175 16.51 251,593 17.29 238,302 17.80 240,905 19.28
----------- ------- ---------- ------- ----------- ------- ----------- -------- ---------- -------
Total $1,717,433 100.00% $1,666,338 100.00% $1,455,481 100.00% $ 1,338,879 100.00% $1,249,705 100.00%
=========== ======= ========== ======= =========== ======= =========== ======== ========== =======
A-9
Over 43% 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 2001. The short maturities and adjustable 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
----------------------------------------------
After One
December 31, 2001 Within But Within After
One Year Five Years Five Years Total
-------------- ------------- --------------- -------------
(Dollars in thousands)
Commercial, financial and other $ 302,338 $ 193,427 $ 49,606 $ 545,371
Real estate - construction 66,992 13,551 3,902 84,445
Real estate - mortgage (excluding loans
Secured by 1 to 4 family residential properties) 93,893 129,773 208,683 432,349
-------------- ------------- -------------- -------------
Total $ 463,223 $ 336,751 $ 262,191 $1,062,165
============== ============= ============== =============
Loans with predetermined interest rates $ 225,227 $ 172,329 $ 84,978 $ 482,534
Loans with adjustable interest rates 237,996 164,422 177,213 579,631
-------------- ------------- -------------- -------------
Total $ 463,223 $ 336,751 $ 262,191 $1,062,165
============== ============= ============== =============
Percentage of total 43.61% 31.70% 24.69% 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 by $1.67 million, or
11.67% in 2001, and $106,000, or 0.74% in 2000. Nonperforming and restructured
loans as a percentage of total loans was 0.78% at year-end 2001, compared to
0.73% at year-end 2000 and 0.85% at year-end 1999. 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. Nonaccrual loans increased $1.37 million, or 15.51%, in 2001. Total
interest income which was not accrued on nonaccrual loans outstanding at year
end was approximately $450,000 in 2001 and $379,000 in 2000. Only a small amount
of this interest is 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 the principal and some of
the 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 2001, the allowance for loan losses as a percentage of
nonperforming and restructured loans was 184.24%, compared to 207.85% at the end
of 2000 and 183.47% at the end of 1999.
A-10
NONPERFORMING AND RESTRUCTURED ASSETS December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
--------- ---------- ---------- ---------- ---------
(Dollars in thousands)
Past due over 90 days and still accruing $ 1,742 $ 2,790 $ 1,666 $ 2,792 $ 1,600
Nonaccrual 10,225 8,852 9,565 8,308 6,416
Restructured 1,348 569 1,059 1,288 436
--------- --------- --------- --------- ---------
Total nonperforming and restructured loans 13,315 12,211 12,290 12,388 8,452
Other real estate owned and repossessed assets 2,699 2,130 1,945 1,639 1,766
--------- --------- --------- --------- ---------
Total nonperforming and restructured assets $ 16,014 $ 14,341 $ 14,235 $ 14,027 $ 10,218
========= ========= ========= ========= =========
Nonperforming and restructured loans to total loans 0.78% 0.73% 0.85% 0.93% 0.68%
========= ========= ========= ========= =========
Nonperforming and restructured assets to total assets 0.58% 0.56% 0.61% 0.60% 0.51%
========= ========= ========= ========= =========
Other real estate owned and repossessed assets increased in 2001 to
$2.7 million from $2.13 million at year-end 2000. 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 $27.8 million of these loans, which are not included in
nonperforming and restructured assets, at December 31, 2001. 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 2001,
the Company recognized $2.63 million of net charge-offs, which was only 0.16% of
average loans, compared to $2.69 million of net charge-offs, or 0.17% of average
loans, for 2000.
Year Ended December 31,
----------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES 2001 2000 1999 1998 1997
------------ ----------- ----------- ----------- ------------
(Dollars in thousands)
Balance at beginning of year $ 25,380 $ 22,548 $ 19,659 $ 17,458 $ 16,569
----------- ----------- ----------- ----------- ------------
Charge-offs:
Commercial (854) (1,062) (1,035) (1,805) (1,182)
Real estate (428) (815) (368) (212) (238)
Consumer (2,274) (2,481) (1,499) (989) (1,670)
Other (101) (19) (199) (171) (80)
----------- ----------- ----------- ----------- ------------
Total charge-offs (3,657) (4,377) (3,101) (3,177) (3,169)
----------- ----------- ----------- ----------- ------------
Recoveries:
Commercial 336 544 409 811 320
Real estate 287 353 153 223 202
Consumer 368 770 318 258 315
Other 37 19 89 34 25
----------- ----------- ----------- ----------- ------------
Total recoveries 1,028 1,686 969 1,326 862
----------- ----------- ----------- ----------- ------------
Net charge-offs (2,629) (2,691) (2,132) (1,851) (2,307)
Provisions charged to operations 1,780 4,045 2,521 2,211 2,888
Additions from acquisitions -- 1,478 2,500 1,841 308
----------- ----------- ----------- ------------ ------------
Balance at end of year $ 24,531 $ 25,380 $ 22,548 $ 19,659 $ 17,458
=========== =========== =========== =========== ============
Average loans $ 1,684,460 $ 1,542,795 $ 1,355,332 $ 1,290,557 $ 1,181,421
=========== =========== =========== =========== ============
Total loans $ 1,717,433 $ 1,666,338 $ 1,455,481 $ 1,338,879 $ 1,249,705
=========== =========== =========== =========== ============
Net charge-offs to average loans 0.16% 0.17% 0.16% 0.14% 0.20%
=========== =========== =========== =========== ============
Allowance to total loans 1.43% 1.52% 1.55% 1.47% 1.40%
=========== =========== =========== =========== ============
Allocation of the allowance by category of loans:
Commercial, financial and other $ 7,500 $ 8,161 $ 6,612 $ 5,277 $ 4,358
Real estate - construction 1,106 1,178 1,364 1,400 1,085
Real estate - mortgage 10,673 10,262 10,161 9,406 7,883
Consumer 3,332 3,586 3,513 3,229 2,924
Unallocated 1,920 2,193 897 347 1,208
----------- ----------- ----------- ----------- ------------
Total $ 24,531 $ 25,380 $ 22,548 $ 19,659 $ 17,458
=========== =========== =========== =========== ============
Percentage of loans in each category to total loans:
Commercial, financial and other 31.76% 32.09% 29.78% 26.98% 27.43%
Real estate - construction 4.92 5.08 5.88 5.67 4.39
Real estate - mortgage 47.52 46.32 47.05 49.55 48.90
Consumer 15.80 16.51 17.29 17.80 19.28
----------- ----------- ----------- ----------- ------------
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 $134 million, or 5.91%, in 2001, and $185
million, or 8.87%, in 2000. The increase in 2001 was from internal growth, while
the increase in 2000 was from both internal growth and acquisitions. Demand
deposits as a percentage of total deposits have been increasing since 1994. Core
deposits were 87.20% of total deposits in 2001, compared to 88.94% in 2000.
