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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, 1998 COMMISSION FILE NUMBER 0-14384
BANCFIRST CORPORATION
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(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1221379
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 NORTH BROADWAY, SUITE 200, OKLAHOMA CITY, OKLAHOMA 73102
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (405) 270-1086
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00
Par Value Per Share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X NO_____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
The aggregate value of the Common Stock held by nonaffiliates of the
registrant as of March 31, 1999 was approximately $121,300,000.
As of March 31, 1999, there were 9,321,295 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the May 27, 1999 Annual Meeting of
Stockholders of registrant (the "1999 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
Results of Operations 11
7A. Quantitative and Qualitative Disclosures About Market Risk 11
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 12
PART III
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10. Directors and Executive Officers of the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial Owners and Management 12
13. Certain Relationships and Related Transactions 12
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 15
Financial Information Appendix A
2
PART I
ITEM 1. BUSINESS.
GENERAL
BancFirst Corporation (the "Company") is an Oklahoma business corporation
and a bank holding company under Federal law. It conducts virtually all of its
operating activities through its principal wholly-owned subsidiary, BancFirst
(the "Bank" or "BancFirst"), a state-chartered, Federal Reserve member bank
headquartered in Oklahoma City, Oklahoma. BancFirst Corporation also owns 100%
of the common securities of BFC Capital Trust I, a Delaware Business Trust
organized in January 1997, and at December 31, 1998 owned 100% of Kingfisher
Bank & Trust Co., an Oklahoma state-chartered bank.
The Company was incorporated as United Community Corporation in July 1984
for the purpose of becoming a bank holding company. In June 1985, it merged
with seven Oklahoma bank holding companies that had operated under common
ownership and the Company has conducted business as a bank holding company since
that time. Over the next several years the Company acquired additional banks
and bank holding companies, and in November 1988 the Company changed its name to
BancFirst Corporation. Effective April 1, 1989, the Company consolidated its 12
subsidiary banks and formed BancFirst. BancFirst currently has 73 banking
locations serving 36 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 not served effectively by
larger institutions.
The Bank maintains a strong community orientation by, among other things,
appointing selected members of the communities in which the Bank's branches are
located to a local consulting board that assists in introducing prospective
customers to the Bank and in developing or modifying products and services to
meet customer needs. As a result of the development of broad banking
relationships with its customers and the convenience and service of the Bank's
multiple offices, the Bank's lending and investing activities are funded almost
entirely by core deposits.
The Bank centralizes virtually all of its back office, support and
investment functions in order to achieve consistency and cost efficiencies in
the delivery of products and services. The Bank centrally provides services
such as data processing, operations support, bookkeeping, accounting, loan
review, compliance and internal auditing to the Bank's community banking offices
to enhance their ability to compete effectively. The Bank also provides certain
specialized financial services centrally that require unique expertise. The
community banking offices assist the Bank in maintaining its competitive
position by actively participating in the development of new products and
services needed by their customers and in making desirable changes to existing
products and services.
The Bank provides a wide range of retail and commercial banking services,
including: commercial, real estate, agricultural and consumer lending;
depository and funds transfer services; collections; safe deposit boxes; cash
management services; and other services tailored for both individual and
corporate customers. The Bank also offers trust services and acts as executor,
administrator, trustee, transfer agent and in various other fiduciary
capacities. Through Unitech, its operations division, the Bank provides, 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.
The Bank's residential mortgage lending activities prior to 1992 consisted
primarily of short- to intermediate-term loans for purchasing personal
residences, or loans for commercial or consumer purposes secured by residential
mortgages. In early 1992, the Bank established a mortgage loan department to
originate traditional mortgage loans through its network of banking locations
and sell such loans in the secondary market with the servicing released.
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Consumer lending activities of the Bank consist of traditional forms of
financing for automobiles and other personal loans, and also residential
mortgage loans. In addition, the Bank is one of Oklahoma's largest providers of
guaranteed student loans.
The Bank's range of deposit services include checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts and certificates of deposit. Overdraft protection and
autodraft services are also offered. Deposits of the Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance Corporation
("FDIC"). In addition, certain Bank employees are licensed insurance agents
qualified to offer tax deferred annuities.
Trust services offered through BancTrust, the Bank's trust division,
consist primarily of investment management and administration of trusts for
individuals, corporations and employee benefit plans. Investment options
include collective equity and fixed income funds managed by BancTrust and
advised by a nationally recognized investment management firm.
BancFirst has the following subsidiaries: BancFirst Investment Corporation,
a small business investment corporation; Citibanc Insurance Agency, Inc., a
credit life insurance agency, which in turn owns BancFirst Agency, Inc., a title
insurance agency; Lenders Collection Corporation, which is engaged in collection
of troubled loans assigned to it by BancFirst; and Express Financial Corporation
(formerly National Express Corporation), a money order company. All of these
companies are Oklahoma corporations.
The Company had approximately 1,280 full-time equivalent employees as of
December 31, 1998. Its principal executive offices are located at 101 North
Broadway, Suite 200, Oklahoma City, Oklahoma 73102, telephone number (405) 270-
1086.
MARKET AREAS AND COMPETITION
The banking environment in Oklahoma is very competitive. The geographic
dispersion of the Company's banking locations presents several different levels
and types of competition. In general, however, each location competes with
other banking institutions, savings and loan associations, personal loan finance
companies and credit unions within their respective market areas. The
communities in which the Bank maintains offices are generally local trade
centers throughout Oklahoma. The major areas of competition include interest
rates charged on loans, interest rates paid on deposits, levels of service
charges on deposits, completeness of product line and quality of service.
Management believes the Company is in an advantageous competitive position
operating as a "super community bank." Under this strategy, the Company
provides a broad line of financial products and services to small to medium-
sized businesses and consumers through full service community banking offices
with decentralized management, while achieving operating efficiency through
product standardization and centralization of processing and other functions.
Each full service banking office has senior management with significant lending
experience who exercise substantial autonomy over credit and pricing decisions,
subject to a tiered approval process for larger credits. This decentralized
management approach, coupled with continuity of service by the same staff
members, enables the Bank to develop long-term customer relationships, maintain
high quality service and respond quickly to customer needs. The majority of its
competitors in the non-metropolitan areas are much smaller, and neither offer
the range of products and services nor have the lending capacity of BancFirst.
In the metropolitan communities, the Company's strategy is to be more responsive
to, and more focused on, the needs of local businesses not served effectively by
larger institutions.
Marketing to existing and potential customers is performed through a
variety of media advertising, direct mail and direct personal contacts. The
Company monitors the needs of its customer base through its Product Development
Group, which develops and enhances products and services in response to such
needs. Sales, customer service and product training are coordinated with
incentive programs to motivate employees to cross-sell the Bank's products and
services.
CONTROL OF THE COMPANY
Affiliates of the Company beneficially own approximately 62% 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 February 1999, the Company sold its Anadarko, Oklahoma branch, which had
deposits of approximately $15.5 million, to a local financial institution. The
sale resulted in a pretax gain of approximately $900,000.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to bank holding companies and their subsidiaries
and provides certain specific information relevant to the Company. This
regulatory framework is intended primarily for the protection of depositors and
not for the protection of the Company's stockholders. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to those provisions. A change in the
statutes, regulations or regulatory policies applicable to the Company or its
subsidiaries may have a material effect on the business of the Company.
GENERAL
As a bank holding company, the Company is subject to regulation and
examination by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended ("BHCA"). 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.
The BHCA requires the prior approval of the Reserve Board in any case where
a bank holding company proposes to acquire control of more than five percent of
the voting shares of any bank, unless it already controls a majority of such
voting shares. Additionally, approval must also be obtained before a bank
holding company may acquire all or substantially all of the assets of another
bank or before it may merge or consolidate with another bank holding company.
The BHCA further provides that the Reserve Board shall not approve any such
acquisition, merger or consolidation that will substantially lessen competition,
tend to create a monopoly or be in restraint of trade, unless it finds the anti-
competitive effects of the proposed transaction are clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
In addition, and 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.
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).
Subject to certain restrictions, the Interstate Banking and Branching Act
also authorizes banks to merge across state lines, thereby creating interstate
branches. 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. See
"State Regulation-Branch and Interstate Banking."
5
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than five percent of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company whose
activities the Reserve Board has determined to be so closely related to banking
or to managing or controlling banks as to be a proper incident thereto. In
making such determinations, the Federal Reserve Board weighs the Community
Reinvestment Act activities of the bank holding company and the expected benefit
to the public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board has by regulation determined that
certain activities are closely related to banking within the meaning of the
BHCA. These 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.
A bank holding company and its subsidiaries are further prohibited under
the BHCA from engaging in certain tie-in arrangements in connection with the
provision of any credit, property or services. Thus, a subsidiary of a bank
holding company may not extend credit, lease or sell property, furnish any
services or fix or vary the consideration for these activities on the condition
that (1) the customer obtain or provide some additional credit, property or
services from or to the bank holding company or any subsidiary thereof or (2)
the customer may not obtain some other credit, property or services from a
competitor, except to the extent reasonable conditions are imposed to insure the
soundness of credit extended.
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, 1998 were 14.31% and 15.57%,
respectively. At December 31, 1998, the Company had no subordinated debt that
qualified as Tier 3 capital.
The Federal Reserve Board also requires bank holding companies to maintain
a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 3%.
These ratio requirements are minimums. Any institution operating at or near
those levels would be expected by the regulators to have well-diversified risk,
including no undue interest rate risk exposures, excellent asset quality, high
liquidity, and good earnings and, in general, would have to be considered a
strong banking organization. All other organizations and any institutions
experiencing or anticipating significant growth are expected to maintain capital
ratios at least one to two percent above the minimum levels, and higher capital
ratios can be required if warranted by particular circumstances or risk profile.
For information regarding the Company's recent historical capital ratios, see
"Financial Review - Capital Resources".
6
IMPROVEMENT ACT AND RELATED REGULATIONS
General. FDICIA, among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5 percent of the bank's assets at the time it became
"undercapitalized" or the amount needed to comply with the plan. Furthermore, in
the event of the bankruptcy of the parent holding company, such guarantee would
take priority over the parent's general unsecured creditors. In addition, FDICIA
requires the various regulatory agencies to prescribe certain non-capital
standards for safety and soundness relating generally to operations and
management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized) identified by FDICIA, using the total risk-based
capital, Tier 1 risk-based capital and leverage capital ratios as the relevant
capital measures, and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. Such regulations establish various degrees of corrective action to
be taken when an institution is considered undercapitalized.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable Federal banking regulator are
subject to one or more of the following sanctions: (i) forced sale of shares to
raise capital, or, where grounds exist for the appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) limitations on interest rates paid on deposits; (iv) further restrictions
on growth or required shrinkage; (v) replacement of directors or senior
executive directors; (vi) prohibitions on the receipt of correspondent deposits;
(vii) restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution; or
(ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital standards and may be increased only
with the applicable Federal banking regulator's prior written approval. The
applicable Federal banking regulator is required to impose a forced sale of
shares or merger, restrictions on affiliate transactions and restrictions on
rates paid on deposits unless it determines that such actions would not further
an institution's capital improvement. In addition to the foregoing, a critically
undercapitalized institution would be prohibited from making any payment of
principal or interest on subordinated debt without the concurrence of its
regulator and the FDIC, beginning 60 days after the institution becomes
critically undercapitalized. A critically undercapitalized institution may not,
without FDIC approval: (i) enter into material transactions outside of the
ordinary course of business; (ii) extend credit on highly leveraged
transactions; (iii) amend its charter or bylaws; (iv) make any material change
in its accounting methods; (v) engage in any covered transactions with
affiliates; (vi) pay excessive compensation or bonus (as defined); or (vii) pay
rates on liabilities significantly in excess of market rates.
Under the regulations, a "well capitalized" institution must have a Tier 1
capital ratio of at least 6 percent, a total capital ratio of at least 10
percent and a leverage ratio of at least 5 percent and not be subject to a
capital directive order. Under these guidelines, BancFirst is considered well
capitalized.
Banking agencies have also adopted final regulations which mandate that
regulators take into consideration (i) concentrations of credit risk; (ii)
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its off-balance-
sheet position); and (iii) risks from non-traditional activities, as well as an
institution's ability to manage those risks, when determining the adequacy of an
institution's capital. That evaluation will be made as a part of the
institution's regular safety and soundness examination. In addition, the banking
agencies have amended their regulatory capital guidelines to incorporate a
measure for market risk. The revised guidelines did not have a material impact
on the Company or BancFirst's regulatory capital ratios or their well
capitalized status.
REGULATORY RESTRICTIONS ON DIVIDENDS
BancFirst, as a member bank of the Federal Reserve System, may not declare
a dividend without the approval of the Federal Reserve Board unless the dividend
to be declared by BancFirst does not exceed the total of (i) BancFirst's net
profits (as defined and interpreted by regulation) for the current year to date
plus (ii) its retained net profits (as defined and interpreted by regulation)
for the preceding two years, less any required transfers to surplus. In
addition, BancFirst can only pay dividends to the extent that its retained net
profits (including the portion transferred to surplus) exceed its bad debts (as
defined by regulation). Under the Federal Deposit Insurance Act, no dividends
7
may be paid by an insured bank if the bank is in arrears in the payment of any
insurance assessment due to the FDIC. Under these provisions BancFirst may
declare during 1999, without prior regulatory approval, aggregate dividends of
$12 million, plus net profits earned to the date of such dividend declaration in
1999. 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
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 a premium of 0.00% of deposits and the critically undercapitalized banks
paying up to 0.27% of deposits. In addition, the Deposit Insurance Fund Act of
1996 implemented an additional assessment on BIF deposits and deposits insured
by the Savings Association Insurance Fund ("SAIF") administered by the FDIC, in
order to service the interest on the Financing Corporation ("FICO") bond
obligations which were used to finance the cost of "thrift bailouts" in the
1980's. The FICO assessments do not vary depending upon a depository
institution's capitalization or supervisory evaluations. The FICO assessment
rates for the first semi-annual period of 1999 were set at $.0122 per $100 of
insured deposits for BIF assessable deposits and $.061 per $100 in deposits for
SAIF assessable deposits. These rates may be adjusted quarterly to reflect
changes in assessment basis for the BIF and SAIF. By law, the FICO rate on BIF
assessable deposits must be one-fifth of the rate on SAIF assessable deposits
until the insurance funds are merged or until January 1, 2000, whichever occurs
first.
DEPOSITOR PREFERENCE STATUTE
Federal legislation has been enacted providing that deposits and certain
claims for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general unsecured
claims against such institution, including federal funds and letters of credit,
in the "liquidation or other resolution" of the institution by any receiver.
STATE REGULATION
General. BancFirst is an Oklahoma-chartered state bank. Accordingly,
BancFirst's operations are subject to various requirements and restrictions of
state law relating to loans, lending limits, interest rates payable on deposits,
investments, mergers and acquisitions, borrowings, dividends, capital adequacy,
and other matters. Because BancFirst is a member of the Federal Reserve System,
Oklahoma law provides that BancFirst must maintain reserves against deposits as
required by the Federal Reserve Act. BancFirst is subject to primary
supervision, periodic examination and regulation by the Oklahoma State Banking
Department and the Federal Reserve Board. The Oklahoma State Bank Commissioner
is authorized by statute to accept a Federal Reserve System examination in lieu
of a state examination. In practice, the Federal Reserve Board and the Oklahoma
State Banking Department alternate examinations of BancFirst. If, as a result
of an examination of a bank, the Oklahoma State Banking Department determines
that the financial condition, capital resources, asset quality, earnings
prospects, management, liquidity, or other aspects of the bank's operations are
unsatisfactory or that the management of the bank is violating or has violated
any law or regulation, various remedies, including the remedy of injunction, are
available to the Oklahoma State Banking Department. Oklahoma also permits the
acquisition of an unlimited number of wholly-owned bank subsidiaries so long as
aggregate deposits at the time of acquisition in a multi-bank holding company do
not exceed 15% of all deposits in Oklahoma financial institutions insured by the
federal government, exclusive of credit union deposits.
