<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BANCFIRST CORPORATION
(Name of Registrant as Specified In Its Charter)
BANCFIRST CORPORATION
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $1.00 par value per share
(2) Aggregate number of securities to which transaction applies: 179,831
shares
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
The underlying value of the transaction was computed, in
accordance with Exchange Act Rules 0-11(c)(1)(i) and 0-
11(a)(4), based on the total of (a) the cash payments to be
made by BancFirst Corporation in respect of the proposed
merger transactions, and (b) the book value of the
securities of the two respective bank holding companies to
be received by BancFirst Corporation upon consummation of
the respective transactions.
(4) Proposed maximum aggregate value of transaction: $1,824,125.30
Total fee paid: $364.83
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid: n/a
(2) Form, schedule or registration statement no.: n/a
(3) Filing party: n/a
(4) Date filed: n/a
<PAGE>
EXPLANATORY NOTE
This Proxy Statement/Offering Memorandum is filed with the Securities
and Exchange Commission pursuant to the provisions of the Securities Exchange
Act of 1934, as amended, in connection with the solicitation of proxies by
BancFirst Corporation ("BancFirst") for a special meeting of the stockholders
of BancFirst. At the special meeting, the BancFirst stockholders will vote
upon separate merger transactions with two bank holding companies, Johnston
County Bancshares, Inc. ("Johnston County") and Commerce Bancorporation, Inc.
("Commerce") (each a "Merging Entity" and collectively the "Merging
Entities") which have entered into separate merger agreements with BancFirst.
The Proxy Statement/Offering Memorandum will also serve as the proxy
statement of Johnston County, as well as the offering memorandum of BancFirst
in connection with the shares of BancFirst Common Stock to be issued to the
stockholders of the Merging Entities. Included in the Proxy
Statement/Offering Memorandum are alternative letters to stockholders,
notices of the special meetings and front and back cover pages to be included
in the final Proxy Statement/Offering Memorandum to be mailed to the
stockholders of Johnston County and BancFirst. The BancFirst Common Stock is
being offered to the stockholders of the Merging Entities pursuant to claimed
exemptions from the registration provisions of the Securities Act of 1933, as
amended.
<PAGE>
BANCFIRST CORPORATION
101 N. BROADWAY, SUITE 200 - OKLAHOMA CITY, OKLAHOMA 73102
Dear BancFirst Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of BancFirst Corporation ("BancFirst"), which will be held at the executive
offices of BancFirst, 101 N. Broadway, Suite 200, Oklahoma City, Oklahoma, at
9:00 a.m., local time, on Thursday, December 28, 1995 (the "BancFirst Special
Meeting").
At the BancFirst Special Meeting, BancFirst stockholders will be asked to
consider and vote upon proposals to approve and adopt two separate merger
agreements between BancFirst and, respectively, Johnston County Bancshares, Inc.
("Johnston County"), and Commerce Bancorporation, Inc. ("Commerce") (each a
"Merging Entity" and collectively the "Merging Entities"). Each of the merger
agreements (the "Merger Agreements") provides for the merger of the respective
Merging Entity with and into BancFirst (each a "Merger" and collectively the
"Mergers"), with BancFirst being the surviving corporation in each of the
Mergers. Upon consummation of the Mergers, the outstanding common stock of each
of the Merging Entities will, with certain exceptions, be converted into shares
of BancFirst common stock. The outstanding preferred stock of Commerce will be
redeemed by Commerce prior to the consummation of the Commerce Merger; the
outstanding preferred stock of Johnston County will be converted into the right
to receive cash in an amount equal to the par value of each such share plus
accrued and unpaid dividends, all as more fully described in the accompanying
Proxy Statement/Offering Memorandum. The proposed Mergers require, among other
conditions, certain regulatory approvals, as well as the approval of the
stockholders of each of the respective Merging Entities and BancFirst. In
connection with and as a part of each of the merger proposals, BancFirst
stockholders will also be asked to consider and vote upon a related amendment
(the "Required Amendment") to BancFirst's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of BancFirst Common
Stock from 6,800,000 to 7,000,000.
The Board of Directors of BancFirst (the "BancFirst Board") believes that
the Mergers present an opportunity for BancFirst to enhance its profitability
and the value of its banking franchise and, accordingly, has determined that
each of the Merger Agreements and the Required Amendment are in the best
interests of BancFirst and its stockholders. THE BANCFIRST BOARD HAS APPROVED
THE MERGER AGREEMENTS AND THE REQUIRED AMENDMENT AND RECOMMENDS THAT YOU VOTE
FOR APPROVAL AND ADOPTION OF EACH OF THE MERGER PROPOSALS (EACH OF WHICH
INCLUDES THE REQUIRED AMENDMENT) AT THE BANCFIRST SPECIAL MEETING.
The accompanying Notice and Proxy Statement/Offering Memorandum describe
the matters to be acted upon at the BancFirst Special Meeting. Stockholders are
urged to review carefully the attached Proxy Statement/Offering Memorandum.
This document contains a detailed description of the Merger Proposals and the
Required Amendment.
Your continuing interest in the business of BancFirst is appreciated, and
we hope you will attend the BancFirst Special Meeting. However, it is important
that your shares be represented at the BancFirst Special Meeting whether or not
you plan to attend. Accordingly, please sign, date and mail the enclosed Proxy
promptly in the postage-paid envelope that has been provided to you for your
convenience. If you wish to vote in accordance with the recommendations of the
BancFirst Board, it is not necessary to specify your choices; you may merely
sign, date and return the enclosed Proxy. If you later find that you may be
present at the BancFirst Special Meeting or for any other reason desire to
revoke your proxy, you may do so at any time before it is voted. Thank you, and
I look forward to seeing you at the BancFirst Special Meeting.
Sincerely,
David E. Rainbolt
December 9, 1995 President and Chief Executive Officer
<PAGE>
BANCFIRST CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, DECEMBER 28, 1995
To the Stockholders of BancFirst Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
BancFirst Corporation ("BancFirst") will be held at the executive offices of
BancFirst, 101 N. Broadway, Suite 200, Oklahoma City, Oklahoma 73102, on
Thursday, December 28, 1995 at 9:00 a.m., local time (the "BancFirst Special
Meeting"), for the following purposes, all of which are more fully described
in the accompanying Proxy Statement/Offering Memorandum:
1. To consider and vote upon, as a single proposal, a proposal to approve
and adopt the Agreement and Plan of Reorganization and Merger, dated as of
September 27, 1995, between BancFirst and Johnston County Bancshares, Inc.
("Johnston County") and all of the transactions contemplated thereby,
including (a) the merger of Johnston County with and into BancFirst, the
conversion of each outstanding share of Johnston County common stock into
shares of BancFirst common stock, and the conversion of each outstanding
share of Johnston County preferred stock into the right to receive cash, on
the terms described in the accompanying Proxy Statement/Offering Memorandum,
and (b) a related amendment (the "Required Amendment") to BancFirst's Amended
and Restated Certificate of Incorporation to increase the number of
authorized shares of BancFirst common stock from 6,800,000 to 7,000,000.
2. To consider and vote upon, as a single proposal, a proposal to approve
and adopt the Agreement and Plan of Reorganization and Merger, dated as of
June 2, 1995, between BancFirst and Commerce Bancorporation, Inc.
("Commerce") and all of the transactions contemplated thereby, including (a)
the merger of Commerce with and into BancFirst and the conversion of each
outstanding share of Commerce common stock into shares of BancFirst common
stock, on the terms described in the accompanying Proxy Statement/Offering
Memorandum, and (b) the Required Amendment.
3. To transact such other business as may properly come before the
BancFirst Special Meeting or any adjournments or postponements thereof.
The Board of Directors of BancFirst has fixed the close of business on
November 30, 1995, as the record date for the determination of stockholders
entitled to notice of and to vote at the BancFirst Special Meeting. Holders
of BancFirst common stock are entitled to vote upon the proposals to be
presented at the BancFirst Special Meeting. Your vote is important
regardless of the number of shares you own. Each stockholder, even though he
or she now plans to attend the BancFirst Special Meeting, is requested to
sign, date and return the enclosed Proxy without delay in the enclosed
postage-paid envelope. You may revoke your Proxy at any time prior to its
exercise. Any stockholder present at the BancFirst Special Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the BancFirst Special Meeting.
By Order of the Board of Directors
Oklahoma City, Oklahoma Randy P. Foraker
December 9, 1995 Senior Vice President, Controller and Secretary
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
800 E. MAIN STREET
TISHOMINGO, OKLAHOMA 73460
Dear Johnston County Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Johnston County Bancshares, Inc. ("Johnston County"), which
will be held at the executive offices of BancFirst Corporation ("BancFirst"),
101 N. Broadway, Suite 200, Oklahoma City, Oklahoma, at 9:30 a.m., local
time, on Thursday, December 28, 1995 (the "Johnston County Special Meeting").
At the Johnston County Special Meeting, Johnston County stockholders
will be asked to consider and vote upon a proposal (the "Johnston
County/BancFirst Merger Proposal") to approve and adopt the Agreement and
Plan of Reorganization and Merger dated September 27, 1995 (the "Johnston
County/BancFirst Merger Agreement") between Johnston County and BancFirst,
providing for the merger of Johnston County with and into BancFirst (the
"Johnston County/BancFirst Merger"). If the Johnston County/BancFirst Merger
is approved, each outstanding share of Johnston County common stock will be
converted into 0.47 shares of BancFirst common stock, subject to adjustment
under certain circumstances, and each outstanding share of Johnston County
preferred stock will be converted into the right to receive cash in an amount
equal to the sum of (i) $17.55 per share, plus (ii) dividends accrued and
unpaid on each such share through the effective time of the merger. The
proposed merger requires, among other conditions, certain regulatory
approvals, as well as the approval of the stockholders of Johnston County and
BancFirst.
The Board of Directors of Johnston County (the "Johnston County Board")
has determined that the Johnston County/BancFirst Merger Agreement is in the
best interests of Johnston County and its stockholders. THE JOHNSTON COUNTY
BOARD HAS APPROVED THE JOHNSTON COUNTY/BANCFIRST MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE JOHNSTON
COUNTY/BANCFIRST MERGER PROPOSAL AT THE JOHNSTON COUNTY SPECIAL MEETING. The
Johnston County Board's reasons for this recommendation are detailed in the
attached document.
The accompanying Notice and Proxy Statement/Offering Memorandum describe
the matters to be acted upon at the Johnston County Special Meeting.
Stockholders are urged to review carefully the attached Proxy
Statement/Offering Memorandum. This document contains a detailed description
of the Johnston County/BancFirst Merger, its terms and conditions and the
transactions contemplated thereby. The Proxy Statement/Offering Memorandum
also contains a description of another merger proposal which is being
considered, together with the Johnston County/BancFirst Merger Proposal, by
the stockholders of BancFirst at their special meeting being held
concurrently with the Johnston County Special Meeting. However, approval of
the Johnston County/BancFirst Merger Proposal by the BancFirst stockholders
is not dependent upon the approval by such stockholders of the other merger
proposal, and such proposal is described in the Proxy Statement/Offering
Memorandum solely to provide Johnston County stockholders with as much
information as possible about the current and proposed operations of
BancFirst.
It is important that your shares be represented at the Johnston County
Special Meeting, and we hope that you will personally attend. However,
whether or not you plan to attend the Johnston County Special Meeting, please
sign, date and mail the enclosed Proxy promptly in the postage-paid envelope
that has been provided to you for your convenience. If you wish to vote in
accordance with the recommendations of the Johnston County Board, it is not
necessary to specify your choices; you may merely sign, date and return the
enclosed Proxy. If you later find that you may be present at the Johnston
County Special Meeting or for any other reason desire to revoke your proxy,
you may do so at any time before it is voted.
Thank you, and I look forward to seeing you at the Johnston County
Special Meeting.
Sincerely,
Charles V. Partin
December 9, 1995 President
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, DECEMBER 28, 1995
To the Stockholders of Johnston County Bancshares, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Johnston County Bancshares, Inc. ("Johnston County") will be held at the
executive offices of BancFirst Corporation ("BancFirst"), 101 N. Broadway,
Suite 200, Oklahoma City, Oklahoma, at 9:30 a.m., local time, on Thursday,
December 28, 1995 (the "Johnston County Special Meeting"), for the following
purposes, as more fully described in the accompanying Proxy
Statement/Offering Memorandum:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Reorganization and Merger, dated as of September 27, 1995 (the
"Johnston County/BancFirst Merger Agreement"), between Johnston County and
BancFirst, and all of the transactions contemplated thereby, including the
merger of Johnston County with and into BancFirst, the conversion of each
outstanding share of Johnston County common stock into shares of BancFirst
common stock and the conversion of each outstanding share of Johnston
County preferred stock into cash, on the terms described in the
accompanying Proxy Statement/Offering Memorandum.
2. To transact such other business as may properly come before the
Johnston County Special Meeting or any adjournments or postponements
thereof.
The Johnston County/BancFirst Merger Agreement is set forth in Appendix B-1
of the accompanying Proxy Statement/Offering Memorandum.
The Board of Directors of Johnston County has fixed the close of business
on November 30, 1995, as the record date for the determination of stockholders
entitled to notice of and to vote at the Johnston County Special Meeting.
Only holders of Johnston County common stock are entitled to vote upon the
proposals to be presented at the Johnston County Special Meeting. Your vote is
important regardless of the number of shares you own. Each stockholder, even
though he or she now plans to attend the Johnston County Special Meeting, is
requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any stockholder present at the Johnston County Special Meeting or
at any adjournments or postponements thereof may revoke his or her Proxy and
vote personally on each matter brought before the Johnston County Special
Meeting.
By Order of the Board of Directors
Tishomingo, Oklahoma Donna K. Powell
December 9, 1995 Secretary
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE
<PAGE>
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS OF
BANCFIRST CORPORATION
TO BE HELD DECEMBER 28, 1995
____________________
THIS DOCUMENT ALSO INCLUDES THE
OFFERING MEMORANDUM OF BANCFIRST CORPORATION
FOR SHARES OF BANCFIRST COMMON STOCK, $1.00 PAR VALUE
____________________
This Proxy Statement/Offering Memorandum is being furnished to stockholders
of BancFirst Corporation ("BancFirst") in connection with the solicitation of
proxies by the Board of Directors of such corporation for use at its Special
Meeting of Stockholders (including any adjournments or postponements thereof) to
be held on December 28, 1995. This Proxy Statement/Offering Memorandum relates
to two separate merger proposals (collectively, the "Merger Proposals"),
pursuant to which two Oklahoma bank holding companies, Johnston County
Bancshares, Inc. ("Johnston County") and Commerce Bancorporation, Inc.
("Commerce") (each a "Merging Entity" and collectively the "Merging Entities"),
will, in separate transactions, merge with and into BancFirst (each a "Merger"
and collectively the "Mergers"). Each of the Mergers also contemplates an
amendment (the "Required Amendment") to BancFirst's Amended and Restated
Certificate of Incorporation (the "BancFirst Charter") to increase the number of
authorized shares of BancFirst common stock, $1.00 par value per share
("BancFirst Common Stock"), from 6,800,000 shares to 7,000,000 shares.
This Proxy Statement/Offering Memorandum also constitutes the offering
memorandum of BancFirst with respect to up to an aggregate of 179,831 shares of
BancFirst Common Stock, issuable to holders of the common stock of each of the
Merging Entities. Upon consummation of a Merger with respect to a particular
Merging Entity, each outstanding share of the common stock of such Merging
Entity will, with certain exceptions, be converted into shares of BancFirst
Common Stock, and the outstanding shares of preferred stock of the Merging
Entity will be converted into the right to receive cash or will be redeemed by
the Merging Entity on or prior to the effective time of the merger. See "The
Merger Proposals--Terms of the Mergers" for information concerning the exchange
ratios pursuant to which the common stock of each Merging Entity will be
exchanged for shares of BancFirst Common Stock.
THE SHARES OF BANCFIRST COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/OFFERING MEMORANDUM. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Offering Memorandum is December 9, 1995.
This Proxy Statement/Offering Memorandum and the accompanying form of proxy
are first being mailed to stockholders of BancFirst on or about December 9,
1995.
<PAGE>
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS OF
JOHNSTON COUNTY BANCSHARES, INC.
800 E. MAIN STREET
TISHOMINGO, OKLAHOMA 73460
SPECIAL MEETING TO BE HELD ON DECEMBER 28, 1995
____________________
THIS DOCUMENT ALSO INCLUDES THE
OFFERING MEMORANDUM OF BANCFIRST CORPORATION
FOR SHARES OF BANCFIRST COMMON STOCK, $1.00 PAR VALUE
____________________
This Proxy Statement/Offering Memorandum (the "Proxy Statement/Offering
Memorandum") is being furnished to stockholders of Johnston County Bancshares,
Inc. ("Johnston County") in connection with the solicitation of proxies by the
Board of Directors of such corporation for use at its Special Meeting of
Stockholders (including any adjournments or postponements thereof) to be held on
December 28, 1995. This Proxy Statement/Offering Memorandum relates to the
proposed merger (the "Johnston County/BancFirst Merger") of Johnston County with
and into BancFirst Corporation ("BancFirst") pursuant to an Agreement and Plan
of Reorganization and Merger dated as of September 27, 1995 (the "Johnston
County/BancFirst Merger Agreement") and certain transactions contemplated
thereby.
This Proxy Statement/Offering Memorandum also constitutes the offering
memorandum of BancFirst with respect to up to 23,321 shares of BancFirst common
stock, $1.00 par value ("BancFirst Common Stock"), issuable to holders of
Johnston County common stock, $1.00 par value per share ("Johnston County Common
Stock"), in the Johnston County/BancFirst Merger. Upon consummation of the
Johnston County/BancFirst Merger, each outstanding share of Johnston County
Common Stock held by stockholders will, with certain exceptions, be converted
into .47 shares of BancFirst Common Stock, subject to adjustment under certain
circumstances, and each outstanding share of Johnston County preferred stock,
$17.55 par value per share ("Johnston County Preferred Stock"), will, with
certain exceptions, be converted into the right to receive cash in an amount
equal to the sum of (i) $17.55 per share, plus (ii) dividends accrued and unpaid
on each such share through the effective time of the merger. See "The Mergers-
Terms of the Mergers." The proposed merger requires, among other conditions,
certain regulatory approvals, as well as the approval of the stockholders of
Johnston County and BancFirst.
THE SHARES OF BANCFIRST COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
JOHNSTON COUNTY COMMON STOCK BEFORE VOTING ON THE JOHNSTON COUNTY/BANCFIRST
MERGER, SEE "CERTAIN FACTORS TO CONSIDER."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/OFFERING MEMORANDUM. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Offering Memorandum is December 9, 1995.
This Proxy Statement/Offering Memorandum and the accompanying form of
proxy are first being mailed to stockholders of Johnston County on or about
December 9, 1995.
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/OFFERING
MEMORANDUM IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BANCFIRST
OR ANY OF THE MERGING ENTITIES. THIS PROXY STATEMENT/OFFERING MEMORANDUM DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/OFFERING MEMORANDUM
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF BANCFIRST OR ANY OF THE MERGING ENTITIES SINCE THE DATE HEREOF OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/OFFERING MEMORANDUM RELATING
TO BANCFIRST AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY BANCFIRST AND ALL
INFORMATION CONTAINED IN THIS PROXY STATEMENT/OFFERING MEMORANDUM RELATING TO A
MERGING ENTITY AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY THE RESPECTIVE MERGING
ENTITY.
AVAILABLE INFORMATION
BancFirst is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by BancFirst with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 75 Park Place, 14th Floor, New York, New
York 10007 and Northwestern Atrium Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, material filed by
BancFirst can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K. Street, N.W., 3rd Floor, Washington, D.C.
20549.
The shares of BancFirst Common Stock to be issued pursuant to the Merger
Agreements will not be registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to the exemptions from registration afforded by
Section 4(2) and Rule 506 of Regulation D promulgated under the Securities Act.
This Proxy Statement/Offering Memorandum contains a listing of additional
information which may be inspected and copied at the offices of BancFirst or as
set forth above. Statements contained in this Proxy Statement/Offering
Memorandum as to the contents of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document, each such statement being qualified
in all respects by such reference.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . 2
SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . 5
CERTAIN FACTORS TO CONSIDER. . . . . . . . . . . . . . . . . 18
Economic Conditions. . . . . . . . . . . . . . . . . . . 18
Competition. . . . . . . . . . . . . . . . . . . . . . . 18
Control of BancFirst . . . . . . . . . . . . . . . . . . 18
Termination of the Merger Agreements . . . . . . . . . . 18
Dividends. . . . . . . . . . . . . . . . . . . . . . . . 19
Ownership of BancFirst Stock Versus Stock of the
Merging Entities . . . . . . . . . . . . . . . . . . . 19
Resale of BancFirst Shares . . . . . . . . . . . . . . . 19
INFORMATION CONCERNING THE SPECIAL MEETINGS. . . . . . . . . 20
The Meetings . . . . . . . . . . . . . . . . . . . . . . 20
Quorum and Voting. . . . . . . . . . . . . . . . . . . . 20
Voting and Revocability of Proxies . . . . . . . . . . . 22
Solicitation of Proxies. . . . . . . . . . . . . . . . . 22
DISSENTING STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 22
Availability of Appraisal Rights . . . . . . . . . . . . 22
Exercise of Appraisal Rights . . . . . . . . . . . . . . 23
THE MERGERS. . . . . . . . . . . . . . . . . . . . . . . . . 25
General. . . . . . . . . . . . . . . . . . . . . . . . . 25
Reasons for the Mergers; Recommendations of the Boards
of Directors . . . . . . . . . . . . . . . . . . . . . 25
Opinions of BancFirst's Financial Advisor. . . . . . . . 26
Terms of the Mergers . . . . . . . . . . . . . . . . . . 30
Effective Time of the Mergers. . . . . . . . . . . . . . 31
Surrender of Certificates. . . . . . . . . . . . . . . . 31
Conditions to the Mergers. . . . . . . . . . . . . . . . 32
Amendment and Termination of the Merger Agreements . . . 32
Operations After the Mergers . . . . . . . . . . . . . . 33
Certain Federal Tax Consequences . . . . . . . . . . . . 33
Anticipated Accounting Treatment . . . . . . . . . . . . 35
RATIO OF EARNINGS TO FIXED CHARGES . . . . . . . . . . . . . 36
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . 36
BANCFIRST CORPORATION UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS . . . . . . . . . . . . . . 37
INFORMATION ABOUT BANCFIRST. . . . . . . . . . . . . . . . . 44
General. . . . . . . . . . . . . . . . . . . . . . . . . 44
Business . . . . . . . . . . . . . . . . . . . . . . . . 44
Market Areas and Competition . . . . . . . . . . . . . . 45
Control of BancFirst . . . . . . . . . . . . . . . . . . 46
Recent Developments. . . . . . . . . . . . . . . . . . . 46
Properties . . . . . . . . . . . . . . . . . . . . . . . 47
Legal Proceedings. . . . . . . . . . . . . . . . . . . . 47
Management's Discussion and Analysis of Financial
Conditions and Results of Operations . . . . . . . . . 47
Security Ownership of Certain Beneficials Owners . . . . 62
Management . . . . . . . . . . . . . . . . . . . . . . . 63
Board of Directors and Committees. . . . . . . . . . . . 64
Compensation of Directors and Executive Officers . . . . 65
Report of the Compensation Committee and the Executive
Committee on Executive Compensation. . . . . . . . . . 67
Performance of BancFirst . . . . . . . . . . . . . . . . 69
Certain Transactions . . . . . . . . . . . . . . . . . . 70
Price Range of BancFirst Common Stock and Dividends. . . 70
3
<PAGE>
PAGE
----
INFORMATION ABOUT JOHNSTON COUNTY. . . . . . . . . . . . . . 71
Business . . . . . . . . . . . . . . . . . . . . . . . . 71
Security Ownership of Certain Beneficial Owners. . . . . 71
Security Ownership of Management . . . . . . . . . . . . 72
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 72
Price Range of Johnston County Common Stock and
Dividends. . . . . . . . . . . . . . . . . . . . . . . 77
INFORMATION ABOUT COMMERCE.. . . . . . . . . . . . . . . . . 77
Business . . . . . . . . . . . . . . . . . . . . . . . . 77
Security Ownership of Certain Beneficial Owners. . . . . 77
Security Ownership of Management . . . . . . . . . . . . 78
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 78
Price Range of Commerce Common Stock and Dividends . . . 83
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . 83
Bank Holding Company Regulation. . . . . . . . . . . . . 83
Capital Adequacy Guidelines. . . . . . . . . . . . . . . 84
Proposed FDIC Regulations Concerning Adverse Contracts . 84
Improvement Act and Related Regulations. . . . . . . . . 85
Regulatory Restrictions on Dividends . . . . . . . . . . 86
Deposit Insurance. . . . . . . . . . . . . . . . . . . . 87
State Regulation . . . . . . . . . . . . . . . . . . . . 87
Governmental Monetary and Fiscal Policies. . . . . . . . 88
Recently Enacted Federal Legislation . . . . . . . . . . 88
Pending and Proposed Legislation . . . . . . . . . . . . 88
AMENDMENT TO THE BANCFIRST CHARTER . . . . . . . . . . . . . 89
General. . . . . . . . . . . . . . . . . . . . . . . . . 89
Increase in Authorized Common Stock. . . . . . . . . . . 89
Purpose and Effects. . . . . . . . . . . . . . . . . . . 89
DESCRIPTION OF BANCFIRST STOCK . . . . . . . . . . . . . . . 89
General. . . . . . . . . . . . . . . . . . . . . . . . . 89
Common Stock . . . . . . . . . . . . . . . . . . . . . . 90
BancFirst Preferred Stock. . . . . . . . . . . . . . . . 91
Senior Preferred Stock . . . . . . . . . . . . . . . . . 91
SUMMARY COMPARISON OF BANCFIRST STOCK AND STOCK OF EACH
MERGING ENTITY . . . . . . . . . . . . . . . . . . . . . . 91
General. . . . . . . . . . . . . . . . . . . . . . . . . 91
Dissenters' Rights . . . . . . . . . . . . . . . . . . . 93
Liability of Directors; Indemnification. . . . . . . . . 93
INTERESTS OF CERTAIN PERSONS IN THE MERGERS. . . . . . . . . 93
Common Stock Ownership . . . . . . . . . . . . . . . . . 94
Preferred Stock Ownership. . . . . . . . . . . . . . . . 95
Option Agreement . . . . . . . . . . . . . . . . . . . . 95
Consulting Agreement . . . . . . . . . . . . . . . . . . 95
Compliance with Section 16(a) of the Securities
Exchange Act of 1934 . . . . . . . . . . . . . . . . . 95
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . 95
INDEX TO DEFINED TERMS . . . . . . . . . . . . . . . . . . . 96
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . F-1
APPENDIX A, PROVISIONS OF THE OKLAHOMA GENERAL CORPORATION
ACT RELATING TO DISSENTING STOCKHOLDERS
APPENDIX B, JOHNSTON COUNTY/BANCFIRST MERGER AGREEMENT
APPENDIX C, COMMERCE/BANCFIRST MERGER AGREEMENT
APPENDIX D, FAIRNESS OPINIONS OF ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
APPENDIX E, ADDITIONAL DOCUMENTS
4
<PAGE>
SUMMARY INFORMATION
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN
ALL RESPECTS BY THE MORE DETAILED INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/OFFERING MEMORANDUM AND THE APPENDICES
HERETO. AS USED IN THIS PROXY STATEMENT/OFFERING MEMORANDUM, THE TERMS
"BANCFIRST," "JOHNSTON COUNTY" AND "COMMERCE" REFER TO SUCH CORPORATIONS,
RESPECTIVELY, AND WHERE THE CONTEXT REQUIRES, SUCH CORPORATIONS AND THEIR
RESPECTIVE SUBSIDIARIES ON A CONSOLIDATED BASIS. JOHNSTON COUNTY AND
COMMERCE ARE EACH REFERRED TO HEREIN AS A "MERGING ENTITY" AND COLLECTIVELY
AS THE "MERGING ENTITIES." ALL INFORMATION CONCERNING BANCFIRST INCLUDED IN
THIS PROXY STATEMENT/OFFERING MEMORANDUM HAS BEEN PROVIDED BY BANCFIRST AND
ALL INFORMATION CONCERNING EACH MERGING ENTITY INCLUDED IN THIS PROXY
STATEMENT/OFFERING MEMORANDUM HAS BEEN PROVIDED BY THE MERGING ENTITY.