A-12
ANALYSIS OF AVERAGE DEPOSITS Year Ended December 31,
---------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------- ---------------- ------------ ------------ ------------
Average Balances (Dollars in thousands)
Demand deposits $ 528,186 $ 461,870 $ 423,347 $ 396,802 $ 332,513
Interest-bearing transaction deposits 349,613 351,559 335,662 319,083 346,335
Savings deposits 451,156 406,909 367,609 332,810 260,634
Time deposits under $100,000 707,707 657,535 632,995 646,003 562,415
---------------- ---------------- ------------ ------------ ------------
Total core deposits 2,036,662 1,877,873 1,759,613 1,694,698 1,501,897
Time deposits of $100,000 or more 299,085 233,409 215,824 180,169 182,893
---------------- ---------------- ------------ ------------ ------------
Total deposits $ 2,335,747 $ 2,111,282 $ 1,975,437 $ 1,874,867 $ 1,684,790
================ ================ ============ ============ ============
% 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 22.61% 21.88% 21.43% 21.16% 19.74%
Interest-bearing transaction deposits 14.97 1.65% 16.65 2.23% 16.99 2.07% 17.02 2.40% 20.56 2.77%
Savings deposits 19.32 3.00 19.27 4.03 18.61 3.41 17.75 2.79 15.47 3.07
Time deposits under $100,000 30.30 5.18 31.14 5.45 32.04 4.87 34.46 5.49 33.37 5.39
-------- ------- ------- ------- --------
Total core deposits 87.20 88.94 89.07 90.39 89.14
Time deposits of $100,000 or more 12.80 5.37 11.06 5.94 10.93 4.88 9.61 5.84 10.86 5.41
-------- ------- ------- ------- --------
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======= ======= ======= ========
Average rate paid on
Interest-bearing deposits 3.98% 4.48% 3.92% 4.26% 4.26%
====== ======= ====== ====== ======
The Company has not utilized brokered deposits. Approximately 90% of
its time deposits of $100,000 or more at December 31, 2001 mature in one year or
less.
MATURITY OF CERTIFICATES OF DEPOSIT December 31,
$100,000 or More 2001
---------------
(In thousands)
Three months or less $ 136,663
Over three months through six months 57,755
Over six months through twelve months 78,649
Over twelve months 29,271
---------------
Total $ 302,338
===============
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 $52.1 million at December 31, 2001, compared to
$37.3 million in December 31, 2000.
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 principally used to match-fund longer term
fixed rate loans, and are collateralized by a pledge of residential first
mortgages and certain securities. Long-term borrowings decreased to $24.1
million in 2001 from $26.6 million in 2000.
The Bank is highly liquid. This liquidity positions the Bank to respond
to increased loan demand and other requirements for funds, or to decreases in
funding sources. Cash flows from operations, investing activities and other
funding sources have provided the funds for the increased loan activity.
The liquidity of BancFirst Corporation is dependent upon dividend
payments from the Bank and its ability to obtain financing. Banking regulations
limit bank dividends based upon net earnings retained by the bank and minimum
capital requirements. Dividends in excess of these limits require regulatory
approval. During 2001, the Bank declared four common stock dividends totaling
$4.57 million and two preferred stock dividends totaling $1.93 million.
A-13
Capital Resources
Stockholders' equity totaled $223 million at year-end 2001, compared to
$197 million at year-end 2000 and $165 million at year-end 1999. Stockholders'
equity increased in 2001 and 2000 due to net earnings retained, stock option
exercises, common stock issued for the acquisition of First Southwest in 2000,
and unrealized gains on securities. The decrease in stockholders' equity in 1999
was primarily the net result of stock repurchases and net earnings retained. The
Company's average equity capital ratio for 2001 was 7.86%, compared to 7.38% for
2000 and 8.2% for 1999. At December 31, 2001, the Company's leverage ratio was
7.93%, its tier 1 captial ratio was 11.09%, and its total risk-based capital
ratio was 12.37%, compared to minimum requirements of 3%, 4% 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 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 2001, the Company purchased and canceled 119,519 shares at an
average price of $39.34. In 2000, the Company purchased and canceled 108,379
shares at an average price of $30.99 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 2002.
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, 2001.
MARKET RISK Expected Maturity / Principal Repayments at December 31,
Avg. ------------------------------------------------------------ Fair
Rate 2002 2003 2004 2005 2006 Thereafter Balance Value
---- ---- ---- ---- ---- ---- ---------- ------- -----
December 31, 2001
Interest Sensitive Assets
Loans 7.78% $743,089 $298,271 $185,725 $ 130,275 $ 65,140 $ 294,933 $1,717,433 $1,713,771
Federal funds sold and
interest bearing
deposits 2.17 220,528 -- -- -- -- -- 220,528 220,528
Securities 5.82 105,001 97,772 98,705 78,933 122,220 41,660 544,291 545,950
Interest Sensitive
Liabilities
Savings and transaction
deposits 1.65 834,745 -- -- -- -- -- 834,745 834,745
Time deposits 4.44 853,486 107,255 4,476 2,238 20 -- 967,475 1,577,262
Short-term borrowings 1.93 52,091 -- -- -- -- -- 52,091 52,091
Long-term borrowings 6.32 4,615 5,251 3,688 3,437 2,795 4,304 24,090 24,550
9.65% Capital Securities 9.79 -- -- -- -- -- 25,000 25,000 25,930
Off Balance Sheet Items
Loan commitments -- -- -- -- -- -- -- 2,715
Letter of credit -- -- -- -- -- -- -- 156
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.