State Bank Holding Company Regulation. The BHC allows the Federal Reserve
Board to approve an application of an adequately capitalized and adequately
managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of a bank that has not been in existence for the minimum time
period (not exceeding five years), if any, specified by the statutory law of the
host state. The BHC also prohibits the Federal Reserve Board from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. The BHC does not affect the
authority of states to limit the percentage of total insured deposits in the
state which may be held or controlled by a bank or bank holding company to the
extent such limitation does not discriminate against out-of-state banks or bank
holding
8
companies. Individual states may also waive the 30% state-wide concentration
limit.
Under Oklahoma law, any bank holding company or other company which submits an
application to the Federal Reserve Board for approval of the acquisition of a
state or national bank located in Oklahoma must submit a copy of such
application to the Oklahoma Bank Board. Subject to certain exceptions for
supervisory acquisitions and certain other limited exceptions, Oklahoma law
further provides that it shall be unlawful for a multi-bank holding company to
acquire direct or indirect ownership or control of any financial institution
with deposits insured by the FDIC or the National Credit Union Administration
("NCUA") and located in Oklahoma if such acquisition results in such multi-bank
holding company having direct or indirect ownership or control of banks located
in Oklahoma, the total deposits of which at the time of such acquisition exceed
15% of aggregate deposits of all financial institutions with deposits insured by
the FDIC and the NCUA. See "-Branch and Interstate Banking."
Branch and Interstate Banking. Currently, Oklahoma law provides that Oklahoma
banks may establish no more than two branches within the corporate city limits
where the main bank is located or within 25 miles of the main bank if it is
located in a city that has no other bank. Oklahoma banks, however, may acquire
an unlimited number of offices of other banks or savings associations provided
that the bank does not control more than 15% of the insured deposits in the
State of Oklahoma. Recently, Oklahoma law had been interpreted to permit more
extensive branching, through the use of so-called "phantom," or interim, bank
charters. In late 1998, BancFirst received permission to establish an
additional branch under this interpretation to support its existing operations
in the Oklahoma City metropolitan market. Other Oklahoma banks also applied
for, and received permission to establish, branches under this interpretation.
However, the Oklahoma State Banking Board's decision approving one such interim
charter became the subject of a legal challenge, and on March 30, 1999, the
Oklahoma Supreme Court reversed the order of the Banking Board with respect to
the charter in question. Although no parties have appeared within the requisite
time period provided by the court to oppose BancFirst's interim charter, the
effect of the Oklahoma Supreme Court decision will be the curtailment of
branching by such method.
Beginning on June 1, 1997, pursuant to the Interstate Banking and Branching
Act, the federal banking agencies were authorized to approve interstate bank (as
opposed to bank holding company) merger transactions without regard to whether
such transactions are prohibited by the law of any state, unless the home state
of one of the banks had "opted out" of interstate branching by enacting specific
legislation prior to June 1, 1997, in which case out-of-state banks would
generally not be able to branch into that state, and banks headquartered in that
state would not be permitted to branch into other states. Oklahoma elected to
"opt-in" to interstate branching effective May 1997 and established a 12.25%
deposit cap which was subsequently increased to 15%.
Federal law also generally allows bank holding companies to acquire or
establish federal savings associations, without regard to location. Under
federal law, federal savings associations may establish or acquire branches in
or outside of their home states without regard to state restrictions.
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.
Currently, Oklahoma law does not. However, Section 381.24a(B) of the Oklahoma
Savings and Loan Code of 1970 provides that, after July 1, 1999, new savings and
loan association branches may be established with permission granted by order of
the Oklahoma State Banking Commissioner without regard to the restrictions
otherwise provided in such subsection, which are substantially identical to the
two de novo branch limitation contained in the Oklahoma Banking Code.
Accordingly, after such date, and absent further legislation, national banks
would have the ability to establish de novo branches on an unlimited, state-wide
basis (subject to the deposit cap), although state-chartered banks would still
be subject to the branching limits contained in the Oklahoma Banking Code. In
an effort to ensure parity between national and state-chartered banks, the
Oklahoma legislature on March 24, 1999 amended Section 402(12) of the Oklahoma
Banking Code to provide that state-chartered banks would be entitled to the same
rights and privileges as those extended to national banks. The effective date
of the amendment is July 1, 1999, after which time BancFirst will be able to
establish an unlimited number of de novo branches in Oklahoma (assuming no
successful legal challenge to the amendment).
GOVERNMENTAL MONETARY AND FISCAL POLICIES
The commercial banking business is affected directly by the monetary policies
of the Federal Reserve Board and by the fiscal policies of federal, state and
local governments. The Federal Reserve Board, in fulfilling its role of
stabilizing the nation's money supply, utilizes several operating tools, all of
which directly impact commercial bank operations. The primary tools used by the
Federal Reserve Board are changes in reserve requirements on member bank
deposits and other borrowings, open market operations in the U.S. Government
securities market, and control over the availability and cost of members' direct
borrowings from the "discount window." Banks act as financial intermediaries in
the debt capital markets and are active participants in these markets daily. As
a result, changes in governmental monetary and fiscal policies have a direct
impact upon the level of loans and investments, the availability of sources of
lendable funds, and the interest rates earned from and paid on these
instruments. It is not possible to predict accurately the future course of such
government policies and
9
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,
Suite 200, Oklahoma City, Oklahoma 73102. The Company owns substantially all of
the properties and buildings in which its various offices and facilities are
located. These properties include 57 full service branches and 14 limited
service detached facilities. BancFirst also owns properties for future
expansion. There are no significant encumbrances on any of these properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as a defendant in various legal actions arising
from the conduct of its normal business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
BancFirst Common Stock is listed on the Nasdaq National Market System
("NASDAQ/NMS") and is traded under the symbol "BANF". The following table sets
forth, for the periods indicated, (i) the high and low sales prices of BancFirst
Common Stock as reported in the NASDAQ/NMS consolidated transaction reporting
system and (ii) the quarterly dividends declared on BancFirst Common Stock.
10
PRICE RANGE
------------------------------------------
CASH
DIVIDENDS
HIGH LOW DECLARED
------------ ------------ ------------
1998
First Quarter $41.500 $32.375 $0.12
Second Quarter $48.500 $39.500 $0.12
Third Quarter $48.000 $32.500 $0.12
Fourth Quarter $41.500 $34.000 $0.14
1997
First Quarter $33.500 $27.063 $0.10
Second Quarter $33.500 $27.500 $0.10
Third Quarter $33.750 $29.250 $0.10
Fourth Quarter $34.750 $31.563 $0.12
As of March 31, 1999 there were approximately 550 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 15 of the Notes
to Consolidated Financial Statements for further information regarding
limitations on the payment of dividends by BancFirst Corporation and the Bank.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from "Selected Consolidated Financial Data"
contained on page A-3 of the attached Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from "Financial Review" contained on pages A-2
through A-15 of the attached Appendix.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Incorporated by reference from "Financial Review - Market Risk" contained
on page A-14 of the attached Appendix.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of BancFirst Corporation and its
subsidiaries, are incorporated by reference from pages A-16 through A-45 of the
attached Appendix, and include the following:
a. Reports of Independent Accountants
b. Consolidated Balance Sheet
c. Consolidated Statement of Income
d. Consolidated Statement of Stockholders' Equity
e. Consolidated Statement of Cash Flows
f. Notes to Consolidated Financial Statements
11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no material disagreements between the Company and its
independent accountants on accounting and financial disclosure matters which are
required to be reported under this Item for the period for which this report is
filed.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 401 of Regulation S-K will be contained in
the 1999 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 1999 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 1999 Proxy Statement under the caption "Compensation of Directors and
Executive Officers" and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 403 of Regulation S-K will be contained in
the 1999 Proxy Statement under the caption "Stock Ownership" and is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-K will be contained in
the 1999 Proxy Statement under the caption "Transactions with Management" and is
hereby incorporated by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheet at December 31, 1998 and 1997
Consolidated Statement of Income for the three years ended December
31, 1998
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1998
Consolidated Statement of Cash Flows for the three years ended
December 31, 1998
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from pages A-
16 through A-45 of the attached Appendix.
(2) All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) The following Exhibits are filed with this Report or are incorporated
by reference as set forth below:
12
Exhibit
Number Exhibit
------ -------
2.1 Purchase and Assumption Agreement between NationsBank, N.A. and
BancFirst dated September 26, 1997 (filed as Exhibit 2.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
2.2 Merger Agreement dated May 6, 1998 between BancFirst Corporation and
AmQuest Financial Corp. (filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
3.1 Second Amended and Restated Certificate of Incorporation of BancFirst
(filed as Exhibit 1 to BancFirst's 8-A/A filed July 23, 1998 and
incorporated herein by reference).
3.2* Certificate of Designations of Preferred Stock
3.3 Amended By-Laws (filed as Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated
as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated February 4, 1997 and incorporated herein by
reference).
4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated February 4, 1997 and
incorporated herein by reference).
4.3 Series A Capital Securities Guarantee Agreement dated as of February
4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form
8-K dated February 4, 1997 and incorporated herein by reference).
4.4 Rights Agreement, dated as of February 25, 1999, between BancFirst
Corporation and BancFirst, as Rights Agent, including as Exhibit A the
form of Certificate of Designations of the Company setting forth the
terms of the Preferred Stock, as Exhibit B the form of Right
Certificate and as Exhibit C the form of Summary of Rights Agreement
(filed as Exhibit 1 to the Company's 8-K dated February 25, 1999 and
incorporated herein by reference).
10.1 United Community Company (now BancFirst Company) Stock Option Plan
(filed as Exhibit 10.09 to the Company's Registration Statement on
Form S-4, file No. 33-13016 and incorporated herein by reference).
10.2 BancFirst Company Employee Stock Ownership and Thrift Plan (filed as
Exhibit 10.12 to the Company'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).
22.1* Subsidiaries of Registrant.
23.1* Consent of PriceWaterhouseCoopers LLP
23.2* Consent of Arthur Anderson LLP
27.1* Financial Data Schedule for the year ended December 31, 1998.
27.5* Financial Data Schedule for the year ended December 31, 1997.
13
27.9* Financial Data Schedule for the year ended December 31, 1996.
__________________________
* Filed herewith.
(b) A report on Form 8-K was filed by the Company on October 15, 1998,
reporting the October 1, 1998 merger of AmQuest Financial Corp. with and
into BancFirst Corporation. The following financial statements were filed
by amendment on December 15, 1998:
(1) Financial statements of AmQuest Financial Corp.
(A) Consolidated Statements of Financial Condition as of September
30, 1998, December 31, 1997 and December 31, 1996
(B) Consolidated Statements of Income for the Nine Months Ended
September 30, 1998 and 1997, and for the Years Ended December 31,
1997, 1996 and 1995
(C) Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995
(D) Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997, and for the Years Ended December 31,
1997, 1996 and 1995
(2) Pro forma financial information.
(A) Unaudited Pro Forma Consolidated Condensed Balance Sheet as of
September 30, 1998
(B) Unaudited Pro Forma Consolidated Condensed Statement of Income
and Comprehensive Income for the Nine Months Ended September 30,
1998
(C) Unaudited Pro Forma Consolidated Condensed Statement of Income
and Comprehensive Income for the Nine Months Ended September 30,
1997
(D) Unaudited Pro Forma Consolidated Condensed Statement of Income
and Comprehensive Income for the Year Ended December 31, 1997
(E) Unaudited Pro Forma Consolidated Condensed Statement of Income
and Comprehensive Income for the Year Ended December 31, 1996
(F) Unaudited Pro Forma Consolidated Condensed Statement of Income
and Comprehensive Income for the Year Ended December 31, 1995
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
April 15, 1999 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 April 15, 1999.
/s/ H.E. Rainbolt /s/ David E. Rainbolt
- ---------------------------------------------- -------------------------------------------------
H. E. Rainbolt David E. Rainbolt
Chairman of the Board President, Chief Executive
(Principal Executive Officer) Officer and Director
(Principal Executive Officer)
______________________________________________ _________________________________________________
Marion Bauman C. L. Craig, Jr.
Director Director
/s/ James R. Daniel /s/ K. Gordon Greer
- ---------------------------------------------- -------------------------------------------------
James R. Daniel K. Gordon Greer
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer (Principal Executive Officer)
/s/ Robert A. Gregory
- ---------------------------------------------- _________________________________________________
Robert A. Gregory John T. Hannah
Vice Chairman of the Board Director
(Principal Executive Officer)
/s/ J. R. Hutchens, Jr.
______________________________________________ _________________________________________________
John C. Hugon J. R. Hutchens, Jr.
Director Director
/s/ William O. Johnstone /s/ J. Ralph McCalmont
______________________________________________ -------------------------------------------------
William O. Johnstone J. Ralph McCalmont
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
15
______________________________________________ _________________________________________________
Tom H. McCasland, Jr. Melvin Moran
Director Director
/s/ Joe T. Shockley, Jr.
______________________________________________ -------------------------------------------------
Paul B. Odom, Jr. Joe T. Shockley, Jr.
Director Executive Vice President,
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ Randy Foraker
- ----------------------------------------------
Randy Foraker
Senior Vice President,
Controller and Treasurer
(Principal Accounting Officer)
16
APPENDEX A
BANCFIRST CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Pages
----------------
Financial Review A-2 to A-15
Selected Consolidated Financial Data A-3
Reports of Independent Accountants A-16
Consolidated Balance Sheet A-17
Consolidated Statement of Income A-18
Consolidated Statement of Stockholders' Equity A-19
Consolidated Statement of Cash Flows A-20
Notes to Consolidated Financial Statements A-21 to A-45
A-1
FINANCIAL REVIEW
The following discussion is an analysis of the financial condition and
results of operations of the Company for the three years ended December 31, 1998
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 posted its eighth consecutive year of record earnings
for 1998. At the same time, the Company grew over 73% by adding $990 million in
assets through acquisitions and internal growth. Four acquisitions were
completed during the year, two of which were accounted for as poolings of
interests. Acquisition and restructuring costs of over $3.1 million were
absorbed in current year earnings as a result of these transactions.
Net income for 1998 was $21.6 million, up from $20.9 million for 1997 and
$21.2 million for 1996, on a restated basis for the pooling of interests
transactions. The corresponding diluted earnings per share figures were $2.27
for 1998, $2.21 for 1997 and $2.22 for 1996.
Total assets increased to $2.34 billion, from $2.02 billion on a restated
basis. Total loans increased $89 million, or 7.12%. Total deposits increased
$263 million, or 14.9%. Stockholders' equity rose $20.7 million to $202
million, an 11.4% increase. Average stockholders' equity to average assets
increased to 9.09%, from 8.95% for 1997.
Asset quality remained high in 1998 with nonperforming and restructured
assets to total assets of only 0.60%, compared to 0.51% for 1997. The allowance
for possible loan losses to nonperforming and restructured loans was 158.69% at
year-end 1998 and 206.55% at the end of 1997.
In March 1998, the Company completed its purchase of 13 branches from
NationsBank, N.A. and concurrently sold three of the branches to another
Oklahoma financial institution. An additional four branches were subsequently
sold to other local financial institutions. These transactions resulted in the
acquisition of $30 million in net loans and other assets, and the assumption of
$78 million in net deposits.
In May 1998, the Company completed a merger with Lawton Security
Bancshares, Inc. ("Lawton Security Bancshares"), which had approximately $92
million in total assets. Lawton Security Bancshares' principal subsidiary was
Security Bank & Trust Company of Lawton, Oklahoma, which was merged into
BancFirst. The merger was effected through an exchange of stock and was
accounted for as a pooling of interests.
In October 1998, the Company completed a merger with AmQuest Financial
Corp. ("AmQuest"), which had approximately $526 million in total assets.
AmQuest's principal subsidiaries were AmQuest Bank, N.A. and Exchange National
Bank & Trust Company, which operated in six communities in south-central
Oklahoma, and which were merged into BancFirst. Restructuring charges of $1.9
million were incurred, consisting of termination benefits of $345,000 and losses
on facilities other assets to be sold or abandoned, of $1.57 million. The merger
was effected through an exchange of stock and was accounted for as a pooling of
interests.