STOCKHOLDERS ARE URGED TO READ THIS PROXY STATEMENT/OFFERING MEMORANDUM AND
THE APPENDICES HERETO IN THEIR ENTIRETY.
INTRODUCTION
BancFirst Corporation ("BancFirst"), an Oklahoma corporation whose
common stock is listed on the NASDAQ/National Market System ("NASDAQ/NMS"),
is a one-bank holding company organized in 1984. It conducts its operations
principally through its bank subsidiary, BancFirst (the "Bank"), a
full-service community oriented bank with 41 banking locations in 25
communities across central and eastern Oklahoma. At September 30, 1995, the
Bank was the largest state-chartered bank and the fifth largest commerical
banking institution in the state of Oklahoma, with total assets of
approximately $981 million and total deposits of approximately $867 million.
BancFirst has entered into separate merger agreements (each a "Merger
Agreement" and collectively the "Merger Agreements") with Johnston County
Bancshares, Inc. ("Johnston County") and Commerce Bancorporation, Inc.
("Commerce"), each of which provides for the merger of the respective Merging
Entity with and into BancFirst (each a "Merger" and collectively the
"Mergers"), with BancFirst being the surviving corporation in each of the
Mergers. Upon consummation of the Mergers, the outstanding common stock of
each of the Merging Entities will, with certain exceptions, be converted into
shares of BancFirst Common Stock, and the outstanding preferred stock of each
of the Merging Entities will, with certain exceptions, be converted into the
right to receive cash or be redeemed, as more fully described herein. See
"The Mergers--Terms of the Mergers." Each of the proposed Mergers requires,
among other conditions, certain regulatory approvals, as well as the approval
of the stockholders of the respective Merging Entity and BancFirst.
THE SPECIAL MEETINGS
BANCFIRST
A special meeting of the stockholders of BancFirst will be held at the
executive offices of BancFirst, 101 N. Broadway, Suite 200, Oklahoma City,
Oklahoma, at 9:00 a.m., local time, on Thursday, December 28, 1995 (the
"BancFirst Special Meeting"), to consider and vote upon the Merger
Agreements. In connection with, and as a part of the vote upon each Merger
Agreement, BancFirst stockholders will consider and vote upon a related
amendment (the "Required Amendment" and, together with consideration of each
Merger Agreement, a "Merger Proposal") to BancFirst's Amended and Restated
Certificate of Incorporation (the "BancFirst Charter") to increase the number
of authorized shares of BancFirst Common Stock from 6,800,000 to 7,000,000.
5
<PAGE>
JOHNSTON COUNTY
A special meeting of the stockholders of Johnston County will be held at
the executive offices of BancFirst, 101 N. Broadway, Suite 200, Oklahoma
City, Oklahoma, at 9:30 a.m., local time, on Thursday, December 28, 1995 (the
"Johnston County Special Meeting"), to consider and vote upon the merger
agreement between Johnston County and BancFirst (the "Johnston
County/BancFirst Merger Agreement"), providing for the merger of Johnston
County with and into BancFirst (the "Johnston County/BancFirst Merger") and
the conversion of each outstanding share of Johnston County common stock, par
value $1.00 per share ("Johnston County Common Stock"), into .47 shares of
BancFirst Common Stock, subject to adjustment under certain conditions, and
the conversion of each outstanding share of Johnston County preferred stock,
par value $17.55 per share ("Johnston County Preferred Stock"), into the
right to receive cash in an amount equal to the sum of (i) $17.55 per share,
plus (ii) dividends accrued and unpaid on each such share through the
effective time of the merger. See "The Mergers-Terms of the Mergers."
COMMERCE
All of the outstanding shares of Commerce common stock, $1.00 par value
per share ("Commerce Common Stock") are owned by an affiliate and a former
affiliate of BancFirst. See "Interests of Certain Persons in the Mergers."
Such stockholders have acted by written consent to approve the merger
agreement between Commerce and BancFirst (the "Commerce/BancFirst Merger
Agreement"). The Commerce/BancFirst Merger Agreement, which remains subject
to the approval of the stockholders of BancFirst, provides for the merger of
Commerce with and into BancFirst (the "Commerce/BancFirst Merger") and the
conversion of each outstanding share of Commerce Common Stock into 6.9335
shares of BancFirst Common Stock. Prior to the consummation of the
Commerce/BancFirst Merger, the 4,162 shares of Commerce preferred stock,
$13.25 par value per share ("Commerce Preferred Stock"), will be redeemed by
Commerce at a price not to exceed an aggregate of $80,000.
RECORD DATE
The record date for each of the BancFirst Special Meeting and the
Johnston County Special Meeting (the "Record Date") is November 30, 1995.
Only holders of record of BancFirst Common Stock and Johnston County Common
Stock at the close of business on such date are entitled to notice of, and to
vote at, the respective special meetings.
VOTES REQUIRED
BANCFIRST
Approval of each Merger Proposal, which includes the Required Amendment,
requires the affirmative vote of a majority of the outstanding common stock
of BancFirst, with each share entitled to one vote on each separate Merger
Proposal. As of the Record Date, directors and executive officers of
BancFirst and their affiliates (collectively, the "BancFirst Affiliates")
owned beneficially approximately 55.27% of the shares of BancFirst Common
Stock outstanding on such date. The BancFirst Affiliates have indicated
their intention to vote their shares of BancFirst Common Stock in favor of
the Merger Proposals. Certain of the BancFirst Affiliates, including R.
Banking Limited Partnership ("RBLP"), a limited partnership of which David E.
Rainbolt, President and Chief Executive Officer of BancFirst, is general
partner, and H. E. Rainbolt, Chairman of the Board of Directors of BancFirst
is a limited partner, and J. R. Hutchens, Jr., a director of BancFirst
(collectively, the "Interested BancFirst Stockholders"), also have stock
ownership in one or more Merging Entities, as described below and in
"Interests of Certain Persons in the Mergers."
6
<PAGE>
JOHNSTON COUNTY
Approval of the Johnston County/BancFirst Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Johnston County
Common Stock, with each share entitled to one vote. As of the Record Date,
directors and executive officers of Johnston County and their affiliates
owned beneficially approximately 51.25% of the shares of Johnston County
Common Stock outstanding on such date. Such persons have indicated their
intention to vote their shares of Johnston County Common Stock in favor of
the Johnston County/BancFirst Merger Agreement. Additionally, certain of the
Interested BancFirst Stockholders own beneficially approximately 96.83% of
the shares of Johnston County Common Stock outstanding and, accordingly,
approval of the Johnston County/BancFirst Merger Agreement by the
stockholders of Johnston County is assured. As of the Record Date, directors
and executive officers of Johnston County and their affiliates owned
beneficially 60,109 shares of BancFirst Common Stock.
COMMERCE
Approval of the Commerce/BancFirst Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of Commerce Common
Stock, with each share entitled to one vote. As of the Record Date, 100% of
the Commerce Common Stock outstanding was owned beneficially by one of the
Interested BancFirst Stockholders and a former affiliate of BancFirst. On
November 28, 1995, the two stockholders acted by written consent to approve
the Commerce/BancFirst Merger Agreement. As of the Record Date, directors
and executive officers of Commerce and their affiliates owned beneficially
52,867 shares of BancFirst Common Stock.
THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF BANCFIRST AND THE
MERGING ENTITIES
The Board of Directors of BancFirst (the "BancFirst Board") and the
Board of Directors of each of the Merging Entities believe that the terms of
the Mergers are fair to and in the best interests of their respective
institutions and stockholders. The Boards' conclusions are based upon a
number of factors, including information concerning the financial condition,
results of operations and prospects of BancFirst and the respective Merging
Entity; the market price and book value of BancFirst Common Stock and the
market prices and book values of the common and/or preferred stock of the
respective Merging Entity; the anticipated ability of the combined entity to
compete in its banking market; and, in the case of the BancFirst Board, the
advice of its financial advisor.
The BancFirst Board (with the three directors constituting certain of
the Interested BancFirst Stockholders absent or abstaining) approved the
Merger Agreements and the Required Amendment and recommends that BancFirst
shareholders vote FOR the approval and adoption of the Merger Proposals
(which approval and adoption shall constitute, among other things, approval
of the issuance of shares of BancFirst Common Stock pursuant to the Merger
Agreements and approval of the Required Amendment).
The Board of Directors of Johnston County (the "Johnston County Board")
unanimously approved the Johnston County/BancFirst Merger Agreement and
recommends that Johnston County stockholders vote FOR the approval and
adoption of the Johnston County/BancFirst Merger Agreement. See "The
Mergers--Reasons for the Mergers; Recommendations of the Boards of Directors."
7
<PAGE>
The Board of Directors of Commerce (the "Commerce Board") unanimously
approved the Commerce/BancFirst Merger Agreement and recommended that the
stockholders of Commerce vote for the approval and adoption of the
Commerce/BancFirst Merger Agreement. The stockholders of Commerce have acted
by written consent to approve the Commerce/BancFirst Merger Agreement. See
"The Mergers--Reasons for the Mergers; Recommendations of the Boards of
Directors."
OPINION OF FINANCIAL ADVISOR
On November 10, 1995, Alex Sheshunoff & Co. Investment Banking
("Sheshunoff") delivered its written opinion to the BancFirst Board that, as
of such date, the proposed transactions are fair, from a financial point of
view, to all the stockholders of BancFirst.
For information on the assumptions made, matters considered and limits
of the review by Sheshunoff, see "The Merger Proposals--Opinions of
BancFirst's Financial Advisor" and the opinions of Sheshunoff attached as
Appendix D to this Proxy Statement/Offering Memorandum.
DISSENTERS' RIGHTS
Holders of the outstanding common and preferred stock of Johnston County
will have appraisal rights ("Dissenters' Rights") in accordance with Oklahoma
law. See "Dissenting Stockholders." Pursuant to such Dissenters' Rights,
such stockholders will have a right to demand payment of the "fair value" of
their shares in cash. To perfect this right, a stockholder must not vote
such shares in favor of the Johnston County/BancFirst Merger (this may be
done by marking the proxy either to vote against such Merger or to abstain
from voting thereon or by not voting at all) and must take such other action
as is required by the provisions of Section 1091 of the Oklahoma General
Corporation Act. Such actions include delivering written notice of objection
prior to the vote on the Johnston Conty/BancFirst Merger. See "Dissenting
Stockholders" and Appendix A to this Proxy Statement/Offering Memorandum.
DIVIDENDS
BancFirst presently expects to continue to declare its regularly
scheduled quarterly common stock dividends until the Effective Time.
BancFirst also expects that after the Mergers, BancFirst will continue to pay
dividends on the BancFirst Common Stock at BancFirst's current rate, although
such future dividends will depend upon future financial results and legal and
regulatory requirements and there can be no assurance as to any future
dividends. BancFirst is a legal entity separate and distinct from its various
subsidiaries. As a holding company with no significant operations of its own,
the principal sources of its funds are dividends and other distributions from
its banking and other operating subsidiaries, borrowings and sales of equity.
The rights of BancFirst, and consequently its stockholders, to participate
in any distribution of assets of any of its subsidiaries is subject to prior
claims of creditors and preferred stockholders, if any, of such subsidiary
(except to the extent claims of BancFirst in its capacity as a creditor are
recognized), and to certain regulatory restrictions. BancFirst does not
expect that the regulatory and contractual restrictions applicable to
BancFirst or its subsidiaries will significantly affect the operations of
BancFirst or its subsidiaries or impair the ability of BancFirst to continue
to pay quarterly dividends on BancFirst Common Stock after the Mergers at its
current rate. See "The Mergers--Operations after the Mergers" and
"Supervision and Regulation--Regulatory Restrictions on Dividends."
8
<PAGE>
CONDITIONS TO THE MERGERS; TERMINATION
The obligations of BancFirst and each of Johnston County and Commerce to
consummate the respective Mergers are subject to various conditions,
including obtaining requisite stockholder and regulatory approvals. See "The
Merger Proposals--Conditions to the Mergers." Under certain circumstances,
each of the respective Merger Agreements may be terminated by BancFirst
and/or the respective Merging Entity at any time prior to the Effective Time,
whether before or after approval of the respective Merger by the stockholders
of BancFirst or the respective Merging Entity. See "The Merger
Proposals--Amendment and Termination of the Merger Agreements."
REGULATORY APPROVALS REQUIRED
The Johnston County/BancFirst Merger was approved on November 16, 1995
by the Federal Reserve Bank of Kansas City acting under delegated authority
from the Federal Reserve Board. The requisite regulatory approval with
respect to the Commerce/BancFirst Merger will be sought in early 1996, and is
a condition precedent to consummation of the Commerce/BancFirst Merger. No
other regulatory approvals are required for the Mergers, although the
approval of the Oklahoma State Banking Department is required for the
proposed subsequent mergers of the Merging Entities' banking subsidiaries
into the Bank. See "The Mergers--Operations After the Mergers."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of BancFirst's management and the BancFirst Board, and
certain members of management and the Board of Directors of each of the
Merging Entities, respectively, have interests in the respective Mergers by
virtue of their interests as stockholders of BancFirst or the respective
Merging Entity, or both. The BancFirst Board and the Boards of Directors of
each of the Merging Entities were aware of these interests and considered
them, among other matters, in approving the respective Merger Agreements and
the transactions contemplated thereby. See "Interests of Certain Persons in
the Mergers."
ANTICIPATED ACCOUNTING TREATMENT
Each of the Mergers is expected to be accounted for as a "book value
purchase." This method of accounting is similar to a pooling of interests.
Accordingly, the book values of a Merging Entity will be combined with the
book values of BancFirst at the Effective Time of the respective Merger.
However, due to the significant stock ownership of BancFirst held by the
Disinterested BancFirst Stockholders, the effects of the acquisition will be
included in BancFirst's consolidated financial statements from the date of
the acquisitions forward, and the historical financial statements of
BancFirst will not be restated, so that the Disinterested BancFirst
Stockholders may better evaluate the effects of the Mergers on their
interests in BancFirst.
CERTAIN FEDERAL TAX CONSEQUENCES
Each of the Mergers is expected to qualify for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), so that no gain
or loss will be recognized by BancFirst or the respective Merging Entity, and
no gain or loss will be recognized by the stockholders of the respective
Merging Entities, except with respect to cash received (i) in connection with
the redemption or conversion, as the case may be of, Merging Entity preferred
stock, (ii) in lieu of fractional shares, or (iii) as a result of the
exercise of the statutory rights of Johnston County stockholders to object to
the Johnston County/BancFirst Merger. The existing stockholders of BancFirst
will recognize no gain or loss for federal income tax purposes as a result
of the Mergers. See "Certain Federal Tax Consequences."
9
<PAGE>
MARKETS AND MARKET PRICES
Shares of BancFirst Common Stock are traded in the over-the-counter
market and are listed in NASDAQ/NMS under the symbol "BANF." The following
table sets forth the last reported sale price per share of BancFirst Common
Stock on the dates set forth, which include August 30, 1995 and June 20,
1995, the last trading days preceding public announcement of the respective
Mergers, and the equivalent per share value of the common stock of the
Merging Entities for the dates indicated. The equivalent per share value of
the common stock of the Merging Entities was calculated by multiplying the
per share sales price of BancFirst Common Stock by the respective exchange
ratio for Merging Entity common stock. There is no established public
trading market for the common or preferred stock of any of the Merging
Entities.
MARKET PRICE DATA
<TABLE>
<CAPTION>
EQUIVALENT PER SHARE VALUE
--------------------------
JOHNSTON
BANCFIRST COUNTY COMMERCE
--------- -------- --------
<S> <C> <C> <C>
August 30, 1995, the last
trading day before public
announcement of the proposed
BancFirst/Johnston County
Merger . . . . . . . . . . . . . . .$20 $8-7/8 N/A
June 20, 1995, the last trading
day before public announcement
of the proposed
BancFirst/Commerce Merger . . . . . $14-3/4 N/A $102-1/4
November 28, 1995, the most
recent practicable trading day
before the date of this Proxy
Statement/ Offering Memorandum. . . $19-1/2 $8-7/8 $
</TABLE>
On November 15, 1995, there were approximately 365, 19 and two holders
of record of, respectively, BancFirst Common Stock, Johnston County Common
Stock and Commerce Common Stock. As of such date, there were approximately
nine and four holders of record of, respectively, Johnston County Preferred
Stock and Commerce Preferred Stock. As of such date, no BancFirst Preferred
Stock was outstanding.
10
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
Below is presented selected quarterly financial data for BancFirst
Corporation for each full quarter within the two most recent fiscal years and
for the current year.
SELECTED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 THIRD SECOND FIRST
- ---- ----- ------ -----
<S> <C> <C> <C>
Net interest income $11,331 $10,912 $9,945
Provision for possible loan
losses 150 196 61
Noninterest income 3,180 3,164 2,829
Noninterest expense 8,625 9,032 8,290
Net income 3,639 3,020 2,754
Net income per share 0.57 0.47 0.43
1994 FOURTH THIRD SECOND FIRST
- ---- ------ ----- ------ -----
Net interest income $10,227 $10,105 $9,729 $8,875
Provision for possible loan
losses 331 321 (9) (263)
Noninterest income 2,805 2,799 2,870 2,744
Noninterest expense 7,934 8,281 8,041 7,375
Net income 2,956 2,774 2,789 3,078
Net income per share 0.46 0.43 0.44 0.47
1993 FOURTH THIRD SECOND FIRST
- ---- ------ ----- ------ -----
Net interest income $8,298 $8,380 $8,327 $7,959
Provision for possible loan
losses 35 (46) 119 142
Noninterest income 2,557 2,539 2,964 2,492
Noninterest expense 7,549 7,173 7,445 6,983
Income before cumulative
effect of change in
accounting principle 2,492 2,847 2,502 2,313
Net Income 2,492 2,847 2,502 3,631
Income per share before
cumulative effect of change
in accounting principle 0.41 0.48 0.42 0.47
Net income per share 0.41 0.48 0.42 0.75
</TABLE>
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following summary is qualified in its entirety by the more detailed
information and financial statements included in this Proxy Statement/Offering
Memorandum. See the Financial Statements of BancFirst Corporation included
elsewhere herein.
BANCFIRST CORPORATION
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
$ 32,189 $ 28,709 $38,936 $32,971 $ 30,041 $ 26,096 $ 24,807
Net interest income . . .
Provision for possible loan
losses . . . . . . . . . 408 49 380 251 700 952 6,792
Noninterest income . . . 9,173 8,414 11,218 10,547 8,612 7,918 6,897
Noninterest expense . . . 25,946 23,698 31,631 29,151 26,792 27,007 26,340
Income (loss) before
extraordinary items. . . 9,414 8,641 11,597 10,154 8,955 4,211 (1,506)
Net income (loss) . . . . 9,414 8,641 11,597 11,472 11,161 6,555 (1,506)
Accumulated preferred
dividends . . . . . . . . -- (55) (55) (386) (908) (1,083) (1,126)
Net income (loss)
applicable to common
stockholders . . . . . . 9,414 8,586 11,542 11,086 10,253 5,472 (2,632)
BALANCE SHEET DATA:
Total assets . . . . . .$981,229 $872,013 $872,915 $823,234 $705,097 $680,576 $693,224
Total loans (net of
unearned interest) . . . 604,642 510,106 522,314 466,356 382,498 329,442 328,273
Allowance for possible loan
losses . . . . . . . . . (10,338) (9,585) 9,729 9,027 7,202 5,967 6,400
Investment securities . . 255,349 232,119 223,044 231,546 204,001 224,386 217,744
Deposits . . . . . . . . 867,030 785,012 784,851 736,686 636,633 611,389 627,402
Note payable . . . . . . -- -- -- -- 12,000 12,000 16,997
Long-Term borrowings . . . 810 -- -- -- -- -- --
10% Preferred Stock . . . -- -- -- 3,898 3,829 3,829 3,829
Floating Rate Preferred
Stock . . . . . . . . . -- -- -- -- -- 10,000 10,000
Common stockholders'
equity . . . . . . . . . 94,794 81,089 81,961 76,052 46,929 33,337 26,992
PER COMMON SHARE DATA:
Income (loss) before
extraordinary items. . . $1.47 $1.34 $1.80 $1.77 $1.70 $0.65 $(0.55)
Net income (loss) . . . . 1.47 1.34 1.80 2.01 2.17 1.13 (0.55)
Cash dividends . . . . . 0.21 0.18 0.25 0.21 0.05 -- --
Book value . . . . . . . 15.26 13.07 13.21 12.27 9.94 6.52 5.33
SELECTED FINANCIAL RATIOS:
Return on average assets . 1.32% 1.34% 1.34% 1.54% 1.62% 0.94% (0.22)%
Return on average
stockholders' equity . . 14.24 14.42 14.36 17.03 21.58 15.07 (3.70)
Nonperforming and
restructured assets to
total assets . . . . . . 0.70 0.67 0.70 1.08 1.61 2.00 3.32
Allowance for possible loan
losses to nonperforming and
restructured loans . . . 226.41 265.66 261.53 193.21 190.88 140.53 72.95
Average stockholders'
equity to average total
assets . . . . . . . . . 9.30 9.20 9.34 9.06 7.50 6.26 5.90
</TABLE>
12
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income . .$ 322 $ 321 $ 430 $ 441 $ 481 $ 478 $ 378
Provision for possible
loan losses. . . . . . 10 14 19 19 222 17 26
Noninterest income . . 90 90 119 243 200 205 172
Noninterest expense . . 338 340 447 551 528 514 401
Income before
extraordinary items . . 52 42 56 105 (67) 105 102
Net income . . . . . . 52 42 56 105 (67) 105 102
Accumulated preferred
dividends . . . . . . . 5 5 10 10 10 10 10
Net income applicable to
common stockholders. . 47 37 46 95 (77) 95 92
BALANCE SHEET DATA:
Total assets . . . . . $10,447 $10,045 $10,210 $10,057 $11,352 $11,617 $10,560
Total loans (net of
unearned interest) . . 5,478 5,558 5,491 5,411 6,238 6,780 5,147
Allowance for possible
loan losses . . . . . . 149 110 115 127 122 80 95
Investment securities . 2,615 2,224 2,307 2,921 2,739 3,606 4,124
Deposits . . . . . . . 9,549 9,163 9,312 9,254 10,607 10,741 9,552
Note payable . . . . . 342 380 380 354 387 416 480
10% Preferred Stock . . 97 97 97 97 97 97 97
Common stockholders'
equity . . . . . . . . 302 246 255 228 220 195 99
PER COMMON SHARE DATA:
Income before
extraordinary items. .$ 0.91 $ 0.71 $ 0.93 $ 1.91 $ (1.55) $ 1.91 $ 1.85
Net income . . . . . . 0.91 0.71 0.93 1.91 (1.55) 1.91 1.85
Cash dividends . . . . -- -- -- -- -- -- --
Book value . . . . . . 6.09 4.96 5.14 4.59 4.43 3.93 2.00
SELECTED FINANCIAL RATIOS:
Return on average assets . 0.65% 0.55% 0.55% 1.03% (0.58)% 0.91% 1.01%
Return on average
stockholders' equity . . 18.69 16.12 16.54 32.71 (22.00) 43.03 69.62
Nonperforming and
restructured assets to
total assets. . . . . . 1.54 1.99 1.83 3.44 3.62 1.65 2.81
Allowance for possible
loan losses to
nonperforming and
restructured loans . . 156.84 99.10 121.05 55.22 50.83 800.00 137.68
Average stockholders'
equity to average total
assets . . . . . . . . 3.48 3.42 3.30 3.16 2.63 2.11 1.45
</TABLE>
13
<PAGE>
COMMERCE BANCORPORATION, INC.
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . $702 $750 $1,002 $998 $1,082 $963 $891
Provision for possible loan
losses . . . . . . . . . . . - - - - 24 74 36
Noninterest income . . . . . . 190 190 254 251 568 292 281
Noninterest expense . . . . . . 552 517 681 706 1,065 886 911
Income before extraordinary
items. . . . . . . . . . . . . 217 272 365 356 364 200 185
Net income . . . . . . . . . . 217 272 365 356 364 200 185
Accumulated preferred dividends 3 3 6 6 6 6 6
Net income applicable to common
stockholders . . . . . . . . 214 269 359 350 358 194 179
BALANCE SHEET DATA:
Total assets . . . . . . . . . $17,444 $18,447 $18,145 $18,983 $18,145 $19,222 $18,994
Total loans (net of unearned
interest) . . . . . . . . . . 8,225 8,315 8,213 7,922 7,895 8,713 9,429
Allowance for possible loan
losses . . . . . . . . . . . 104 153 147 151 160 160 130
Investment securities . . . . . 7,693 8,698 8,542 7,803 8,216 8,176 6,643
Deposits . . . . . . . . . . . 15,321 16,519 16,535 17,133 16,452 17,248 16,971
Note payable . . . . . . . . . - - - - - 250 400
10% preferred stock . . . . . . 55 55 55 55 55 55 55
Common stockholders' equity . . 1,512 1,437 1,268 1,422 1,473 1,421 1,283
PER COMMON SHARE DATA:
Income before extraordinary
items . . . . . . . . . . . . $ 9.48 $ 11.92 $ 15.90 $15.51 $ 14.77 $ 6.87 $ 6.34
Net income . . . . . . . . . . 9.48 11.92 15.90 15.51 14.77 6.87 6.34
Cash dividends . . . . . . . . 3.54 7.09 16.39 17.72 10.72 - -
Book value . . . . . . . . . . 66.98 63.66 56.17 63.00 65.25 57.84 48.30
SELECTED FINANCIAL RATIOS:
Return on average assets . . . 1.63% 1.93% 1.97% 1.92% 1.95% 1.05% 0.97%
Return on average stockholders'
equity . . . . . . . . . . . 20.03 24.43 26.07 23.69 24.23 14.21 14.45
Nonperforming and restructured
assets to total assets . . . 0.36 0.73 0.58 0.61 1.20 1.12 1.02
Allowance for possible loan losses
to nonperforming and
restructured loans . . . . . . . 167.75 161.05 172.94 175.58 93.02 132.23 151.16
Average stockholders' equity to
average total assets . . . . 8.12 7.93 7.54 8.08 8.04 7.36 6.74
</TABLE>
14
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA OF BANCFIRST CORPORATION
The following table presents unaudited pro forma financial data of
BancFirst assuming that the Mergers occurred January 1, 1994 with respect to
income statement data and September 30, 1995 with respect to balance sheet data,
and assuming that 100% of the Merging Entities' common and preferred stock was
acquired. The pro forma information includes adjustments explained in the
unaudited pro forma financial statements and notes thereto included elsewhere in
this Proxy Statement/Offering Memorandum.