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-15
REPORT 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, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for the three years ended December 31, 2001. 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 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, 2001 and 2000, and the results
of their operations and their cash flows for the three years ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
March 25, 2002
A-16
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
December 31,
--------------------------
2001 2000
------------- ------------
ASSETS
Cash and due from banks $ 152,577 $ 162,455
Interest-bearing deposits with banks 12,528 663
Federal funds sold 208,000 65,900
Securities (market value: $545,950 and $561,434 respectively) 544,291 560,551
Loans:
Total loans (net of unearned interest) 1,717,433 1,666,338
Allowance for loan losses (24,531) (25,380)
------------- -------------
Loans, net 1,692,902 1,640,958
Premises and equipment, net 61,642 57,795
Other real estate owned 2,132 1,453
Intangible assets, net 22,149 25,156
Accrued interest receivable 22,012 27,288
Other assets 38,812 28,036
------------- ------------
Total assets $ 2,757,045 $ 2,570,255
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 599,108 $ 511,807
Interest-bearing 1,802,220 1,755,590
------------- -------------
Total deposits 2,401,328 2,267,397
Short-term borrowings 52,091 37,292
Long-term borrowings 24,090 26,613
9.65% Capital Securities 25,000 25,000
Accrued interest payable 9,391 10,302
Other liabilities 19,837 6,693
Minority interest 2,140 --
------------- -------------
Total liabilities 2,533,877 2,373,297
------------- -------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1.00 par (shares issued and outstanding: 8,260,099 and
8,326,638, respectively) 8,260 8,327
Capital surplus 57,412 56,169
Retained earnings 148,306 130,932
Accumulated other comprehensive income, net of income tax of
$4,680 and $1,366, respectively 9,190 1,530
------------ ------------
Total stockholders' equity 223,168 196,958
------------ ------------
Total liabilities and stockholders' equity $ 2,757,045 $ 2,570,255
============ ============
See accompanying notes to consolidated financial statements.
A-17
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
Year Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
INTEREST INCOME
Loans, including fees $ 144,250 $ 145,356 $ 120,974
Securities:
Taxable 29,513 33,018 30,964
Tax-exempt 2,223 2,201 2,147
Federal funds sold 6,266 1,714 5,247
Interest-bearing deposits with banks 391 100 52
--------- --------- ---------
Total interest income 182,643 182,389 159,384
--------- --------- ---------
INTEREST EXPENSE
Deposits 72,009 73,974 60,840
Short-term borrowings 1,632 1,898 1,628
Long-term borrowings 1,623 1,735 1,234
9.65% Capital Securities 2,447 2,447 2,447
--------- --------- ---------
Total interest expense 77,711 80,054 66,149
--------- --------- ---------
Net interest income 104,932 102,335 93,235
Provision for loan losses 1,780 4,045 2,521
--------- --------- ---------
Net interest income after provision
for loan losses 103,152 98,290 90,714
--------- --------- ---------
NONINTEREST INCOME
Trust revenue 3,632 3,130 2,535
Service charges on deposits 19,880 17,493 16,453
Securities transactions 221 -- 244
Income from sales of loans 947 1,186 1,663
Other 12,228 8,093 7,812
--------- --------- ---------
Total noninterest income 36,908 29,902 28,707
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 54,513 49,208 45,764
Occupancy and fixed assets expense, net 5,815 5,768 5,082
Depreciation 5,342 5,186 4,884
Amortization 2,996 3,249 3,044
Data processing services 2,240 2,505 2,150
Net (income) expense from other real estate owned 153 400 164
Other 25,561 21,408 20,365
--------- --------- ---------
Total noninterest expense 96,620 87,724 81,453
--------- --------- ---------
Income before taxes 43,440 40,468 37,968
Income tax expense (15,479) (14,251) (14,019)
--------- --------- ---------
Net income 27,961 26,217 23,949
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities 8,110 5,038 (8,780)
Reclassification adjustment for (gains) losses included in net
income (450) -- (159)
--------- --------- ---------
Comprehensive income $ 35,621 $ 31,255 $ 15,010
========= ========= =========
NET INCOME PER COMMON SHARE
Basic $ 3.38 $ 3.22 $ 2.79
========= ========= =========
Diluted $ 3.34 $ 3.19 $ 2.75
========= ========= =========
See accompanying notes to consolidated financial statements.
A-18
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Year Ended December 31,
------------------------------------------------------------------------
2001 2000 1999
------------------------ ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------ ----------- ----------------------- ------------ ----------
COMMON STOCK
Issued at beginning of year 8,326,638 $ 8,327 8,112,170 $ 8,112 9,291,929 $ 9,292
Shares issued 52,980 53 322,847 323 82,299 82
Shares acquired and canceled (119,519) (120) (108,379) (108) (1,262,058) (1,262)
--------- ------- --------- ------- --------- -------
Issued at end of year 8,260,099 $ 8,260 8,326,638 $ 8,327 8,112,170 $ 8,112
========= ======= ========= ======= ========= =======
CAPITAL SURPLUS
Balance at beginning of year $ 56,169 $ 46,766 $ 45,148
Common stock issued 1,243 9,403 1,618
-------- -------- --------
Balance at end of year $57,412 $ 56,169 $ 46,766
======== ======== ========
RETAINED EARNINGS
Balance at beginning of year $130,932 $113,344 $142,046
Net income 27,961 26,217 23,949
Dividends on common stock ($0.72, $0.66,
and $0.58 per share, respectively) (5,953) (5,378) (4,890)
Acquisition of entity under common control (52) -- --
Common stock canceled (4,582) (3,251) (47,761)
-------- -------- --------
Balance at end of year $148,306 $130,932 $113,344
======== ======== ========
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Unrealized gains (losses) on securities:
Balance at beginning of year $ 1,530 $ (3,508) $ 5,431
Net change 7,660 5,038 (8,939)
-------- -------- --------
Balance at end of year $ 9,190 $ 1,530 $ (3,508)
======== ======== ========
Total stockholders' equity $223,168 $196,958 $164,714
======== ======== ========
See accompanying notes to consolidated financial statements.