In December 1998, the Company completed an acquisition of Kingfisher
Bancorp, Inc. ("Kingfisher Bancorp"), which had approximately $91 million in
total assets. Kingfisher Bancorp's principal subsidiary was Kingfisher Bank &
Trust Co. of Kingfisher, Oklahoma, which was merged into BancFirst in March
1999. The acquisition was for cash of $12 million and was accounted for as a
purchase.
A-2
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
AT AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
INCOME STATEMENT DATA
Net interest income $ 92,752 $ 84,221 $ 77,965 $ 66,387 $ 62,485
Provision for possible loan losses 2,211 2,888 2,181 1,617 651
Noninterest income 24,019 21,508 20,001 17,399 15,851
Noninterest expense 80,482 71,455 62,386 53,926 50,810
Net income 21,550 20,905 21,150 18,243 17,778
Accumulated preferred dividends -- -- -- -- (55)
Net income applicable to common stockholders 21,550 20,905 21,150 18,243 17,723
BALANCE SHEET DATA
Total assets $2,335,883 $2,016,463 $1,863,056 $1,627,959 $1,426,651
Securities 582,649 510,426 477,191 469,416 423,987
Total loans (net of unearned interest) 1,338,879 1,249,705 1,125,278 947,089 837,895
Allowance for possible loan losses 19,659 17,458 16,569 14,821 13,627
Deposits 2,024,800 1,761,210 1,654,333 1,436,707 1,274,315
Long-term borrowings 12,966 7,051 12,636 1,918 1,000
9.65% Capital Securities 25,000 25,000 -- -- --
Common stockholders' equity 201,917 181,245 165,579 150,771 127,478
PER COMMON SHARE DATA
Net income - basic $ 2.32 $ 2.26 $ 2.29 $ 1.95 $ 1.90
Net income - diluted 2.27 2.21 2.22 1.91 1.86
Cash dividends 0.50 0.42 0.34 0.29 0.25
Book value 21.73 19.62 17.82 16.12 13.65
Tangible book value 19.14 17.56 15.89 14.89 12.39
SELECTED FINANCIAL RATIOS
Performance ratios:
Return on average assets 1.00% 1.09% 1.21% 1.22% 1.25%
Return on average stockholders' equity 10.95 12.14 13.61 13.32 14.25
Cash dividend payout ratio 21.55 18.58 14.85 14.87 13.09
Net interest spread 3.94 4.09 4.23 4.08 4.35
Net interest margin 4.83 4.93 5.05 4.91 4.97
Efficiency ratio (excluding restructuring charges) 67.29 67.58 63.68 64.36 64.86
Balance Sheet Ratios:
Average loans to deposits 68.83% 70.12% 67.29% 65.61% 62.35%
Average earning assets to total assets 90.17 90.28 90.09 90.15 89.96
Average stockholders' equity to average assets 9.09% 8.95% 8.90% 9.15% 8.74%
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.93% 0.68% 0.98% 0.83% 0.78%
Nonperforming and restructured assets to total assets 0.60 0.51 0.70 0.60 0.70
Allowance for possible loan losses to total loans 1.47 1.40 1.47 1.56 1.63
Allowance for possible loan losses to nonperforming 158.69 206.55 150.85 187.51 207.76
And restructured loans
Net chargeoffs to average loans 0.14 0.20 0.13 0.10 0.04
A-3
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
TAXABLE EQUIVALENT BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------- -------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------- ------------ ---------- ----------- ------------ ----------
ASSETS
Earning assets:
Loans (1) $1,290,557 $121,700 9.43% $1,181,421 $111,786 9.46%
Investments - taxable 527,213 32,698 6.20 452,738 28,951 6.39
Investments - tax exempt 43,269 3,356 7.76 45,773 3,504 7.65
Federal funds sold 91,736 4,835 5.27 57,787 3,150 5.45
------------- ------------ ----------- ------------
Total earning assets 1,952,775 162,589 8.33 1,737,719 147,391 8.48
------------- ------------ ----------- ------------
Nonearning assets:
Cash and due from banks 114,137 99,966
Interest receivable and
other assets 116,910 104,255
Allowance for possible
loan losses (18,138) (17,185)
------------- -----------
Total nonearning assets 212,909 187,036
------------- -----------
Total assets $2,165,684 $1,924,755
============= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 104,006 2,572 2.47% $ 156,478 4,055 2.59%
Savings deposits 547,887 14,386 2.63 450,491 13,531 3.00
Time deposits 826,172 45,988 5.57 745,308 40,199 5.40
Short-term borrowings 40,191 2,161 5.38 19,932 1,093 5.48
Long-term borrowings 13,123 734 5.59 10,849 648 5.97
9.65% Capital Securities 25,000 2,449 9.80 22,683 2,214 9.76
------------- ------------ ----------- ------------
Total interest-bearing
liabilities 1,556,379 68,290 4.39 1,405,741 61,740 4.39
------------- ------------ ----------- ------------
Interest-free funds:
Demand deposits 396,802 332,513
Interest payable and other
liabilities 15,642 14,246
Stockholders' equity 196,861 172,255
------------- -----------
Total interest free
funds 609,305 519,014
------------- -----------
Total liabilities and
stockholders' equity $2,165,684 $1,924,755
============= ===========
Net interest income $ 94,299 $ 85,651
=========== ===========
Net interest spread 3.94% 4.09%
======== ========
Net interest margin 4.83% 4.93%
======== ========
DECEMBER 31, 1996
-----------------------------------
INTEREST AVERAGE
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
------------ ---------- --------
ASSETS
Earning assets:
Loans (1) $1,047,771 $100,532 9.59%
Investments - taxable 436,341 27,287 6.25
Investments - tax exempt 47,693 3,552 7.45
Federal funds sold 41,918 2,245 5.36
------------ ----------
Total earning assets 1,573,723 133,616 8.49
------------ ----------
Nonearning assets:
Cash and due from banks 93,529
Interest receivable and
other assets 95,592
Allowance for possible
loan losses (16,040)
------------
Total nonearning assets 173,081
------------
Total assets $1,746,804
============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits $ 233,312 $ 6,293 2.70%
Savings deposits 339,897 10,520 3.09
Time deposits 677,481 36,237 5.35
Short-term borrowings 19,247 1,059 5.50
Long-term borrowings 2,724 160 5.87
9.65% Capital Securities -- -- --
------------ ----------
Total interest-bearing
liabilities 1,272,661 54,269 4.26
------------ ----------
Interest-free funds:
Demand deposits 306,311
Interest payable and other
liabilities 12,377
Stockholders' equity 155,455
------------
Total interest free
funds 474,143
------------
Total liabilities and
stockholders' equity $1,746,804
============
Net interest income $ 79,347
==========
Net interest spread 4.23%
========
Net interest margin 5.05%
========
(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 10.1% in 1998 to $92.8 million, after an increase of 8.02% in
1997. The net interest margin on a taxable equivalent basis for 1998 was 4.83%,
down from 4.93% for 1997 and 5.05% for 1996. Changes in the volume of earning
assets and interest-bearing liabilities, and changes in interest rates determine
the change 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 1998 and 1997. The increase in net interest income in 1998
was due to growth in loans and net earning assets. Average loans rose 9.24%.
At the same time, average net earning assets increased to $396 million from $332
million for 1997. In 1997, average loans increased 12.76% and average net
earning assets increased to $332 million from $301 million for 1996. The
declining net interest margin is the result of several factors including low
interest rates, a flatter yield curve and loan pricing competition. This is
reflected in the negative rate variances for 1998 and 1997.
VOLUME/RATE ANALYSIS CHANGE IN 1998 CHANGE IN 1997
---------------------------------------------- ---------------------------------------------
TAXABLE EQUIVALENT BASIS TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO
VOLUME (1) RATE VOLUME (1) RATE
--------- -------------- ------------- --------- -------------- ------------
(Dollars in thousands)
INCREASE (DECREASE)
INTEREST INCOME:
Loans $ 9,914 $10,326 $ (412) $11,254 $12,824 $(1,570)
Investments - taxable 3,747 4,762 (1,015) 1,664 1,025 639
Investments - tax exempt (148) (192) 44 (48) (143) 95
Federal funds sold 1,685 1,858 (173) 905 850 55
--------- -------------- ------------- --------- -------------- ------------
Total interest income 15,198 16,754 (1,556) 13,775 14,556 (781)
--------- -------------- ------------- --------- -------------- ------------
INTEREST EXPENSE:
Transaction deposits (1,483) (1,360) (123) (2,238) (2,072) (166)
Savings deposits 855 2,926 (2,071) 3,011 3,423 (412)
Time deposits 5,789 4,363 1,426 3,962 3,628 334
Short-term borrowings 1,068 1,111 (43) 34 38 (4)
Long-term borrowings 86 136 (50) 488 477 11
9.65% Capital Securities 235 226 9 2,214 -- 2,214
--------- -------------- ------------- --------- -------------- ------------
Total interest expense 6,550 7,402 (852) 7,471 5,494 1,977
--------- -------------- ------------- --------- -------------- ------------
Net interest income $ 8,648 $ 9,352 $ (704) $ 6,304 $ 9,062 $(2,758)
========= ============== ============= ========= ============== ============
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 1998, 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, 1998. At that date, interest-bearing liabilities
exceeded earning assets by $492 million in the three month interval. The
Company's negative gap position increased in 1998 and 1997 as a result of the
majority of its earning asset growth having a maturity or repricing frequency of
one to five years. This negative gap position assumes that the Company's core
savings and transaction deposits are immediately rate sensitive and reflects
Management's perception that the yield curve will be positively sloped over the
long term. When the yield curve flattens, as it did in 1997 and 1998, 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.
A-5
ANALYSIS OF INTEREST RATE SENSITIVITY INTEREST RATE NONINTEREST RATE
SENSITIVE SENSITIVE
----------------------------- --------------------------
DECEMBER 31, 1998 0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
----------- ---------- ---------- ---------- ----------
EARNING ASSETS
Loans $ 601,951 $ 159,884 $ 419,482 $ 157,562 $1,338,879
Federal funds sold 187,369 -- -- -- 187,369
Securities 62,477 90,521 356,678 72,973 582,649
----------- ---------- ---------- ---------- ----------
Total $ 851,797 $ 250,405 $ 776,160 $ 230,535 $2,108,897
=========== ========== ========== ========== ==========
FUNDING SOURCES
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 252,764 $ 252,764
Savings and transaction deposits 699,278 -- -- -- 699,278
Time deposits of $100 or more 151,316 60,983 14,330 -- 226,629
Time deposits under $100 436,724 170,606 28,172 -- 635,502
Short-term borrowings 54,841 -- -- -- 54,841
Long-term borrowings 308 982 8,797 2,879 12,966
9.65% Capital Securities -- -- -- 25,000 25,000
Stockholders' equity -- -- -- 201,917 201,917
----------- ---------- ---------- ---------- ----------
Total $1,342,467 $ 232,571 $ 51,299 $ 482,560 $2,108,897
=========== ========== ========== ========== ==========
Interest sensitivity gap $ (490,670) $ 17,834 $724,861 $(252,025)
Cumulative gap $ (490,670) $(472,836) $252,025 $ --
Cumulative gap as a percentage
of total earning assets (23.27)% (22.42)% 11.95% -- %
(1) Represents the amount of demand deposits required to support earning assets
in excess of interest-bearing liabilities and stockholders' equity.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $2.21 million for 1998 compared
to $2.89 million for 1997, and $2.18 million for 1996. These relatively low
levels of provisions reflect the Company's strong asset quality. The amounts
provided for the last three years primarily relate to loan growth and net loan
charge-offs. The Company establishes a 1% allowance for possible losses on non-
classified loans. Net loan charge-offs were $1.85 million for 1998, compared to
$2.31 million for 1997 and $1.39 million for 1996. The net charge-offs for 1998
and 1997 were equivalent to only 0.14% and 0.20% of average loans, respectively.
A more detailed discussion of the allowance for possible loan losses is provided
under "Loans."
NONINTEREST INCOME
Noninterest income increased in 1998 by $2.51 million, or 11.67%, compared
to an increase of $1.51 million, or 7.53% in 1997 and $2.6 million, or 14.95%,
in 1996. Noninterest income has become an increasingly important source of
revenue. The Company's fee income has increased each year since 1987 due to
improved pricing strategies, enhanced product lines and bank acquisitions. New
products and strategies have been implemented which are expected to produce
continued growth in noninterest income.
Service charges on deposits increased $1.48 million, or 11.24%, compared to
increases of 12.3% and 10.9% in 1997 and 1996, respectively. In 1997 and 1998,
the Company implemented strategies to improve the charging and collection of
various service charges. The growth in 1996 was primarily due to acquisitions.
Other noninterest income decreased $1.02 million, or 12.24%, in 1998, after
increasing 3.46% in 1997 and 20.41% in 1996. The primary causes of the
increases were increased fees from mortgage loan originations, gains on sales of
mortgage loans and higher trust revenues.
Net gains on securities transactions were only $12,000 in 1998, compared to
$2,000 in 1997, and $219,000 in 1996. The Company's practice is to hold its
securities to maturity and it does not engage in trading activities. The small
gains from securities transactions have
A-6
primarily been from securities that have been called or from disposing of
securities acquired in mergers which had a higher than acceptable level of risk.
A more detailed discussion of securities is provided under "Securities."
NONINTEREST EXPENSE
Total noninterest expense increased in 1998 by 12.6% to $80.5 million,
compared to increases of 14.5% for 1997 and 15.7% for 1996. Noninterest expense
in 1998 included $3.1 million of acquisition and restructuring costs. The
increase in 1998, before these acquisition and restructuring costs was 8.15 %.
Salaries and employee benefits have increased over the past three years due to
acquisitions, higher salary levels, additional staff for new product lines and
increased loan demand. Occupancy and fixed asset expense, depreciation,
amortization and data processing services all increased due to acquisitions.
Net income from other real estate owned of $111,000 was recognized for 1998,
compared to net expense of $298,000 and $57,000 for 1997 and 1996. These
amounts are reflective of the Company's efforts to reduce nonperforming assets,
with gains on sales of properties being recognized in 1998.
INCOME TAXES
Income tax expense increased to $12.5 million in 1998, from $10.5 million
for 1997 and $12.2 million for 1996. The primary reasons for the difference
between the Company's effective tax rate and the federal statutory rate are
nondeductible amortization and state tax expense. In 1997, the Company
recognized a benefit of $193,000 for a state net operating loss carryforward.
The Company also utilized substantial amounts of net operating loss
carryforwards in 1993 and 1994. The remaining carryforwards are limited as to
the amounts which may be utilized each year.
Since banks have traditionally carried large amounts of tax-exempt
securities and loans, certain financial information is prepared on a taxable
equivalent basis to facilitate analysis of yields and changes in components of
earnings. Average balance sheets, income statements and other financial
statistics on a taxable equivalent basis have been presented for this purpose.
IMPACT OF INFLATION
The impact of inflation on financial institutions differs significantly
from that of industrial or commercial companies. The assets of financial
institutions are predominantly monetary, as opposed to fixed or nonmonetary
assets such as premises, equipment and inventory. As a result, there is little
exposure to inflated earnings by understated depreciation charges or
significantly understated current values of assets. Although inflation can have
an indirect effect by leading to higher interest rates, financial institutions
are in a position to monitor the effects on interest costs and yields and
respond to inflationary trends through management of interest rate sensitivity.
Inflation can also have an impact on noninterest expenses such as salaries and
employee benefits, occupancy, services and other costs.
FINANCIAL POSITION
CASH AND FEDERAL FUNDS SOLD
Cash consists of cash and cash items on hand, deposits and other amounts
due from other banks, and reserves deposited with the Federal Reserve Bank.
Federal funds sold consists of overnight investments of excess funds with other
financial institutions. The amount of cash and federal funds sold carried by
the Company is a function of the availability of funds presented to other
institutions for clearing, the Company's requirements for liquidity, operating
cash and reserves, available yields, and interest rate sensitivity management.
Balances of these items can fluctuate widely based on these various factors.