<TABLE>
<CAPTION>
PRO FORMA AT AND FOR THE
--------------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . . $ 33,866 $ 43,597
Provision for possible loan losses 418 420
Noninterest income . . . . . . . 9,567 11,866
Noninterest expense . . . . . . . 27,386 35,102
Income (loss) before extraordinary
items . . . . . . . . . . . . . 9,860 12,720
Net income (loss) . . . . . . . . 9,860 12,720
Accumulated preferred dividends . -- (55)
Net income (loss) applicable to
common stockholder. . . . . . . 9,860 12,665
BALANCE SHEET DATA:
Total Assets . . . . . . . . . . $1,008,456
Total loans (net of unearned
interest) . . . . . . . . . . . 618,345
Allowance for possible loan losses 10,591
Investment securities . . . . . . 265,657
Deposits . . . . . . . . . . . . 891,900
10% Preferred Stock . . . . . . . --
Common stockholders' equity . . . 96,696
PER COMMON SHARE DATA:
Income (loss) before extraordinary
items . . . . . . . . . . . . . $ 1.50 $ 1.93
Net income (loss) . . . . . . . . 1.50 1.93
Cash dividends . . . . . . . . . 0.21 0.25
Book value . . . . . . . . . . . 15.12
SELECTED FINANCIAL RATIOS:
Nonperforming and restructured
assets to total assets . . . . 0.70%
Allowance for possible loan losses
to nonperforming and restructured
loans . . . . . . . . . . . . . . 224.67%
Stockholders' equity to total
assets . . . . . . . . . . . . . 9.59%
</TABLE>
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables present certain unaudited comparative per share
data (1) on a historical basis for BancFirst and the Merging Entities, (2) on
a pro forma consolidated basis for BancFirst and (3) on an equivalent pro
forma basis for the Merging Entities. The pro forma information includes
adjustments explained in the unaudited pro forma financial statements and
notes thereto included elsewhere in this Proxy Statement/Offering Memorandum.
The pro forma per share amounts are calculated based upon the historical
number of shares outstanding and the exchange ratios set forth in "The
Mergers--Terms of the Mergers."
Although management of BancFirst anticipates that the stockholders of
Johnston County will approve the Johnston County/BancFirst Merger, each of
the Mergers is not contingent upon the others and no assurance can be given
that the Mergers will be consummated. Therefore, a range of highest and
lowest earnings per share is also presented, (1) assuming that BancFirst and
the respective Merging Entity are merged, and (2) assuming the combination of
the other Merging Entity.
The information presented in these tables should be read in conjunction
with the pro forma financial statements and the historical financial
statements of BancFirst and the Merging Entities contained elsewhere herein
or incorporated herein by reference.
<TABLE>
<CAPTION>
AT AND FOR THE
--------------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
BANCFIRST CORPORATION
Earnings per Share:
Historical . . . . . . . . . . . $ 1.47 $ 1.80
Pro forma - all Merging Entities 1.47 1.82
Pro forma - highest . . . . . . 1.48 1.82
Pro forma - lowest . . . . . . . 1.47 1.81
Cash dividends per share:
Historical . . . . . . . . . . . 0.21 0.25
Pro forma . . . . . . . . . . . 0.21 0.25
Book value per share:
Historical . . . . . . . . . . . 15.26 --
Pro forma . . . . . . . . . . . 15.12 --
JOHNSTON COUNTY BANCSHARES, INC. EQUIVALENT
Exchange ratio: 0.47 for 1
Earnings per share:
Historical . . . . . . . . . . . $ 0.91 $ 0.93
Pro forma - all Merging Entities 0.69 0.86
Pro forma - highest . . . . . . 0.70 0.86
Pro forma - lowest . . . . . . . 0.69 0.85
Cash dividends per share:
Historical . . . . . . . . . . . -- --
Pro forma . . . . . . . . . . . 0.10 0.12
Book value per share:
Historical . . . . . . . . . . . 6.09 --
Pro forma . . . . . . . . . . . 7.10 --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AT AND FOR THE
--------------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
COMMERCE BANCORPORATION, INC. EQUIVALENT
Exchange ratio: 6.9335 for 1
Earnings per share:
Historical . . . . . . . . . . . . . . $ 9.48 $ 15.90
Pro forma - all Merging Entities . . . 10.19 12.62
Pro forma - highest . . . . . . . . . 10.26 12.62
Pro forma - lowest . . . . . . . . . . 10.19 12.55
Cash dividends per share:
Historical . . . . . . . . . . . . . . 3.54 16.39
Pro forma . . . . . . . . . . . . . . 1.46 1.73
Book value per share:
Historical . . . . . . . . . . . . . . 66.98 --
Pro forma . . . . . . . . . . . . . . 104.83 --
</TABLE>
17
<PAGE>
CERTAIN FACTORS TO CONSIDER
STOCKHOLDERS OF BANCFIRST AND JOHNSTON COUNTY SHOULD CONSIDER THE FOLLOWING
FACTORS, TOGETHER WITH OTHER INFORMATION IN THIS PROXY STATEMENT/OFFERING
MEMORANDUM, BEFORE DECIDING HOW TO VOTE ON THEIR RESPECTIVE MERGER OR, WITH
RESPECT TO THE HOLDERS OF JOHNSTON COUNTY PREFERRED STOCK, WHETHER TO EXERCISE
THEIR DISSENTERS' RIGHTS.
ECONOMIC CONDITIONS
The banking industry in Oklahoma is affected by general economic conditions
such as recession, declining asset values, unemployment and other factors which
affect financial institutions generally in the region. During 1986, severely
depressed oil and gas prices materially and adversely affected Oklahoma's
economy, causing recession and unemployment in Oklahoma which resulted in the
failure of numerous Oklahoma banks and depressed conditions in Oklahoma's real
estate sector. Since 1990, the number of bank failures has steadily decreased
and the local economy has improved in part due to its expansion into non-energy
related industries. However, as Oklahoma's economy is diversified away from the
energy industry, its economy has become more susceptible to adverse effects
resulting from recession in the national economy. Economic recession over a
prolonged period or other economic dislocation in Oklahoma could cause increases
in non-performing assets, thereby resulting in additional net chargeoffs. Such
chargeoffs, in turn, could cause operating losses, impair liquidity and erode
capital. BancFirst has operated profitably and has experienced increasing net
earnings in each year since 1991. However, there can be no assurance that
BancFirst will be able to withstand adverse changes in Oklahoma's economy should
they occur, or that general economic conditions in the nation or Oklahoma will
improve, and, accordingly, BancFirst will remain subject to risks associated
with prolonged declines in such economies.
COMPETITION
Many of BancFirst's competitors, which include money center and regional
banks, savings and loans and other financial service institutions, currently
have larger financial and other resources. Current legislation in Oklahoma
permits interstate and branch banking subject to minor limitations, and has led
to increased competition. This increased competition is expected to continue.
CONTROL OF BANCFIRST
As of the Record Date, the BancFirst Affiliates owned beneficially an
aggregate of 3,435,613 shares of BancFirst Common Stock, or approximately
55.27% of the total BancFirst Common Stock outstanding on such date. Upon
completion of the Mergers, the BancFirst Affiliates will beneficially own
approximately 56.57% of the total shares of BancFirst Common Stock then
outstanding, taking into account the issuance of the 179,831 shares of
BancFirst Common Stock issuable to stockholders of the Merging Entities in
connection with the Mergers. Under Oklahoma law, holders of a majority of the
outstanding shares of Common Stock are able to elect all of BancFirst's
directors and approve significant corporate actions, including business
combinations, without the approval of the other shareholders. As a result,
the BancFirst Affiliates will continue to have the ability to control the
business and affairs of BancFirst following completion of the Mergers. See
"Description of BancFirst Stock" and "Interests of Certain Persons in the
Mergers."
TERMINATION OF THE MERGER AGREEMENTS
Each of the Merger Agreements may be terminated for various reasons,
including, without limitation, the determination by BancFirst's Board of
Directors that there is a material adverse change in the financial condition of
the respective Merging Entity or its subsidiary bank.
18
<PAGE>
DIVIDENDS
BancFirst's ability to pay dividends to its stockholders is
substantially dependent upon the dividends BancFirst receives from the Bank.
The payment of future dividends, if any, on the capital stock of BancFirst
will be determined by the BancFirst Board in light of conditions then
existing, including the earnings of BancFirst and the Bank and restrictions
under various federal and state banking laws, regulations and regulatory
policies. In addition, the Bank must maintain certain capital levels which
may restrict its ability to pay dividends to BancFirst. As of September 30,
1995, the amount available for distribution by the Bank to BancFirst as
dividends without regulatory approval was approximately $22 million;
however, the regulators of the Bank could administratively impose stricter
limits on the ability of the Bank to pay dividends. See "Supervision and
Regulation."
OWNERSHIP OF BANCFIRST STOCK VERSUS STOCK OF THE MERGING ENTITIES
If the Mergers are consummated there will be different aspects and
attributes of owning BancFirst Common Stock as compared to owning Merging
Entity common stock or preferred stock. See "Summary Comparison of BancFirst
Stock and Stock of Each Merging Entity."
RESALES OF BANCFIRST SHARES
The shares of BancFirst Common Stock to be issued pursuant to the Merger
Agreements will not be registered under the Securities Act, pursuant to the
exemptions from registration afforded by Section 4(2) and Rule 506 of Regulation
D promulgated under the Securities Act. Accordingly, the shares thus issued
will be restricted as to transferability, and the certificates of BancFirst
Common Stock issued to a Merging Entity stockholder in a Merger will contain an
appropriate restrictive legend, with appropriate stop transfer orders given to
the transfer agent for such certificates.
Each Merging Entity stockholder who desires to resell the BancFirst Common
Stock received in the Merger of such Merging Entity and BancFirst must sell the
BancFirst stock either (i) pursuant to an effective registration statement under
the Securities Act, (ii) pursuant to Rule 144 under the Securities Act, or (iii)
in a transaction which, in the opinion of counsel for such stockholder or as
described in a "no-action" or interpretive letter from the staff of the
Commission, in each case reasonably satisfactory in form and substance to
BancFirst, is exempt from the registration requirements of the Securities Act.
Under the resale provisions of Rule 144, a stockholder may generally
sell restricted shares after a period of two years from the date of
acquisition, provided such shares are sold through a broker or to a market
maker and the amount of shares sold plus the amounts of such shares sold by
the stockholder within the preceding three months does not exceed the greater
of one percent of such shares shown as outstanding by the most recent
published report of the issuer, or the average weekly reported volume of
trading in such shares during the four weeks preceding the filing of the
notice or order of the proposed sale. After three years from the issuance of
any BancFirst Common Stock received in a Merger, if the holder thereof is not
an affiliate of BancFirst at the time of sale or for at least three months
prior to such sale, such person may freely resell such BancFirst stock,
without limitation.
19
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETINGS
THE MEETINGS
BANCFIRST
At the BancFirst Special Meeting, holders of BancFirst Common Stock will
consider and vote upon the following proposals, each of which is being
considered and voted upon as a separate matter:
1. A proposal to approve and adopt the Johnston County/BancFirst Merger
Agreement and all of the transactions contemplated thereby, including (a)
the merger of Johnston County with and into BancFirst and the issuance of
BancFirst Common Stock in exchange for shares of Johnston County Common
Stock, as well as the payment of cash in exchange for the outstanding
preferred stock of Johnston County, and (b) the Required Amendment to the
BancFirst Charter increasing the number of authorized shares of BancFirst
Common Stock from 6,800,000 to 7,000,000; and
2. A proposal to approve and adopt the Commerce/BancFirst Merger
Agreement and all of the transactions contemplated thereby, including (a)
the merger of Commerce with and into BancFirst and the issuance of
BancFirst Common Stock in exchange for shares of Commerce Common Stock, and
(b) the Required Amendment.
The amendment to the BancFirst Charter contemplated by the Required
Amendment is discussed below under "Amendment to the BancFirst Charter." Each
of the Merger Proposals will be voted upon separately. BancFirst stockholders
will also consider and vote upon such other matters as may properly be brought
before the BancFirst Special Meeting or any adjournments or postponements
thereof.
JOHNSTON COUNTY
At the Johnston County Special Meeting, holders of Johnston County Common
Stock will consider and vote upon a proposal to approve and adopt the Johnston
County/BancFirst Merger Agreement and such other matters as may properly be
brought before the Johnston County Special Meeting.
COMMERCE
All of the outstanding shares of Commerce Common Stock are owned by two
stockholders, including one of the Interested BancFirst Stockholders. See
"Interests of Certain Persons in the Mergers." The two stockholders have acted
by written consent to approve the Commerce/BancFirst Merger Agreement, which
remains subject to the approval of the stockholders of BancFirst.
QUORUM AND VOTING
The special meetings of the stockholders of BancFirst and Johnston County
will be held on December 28, 1995, for the purposes and at the times and
locations indicated on the respective Notice of Special Meeting. Only holders
of record of BancFirst Common Stock and Johnston County Common Stock at the
close of business on November 30, 1995 (the "Record Date") are entitled to vote,
one vote for each share, on the matters submitted to such stockholders at the
respective special meetings or any adjournment thereof.
The bylaws of BancFirst as well as the bylaws of Johnston County require
the presence, in person or by proxy, of the holders of record of a majority of
all outstanding shares of the stock of the respective corporation entitled to
vote thereat in order to constitute a quorum for the conduct of any business to
come before that corporation's special meeting. Accordingly, with respect to
the BancFirst Special Meeting, the presence, in person or by proxy, of the
holders of record of a majority of all outstanding shares of BancFirst Common
Stock is required to constitute a quorum for consideration of the Merger
Proposals. All properly signed and delivered proxies that are not subsequently
revoked, whether marked or unmarked and whether directing the holder of the
proxy to vote
20
<PAGE>
for or against or to abstain as to all or any matters to come
before a special meeting, will be counted toward the presence of a quorum with
respect to such special meeting.
The affirmative vote of a majority of the outstanding shares of common
stock of Johnston County is required for approval of the Johnston
County/BancFirst Merger. The holders of record of the common stock of Johnston
County may vote for or against the Johnston County/BancFirst Merger, or may
abstain from voting on such Merger, by checking the appropriate box on the proxy
card delivered with this Proxy Statement/Offering Memorandum. If no preference
is indicated on a returned proxy card, the Johnston County stockholder will be
deemed to have voted FOR the Johnston County/BancFirst Merger. All shares of
Johnston County Common Stock that are represented at the Johnston County Special
Meeting by properly executed, unrevoked proxy cards will be voted at such
meeting in accordance with the instructions indicated on the proxy cards.
Checking the abstention box on the proxy card or failing to return the proxy
card has the same effect as voting against the Johnston County/BancFirst Merger.
The affirmative vote of the holders of a majority of the outstanding common
stock of BancFirst is required for approval of each separate Merger Proposal
(each of which includes the Required Amendment). Broker non-votes will have the
effect of votes against each of the Merger Proposals. The holders of record of
the common stock of BancFirst may vote for or against each of the Merger
Proposals, or may abstain from voting on any or all of the Merger Proposals, by
checking the appropriate box on the proxy card delivered with this Proxy
Statement/Offering Memorandum. If no preference is indicated on a returned
proxy card, the BancFirst stockholder will be deemed to have voted FOR each of
the Merger Proposals. All shares of BancFirst Common Stock that are represented
at the BancFirst Special Meeting by properly executed, unrevoked proxy cards
will be voted at the BancFirst Special Meeting in accordance with the
instructions indicated on the proxy cards. Checking the abstention box on the
proxy card or failing to return the proxy card has the same effect as voting
against the Merger Proposals.
THE BANCFIRST SPECIAL MEETING
CONSIDERATION OF THE MERGERS PROPOSALS. Approval of each Merger Proposal
requires the affirmative vote of a majority of the outstanding shares of
BancFirst Common Stock. Set forth below are the total shares of BancFirst
Common Stock outstanding and entitled to vote on the Merger Proposals, the
number of shares held of record which will constitute the quorum with respect
thereto, and the minimum required affirmative vote for approval of each Merger
Proposal:
<TABLE>
<CAPTION>
BANCFIRST NUMBER OF
COMMON STOCK SHARES MINIMUM
OUTSTANDING FOR QUORUM AFFIRMATIVE VOTE
----------- ---------- -----------------
<S> <C> <C>
6,215,624 3,107,813 3,107,813
</TABLE>
As of the Record Date, the BancFirst Affiliates owned beneficially
approximately 55.27% of the shares of BancFirst Common Stock outstanding on such
date. The BancFirst Affiliates have indicated their intention to vote their
shares of BancFirst Common Stock in favor of the Merger Proposals. Certain of
the BancFirst Affiliates, including RBLP, a limited partnership of which David
E. Rainbolt, President and Chief Executive Officer of BancFirst, is general
partner, and H. E. Rainbolt, Chairman of the Board of BancFirst, is a limited
partner, and J. R. Hutchens, Jr., a director of BancFirst (collectively, the
"Interested BancFirst Stockholders"), also have stock ownership in Johnston
County. Such ownership interest is sufficient to assure approval of the
Johnston County/BancFirst Merger by the stockholders of Johnston County. See
"Interests of Certain Persons in the Mergers."
JOHNSTON COUNTY SPECIAL MEETING
Approval of the Johnston County/BancFirst Merger Agreement by the
stockholders of Johnston County requires the affirmative vote of a majority of
the outstanding shares of Johnston County Common Stock. Set forth below are the
total shares of common stock outstanding of Johnston County as of the Record
Date, the number of
21
<PAGE>
shares held of record which will constitute the quorum with respect to a
meeting of the stockholders of Johnston County, and the minimum required
affirmative vote with respect to approval of the Johnston County/BancFirst
Merger Agreement:
<TABLE>
<CAPTION>
JOHNSTON COUNTY NUMBER OF
COMMON STOCK SHARES MINIMUM
OUTSTANDING FOR QUORUM AFFIRMATIVE VOTE
----------- ---------- ----------------
<S> <C> <C>
49,620 24,811 24,811
</TABLE>
VOTING AND REVOCABILITY OF PROXIES
Common shares represented by properly executed proxies, unless previously
revoked, will be voted at the respective special meeting of stockholders
represented by such shares in accordance with the instructions thereon. If no
direction is indicated, such shares will be voted for approval of the matters
submitted, and, in connection with any other business that properly may come
before such special meeting, such shares shall be voted according to the
discretion of the persons named as proxies.
Any holder of the common stock of BancFirst or Johnston County who executes
a proxy has the continuing right to revoke the proxy at any time before it has
been voted. Such right may be exercised by (i) delivering written notice of
revocation, bearing a later date than the proxy card, to the corporate secretary
of the respective corporation; (ii) by delivering to such corporate secretary a
duly executed proxy bearing a later date; or (iii) by attending the special
meeting and voting in person. Any holder of the common stock of BancFirst or
Johnston County may appear at the special meeting to which his shares relate,
irrespective of whether he has previously given a proxy.
SOLICITATION OF PROXIES
Each of BancFirst and Johnston County will bear the cost of the
solicitation of proxies from its own stockholders. In addition to solicitation
by mail, the directors, officers and employees of each company and their
respective subsidiaries may solicit proxies from stockholders of such company by
telephone or telegram or in person. Such persons will not be additionally
compensated, but will be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. Arrangements will also be made
with brokerage firms, nominees, fiduciaries and other custodians, for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by such persons, and the respective company for which such materials are
forwarded will reimburse such persons for their reasonable out-of-pocket
expenses in connection therewith.
DISSENTING STOCKHOLDERS
AVAILABILITY OF APPRAISAL RIGHTS
Under the provisions of the Oklahoma General Corporation Act (the "OGCA"),
which became effective on November 1, 1986, appraisal rights are generally
available, with certain exceptions, for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation. Accordingly,
holders of both Johnston County Common Stock and Johnston County Preferred Stock
who desire to dissent from the Johnston County/BancFirst Merger Agreement and
the related transactions may do so pursuant to Section 1091 of the OGCA, a copy
of which is included as Appendix A to this Proxy Statement/Offering Memorandum,
and receive cash payment for his or her shares, after compliance with each of
the conditions and requirements set forth in such section. For a summary
description of the conditions and requirements which must be met in order to
perfect dissenters' rights of appraisal under Section 1091 of the OGCA, see
"--Exercise of Appraisal Rights," below.
Johnston County was incorporated under the Oklahoma Business Corporation
Act (the "Old Oklahoma Corporation Act"), which was in effect prior to enactment
of the OGCA. The Old Oklahoma Corporation Act also
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provided that stockholders had the right to dissent to a merger or
consolidation, as well as to various other corporate actions. The
dissenters' rights provided by the Old Oklahoma Corporation Act could,
however, be eliminated if a given corporate action was approved by the
holders of at least 90% of all outstanding shares of a corporation's stock
(or with respect to the holders of any class, if the corporate action was
approved by at least 90% of all outstanding shares of a corporation's stock
and at least three-fourths of the shares of the class), and such limitation
was contained in a corporation's charter documents (a "Dissenters' Rights
Limitation Provision"). The charter documents of Johnston County contain a
Dissenters' Rights Limitation Provision. The OGCA, however, permits no such
limitation to be made by a corporation in respect of appraisal rights, and it
is unclear whether such charter provisions, enacted under the Old Oklahoma
Corporation Act, would be given effect under the OGCA. Accordingly, the
Johnston County Board has determined to accord its stockholders dissenters'
rights in connection with the Johnston County/BancFirst Merger, in accordance
with the applicable appraisal provisions of the OGCA, notwithstanding the
possible elimination of such rights under the Dissenters' Rights Limitation
Provision contained in Johnston County's charter documents.
Under the provisions of the OGCA and BancFirst's charter documents,
appraisal rights are not available to the holders of BancFirst Common Stock with
respect to a vote on the Mergers.
EXERCISE OF APPRAISAL RIGHTS
A stockholder of Johnston County who desires to dissent from the Johnston
County/BancFirst Merger and the related transactions pursuant to Section 1091 of
the OGCA and receive cash payment for his or her shares must comply with each of
the following conditions and requirements:
1. Such stockholder must deliver to Johnston County, before the taking of
the vote on the Johnston County/BancFirst Merger a written demand for
appraisal of such stockholder's shares. Such demand should be delivered or
mailed in time to arrive before the vote to be taken at the Johnston
County/BancFirst Special Meeting, to Johnston County at its address set
forth on the cover page of this Proxy Statement/Offering Memorandum, to the
attention of the corporate secretary. Such a written demand must be made
in addition to, and separate from, any proxy or vote against adoption and
approval of, the Johnston County/BancFirst Merger Proposal. Neither a
proxy vote against, nor a vote at the Johnston County/BancFirst Special
Meeting against, nor a failure to vote for, nor abstaining from voting on
the Johnston County/BancFirst Merger Proposal will constitute the required
written demand.
2. Such stockholder must not vote by proxy or in person in favor of
adoption and approval of the Johnston County/BancFirst Merger Proposal. A
stockholder who executes and returns an unmarked proxy will have his or her
shares of Johnston County Common Stock voted in favor of the Johnston
County/BancFirst Merger Proposal, and, as a consequence thereof, will be
foreclosed from exercising any rights as a dissenting stockholder. A
stockholder who abstains from voting by marking a proxy "abstain" or by
otherwise not voting will not thereby be foreclosed from exercising
dissenters' rights. The failure of a stockholder to vote at the Johnston
County/BancFirst Special Meeting will not constitute a waiver of his or her
rights as a dissenting stockholder.
Within 10 days from the Effective Time of a Merger, BancFirst must mail
to any stockholder who has complied with the two conditions described above (a
"Dissenting Stockholder") written notice that the Johnston County/BancFirst
Merger has become effective.
Within 120 days after the Effective Time of the Johnston County/BancFirst
Merger, either BancFirst or any Dissenting Stockholder may file a petition with
the district court demanding a determination of the value of the stock of all
Dissenting Stockholders of Johnston County represented by the shares of stock
owned by the Dissenting Stockholder. Any Dissenting Stockholder may, at any
time within 60 days after the Effective Time of the Johnston County/BancFirst
Merger, withdraw the demand for appraisal and accept the terms of the Johnston
County/BancFirst Merger Agreement. Dissenting Stockholders are entitled to
receive from BancFirst, upon written request, a statement setting forth the
aggregate number of shares not voted in favor of the Johnston County/BancFirst
Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares.
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If such an action is commenced, BancFirst would be required to file with
the court a certified list containing the names and addresses of all Dissenting
Stockholders, If so ordered by the court, the clerk of the court would then
give notice of the time and place fixed for the hearing on the petition by
registered or certified mail to BancFirst and to all Dissenting Stockholders.
Such notice would also be published in a newspaper of general circulation in
Oklahoma City, Oklahoma or such other publication as the court deems advisable.
At the hearing, the court would determine the stockholders who have
perfected their dissenters' rights and may require them to submit their stock
certificates to the court clerk for notation thereon of the pendency of the
appraisal proceedings, and may dismiss the proceedings with respect to any
Dissenting Stockholder who fails to comply with that order. The court would
then, taking into account all relevant factors, determine the fair value of the
stock of all of the Dissenting Stockholders of such corporation exclusive of any
element of value arising from the accomplishment or expectation of the Johnston
County/BancFirst Merger, and order its payment to the Dissenting Stockholders,
together with a fair rate of interest, if any, to be paid upon such amount.
Discovery and other pretrial proceedings would be conducted to the extent
permitted by the court in its discretion. Interest may be simple or compound as
the court may direct. Court costs would be imposed upon the parties as the
court directs. Upon application of any Dissenting Stockholder, the court may
order all or a portion of the expenses incurred by any Dissenting Stockholder in
connection with the appraisal proceedings, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, to be charged
pro rata against all of the shares entitled to an appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
1091 of the OGCA will not, after the Effective Time, be entitled to vote for any
purpose the shares of stock subject to such demand or to receive payment of
dividends or other distributions with respect to the shares held by such holder,
except for dividends or distributions payable to stockholders of record at a
date prior to the Effective Time of the Johnston County/BancFirst Merger.
A demand for appraisal must be made by or for and in the name of the
stockholder of record, fully and correctly, as such stockholder's name appears
on the stockholder's stock certificates. Such demand cannot be made by the
beneficial owner if the stockholder does not also hold the shares of record. If
the stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian, or custodian, such demand must be executed by the fiduciary. If the
stock is owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, he or she is acting as agent for the record owner.
A record owner, such as a broker, who holds stock as a nominee for others,
may exercise the right of appraisal with respect to the shares held for all or
less than all beneficial owners of shares held by the record owner. In such
case, the written demand must set forth the number of shares as to which
appraisal is sought. If the number of shares as to which appraisal is sought is
not expressly mentioned, the demand will be presumed to cover all shares of
stock outstanding in the name of such record owner. Persons whose shares are
held by brokers or other nominees and who desire to exercise dissenters' rights
of appraisal should consider either (a) arranging to have their shares
transferred into their own names of record and making the necessary written
demand for appraisal or (b) arranging to have their broker or other nominee, as
the case may be, take all of the steps necessary to comply with the applicable
statute.
Stockholders who have elected to dissent are bound by their election unless
they withdraw their demand within 60 days after the Effective Time and may not
thereafter withdraw their election and receive BancFirst Common Stock or cash,
as the case may be, without the written consent of BancFirst.
The foregoing summary does not purport to be a complete statement of the
appraisal rights of dissenting stockholders, and is qualified in its entirety by
reference to the applicable provisions of Section 1091 of the OGCA, which are
reproduced in full as Appendix A to this Proxy Statement/Offering Memorandum.
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THE MERGERS
THIS SECTION OF THIS PROXY STATEMENT/OFFERING MEMORANDUM DESCRIBES CERTAIN
ASPECTS OF THE PROPOSED MERGERS. THE FOLLOWING DESCRIPTION DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RESPECTIVE
MERGER AGREEMENTS WHICH ARE ATTACHED AS APPENDICES B AND C TO THIS PROXY
STATEMENT/OFFERING MEMORANDUM.
GENERAL
BANCFIRST
The BancFirst Board has regularly reviewed the various strategic
alternatives available to BancFirst including the possibility of mergers with
certain other bank holding companies affiliated with BancFirst by common stock
ownership. In mid-1995, the BancFirst Board concluded that it was in
BancFirst's best interest to pursue mergers with Johnston County and Commerce.
During April and May 1995, the BancFirst Board considered presentations by
BancFirst management and reviewed the terms of the proposed Commerce/BancFirst
Merger Agreement. On June 2, 1995, the BancFirst Board approved the
Commerce/BancFirst Merger Agreement by unanimous written consent. At a special
meeting of the BancFirst Board held August 24, 1995, the BancFirst Board
considered presentations by BancFirst management and reviewed the terms of the
proposed Johnston County/BancFirst Merger Agreement. At that meeting, the
BancFirst Board, with Messrs. H. E. Rainbolt, David E. Rainbolt and J.R.