A-19
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
December 31,
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2001 2000 1999
----------- ----------- -----------
Net income $ 27,961 $ 26,217 $ 23,949
Adjustments to reconcile to net cash provided by operating activities:
Provision for loan losses 1,780 4,045 2,521
Depreciation and amortization 8,338 8,435 8,527
Net amortization of securities premiums and discounts (450) 89 407
Unrealized losses on other real estate owned 245 465 89
(Increase) decrease in interest receivable 5,473 (4,660) (437)
Increase (decrease) in interest payable (911) 1,362 (234)
(Increase) decrease in deferred tax asset 1,464 (866) (282)
Other, net (8,534) (3,872) 5,237
---------- ---------- -----------
Net cash provided by operating activities 35,366 31,215 29,303
---------- ---------- -----------
INVESTING ACTIVITIES
Net cash and due from banks provided by (used for) acquisitions and divestitures (4,856) (1,831) 4,158
Purchases of securities:
Held for investment (3,557) (29,232) (36,583)
Available for sale (164,715) (38,460) (113,123)
Maturities of securities:
Held for investment 23,977 21,285 54,842
Available for sale 146,036 114,963 96,240
Proceeds from sales and calls of securities:
Held for investment 17,750 2,889 806
Available for sale 20,131 -- --
Net (increase) decrease in federal funds sold (142,100) (11,134) 135,703
Purchases of loans (25,383) (2,527) (15,113)
Proceeds from sales of loans 136,378 138,181 146,398
Net other increase in loans (168,729) (273,248) (195,195)
Purchases of premises and equipment (12,133) (10,716) (9,588)
Proceeds from the sale of other real estate owned and repossessed assets 4,616 4,780 2,905
Other, net 2,357 2,899 2,040
---------- ---------- -----------
Net cash provided (used) for investing activities (170,228) (82,151) 73,490
---------- ---------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in demand, transaction and savings deposits 119,437 76,174 (21,697)
Net increase (decrease) in certificates of deposits 14,494 3,362 (13,449)
Net increase (decrease) in short-term borrowings 14,799 15,201 (32,750)
Net increase (decrease) in long-term borrowings (2,523) (1,577) 13,426
Issuance of common stock 1,297 1,225 1,700
Acquisition of common stock (4,702) (3,359) (49,023)
Cash dividends paid (5,953) (5,378) (4,890)
---------- ---------- -----------
Net cash provided (used) by financing activities 136,849 85,648 (106,683)
---------- ---------- -----------
Net increase (decrease) in cash and due from banks 1,987 34,712 (3,890)
Cash and due from banks at the beginning of the year 163,118 128,406 132,297
---------- ---------- -----------
Cash and due from banks at the end of the year $ 165,105 $ 163,118 $ 128,406
========== ========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 78,622 $ 78,173 $ 66,043
========== ========== ===========
Cash paid during the year for income taxes $ 14,049 $ 15,806 $ 12,996
========== ========== ===========
See accompanying notes to consolidated financial statements.
A-20
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancFirst Corporation and its
subsidiaries (the "Company") conform to generally accepted accounting principles
and general practice within the banking industry. A summary of the significant
accounting policies follows.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of BancFirst Corporation, BFC Capital Trust I, Century Life Assurance Company,
Council Oak Capital, Inc., Council Oak Partners, LLC, and BancFirst and its
subsidiaries. The operating subsidiaries of BancFirst are Council Oak 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 2000 and 1999 have been reclassified to conform to the 2001
presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 values
of the specific securities sold.
Loans
Loans are stated at the principal amount outstanding. Interest income
on certain installment loans is recorded by use of a method that produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on all other performing loans is recognized based upon the principal
amount outstanding.
A loan is placed on nonaccrual status when, in the opinion of
management, the future collectibility of interest and/or principal is in serious
doubt. Interest income is recognized on certain of these loans on a cash basis
if the full collection of the remaining principal balance is reasonably
expected. Otherwise, interest income is not recognized until the principal
balance is fully collected.
A-21
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Allowance for Loan Losses
The allowance for loan losses is increased by 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 that, in management's judgment, 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 Company 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 consists 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-22
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 adoption of this standard did not have
a material effect on the Company's consolidated financial statements.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations". This Statement is effective for all
business combinations initiated after June 30, 2001, and requires that all
business combinations be accounted for using the purchase method. Also in June
2001, the FASB issued Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets". Statement 142 requires that, for fiscal
years beginning after December 15, 2001, goodwill and other indefinite-lived
intangible assets already recognized in an entity's financial statements no
longer be amortized, and that goodwill and other indefinite-lived intangible
assets acquired after June 30, 2001 not be amortized. Instead, goodwill and
other indefinite-lived intangible assets will be tested at least annually for
impairment by comparing the fair value of those assets with their recorded
amounts. Any impairment losses will be reported in the entity's income
statement. The adoption of Statement 142 will 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. Excluding the effects of goodwill amortization, the Company's net
income for the year ended December 31, 2001 would have been $30,028. Net income
per diluted share for the year would have been $3.59. Management does not
believe that the Company will recognize any impairment charges from the adoption
of Statement 142.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations". This Statement
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. Statement 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The Company does not expect the adoption of this standard to
have a material effect on the Company's consolidated financial statements.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". This Statement is effective for fiscal years beginning after December
15, 2001, and replaces Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Asets to
be Disposed Of" and also replaces the provisions of Accounting Principles Board
Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business", for disposals of segments of a business.
Statement 144 requires that long-lived assets to be disposed of by sale be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Statement 144 also broadens the reporting of discontinued operations to include
all components of an entity with operations that can be distinguished from the
rest of the ongoing operations of the entity. Since the provisions of this
Statement are to be applied prospectively, the adoption of this new standard
will not have a material effect on the Company's consolidated financial
statements.
A-23
(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 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 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.
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 was accounted for as a book value purchase. Accordingly,
the acquisition was recorded based on the book value of Century Life and 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 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. It also sells federal funds to certain of these institutions on an
overnight basis. As a result, the Company had concentrations of credit risk in
seven institutions totaling $190,000 at December 31, 2001 and in four
institutions totaling $85,778 at December 31, 2000. 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, 2001 and 2000 was approximately $10,000 and $23,002, respectively.