Cash and federal funds sold increased $155 million compared to December 31,
1997, due largely to an inflow of temporary deposits at year-end 1998 and the
Company's increased level of federal funds purchased from correspendent banks.
In 1997, cash and federal funds sold decreased $13.8 million as compared to
year-end 1996. Based on average balances, however, there were increases of
$48.1 million and $21.3 million for 1998 and 1997, respectively. Consequently,
comparisons of year-end balances of cash and federal funds sold are not
necessarily reflective of the overall trend.
A-7
SECURITIES
During 1998, total securities increased $72.2 million, or 14.1%, compared
to an increase of $33.2 million, or 6.96%, in 1997. The increase in 1998 was
primarily due to acquisitions, while the increase in 1997 was in line with the
internal growth of the Company.
Securities available for sale represented 77.6% of the total securities
portfolio at year-end 1998, compared to 69.8% at year-end 1997. These levels
reflect the Company's strategy of maintaining a very liquid portfolio.
Securities available for sale had a net unrealized gain of $8.25 million at
year-end 1998, compared to $2.78 million the preceding year. These gains are
included, net of tax, in the Company's stockholders' equity as $5.43 million and
$1.79 million, respectively.
SECURITIES DECEMBER 31
1998 1997 1996
-------------- ------------- -------------
(Dollars in thousands)
HELD FOR INVESTMENT
U.S. Treasury and other federal $ 87,520 $106,396 $112,237
agencies
States and political subdivisions 43,283 47,819 45,516
Other securities -- 53 75
-------------- ------------- -------------
Total $130,803 $154,268 $157,828
============== ============= =============
Estimated market value $132,804 $156,210 $158,753
============== ============= =============
AVAILABLE FOR SALE
U.S. Treasury and other federal $438,935 $342,679 $309,194
agencies
States and political subdivisons 2,499 3,361 1,284
Other Securities 10,412 10,118 8,885
-------------- ------------- -------------
Total $451,846 $356,158 $319,363
============== ============= =============
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 91.3% of the total portfolio.
MATURITY
DISTRIBUTION AFTER ONE YEAR AFTER FIVE YEARS
OF SECURITIES BUT BUT
WITHIN FIVE
DECEMBER 31, 1998 WITHIN ONE YEAR YEARS WITHIN TEN YEARS AFTER TEN YEARS
--------------------- --------------------- --------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- --------- ---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
HELD FOR INVESTMENT
U.S. Treasury and other federal
agencies $ 25,100 6.44% $ 49,497 6.72% $ 8,730 6.45% $ 4,193 5.65%
State and political subdivisions 9,055 7.32 19,729 7.52 9,996 7.84 4,503 7.27
Other securities -- -- -- -- -- -- -- --
---------- ---------- ---------- ----------
Total $ 34,155 6.67 $ 69,226 6.95 $18,726 7.19 $ 8,696 6.48
========== ========== ========== ==========
Percentage of total 26.11% 52.93% 14.32% 6.64%
========== ========== ========== ==========
AVAILABLE FOR SALE
U.S. Treasury and other federal
agencies $ 97,273 6.36% $329,757 5.89% $ 9,032 6.78% $ 2,873 6.15%
State and political subdivisions 1,287 7.31 237 7.57 288 7.45 687 7.34
Other securities -- -- -- -- -- -- 10,412 6.58
---------- ---------- ---------- ---------
Total $ 98,560 6.37 $329,994 5.89 $ 9,320 6.80 $13,972 6.52
========== ========== ========== =========
Percentage of total 21.82% 73.03% 2.06% 3.09%
---------- ---------- ---------- ----------
Total securities $132,715 6.45% $399,220 6.07% $28,046 7.06% $22,668 6.51%
========== ========== ========== ==========
Percentage of total 22.78% 68.52% 4.81% 3.89%
---------- ---------- ---------- ----------
TOTAL
----------------------------
AMOUNT YIELD
------------- ---------
HELD FOR INVESTMENT
U.S. Treasury and other federal
agencies $ 87,520 6.56%
State and political subdivisions 43,283 7.53
Other securities -- --
-------------
Total $130,803 6.88
=============
Percentage of total 100.00%
=============
AVAILABLE FOR SALE
U.S. Treasury and other federal
agencies $438,935 6.01%
State and political subdivisions 2,499 7.36
Other securities 10,412 6.58
-------------
Total $451,846 6.03
=============
Percentage of total 100.00%
=============
Total securities $582,649 6.22%
=============
Percentage of total 100.00%
=============
A-8
LOANS
The Company has generated significant loan growth over the past nine years
from both acquisitions and internal originations. Total loans increased $89.2
million, or 7.14%, in 1998, and $124 million, or 11.1%, in 1997. Internal
growth is being generated primarily in the Oklahoma City and Tulsa metropolitan
markets, and by specialized lending activities such as 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.
Construction and development loans totaled only $75.9 million, or 5.67% of total
loans as of the end of 1998. 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 proportion of the Company's loan portfolio.
In 1998, this percentage was 55.2% compared to 53.3% for 1997. 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,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ -------------------- ---------------- ---------------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ----------- ------- ----------- ------- --------- -------- -------- -------
(Dollars in thousands)
Commercial, financial and
other $ 361,222 26.98% $ 342,779 27.43% $ 309,042 27.46% $255,655 26.99% $223,739 26.70%
Real estate - construction 75,907 5.67 54,858 4.39 45,813 4.07 36,043 3.81 40,285 4.81
Real estate - mortgage 663,448 49.55 611,163 48.90 533,253 47.39 461,295 48.71 397,660 47.46
Consumer 238,302 17.80 240,905 19.28 237,170 21.08 194,097 20.49 176,211 21.03
---------- ------ ----------- ------- ----------- ------- --------- ------ -------- -------
Total $1,338,879 100.00% $1,249,705 100.00% $1,125,278 100.00% $947,090 100.00% $837,895 100.00%
========== ====== =========== ======= =========== ======= ========= ====== ======== =======
The majority of the commercial real estate and other commercial loans have
maturities of one year or less. However, many of these loans are renewed at
existing or similar terms after scheduled principal reductions. Also, over half
of the commercial real estate and other commercial loans had adjustable interest
rates at year-end 1998. The short maturities and adjustable interest rates on
these loans allow the Company to maintain the majority of its loan portfolio
near market interest rates.
MATURITY AND RATE SENSITIVITY MATURING
-------------------------------------------
OF LOANS AFTER ONE
DECEMBER 31, 1998 WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------- ------------
(Dollars in thousands)
Commercial, financial and other $ 238,880 $ 110,601 $ 11,741 $ 361,222
Real estate - construction 51,160 18,097 6,650 75,907
Real estate - mortgage (excluding loans
secured by 1 to 4 family residential
properties) 238,435 93,138 61,026 392,599
------------ ------------- ------------ ------------
Total $ 528,475 $ 221,836 $ 79,417 $ 829,728
============ ============= ============ ============
Loans with predetermined interest rates $ 204,336 $ 96,870 $ 19,725 $ 320,931
Loans with adjustable interest rates 324,139 124,966 59,692 508,797
------------ ------------- ------------ ------------
Total $ 528,475 $ 221,836 $ 79,417 $ 829,728
============ ============= ============ ============
Percentage of total 63.69% 26.74% 9.57% 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.
A-9
Nonperforming and Restructured Loans
Nonperforming and restructured loans increased from 1995 through 1996
primarily as a result of acquisitions but decreased in 1997. Nonperforming and
restructured loans as a percentage of total loans was 0.93% at year-end 1998,
compared to 0.68% at year-end 1997 and 0.98% at year-end 1996. From a
historical perspective, nonperforming loans peaked in 1986 and have gradually
decreased since that time. However, it is reasonable to expect that over the
next several years the level of nonperforming loans and loan losses will rise to
more historical norms as a result of economic and credit cycles.
Nonaccrual loans negatively impact the Company's net interest margin. A
loan is placed on nonaccrual status when, in the opinion of management, the
future collectibility of interest and/or principal is in serious doubt.
Interest income is recognized on certain of these loans on a cash basis if the
full collection of the remaining principal balance is reasonably expected.
Otherwise, interest income is not recognized until the principal balance is
fully collected. Total interest income which was not accrued on nonaccrual
loans outstanding at year end was approximately $344,000 in 1998 and $532,000 in
1997. Only a small amount of this interest was ultimately collected.
The classification of a loan as nonperforming does not necessarily indicate
that loan principal and interest will ultimately be uncollectible. The
Company's experience is that a significant portion of both principal and
interest is eventually recovered. However, the above normal risk associated
with nonperforming loans is considered in the determination of the allowance for
possible loan losses. At year-end 1998, the allowance for possible loan losses
as a percentage of nonperforming and restructured loans was 158.69%, compared to
206.55% at the end of 1997 and 150.85% at the end of 1996.
NONPERFORMING AND RESTRUCTURED LOANS DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ------------ ------------
(Dollars in thousands)
Past due over 90 days and still accruing $ 2,792 $ 1,600 $ 2,943 $ 979 $ 687
Nonaccrual 8,308 6,416 7,319 6,148 4,983
Restructured 1,288 436 722 777 889
----------- ----------- ----------- ------------ ------------
Total nonperforming and restructured loans 12,388 8,452 10,984 7,904 6,559
Other real estate owned and repossessed assets 1,639 1,766 1,977 1,883 3,471
----------- ----------- ----------- ------------ ------------
Total nonperforming and restructured assets $14,027 $10,218 $12,961 $9,787 $10,030
=========== =========== =========== ============ ============
Nonperforming and restructured loans to total loans 0.93% 0.68% 0.98% 0.83% 0.78%
=========== =========== =========== ============ ============
Nonperforming assets to total assets 0.60% 0.51% 0.70% 0.60% 0.70%
=========== =========== =========== ============ ============
Other real estate owned and repossessed assets decreased in 1998 to $1.64
million from $1.77 million at year-end 1997. The slight increase in other real
estate owned in 1996 was primarily due to acquisitions during the year. 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 $31 million of these loans, which are not included in
nonperforming and restructured assets, at December 31, 1998. In general, these
loans are well collateralized and have no identifiable loss potential. Loans
which are considered to have identifiable loss potential are placed on
nonaccrual status, are allocated a specific allowance for loss or are directly
charged-down, and are reported as nonperforming.
Allowance for Possible Loan Losses
The allowance for possible loan losses reflects Management's assessment of
the risk of loss inherent in the Company's loan portfolio. The allowance and
its adequacy is determined through consideration of many factors, including
evaluation of known problem loans, levels of adversely classified, past due and
nonperforming loans, loan loss experience, and economic conditions. To
facilitate Management's assessment, the Company's Asset Quality Department
performs periodic loan reviews at each of the Company's locations. The process
of determining the adequacy of the allowance for possible loan losses, however,
necessarily involves the exercise of judgment and consideration of numerous
subjective factors and, accordingly, there can be no assurance that the current
level of the allowance will prove adequate in light of future developments and
economic conditions. As loan quality changes with economic and credit cycles,
it would be reasonable to expect the Company's net charge-offs and loan loss
provisions to return to more historically normal levels. BancFirst's adversely
classified loans (which includes nonperforming loans, certain restructured loans
and potential problem loans described above) totaled approximately $37.4 million
at the end of 1998, which was equal to 2.79% of total loans.
A-10
The Company's net charge-offs have been very low in recent years. In 1998,
the Company recognized $1.85million of net charge-offs, which was only 0.14% of
average loans, compared to $2.31 million of net charge-offs, or 0.20% of average
loans, for 1997.
ANALYSIS OF ALLOWANCE FOR YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
POSSIBLE LOAN LOSSES 1998 1997 1996 1995 1994
----------------- -------------- -------------- -------------- --------------
(Dollars in thousands)
Balance at beginning of year $ 17,458 $ 16,569 $ 14,821 $ 13,627 $ 12,855
----------------- -------------- -------------- -------------- --------------
Charge-offs:
Commercial (1,805) (1,182) (743) (657) (770)
Real estate (212) (238) (118) (170) (127)
Consumer (989) (1,670) (968) (880) (898)
Other (171) (80) (120) (78) (68)
----------------- -------------- -------------- -------------- --------------
Total charge-offs (3,177) (3,169) (1,949) (1,785) (1,863)
----------------- -------------- -------------- -------------- --------------
Recoveries:
Commercial 811 320 114 436 925
Real estate 223 202 161 156 344
Consumer 258 315 247 231 239
Other 34 25 35 25 35
----------------- -------------- -------------- -------------- --------------
Total recoveries 1,326 862 557 848 1,543
----------------- -------------- -------------- -------------- --------------
Net (charge-offs) recoveries 1,851 (2,307) (1,392) (937) (320)
Provisions charged to operations 2,211 2,888 2,181 1,617 651
Additions from acquisitions 1,841 308 959 514 441
----------------- -------------- -------------- -------------- --------------
Balance at end of year $ 19,659 $ 17,458 $ 16,569 $ 14,821 $ 13,627
================= ============== ============== ============== ==============
Average loans $1,290,557 $1,181,421 $1,047,771 $894,412 $795,571
================= ============== ============== ============== ==============
Total loans $1,338,879 $1,249,705 $1,125,278 $947,090 $837,895
================= ============== ============== ============== ==============
Net charge-offs to average loans 0.14% 0.20% 0.13% 0.10% 0.04%
================= ============== ============== ============== ==============
Allowance to total loans 1.47% 1.40% 1.47% 1.56% 1.63%
================= ============== ============== ============== ==============
Allocation of the allowance by
category of loans:
Commercial, financial and other $ 5,277 $ 4,358 $ 4,506 $ 3,503 $ 3,290
Real estate - construction 1,400 1,085 972 889 1,027
Real estate - mortgage 9,406 7,883 7,090 6,326 5,496
Consumer 3,229 2,924 2,999 2,463 2,174
Unallocated 347 1,208 1,002 1,640 1,640
----------------- -------------- -------------- -------------- --------------
Total $ 19,659 $ 17,458 $ 16,569 $ 14,821 $ 13,627
================= ============== ============== ============== ==============
Percent of loans in each category
to total loans:
Commercial, financial and other 26.98% 27.43% 27.46% 26.99% 26.70%
Real estate - construction 5.67 4.39 4.07 3.81 4.81
Real estate - mortgage 49.55 48.90 47.39 48.71 47.46
Consumer 17.80 19.28 21.08 20.49 21.03
----------------- -------------- -------------- -------------- --------------
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 $264 million in 1998, and $107 million in
1997, primarily from acquisitions. Demand deposits as a percentage of total
deposits has been increasing since 1994. Core deposits as a percentage of total
deposits increased in 1998 to 90.39% from 89.14% in 1997. In 1996, interest-
bearing transaction deposits decreased and savings deposits increased as a
result of a new product introduced by the Company which sweeps excess funds in
transaction accounts into a savings account. The effect of this change is even
more apparent in the 1997 and 1998 average balances.
A-11
ANALYSIS OF AVERAGE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
DEPOSITS 1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- -----------
AVERAGE BALANCES (Dollars in thousands)
Demand deposits $ 396,802 $ 332,513 $ 306,311 $ 256,903 $ 241,070
Interest-bearing transaction
deposits 104,006 156,478 233,312 311,884 320,352
Savings deposits 547,887 450,491 339,897 209,398 213,643
Time deposits under $100,000 646,003 562,415 517,264 452,173 407,538
---------- ----------- ----------- ----------- -----------
Total core deposits 1,694,698 1,501,897 1,396,784 1,230,358 1,182,603
Time deposits of $100,000 or more 180,169 182,893 160,217 132,892 93,300
---------- ----------- ----------- ----------- -----------
Total deposits $1,874,867 $1,684,790 $1,557,001 $1,363,250 $1,275,903
========== =========== =========== =========== ===========
% OF % OF % OF % OF % OF
PERCENTAGES OF TOTAL DEPOSITS TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE
------- ------ ------- ------ ------- ------ ------- ------- ------- ------
AND AVERAGE RATES PAID
Demand deposits 21.16% 19.74% 19.67% 18.84% 18.89%
Interest-bearing transaction
deposits 5.55 2.47% 9.29 2.59% 14.98 2.70% 22.88 3.12% 25.11 2.78%
Savings deposits 29.22 2.63 26.74 3.00 21.83 3.09 15.36 3.64 16.74 3.05
Time deposits under $100,000 34.46 5.49 33.37 5.39 33.23 5.33 33.17 5.34 31.95 3.94
------- ------- ------- ------- -------
Total core deposits 90.39 89.14 89.71 90.25 92.69
Time deposits of $100,000 or more 9.61 5.84 10.86 5.41 10.29 5.41 9.75 5.54 7.31 4.02
------- ------- ------- ------- -------
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Average rate paid on
interest-bearing deposits 4.26% 4.26% 4.24% 4.42% 3.41%
===== ===== ===== ===== =====
The Company has not utilized brokered deposits. Approximately ___% of its
time deposits of $100,000 or more at December 31, 1998 mature in one year or
less.