Hutchens, Jr. abstaining, approved the Johnston County/BancFirst Merger
Agreement.
JOHNSTON COUNTY
On August 21, 1995, the Johnston County Board considered presentations by
its management and reviewed the terms of the proposed Johnston County/BancFirst
Merger Agreement. At such meeting, the Johnston County Board approved the
proposed Johnston County/BancFirst Merger Agreement.
COMMERCE
On June 2, 1995, the Commerce Board approved the proposed
Commerce/BancFirst Merger Agreement by unanimous written consent.
REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
BANCFIRST
The BancFirst Board concluded that the Mergers would be in the best
interests of BancFirst and its stockholders. Numerous factors were considered
by the BancFirst Board in approving and recommending the terms of the Mergers.
These factors included information concerning the financial condition, results
of operations, and prospects of BancFirst and each of the Merging Entities; the
capital adequacy of the resulting entity; the composition of the businesses of
BancFirst and each of the Merging Entities; the anticipated compatibility of the
management and employees of the organizations; the outlook for each of the
organizations in the rapidly changing banking and financial services industry;
the relationship of the consideration to be paid in each of the Mergers to the
book value and earnings per share of the respective Merging Entity; and the
financial terms of certain other recent business combinations in the banking
industry.
The BancFirst Board believes that combining with the Merging Entities, each
of which has a long-established banking franchise in its respective community,
is a natural and desirable extension of BancFirst's market area. The BancFirst
Board also believes that the consolidation of resources by reason of the Mergers
will enable BancFirst to provide a wider and improved array of financial
services to customers and to achieve added flexibility in dealing with
Oklahoma's changing competitive environment.
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THE BANCFIRST BOARD HAS APPROVED EACH OF THE MERGER AGREEMENTS AS BEING IN
THE BEST INTERESTS OF BANCFIRST AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
BANCFIRST STOCKHOLDERS VOTE IN FAVOR THEREOF.
THE MERGING ENTITIES
The Boards of Directors of each of the Merging Entities have carefully
considered the future role of their respective companies in the changing banking
environment. Each of the Boards of Directors considered such things as
potential increased competition from bank and non-bank sources, prospects for
future growth as well as the ability of the respective Merging Entities' banking
subsidiaries to develop new products on a profitable basis. In light of the
foregoing, the Board of Directors of each of Johnston County and Commerce has
concluded that the affiliation of the respective Merging Entity with a larger
banking organization with substantial resources would be in the best interests
of such Merging Entity's stockholders, employees and communities.
The Boards of Directors of each of the Merging Entities has concluded that
the terms of the respective Merger with BancFirst are fair to the stockholders
of the respective Merging Entity and that consummation of the respective Merger
is in the best interests of the respective Merging Entity and its stockholders.
In reaching these conclusions, each of the Boards of Directors of the Merging
Entities has considered, among other things, the consideration being offered in
the respective Merger relative to the market value, book value and earnings per
share of the common and preferred stock of the respective Merging Entity;
information concerning the financial condition, earnings and dividends of the
respective Merging Entity and BancFirst; and the financial terms of other recent
business combinations in the banking industry.
THE JOHNSTON COUNTY BOARD HAS UNANIMOUSLY APPROVED THE JOHNSTON
COUNTY/BANCFIRST MERGER AGREEMENT AS BEING IN THE BEST INTERESTS OF JOHNSTON
COUNTY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE COMMON
STOCKHOLDERS OF JOHNSTON COUNTY VOTE IN FAVOR THEREOF.
The Commerce Board unanimously approved the Commerce/BancFirst Merger
Agreement as being in the best interest of Commerce and its stockholders and
unanimously recommended such stockholders vote its common shares in favor
thereof. Such stockholders approved the Commerce/BancFirst Merger Agreement by
written stockholder consent on November 28, 1995. See "Interests of Certain
Persons in the Merger."
OPINIONS OF BANCFIRST'S FINANCIAL ADVISOR
In October 1995, BancFirst retained Sheshunoff, an investment banking firm
based in Austin, Texas, on the basis of the firm's reputation, its experience
and familiarity with the banking industry and with bank merger and acquisition
transactions. Sheshunoff has been in the business of consulting for the banking
industry for twenty years, including the appraisal and valuation of banking
institutions and their securities in connection with mergers and acquisitions
and equity offerings. Sheshunoff has a long history of familiarity and
involvement with the banking industry nationwide, as well as familiarity with
the Oklahoma market and recent transactions in this market. Except as described
herein, Sheshunoff is not affiliated in any way with BancFirst, Johnston County
or Commerce or their respective affiliates.
On November 10, 1995, in connection with its consideration of the proposed
Mergers, Sheshunoff delivered its written opinions (the "Opinions") to the
BancFirst Board that, based upon and subject to the various considerations set
forth in the Opinions, as of the date of such Opinions, the terms of the Mergers
as provided in the respective Merger Agreements are fair, from a financial point
of view, to all the stockholders of BancFirst. Copies of the Opinions are
attached as Appendix D to this Proxy Statement/Offering Memorandum and should be
read in their entirety by the stockholders of BancFirst. The Opinions do not
constitute an endorsement of the Mergers or a recommendation to any BancFirst
stockholder as to how such BancFirst stockholder should vote at the BancFirst
Special Meeting.
In rendering the Opinions, Sheshunoff reviewed certain publicly available
information concerning BancFirst, Johnston County and Commerce. Sheshunoff
considered many factors in making its evaluation. In arriving at its
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Opinions regarding the fairness of the transaction, Sheshunoff
reviewed: (i) the Agreements and Plans of Reorganization and Merger between
BancFirst and each of Johnston County and Commerce; (ii) the most recent
external auditor's reports to the Boards of Directors of each organization;
(iii) the September 30, 1995 Report of Condition and Income for each
organization, the unaudited December 31, 1994 Balance Sheets and Income
Statements for each of Johnston County and Commerce, and the audited December
31, 1994 Balance Sheet and Income Statement for BancFirst; (iv) the Rate
Sensitivity Analysis reports for each organization; (v) each organization's
listing of marketable securities showing rate, maturity and market value as
compared to book value; (vi) each organization's internal loan classification
list; (vii) a listing of other real estate owned for each organization;
(viii) the budget and long range operating plan of each organization; (ix) a
listing of unfunded letters of credit and any other off-balance sheet risks
for each organization; (x) the minutes of the Board of Directors of each
organization; (xi) the most recent Board report for each organization; (xii)
the listing and description of significant real properties for BancFirst;
(xiii) material leases on real and personal property for BancFirst; (xiv) the
directors' and officers' liability and blanket bond insurance policies for
each organization; and (xv) market conditions and current trading levels of
outstanding equity securities of each organization. Sheshunoff conducted an
on-site review of each organization's historical performance, current
financial condition and performed a market area analysis.
In addition, Sheshunoff discussed with the management of BancFirst,
Johnston County and Commerce the relative operating performance and future
prospects of each organization, primarily with respect to the current level of
their earnings and future expected operating results, giving weight to
Sheshunoff's assessment of the future of the banking industry and each
organization's performance within the industry. Sheshunoff compared the results
of operations of BancFirst with those of 261 national bank holding companies
with total assets of $500 to $999 million. Sheshunoff compared the results of
operations of Johnston County and Commerce with state banking organizations with
total assets of $10 to $24 million and $25 to $49 million. Sheshunoff reviewed
and analyzed the terms and conditions of 35 selected proposed common stock
acquisitions of banking organizations with assets under $250 million in the
Southwestern U.S. announced from October 30, 1994 through October 30, 1995.
Many variables affect the value of banks, not the least of which is the
uncertainty of future events, so that the relative importance of the valuation
variables differs in different situations, with the result that appraisal
theorists argue about which variables are the most appropriate ones on which to
focus. However, most appraisers agree that the primary financial variables to
be considered are earnings, equity, dividends or dividend-paying capacity, asset
quality and cash flow. In addition, in most, if not all, instances, value is
further tempered by non-financial factors such as marketability, voting rights
or block size, history of past sales of the banking company's stock, nature and
relationship of the other shareholdings in the bank, and special ownership or
management considerations.
Sheshunoff analyzed the transaction value of each proposed Merger on a cash
equivalent fair market value basis using the standard evaluation techniques (as
discussed below) including comparable sales multiples, net present value, cash
flow analysis, return on investment and the price equity index based on certain
assumptions of projected growth, earnings and dividends and a range of discount
rates from 10% to 15%.
NET ASSET VALUE is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes liquidation
on the date of the appraisal with the recognition of securities gains or
losses, real estate appreciation or depreciation and any adjustments to the
loan loss reserve, discounts to the loan portfolio or changes in the net
value of other assets. As such, it is not the best approach to use when
valuing a going concern, because it is based on historical costs and varying
accounting methods. Even if the assets and liabilities are adjusted to
reflect prevailing prices and yields (which is often of limited accuracy
because readily available data is often lacking), it still results in a
liquidation value for the concern. Furthermore, since this method does not
take into account the values attributable to the going concern such as the
interrelationship among the company's assets, liabilities, customer
relations, market presence, image and reputation, and staff expertise and
depth, little weight is given by Sheshunoff to the net asset value method of
valuation.
MARKET VALUE is generally defined as the price, established on an "arms-
length" basis, at which knowledgeable, unrelated buyers and sellers would agree.
The market value is frequently used to determine the price of a minority block
of stock when BOTH the quantity and the quality of the "comparable" data are
deemed sufficient. However, the relative thinness of the specific market for
the stock of the banking company being
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appraised may result in the need to review alternative markets for
comparative pricing purposes. The "hypothetical" market value for a small
bank with a thin market for its stock is normally determined by comparison to
the average price to earnings, price to equity and dividend yield of local or
regional publicly-traded bank issues, adjusting for significant differences
in financial performance criteria and for any lack of marketability or
liquidity. The market value in connection with the evaluation of control of
a bank is determined by the previous sales of banking companies in the state
or region. In valuing a business enterprise, when sufficient comparable
trade data is available, the market value deserves greater weighing than the
net asset value and similar emphasis as the investment value as discussed
below.
Sheshunoff maintains a substantial database concerning the prices paid for
banking institutions nationwide. The database includes transactions involving
Oklahoma banking companies and banking companies in the southwestern region of
the United States in the first half of 1995 and over the past five years. The
database provides comparable pricing and financial performance data for banking
companies sold or acquired. Organized by different peer groups, the data
present averages of financial performance and purchase price levels, thereby
facilitating a valid comparative purchase price analysis. In analyzing the
transaction values of each proposed Merger, Sheshunoff has considered the market
approach and has evaluated price to equity and price to earning multiples of
Southwestern banking organizations with assets under $250 million sold from
October 31, 1994 through October 30, 1995 for 100% stock.
Sheshunoff calculated an "Adjusted Book Value" of $11.31 and $124.64 per
share, respectively, based on Johnston County's and Commerce's September 30,
1995 equity and the average price to equity multiple for Southwestern banking
organizations with assets under $250 million sold from October 30, 1994 through
October 30, 1995 for 100% stock. Sheshunoff calculated an "Adjusted Earnings
Value" of $14.95 and $186.63 per share respectively, based on Johnston County's
and Commerce's estimated 1995 earnings and the average price to earnings
multiple for Southwestern banking organizations with assets under $250 million
sold from October 30, 1994 through October 30, 1995 for 100% stock. The
financial performance characteristics of the regional banking organizations
vary, sometimes substantially, from those of Johnston County and Commerce. When
the variance is significant for relevant performance factors, adjustments to the
price multiples are appropriate when comparing them to the fair market value
conclusion.
INVESTMENT VALUE is sometimes referred to as the income value or earnings
value. The investment value is frequently defined as an estimate of the present
value of an organization's future earnings or cash flow. In addition, another
popular investment value method is to determine the level of current annual
benefits (earnings, cash flow, dividends, etc.), and then capitalize one or more
of the benefit types using an appropriate capitalization rate such as an
earnings or dividend yield. Yet another method of calculating investment value
is a cash flow analysis of the ability of a banking company to service
acquisition debt obligations (at a certain price level) while providing
sufficient earnings for reasonable dividends and capital adequacy requirements.
In connection with the cash flow analysis, a determination of the return on
investment that would accrue to a prospective buyer at the fair market value is
calculated.
The investment or earnings value of any bank's stock is an estimate of the
present value of the future benefits, usually earnings, cash flow or dividends,
which will accrue to the stock. An earnings value is calculated using an annual
future earnings stream over a period of time of not less than ten years, the
residual value of the earnings stream after ten years, assuming no earnings
growth, and an appropriate capitalization rate (the net present value discount
rate). Sheshunoff's computations were based on the analysis of the banking
industry, the economic and competitive situations in Johnston County's and
Commerce's market areas, and such entities' respective current financial
condition and historical levels of growth and earnings. Using a net present
value discount rate of 12%, an acceptable discount rate considering the risk-
return relationship most investors would demand for an investment of this type
as of the valuation date, the "Net Present Value of Future Earnings" equaled
$20.19 and $141.64 per share, respectively, for Johnston County and Commerce.
Another method of valuing a control block of stock is the cash flow method.
This analysis assumes the formation of a one-bank holding company with maximum
leverage according to Federal Reserve System guidelines and analyzes the ability
of the bank to retire holding company acquisition debt within a reasonable
period of time
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while maintaining adequate capital. Using this method, Sheshunoff arrived at
a value of $16.00 and $200.00 per share, respectively for Johnston County and
Commerce.
Return on investment analysis (ROI) also assumes the formation of a one-
bank holding company using maximum regulatory leverage and analyzes the ten year
ROI of a 33.33% equity investment at the transaction value of $8.93 and $150.80
per share, respectively for Johnston County and Commerce compared to a
liquidation at book value in the year 2004, and a sale at ten times projected
earnings for the year 2004. This ROI analysis provides a benchmark for
assessing the validity of the fair market value of a majority block of stock.
The ROI analysis is one approach to valuing a going concern, and is directly
impacted by the earnings stream, dividend payout levels and levels of debt, if
any. Other financial and nonfinancial factors indirectly affect the ROI;
however, these factors more directly influence the level of ROI an investor
would demand from an investment in a majority block of stock of a specific bank
at a certain point in time. The ROI assuming liquidation at book value in 2004
is 22.74% and 9.18%, respectively, for Johnston County and Commerce, and the ROI
assuming sale at ten times earnings in 2004, is 28.94% and 19.51%, respectively
for Johnston County and Commerce.
Furthermore, a price level indicator, the transaction value as a percentage
of total assets, may be used to confirm the validity of the transaction value.
The transaction value as a percentage of total assets adjusts the transaction
value to equity multiple in order to facilitate a truer price level comparison
with comparable banking organizations, regardless of the differing levels of
equity capital. The transaction value as a percentage of total assets is
calculated by dividing the transaction value per share by the total assets per
share. In this instance, a transaction value of $8.93 and $150.80 per share
results in a transaction value as a percentage of total assets of 4.24% and
19.51%, respectively for Johnston County and Commerce.
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to-transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net present
value analysis. In Sheshunoff's experience with majority community banking
organization stock valuations, it has determined that a relationship does exist
between the net present value of an "average" community banking organization and
the transaction value of a majority block of the banking organization's stock.
The net present value-to-transaction value ratio equals 226.09% and 93.93%,
respectively for Johnston County and Commerce. There are many other factors to
consider, when valuing a going concern, which do not directly impact the
earnings stream and the net present value but which do exert a degree of
influence over the transaction value of a going concern. These factors include,
but are not limited to, the general condition of the industry, the economic and
competitive situations in the market area and the expertise of the management of
the organization being valued.
When the net asset value, market value and the investment value methods are
appropriately weighed, using the appraiser's experience and judgment, it is
Sheshunoff's opinion that the proposed Mergers are fair, from a financial point
of view, to all the stockholders of BancFirst.
Consideration was given to the levels of earnings per share and equity per
share appreciation or dilution percentages for BancFirst over the next three to
five years after consummation by the proposed Mergers. To justify the fairness
of the transaction to the Disinterested BancFirst Stockholders, it is important
to project, based upon realistic projections of future performance, a positive
impact for such stockholders. Sheshunoff projected that BancFirst stockholders
will have a higher level of earnings per share and equity per share after the
acquisitions of Johnston County and Commerce than they would on a stand alone
basis.
BancFirst did not impose any limitations upon the scope of the
investigation to be performed by Sheshunoff in formulating its Opinions. In
rendering the Opinions, Sheshunoff did not independently verify the asset
quality and financial condition of BancFirst, Johnston County or Commerce, but
instead relied upon the data provided by or on behalf of BancFirst and each of
the Merging Entities to be true and accurate in all material respects.
For its services as an independent financial analyst of the proposed
Mergers, including the rendering of the Opinions referred to above and opinions
pertaining to the purchase by the Bank of the minority shares of the Merging
Entities' subsidiary banks, Sheshunoff will receive aggregate fees of $27,000.
Prior to being retained for this assignment, Sheshunoff has provided
professional services and products to BancFirst and each of the Merging
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<PAGE>
Entities. The revenues derived from such services and products are
insignificant when compared to the firm's total gross revenues.
TERMS OF THE MERGERS
THE JOHNSTON COUNTY/BANCFIRST MERGER
At the Effective Time, Johnston County will merge with and into BancFirst,
with BancFirst as the surviving corporation, and the separate existence of
Johnston County will cease. The charter documents and bylaws of BancFirst in
effect at the Effective Time will govern the surviving corporation until amended
or repealed in accordance with applicable law. The BancFirst Charter is
proposed to be amended at the BancFirst Special Meeting. See "Amendment to the
BancFirst Charter." At the Effective Time, the directors and officers of
BancFirst immediately prior to the Effective Time shall be the directors and
officers of the surviving corporation.
At the Effective Time, each outstanding share of Johnston County Common
Stock will be converted into .47 shares of BancFirst Common Stock (the
"Conversion Ratio"), subject to adjustment, and each outstanding share of
Johnston County Preferred Stock will be converted into the right to receive cash
in an amount equal to the sum of (i) $17.55 per share, plus (ii) dividends
accrued and unpaid on each such share through the effective time of the merger,
subject to dissenters' rights of appraisal. See "Dissenting Stockholders."
The Conversion Ratio is subject to adjustment, if the bid price for
BancFirst Common Stock as published on the last business day occurring prior to
the Effective Time (the "Bid Price") is less than $16.00 per share or more than
$19.00 per share, as follows:
1. If the Bid Price per share is less than $16.00, then the number of
shares of BancFirst Common Stock issuable in conversion of Johnston
County Common Stock shall equal .47 multiplied by that decimal number
which is determined by dividing $16.00 by the Bid Price; and
2. If the Bid Price is more than $19.00, then the number of shares of
BancFirst Common Stock issuable in conversion of Johnston County
Common Stock shall equal .47 multiplied by that decimal number which
is determined by dividing $19.00 by the Bid Price.
No fractional shares of BancFirst Common Stock will be issued in the
Johnston County/BancFirst Merger. Rather, each holder of shares of Johnston
County Common Stock who otherwise would have been entitled to a fraction of a
share of BancFirst Common Stock shall receive in lieu thereof cash, without
interest, in an amount of money equal to the Bid Price per share, multiplied by
the applicable fractional portion of a share.
Shares of BancFirst Common Stock outstanding prior to the Effective Time
will not be changed as a result of the Johnston County/BancFirst Merger.
Holders of shares of BancFirst Common Stock do not have dissenters' rights of
appraisal with respect to a vote on the Johnston County/BancFirst Merger
Proposal. See "Dissenting Stockholders."
THE COMMERCE/BANCFIRST MERGER
At the Effective Time, Commerce will merge with and into BancFirst, with
BancFirst as the surviving corporation, and the separate existence of Commerce
will cease. The charter documents and bylaws of BancFirst in effect at the
Effective Time will govern the surviving corporation until amended or repealed
in accordance with applicable law. The BancFirst Charter is proposed to be
amended at the BancFirst Special Meeting. See "Amendment to the BancFirst
Charter." At the Effective Time, the directors and officers of BancFirst
immediately prior to the Effective Time shall be the directors and officers of
the surviving corporation.
At the Effective Time, each outstanding share of Commerce Common Stock will
be converted into 6.9335 shares of BancFirst Common Stock. The 4,162 shares of
outstanding Commerce Preferred Stock will be redeemed by Commerce prior to the
consummation of the Commerce/BancFirst Merger at an aggregate price not to
exceed $80,000. No dissenters' rights of appraisal exist under the OGCA with
respect to a stock redemption.
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<PAGE>
No fractional shares of BancFirst Common Stock will be issued in the
Commerce/BancFirst Merger. The total number of shares of BancFirst Common Stock
issuable to any holder of Commerce Common Stock shall be rounded up or down, as
appropriate, to the nearest whole number.
Shares of BancFirst Common Stock outstanding prior to the Effective Time
will not be changed as a result of the Commerce/BancFirst Merger and no
dissenters' rights of appraisal exist with respect to such shares in connection
with a vote on the Commerce/BancFirst Merger Proposal.
EFFECTIVE TIME OF THE MERGERS
Subject to approval of a particular Merger by the stockholders of the
constituent corporations, the closing of such Merger will take place on the date
30 days after the date of the prior written consent by the Federal Reserve Board
to the Merger, or such later date as the constituent corporations may agree.
The Johnston County/BancFirst Merger was approved on November 16, 1995 by the
Federal Reserve Bank of Kansas City acting under delegated authority from the
Federal Reserve Board. As soon as possible after the closing, executed
Certificates of Merger will be filed with the Secretary of State of the State of
Oklahoma, and each Merger will become effective upon the filing of the
respective Certificate of Merger or at such time as is specified in the
Certificate of Merger (the "Effective Time"). Subject to the conditions
contained in each of the Merger Agreements, the Effective Time for the Johnston
County/BancFirst Merger is currently expected to occur on December 29, 1995.
The Effective Time of the Commerce/BancFirst Merger shall be the first business
day of the month following the first month-end date as of which Commerce "Common
Equity Capital" (as defined in the Commerce/BancFirst Merger Agreement) equals
not less than $1,600,000, which is expected to occur during no later than June
1996. The requisite regulatory approval with respect to the Commerce/BancFirst
Merger will be sought in early 1996 and is a condition precedent to consummation
of the Commerce/BancFirst Merger.
SURRENDER OF CERTIFICATES
JOHNSTON COUNTY. Promptly after the Effective Time with respect to the
Johnston County/BancFirst Merger, BancFirst is required by the Johnston
County/BancFirst Merger Agreement to mail to each holder of record of Johnston
County Common Stock and Johnston County Preferred Stock a letter of transmittal
and instructions for use in surrendering such holder's stock certificates for
certificates representing BancFirst Common Stock and/or cash, as the case may
be. Until so surrendered, certificates representing the common or preferred
stock of Johnston County will be deemed for all corporate purposes (including
the payment of dividends or other distributions, but without interest) to
evidence the number of shares of BancFirst Common Stock or amount of cash which
the holder thereof would be entitled to receive upon surrender (less fractional
shares). No fractional shares of BancFirst Common Stock will be issued.
JOHNSTON COUNTY STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender to BancFirst of one or more certificates of the common or
preferred stock of Johnston County, together with a properly completed letter of
transmittal, BancFirst will issue and mail to the holder of record of such stock
a certificate or certificates representing the number of shares of BancFirst
Common Stock to which the holder is entitled and, where applicable, a check for
the amount representing Johnston County Preferred Stock or any fractional share
of Johnston County Common Stock. A certificate for BancFirst Common Stock may
be issued in a name other than the name in which the surrendered certificate is
registered only if a certificate representing such stock is presented to
BancFirst, accompanied by all documents required to evidence and effect a
transfer to the new name and by evidence that any applicable stock transfer
taxes have been paid.
In the case of any lost, stolen or destroyed certificates representing
shares of Johnston County, BancFirst will issue a new certificate
representing shares of BancFirst Common Stock, or a check for the amount of
money into which Johnston County Preferred Stock or fractional shares of
Johnston County Common Stock shall have been converted only if (i) BancFirst
receives evidence satisfactory to it of ownership of the shares of Johnston
County stock for which the certificate has been lost, stolen or destroyed,
(ii) the owner provides BancFirst an indemnity bond from a surety company
reasonably acceptable to BancFirst in an amount equal to the value of the
shares
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<PAGE>
represented by the lost, stolen or destroyed certificate, and (iii) BancFirst
has no actual notice that the shares represented by such lost, stolen or
destroyed certificate have been acquired by a bona fide purchaser.
COMMERCE. Promptly after the Effective Time with respect to the
Commerce/BancFirst Merger, BancFirst is required by the Commerce/BancFirst
Merger Agreement to mail to each holder of record of Commerce Common Stock a
letter of transmittal and instructions for use in surrendering such holder's
stock certificates for certificates representing BancFirst Common Stock.
Until so surrendered, certificates representing the common stock of Commerce
will be deemed for all corporate purposes (including the payment of dividends
or other distributions, but without interest) to evidence the number of
shares of BancFirst Common Stock which the holder thereof would be entitled
to receive upon surrender. No fractional shares of BancFirst Common Stock
will be issued.
Upon surrender to BancFirst of one or more certificates of the common stock
of Commerce, together with a properly completed letter of transmittal, BancFirst
will issue and mail to the holder of record of such stock a certificate or
certificates representing the number of shares of BancFirst Common Stock to
which the holder is entitled and, where applicable, a check for the amount
representing any fractional share of Commerce Common Stock. A certificate for
BancFirst Common Stock may be issued in a name other than the name in which the
surrendered certificate is registered only if a certificate representing such
stock is presented to BancFirst, accompanied by all documents required to
evidence and effect a transfer to the new name and by evidence that any
applicable stock transfer taxes have been paid.
In the case of any lost, stolen or destroyed certificates representing
shares of Commerce, BancFirst will issue a new certificate representing
shares of BancFirst Common Stock, and a check for the amount of money into
which any fractional shares of Commerce Common Stock shall have been
converted only if (i) BancFirst receives evidence satisfactory to it of
ownership of the shares of Commerce stock for which the certificate has been
lost, stolen or destroyed, (ii) the owner provides BancFirst an indemnity
bond from a surety company reasonably acceptable to BancFirst in an amount
equal to the value of the shares represented by the lost, stolen or destroyed
certificate, and (iii) BancFirst has no actual notice that the shares
represented by such lost, stolen or destroyed certificate have been acquired
by a bona fide purchaser.
CONDITIONS TO THE MERGERS
Each of the Mergers will occur only if the respective Merger Agreements are
approved by the requisite vote of the stockholders of the respective constituent
corporations, and only if the stockholders of BancFirst approve by the requisite
vote the Required Amendment. Consummation of each of the Mergers is also
subject to the approval of the respective transaction by the Federal Reserve
Board. The Johnston County/BancFirst Merger was approved on November 16, 1995
by the Federal Reserve Bank of Kansas City acting under delegated authority from
the Federal Reserve Board. The requisite regulatory approval with respect to
the Commerce/BancFirst Merger will be sought in early 1996.
A merger may not be consummated for a period of 30 days following such
approval. During that period, the Department of Justice is authorized by law to
file suit to enjoin such merger if its believes that the merger would violate
the provisions of the Bank Merger Act. Neither management of BancFirst nor of
each of the Merging Entities has any reason to believe that the Department of
Justice contemplates filing such a suit. A merger may also be challenged, on
antitrust or other grounds, by a private party.
In addition to the foregoing conditions affecting both Mergers, the
Commerce/BancFirst Merger may not occur until the first business day of the
month following the first month-end date as of which Commerce "Common Equity
Capital" (as defined in the Commerce/BancFirst Merger Agreement) equals not less
than $1,600,000, which is expected to occur during no later than June 1996.