A-24
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(4) SECURITIES
The table below summarizes securities held for investment and
securities available for sale:
December 31,
-------------------
2001 2000
-------- --------
Held for investment at cost (market value; $73,535 and
$107,874, respectively) $ 71,876 $106,991
Available for sale, at market value 472,415 453,560
-------- --------
Total $544,291 $560,551
======== ========
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, 2001
U.S. Treasury $ 1,788 $ 4 $ (4) $ 1,788
Other federal agencies 2,000 73 -- 2,073
Mortgage backed securities 24,536 719 (5) 25,250
States and political subdivisions 43,552 1,054 (182) 44,424
Other securities -- -- -- --
-------- ------ ----- --------
Total $ 71,876 $1,850 $(191) $ 73,535
======== ====== ===== ========
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
======== ====== ===== ========
A-25
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
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, 2001
U.S. Treasury $ 62,925 $ 1,705 $ -- $ 64,630
Other federal agencies 346,795 10,538 (629) 356,704
Mortgage backed securities 32,105 908 (68) 32,945
States and political subdivisions 4,147 107 -- 4,254
Other securities 12,573 1,393 (84) 13,882
-------- ------- ------- --------
Total $458,545 $14,651 $ (781) $472,415
======== ======= ======= ========
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
======== ======= ======= ========
The maturities of securities held for investment and available for sale
are summarized below. Actual maturities may differ from contractual maturities
due to obligations that are called or prepaid. For purposes of the maturity
table, mortgage-backed securities, which are not due at a single maturity date,
have been allocated over maturity groupings based on the weighted-average
contractual maturities of underlying collateral.
December 31,
----------------------------------------------------
2001 2000
-------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------ ------------ ------------
Held for Investment
Contractual maturity of debt securities:
Within one year $ 15,763 $ 15,942 $ 13,158 $ 13,139
After one year but within five years 35,300 36,365 45,983 46,103
After five years but within ten years 16,135 16,504 40,414 41,141
After ten years 4,678 4,724 7,436 7,491
-------- -------- -------- --------
Total $ 71,876 $ 73,535 $106,991 $107,874
======== ======== ======== ========
Available for Sale
Contractual maturity of debt securities:
Within one year $ 87,371 $ 89,238 $138,806 $138,643
After one year but within five years 351,841 362,330 273,385 274,878
After five years but within ten years 5,556 5,722 22,812 23,106
After ten years 1,603 1,658 3,762 3,741
-------- -------- -------- --------
Total debt securities 446,371 458,948 438,765 440,368
Equity securities 12,174 13,467 11,899 13,192
-------- -------- -------- --------
Total $458,545 $472,415 $450,664 $453,560
======== ======== ======== ========
A-26
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Sales of securities are summarized below:
Year Ended December 31,
-----------------------------
2001 2000 1999
------- ------ ----
Proceeds $27,893 $ 250 $468
Gross gains realized 693 -- 244
Gross losses realized -- -- --
Securities having book values of $383,266, $405,991 and $463,025 at
December 31, 2001, 2000 and 1999, respectively, were pledged as collateral for
public funds on deposit, repurchase agreements and for other purposes as
required or permitted by law.
(5) LOANS AND ALLOWANCE FOR LOAN LOSSES
The following is a schedule of loans outstanding by category:
December 31, 2001 December 31, 2000
-------------------------- --------------------------
Amount Percent Amount Percent
------------ ---------- ------------- ----------
Commercial and industrial $ 396,409 23.08% $ 394,534 23.68%
Agriculture 96,016 5.59 91,263 5.48
State and political subdivisions:
Taxable 152 0.01 47 0.01
Tax-exempt 17,602 1.02 17,232 1.03
Real Estate:
Construction 84,445 4.92 84,637 5.08
Farmland 58,080 3.38 56,695 3.40
One to four family residences 383,793 22.34 372,460 22.35
Multifamily residential properties 15,906 0.93 19,869 1.19
Commercial 358,363 20.87 322,759 19.37
Consumer 271,475 15.81 275,175 16.51
Other 35,192 2.05 31,667 1.90
---------- ------ ---------- ------
Total loans $1,717,433 100.00% $1,666,338 100.00%
========== ====== ========== ======
The Company's loans are mostly to customers within Oklahoma and over
half of the loans are secured by real estate. Credit risk on loans is managed
through limits on amounts loaned to individual borrowers, underwriting standards
and loan monitoring procedures. The amounts and types of collateral obtained to
secure loans are based upon the Company's underwriting standards and
management's credit evaluation. Collateral varies, but may include real estate,
equipment, accounts receivable, inventory, livestock and securities. The
Company's interest in collateral is secured through filing mortgages and liens,
and in some cases, by possession of the collateral. The amount of estimated loss
due to credit risk in the Company's loan portfolio is provided for in the
allowance for loan losses. The amount of the allowance required to provide for
all existing losses in the loan portfolio is an estimate based upon evaluations
of loans, appraisals of collateral and other estimates which are subject to
rapid change due to changing economic conditions and the economic prospects of
borrowers. It is reasonably possible that a material change could occur in the
estimated allowance for loan losses in the near term.
A-27
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Changes in the allowance for loan losses are summarized as follows:
Year Ended December 31,
--------------------------------------
2001 2000 1999
-------- -------- --------
Balance at beginning of year $ 25,380 $ 22,548 $ 19,659
-------- -------- --------
Charge-offs (3,657) (4,377) (3,101)
Recoveries 1,028 1,686 969
-------- -------- --------
Net charge-offs (2,629) (2,691) (2,132)
-------- -------- --------
Provisions charged to operations 1,780 4,045 2,521
Additions from acquisitions -- 1,478 2,500
-------- -------- --------
Total additions 1,780 5,523 5,021
-------- -------- --------
Balance at end of year $ 24,531 $ 25,380 $ 22,548
======== ======== ========
BancFirst has made loans in the ordinary course of business to the
executive officers and directors of the Company and to certain affiliates of
these executive officers and directors. Management believes that all such loans
were made on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and do not represent more than a
normal risk of collectibility or present other unfavorable features. A summary
of these loans is as follows:
Balance Balance
Year Ended Beginning of Collections/ End of
December 31, Year Additions Terminations Year
- ------------ ---- --------- ------------ ----
1999 $9,719 $1,616 $ (5,436) $5,899
2000 $5,899 $9,563 $ (5,859) $9,603
2001 $9,603 $8,136 $(10,248) $7,491
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 impaired loans for 2001 or 2000.