MATURITY OF CERTIFICATES OF DEPOSIT DECEMBER 31,
$100,000 OR MORE 1998
--------------
(In thousands)
Three months or less $ 99,461
Over three months through six months 45,881
Over six months through twelve months 54,994
Over twelve months 26,293
--------------
Total $ 226,629
==============
A-12
Short-term borrowings, consisting mainly of federal funds purchased and
repurchase agreements, are another source of funds for the Company. The level
of these borrowings is determined by various factors, including customer demand
and the Company's ability to earn a favorable spread on the funds obtained.
Short-term borrowings totaled $54.8 million in 1998, compared to $25.7 million
in 1997. In 1998, the Company expanded its correspondent banking activities.
The increase in short-term borrowings is due largely from federal funds
purchased by correspondent banks.
In 1995, the Bank became a member of the Federal Home Loan Bank of Topeka,
Kansas (the "FHLB") and began borrowing from the FHLB at favorable interest
rates. These borrowings are collateralized by a pledge of residential first
mortgages. Long-term borrowings increased to $13 million in 1998 from $7.05
million in 1997.
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 1998, the Bank paid four common stock dividends totaling $10 million and
two preferred stock dividends totaling $1.93 million.
CAPITAL RESOURCES
Stockholders' equity totaled $202 million at year-end 1998, compared to
$181 million at year-end 1997 and $166 million at year-end 1996. The increases
in stockholders' equity are primarily due to net earnings retained. The
Company's average equity capital ratio at year-end 1998 was 9.09%, compared to
8.95% for 1997 and 8.89% for 1996. At December 31, 1998, the Company's leverage
ratio was 8.54% and its total risk-based capital ratio was 15.57%, compared to
minimum requirements of 3% and 8%, respectively. Banking institutions are
generally expected to maintain capital well above the minimum levels.
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 1999.
A-13
MARKET RISK
Market risk is defined as the risk of loss related to financial instruments
from changes in interest rates, foreign currency exchange rates and commodity
prices. The Company's market risk arises principally from its lending,
investing, deposit and borrowing activities. The Company is not exposed to
market risk from foreign exchange rates and commodity prices. Management
monitors and controls interest rate risk through sensitivity analysis and its
strategy of creating manageable negative interest sensitivity gaps, as described
under "Net Interest Income" above. The Company does not use derivitive financial
instruments to manage its interest rate risk exposure.
The table below presents the Company's financial instruments that are
sensitive to changes in interest rates, their expected maturities and their
estimated fair values at December 31, 1998.
MARKET RISK AVG. EXPECTED MATURITY / PRINCIPAL REPAYMENTS AT DECEMBER 31, FAIR
-------------------------------------------------------
DECEMBER 31, 1998 RATE 1999 2000 2001 2002 2003 THEREAFTER BALANCE VALUE
---- ---- ---- ---- ---- ---- ---------- ------- -----
INTEREST SENSITIVE ASSETS
Loans, net 9.17% $537,127 $199,230 $143,397 $118,590 $95,796 $244,739 $1,338,879 $1,346,783
Federal funds sold 4.68 187,369 -- -- -- -- -- 187,369 187,369
Securities 6.13 132,715 118,169 123,878 112,740 44,433 50,714 582,649 584,650
INTEREST SENSITIVE LIABILITIES
Savings and transaction deposits 2.75 699,280 -- -- -- -- -- 699,280 699,280
Time deposits 5.08 734,054 95,454 17,160 9,616 5,767 78 862,129 863,810
Short-term borrowings 4.35 54,841 -- -- -- -- -- 54,841 54,841
Long-term borrowings 5.76 1,290 1,290 1,290 1,290 4,927 2,879 12,966 13,062
9.65% Capital Securities 9.76 -- -- -- -- -- 25,000 25,000 25,993
OFF BALANCE SHEET ITEMS
Loan commitments -- -- -- -- -- -- -- 2,040
Letter of credit -- -- -- -- -- -- -- 113
The expected maturities and principle repayments are based upon the
contractual terms of the instruments. Prepayments have been estimated for
certain instruments with predictable prepayment rates. Savings and transaction
deposits are assumed to mature all in the first year as they are not subject to
withdrawal restrictions and any assumptions regarding decay rates would be very
subjective. The actual maturities and principle repayments for the financial
instruments could vary substantially from the contractual terms and assumptions
used in the analysis.
YEAR 2000 EXPOSURE
Many computer systems and devices using embedded computer chips currently
in operation worldwide use only two digits to specify the year. There is a
significant risk that these systems and devices could produce inaccurate
results, or may not function properly, beginning January 1, 2000 when two-digit
year numbers could be processed as being in the previous century. The Company is
exposed to the risk that not only the systems and devices it uses will
malfunction, but also those of its customers, suppliers and other parties with
whom it conducts business. Such malfunctions could expose the Company to losses
from operational errors and failures, as well as customer claims, lawsuits and
regulatory penalties for noncompliance. While the extent of these possible
losses can not be estimated, such losses could have a material adverse effect on
the Company's results of operations, liquidity and financial condition.
During 1997, the Company commenced a Year 2000 Project to conduct a
comprehensive review of its outside data processing services, internal computer
systems and other mechanical and computerized equipment. The purpose of the
project is to determine and plan for necessary changes to assure that its
systems and equipment will function properly in the year 2000. The project also
includes communications with other parties to determine the extent to which the
parties are addressing the issue and the exposure to the Company in the event
the parties fail to adequately plan for and resolve the issue.
The plan developed by the Company consists of the following five phases:
1. Awareness
2. Assessment
3. Renovation
4. Validation
5. Implementation
A-14
All five phases of the plan have been completed. Testing of mission
critical applications was completed in March 1999. An evaluation of Year 2000
credit risk has been completed. Contingency plans have been prepared for each
mission critical application.
The total cost of addressing the Year 2000 issue is not estimated to be
material. The Company's core business applications are provided by a data
processing company that is devoting substantial resources to assure that the
applications are certified as Year 2000 compliant by the end of 1998. Certain of
the other systems either have been replaced, or were already going to be
replaced with newer technology, and their replacement is not being accelerated
due the Year 2000 issue. Also, no significant information technology projects
are being deferred because of the Year 2000 issue.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note (1) of the Notes to Consolidated Financial Statements for a
discussion of recently issued accounting announcements.
SEGMENT INFORMATION
See Note (21) of the Notes to Consolidated Financial Statements for
disclosures regarding the Company's operating business segments.
FORWARD LOOKING STATEMENTS
The Company may make forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995) with respect to earnings,
credit quality, year 2000 compliance, corporate objectives, interest rates and
other financial and business matters. The Company cautions readers that these
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, including economic conditions, the performance of financial
markets and interest rates; legislative and regulatory actions and reforms;
competition; as well as other factors, all of which change over time. Actual
results may differ materially from forward-looking statements.
A-15
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BancFirst Corporation:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of BancFirst Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of AmQuest Financial
Corporation which statements reflect total assets of $577,074,000 at December
31, 1997 and total revenues of $46,350,000 and $42,291,000 for the years ended
December 31, 1997 and 1996, respectively. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion express
herein, insofar as it relates to the amounts included for AmQuest Financial
Corporation, is based solely on the report of the other auditors. We conducted
our audits of the consolidated financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Oklahoma City, Oklahoma
April 2, 1999
To the Board of Directors and Stockholders of BancFirst Corporation:
We have audited the consolidated statement of financial condition of AmQuest
Financial Corp. (an Oklahoma corporation) and subsidiaries as of December 31,
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1997,
prior to the restatement (and therefore, not presented herein) for the pooling-
of-interests business combination as discussed in Note 2. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statement referred to above present
fairly, in all material respects, the financial position of AmQuest Financial
Corp. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
January 23, 1998 (except with respect to the
matter discussed in Note 15, as
to which the date is March 2, 1998)
A-16
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------------------
1998 1997
--------------- ---------------
ASSETS
Cash and due from banks $ 132,286 $ 104,397
Interest-bearing deposits with banks 11 168
Securities (market value: $584,650 and $512,368, respectively) 582,649 510,426
Federal funds sold 187,369 60,377
Loans:
Total loans (net of unearned interest) 1,338,879 1,249,705
Allowance for possible loan losses (19,659) (17,458)
--------------- ---------------
Loans, net 1,319,220 1,232,247
Premises and equipment, net 47,558 45,839
Other real estate owned 1,057 1,593
Intangible assets, net 24,095 19,052
Accrued interest receivable 19,589 16,374
Other assets 22,049 25,990
--------------- ---------------
Total assets $2,335,883 $2,016,463
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 463,391 $ 370,042
Interest-bearing 1,561,409 1,391,168
--------------- ---------------
Total deposits 2,024,800 1,761,210
Short-term borrowings 54,841 25,731
Long-term borrowings 12,966 7,051
9.65% Capital Securities 25,000 25,000
Accrued interest payable 8,315 8,401
Other liabilities 8,044 7,825
--------------- ---------------
Total liabilities 2,133,966 1,835,218
--------------- ---------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1.00 par (shares issued: 9,291,929 and 9,614,004, respectively) 9,292 9,614
Capital surplus 45,148 44,104
Retained earnings 142,046 131,146
Accumulated other comprehensive income 5,431 1,788
Treasury stock, at cost (377,129 shares in 1997) -- (5,407)
--------------- ---------------
Total stockholders' equity 201,917 181,245
--------------- ---------------
Total liabilities and stockholders' equity $2,335,883 $2,016,463
=============== ===============
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,
------------------------------------------------------
1998 1997 1996
---------------- ---------------- --------------
INTEREST INCOME
Loans, including fees $121,319 $111,553 $100,314
Interest-bearing deposits with banks 7 6 1
Securities:
Taxable 32,698 28,730 27,099
Tax-exempt 2,190 2,314 2,385
Federal funds sold 4,828 3,358 2,432
---------------- ---------------- --------------
Total interest income 161,042 145,961 132,231
---------------- ---------------- --------------
INTEREST EXPENSE
Deposits 62,946 57,784 53,055
Short-term borrowings 2,161 1,094 1,051
Long-term borrowings 734 648 160
9.65% Capital Securities 2,449 2,214 --
---------------- ---------------- --------------
Total interest expense 68,290 61,740 54,266
---------------- ---------------- --------------
Net interest income 92,752 84,221 77,965
Provision for possible loan losses 2,211 2,888 2,181
---------------- ---------------- --------------
Net interest income after provision 90,541 81,333 75,784
for possible loan losses ---------------- ---------------- --------------
NONINTEREST INCOME
Service charges on deposits 14,634 13,155 11,710
Securities transactions 12 2 219
Other 9,373 8,351 8,072
---------------- ---------------- --------------
Total noninterest income 24,019 21,508 20,001
---------------- ---------------- --------------
NONINTEREST EXPENSE
Salaries and employee benefits 44,360 39,377 35,378
Occupancy and fixed assets expense, net 5,131 4,541 4,146
Depreciation 4,772 4,185 3,357
Amortization 3,313 2,852 2,433
Data processing services 2,176 2,178 2,029
Net income expense from other real estate owned (111) 298 57
Restructuring charges 1,912 -- --
Other 18,929 18,024 14,986
---------------- ---------------- --------------
Total noninterest expense 80,482 71,455 62,386
---------------- ---------------- --------------
Income before taxes 34,078 31,386 33,399
Income tax expense (12,528) (10,481) (12,249)
---------------- ---------------- --------------
Net income 21,550 20,905 21,150
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities 3,643 982 (1,249)
---------------- ---------------- --------------
Comprehensive income $ 25,193 $ 21,887 $ 19,901
================ ================ ==============
NET INCOME PER COMMON SHARE
Basic $ 2.32 $ 2.26 $ 2.29
================ ================ ==============
Diluted $ 2.27 $ 2.21 $ 2.22
================ ================ ==============
See accompanying notes to consolidated financial statements.
A-18
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996
-------------------------- ----------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------ ------------ --------- ---------- ---------
COMMON STOCK
Issued at beginning of year 9,614,004 $ 9,614 9,668,913 $ 9,669 9,494,030 $ 9,494
Shares issued 53,416 53 60,600 61 174,883 175
Shares acquired and canceled (375,491) (375) (115,509) (116) -- --
------------- ------------ ------------ --------- ---------- ----------
Issued at end of year 9,291,929 $ 9,292 9,614,004 $ 9,614 9,668,913 $ 9,669
============= ============ ============ ========= ========== ==========
CAPITAL SURPLUS
Balance at beginning of year $ 44,104 $ 44,275 $ 42,759
Common stock issued 1,090 991 1,449
Treasury stock sold 319 39 67
Common stock canceled (365) (1,201) --
------------ ---------- ----------
Balance at end of year $ 45,148 $ 44,104 $ 44,275
============ ========== ==========
RETAINED EARNINGS
Balance at beginning of year $131,146 $116,200 $ 97,711
Net income 21,550 20,905 21,150
Dividends on common stock ($0.50, $0.42, and $0.34 (4,200) (3,168) (2,661)
per share, respectively)
Common stock canceled (6,450) (2,791) --
------------ ---------- ----------
Balance at end of year $142,046 $131,146 $116,200
============ ========== ==========
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Unrealized gains (losses) on securities:
Balance at beginning of year $ 1,788 $ 806 $ 2,055
Net change 3,643 982 (1,249)
------------ ---------- ----------
Balance at end of year $ 5,431 $ 1,788 $ 806
============ ========== ==========
TREASURY STOCK
Balance at beginning of year 377,129 $ (5,407) 379,346 $ (5,371) 142,832 $ (1,247)
Common stock acquired -- -- 3,431 (67) 254,782 (4,439)
Common stock sold (46,061) 253 (5,648) 31 (18,268) 315
Common stock canceled (331,068) 5,154 -- -- -- --
------------- ------------ ------------ --------- ---------- ----------
Balance at end of year -- -- 377,129 $ (5,407) 379,346 $ (5,371)
------------- ------------ ------------ --------- ---------- ----------
Total stockholders' equity $201,917 $181,245 $165,579
============ ========= ==========
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 1998 1997 1996
--------- --------- ---------
Net income $ 21,550 $ 20,905 $ 21,150
Adjustments to reconcile to net cash provided by operating
activities:
Provision for possible losses 2,211 2,888 2,181
Depreciation and amortization 8,085 7,037 5,790
Net amortization of securities premiums and discounts (714) (735) (93)
Unrealized losses on fixed assets 1,402 -- --
Unrealized losses on other real estate owned 120 73 179
Increase in interest receivable (1,687) (507) (14)
Increase (decrease) in interest payable (2,427) 1,782 286
Increase in deferred tax asset (856) (923) (761)
Other, net (1,675) 2,936 (10,531)
--------- --------- ---------
Net cash provided by operating activities 26,009 33,456 18,187
--------- --------- ---------
INVESTING ACTIVITIES
Net cash and due from banks provided by (used for) acquisitions
and divestitures 39,642 (15,237) 6,335
Purchases of securities:
Held for investment (24,145) (42,686) (41,238)
Available for sale (173,296) (109,303) (69,206)
Maturities of securities:
Held for investment 49,660 45,732 50,505
Available for sale 99,043 86,856 72,831
Proceeds from sales of securities:
Held for investment 1,986 644 2,476
Available for sale 9,180 173 20,402
Net (increase) decrease in federal funds sold (123,466) 13,384 (16,435)
Purchases of loans (8,967) (4,775) (14,973)
Proceeds from sales of loans 156,946 119,484 107,461
Net other increase in loans (165,825) (206,180) (189,603)
Purchases of premises and equipment (9,106) (5,578) (6,654)
Proceeds from the sale of other real estate owned and repossessed 2,913 3,749 3,300
assets
Other, net 2,671 1,148 (978)
--------- --------- ---------
Net cash used for investing activities (142,764) (112,589) (75,777)
--------- --------- ---------
FINANCING ACTIVITIES
Net increase in demand, transaction and savings deposits 91,515 5,624 35,234
Net increase in certificates of deposits 22,891 53,398 24,498
Net increase (decrease) in short-term borrowings 32,110 2,060 (8,314)
Net increase in long-term borrowings 2,915 415 9,818
Issuance of 9.65% Capital Securities -- 23,972 --
Issuance of common stock 1,105 482 507
Acquisition of common stock (2,036) (4,175) (4,439)
Cash dividends paid (4,013) (3,045) (2,518)
--------- --------- ---------
Net cash provided by financing activities 144,487 78,731 54,786
--------- --------- ---------
Net increase (decrease) in cash and due from banks 27,732 (402) (2,804)
Cash and due from banks at the beginning of the year 104,565 104,967 107,771
--------- --------- ---------
Cash and due from banks at the end of the year $ 132,297 $ 104,565 $ 104,967
========= ========= =========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 64,010 $ 61,754 $ 53,567
========= ========= =========
Cash paid during the year for income taxes $ 13,552 $ 11,765 $ 12,606
========= ========= =========
See accompanying notes to consolidated financial statements.