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENTS
Each of the Merger Agreements provide that they may be terminated at any
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the respective Merger by the stockholders
of the constituent corporations: (i) by mutual consent of the Boards of
Directors of BancFirst and the
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<PAGE>
respective Merging Entity; (ii) by the BancFirst Board if BancFirst
determines, in its sole discretion, that there has been a material adverse
change in the financial condition of the respective Merging Entity or of its
subsidiary bank; or (iii) by the Board of Directors of either of the
constituent corporations if (a) a material breach shall exist with respect to
any written representation or warranty made by the other constituent
corporation in connection with the Merger, or (b) the other constituent
corporation, without prior written consent of such constituent corporation,
shall take any action prohibited by the Merger Agreement, or (c) in the
opinion of the Board of Directors of such constituent corporation, any
consent of any third party of the consummation of the Merger is reasonably
necessary to carry out the Merger, or to prevent a default under any
outstanding obligation of either constituent corporation, and such consent is
not obtainable; or (iv) by the Board of Directors of either constituent
corporation if the Effective Time has not occurred by March 1, 1996 in the
case of Johnston County, and December 2, 1996 in the case of Commerce.
Each of the Merger Agreements may not be amended except in writing signed
on behalf of both parties thereto, whether before or after approval of the
matters presented in connection with the respective Merger by the stockholders
of the respective constituent corporations. At any time prior to the Effective
Time, either party to a Merger may, to the extent legally allowed, extend the
time for performance of any of the obligations of the other party, waive any
inaccuracies in the representations and warranties of the other and waive
compliance with any of the agreements or conditions of the particular Merger
Agreement.
OPERATIONS AFTER THE MERGERS
THE JOHNSTON COUNTY/BANCFIRST MERGER
As a result of the Johnston County/BancFirst Merger, Johnston County will
cease to exist, BancFirst will be the surviving corporation, and Johnston
County's subsidiary bank, Bank of Johnston County ("BOJC"), will be merged with
and into the Bank, with BOJC's physical location becoming a branch location of
the Bank. BancFirst expects to continue to operate such location, and the Bank
will expand the products and services formerly provided by BOJC by providing
certain products and services offered by BancFirst and the Bank. Immediately
after the Effective Time, the members of the BancFirst Board and the officers of
BancFirst immediately prior to the Effective Time will be the members of the
BancFirst Board and the officers of BancFirst. BancFirst currently intends that
the officers of BOJC prior to the effective time of the merger between BOJC and
the Bank will remain as officers of the Bank's branch location in Tishomingo.
THE COMMERCE/BANCFIRST MERGER
As a result of the Commerce/BancFirst Merger, Commerce will cease to exist,
BancFirst will be the surviving corporation, and Commerce's subsidiary bank, The
Bank of Commerce ("Commerce Bank"), will be merged with and into the Bank, with
Commerce Bank's physical location becoming a branch location of the Bank.
BancFirst expects to continue to operate such location, and the Bank will expand
the products and services formerly provided by Commerce Bank by providing
certain products and services offered by BancFirst and the Bank. Immediately
after the Effective Time, the members of the BancFirst Board and the officers of
BancFirst immediately prior to the Effective Time will be the members of the
BancFirst Board and the officers of BancFirst. BancFirst currently intends that
the officers of Commerce Bank prior to the effective time of the merger between
Commerce Bank and the Bank will remain as officers of the Bank's branch location
in Commerce.
CERTAIN FEDERAL TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DESCRIPTION OF THE ANTICIPATED FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGERS TO HOLDERS OF THE COMMON AND PREFERRED STOCK OF
THE MERGING ENTITIES WHO ARE CITIZENS OR RESIDENTS OF THE UNITED STATES AND WHO
HOLD SUCH SHARES OF STOCK AS CAPITAL ASSETS. IT DOES NOT DISCUSS ALL THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO ANY MERGING ENTITY STOCKHOLDER ENTITLED TO
SPECIAL TREATMENT UNDER THE CODE (INCLUDING, WITHOUT LIMITATION, INSURANCE
COMPANIES, DEALERS IN SECURITIES, CERTAIN RETIREMENT PLANS, FINANCIAL
INSTITUTIONS, TAX EXEMPT ORGANIZATIONS OR FOREIGN PERSONS). IN ADDITION, THE
SUMMARY DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE
MERGERS, IF ANY. A MERGING ENTITY STOCKHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY
AFFECT THE TAX CONSEQUENCES OF THE PARTICULAR MERGER TO SUCH STOCKHOLDER.
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<PAGE>
Neither BancFirst nor any Merging Entity has requested or will receive
an advance ruling from the Internal Revenue Service (the "Service") as to the
tax consequences of any of the Mergers. Consequently, there can be no
assurance that the tax consequences set forth below will continue as
described herein, nor can any assurance be given that the issues discussed
below will not be challenged by the Service, or, if so challenged, will be
decided favorably to the parties to any of the Mergers or their stockholders.
Subject to the foregoing, the material federal income tax consequences
of the Mergers is generally as follows:
(i) the Merger of a Merging Entity with and into BancFirst qualifies as
a statutory merger under Oklahoma law and therefore each such Merger will
quality as a "reorganization" within the meaning of Section 368(a)(1)(A) of
the Code;
(ii) no gain or loss will be recognized by BancFirst or a Merging Entity
in a Merger;
(iii) no gain or loss will be recognized by the stockholders of a
Merging Entity upon receipt of BancFirst Common Stock in exchange for
their Merging Entity common stock, except as described below with respect
to stockholders who receive cash in lieu of fractional share interests in
BancFirst Common Stock;
(iv) the aggregate adjusted tax basis of the shares of BancFirst Common
Stock received by the stockholders of a Merging Entity will be the same as
the aggregate adjusted tax basis of their Merging Entity common stock
exchanged therefor less the tax basis, if any, allocated to fractional
share interests;
(v) the holding period of the BancFirst Common Stock (including the
holding period of any fractional share interest) in the hands of a Merging
Entity's stockholders will include the holding period of their Merging
Entity common stock exchanged therefor, provided such shares of Merging
Entity common stock are held as capital assets at the Effective Time;
(vi) a holder of Merging Entity common stock who receives cash in a
Merger in lieu of a fractional share interest in BancFirst Common Stock
will be treated as having received cash in redemption of such fractional
share interest. The receipt of such cash generally should result in
capital gain or loss, equal to the difference between the amount of cash
received and the portion of such Merging Entity stockholder's adjusted tax
basis in the shares of Merging Entity common stock allocable to the
fractional share interest. Such capital gain or loss will be long term
capital gain or loss if the holding period for the fractional shares of
BancFirst Common Stock deemed to be received and then redeemed is more
than one year;
(vii) a holder of Johnston County Preferred Stock who receives cash in
a Merger will be treated as having received cash in redemption of such
shares. The receipt of such cash generally should result in capital gain
or loss, equal to the difference between the amount of cash received and
the stockholder's adjusted tax basis in the shares of Johnston County
Preferred Stock. Long term capital gain or loss will be long term capital
gain or loss if the holding period for the shares of preferred stock deemed
to be redeemed is more than one year; and
(viii) where a Johnston County stockholder perfects dissenters' rights
under the laws of the state of Oklahoma and receives payment of the fair
value of the stockholder's shares of Johnston County Common Stock or
Preferred Stock, such stockholder will be treated as having received
such payment in redemption of such shares, subject to the limitations
and provisions of Section 302 of the Code. In general, if the shares to
which dissenters' rights are perfected are held as a capital asset at
the Effective Time, a dissenting stockholder will recognize capital gain
or loss measured by the difference between the amount of cash received
and the stockholder's basis in the shares. If, however, such
stockholder owns, either outright or constructively, any Johnston County
Common Stock that is exchanged in the Merger for BancFirst Common Stock
or any Johnston County Preferred Stock that is exchanged in the merger
for cash, the payment made to the stockholder could, in certain
circumstances, be treated as dividend income. In
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<PAGE>
general, under constructive ownership rules of the Code, a stockholder
may be considered to own stock that is owned, and in some cases
constructively owned, by certain related individuals or entities, as
well as stock that such stockholder (or related individuals or entities)
has the right to acquire by exercise of an option. Each stockholder who
contemplates exercising dissenters' rights should consult the
stockholder's own tax adviser as to the possibility that any payment to
such stockholder will be treated as divided income. See also
"Dissenting Stockholders."
The above description of tax consequences is expressly contingent
upon the satisfaction of the continuity of interest requirement set
forth in the Treasury Regulations promulgated under the Code. This
requirement will be satisfied if the stockholders of a Merging Entity
receive BancFirst Common Stock equal in value, as of the Effective Time
of the respective Merger, to at least 50% of the value of the
outstanding shares of a Merging Entity common stock. Each Merging
Entity and BancFirst have represented that neither it nor any of its
affiliates has taken or agreed to take any action or has any knowledge
of any facts or circumstances that would prevent any of the Mergers from
qualifying as a reorganization under Section 368(a) of the Code.
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE MERGERS. THE DISCUSSION IS BASED ON
CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY
SUCH CHANGES COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION.
EACH BANCFIRST AND MERGING ENTITY STOCKHOLDER SHOULD CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE RESPECTIVE MERGER TO SUCH STOCKHOLDER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL LAWS OR OTHER TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT
Each of the Mergers is expected to be accounted for as a "book
value purchase." This method of accounting is similar to a pooling of
interests. Accordingly, the book values of a Merging Entity will be
combined with the book values of BancFirst at the Effective Time of the
respective Merger. However, due to the significant stock ownership of
BancFirst held by the Disinterested BancFirst Stockholders, the effects
of the acquisitions will be included in BancFirst's consolidated
financial statements from the date of the acquisitions forward, and the
historical financial statements of BancFirst will not be restated, so
that the Disinterested BancFirst Stockholders may better evaluate the
effects of the Mergers on their interests in BancFirst.
The unaudited pro forma financial information contained in this
Proxy Statement/Offering Memorandum has been prepared using the book
value purchase accounting method to account for each of the Mergers.
See "Pro Forma Financial Information" below.
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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents the ratio of earnings to combined fixed
charges and preferred stock dividends of BancFirst for the last five full
fiscal years and for the nine months ended September 30, 1995. For the
purposes of computing the ratio, earnings represent income before taxes plus
fixed charges and minority interest in income of majority owned subsidiaries.
Combined fixed charges and preferred stock dividends represent interest
expense plus preferred stock dividend requirements increased to reflect the
pre-tax earnings which would be required to cover such dividend requirements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED ----------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Excluding interest on deposits 259.76x 127.02x 18.46x 6.08x 2.37x 0.22x
Including interest on deposits 1.67x 1.87x 1.76x 1.47x 1.14x 0.93x
</TABLE>
Earnings were insufficient to cover combined fixed charges in 1990. The
dollar amount of the coverage deficiency for such year was $2,567,000.
CAPITALIZATION
The following table sets forth the historical capitalization of the
separate Merging Entities and BancFirst, and the pro forma capitalization of
BancFirst at September 30, 1995, as adjusted to give effect to the Mergers
contemplated herein. The BancFirst pro forma capitalization assumes that
each of the Mergers contemplated herein is consummated and that no
stockholder elects appraisal rights. The information shown should be read in
conjunction with the pro forma financial information and the separate
financial statements of the respective companies. All dollar amounts are
shown in thousands.
<TABLE>
<CAPTION>
JOHNSTON PRO FORMA BANCFIRST
COUNTY COMMERCE BANCFIRST ADJUSTMENTS PRO FORMA
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Long-term debt $ 342 $ -- $ 810 $(342) $ 810
Stockholders' equity: ===== ====== ======= ===== =======
Preferred Stock $ 97 $ 55 $ -- $(152) $ --
Common Stock 50 36 6,211 94 6,391
Capital Surplus 95 638 34,408 (94) 35,047
Retained earnings 157 1,169 53,293 88 54,707
----- ------ ------- ----- -------
Unrealized Securities
losses, net of tax -- (33) 882 -- 849
Treasury Stock -- (298) -- -- (298)
Total Stockholders' equity $ 399 $1,567 $94,794 $ (64) $96,696
===== ====== ======= ===== =======
</TABLE>
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<PAGE>
BANCFIRST CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements and related notes present the pro forma effects of the State
National Bank acquisition, the proposed Mergers, and the City Bankshares
acquisition (collectively the "Transactions"), as described elsewhere herein.
The pro forma consolidated condensed balance sheet is presented as if the
Transactions occurred at September 30, 1995, except that the BancFirst
historical balance sheet already reflects the effects of the State National
Bank acquisition. The pro forma consolidated condensed statements of income for
the nine months ended September 30, 1995 and the year ended December 31, 1994
are presented as if the Transactions occurred at January 1, 1994. The State
National Bank acquisition was accounted for using the purchase method. SEE
"Information About BancFirst -- Recent Developments -- State National Bank."
The Mergers will be accounted for using the book value purchase method. SEE
"The Mergers -- Anticipated Accounting Treatment." The City Bankshares
acquisition will be accounted for using the purchase method. SEE
"Information About BancFirst -- Recent Developments -- City Bankshares, Inc."
Pro forma data are based on assumptions and include adjustments as
explained in the notes to the unaudited pro forma consolidated condensed
financial statements. The pro forma data are not necessarily indicative of
the financial results that would have occurred had the Transactions been
effective on the dates assumed and should not be viewed as indicative of
operations in future periods. The unaudited pro forma consolidated condensed
financial statements and related notes should be read in conjunction with the
financial statements of BancFirst, State National Bank, the Merging Entities
and City Bankshares presented elsewhere herein.
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<PAGE>
BANCFIRST CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JOHNSTON PRO FORMA PRO FORMA
BANCFIRST COUNTY COMMERCE ADJUST- BANCFIRST CITY BANKSHARES ADJUST- BANCFIRST
HISTORICAL HISTORICAL HISTORICAL MENTS PRO FORMA HISTORICAL MENTS PRO FORMA
---------- ---------- ---------- ----- --------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 57,984 $ 815 $ 1,044 $ $ 59,843 $ 8,701 $ (85)(a) $ 72,305
3,846 (h)
Securities 255,349 2,615 7,693 265,657 42,932 (1,653)(j) 306,936
Federal funds sold 17,368 1,139 -- (342)(b) 17,843 300 1,871 (b)
(97)(e) 285 (c)
(225)(f) (1,500)(d)
(19,125)(c)
(1,250)(g)
(3,846)(h)
Loans: 5,422 (i)
Total loans (net of
unearned interest) 604,642 5,478 8,225 618,345 76,479 1,655 (k) 696,479
Allowance for
possible loan losses (10,338) (149) (104) (10,591) (778) (11,369)
-------- ------- ------- ---------- -------- ----------
Loans, net 594,304 5,329 8,121 607,754 75,701 685,110
Premises and equipment,
net 27,729 338 224 28,291 5,596 (624)(a) 33,506
1,898 (l)
(1,655)(k)
Other real estate owned 2,149 66 -- 2,215 1,167 3,382
Intangible assets, net 8,195 -- 194 8,389 1,331 (313)(a) 15,287
5,880 (m)
Accrued interest
receivable 10,293 119 141 10,553 844 11,397
Other assets 7,858 26 27 7,911 2,706 (2,103)(a) 9,764
1,250 (g)
-------- ------- ------- ----- ---------- -------- -------- ----------
Total assets $981,229 $10,447 $17,444 $(664) $1,008,456 $139,278 $(10,047) $1,137,687
======== ======= ======= ===== ========== ======== ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest-bearing $173,346 $ 1,410 $ 2,863 $ $ 177,619 $ 42,112 $ 330 (a) $ 220,061
Interest-bearing 693,684 8,139 12,458 714,281 80,835 795,116
-------- ------- ------- ---------- -------- ----------
Total deposits 867,030 9,549 15,321 891,900 122,947 1,015,177
Short-term borrowings 11,532 -- 375 55 (a) 11,874 5,422 (i) 17,296
(88)(c)
Long-term borrowings 810 342 -- (342)(b) 810 1,500 (1,500)(d) 810
Accrued interest payable 3,434 48 58 3,540 280 3,820
Other liabilities 3,629 109 123 (225)(f) 3,636 760 (508)(a) 3,888
-------- ------- ------- ----- ---------- -------- -------- ----------
Total liabilities 886,435 10,048 15,877 (600) 911,760 125,487 3,744 1,040,991
-------- ------- ------- ----- ---------- -------- -------- ----------
Stockholders' equity:
Preferred stock -- 97 55 (55)(a) -- --
(97)(c)
Common stock 6,211 50 36 94 (d) 6,391 890 176 (b) 6,391
(1,066)(f)
Capital surplus 34,408 95 638 (94)(d) 35,047 8,002 1,695 (b) 35,047
(9,697)(f)
Retained earnings 53,293 157 1,169 88 (c) 54,707 4,911 (2,947)(a) 54,707
285 (c)
(2,249)(f)
Unrealized securities
gains (losses), net of
tax 882 -- (33) 849 (7) 7 (f) 849
Treasury stock -- -- (298) (298) (5) 5 (l) (298)
-------- ------- ------- ----- ---------- -------- -------- ----------
Total stockholders'
equity 94,794 399 1,567 (64) 96,696 13,791 (13,791) 96,696
-------- ------- ------- ----- ---------- -------- -------- ----------
Total liabilities &
stockholders' equity $981,229 $10,447 $17,444 $(664) $1,008,456 $139,278 $(10,047) $1,137,687
======== ======= ======= ===== ========== ======== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated condensed financial statements.
38
<PAGE>
BANCFIRST CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATE PRO JOHNSTON PRO PRO
NATIONAL FORMA BANCFIRST COUNTY COMMERCE FORMA BANCFIRST CITY FORMA BANCFIRST
BANCFIRST BANK ADJUST- PRO HISTOR- HISTOR- ADJUST- PRO BANKSHARES ADJUST- PRO
HISTORICAL HISTORICAL MENTS FORMA ICAL ICAL MENTS FORMA HISTORICAL MENTS FORMA
---------- ---------- ----- ----- ---- ---- ----- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including
fees $ 42,711 $ 858 $ $ 43,569 $ 398 $ 671 $ $ 44,638 $ 5,120 $ 124 (q) $49,882
Investment
securities
Taxable 10,184 647 10,831 148 366 11,345 1,896 225 (s) 13,466
Tax-exempt 446 29 475 5 15 495 21 516
Federal funds
sold and other 1,235 113 (260)(a) 1,074 47 20 (29)(g) 1,112 165 (793)(p) 484
14 (b)
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Total
interest
income 54,576 1,647 (274) 55,949 598 1,072 (29) 57,590 7,202 (444) 64,348
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
INTEREST EXPENSE
Deposits 22,329 716 23,045 252 368 23,665 2,395 26,060
Short-term
borrowings 58 -- 58 -- 2 (1)(h) 59 22 237 (p) 318
Long-term
borrowings -- -- -- 24 -- (24)(i) -- 111 (111)(o) --
Line of credit -- -- -- -- -- -- -- --
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Total interest
expense 22,387 716 23,103 276 370 (25) 23,724 2,528 126 26,378
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Net interest
income 32,189 931 (274) 32,846 322 702 (4) 33,866 4,674 (570) 37,970
Provision for
possible loan
losses 408 (68) 68 (g) 408 10 -- 418 75 493
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Net interest
income after
provision for
possible loan
losses 31,781 999 (342) 32,438 312 702 (4) 33,448 4,599 (570) 37,477
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
NONINTEREST INCOME
Service charges
on deposits 5,909 72 5,981 71 176 6,228 776 7,004
Securities
transactions 111 -- 111 -- (15) 96 -- 96
Other 3,153 42 3,195 19 29 3,243 7,924 (6,913)(n) 3,578
(676)(r)
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Total
noninterest
income 9,173 114 9,287 90 190 9,567 8,700 (7,589) 10,678
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
NONINTEREST EXPENSE
Salaries and
employee benefits 14,970 266 15,236 122 243 15,601 5,272 (3,135)(n) 17,738
Occupancy and
fixed assets
expense, net 1,475 18 1,493 65 41 1,599 640 (288)(n) 1,951
Depreciation 1,374 13 1,387 33 18 1,438 836 (77)(n) 1,674
(545)(r)
22 (u)
Amortization 1,071 -- 52(d) 1,123 -- 6 1,129 264 (102)(n) 1,732
441 (t)
Other 7,056 201 7,257 118 244 7,619 4,475 (2,963)(n) 9,365
234 (v)
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Total
noninterest
expense 25,946 498 52 26,496 338 552 27,386 11,487 (6,413) 32,460
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Income before
taxes 15,008 615 (394) 15,229 64 340 (4) 15,629 1,812 (1,746) 15,695
Income tax
expense (5,594) (170) 147 (e) (5,636) (12) (123) 2 (5,769) (718) 166 (n) (5,630)
698 (w)
19 (f) (7)(x)
--------- ------ ----- --------- ------- ------- ---- --------- -------- ------- -------
Net income $ 9,414 $ 445 $(266) $ 9,593 $ 52 $ 217 $ (2) $ 9,860 $ 1,094 $ (889) $10,065
========= ====== ===== ========= ======= ======= ==== ========= ======== ======= =======
PER SHARE DATA (PRIMARY AND FULLY DILUTED)
Net income $ 1.47 $ 1.50 $ 0.91 $ 9.48 $ 1.50 $ 1.18 $ 1.53
========= ========= ======= ======= ========= ======== =======
Average common
shares and
common stock
equivalents
outstanding 6,388,743 6,388,743 49,620 22,573 6,568,574 926,148 6,568,574
========= ========= ======= ======= ========= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated condensed financial statements.
39
<PAGE>
BANCFIRST CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATE PRO JOHNSTON PRO PRO
NATIONAL FORMA BANCFIRST COUNTY COMMERCE FORMA BANCFIRST CITY FORMA BANCFIRST
BANCFIRST BANK ADJUST- PRO HISTOR- HISTOR- ADJUST- PRO BANKSHARES ADJUST- PRO
HISTORICAL HISTORICAL MENTS FORMA ICAL ICAL MENTS FORMA HISTORICAL MENTS FORMA
---------- ---------- ----- ----- ---- ---- ----- ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including
fees $ 45,609 $ 3,591 $ $ 49,200 $ 521 $ 860 $ $ 50,581 $ 5,716 $ 166 (g) $ 56,463
Investment
securities
Taxable 12,184 2,796 14,980 130 511 15,621 2,549 300 (s) 18,470
Tax-exempt 631 112 743 6 44 793 -- 793
Federal funds
sold and other 1,350 231 (715)(a) 810 49 16 (27)(g) 848 100 (742)(p) 206
(56)(b)
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Total interest
income 59,774 6,730 (771) 65,733 706 1,431 (27) 67,843 8,365 (276) 75,932
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
INTEREST EXPENSE
Deposits 20,780 2,733 23,513 245 429 24,187 2,470 26,657
Short-term
borrowings 19 2 21 -- -- (1)(h) 20 99 222 (p) 341
Long-term borrowings -- -- -- 31 -- (31)(i) -- 126 (126)(o) --
Line of credit 39 -- 39 -- -- 39 -- 39
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Total interest
expense 20,838 2,735 23,573 276 429 (32) 24,246 2,695 96 27,037
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Net interest
income 38,936 3,995 (771) 42,160 430 1,002 5 43,597 5,670 (372) 48,895
Provision for
possible loan
losses 380 21 401 19 420 22 442
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Net interest
income after
provision for
possible loan
losses 38,556 3,974 (771) 41,759 411 1,002 5 43,177 5,648 (372) 48,453
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
NONINTEREST INCOME
Service charges
on deposits 7,641 290 7,931 94 222 8,247 1,080 9,327
Securities
transactions 5 (132) (127) (1) (128) -- (128)
Other 3,572 117 3,689 25 33 3,747 9,151 (7,936)(n) 4,188
(774)(r)
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Total noninterest
income 11,218 275 11,493 119 254 11,866 10,231 (8,710) 13,387
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
NONINTEREST EXPENSE
Salaries and
employee benefits 17,228 1,185 (60)(c) 18,353 164 295 18,812 6,388 (3,614)(n) 21,586
Occupancy and
fixed assets
expense, net 1,787 84 1,871 89 59 2,019 945 (471)(n) 2,493
Depreciation 1,749 66 1,815 47 26 1,888 1,016 (83)(n) 2,229
(621)(r)
29 (u)
Amortization 1,262 -- 211 (d) 1,473 8 1,481 376 (160)(n) 2,285
588 (t)
Other 9,605 857 10,462 147 293 10,902 5,170 (3,130)(n) 13,255
313 (v)
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Total noninterest
expense 31,631 2,192 151 33,974 447 681 35,102 13,895 (7,149) 41,848
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Income before
taxes 18,143 2,057 (922) 19,278 83 575 5 19,941 1,984 (1,933) 19,992
Income tax
expenses (6,546) (699) 306 (c) (6,982) (27) (210) (2)(j) (7,221) (724) 187 (n) (7,055)
773 (w)
(43)(f) (70)(x)
--------- ------- ------ --------- ----- ------- ---- --------- ------- ------- ---------
Net income $ 11,597 $ 1,358 $ (65) $ 12,296 $ 56 $ 365 $ 3 $ 12,720 $ 1,260 $(1,043) $ 12,937
========= ======= ====== ========= ===== ======= ==== ========= ======= ======= =========
PER SHARE DATA (PRIMARY AND FULLY DILUTED)
Net income $ 1.80 $452.59 $ 1.91 $0.93 $ 1.42 $ 1.93 $ 1.36 $ 1.97
========= ======= ========= ===== ======= ========= ======= =========
Average common
shares & common
stock
equivalents
outstanding 6,399,518 3,000 6,399,518 49,620 889,650 6,579,349 926,148 6,579,349
========= ======= ========= ====== ======= ========= ======= =========
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed
40
<PAGE>
BANCFIRST CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed financial statements for
the nine months ended September 30, 1995 are based upon the unaudited
financial statements of BancFirst, State National Bank, the Merging Entities
and City Bankshares. The unaudited pro forma consolidated condensed statement
of income for the year ended December 31, 1994 is based upon the audited
financial statements of BancFirst, State National Bank and City Bankshares,
and the unaudited financial statements of the Merging Entities. The pro
forma consolidated condensed balance sheet is presented as if the
Transactions occurred at September 30, 1995, except that the BancFirst
historical balance sheet already reflects the effects of the State National
Bank acquisition. The pro forma consolidatd condensed statements of income
are presented as if the Transactions occurred at January 1, 1994. Other
assumptions and the pro forma adjustments are described below.
(2) PRO FORMA ADJUSTMENTS FOR THE STATE NATIONAL BANK ACQUISITION
The effects of the State National Bank acquisition, which was completed in
March 1995, are included in the BancFirst historical pro forma consolidated
condensed balance sheet. The pro forma consolidated condensed statements of
income reflect the following adjustments:
(a) Reduce interest income on funds used for the cash payment for the
common stock of State National Bank.
(b) Reduce interest income for the increase in reserve requirements.
(c) Eliminate State National Bank's pension plan expense accrual.
(d) Record amortization of core deposit intangible and excess of cost over
fair value of net assets acquired.
(e) Reduce income tax expense for effect of pro forma adjustments.
(f) Adjust State National Bank's income tax expense to statutory rate.
(g) Eliminate negative loan provision.
(3) PRO FORMA ADJUSTMENTS FOR THE MERGERS
The pro forma consolidated condensed balance sheet reflects the
following adjustments:
(a) Reflect the redemption of Commerce's preferred stock prior to the
mergers.
(b) Pay off Johnston County's note payable using existing funds in short-
term investments.
(c) Reflect the assumption that the minimum level of $1.6 million in
common stockholders' equity, as required by the terms of the Merger,
had been attained by Commerce as of September 30, 1995.
(d) Record the exchange of BancFirst Common Stock for the Merging
Entities' common stock.
(e) Record the redemption of Johnston County's preferred stock using
existing funds in short-term investments.
(f) Record the purchases of the minority interests in the Merging
Entities' subsidiary banks for cash using existing funds in short-term
investments.