Year Ended
December 31,
-------------------
2001 2000
------ ------
Allowance for loss on impaired loans $2,712 $2,499
Recorded balance of impaired loans 6,963 9,516
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 $5,359 and $5,418 for the years ended December 31, 2001
and 2000, respectively.
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
December 31,
-------- --------
2001 2000
-------- --------
Land $ 13,342 $ 12,923
Buildings 60,187 56,440
Furniture, fixtures and equipment 35,832 33,976
Accumulated depreciation (47,719) (45,544)
-------- --------
Total $ 61,642 $ 57,795
======== ========
A-28
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
December 31,
--------------------
2001 2000
------- -------
Excess of cost over fair value of assets acquired $20,235 $22,704
Core deposit intangibles 1,912 2,448
Trademarks 2 4
------- -------
Total $22,149 $25,156
======= =======
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled
$302,338 and $281,847 at December 31, 2001 and 2000, respectively. At December
31, 2000, the scheduled maturities of certificates of deposit are as follows:
2002 $ 853,486
2003 107,255
2004 4,476
2005 2,238
2006 and thereafter 20
----------
Total $ 967,475
==========
(9) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
December 31,
------------------
2001 2000
------- -------
Federal funds purchased $25,153 $ 8,066
Repurchase agreements 26,938 28,226
Notes payable -- 1,000
------- -------
Total $52,091 $37,292
======= =======
Weighted average interest rate 1.93% 5.30%
======= =======
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 October 2002. The note may be renewed annually.
A-29
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(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 2016. Interest payments on the advances are due monthly. Semiannual
principal payments on the advances total $4,615 per year. Residential first
mortgages and certain securities are pledged as collateral for the borrowings
under the line of credit.
(11) 9.65% CAPITAL SECURITIES
In January 1997, BancFirst Corporation established BFC Capital Trust I
(the "Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25,000 of aggregate liquidation amount of 9.65% Capital
Securities, Series A (the "Capital Securities"). The proceeds from the sale of
the Capital Securities were invested in 9.65% Junior Subordinated Deferrable
Interest Debentures, Series A (the "Debentures") of BancFirst Corporation. The
Series A Capital Securities and Debentures were subsequently exchanged for
Series B Capital Securities and Debentures, pursuant to a Registration Rights
Agreement. The terms of the Series A and Series B securities are identical in
all material respects. Distributions on the Capital Securities are payable
January 15 and July 15 of each year. Such distributions may be deferred for up
to ten consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and are presented as long-term debt in the Company's consolidated financial
statements, but qualify as Tier 1 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,
---------------------------------
2001 2000 1999
--------- --------- ---------
Current taxes: Federal $ (14,230) $ (14,196) $ (12,748)
State (902) (684) (1,735)
Deferred taxes (347) 629 464
--------- --------- ---------
Total income taxes $ (15,479) $ (14,251) $ (14,019)
========= ========= =========
Income tax expense applicable to securities transactions approximated
$131 and $86 for the years ended December 31, 2001 and 1999, respectively.
A reconciliation of tax expense at the federal statutory tax rate
applied to income before taxes follows:
Year Ended December 31,
----------------------------------
2001 2000 1999
--------- --------- ---------
Tax expense at the federal statutory tax rate $ (15,204) $ (14,164) $ (13,289)
(Increase) decrease in tax expense from:
Tax-exempt income, net 1,219 1,132 1,033
Excess cost amortization (760) (881) (851)
State tax expense, net of federal tax benefit (479) (579) (1,078)
Other, net (255) 241 166
--------- --------- ---------
Total tax expense $ (15,479) $ (14,251) $ (14,019)
========= ========= =========
A-30
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The net deferred tax asset consisted of the following:
December 31,
------------------
2001 2000
------- -------
Provision for loan losses $ 7,763 $ 7,508
Discount on securities of banks acquired 137 123
Write-downs of other real estate owned 89 53
Net operating loss carryforwards 37 67
Deferred compensation 694 601
Other 237 106
------- -------
Gross deferred tax assets 8,957 8,458
------- -------
Unrealized net gains on securities available for sale (4,709) (1,336)
Depreciation (2,129) (2,453)
Leveraged Lease (858) --
Other (937) (339)
------- -------
Gross deferred tax liabilities (8,633) (4,158)
------- -------
Net deferred tax asset $ 324 $ 4,300
======= =======
(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 15% 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, 2001,
2000 and 1999, were approximately $2,076, $1,919 and $1,980, respectively.
BancFirst Corporation also adopted a nonqualified incentive stock
option plan (the "BancFirst ISOP") in May 1986. In 2001, the Company amended the
BancFirst ISOP to increase the number of shares to be issued under the plan to
1,100,000 and extend the term of the plan to December 31, 2011. 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, 2001 will become exercisable through the year 2008. 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, 2001 will become exercisable
through the year 2005. 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-31
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
Year Ended December 31,
----------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- -------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
----------- --------- ----------- --------- ---------- ---------
Outstanding at beginning of year 539,312 $ 27.25 531,192 $ 26.23 494,125 $ 21.73
Options granted 70,500 36.57 62,750 31.16 121,000 33.86
Options exercised (47,437) 15.54 (34,297) 16.02 (70,933) 6.85
Options canceled (5,000) 33.69 (20,333) 31.66 (13,000) 26.61
------- ------- -------
Outstanding at end of year 557,375 29.37 539,312 27.25 531,192 26.23
======= ======= =======
Exercisable at end of year 153,126 21.54 137,229 17.82 114,692 14.89
======= ======= =======
Weighted average fair value of options granted $ 14.40 $ 22.26 $ 14.24
======= ======= =======
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, 2001 is as follows:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------ -------------------------------
Wgtd. Avg.
Remaining
Range of Exercise Number Contractual Wgtd. Avg. Number Wgtd. Avg.