A-20
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancFirst Corporation and its
subsidiaries (the "Company") conform to generally accepted accounting principles
and general practice within the banking industry. A summary of the significant
accounting policies follows.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
BancFirst Corporation, BancFirst and its subsidiaries BancFirst Investment
Corporation, Lenders Collection Corporation and Express Financial Corporation,
and Kingfisher Bank & Trust Co. 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 1997 and 1996 have been
reclassified to conform with the 1998 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles inherently involves the use of estimates and
assumptions, which affect the amounts reported in the financial statements and
the related disclosures. Such estimates and assumptions may change over time and
actual amounts realized may differ from those reported.
SECURITIES
The Company does not engage in securities trading activities. Any sales of
securities are for the purpose of executing the Company's asset/liability
management strategy, eliminating a perceived credit risk in a specific security,
or providing liquidity. Securities that are being held for indefinite periods
of time, or that may be sold as part of the Company's asset/liability management
strategy, to provide liquidity or for other reasons, are classified as available
for sale and are stated at estimated market value. Unrealized gains or losses
on securities available for sale are reported as a component of stockholders'
equity, net of income tax. Securities for which the Company has the intent and
ability to hold to maturity are classified as held for investment and are stated
at cost, adjusted for amortization of premiums and accretion of discounts
computed under the interest method, unless such investments are considered
permanently impaired, in which case they are adjusted to the lower of cost or
market. Gains or losses from sales of securities are based upon the book value
of the specific securities sold.
LOANS
Loans are stated at the principal amount outstanding. Interest income on
certain installment loans is recorded by use of a method that produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on all other performing loans is recognized based upon the principal
amount outstanding.
A loan is placed on nonaccrual status when, in the opinion of management,
the future collectibility of interest and/or principal is in serious doubt.
Interest income is recognized on certain of these loans on a cash basis if the
full collection of the remaining principal balance is reasonably expected.
Otherwise, interest income is not recognized until the principal balance is
fully collected.
A-21
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is increased by annual provisions
charged to operating expense and is reduced by net loan charge-offs. The
provision for loan losses charged to operating expense is based on past loan
loss experience and other factors which, in Management's judgement, deserve
current recognition in estimating possible loan losses. Such other factors
considered by Management include evaluations of known problem loans, levels of
adversely classified and nonperforming loans, and general economic conditions.
A loan is considered impaired when it is probable that the creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The Company's impaired loans are collateral dependent. Accordingly,
the amount of impairment is measured based upon the fair value of the underlying
collateral and is included in the allowance for possible loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operating expense and is computed using the straight-
line method over the estimated useful lives of the assets. Maintenance and
repairs are charged to expense as incurred while improvements are capitalized.
When assets are sold or otherwise retired, the cost and applicable accumulated
depreciation are removed from the respective accounts and any resulting gain or
loss is reflected in operations.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These
properties are carried at 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 possible loan losses. Losses from declines in
value of the properties subsequent to classification as other real estate owned
are charged directly to operating expense.
INTANGIBLE ASSETS
Core deposit intangibles are amortized on a straight-line basis over the
estimated useful lives of the core deposits. The excess of cost over the fair
value of assets acquired (goodwill) is amortized on a straight-line basis over
fifteen to forty years, depending upon when the goodwill originated.
Organization cost and trademarks are amortized on a straight-line basis over
five years and fifteen years, respectively.
INCOME TAXES
The Company files a consolidated income tax return. Deferred taxes are
recognized under the asset and liability approach based upon the future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using the tax rates expected to apply to taxable
income in the periods when the related temporary differences are expected to be
realized.
A-22
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income, less
any preferred dividends requirement, by the weighted average of common shares
outstanding, as restated for shares issued in business combinations accounted
for as poolings of interests, if any. Diluted earnings per common share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers cash and
due from banks, and interest-bearing deposits with banks as cash equivalents.
Acquisitions accounted for as purchases or as book value purchases are presented
net of any stock issued, assets acquired and liabilities assumed.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those financial
instruments at fair value. The accounting for changes in the fair value of a
derivative instrument depends on the intended use of the derivative and its
resulting designation. The Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company does not expect that
the adoption of this standard will have a material impact on its consolidated
financial statements.
In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." This Statement amends Statement of Financial Accounting Standards
No. 65, "Accounting for Certain Mortgage Banking Activities" to require that
after the securitization of Mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. The Statement is effective for the first fiscal quarter beginning
after December 15, 1998. The Company does not expect that the adoption of this
standard will have a material impact on its consolidated financial statements.
A-23
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(2) FORMATION OF BANCFIRST CORPORATION; MERGERS, ACQUISITIONS AND DISPOSALS
BancFirst Corporation was incorporated in Oklahoma in July 1984. In June
1985, it merged with seven Oklahoma bank holding companies and has conducted
business as a bank holding company since that time. Additional mergers and
acquisitions have been completed and, as a result, BancFirst Corporation is the
surviving corporation along with the aforementioned subsidiaries, while the
holding companies, banks and other companies that were merged or acquired ceased
to exist as separate companies.
In March 1996, BancFirst acquired City Bankshares, Inc. ("City Bankshares")
which had $136,251 in total assets. The acquisition was for cash of $19,125,
with City Bankshares and its subsidiary bank, City Bank & Trust, being merged
into BancFirst. C-Teq, Inc., an 85% owned data processing subsidiary of City
Bankshares, was spun off to the shareholders of City Bankshares prior to the
acquisition. BancFirst also paid the CEO of City Bankshares $1,250 for an
agreement not to compete with BancFirst for a period of four years. 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. A core deposit intangible of $830 and
goodwill of $7,419 were recorded in the acquisition. The acquisition did not
have a material effect on the results of operations of the Company for 1996.
In October 1996, the Company acquired all of the assets and assumed all of
the liabilities of Commerce Bancorp which had $17,786 in assets. Commerce
Bancorp was controlled by certain executive officers of the Company. The
acquisition was effected through the exchange of 156,508 shares of BancFirst
Corporation common stock for all of the Commerce Bancorp common stock
outstanding. The minority shares of Commerce Bancorp's subsidiary bank were
purchased for $102. The merger was accounted for as a book value purchase, which
is similar to the pooling of interests method, although the effects of the
merger 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 1996.
In December 1996, the Company acquired 26.75% of the common stock
outstanding of Peoples State Bank of Tulsa, Oklahoma for cash of $770. Peoples
State Bank has approximately $51,000 in total assets. This investment is
accounted for under the equity method of accounting and did not have a material
effect on the results of operations of the Company for 1996.
In March 1997, the Company acquired 22.8% of the common stock outstanding
of First Ada Bancshares, Inc. for cash of $4,954. First Ada Bancshares, Inc. has
approximately $170,000 in total assets. This investment is accounted for under
the equity method of accounting and did not have a material effect on the
results of operations of the Company for 1997.
In March 1998, BancFirst completed the purchase of 13 branches from
NationsBank, N.A. and concurrently sold three of the branches to another
Oklahoma financial institution. The purchase and sale resulted in BancFirst
purchasing loans and other assets of approximately $32,800, assuming deposits of
approximately $132,100 and paying a premium on deposits of approximately $9,100.
The transaction was accounted for as a purchase. Accordingly, the effects of
the purchase are included in the Company's consolidated financial statements
from the date of the purchase forward. BancFirst subsequently sold an
additional four of the branches during 1998. These branches had loans and other
assets of approximately $2,500, and deposits of approximately $54,000. These
transactions did not have a material effect on the results of operations of the
Company for 1998.
In May 1998, the Company completed a merger with Lawton Security
Bancshares, Inc. ("Lawton Security Bancshares"), which had approximately $92,000
in total assets. The merger was effected through the exchange of 414,790 shares
of BancFirst Corporation common stock for all of the Lawton Security Bancshares
common stock outstanding, and was accounted for as a pooling of interests.
Accordingly, the consolidated accounts of Lawton Security Bancshares have been
combined with the accounts of the Company and are included in the Company's
consolidated financial statements for all periods presented.
A-24
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
In October 1998, the Company completed a merger with AmQuest Financial
Corp. ("AmQuest") of Duncan, Oklahoma, which had approximately $526,000 in total
assets. The merger was effected through the exchange of 2,522,594 shares of
BancFirst Corporation common stock for all of the AmQuest common stock
outstanding, and was accounted for as a pooling of interests. Accordingly, the
consolidated accounts of AmQuest have been combined with the accounts of the
Company and are included in the Company's consolidated financial statements for
all periods presented. The Company recorded estimated restructuring charges of
$1,912 upon consummation of the merger in October 1998. These charges consist of
termination benefits of $345 for 37 employees terminated and $1,567 for loss on
facilities and other assets to be sold or abandoned. Other merger and conversion
related expenses estimated at $1,200 were incurred. Additionally, the Company
restated AmQuest's allowance for possible loan losses to conform to its own
methodology; accordingly, the allowance for possible loan losses was increased
by $1,400, which was applied retroactively to prior periods.
Prior to the merger with BancFirst Corporation, AmQuest had made
acquisitions of its own. In March 1996, AmQuest purchased certain assets and
assumed certain liabilities of the Anadarko, Oklahoma branch of First Southwest
Bank. The net purchase price of $398 resulted in total intangible assets of $81.
In April 1997, AmQuest acquired American National Bank of Lawton, which had
total assets of approximately $61,000, for cash of $12,073. This resulted in
total intangible assets of $4,083. Both of these transactions were accounted as
purchases. Accordingly, the effects of the acquisitions are included in the
Company's consolidated financial statements from the dates of the acquisitions
forward. The acquisitions did not have a material effect on the results of
operations of the Company.
In December 1998, the Company completed the acquisition of Kingfisher
Bancorp, Inc. which had total assets of approximately $91,000. The acquisition
was for cash of $12,000 and was accounted for as a purchase. Accordingly, the
effects of the acquisition are included in the Company's consolidated financial
statements from the date of the acquisition forward. A core deposit intangible
of $286 and goodwill of $1,871 were recorded in the acquisition. The acquisition
did not have a material effect on the results of operations of the Company for
1998.
In February 1999, the Company sold the previously mentioned Anadarko,
Oklahoma branch, which had deposits of approximately $15,500. The sale resulted
in a pretax gain of approximately $900.
(3) DUE FROM BANKS AND FEDERAL FUNDS SOLD
The Company maintains accounts with various other financial institutions
and the Federal Reserve Bank, primarily for the purpose of clearing cash items.
Also, it sells federal funds to certain of these institutions on an overnight
basis. As a result, the Company had concentrations of credit risk in four
institutions totaling $142,220 at December 31, 1998 and in two institutions
totaling $39,063 at December 31, 1997. 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,
1998 and 1997 was approximately $29,151 and $29,200, respectively.
(4) SECURITIES
The table below summarizes securities held for investment and securities
available for sale:
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
Held for investment at cost (market value; $132,804 and
$156,210, respectively) $130,803 $154,268
Available for sale, at market value 451,846 356,158
----------- -----------
Total $582,649 $510,426
=========== ===========
A-25
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The table below summarizes the amortized cost and estimated market values of
securities held for investment:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------- ----------------- ----------------- --------------
DECEMBER 31, 1998
U.S. Treasury $ 24,513 $ 74 $ (28) $ 24,559
Other federal agencies 5,042 48 -- 5,090
Mortgage backed securities 57,965 908 (207) 58,666
States and political subdivisions 43,283 1,227 (21) 44,489
Other securities -- -- -- --
-------------- ----------------- ----------------- --------------
Total $ 130,803 $ 2,257 $ (256) $ 132,804
============== ================= ================= ==============
DECEMBER 31, 1997
U.S. Treasury $ 42,239 $ 265 $ (16) $ 42,488
Other federal agencies 15,865 116 (24) 15,957
Mortgage backed securities 48,292 761 (107) 48,946
States and political subdivisions 47,819 992 (43) 48,768
Other securities 53 -- (2) 51
-------------- ----------------- ----------------- --------------
Total $ 154,268 $ 2,134 $ (192) $ 156,210
============== ================= ================= ==============
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, 1998
U.S. Treasury $ 267,040 $ 6,549 $ (7) $ 273,582
Other federal agencies 121,936 1,777 (359) 123,354
Mortgage backed securities 41,734 398 (133) 41,999
States and political subdivisions 2,471 32 (4) 2,499
Other securities 10,412 -- -- 10,412
------------- --------------- ------------------ -------------
Total $ 443,593 $ 8,756 $ (503) $ 451,846
============= =============== ================== =============
DECEMBER 31, 1997
U.S. Treasury $ 224,193 $ 2,398 $ (84) $ 226,507
Other federal agencies 43,138 367 (333) 43,172
Mortgage backed securities 72,591 627 (218) 73,000
States and political subdivisions 3,336 26 (1) 3,361
Other securities 10,118 -- -- 10,118
------------- --------------- ------------------ -------------
Total $ 353,376 $ 3,418 $ (636) $ 356,158
============= =============== ================== =============
A-26
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The maturities of securities held for investment and available for sale are
summarized below. Actual maturities may differ from contractual maturities due
to obligations that are called or prepaid.
DECEMBER 31,
-----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-------------- -------------- -------------- --------------
HELD FOR INVESTMENT
Contractual maturity of debt securities:
Within one year $ 34,155 $ 34,315 $ 35,970 $ 36,040
After one year but within five years 69,226 70,121 62,033 62,892
After five years but within ten years 18,726 19,426 13,668 13,940
After ten years 8,696 8,942 42,597 43,338
-------------- -------------- -------------- --------------
Total $ 130,803 $ 132,804 $ 154,268 $ 156,210
============== ============== ============== ==============
AVAILABLE FOR SALE
Contractual maturity of debt securities:
Within one year $ 97,990 $ 98,560 $ 60,574 $ 60,711
After one year but within five years 322,347 329,994 233,811 236,308
After five years but within ten years 9,247 9,320 10,899 10,970
After ten years 3,597 3,560 39,974 40,051
-------------- -------------- -------------- --------------
Total debt securities 433,181 441,434 345,258 348,040
Equity securities 10,412 10,412 8,118 8,118
-------------- -------------- -------------- --------------
Total $ 443,593 $ 451,846 $ 353,376 $ 356,158
============== ============== ============== ==============
Sales of securities are summarized below:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ------------- -----------
Proceeds $11,166 $ 817 $22,878
Gross gains realized 12 2 233
Gross losses realized -- -- 14
Securities having book values of $359,000, $279,513 and $289,602 at
December 31, 1998, 1997 and 1996, respectively, were pledged as collateral for
public funds on deposit, repurchase agreements and for other purposes as
required or permitted by law.