41
<PAGE>
The pro forma consolidated condensed statements of income reflect the
following adjustments:
(g) Reduce interest income on short-term investments to reflect the use of
such funds for the various purposes assumed for the Mergers in the pro
forma consolidated condensed balance sheet.
(h) Reduce interest expense on short-term borrowings due to net decrease
from pro forma adjustments assumed in the pro forma consolidated
condensed balance sheet.
(i) Eliminate interest expense on Johnston County's note payable.
(j) Record effect on income tax expense of the pro forma adjustments.
(4) PRO FORMA ADJUSTMENTS FOR THE CITY BANKSHARES ACQUISITION
The pro forma consolidated condensed balance sheet reflects the following
adjustments:
(a) Reflect the spin-off of C-Teq, Inc. to the shareholders of City
Bankshares, Inc. prior to the acquisition.
(b) Reflect the exercise of stock options by City Bankshares' officers and
directors prior to the acquisition.
(c) Reflect the assumption that the minimum level of $13 million in total
stockholders' equity, as required by the terms of the acquisition, had
been attained by City Bankshares as of September 30, 1995.
(d) Reflect the pay-off of City Bankshares' term loan prior to the
acquisition.
(e) Record the cash payment for the common stock of City Bankshares.
(f) Eliminate stockholders' equity of City Bankshares.
(g) Record the payment to the C.E.O. of City Bankshares for an agreement
not to compete.
(h) Reflect the increase in reserve requirements due to loss of City
Bankshares' low reserve tranche.
(i) Reclassify deficit in short-term investments to short-term borrowings.
(j) Write-down City Bankshares' securities held for investment to market
value.
(k) Record loan to C-Teq, Inc. for purchase of furniture, equipment and
software leased from City Bankshares.
(l) Write-up City Bankshares' premises to fair value.
(m) Record core deposit intangible and excess of cost over fair value of
the net assets acquired.
The pro forma consolidated condensed statements of income reflect the
following adjustments:
(n) Reflect the spin-off of C-Teq, Inc. to shareholders of City
Bankshares, Inc. prior to the acquisition.
(o) Eliminate the interest expense on City Bankshares' term loan.
(p) Reduce interest income on short-term investments and increase interest
expense on short-term borrowings to reflect the use of such funds for
the various purposes assumed for the City Bankshares acquisition in
the pro forma consolidated condensed balance sheet.
(q) Increase interest income for loan to C-Teq, Inc. for purchase of
furniture, equipment and software.
42
<PAGE>
(r) Reduce depreciation expense and eliminate rental income for furniture,
equipment and software purchased by C-Teq, Inc.
(s) Record accretion of discount from write-down of City Bankshares'
securities held for investment to market value.
(t) Record amortization of core deposit intangible and excess of cost over
fair value of the net assets acquired.
(u) Adjust depreciation expense for write up of City Bankshares' premises
to fair value.
(v) Record amortization of payment for agreement not to compete.
(w) Reduce income tax expense for effect of pro forma adjustments.
(x) Adjust City Bankshares' income tax expense to statutory rate.
43
<PAGE>
INFORMATION ABOUT BANCFIRST
GENERAL
BancFirst is an Oklahoma business corporation and a bank holding company
under Federal law. It conducts virtually all of its operating activities
through its wholly-owned subsidiary, BancFirst (the "Bank"), a
state-chartered, Federal Reserve member bank headquartered in Oklahoma City,
Oklahoma. BancFirst also owns 100% of BancFirst Investment Corporation, a
small business investment corporation.
BancFirst 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 has conducted business as a holding company since that time.
Over the next several years BancFirst acquired an additional five banks, and
in November 1988 it changed its name from United Community Corporation to
BancFirst Corporation. Effective April 1, 1989, BancFirst consolidated its
12 subsidiary banks and formed the Bank. BancFirst currently has 41 banking
locations operating in 25 communities across central and eastern Oklahoma.
BUSINESS
BancFirst's strategy has focused 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, where it generally
seeks to acquire a leading market share in the local banking markets, and in
the metropolitan markets of Oklahoma City, Tulsa, Norman, Muskogee,
Stillwater and Shawnee. As a "super community bank," BancFirst manages its
community banking offices on a decentralized basis. In the non-metropolitan
areas served by BancFirst, this strategy permits its offices to be responsive
to local customer needs while at the same time providing a broader range of
products and services to customers than independently owned community banks.
BancFirst also generally enjoys a larger lending capacity and greater
operational efficiencies than its principal competitors in these
non-metropolitan market areas. In the metropolitan markets served by
BancFirst, its strategy has been 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 and compliance, and internal auditing to the Bank's community banking
offices to enhance their ability to compete effectively. The Bank also
provides certain specialized financial services centrally that require unique
expertise. The community banking offices assist the Bank in maintaining its
competitive position by actively participating in the development of new
products and services needed by their customers and in making desirable
changes to existing products and services.
The Bank provides a wide range of retail and commercial banking
services, including: commercial, real estate, agricultural and consumer
lending; depository and funds transfer services; collections; safe deposit
boxes; cash management services; and other services tailored for both
individual and corporate customers. The Bank also offers trust services and
acts as executor, administrator, trustee, transfer agent and in various other
fiduciary capacities. Through Unitech, its operations division, the Bank
provides proof, item processing, statement preparation, research and other
correspondent banking services to financial institutions, both affiliated and
unaffiliated.
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
44
<PAGE>
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.
At the end of 1994, the Bank was Oklahoma's largest producer of SBA loans and
its SBA loan portfolio totaled $34 million, with participations sold of $22
million.
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. During 1994, 463 loans totaling $29.1 million were
originated. The mortgage loan department plans continued expansion to
complete the introduction of this product into all of the communities the
Bank serves.
Consumer lending activities of the Bank consist of traditional forms of
financing for automobile and personal loans. Additionally, the Bank is one
of Oklahoma's largest providers of guaranteed student loans through its
student loan department formed in 1991.
The Bank's range of deposit services include checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts and certificates of deposit. Overdraft protection and
autodraft services are also offered. Deposits of the Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance Corporation
("FDIC"). In addition, certain Bank employees are licensed insurance agents
qualified to offer tax deferred annuities.
Trust services offered through BancTrust, the Bank's trust division,
consist primarily of investment management and administration of trusts for
individuals, corporations and employee benefit plans. Investment options
include collective equity and fixed income funds managed by BancTrust and
advised by a nationally recognized investment management firm. BancTrust
has total assets of approximately $94 million under management.
BancFirst has the following subsidiaries: Citibanc Insurance Agency,
Inc., a credit life insurance agency, which in turn owns BancFirst Agency,
Inc., a title insurance agency; Lenders Collection Corporation, which is
engaged in collection of troubled loans assigned to it by BancFirst; and
National Express Corporation, a money order company. All of these companies
are Oklahoma corporations.
BancFirst had approximately 636 full-time equivalent employees as of
December 31, 1994. Its principal executive offices are located at 101 North
Broadway, Suite 200, Oklahoma City, Oklahoma 73102, telephone number
(405)270-1000.
MARKET AREAS AND COMPETITION
The banking environment in Oklahoma is very competitive. The
geographic dispersion of BancFirst'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 central and eastern 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 BancFirst is in an advantageous competitive position
operating as a "super community bank." Under this strategy, BancFirst 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
45
<PAGE>
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,
BancFirst'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.
BancFirst 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 BANCFIRST
As of the Record Date, the BancFirst Affiliates owned beneficially
approximately 55.27% of the shares of BancFirst Common Stock outstanding on
such date. Under Oklahoma law, holders of a majority of the outstanding
shares of Common Stock are able to elect all of BancFirst's directors and
approve significant corporate actions, including business combinations.
Accordingly, the BancFirst Affiliates have the ability to control the
business and affairs of BancFirst.
RECENT DEVELOPMENTS
STATE NATIONAL BANK
In March 1995, BancFirst acquired State National Bank of Marlow,
Oklahoma ("State National Bank"), which had total assets of $101 million.
The acquisition was for cash of approximately $18 million, with an additional
$500,000 placed in escrow pending the resolution of certain matters. State
National Bank was immediately merged into the Bank. The acquisition was
accounted for as a purchase. Accordingly, the effect of the transaction is
included in BancFirst's consolidated financial statements from the date of
the acquisition forward. A core deposit intangible of $406,000 and goodwill
of $810,000 were recorded for the acquisition. Subsequent payments from the
escrow, if any, to the former shareholders of State National Bank will
increase the goodwill recorded. Pro forma condensed results of operations,
as though State National Bank had been acquired January 1, 1994, are set
forth in this Proxy Statement/Offering Memorandum. See "Unaudited Pro Forma
Consolidated Condensed Financial Statements."
CITY BANKSHARES, INC.
In September 1995, BancFirst entered into an agreement to acquire City
Bankshares, Inc. of Oklahoma City, Oklahoma ("City Bankshares"), which has
approximately $140 million in total assets. Under the terms of the
agreement, BancFirst would acquire all the stock outstanding of City
Bankshares for cash of $19 million. C-Teq, Inc., an 85% owned data processing
subsidiary of City Bankshares, would be spun off to the shareholders of City
Bankshares prior to the acquisition. Additionally, City Bankshares would be
required to have stockholders' equity of at least $13 million at the time of
closing. BancFirst also entered into an agreement with the President and
Chief Executive Officer of City Bankshares whereby upon consummation of the
acquisition BancFirst will pay such individual $1.25 million in exchange for
an agreement not to compete with BancFirst for a period of four years. The
acquisition is subject to regulatory approval and is expected to be completed
in the first half of 1996. Pro forma condensed results of operations, as
though City Bankshares had been acquired January 1, 1994, are set forth
elsewhere in this Proxy Statement/Offering Memorandum. See "Unaudited Pro
Forma Consolidated Condensed Financial Statements."
STOCK REPURCHASE PROGRAM
In March 1995, BancFirst adopted a Stock Repurchase Program authorizing
management to repurchase up to 200,000 shares of BancFirst Common Stock.
The program is to be used for purchases of stock by BancFirst's
46
<PAGE>
Employee Stock Ownership and Thrift Plan, and may also be used to enhance
earnings per share, provide stock for the exercise of stock options under
BancFirst's Stock Option Plan or to provide additional liquidity for the
stock. Stock purchases under the program must satisfy certain criteria
regarding effects on earnings per share and book value dilution, resulting
equity ratios and the price to book value of comparable size institutions.
PROPERTIES
The principal offices of BancFirst are located at 101 North Broadway,
Suite 200, Oklahoma City, Oklahoma 73102. BancFirst owns substantially all
of the properties and buildings in which its various offices and facilities
are located. These properties include 27 full service branches and 13
limited service detached facilities. BancFirst also owns properties for
future expansion. There are no significant encumbrances on any of these
properties.
LEGAL PROCEEDINGS
BancFirst 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 BancFirst, any such liability will
not have a material adverse effect on the consolidated financial position of
BancFirst.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is an analysis of the financial condition and
results of operations of BancFirst for the interim period through
September 30, 1995 and, except with respect to the selected financial data
which presents information for each of the five years ended December 31,
1994, each of the three years ended December 31, 1994, and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
the Selected Consolidated Financial Data included herein.
SELECTED FINANCIAL DATA
The following table summarizes BancFirst's operating results for the
past five years and the nine months ended September 30, 1995 and 1994:
47
<PAGE>
BANCFIRST CORPORATION
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
$ 32,189 $ 28,709 $38,936 $32,971 $ 30,041 $ 26,096 $ 24,807
Net interest income . . .
Provision for possible loan
losses . . . . . . . . . 408 49 380 251 700 952 6,792
Noninterest income . . . 9,173 8,414 11,218 10,547 8,612 7,918 6,897
Noninterest expense . . . 25,946 23,698 31,631 29,151 26,792 27,007 26,340
Income (loss) before
extraordinary items. . . 9,414 8,641 11,597 10,154 8,955 4,211 (1,506)
Net income (loss) . . . . 9,414 8,641 11,597 11,472 11,161 6,555 (1,506)
Accumulated preferred
dividends . . . . . . . . -- (55) (55) (386) (908) (1,083) (1,126)
Net income (loss)
applicable to common
stockholders . . . . . . 9,414 8,586 11,542 11,086 10,253 5,472 (2,632)
BALANCE SHEET DATA:
Total assets . . . . . .$981,229 $872,013 $872,915 $823,234 $705,097 $680,576 $693,224
Total loans (net of
unearned interest) . . . 604,642 510,106 522,314 466,356 382,498 329,442 328,273
Allowance for possible loan
losses . . . . . . . . . (10,338) (9,585) 9,729 9,027 7,202 5,967 6,400
Investment securities . . 255,349 232,119 223,044 231,546 204,001 224,386 217,744
Deposits . . . . . . . . 867,030 785,012 784,851 736,686 636,633 611,389 627,402
Note payable . . . . . . -- -- -- -- 12,000 12,000 16,997
Long-Term borrowings . . . 810 -- -- -- -- -- --
10% Preferred Stock . . . -- -- -- 3,898 3,829 3,829 3,829
Floating Rate Preferred
Stock . . . . . . . . . -- -- -- -- -- 10,000 10,000
Common stockholders'
equity . . . . . . . . . 94,794 81,089 81,961 76,052 46,929 33,337 26,992
PER COMMON SHARE DATA:
Income (loss) before
extraordinary items. . . $1.47 $1.34 $1.80 $1.77 $1.70 $0.65 $(0.55)
Net income (loss) . . . . 1.47 1.34 1.80 2.01 2.17 1.13 (0.55)
Cash dividends . . . . . 0.21 0.18 0.25 0.21 0.05 -- --
Book value . . . . . . . 15.26 13.07 13.21 12.27 9.94 6.52 5.33
SELECTED FINANCIAL RATIOS:
Return on average assets . 1.32% 1.34% 1.34% 1.54% 1.62% 0.94% (0.22)%
Return on average
stockholders' equity . . 14.24 14.42 14.36 17.03 21.58 15.07 (3.70)
Nonperforming and
restructured assets to
total assets . . . . . . 0.70 0.67 0.70 1.08 1.61 2.00 3.32
Allowance for possible loan
losses to nonperforming and
restructured loans . . . 226.41 265.66 261.53 193.21 190.88 140.53 72.95
Average stockholders'
equity to average total
assets . . . . . . . . . 9.30 9.20 9.34 9.06 7.50 6.26 5.90
</TABLE>
48
<PAGE>
FISCAL 1994
SUMMARY
1994 was another record year for BancFirst. Net income for 1994, with
no extraordinary items or accounting changes, rose to $11.6 million, from
$10.2 million for 1993 and $8.96 million for 1992, before extraordinary
items. The corresponding earnings per share was $1.80 for 1994, up from
$1.77 for 1993 and $1.70 for 1992, despite a 16% increase in average shares
outstanding. Return on average assets was 1.34% for 1994, compared to 1.37%
for 1993 and 1.30% for 1992, before extraordinary items. Return on average
stockholders' equity was again affected by an increase in average equity for
the year, resulting in a return of 14.36%, compared to 15.08% for 1993 and
17.31% for 1992, before extraordinary items.
Total assets increased $49.7 million, to $873 million, as a result of
acquisitions and internal growth. Total loans increased $56 million,
including internal growth of approximately 6%. Total deposits increased
$48.2 million from both acquisitions and the first internal deposit growth in
several years. Stockholders' equity increased $2.01 million, even though
BancFirst retired its $3.9 million issue of 10% Preferred Stock and adopted
FAS 115 (see " Financial Position Securities") for securities, which reduced
equity by $4.1 million. Average stockholders' equity to average assets was
9.34%, up from 9.06% for 1993.
Asset quality continued to improve during the year. Nonperforming and
restructured assets to total assets dropped to 0.70% from 1.08% for 1993.
The allowance for possible loan losses to nonperforming and restructured
loans increased to 261.53% from 193.21% in 1993.
During 1994, BancFirst completed acquisitions of First City Bank of
Tulsa, Oklahoma and National Express Money Orders, Inc. First City Bank
provides BancFirst with a solid base for continued expansion in the important
metropolitan Tulsa market. National Express, a money order company, presents
an opportunity to increase noninterest income and utilize processing
capacity. BancFirst also purchased the remaining minority interest in the
Bank, which resulted in an increase in earnings per share.
In October 1994, BancFirst entered into an agreement to acquire State
National Bank of Marlow, Oklahoma for cash of approximately $18 million.
State National Bank had total assets of $100 million and provides BancFirst
with a base from which to expand in the southwest quarter of the state. The
acquisition was completed in March 1995.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Net interest income is BancFirst's principal
source of operating revenue. Net interest income increased 18.1% in 1994 to
$38.9 million, after rising 9.75% in 1993 and 15.1% in 1992. The net
interest margin on a taxable equivalent basis for 1994 was 5.20%, up from
5.14% for 1993 and 5.08% for 1992.
49
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------- -------------------------- -------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans (1)........................ $493,300 $45,995 9.32% $412,306 $37,907 9.19% $350,882 $34,832 9.93%
Investments - taxable............ 225,257 12,214 5.42 197,263 11,325 5.74 201,140 13,636 6.78
Investments - tax exempt......... 10,445 925 8.86 11,356 1,025 9.03 16,543 1,535 9.28
Federal funds sold............... 32,991 1,350 4.09 36,957 1,099 2.97 42,714 1,528 3.58
------- ------- -------- ------- -------- -------
Total earning assets............ 761,993 60,484 7.94 657,882 51,356 7.81 611,279 51,531 8.43
------- ------- -------- ------- -------- -------
Nonearning assets:
Cash and due from banks.......... 59,400 48,721 43,547
Interest receivable and other
assets.......................... 53,392 45,522 41,637
Allowance for possible loan losses (9,372) (8,488) (6,366)
-------- ------- --------
Total nonearning assets.......... 103,420 85,755 78,818
-------- -------- --------
Total assets..................... $865,413 $743,637 $690,097
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits.............. $173,647 4,899 2.82% $146,187 4,139 2.83% $126,165 3,852 3.05%
Savings deposits.................. 156,920 4,828 3.08 124,798 3,780 3.03 106,826 3,544 3.32
Time deposits..................... 284,625 11,054 3.88 263,101 9,385 3.57 274,467 12,219 4.45
Short-term borrowings............. 527 19 3.60 446 10 2.24 3,943 118 2.99
Note payable...................... -- -- -- 3,000 245 8.17 10,500 749 7.13
Line of Credit.................... -- 38 NM -- -- -- -- -- --
Long-term borrowings.............. -- -- -- -- -- -- 82 7 8.54
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 615,719 20,838 3.38 537,532 17,559 3.27 521,983 20,489 3.93
-------- ------- -------- ------- -------- -------
Interest-free funds:
Demand deposits................... 163,002 132,847 110,512
Interest payable and other
liabilities...................... 5,903 5,904 5,874
Stockholders' equity.............. 80,789 67,354 51,728
-------- -------- --------
Total interest-free funds........ 249,694 206,105 168,114
-------- -------- --------
Total liabilities and
stockholders' equity............ $865,413 $743,637 $690,097
======== ======== ========
Net interest income................ $39,646 $33,797 $31,042
======= ======= =======
Net interest spread................ 4.56% 4.54% 4.50%
==== ==== ====
Net interest margin................ 5.20% 5.14% 5.08%
==== ==== ====
</TABLE>
(1) Nonaccrual loans are included in the
average loan balances and any interest on
such nonaccrual loans is recognized on a
cash basis.
NM--Not Meaningful.
50
<PAGE>
Changes in the volume of earning assets and interest-bearing liabilities,
and changes in interest rates determine the change in net interest income.
The substantial increases in net interest income in recent years have been
due to volume changes rather than changes in interest rates, even though
interest rates did change significantly over that period. The Volume/Rate
Analysis summarizes the relative contribution of each of these components to
the increases in net interest income in 1994 and 1993. The increase in net
interest income in 1994 was due almost totally to the increase in loan
volume. Average loans rose 19.6% and average loans to deposits increased to
63.39% from 61.82% for 1993. The rising interest rates in 1994 produced a
small positive rate variance. The principal factors in the increase in net
interest income in 1993 were a 17.5% increase in average loans, which
produced a positive volume variance, and a negative rate variance resulting
from declining interest rates.
<TABLE>
<CAPTION>
CHANGE IN 1994 CHANGE IN 1993
---------------------------- ------------------------
DUE TO DUE TO
VOLUME DUE TO VOLUME DUE TO
TOTAL (1) RATE TOTAL (1) RATE
------ ------ ------ ----- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN:
INTEREST INCOME:
Loans....................... $8,088 $7,049 $1,039 $ 3,075 $9,302 $(6,227)
Securities--taxable......... 889 1,311 (422) (2,311) (431) (1,880)
Securities--tax-exempt...... (100) (77) (23) (510) (487) (23)
Federal funds sold.......... 251 (118) 369 (429) (206) (223)
------ ------ ------ ------- ------ -------
Total interest income..... 9,128 8,165 963 (175) 8,178 (8,353)
------ ------ ------ ------- ------ -------
INTEREST EXPENSE:
Transaction deposits........ 760 783 (23) 287 605 (318)
Savings deposits............ 1,048 984 64 236 579 (343)
Time deposits............... 1,669 782 887 (2,834) (480) (2,354)
Short-term borrowings....... 9 2 7 (108) (109) 1
Note payable................ (207) (207) -- (504) (529) 25
Long-term borrowings........ -- -- -- (7) (7) --
------ ------ ------ ------- ------ -------
Total interest expense.... 3,279 2,344 935 (2,930) 59 (2,989)
------ ------ ------ ------- ------ -------
Net interest income........... $5,849 $5,821 $ 28 $ 2,755 $8,119 $(5,364)
====== ====== ====== ======= ====== =======
</TABLE>
(1) The change in interest due to change in mix has been allocated in total
to volume changes.
Interest rate sensitivity analysis measures the sensitivity of BancFirst'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 BancFirst's position at any
other point in time, and does not take into account the sensitivity of yields
and costs of specific assets and liabilities to changes in market rates. In
1994, Management continued its strategy of creating manageable negative
interest sensitivity gaps. This approach takes advantage of BancFirst'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 BancFirst's high level of liquidity.
The Analysis of Interest Rate Sensitivity presents BancFirst's earning
assets and interest-bearing liabilities based on maturity and repricing
frequency at December 31, 1994. At this date, interest-bearing liabilities
exceeded earning assets by $146 million in the three month interval. This
negative gap position assumes that BancFirst's core savings and transaction
deposits are immediately rate sensitive and reflects Management's perception
that the yield curve will be positive over the long term. In 1991 through
1993 the yield curve became steeper as short-term interest rates decreased
significantly. This condition resulted in higher net interest margins for
BancFirst. In 1994, the yield curve began to flatten as short-term interest
rates rose. As the yield curve flattens, BancFirst's net interest margin
would be expected to decline, unless BancFirst adjusts its interest
sensitivity gap position, or employs other strategies to control the rise in
rates on interest-bearing liabilities or to increase the yield on earning
assets. Beginning in late 1992, the proceeds of maturing securities were
increasingly used to fund the growth of BancFirst's
51
<PAGE>
floating rate loan portfolio, thereby decreasing its zero to 12 months
negative gap position from 21.72% at the end of 1992 to 13.06% at the end of
1994, mitigating to some extent the effect of rising interest rates.
<TABLE>
<CAPTION>
INTEREST RATE NONINTEREST RATE
SENSITIVE SENSITIVE
------------------- -----------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------- ------- ------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans........................ $ 227,165 $ 140,206 $121,255 $ 33,688 $522,314
Federal funds sold........... 28,260 -- -- -- 28,260
Securities................... 46,706 41,146 126,001 9,191 223,044
--------- --------- -------- -------- --------
Total.................... $ 302,131 $ 181,352 $247,256 $ 42,879 $773,618
========= ========= ======== ======== ========
FUNDING SOURCES:
Noninterest-bearing demand
deposits (1)............. $ -- $ -- $ -- $ 75,115 $ 75,115
Savings and transaction
deposits................. 325,393 -- -- -- 325,393
Time deposits of $100 or more 34,483 18,628 4,216 -- 57,327
Time deposits under $100..... 88,265 117,664 27,776 -- 233,705
Short-term borrowings........ 117 -- -- -- 117
Stockholders' equity......... -- -- -- 81,961 81,961
--------- --------- -------- --------- --------
Total...................... $ 448,258 $ 136,292 $ 31,992 $ 157,076 $773,618
========= ========= ======== ========= ========
Interest sensitivity gap...... $(146,127) $ 45,060 $215,264 $(114,197)
Cumulative gap................ $(146,127) $(101,067) $114,197 $ --
Cumulative gap as a percentage
of total earning assets...... (18.89)% (13.06)% 14.76% --
</TABLE>
(1) Represents the amount of demand deposits required to support earning
assets in excess of interest-bearing liabilities and stockholders' equity.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses increased to $380,000 for 1994 from $251,000 for 1993, but was lower
than the $700,000 for 1992. These relatively low levels of provisions
reflect the significant decrease in the level of problem loans since 1990.
BancFirst reported net loan recoveries of $5,000 for 1994, compared to net
loan charge-offs of $249,000 and $232,000 for 1993 and 1992, which were
equivalent to only 0.06% and 0.07%, respectively, of average loans. A more
detailed discussion of the allowance for possible loan losses is provided
under "Loans."
SECURITIES TRANSACTIONS. Net gains on securities transactions were only
$5,000 in 1994, compared to $204,000 in 1993, and $75,000 in 1992.
BancFirst's practice is to hold its securities to maturity and it does not
engage in trading activities. The small gains from securities transactions
have primarily been from securities that have been called. A more detailed
discussion of securities is provided under "Securities."
OTHER NONINTEREST INCOME. Noninterest income, excluding securities
transactions, increased in 1994 by $870,000, or 8.4%, compared to an increase
of $1.94 million, or 22.5%, in 1993 and $633,000, or 8.0%, in 1992.
Noninterest income has become an increasingly important source of revenue.
BancFirst's fee income has increased each year since 1987 due to improved
pricing strategies, enhanced product lines and bank acquisitions. New
products and strategies are being implemented which are expected to produce
continued growth in noninterest income.
NONINTEREST EXPENSE. Total noninterest expense increased in 1994 by 8.5%
to $31.6 million, compared to an increase of 8.8% for 1993 and a decrease of
0.8% for 1992. The increases in 1994 and 1993 were due in large part to bank
acquisitions, although losses on other real estate owned decreased in 1993
and net income from other real estate owned was reported for 1994. The
decrease in 1992 was the result of a $1.92 million decrease in losses on
other real estate owned. Such decreases are reflective of BancFirst's
efforts to reduce the level of
52
<PAGE>
nonperforming assets. Salaries and employee benefits have increased over
the past three years due to acquisitions, additional staff for new product
lines and increased loan demand.
INCOME TAXES. Income tax expense increased to $6.55 million from $3.96
million for 1993 and $2.21 million for 1992. The tax expense for 1994
reflects the return of BancFirst to a fully taxable basis, with a limited
amount of net operating loss carryforwards available to reduce taxable
income. The remainder of BancFirst's state tax net operating loss
carryforwards were fully utilized in 1994 and state tax expense of $638,000
was recognized.
In January 1993, BancFirst adopted Statement of Financial Standards No.
109, "Accounting for Income Taxes." The cumulative effect on prior years of
the change in accounting for income taxes of $1.32 million was recorded with
a corresponding increase in BancFirst's deferred tax asset. BancFirst
realized current taxable income for 1993, which was partially offset by the
utilization of net operating loss carryforwards and alternative minimum tax
credit carryforwards. Deferred tax expense was recognized for the change in
temporary differences during the year, which was partially offset by an
adjustment to the deferred tax asset to reflect the increase in the federal
statutory tax rate from 34% to 35%.
Prior to 1993, BancFirst had net operating loss carryforwards for
financial and tax reporting purposes. Consequently, its income tax expense
or benefit primarily related to matters other than the provision of taxes for
current operations. However, in 1992 BancFirst recognized current tax
expense, which was partially offset by the utilization of tax net operating
loss carryforwards and alternative minimum tax credit carryforwards. In
addition, a tax benefit from the utilization of financial net operating loss
carryforwards was recognized by recording a corresponding deferred tax asset,
which was reported as an extraordinary item.