Prices Outstanding Life in Years Exercise Price Exercisable Exercise Price
- ---------------------------------- --------------- --------------- --------------- ---------------
$ 6.50 to $10.00 14,500 1.62 $ 8.62 14,500 $ 8.62
$12.88 to $18.63 54,375 3.74 15.57 48,125 15.36
$20.00 to $29.50 128,250 10.44 24.19 59,625 23.08
$30.50 to $40.00 360,250 12.57 32.03 30,876 34.22
--------------- ---------------
$ 6.50 to $40.00 557,375 10.94 29.37 153,126 21.54
=============== ===============
The pro forma effect as if the Company had adopted the cost recognition
provisions of FAS 123 is as follows:
Year Ended December 31,
----------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------- ------------------------------- -----------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
-------------- ------------- -------------- ------------- -------------- -------------
APB 25 charge $ -- $ -- $ -- $ -- $ -- $ --
FAS 123 charge -- 984 -- 765 -- 609
Net income 27,961 26,977 26,217 25,452 23,949 23,340
Net income per share:
Basic $ 3.38 $ 3.26 $ 3.22 $ 3.12 $ 2.79 $ 2.72
Diluted 3.34 3.22 3.19 3.09 2.75 2.68
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-32
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
AmQuest Financial Corp. ("AmQuest"), which merged with the Company in
1998, had four stock option plans. These plans were 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,
---------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- -------------------------- -------------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
----------- --------- ----------- --------- ---------- ---------
Outstanding at beginning of year 18,357 $ 15.72 40,217 $ 16.21 73,885 $ 14.58
Options exercised (5,248) 15.95 (21,860) 16.62 (33,668) 12.64
Options canceled (1,584) 15.32 -- -- -- --
------ ------- ------
Outstanding at end of year 11,525 15.67 18,357 15.72 40,217 16.21
====== ======= =======
A summary of options outstanding under the AmQuest Employees Stock
Option Plans as of December 31, 2001 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 $17.05 11,525 4.30 $15.67
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,
----------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- -------------------
Avg. Avg. Avg.
Options Price Options Price Options Price
----------- --------- ----------- --------- ---------- ---------
Outstanding at beginning of year 6,023 $17.40 6,023 $17.40 8,719 $17.19
Options exercised (238) 20.84 -- -- (2,696) 16.73
Options canceled -- -- -- -- -- --
---------- ---------- ---------
Outstanding at end of year 5,785 17.26 6,023 17.40 6,023 17.40
========== ========== =========
A-33
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
A summary of options outstanding under the AmQuest Directors Stock
Option Plan as of December 31, 2001 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 5,785 4.51 $17.26
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. A summary of the accumulated stock units is as follows:
December 31,
----------------------
2001 2000
---------- -----------
Accumulated stock units 7,328 4,291
Average price $ 33.59 $ 30.33
(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, 2001 and 2000, there were 8,260,099 shares
and 8,326,638 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-34
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. In May 2001, the SRP was amended to increase the shares
authorized to be purchased by 277,916 shares. 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. At December 31, 2001 there were 294,235 shares
remaining that could be repurchased under the SRP. Below is a summary of the
shares repurchased under the program.
Year Ended
December 31,
---------------------------
2001 2000
------------- ------------
Number of shares repurchased 119,519 108,379
Average price of shares repurchased $ 39.34 $ 30.99
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, 2001, approximately $35,644 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 2001 2000
--------------- --------------- ---------------
Tier 1 capital
BancFirst Corporation $ 216,832 $ 195,273
BancFirst $ 188,526 $ 164,846
Total capital
BancFirst Corporation $ 241,862 $ 217,708
BancFirst $ 213,160 $ 186,004
Risk adjusted assets
BancFirst Corporation $ 1,955,789 $ 1,741,664
BancFirst $ 1,923,731 $ 1,639,683
Leverage ratio 3.00%
BancFirst Corporation 7.93% 7.67%
BancFirst 6.97% 6.83%
Tier 1 capital ratio 4.00%
BancFirst Corporation 11.09% 11.21%
BancFirst 9.80% 10.05%
Total capital ratio 8.00%
BancFirst Corporation 12.37% 12.50%
BancFirst 11.08% 11.34%
A-35
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
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, 2001 and 2000, 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, 2001
Basic
Income available to common stockholders $ 27,961 8,274,486 $ 3.38
=======
Effect of stock options -- 96,584
--------- ---------
Diluted
Income available to common stockholders
plus assumed exercises of stock options $ 27,961 8,371,070 $ 3.34
========= ========= =======
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
========= ========= =======
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, 2001 10,000 $ 40.00
December 31, 2000 251,540 $ 33.84
December 31, 1999 146,000 $ 34.43
A-36
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(16) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
December 31,
-------------------------------
ASSETS 2001 2000
-------- --------
Cash $ 5,645 $ 3,869
Securities 2,150 1,825
Loans (net of unearned interest) 3,100 --
Investment in subsidiaries, at equity 234,738 207,796
Intangible assets 1,716 2,216
Other assets 3,032 9,555
-------- --------
Total assets $250,381 $225,261
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 2,213 $ 2,303
Notes payable -- 1,000
9.65% Capital Securities 25,000 25,000
Stockholders' equity 223,168 196,958
-------- --------
Total liabilities and stockholders' equity $250,381 $225,261
======== ========
STATEMENT OF INCOME
Year Ended December 31,
-----------------------------------------------------
OPERATING INCOME 2001 2000 1999
-------- ------- -------
Dividends from subsidiaries $ 6,830 $12,815 $18,624
Interest:
Loans 143 4 284
Securities 257 278 279
Interest-bearing deposits 48 49 458
Other (123) 10 164
-------- ------- -------
Total operating income 7,155 13,156 19,809
-------- ------- -------
OPERATING EXPENSE
Interest 2,639 2,516 2,698
Amortization 501 1,079 1,079
Other 107 385 68
-------- ------- -------
Total operating expense 3,247 3,980 3,845
-------- ------- -------
Income before income taxes and equity in
undistributed earnings of subsidiaries 3,908 9,176 15,964
Allocated income tax benefit 821 985 785
-------- ------- -------
Income before equity in undistributed earnings of subsidiaries 4,729 10,161 16,749
Equity in undistributed earnings of subsidiaries 23,232 16,056 7,200