A-27
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(5) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a schedule of loans outstanding by category:
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ---------- ---------- ---------
Commercial and industrial $ 274,497 20.50% $ 262,463 21.00%
Agriculture 62,655 4.68 46,887 3.75
State and political subdivisions:
Taxable 822 0.06 1,402 0.11
Tax-exempt 6,370 0.48 8,314 0.67
Real Estate:
Construction 75,907 5.67 54,858 4.39
Farmland 39,500 2.95 35,255 2.82
One to four family residences 318,882 23.82 292,573 23.41
Multifamily residential properties 19,412 1.45 20,292 1.62
Commercial 285,654 21.33 263,043 21.05
Consumer 238,302 17.80 240,905 19.28
Other 16,878 1.26 23,713 1.90
----------- ---------- ---------- ---------
Total loans $1,338,879 100.00% $1,249,705 100.00%
=========== ========== ========== =========
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 possible loan losses. The amount of the allowance required to
provide for all existing losses in the loan portfolio is an estimate based upon
evaluations of loans, appraisals of collateral and other estimates which are
subject to rapid change due to changing economic conditions and the economic
prospects of borrowers. It is reasonably possible that a material change could
occur in the estimated allowance for possible loan losses in the near term.
A-28
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
Changes in the allowance for possible loan losses are summarized as
follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Balance at beginning of year $17,458 $16,569 $14,821
----------- ----------- -----------
Charge-offs (3,177) (3,169) (1,948)
Recoveries 1,326 862 556
----------- ----------- -----------
Net (charge-offs) recoveries (1,851) (2,307) (1,392)
----------- ----------- -----------
Provisions charged to operations 2,211 2,888 2,181
Additions from acquisitions 1,841 308 959
----------- ----------- -----------
Total additions 4,052 3,196 3,140
----------- ----------- -----------
Balance at end of year $19,659 $17,458 $16,569
=========== =========== ===========
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
---------------- ------------- ----------- ------------ ---------
1996 $ 9,551 $ 8,688 $ (6,227) $12,012
1997 $12,012 $14,864 $ (6,969) $19,907
1998 $19,907 $ 3,303 $(13,491) $ 9,719
Below is a summary of impaired loans and the amounts included in the
allowance for possible loan losses for impaired loans.
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
--------- ---------
Allowance for possible loss on impaired loans $1,944 $2,329
Recorded balance of impaired loans 8,978 8,210
A-29
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
DECEMBER 31,
----------------------
1998 1997
-------- ---------
Land $ 10,882 $ 9,618
Buildings 45,038 44,987
Furniture, fixtures and equipment 30,864 27,017
Accumulated depreciation (39,226) (35,783)
-------- --------
Total $ 47,558 $ 45,839
======== ========
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
DECEMBER 31,
---------------------
1998 1997
------- -------
Excess of cost over fair value of assets acquired $21,533 $16,124
Core deposit intangibles 2,555 2,920
Trademarks 7 8
------- -------
Total $24,095 $19,052
======= =======
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $226,629
and $192,670 at December 31, 1998 and 1997, respectively.
(9) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
DECEMBER 31,
----------------------
1998 1997
------- -------
Federal funds purchased $45,065 $ 3,696
Repurchase agreements 9,737 14,105
TT&L note 39 --
Federal Home Loan Bank advances -- 6,000
Notes payable -- 1,930
------- -------
Total $54,841 $25,731
======= =======
Weighted average interest rate 4.49% 5.39%
======= =======
Federal funds purchased represents borrowings of overnight funds from other
financial institutions.
A-30
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The Company enters into sales of securities to certain of its customers
with simultaneous agreements to repurchase. These agreements represent an
overnight borrowing of funds.
The TT&L note is a demand note issued to the U.S. Treasury.
The Federal Home Loan Bank advances in 1997 matured at various dates
through December 22, 1998.
The notes payable in 1997 were notes held by trusts controlled by
stockholders of Lawton Security Bancshares. These notes were paid subsequent to
the merger in May 1998.
(10) LINE OF CREDIT
AmQuest maintained a $25,000 line of credit specifically for the purpose
of acquiring other financial institutions. Advances would have converted to 10-
year term loans at the lender's reference rate at the time of the advance.
Quarterly principal and interest payments would have been required on the term
loans. The line of credit was secured by the stock of AmQuest's subsidiary banks
and the stock of any other bank acquired with the advances. No advances were
made under the line of credit, and the line of credit was not assumed by the
Company after the merger in October 1998.
(11) LONG-TERM BORROWINGS
In 1995 the Company began borrowing 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 7.21% and
mature from 2003 through 2013. Interest payments on the advances are due
monthly. Semiannual principal payments on the advances total $1,290 per year. In
December 1996, the Company borrowed $5,000 under the line of credit to fund
general loan growth. This advance was at a rate of 5.97% and matured December
1998. Interest on the advance was payable monthly. Residential first mortgages
are pledged as collateral for the borrowings under the line of credit.
(12) 9.65% CAPITAL SECURITIES
In January 1997, BancFirst Corporation established BFC Capital Trust I
(the "Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25,000 of aggregate liquidation amount of 9.65% Capital
Securities, Series A (the "Capital Securities"). The proceeds from the sale of
the Capital Securities were invested in 9.65% Junior Subordinated Deferrable
Interest Debentures, Series A (the "Debentures") of BancFirst Corporation. The
Series A Capital Securities and Debentures were subsequently exchanged for
Series B Capital Securities and Debentures, pursuant to a Registration Rights
Agreement. The terms of the Series A and Series B securities are identical in
all material respects. Distributions on the Capital Securities are payable
January 15 and July 15 of each year. Such distributions may be deferred for up
to ten consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and are presented as long-term debt in the Company's consolidated financial
statements, but qualify as Tier 1 regulator capital. During any deferral period
or during any event of default, BancFirst Corporation may not declare or pay any
dividends on any of its capital stock.
A-31
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(13) INCOME TAXES
The components of the Company's income tax expense are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
Current taxes: Federal $(11,718) $(10,574) $(11,304)
State (1,433) (839) (1,039)
Deferred taxes 623 932 94
-------- -------- --------
Total income taxes $(12,528) $(10,481) $(12,249)
======== ======== ========
Income tax expense applicable to securities transactions approximated $4,
$1 and $16 for the years ended December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company had net operating loss carryforwards for
tax purposes of approximately $283. If not utilized, the tax net operating loss
carryforwards will expire as follows: $9 in 2000, $155 in 2001, and $119 in
2004.
A reconciliation of tax expense at the federal statutory tax rate applied
to income before taxes follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
Tax expense at the federal statutory tax rate $(11,927) $(10,901) $(11,595)
(Increase) decrease in tax expense from:
Tax-exempt income, net 976 983 1,046
Excess cost amortization (710) (752) (632)
State tax expense, net of federal tax benefit (898) (758) (895)
Other, net 31 947 (173)
-------- -------- --------
Total tax expense $(12,528) $(10,481) $(12,249)
======== ======== ========
A-32
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The net deferred tax asset consisted of the following:
DECEMBER 31,
-------------------------
1998 1997
--------- ---------
Provisions for possible loan losses $ 6,199 $ 4,249
Discount on securities of banks acquired 116 275
Write-downs of other real estate owned 108 183
Net operating loss carryforwards 272 645
Provision for contingent losses 34 492
Deferred compensation 653 450
Other 480 312
--------- ---------
Gross deferred tax assets 7,862 6,606
--------- ---------
Unrealized net gain on securities available for sale (2,942) (975)
Depreciation (2,692) (2,815)
Other (561) (520)
--------- ---------
Gross deferred tax liabilities (6,195) (4,310)
--------- ---------
Net deferred tax asset $ 1,667 $ 2,296
========= =========
(14) EMPLOYEE BENEFITS
In May 1986, the Company adopted the BancFirst Corporation Employee Stock
Ownership and Thrift Plan (the "ESOP") effective January 1, 1985. The ESOP
covers all eligible employees, as defined in the ESOP, of the Company and its
subsidiaries. The ESOP allows employees to defer up to 12% of their base
salary, of which the Company may match 50%, but not to exceed 3% of their base
salary. In addition, the Company may make discretionary contributions to the
ESOP, as determined by the Company's Board of Directors. The aggregate amounts
of contributions by the Company to the ESOP for the years ended December 31,
1998, 1997 and 1996, were approximately $1,000, $1,050 and $841, respectively.
Both Lawton Security Bancshares and AmQuest had Section 401(k) plans.
These plans were merged into the ESOP effective January 1, 1999. Contributions
to these plans totaled $576, $545 and $478 for the years ended December 31,
1998, 1997 and 1996.
BancFirst Corporation also adopted a nonqualified incentive stock option
plan (the "BancFirst ISOP") in May 1986. In 1998, the Company amended the
BancFirst ISOP to increase the number of shares to be issued under the plan to
850,000. The options are exercisable beginning four years from the date of
grant at the rate of 25% per year for four years. Options granted prior to 1996
expire at the end of eleven years from the date of grant. Options granted after
January 1, 1996 expire at the end of fifteen years from the date of grant.
Options outstanding as of December 31, 1998 will become exercisable through the
year 2005. The option price must be no less than 100% of the fair market value
of the stock relating to such option 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 ISOP. 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 the BancFirst ISOP. 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 the BancFirst
ISOP is as follows:
A-33
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- ---------------------
AVG. AVG. AVG.
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ------- ----------- ------ ----------- -------
Outstanding at beginning of year 449,625 $17.14 501,750 $12.39 384,125 $ 8.62
Options granted 110,500 36.55 88,500 30.99 136,000 22.29
Options exercised or repurchased (47,750) 7.63 (123,125) 6.87 (18,375) 6.79
Options canceled (20,750) 26.19 (17,500) 19.92 -- --
----------- ----------- -----------
Outstanding at end of year 491,625 22.18 449,625 17.14 501,750 12.39
=========== =========== ===========
Exercisable at end of year 134,250 10.28 133,625 8.19 219,625 6.67
=========== =========== ===========
Weighted average fair value of options granted $ 15.36 $ 10.16 $ 6.61
=========== =========== ===========
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 1.5%; 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 30.98% for all grants.
A summary of options outstanding under the BancFirst ISOP as of December
31, 1998 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------- ----------------------------
WGTD. AVG.
REMAINING WGTD. AVG. WGTD. AVG.
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ------------ ----------- ---------- ----------- ----------
$6.00 to $10.00 121,375 2.65 $ 6.92 105,250 $ 6.80
$12.88 to $18.63 68,250 6.66 $15.50 7,750 $14.87
$20.00 to $40.00 302,000 13.61 $29.83 21,250 $25.84
------------ -----------
$6.00 to $40.00 491,625 9.94 $22.18 134,250 $10.28
============ ===========
The pro forma effect as if the Company had adopted the cost recognition
provisions of FAS 123 is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- --------------------------- ---------------------------
REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
---------- ----------- ----------- ----------- ----------- -----------
APB 25 charge $ -- $ -- $ -- $ -- $ -- $ --
FAS 123 charge $ -- $ 186 $ -- $ 95 $ -- $ 78
Net income $21,550 $21,364 $20,905 $20,810 $21,150 $21,099
Net income per share:
Basic $ 2.32 $ 2.30 $ 2.26 $ 2.25 $ 2.29 $ 2.28
Diluted $ 2.27 $ 2.25 $ 2.21 $ 2.20 $ 2.22 $ 2.22
The effects of applying FAS 123 to the pro forma disclosure are not
indicative of future results. FAS 123 does not apply to grants of options prior
to 1995 and the Company anticipates making additional grants in the future.
A-34
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
AmQuest had four stock option plans. These plans have been assumed by the
Company, but no new options will be issued under the plans. Pro forma
disclosures, as if the cost recognition provision of FAS 123 had been applied,
have not been presented for these plans since such disclosures would not result
in material differences from the intrinsic value method. Three of the plans are
qualified incentive stock option plans for employees (the "AmQuest Employees
Stock Option Plans"). A total of 178,135 shares were authorized to be issued
under the plans. These options became fully vested at the time of the merger
and will expire at various dates through November 2006. A summary of the
options granted under the AmQuest Employees Stock Option Plans is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ------------------------
AVG. AVG. AVG.
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ --------- ----------- --------- ---------- ---------
Outstanding at beginning of year 123,590 $13.54 132,420 $13.39 86,060 $ 9.74
Options granted -- -- -- -- 64,414 16.97
Options exercised or repurchased (47,784) 11.83 (2,969) 6.84 (16,292) 8.24
Options canceled (1,921) 15.73 (5,861) 13.62 (1,762) 13.58
------------ ----------- ----------
Outstanding at end of year 73,885 14.58 123,590 13.54 132,420 13.39
============ =========== ==========
A summary of options outstanding under the AmQuest Employees Stock Option
Plans as of December 31, 1998 is as follows:
OPTIONS OUTSTANDING AND EXERCISABLE
-------------------------------------------------------------------------------
Wgtd. Avg.
REMAINING WGTD. AVG.
RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL EXERCISE
OUTSTANDING LIFE PRICE
------------------------- --------------- --------------- ---------------
$6.84 10,690 3.18 $ 6.84
$10.69 to $17.05 63,195 6.96 $15.89
---------------
$6.84 to $17.05 73,885 6.41 $14.58
===============
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,
----------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ------------------------
AVG. AVG. AVG.
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ --------- ----------- --------- ---------- ---------
Outstanding at beginning of year 26,539 $17.10 18,459 $15.19 9,901 $13.58
Options granted -- -- 10,933 20.62 10,538 17.05
Options exercised or repurchased (17,820) 17.05 (2,615) 18.30 (1,980) 17.05
Options canceled -- -- (238) 17.05 -- --
------------ ----------- ----------
Outstanding at end of year 8,719 17.19 26,539 17.10 18,459 15.19
============ =========== ==========
A-35
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
A summary of options outstanding under the AmQuest Directors Stock Option
Plan as of December 31, 1998 is as follows:
OPTIONS OUTSTANDING AND EXERCISABLE
-------------------------------------------------------------------------------
Wgtd. Avg.
REMAINING WGTD. AVG.
RANGE OF NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE
------------------------- --------------- --------------- ---------------
$13.58 to $20.84 8,719 7.50 $17.19
(15) 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, 1998, there were 9,291,929 shares issued and outstanding. At
December 31, 1997 there were 9,614,004 shares issued and 9,236,875 shares
outstanding.
In March 1995, the Company adopted a Stock Repurchase Program (the "SRP")
authorizing management to repurchase up to 200,000 shares of the Company's
common stock. In 1997 the SRP was amended to increase the shares authorized to
be repurchased to 350,000. The SRP was to be used for purchases of stock by the
Company's ESOP, and could also be used to enhance earnings per share, provide
stock for the exercise of stock options under the Company's ISOP or to provide
additional market liquidity for the stock. During 1997, the Company purchased
and canceled 37,900 shares and the ESOP purchased 20,000 shares. No purchases
were made under the SRP during 1996. The SRP was terminated in April 1998.
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, 1998, approximately $20,361 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.
A-36
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
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 1998 1997
--------------- ----------------- -----------------
Tier 1 capital $ 197,390 $ 185,405
Total capital $ 214,656 $ 200,949
Leverage ratio 3.00% 8.54% 9.28%
Tier 1 capital ratio 4.00% 14.31% 14.93%
Total capital ratio 8.00% 15.57% 16.18%
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, 1998 and 1997, BancFirst was considered to be "well
capitalized". There are no conditions or events since the most recent
notification of BancFirst's capital category that management believes would
change its category.