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.
EXTRAORDINARY ITEMS. In 1992, extraordinary income of $2.21 million was
recognized from the utilization of financial net operating loss carryforwards
to offset taxable income. This produced earnings per average common share of
$0.47.
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 and due from banks consists of cash and
cash items on hand, deposits and other amounts due from other banks, and
reserves deposited with the Federal Reserve Bank. Federal funds sold
consists of overnight investments of excess funds with other financial
institutions. The amount of cash and federal funds sold carried by BancFirst
is a function of the availability of funds presented to other institutions
for clearing, BancFirst's requirements for liquidity, operating cash and
reserves, available yields, and interest rate sensitivity management.
Balances of these items can fluctuate widely based on these various factors.
At December 31, 1994, cash and federal funds sold decreased $7.6 million, or
8.5%, as compared to year-end 1993, as a result of loan growth that exceeded
increases from bank acquisitions. In 1993, cash and federal funds sold
increased $5.9 million, or 7.11%, due to bank acquisitions.
53
<PAGE>
SECURITIES. BancFirst adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("FAS 115"), effective January 1, 1994. FAS 115 requires that investments in
debt securities be classified and accounted for in three categories: held
for investment, available for sale, and trading. As a result of adopting FAS
115, BancFirst transferred approximately $183 million from securities held
for investment to securities available for sale. These securities were
adjusted to market value, resulting in an initial unrealized net gain of
$2.64 million which increased stockholders' equity $1.72 million on an
after-tax basis. During 1994, the unrealized net gain became an unrealized
net loss of $6.33 million and the amount included in stockholders' equity
decreased $5.83 million to an unrealized net loss of $4.11 million. Prior to
January 1, 1994, all securities were classified as held for investment.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1993 1992
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
HELD FOR INVESTMENT
U. S. Treasury and other federal agencies... $ 9,505 $215,608 $182,447
States and political subdivisions........... 9,191 10,606 14,426
Other securities............................ 2,083 5,332 7,128
-------- -------- --------
Total................................. $ 20,779 $231,546 $204,001
======== ======== ========
Estimated market value...................... $ 20,395 $234,851 $208,218
======== ======== ========
AVAILABLE FOR SALE
U. S. Treasury and other federal agencies... $200,141
States and political subdivisions........... 747
Other securities............................ 1,377
--------
Total................................. $202,265
========
</TABLE>
During 1994, total securities decreased $8.5 million, or 3.67%, compared
to an increase of $27.5 million, or 13.5%, in 1993, and a decrease of $20.4
million or 9.08%, in 1992. The decreases in 1994 and 1992 were due to
maturities of securities being used to fund loan growth, while in 1993
acquisitions increased securities more than the amount used to fund loan
growth.
Securities of state and political subdivisions at December 31, 1992
includes $7.75 million of obligations of the State of Oklahoma and its
political subdivisions, which are considered to be obligations of a single
issuer, and are equivalent to 15.3% of stockholders' equity at December 31,
1992. These securities consist of general obligation bonds, revenue bonds
and interest-bearing warrants. The estimated market value of these
securities at December 31, 1992 was $8.12 million. At December 31, 1994 and
1993, the balance of these securities was equivalent to less than 10% of
stockholders' equity and is no longer considered a concentration of credit.
The Maturity Distribution of Securities summarizes the maturity and
weighted average taxable equivalent yields of the securities portfolio at
December 31, 1994. The average maturity of the portfolio has been shortened
significantly in recent years as part of BancFirst's asset/liability
management strategy. The percentage of securities maturing after one year,
but within five years, increased from 50.84% in 1992 to 63.21% in 1993. This
increase largely reflects the effect of increased loan demand and BancFirst's
reinvestment of maturing securities in proportionately higher amounts of
fixed-rate securities maturing in less than five years.
54
<PAGE>
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
BUT BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD FOR INVESTMENT
U.S. Treasury and other
federal agencies. . . . . $ 1,700 4.73% $ 4,232 7.70% $ 3,573 5.93% $ -- --% $ 9,505 6.50%
State and political
subdivisions. . . . . . . 1,542 5.39 5,220 5.44 998 6.17 1,431 6.08 9,191 5.61
Other securities. . . . . . 1,000 6.40 1,000 6.40 83 5.96 -- -- 2,083 6.38
-------- -------- ------- ------- --------
Total . . . . . . . . . . . $ 4,242 5.36 $ 10,452 6.45 $ 4,654 5.98 $ 1,431 6.08 $ 20,779 6.09
======== ======== ======= ======= ========
Percentage of total . . . . 20.42% 50.29% 22.40% 6.89% 100.00%
======== ======== ======= ======= ========
AVAILABLE FOR SALE
U. S. Treasury and other
federal agencies. . . . . $ 65,675 5.02% $120,528 5.54% $ 2,592 6.50% $11,346 6.83% $200,141 5.45%
State and political
subdivisions. . . . . . . 152 3.39 135 3.81 158 4.40 302 5.23 747 4.42
Other securities. . . . . . -- -- -- -- -- -- 1,377 5.96 1,377 5.96
-------- -------- ------- ------- --------
Total . . . . . . . . . . . $ 65,827 5.02 $120,663 5.54 $ 2,750 6.38 $13,025 6.70 $202,265 5.45
======== ======== ======= ======= ========
Percentage of total . . . . 32.54% 59.66% 1.36% 6.44% 100.00%
======== ======== ======= ======= ========
Total securities. . . . . . $ 70,069 5.04% $131,115 5.61% $ 7,404 6.13% $14,456 6.04% $223,044 5.51%
======== ======== ======= ======= ========
Percentage of total . . . . 31.42% 58.78% 3.32% 6.48% 100.00%
======== ======== ======= ======= ========
</TABLE>
Due to falling interest rates, BancFirst's securities increased in value
in 1992 and 1993. Rising interest rates in 1994 caused the market value of
BancFirst's securities to decrease. At the same time, the average taxable
equivalent yield of the portfolio decreased from 6.49% in 1992 to 5.53% in
1993 and decreased slightly to 5.51% in 1994. At higher prevailing interest
rates, the yield of the Securities portfolio should increase as proceeds from
maturing securities are reinvested at the higher rates.
LOANS. Total loans have increased in each of the last five years. The
increase was $56 million, or 12%, in 1994, compared to $83.9 million, or
21.9%, in 1993. These increases resulted from acquisitions and the
successful implementation of BancFirst's various strategies to develop loan
growth. In 1994, $23 million in loans were added by bank acquisitions,
compared to $48 million in 1993. Continued growth in the Oklahoma City and
Tulsa offices, and specialized lending activities such as guaranteed student
loans, SBA guaranteed loans and residential mortgage loans contributed to the
internal growth.
COMPOSITION. BancFirst's loan portfolio is well diversified among
commercial and individual borrowers. Commercial loans are comprised
principally of loans to companies in light manufacturing, retail and service
industries. Construction and development loans totaled only $29.8 million,
or 5.70% of total loans as of the end of 1994, while oil and gas production
loans totaled only $6.05 million, or 1.16% of total loans at such date. Real
estate loans are relatively equally divided between loans on commercial real
estate and mortgages on personal residences. Installment loans are comprised
mostly of loans to individuals for the purchase of vehicles and student
loans. Loans secured by real estate have been a large proportion of the loan
portfolio for a number of years; however, since 1989 the percentage of total
loans secured by real estate has decreased slightly. In 1994, this
percentage was 52.06% compared to 56.6% for 1989. Although the percentage of
the portfolio represented by real estate loans has declined, BancFirst
remains subject to risk from future market fluctuations in property values.
BancFirst attempts to manage this risk through rigorous loan underwriting
standards, training of loan officers and close monitoring of the values of
individual properties.
55
<PAGE>
The majority of the commercial real estate and other commercial loans
have maturities of one year or less. However, many of these loans are
renewed at existing or similar terms after scheduled principal reductions.
Also, approximately 63% of the commercial real estate and other commercial
loans had adjustable interest rates at year-end 1994. The short maturities
and adjustable interest rates on these loans allow BancFirst to maintain the
majority of its loan portfolio at or near market interest rates.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------- -------------- --------------- -------------- --------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and other. . . . . $156,718 30.00% $131,088 28.11% $115,037 30.08% $ 87,145 26.45% $ 84,404 25.71%
Real estate --
construction . . . 29,760 5.70 19,258 4.13 10,028 2.62 9,294 2.82 7,254 2.21
Real estate --
mortgage . . . . . 242,143 46.36 229,143 49.13 185,982 48.62 170,045 51.62 177,008 53.92
Consumer . . . . . . 93,693 17.94 86,867 18.63 71,451 18.68 62,958 19.11 59,607 18.16
-------- ------ -------- ------ ------- ------ ------- ----- ------- ------
Total loans . . . . $522,314 100.00% $466,356 100.00% $382,498 100.00% $329,442 100.00% $328,273 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and other . $117,310 $39,408 $ -- $156,718
Real estate -- construction. . . . 26,519 3,241 -- 29,760
Real estate -- mortgage (excluding
loans secured by 1-4 family
residential properties) . . . . 78,500 46,988 -- 125,488
-------- ------- ---- --------
Total . . . . . . . . . . . . . $222,329 $89,637 $ -- $311,966
======== ======= ==== ========
Loans with predetermined interest
rates . . . . . . . . . . . . . $ 83,329 $32,139 $ -- $115,468
Loans with adjustable interest
rates . . . . . . . . . . . . . 139,000 57,498 -- 196,498
-------- ------- ---- --------
Total . . . . . . . . . . . . . $222,329 $89,637 $ -- $311,966
======== ======= ==== ========
Percentage of total . . . . . . . 71.27% 28.73% --% 100.00%
======== ======= ==== ========
</TABLE>
The information relating to the maturity and rate sensitivity of loans
is based upon original loan terms and is not adjusted for "rollovers." In
the ordinary course of business, loans maturing within one year may be
renewed, in whole or in part, at interest rates prevailing at the date of
renewal.
NONPERFORMING AND RESTRUCTURED LOANS. Nonperforming and restructured
loans totaled $3.72 million at December 31, 1994, compared to $4.67 million
at December 31, 1993. The higher level in 1993 was due to the acquisition of
a bank during that year with a substantial amount of problem loans.
Nonperforming and restructured loans as a percentage of total loans decreased
to 0.71% from 1.00% in 1993. From a historical perspective, nonperforming
loans peaked in 1986 due to the severe economic downturn which began in 1985,
but have gradually decreased since that time. However, it is reasonable to
expect that over the next several years loan losses will rise to historical
norms as a result of economic and credit cycles.
Nonaccrual loans negatively impact BancFirst'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.
56
<PAGE>
Total interest income which was not accrued on nonaccrual loans outstanding
at year end was approximately $145,000 in 1994 and $185,000 in 1993. Only a
small amount of this interest was actually collected.
The classification of a loan as nonperforming does not necessarily
indicate that loan principal and interest will ultimately be uncollectible.
BancFirst'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 1994, the allowance for possible loan
losses as a percentage of nonperforming and restructured loans was 262%,
compared to 193% at year-end 1993.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Past due over 90 days and still accruing. . . . . . $ 351 $ 590 $ 378 $ 897 $ 846
Nonaccrual. . . . . . . . . . . . . . . . . . . . . 2,715 3,278 2,370 2,739 6,526
Restructured. . . . . . . . . . . . . . . . . . . . 654 804 1,025 610 1,401
------ ------ ------- ------- -------
Total nonperforming and restructured loans . . . . 3,720 4,672 3,773 4,246 8,773
Other real estate owned and repossessed assets. . . 2,354 4,220 7,574 9,345 14,273
------ ------ ------- ------- -------
Total nonperforming and restructured assets. . . . $6,074 $8,892 $11,347 $13,591 $23,046
====== ====== ======= ======= =======
Nonperforming and restructured loans to total loans 0.71% 1.00% 0.99% 1.29% 2.67%
====== ====== ======= ======= =======
Nonperforming assets to total assets. . . . . . . . 0.70% 1.08% 1.61% 2.00% 3.32%
====== ====== ======= ======= =======
</TABLE>
Other real estate owned and repossessed assets have decreased from $21.3
million at year-end 1989 to $2.35 million at year-end 1994, as a result of a
substantial effort by BancFirst to dispose of these assets. To encourage
local management to sell the other real estate as quickly as possible and to
ensure that it is carried at a conservative value, BancFirst's policy is to
write other real estate down annually by the greater of 10% of its remaining
carrying value or the difference between its remaining carrying value and its
estimated market value.
Potential problem loans are performing loans to borrowers with a
weakened financial condition, or which are experiencing unfavorable trends in
their financial condition, which causes management to have concerns as to the
ability of such borrowers to comply with the existing repayment terms. These
loans, which are not included in nonperforming and restructured assets,
totaled $13.7 million at December 31, 1994. 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
BancFirst'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, BancFirst's Asset Quality Department performs periodic loan
reviews at each of BancFirst'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 BancFirst's loan loss provisions to
return to historically normal levels.
Adversely classified loans have declined every year since 1986,
excluding bank acquisitions, primarily as a result of the improving state
economy and BancFirst's efforts to reduce the level of problem loans. Total
adversely classified loans (which includes nonperforming loans, certain
restructured loans and potential problem loans described above) were $16.3
million at the end of 1994, compared to $17.6 million for 1993 and $14
million at the end of 1992. The percentage of classified loans to total
loans was 3.12% for 1994, 3.77% for 1993 and 3.65% for 1992.
57
<PAGE>
Net charge-offs as a percentage of average loans have decreased each
year since 1989 reflecting the decrease in problem loans over such period.
In 1994, BancFirst recognized $5,000 of net recoveries.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year. . . . . . . . . . . $ 9,027 $ 7,202 $ 5,967 $ 6,400 $ 5,246
-------- -------- -------- -------- --------
Charge-offs:
Commercial . . . . . . . . . . . . . . . . . . . (285) (218) (285) (734) (4,916)
Real estate. . . . . . . . . . . . . . . . . . . (116) (436) (317) (936) (499)
Consumer . . . . . . . . . . . . . . . . . . . . (450) (417) (330) (365) (1,059)
Other. . . . . . . . . . . . . . . . . . . . . . (68) (83) (10) (367) (6)
-------- -------- -------- -------- --------
Total charge-offs . . . . . . . . . . . . . . . (919) (1,154) (1,035) (2,402) (6,480)
-------- -------- -------- -------- --------
Recoveries:
Commercial . . . . . . . . . . . . . . . . . . . 400 431 428 541 619
Real estate. . . . . . . . . . . . . . . . . . . 341 251 239 241 73
Consumer . . . . . . . . . . . . . . . . . . . . 148 185 93 143 149
Other. . . . . . . . . . . . . . . . . . . . . . 35 38 43 92 1
-------- -------- -------- -------- --------
Total recoveries. . . . . . . . . . . . . . . . 924 905 803 1,017 842
-------- -------- -------- -------- --------
Net (charge-offs) recoveries. . . . . . . . . . . 5 (249) (232) (1,385) (5,638)
Provisions charged to operations. . . . . . . . . 380 251 700 952 6,792
Additions from acquisitions . . . . . . . . . . . 317 1,823 767 -- --
-------- -------- -------- -------- --------
Balance at end of year. . . . . . . . . . . . . . $ 9,729 $ 9,027 $ 7,202 $ 5,967 $ 6,400
======== ======== ======== ======== ========
Average loans . . . . . . . . . . . . . . . . . . $493,300 $412,306 $350,882 $327,397 $328,267
======== ======== ======== ======== ========
Total loans . . . . . . . . . . . . . . . . . . . $522,314 $466,356 $382,498 $329,442 $328,273
======== ======== ======== ======== ========
Net charge-offs to average loans . . . . . . . . 0.00% 0.06% 0.07% 0.42% 1.72%
======== ======== ======== ======== ========
Allowance to total loans. . . . . . . . . . . . . 1.86% 1.94% 1.88% 1.81% 1.95%
======== ======== ======== ======== ========
ALLOCATION OF THE ALLOWANCE BY CATEGORY OF LOANS:
Commercial, financial and other. . . . . . . . . $ 720 $ 647 $ 333 $ 413 $ 547
Real estate -- construction . . . . . . . . . . . . 564 747 -- 6 6
Real estate -- mortgage . . . . . . . . . . . . . . 927 729 872 295 290
Consumer . . . . . . . . . . . . . . . . . . . . 149 155 156 250 148
Unallocated . . . . . . . . . . . . . . . . . . 7,369 6,749 5,841 5,003 5,409
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . $ 9,729 $ 9,027 $ 7,202 $ 5,967 $ 6,400
======== ======== ======== ======== ========
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS:
Commercial, financial and other. . . . . . . . . 30.00% 28.11% 30.08% 26.45% 25.71%
Real estate -- construction . . . . . . . . . . . . 5.70 4.13 2.62 2.82 2.21
Real estate -- mortgage . . . . . . . . . . . . . . 46.36 49.13 48.62 51.62 53.92
Consumer . . . . . . . . . . . . . . . . . . . . 17.94 18.63 18.68 19.11 18.16
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ========
</TABLE>
Statement of Financing Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("FAS 114"), was issued in May 1993.
This new accounting standard requires that impaired loans be measured based
upon the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when, based on current information
and events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. BancFirst plans to adopt
FAS 114 in January 1995. The adoption of FAS 114 is not expected to have a
material effect on the financial position or results of operation of
BancFirst.
LIQUIDITY AND FUNDING. BancFirst's principal source of liquidity and
funding is its diverse deposit base generated from customer relationships.
The availability of deposits is affected by economic conditions and
competition with other financial institutions and alternative investments.
Through interest rates offered, competitive pricing and other banking
services offered, BancFirst can, to a limited extent, control its level of
deposits. The
58
<PAGE>
level and maturity of deposits necessary to support BancFirst's lending and
investment functions is determined through monitoring loan demand and through
its asset/liability management process.
The level of deposits has fluctuated in recent years due to various factors,
including acquisitions and competition. Due in part to its relatively low
loan to deposit ratio, BancFirst has been highly liquid and has not needed to
retain deposits, unless a favorable spread could be earned on the funds.
However, loan growth and securities pledging requirements reached a level in
1994 which now make it desirable for BancFirst to generate internal deposit
growth. Total deposits increased $15.6 million, excluding acquisitions, in
1994. Including acquisitions, total deposits increased $48.2 million in 1994
and $100 million in 1993.
BancFirst's core deposit base, which consists of all deposits except time
deposits of $100,000 or more, has been growing in recent years. Average core
deposits have increased $171 million, or 31%, since 1990 and were 92.8% of
average total deposits in 1994, compared to 88.7% in 1990. The average level
of demand deposits has also been growing, both in amount and percentage of
total deposits. These factors have provided BancFirst with a relatively
stable, low-cost funding source.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES
Demand deposits . . . . . . . $163,002 $132,847 $110,512 $107,800 $100,689
Interest-bearing transaction
deposits . . . . . . . . . . 173,647 146,187 126,165 110,862 98,398
Savings deposits . . . . . . 156,920 124,798 106,826 97,041 92,550
Time deposits under $100,000. 228,429 213,895 228,656 249,547 259,399
-------- -------- -------- -------- --------
Total core deposits . . . . 721,998 617,727 572,159 565,250 551,036
Time deposits of $100,000
or more . . . . . . . . . . 56,196 49,206 45,811 59,653 70,323
-------- -------- -------- -------- --------
Total deposits . . . . . . $778,194 $666,933 $617,970 $624,903 $621,359
======== ======== ======== ======== ========
<CAPTION>
PERCENTAGES OF TOTAL DEPOSITS % OF % OF % OF % OF % OF
AND AVERAGE RATES PAID TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE
------- ----- ------ ----- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits . . . . . . . 20.95% 19.92% 17.88% 17.25% 16.20%
Interest-bearing transaction.
deposits 22.32 2.82% 21.92 2.83% 20.42 3.05% 17.74 4.35% 15.84 4.64%
Savings deposits. . . . . . . 20.16 3.08 18.71 3.03 17.29 3.32 15.53 4.77 14.89 5.27
Time deposits under $100,000. 29.35 3.87 32.07 3.56 37.00 4.48 39.93 6.27 41.75 7.40
------- ------ ------- ------- ----- -------
Total core deposits . . . . 92.78 92.62 92.59 90.45 88.68
Time deposits of $100,000
or more. . . . . . . . . . . 7.22 3.96 7.38 3.58 7.41 4.36 9.55 6.10 11.32 7.56
------- ------ ------- ------- ----- -------
Total deposits . . . . . . 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Average rate paid on
interest-bearing deposits. . 3.38% 3.24% 3.87% 5.56% 6.52%
===== ===== ===== ===== =====
</TABLE>
The level of time deposits of $100,000 or more has been steadily
decreasing since 1989 and represented only 7.22% of average total deposits
at year-end 1994. BancFirst has not utilized brokered deposits.
Approximately 93% of its time deposits of $100,000 or more at December 31,
1994 mature in one year or less.
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
Three months or less . . . . . . . . . . $34,483
Over three through six months. . . . . . 11,848
Over six through twelve months . . . . . 6,780
Over twelve months . . . . . . . . . . . 4,216
-------
Total. . . . . . . . . . . . . . . . . $57,327
=======
59
<PAGE>
Short-term borrowings, consisting of federal funds purchased, repurchase
agreements and treasury tax and loan notes, are another available source of
funds for BancFirst. The level of short-term borrowings is determined by
various factors, including customer demand and BancFirst's ability to earn a
favorable spread on the funds obtained. Short-term borrowings decreased
$818,000 in 1994, compared to an increase of $869,000 in 1993.
The Bank is highly liquid, despite decreases in deposits in recent years
excluding acquisitions. This liquidity positions the Bank to respond to
increased loan demand and other requirements for funds, or to decreases in
funding sources. In 1994, 1993 and 1992, cash flows from operations,
investing activities and other funding sources 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 1994, the Bank paid three dividends totaling $3.83 million.
CAPITAL RESOURCES. Stockholders' equity totaled $82 million at year-end
1994, compared to $80 million at year-end 1993 and $50.8 million at year-end
1992. Stockholders' equity has generally increased each year since 1983,
except for losses recognized in 1989 and 1990. In 1994, stockholders' equity
was reduced by the redemption of the $3.9 million issue of 10% Preferred
Stock and $4.11 million of unrealized securities losses. The large increase
in 1993 was due to BancFirst's public stock offering completed in April 1993
and earnings retained for the year. BancFirst's average equity to capital
ratio at year-end 1994 was 9.34%, compared to 9.06% for 1993 and 7.50% for
1992.
In 1989, the Federal Reserve Board adopted risk-based capital guidelines
which were effective beginning in 1990. The new guidelines create two tiers
of capital and establish minimum levels of Tier I and total capital as
percentages of risk- weighted assets. Also, a minimum leverage ratio (Tier I
capital to total average assets) was established. Risk-weighted assets are
determined by assigning the various assets to one of four risk categories
ranging from 0% to 100%. Beginning with 1990, the minimum leverage ratio is
3% and the minimum total risk-based capital ratio was 7.25%. At year-end
1992 the minimum total risk-based capital ratio increased to 8%. The new
standards are considered to be minimum requirements and banking institutions
are generally expected to maintain capital well above the minimum levels, as
has been the case in the past. At December 31, 1994, BancFirst's leverage
ratio was 9.08% and its total risk-based capital ratio was 16.67%.
Prior to 1992, dividends on BancFirst's preferred stock and common stock
were limited by depressed earnings, regulatory commitments and loan
covenants. In October 1992, BancFirst redeemed its $10 million Floating Rate
Preferred Stock issue for $6 million cash, eliminating $2.2 million of
accumulated preferred dividends in arrears. In December 1992, BancFirst paid
all accumulated dividends in arrears on its 10% Preferred Stock and resumed
the regular semi-annual 10% Preferred dividend. In addition, BancFirst
resumed quarterly common dividends. The 10% Preferred Stock was redeemed in
February 1994. Future dividend payments will be determined by BancFirst's
Board of Directors in light of the earnings and financial condition of
BancFirst 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 BancFirst's ability to
pay dividends, Management believes that, based upon the anticipated
performance of BancFirst, regular dividend payments will continue for the
remainder of 1995 and through 1996.
In April 1993, BancFirst completed a public stock offering and paid off its
note payable. A $10 million line of credit was obtained in August 1993, to
be specifically used for acquisitions. No advances have been made under the
line of credit.
60
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995
SUMMARY
BancFirst reported net income of $3.64 million for the quarter ended
September 30, 1995, compared to net income of $2.77 million for the third
quarter of 1994. Third quarter 1995 earnings included a $542,000 refund of
FDIC insurance premiums. Earnings per share was $0.57 for the third quarter
of 1995, compared to $0.43 for the same quarter of the prior year.
Net income for the first nine months of 1995 was $9.41 million, exceeding the
$8.64 million for the same period of 1994, even though earnings in 1994
benefitted from loan recoveries, gains on sales of other real estate and a
lower effective tax rate. Year-to-date earnings per share was $1.47, compared
to $1.34 for the first nine months of 1994.
Total assets were $981 million at September 30, 1995, an increase of $108
million from December 31, 1994 and $109 million from September 30, 1994, due
primarily to the acquisition of State National Bank of Marlow, Oklahoma, with
total assets of $102 million, in March 1995. Stockholders' equity increased
$12.8 million compared to December 31, 1994 and $13.7 million compared to
September 30, 1994.
RESULTS OF OPERATIONS
THIRD QUARTER. Net interest income increased for the third quarter of
1995 by $1.23 million, or 12.1%, as compared to the same quarter of 1994.
Net interest spread decreased 28 basis points while average net earning
assets increased $22.3 million. Net interest margin on a taxable equivalent
basis was 5.24% for the third quarter, compared to 5.29% for the same quarter
of 1994.
BancFirst provided $150,000 for possible loan losses for the quarter,
compared to $321,000 for the same quarter of 1994. Net loan charge-offs
were $134,000 for the third quarter of 1995 and $77,000 for the third
quarter of 1994, representing annualized rates of 0.09% and 0.06% of total
loans, respectively.
Noninterest income increased $381,000, or 13.6%, compared to the third
quarter of 1994 due to income added by the bank acquired in 1995 and gains
on securities transactions. Noninterest expense increased only $344,000,
or 4.15%, as the added operating expenses of the bank acquired were
partially offset by the refund of FDIC insurance premiums in the third
quarter.
YEAR-TO-DATE. For the first nine months of 1995, net interest income
increased by $3.48 million, or 12.1%, as compared to the same period of
1994. Net interest spread decreased 17 basis points while average net
earning assets increased $18 million. Net interest margin on a taxable
equivalent basis was 5.22% for the nine months, compared to 5.15% for the
same period of 1994.
BancFirst provided $408,000 for possible loan losses for the first nine
months of 1995, compared to only $49,000 for the first nine months of 1994.
Net loan charge-offs were $162,000 in 1995, compared to net loan
recoveries of $191,000 in 1994, representing annualized rates of 0.04% and
(0.05)% of total loans, respectively.
Noninterest income increased $759,000, or 9.02%, compared to the first
nine months of 1994, due to income of the bank acquired in 1995 and gains
on securities transactions. Noninterest expense increased $2.25 million,
or 9.49%, compared to 1994, due to the added expenses of the bank acquired,
which were partially offset by the FDIC insurance premium refund in the
third quarter, and the net income on other real estate owned in 1994.
Income tax expense of $5.59 million was recognized for the first nine
months of 1995, compared to $4.74 million for the same period of 1994.
BancFirst's effective tax rate increased from 35% in 1994 to 37% in 1995
due to a higher level of taxable income, lower tax-exempt interest and less
tax benefit carryforwards available for utilization.