-------- ------- -------
Net income $ 27,961 $26,217 $23,949
======== ======= =======
A-37
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
STATEMENT OF CASH FLOWS
Year Ended December 31,
------------------------------------
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 27,961 $ 26,217 $ 23,949
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 501 1,079 1,094
Equity in undistributed earnings of subsidiaries (23,232) (16,056) (7,200)
(Increase) decrease in dividends receivable 5,977 (4,066) (719)
Other, net 576 1,197 (325)
-------- -------- --------
Net cash provided by operating activities 11,783 8,371 16,799
-------- -------- --------
INVESTING ACTIVITIES
Purchases of stock of subsidiaries (2,700) (1,500) --
Sale of stock of subsidiaries 12,059 8,215 13,757
Net cash used for acquisitions and mergers (5,429) (4,391) --
Purchases of securities (903) (125) (2,550)
Proceeds from maturities of securities 425 850 2,000
Net other (increase) decrease in loans (3,100) 802 2,641
Other, net -- -- (168)
-------- -------- --------
Net cash provided by investing activities 352 3,851 15,680
-------- -------- --------
FINANCING ACTIVITIES
Issuance of common stock 1,296 1,225 1,700
Net increase (decrease) in notes payable (1,000) (2,000) 3,000
Payment of long-term debt -- (1,798) --
Acquisition of common stock (4,702) (3,359) (49,023)
Cash dividends paid (5,953) (5,378) (4,890)
-------- -------- --------
Net cash used by financing activities (10,359) (11,310) (49,213)
-------- -------- --------
Net increase (decrease) in cash 1,776 912 (16,734)
Cash at the beginning of the year 3,869 2,957 19,691
-------- -------- --------
Cash at the end of the year $ 5,645 $ 3,869 $ 2,957
======== ======== ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 2,655 $ 2,431 $ 2,698
======== ======== ========
Cash received during the year for income taxes, net $ (1,719) $ (705) $ (2,195)
======== ======== ========
A-38
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, 2001, 2000 and 1999,
such purchases totaled $148, $130 and $109, respectively.
The Company also sells credit life and credit accident and health
insurance policies for Century Life, which it acquired 75% of in 2001, and which
is included in the Company's consolidated financial statements for 2001. The
Company retains a 40% commission for such sales, which is the maximum amount
permitted by law. Net premiums paid to Century Life for the years ended December
31, 2000 and 1999 and were $852 and $880, 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,
-----------------------------------
2001 2000 1999
-------- -------- --------
Loan commitments $411,380 $333,391 $309,777
Letters of credit 20,791 17,838 13,750
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 thirteen buildings, three parcels
of land on which it owns buildings, and ten ATM locations. These leases expire
at various dates through 2064.
The future minimum rental payments under these leases are as follows:
Year Ending December 31:
2002 $ 836
2003 662
2004 604
2005 509
2006 475
Later years 4,988
------
Total $8,074
======
Rental expense on all property and equipment rented, including those
rented on a monthly or temporary basis, totaled $818, $792 and $1,100 during
2001, 2000 and 1999, 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-39
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 and Interest-Bearing Deposits
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-40
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
The estimated fair values of the Company's financial instruments are as
follows:
December 31,
------------------------------------------------
2001 2000
------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
FINANCIAL ASSETS
Cash and due from banks $ 152,577 $ 152,577 $ 162,455 $ 162,455
Federal funds sold and interest-bearing deposits 220,528 220,528 66,563 66,563
Securities 544,291 545,950 560,551 561,434
Loans:
Loans (net of unearned interest) 1,717,433 1,666,338
Allowance for loan losses (24,531) (25,380)
--------- ---------
Loans, net 1,692,902 1,713,771 1,640,958 1,642,917
FINANCIAL LIABILITIES
Deposits 2,401,328 2,412,007 2,267,397 2,268,529
Short-term borrowings 52,091 52,091 37,292 37,292
Long-term borrowings 24,090 24,550 26,613 26,661
9.65% Capital Securities 25,000 25,930 25,000 22,125
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments 2,715 2,200
Letters of credit 156 134
A-41
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, 2001
Net interest income (expense) $ 30,496 $ 71,473 $ 6,526 $ (3,563) $ -- $ 104,932
Provision for loan losses 98 916 328 438 -- 1,780
Noninterest income 6,430 18,376 9,843 58,589 (56,330) 36,908
Depreciation and amortization 2,240 4,369 268 2,077 (616) 8,338
Other expenses 21,056 44,928 11,871 9,573 854 88,282
-------- ---------- --------- --------- -----------
Income before taxes $ 13,532 $ 39,636 $ 3,902 $ 42,938 (56,568) $ 43,440
======== ========== ========= ========= ===========
Total Assets $837,372 $1,815,178 $ 140,501 $ 558,181 (594,187) $ 2,757,045
======== ========== ========= ========= ===========
Capital expenditures $ 6,585 $ 3,776 $ 299 $ 1,473 -- $ 12,133
======== ========== ========= ========= ===========
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
======== ========== ========= ========= ===========
A-42
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. 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, 2001 and 2000 is as follows:
Quarter
-----------------------------------------
2001 Fourth Third Second First
- ---- --------- ---------- --------- ----------
Net interest income $26,083 $26,319 $26,390 $26,140
Provision for loan losses 388 581 480 332
Noninterest income 9,601 9,721 9,180 8,406
Noninterest expense 24,474 24,786 24,198 23,161
Net income 6,895 6,880 7,035 7,151
Net income per common share:
Basic 0.84 0.83 0.85 0.86
Diluted 0.83 0.82 0.84 0.85
2000
- ----
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
A-43
INDEX TO EXHIBITS
Exhibit
Number Name of Exhibit
- ------ ---------------
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 (filed
as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 and incorporated herein by
reference).
10.7 BancFirst Corporation Directors' Deferred Stock Compensation Plan
(filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 and incorporated herein by
reference).
10.8 Stock Purchase Agreement dated November 14, 2000 among BancFirst
Corporation, Pickard Limited Partnership and Century Life Assurance
Company (filed as Exhibit 10.8 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000 and incorporated
herein by reference).
21.1* Subsidiaries of Registrant.
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).
99.2* Letter dated March 28, 2002 to Securities and Exchange Commission
regarding representations from Arthur Andersen LLP.
* Filed herewith.