A-37
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(16) 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, 1998
----------------------------
BASIC
Income available to common stockholders $ 21,550 9,276,526 $ 2.32
===============
Effect of stock options -- 233,010
----------------- -----------------
DILUTED
Income available to common stockholders
plus assumed exercises of stock options $ 21,550 9,509,536 $ 2.27
================= ================= ===============
YEAR ENDED DECEMBER 31, 1997
----------------------------
BASIC
Income available to common stockholders $ 20,905 9,244,739 $ 2.26
===============
Effect of stock options -- 228,960
----------------- -----------------
DILUTED
Income available to common stockholders
plus assumed exercises of stock options $ 20,905 9,473,699 $ 2.21
================= ================= ===============
YEAR ENDED DECEMBER 31, 1996
----------------------------
BASIC
Income available to common stockholders $ 21,150 9,249,416 $ 2.29
===============
Effect of stock options -- 264,147
----------------- -----------------
DILUTED
Income available to common stockholders
plus assumed exercises of stock options $ 21,150 9,513,562 $ 2.22
================= ================= ===============
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, 1998 -- $ --
DECEMBER 31, 1997 41,500 $32.77
DECEMBER 31, 1996 35,500 $25.88
A-38
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
(17) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET DECEMBER 31,
-------------------------------
ASSETS 1998 1997
------------- ---------------
Cash $ 19,691 $ 13,699
Securities 2,000 2,000
Loans (net of unearned interest) 3,744 4,949
Investment in subsidiaries, at equity 193,779 179,576
Intangible assets 4,184 4,026
Other assets 5,833 5,840
------------- ---------------
Total assets $ 229,231 $210,090
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Miscellaneous liabilities $ 2,314 $ 1,915
Notes payable -- 1,930
9.65% Capital Securities 25,000 25,000
Stockholders' equity 201,917 181,245
------------- ---------------
Total liabilities and stockholders' equity $ 229,231 $210,090
============= ===============
STATEMENT OF INCOME YEAR ENDED DECEMBER 31,
-------------------------------------
OPERATING INCOME 1998 1997 1996
----------- ---------- ----------
Dividends from subsidiaries $17,246 $17,754 $ 14,109
Interest:
Loans 534 824 493
Interest-bearing deposits 659 483 334
Securities 325 119 35
Other 339 514 610
----------- ---------- ----------
Total operating income 19,103 19,694 15,581
----------- ---------- ----------
OPERATING EXPENSE
Interest 2,495 2,327 152
Amortization 1,084 1,130 1,135
Other 1,913 1,322 1,111
----------- ---------- ----------
Total operating expense 5,492 4,779 2,398
----------- ---------- ----------
Income before income taxes and equity in undistributed
earnings of subsidiaries 13,611 14,915 13,183
Allocated income tax benefit 811 1,250 25
----------- ---------- ----------
Income before equity in undistributed earnings of subsidiaries 14,422 16,165 13,208
Equity in undistributed earnings of subsidiaries 7,128 4,740 7,942
----------- ---------- ----------
Net income $21,550 $20,905 $ 21,150
=========== ========== ==========
A-39
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 21,550 $ 20,905 $ 21,150
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization 1,122 1,225 1,461
Net income of subsidiaries (24,374) (22,494) (22,051)
Increase in dividends receivable -- (965) (2,537)
Other, net 840 3,056 (899)
----------- ----------- ------------
Net cash provided (used) by operating activities (862) 1,727 (2,876)
----------- ----------- ------------
INVESTING ACTIVITIES
Cash dividends received from subsidiaries 16,281 16,789 14,109
Purchases of stock of subsidiaries -- (29,015) (770)
Sale of stock of subsidiaries 9,356 -- --
Net cash from acquisitions and mergers (13,537) -- 305
Purchases of securities -- -- (2,981)
Proceeds from maturities of securities -- -- 5,000
Proceeds from sales of securities -- -- 180
Purchase of loans -- -- (6,335)
Net other decrease in loans 1,205 1,630 281
Other, net -- 2 (15)
----------- ----------- ------------
Net cash provided (used) by investing activities 13,305 (10,594) 9,774
----------- ----------- ------------
FINANCING ACTIVITIES
Issuance of common stock 1,715 482 507
Issuance of 9.65% Capital Securities -- 23,972 --
Payments on notes payable (1,930) -- (900)
Purchases of common stock (2,036) (4,175) (4,439)
Cash dividends paid (4,200) (3,045) (2,518)
----------- ----------- ------------
Net cash provided (used) by financing activities (6,451) 17,234 (7,350)
----------- ----------- ------------
Net increase (decrease) in cash 5,992 8,367 (452)
Cash at the beginning of the year 13,699 5,332 5,784
----------- ----------- ------------
Cash at the end of the year $ 19,691 $ 13,699 $ 5,332
=========== =========== ============
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 2,495 $ 1,201 $ 149
=========== =========== ============
Cash (received) during the year for income taxes, net $ (858) $ (1,529) $ (92)
=========== =========== ============
A-40
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(18) RELATED PARTY TRANSACTIONS
BancFirst has provided item processing and correspondent services to
affiliated institutions. By year-end 1996, all of these institutions had been
merged with BancFirst or sold to other nonaffiliated owners. Service charges to
these affiliated institutions for December 31, 1996 totaled $69.
The Company purchases supplies, furniture and equipment from an affiliated
company. During the years ended December 31, 1998, 1997 and 1996, such
purchases totaled $237, $114 and $144, respectively.
The Company also sells credit life and credit accident and health insurance
policies for an affiliated insurance company. The Company retains a 40%
commission for such sales, which is the maximum amount permitted by law. Net
premiums paid to the affiliated insurance company for the years ended December
31, 1998, 1997 and 1996 were $706, $645 and $755, respectively.
Refer to note (5) for information regarding loan transactions with related
parties.
(19) 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,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Loan commitments $ 309,163 $ 240,353 $185,781
Letters of credit 15,383 16,131 10,553
Loan commitments are agreements to lend to a customer, as long as there is
no violation of any condition established in the contract. Letters of credit
are conditional commitments issued by the Company to guarantee the performance
of a customer to a third party. These instruments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the instruments are expected to expire without being drawn upon,
the total amounts do not necessarily represent commitments that will be funded
in the future.
The Company leases office space in three buildings and two parcels of land
on which it owns buildings. These leases expire at various dates through 2064.
The future minimum rental payments under these leases are as follows:
A-41
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
YEAR ENDING DECEMBER 31:
1999 $ 957
2000 922
2001 802
2002 599
2003 394
Later years 2,609
-----------
Total $ 6,283
===========
Rental expense on all property and equipment rented, including those rented
on a monthly or temporary basis, totaled $1,065, $899 and $868 during 1998, 1997
and 1996, respectively.
The Company is a defendant in legal actions arising from normal business
activities. During 1992, BancFirst accrued estimated amounts to settle certain
of these actions. During 1995 and 1996, these actions were resolved in the
Company's favor and the accruals were reversed. In 1997, AmQuest accrued $1,250
related to a lawsuit filed in December 1989 involving a bond issue. The lawsuit
was settled in March 1998 and the amount accrued was paid. Management believes
that all other legal actions against the Company are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
Company's financial position, results of operations or cash flows.
(20) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values reported below for financial instruments are based on a
variety of factors. In some cases, fair values represent quoted market prices
for identical or comparable instruments. In other cases, fair values have been
estimated based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying degrees of risk.
Accordingly, the fair values may not represent actual values of the financial
instruments that could have been realized as of year end or that will be
realized in the future.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND DUE FROM BANKS; FEDERAL FUNDS SOLD
The carrying amount of these short-term instruments is a reasonable
estimate of fair value.
SECURITIES
For securities, fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan characteristics. For
residential mortgage loans held for sale, guaranteed student loans and
participation in pools of credit card receivables, the carrying amount is a
reasonable estimate of fair value. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
A-42
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
DEPOSIT LIABILITIES
The fair value of transaction and savings accounts is the amount payable on
demand at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS
The amount payable on these short-term instruments is a reasonable estimate of
fair value.
LONG-TERM BORROWINGS
The fair value of fixed-rate long-term borrowings is estimated using the rates
that would be charged for borrowings of similar remaining maturities.
LOAN COMMITMENTS AND LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the terms of the agreements.
The fair value of letters of credit is based on fees currently charged for
similar agreements.
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31,
----------------------------------------------------------
1998 1997
---------------------------- ---------------------------
CARRYING Fair Value CARRYING FAIR
AMOUNT AMOUNT VALUE
------------ ------------ ------------ -----------
FINANCIAL ASSETS
Cash and due from banks $ 132,297 $ 132,297 $ 104,565 $ 104,565
Federal funds sold 187,369 187,369 60,377 60,377
Securities 582,649 584,650 510,426 512,368
Loans:
Loans (net of unearned interest) 1,338,879 1,249,705
Allowance for possible loan losses (19,659) (17,458)
------------ ------------
Loans, net 1,319,220 1,327,124 1,232,247 1,229,486
FINANCIAL LIABILITIES
Deposits 2,024,800 2,026,481 1,761,210 1,761,808
Short-term borrowings 54,841 54,841 25,731 25,731
Long-term borrowings 12,966 13,062 7,051 7,051
9.65% Capital Securities 25,000 25,993 25,000 27,908
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments 2,040 1,577
Letters of credit 113 121
A-43
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(21) SEGMENT INFORMATION
The Company evaluates its performance with an internal profitability
measurement system that measures the profitability of its business units on a
pre-tax basis. The four principal business units were metropolitan banks,
community banks, other financial services, and executive, operations and
support. Metropolitan and community banks offer traditional banking products
such as commercial and retail lending, and a full line of deposit accounts.
Metropolitan banks consist of banking locations in the metropolitan Oklahoma
City and Tulsa areas. Community banks consist of banking locations in
communities throughout Oklahoma. Other financial services are specialty product
business units including guaranteed small business lending, guaranteed student
lending, residential mortgage lending, trust services, correspondent banking and
electronic banking. The executive, operations and support groups represent
executive management, operational support and corporate functions that are not
allocated to the other business units. The results of operations and selected
financial information for the four business units are as follows:
OTHER EXECUTIVE,
METROPOLITAN COMMUNITY FINANCIAL OPERATIONS
BANKS BANKS SERVICES & SUPPORT ELIMINATIONS CONSOLIDATED
--------------- ------------- ------------- -------------- ---------------- ---------------
DECEMBER 31, 1998
Net interest income $ 19,969 $ 70,034 $ 4,127 $ (1,271) $ (107) $ 92,752
(expense)
Provisions for loan losses 607 1,450 239 (85) -- 2,211
Noninterest income 3,613 15,844 3,575 27,039 (26,052) 24,019
Depreciation and 1,789 3,633 250 2,413 -- 8,085
amortization
Merger related costs -- -- -- 3,134 -- 3,134
Other expenses 13,199 43,861 4,850 8,644 (1,291) 69,263
------------- ------------- ------------- -------------- -------------- ------------
Income before taxes $ 7,987 $ 36,934 $ 2,363 $ 11,662 (24,868) $ 34,078
============= ============= ============= ============== ============== ============
Total Assets $ 486,965 $ 1,731,606 $ 107,665 $ 227,269 (217,622) $ 2,335,883
============= ============= ============= ============== ============== ============
Capital expenditures $ 2,951 $ 4,500 $ 606 $ 1,049 -- $ 9,106
============= ============= ============= ============== ============
DECEMBER 31, 1997
Net interest income
(expense) $ 16,316 $ 66,535 $ 2,484 $ (1,075) $ (39) $ 84,221
Provisions for loan losses 224 2,577 87 -- -- 2,888
Noninterest income 3,274 14,093 2,976 23,756 (22,591) 21,508
Depreciation and
amortization 1,594 3,020 158 2,328 (63) 7,037
Other expenses 10,372 42,938 4,497 7,595 (984) 64,418
------------- ------------- ------------- -------------- --------------- -----------
Income before taxes $ 7,400 $ 32,093 $ 718 $ 12,758 (21,583) $ 31,386
============= ============= ============= ============== =============== ===========
Total Assets $ 408,613 $ 1,569,414 $ 91,698 $ 152,663 (205,925) $ 2,016,463
============= ============= ============= ============== =============== ===========
Capital expenditures $ 1,029 $ 2,953 $ 96 $ 1,500 -- $ 5,578
============= ============= ============= ============== ===========
DECEMBER 31, 1996
Net interest income
(expense) $ 13,909 $ 61,514 $ 2,477 $ 65 $ -- $ 77,965
A-44
Provisions for loan losses 130 2,047 4 -- -- 2,181
Noninterest income 2,546 12,546 3,366 24,098 (22,555) 20,001
Depreciation and
amortization 1,290 2,524 177 2,073 (274) 5,790
Other expenses 8,518 37,415 4,454 6,459 (250) 56,596
------------- ------------- -------------- --------------- -------------- -----------
Income before taxes $ 6,517 $ 32,074 $ 1,208 $ 15,631 (22,031) $ 33,399
============= ============= ============== =============== ============== ===========
Total Assets $ 351,303 $ 1,486,672 $ 86,439 $ 110,840 (172,198) $ 1,863,056
============= ============= ============== =============== ============== ===========
Capital expenditures $ 672 $ 2,756 $ 301 $ 2,925 -- $ 6,654
============= ============= ============== =============== ============== ===========
A-45
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The financial information for each business unit is presented on the basis
used internally by management to evaluate performance and allocate resources.
The Company utilizes a transfer pricing system to allocate the benefit or cost
of funds provided or used by the various business units. Certain services
provided by the support group to other business units, such as item processing,
are allocated rates approximating the cost of providing the services.
Eliminations are adjustments to consolidate the business units and companies.
In 1998, the costs related to the AmQuest merger have been segregated because of
their impact on the results of executive, operations and support. Capital
expenditures are generally charged to the business unit using the asset.
(22) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the unaudited quarterly results of operations for the years
ended December 31, 1998 and 1997 is as follows:
QUARTER
-------------------------------------------------
1998 FOURTH THIRD SECOND FIRST
---- ---------- ---------- ---------- ----------
Net interest income $23,254 $23,385 $23,836 $22,277
Provision for possible loan losses 344 596 482 789
Noninterest income 5,688 6,381 6,172 5,778
Noninterest expense 21,511 20,617 19,979 18,375
Net income 4,554 5,789 5,612 5,595
Net income per common share:
Basic 0.49 0.62 0.61 0.60
Diluted 0.48 0.61 0.59 0.59
1997
----
Net interest income $21,815 $21,474 $20,908 $20,024
Provision for possible loan losses 1,181 478 860 369
Noninterest income 5,777 5,517 5,163 5,051
Noninterest expense 19,928 17,698 17,430 16,399
Net income 4,889 5,839 4,911 5,266
Net income per common share:
Basic 0.53 0.63 0.53 0.57
Diluted 0.51 0.61 0.52 0.55
A-46
INDEX TO EXHIBITS
Exhibit
Number Name of Exhibit
------ ---------------
2.1 Purchase and Assumption Agreement between NationsBank, N.A. and
BancFirst dated September 26, 1997 (filed as Exhibit 2.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
2.2 Merger Agreement dated May 6, 1998 between BancFirst Corporation and
AmQuest Financial Corp. (filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
3.1 Second Amended and Restated Certificate of Incorporation of BancFirst
(filed as Exhibit 1 to BancFirst's 8-A/A filed July 23, 1998 and
incorporated herein by reference).
3.2* Certificate of Designations of Preferred Stock
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).
4.5 Rights Agreement, dated as of February 25, 1999, between BancFirst
Corporation and BancFirst, as Rights Agent, including as Exhibit A the
form of Certificate of Designations of the Company setting forth the
terms of the Preferred Stock, as Exhibit B the form of Right
Certificate and as Exhibit C the form of Summary of Rights Agreement
(filed as Exhibit 1 to the Company's 8-K dated February 25, 1999 and
incorporated herein by reference).
10.1 United Community Company (now BancFirst Company) Stock Option Plan
(filed as Exhibit 10.09 to the Company's Registration Statement on
Form S-4, file No. 33-13016 and incorporated herein by reference).
10.2 BancFirst Company Employee Stock Ownership and Thrift Plan (filed as
Exhibit 10.12 to the Company'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
------ ---------------
22.1* Subsidiaries of Registrant.
23.1* Consent of PriceWaterhouseCoopers LLP
23.2* Consent of Arthur Andersen LLP
27.1* Financial Data Schedule for the year ended December 31, 1998.
27.5* Financial Data Schedule for the year ended December 31, 1997.
27.9* Financial Data Schedule for the year ended December 31, 1996.
_________________________
* Filed herewith.