61
<PAGE>
FINANCIAL POSITION
Total securities increased $32.3 million compared to December 31, 1994
and $23.2 million compared to September 30, 1994, as a net result of
securities added by the bank acquisition and maturities of securities used
to fund loan growth. The net unrealized gain on securities available for
sale was $1.36 million at the end of the third quarter of 1995, compared to
net unrealized losses of $6.33 million and $3.83 million at December 31 and
September 30, 1994, respectively. The average taxable equivalent yield on
the securities portfolio for the third quarter increased to 6.06% from
5.62% in the same quarter of 1994, reflecting the rise in interest rates
during that time.
Total loans increased $82.3 million since December 31, 1994 and $94.5
million since September 30, 1994 from both internal loan growth and the
bank acquisition. The allowance for possible loan losses increased
$609,000 in the first nine months of 1995 due primarily to purchased
reserves from the bank acquisition and provisions for losses. The
allowance as a percentage of total loans was 1.71%, 1.86% and 1.88% at
September 30, 1995, December 31, 1994 and September 30, 1994, respectively.
Nonperforming and restructured assets increased in the first nine months
of 1995 to $6.83 million from $6.07 million at year-end 1994 and $5.82
million at the end of the third quarter of 1994, due to the nonperforming
assets of the bank acquired in 1995. Although, the ratio of nonperforming
and restructured assets to total assets remained at only 0.70%, it is
reasonable to expect that over the next several years problem loans will
rise to historical norms as a result of economic and credit cycles.
Total deposits increased $82 million compared to both December 31, 1994
and September 30, 1994 due primarily to the bank acquisition. BancFirst's
deposit base continues to be comprised substantially of core deposits, with
large denomination certificates of deposit being only 9.5% of total
deposits at September 30, 1995.
BancFirst joined the Federal Home Loan Bank of Topeka, Kansas in May
1995 and was approved for a $19.6 million credit line. In September 1995,
the Bank borrowed $10 million which matures in May 1996 and $810,000 which
matures in September 2010. Both borrowings are at fixed rates and are for
the purpose of funding loan growth.
Stockholders' equity increased $12.8 million compared to year-end 1994
and $13.7 million compared to September 30, 1994. These increases were the
result of accumulated earnings and a change from net unrealized losses to
net unrealized gains on securities available for sale. Average
stockholders' equity to average assets dropped slightly to 9.30% from 9.34%
at December 31, 1994 due to the bank acquisition in 1995. BancFirst's
regulatory capital ratios all remain well in excess of the minimum
requirements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of September 30, 1995 with
respect to any person who is known by BancFirst to be the beneficial owner
of more than 5% of BancFirst Common Stock.
AMOUNT OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------------------------ ---------- --------
David E. Rainbolt 3,102,194(1) 49.94%
P.O. Box 26788
Oklahoma City, OK 73126
BancFirst Corporation Employee Stock
Ownership and Thrift Plan (the "ESOP") 509,400(2) 8.20%
c/o BancTrust, 808 South Main
Stillwater, OK 74074
62
<PAGE>
________________________
(1) Includes 3,023,829 shares held by RBLP; 9,302 shares held in trust for
David E. Rainbolt's children; 7,766 shares held by the ESOP; and 30,000
shares subject to currently exercisable options.
(2) All of the shares owned by the ESOP are allocated to the participant
accounts, and the participants direct the trustee as to the voting of
such shares.
Because of his position with BancFirst Corporation and his equity
ownership therein, David E. Rainbolt may be deemed to be a parent of
BancFirst for purposes of the Act.
MANAGEMENT
The directors and executive officers of BancFirst are as follows:
<TABLE>
<CAPTION>
DIRECTOR/OFFICER
NAME AGE SINCE POSITION
- ---- --- ----- --------
<S> <C> <C> <C>
H. E. Rainbolt 66 1984 Chairman of the Board and Executive Committee
J. Ralph McCalmont 59 1984 Vice Chairman of the Board
David E. Rainbolt 39 1984 Director and Executive Committee member; President and
Chief Executive Officer
Robert A. Gregory 59 1989 Director and Chief Credit Officer of the Bank
John T. Hannah 73 1986 Director
J. R. Hutchens, Jr. 67 1984 Director
Melvin Moran 64 1984 Director
Dennis L. Brand 47 1992 Regional Executive and President BancFirst Shawnee
George A. Cannon 50 1984 Regional Executive
E. Wayne Cardwell 54 1986 Regional Executive
Roy C. Ferguson 48 1992 Regional Executive and President BancFirst Tulsa
D.B. Green 49 1995 Regional Executive and President BancFirst Marlow
Randy Foraker 39 1987 Senior Vice President and Controller
</TABLE>
H. E. RAINBOLT has been Chairman of BancFirst since July 1984 and its
President and Chief Executive Officer from July 1984 to December 1991. He
was Chairman of The Federal National Bank & Trust Company of Shawnee,
Oklahoma from January 1967 to April 1989 and served that bank as Chief
Executive Officer from January 1967 to February 1982. He was Chairman of
Federal National Bancshares, Inc. from December 1980 until it was merged into
United Community in 1985. Mr. Rainbolt also holds varying percentages of
ownership in a number of other bank holding companies, including Commerce
Bancshares, Inc. (100%), Commerce Bancorporation, Inc. (88%) and Johnston
County Bancorporation (34%). H. E. Rainbolt is the father of David Rainbolt.
J. RALPH MCCALMONT has been Vice Chairman of BancFirst since July 1984.
He was Chairman of The First National Bank, Guthrie, Oklahoma from February
1974 to April 1989.
DAVID E. RAINBOLT has been Director of BancFirst since July 1984. He has
been President of BancFirst since January 1992 and was Executive Vice
President and Chief Financial Officer of BancFirst from July 1984 to December
1991. He was President of Trencor, Inc. from January 1982 to January 1984.
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<PAGE>
ROBERT A. GREGORY is currently a Director of BancFirst and Chief Credit
Officer of the Bank. From 1989 to June of 1995, he was a Regional Executive
of BancFirst and is also President of BancFirst Oklahoma City. He was
Executive Vice President of Liberty National Bank & Trust Company of Oklahoma
City from 1979 to March 1989.
JOHN T. HANNAH has been Director of BancFirst since October 1986. He
served as Chairman of the Board of City Bank, Muskogee, Oklahoma, from July
1973 to April 1989.
J. R. HUTCHENS, JR. has been Director of BancFirst since August 1984. He
has been President and principal owner of Hutchens Oil Co. since 1949.
MELVIN MORAN has been Director of BancFirst since August 1984. He was
Vice President of Moran Pipe and Supply Co., Inc. from 1955 to 1981. From
1977 to 1982, he was Vice President and then President of Moran Oil, Inc.
Since 1982, he has been managing partner of Moran-K Oil. Since 1980, he has
also been a managing partner of Moran Oil Enterprises.
DENNIS L. BRAND is currently a Regional Executive of BancFirst and is also
President of BancFirst Shawnee. Prior to May 1992 and for at least three
years prior thereto he was Executive Vice President of Retail Banking of Bank
of Oklahoma, N.A.
GEORGE A. CANNON is currently a Regional Executive of BancFirst and served
as Executive Vice President of BancFirst from August 1984 to April 1989. He
was Senior Vice President of Thunderbird Financial Corporation from April
1982 to August 1984. From June 1967 to April 1982, Mr. Cannon was a field
office supervisor with the FDIC.
E. WAYNE CARDWELL is currently a Regional Executive of BancFirst. He was
CEO of City Bank, Muskogee, Oklahoma from December 1986 to April 1989. Prior
to 1986 he was President of City Bank, Muskogee.
ROY C. FERGUSON is currently a Regional Executive of BancFirst and is also
President of BancFirst Tulsa, a loan production office. He was Executive
Vice President of Liberty Bank and Trust Co. N.A. of Tulsa, Oklahoma from
1983 to May 1992.
D. B. GREEN is currently a Regional Executive of BancFirst and is also
President of BancFirst Marlow. He was President of State National Bank of
Marlow, Oklahoma for at least the past five years.
RANDY P. FORAKER has been Senior Vice President and Controller of
BancFirst since 1987.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met nine times during 1994. No director attended
fewer than 75% of all meetings of the Board of Directors and committees on
which they served.
The Board of Directors has standing an Audit Committee, an Executive
Committee, and a Compensation Committee.
The Audit Committee of BancFirst also serves as the Audit Committee of the
Bank. The Audit Committee is responsible for conducting an annual
examination of BancFirst and the Bank and for ensuring that adequate internal
controls and procedures are maintained. An independent auditor is engaged to
conduct the annual examination and the Audit Committee meets with the
independent auditor to discuss the scope and results of the examination.
Also, the Internal Auditor of the Bank reports to the Audit Committee.
During 1994, the Audit Committee was composed of Melvin Moran (Chairman),
John T. Hannah and J. R. Hutchens, Jr., and met four times.
The Executive Committee of BancFirst is also the Executive Committee of
the Bank. The Executive Committee has the authority to exercise all the
powers of the Board of Directors during the intervals between
64
<PAGE>
meetings, except the power to amend the bylaws, and has been delegated the
authority by the Board of Directors to determine compensation with respect to
all executive officers of BancFirst other than the officers comprising the
Executive Committee itself, for which officers compensation is determined by
the Compensation Committee. A report of the Executive Committee with respect
to executive compensation is presented under "Compensation of Directors and
Executive Officers--Report of the Compensation Committee and the Executive
Committee on Executive Compensation." The Executive Committee advises and
assists the officers of BankFirst in all matters concerning the management of
its business. In addition, the Executive Committee serves as the Discount
Committee of the Bank and approves certain loans pursuant to the Bank's Loan
Policy. During 1994, the Executive Committee was composed of H. E. Rainbolt
(Chairman), David E. Rainbolt, Leslie E. Greathouse and J. Ralph McCalmont,
and met approximately 45 times.
The Compensation Committee was established to review the propriety of
executive officer compensation, including the various incentive, stock option
and other benefit plans adopted by the Board of Directors, with respect to
executive officers who are members of the Executive Committee. During 1994,
the Compensation Committee was composed of H. E. Rainbolt (Chairman), John T.
Hannah, J. R. Hutchens, Jr. and Melvin Moran. The Compensation Committee met
once during 1994 to review the compensation of the members of the Executive
Committee, although it operated on an informal basis throughout the year
through discussions and actions at regular Board meetings and through
conversations with management and the other directors. A report from the
Compensation Committee and the Executive Committee is presented under
"--Compensation of Directors and Executive Officers--Report of the
Compensation Committee and the Executive Committee on Executive Compensation."
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to annual
and other compensation paid or awarded to BancFirst's chief executive officer
and its four most highly compensated executive officers other than the chief
executive officer, for or with respect to the fiscal years ended December 31,
1994, 1993 and 1992.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------ ------ -------- ------- ------------
<S> <C> <C> <C> <C>
David E. Rainbolt, President, Chief
Executive Officer 1994 $108,000 $20,520 $ 7,649(3)
1993 103,000 20,600 9,277(3)
1992 100,000 95,000(1) 33,139(4)
H. E. Rainbolt, Chairman of the Board 1994 200,000 38,000 23,414(2)
1993 241,693 48,000 29,995(2)
1992 241,275 48,338 30,128(2)
Leslie E. Greathouse, Vice Chairman 1994 125,000 28,500 8,853(3)
1993 125,000 25,000 10,883(3)
1992 130,370 25,000 11,245(3)
J. Ralph McCalmont, Vice Chairman(5) 1994 150,000 30,000 8,928(3)
1993 150,000 30,000 12,607(3)
1992 150,000 30,000 12,464(3)
Robert A. Gregory, Director and Chief
Credit Officer of the Bank 1994 130,000 26,000 8,928(3)
1993 125,000 27,500 9,581(3)
1992 115,000 24,000 6,255(3)
</TABLE>
65
<PAGE>
_________________
(1) Includes a special bonus of $75,000 for negotiating
the purchase and retirement of BancFirst's Floating Rate Preferred Stock.
(2) Consists of contributions by BancFirst to the ESOP for the benefit of
the executive officer of $8,928, $15,123 and $14,663 for 1994, 1993 and
1992, respectively, and the excess value of premiums paid by BancFirst on
a split-dollar life insurance policy of $14,486, $14,872 and $15,465 for
1994, 1993 and 1992, respectively.
(3) Consists of contributions by BancFirst to the ESOP for the benefit of
the named executive officer.
(4) Consists of a $13,139 contribution by BancFirst to the ESOP for the
benefit of the named executive officer and $20,000 for the purchase of a
life insurance policy owned by such executive officer.
(5) Mr. Greathouse resigned all positions with BancFirst effective June
1995.
FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding outstanding
options granted under the Stock Option Plan held by the named executive
officers on December 31, 1994. No options were granted to these executive
officers for 1994. Also, during 1994, none of the named executive officers
exercised any options, nor were any outstanding options repriced by
BancFirst. For the purposes of this table, the "value" of an option is the
difference between the market value at December 31, 1994 of the shares of
Common Stock subject to the option and the aggregate exercise price of such
option.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1994 DECEMBER 31, 1994 (1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David E. Rainbolt, President and
Chief Executive Officer 23,125 6,875 $189,531 $ 56,719
H. E. Rainbolt, Chairman of the
Board 23,125 6,875 189,531 56,719
Leslie E. Greathouse, Vice Chairman(2) 20,625 6,875 170,156 56,719
J. Ralph McCalmont, Vice Chairman 23,125 6,875 189,531 56,719
Robert A. Gregory, Director and Chief
Credit Officer of the Bank 7,500 12,500 61,875 103,125
</TABLE>
______________________
(1) Based on the December 31, 1994 closing price of $14.75.
(2) Mr. Greathouse resigned all positions with BancFirst effective June 1995.
COMPENSATION OF DIRECTORS
All directors receive a fee of $250 per regular quarterly meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the Compensation Committee shared responsibility with the
Executive Committee for the development and implementation of BancFirst's
executive compensation policies. The Executive Committee has responsibility
for determining the compensation of all executive officers other than the
members of the Executive Committee itself, the compensation for whom is
determined by the Compensation Committee. During 1994, the Executive
Committee was composed of H. E. Rainbolt, David E. Rainbolt, J. Ralph
McCalmont, all of whom are executive officers of BancFirst, and Leslie E.
Greathouse, an executive officer of BancFirst until June 1995. During
66
<PAGE>
such period, the Compensation Committee was composed of John T. Hannah,
J. R. Hutchens, Jr. and Melvin Moran, all of whom are not and have never been
officers or employees of BancFirst or its subsidiaries, and H. E. Rainbolt,
Chairman of the Board of BancFirst.
BancFirst provides item processing and correspondent services to certain
financial institutions controlled by R. Banking Limited Partnership. At
December 31, 1994, balances due these institutions totaled $224,000. Service
charges to these institutions for 1994 totaled $131,000.
BancFirst purchases supplies and services from certain companies owned by
Pickard Limited Partnership, a family partnership of which David E. Rainbolt
(director and Chief Executive Officer of BancFirst) is the general partner,
and H. E. Rainbolt (Chairman) is a limited partner. During 1994, BancFirst
purchased supplies, furniture and equipment totaling $179,000. BancFirst
also sold credit life and credit accident and health insurance policies for
one of these companies. BancFirst retained a 40% commission for such sales,
which is the maximum amount permitted by law, and remitted net premiums
totaling $564,000 for 1994.
REPORT OF THE COMPENSATION COMMITTEE AND THE EXECUTIVE COMMITTEE ON
EXECUTIVE COMPENSATION
The report of the Compensation Committee and the Executive Committee of
the Board of Directors appearing below dated as of May 4, 1995 and the
information herein under "Company Performance" shall not be deemed
"soliciting material" or to be "filed" with the SEC or subject to the SEC's
proxy rules, except for the required disclosure herein, or to the liabilities
of Section 18 of the Exchange Act, and such information shall not be deemed
to be incorporated by reference into any filing made by BancFirst under the
Securities Act or the Exchange Act.
To our Shareholders:
During 1994 the Compensation Committee of the Board of Directors has been
comprised of H. E. Rainbolt (Chairman), John T. Hannah, J. R. Hutchens, Jr.
and Melvin Moran. With the exception of H. E. Rainbolt, all members of the
Compensation Committee are nonemployee directors of BancFirst. The
Compensation Committee has primary responsibility for determining the
compensation of BancFirst's executive officers who are also members of the
Board of Directors' Executive Committee, which includes the Chief Executive
Officer. The Executive Committee has primary responsibility for determining
the compensation of all other executive officers of BancFirst. During 1994,
the Executive Committee was comprised of H. E. Rainbolt, David E. Rainbolt,
Leslie E. Greathouse and J. Ralph McCalmont.
The executive compensation policy of BancFirst is to provide a
compensation program that will attract, motivate and retain persons of high
quality, while at the same time ensuring that an appropriate relationship
exists between executive compensation and the creation of shareholder values.
Each of the Compensation Committee and the Executive Committee applies this
philosophy in determining the compensation of BancFirst's executive officers
with respect to salary, bonuses and stock options.
BancFirst strives to offer salaries to its executive officers which are
competitive in its industry for similar positions requiring similar
qualifications. Additionally, the Compensation Committee and the Executive
Committee consider each executive officer's level of responsibility in
setting executive compensation, meaning that BancFirst pays greater
compensation to persons having higher levels of responsibility. Because of
the substantial stock ownership held by David E. Rainbolt, the President and
Chief Executive Officer of BancFirst (see "Stock Ownership"), at his request,
his salary in 1994 was lower than those of the other executive officers of
BancFirst whose compensation is determined by the Compensation Committee, as
was also the case in 1993 and 1992. BancFirst's other executive officers are
paid base salaries that the Compensation Committee and the Executive
Committee have determined to be fair for their assigned responsibilities in
comparison with similar positions in such other public companies in the
banking industry. The Compensation Committee and the Executive Committee make
these comparisons in an effort to determine whether BancFirst's executive
compensation is reasonable and remains competitive enough to allow BancFirst
to retain skilled executives. The Compensation Committee and the Executive
Committee believe that the compensation paid to BancFirst's executive
officers, other than its Chief Executive Officer, is in the median range of
compensation of executive officers of companies to which these comparisons
are
67
<PAGE>
made. In addition to making such comparisons and considering levels of
responsibility, the Compensation Committee and the Executive Committee
consider individual performance and BancFirst's performance in terms of stock
price, earnings and cash flow, of which earnings increased in 1993 as
compared to 1992. However, the determination of base salaries is not strictly
tied to performance criteria, and in determining base salary levels,
BancFirst believes that it affords approximately equal weight to each of the
factors described herein. The Compensation Committee believes that the
compensation paid to David E. Rainbolt, BancFirst's President and Chief
Executive Officer, is in the low range of compensation of the chief executive
officers of companies to which these comparisons are made.
BancFirst's executive officers, including the Chief Executive Officer,
also participate in an Incentive Bonus Program. Bonus amounts earned are
based on the attainment of budgeted earnings and asset quality goals, and can
be in amounts of up to 20% of the executive officer's base salary, depending
upon an objective review of the degree of attainment of such goals, as well
as both an objective and subjective review of the respective executive
officer's contribution thereto. Individual goals in each case are
established by the Chief Executive Officer in consultation with the
particular executive concerned and with the Executive Committee.
While the Compensation Committee believes that equity ownership provides
significant additional motivation to executive officers to maximize value for
BancFirst's stockholders, no grants of stock options under BancFirst's option
plan were made during 1994 to any of the executive officers named in the
Summary Compensation Table. The Compensation Committee believed that such
grants would be inappropriate given such officers' aggregate controlling
stock position, and the fact that certain of such officers sold shares of
Common Stock in a public offering consummated in April 1993.
In 1993, the Internal Revenue Code was amended to limit the deductibility
of certain compensation expenses in excess of $1 million. This was not
applicable to BancFirst Corporation for the fiscal year ended December 31,
1994. However, the Compensation Committee and the Executive Committee intend
to monitor executive compensation levels and adopt policies, as necessary,
to obtain maximum deductibility of executive compensation while providing
motivational and competitive performance-based compensation. The
Compensation Committee and the Executive Committee will continue to monitor
the tax regulations to determine if any executive compensation program
changes are necessary.
This report is respectfully submitted by the members of the Compensation
Committee and the Executive Committee:
H. E. Rainbolt David E. Rainbolt
John T. Hannah Leslie E. Greathouse
J. R. Hutchens, Jr. J. Ralph McCalmont
Melvin Moran
68
<PAGE>
PERFORMANCE OF BANCFIRST
Presented below is a line graph which compares the percentage change in
the cumulative total return on BancFirst's Common Stock to the cumulative
total return of the NASDAQ Stock Market (U.S. Companies) Index and the NASDAQ
Bank Stocks Index, both as compiled by the University of Chicago Center for
Research in Security Price ("CRSP"). The period presented is from April 1,
1993, the date of BancFirst's initial public offering of its Common Stock,
through December 31, 1994. The graph assumes an investment on April 1, 1993
of $100 in BancFirst's Common Stock and in each index, and that any dividends
were reinvested. The values presented for each quarter during the period
represent the cumulative market values of the respective investments.
<TABLE>
<CAPTION>
NASDAQ NASDAQ
MONTH BFC BANKS MARKET
- ----- ------- --------- ---------
<S> <C> <C> <C>
3/93 100.0000 100 100
6/93 105.0000 96.63359 101.8964
9/93 108.3849 105.6999 110.4485
12/93 96.75731 103.0007 112.0223
3/94 91.80952 101.7291 107.3867
6/94 109.4082 110.0085 102.3930
9/94 101.9475 111.1825 110.8597
12/94 98.66302 102.7402 109.5916
</TABLE>
69
<PAGE>
CERTAIN TRANSACTIONS
In addition to the transactions described under "--Compensation of
Directors and Executive Officers--Compensation Committee Interlocks and
Insider Participation," the following transactions with management have
occurred.
BancFirst has made loans in the ordinary course of business to certain
directors and executive officers of BancFirst and to certain affiliates of
these directors and executive officers. None of these loans outstanding are
classified as nonaccrual, past due, restructured or potential problem loans.
All such loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the normal
risk of collectability or present other unfavorable features.
PRICE RANGE OF BANCFIRST COMMON STOCK AND DIVIDENDS
BancFirst Common Stock is listed on the 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
dividends paid on BancFirst Common Stock:
<TABLE>
<CAPTION>
PRICE RANGE
----------------- CASH
HIGH LOW DIVIDENDS PAID
---- --- --------------
<S> <C> <C> <C>
1995
First Quarter . . . . . . . . . . . .$15-3/4 $13-3/4 $0.07
Second Quarter. . . . . . . . . . . .$15-3/4 $14-1/2 $0.07
Third Quarter . . . . . . . . . . . .$20 $15 $0.07
Fourth Quarter (through
November 27, 1995). . . . . . . . .$22-1/2 $18 $0.07
1994
First Quarter . . . . . . . . . . . .$15-1/2 $12-1/4 $0.06
Second Quarter. . . . . . . . . . . .$16-1/2 $12-3/4 $0.06
Third Quarter . . . . . . . . . . . .$17-1/4 $14-3/4 $0.06
Fourth Quarter. . . . . . . . . . . .$15-1/4 $13-3/4 $0.07
1993
Second Quarter. . . . . . . . . . . .$17-1/2 $14-3/4 $0.05
Third Quarter . . . . . . . . . . . .$17-1/2 $14-3/4 $0.05
Fourth Quarter. . . . . . . . . . . .$17-1/2 $14-3/4 $0.06
</TABLE>
BancFirst's ability to pay dividends to its stockholders is
substantially dependent upon the dividends BancFirst receives from the Bank.
The payment of dividends, if any, on the capital stock of BancFirst in the
future will be determined by the BancFirst Board in light of conditions then
existing, including the earnings of BancFirst and the Bank and restrictions
under various federal and state banking laws, regulations and regulatory
policies. In addition, the Bank must maintain certain capital levels which
may restrict its ability to pay dividends to BancFirst. As of September 30,
1995, the amount available for distribution by the Bank to BancFirst as
dividends without regulatory approval was approximately $22 million;
however, the regulators of the Bank could administratively impose stricter
limits on the ability of the Bank to pay dividends. See "Supervision and
Regulation."
On November 15, 1995, there were approximately 365 holders of record of
BancFirst Common Stock; none of the BancFirst Preferred Stock is outstanding.
70
<PAGE>
INFORMATION ABOUT JOHNSTON COUNTY
BUSINESS
Johnston County Bancshares, Inc. ("Johnston County") was incorporated in
January 1982 as an Oklahoma business corporation and a bank holding company
under Federal law. It conducts virtually all of its operating activities
through Bank of Johnston County of Tishomingo, Oklahoma, a state chartered
bank ("BOJC"), of which it owns 88.44%. Johnston County also owns 100% of
Johnston County Insurance Agency, Inc., a credit life insurance agency.
BOJC is a community bank that provides a wide range of commercial
banking services to retail customers and small businesses. Such services
include: commercial, real estate, agricultural and consumer lending;
depository and funds transfer services; collections; safe deposit boxes; and
other services tailored for both individual and corporate customers. BOJC's
market area includes the community of Tishomingo and Johnston County in
southcentral Oklahoma. It competes with other financial institutions within
its market area. The major areas of competition include interest rates
charged on loans, interest paid on deposits, levels of service charges on
deposits, completeness of product lines and quality of services.
BOJC owns the facility in which it operates, which consists of a 6,281
square foot building with an attached drive-through facility.
Johnston County and its subsidiaries have six full-time equivalent
employees as of September 30, 1995. Its principal office is located at 800
East Main Street, Tishomingo, Oklahoma 73460, and its telephone number is
(405) 371-2346.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of November 10, 1995,
regarding the beneficial ownership of the capital stock of Johnston County by
each person known to own 5% or more of the outstanding shares of each class
of Johnston County's capital stock.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------------- ------------------
COMMON PREFERRED COMMON PREFERRED
------ --------- ------ ---------
<S> <C> <C> <C> <C>
RBLP(1) 23,000 2,438 46.35% 44.12%
101 North Broadway, Suite 200
Oklahoma City, Oklahoma 73102
J. R. or Patsy Hutchens(2) 25,050 2,788 50.48% 50.45%
4420 Alturas Circle
Oklahoma City, Oklahoma 73120
______________________________
(1) H. E. Rainbolt, Chairman of the Board of BancFirst, and David E.
Rainbolt, Chief Executive Officer and a director of BancFirst, are,
respectively, a limited partner and a general partner of RBLP. See
"Interests of Certain Persons in the Mergers."
(2) J. R. Hutchens, Jr. is a director of BancFirst.
</TABLE>
71
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of November 10, 1995
regarding the beneficial ownership of the capital stock of Johnston County by
each of the directors and executive officers of Johnston County, and by all
directors and executive officers of Johnston County as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------------- ------------------
COMMON PREFERRED COMMON PREFERRED
------ --------- ------ ---------
<S> <C> <C> <C> <C>
J. R. Hutchens, Jr. 25,050 2,788 50.48% 50.45%
Rebecca Clary 190 -- 0.38% --
Rodney R. Hall 190 -- 0.38% --
All directors and executive
officers as a group (5 persons) 25,430 2,788 51.25% 50.45%
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following financial review presents Johnston County management's
discussion and analysis of Johnston County's financial condition and earnings
performance. This review highlights the major factors affecting results of
operations and any significant changes in financial condition for the interim
period through September 30, 1995 and, except with respect to the selected
financial data which presents information for each of the five years ended
December 31, 1994, each of the three years ended December 31, 1994. It
should be read in conjunction with the accompanying consolidated financial
statements, notes to financial statements and other financial statistics
which are part of this Proxy Statement/Offering Memorandum. The financial
statements of Johnston County have never been audited and the financial
information presented herein is limited to a compilation of information
provided by management of Johnston County. An audit of the financial
statements of Johnston County could not, in all practicality, have been
completed in a timeframe to permit their inclusion in this Proxy
Statement/Offering Memorandum without unwarranted or undue expense.
Presentation of certain statistical information has also been omitted from
this Proxy Statement/Offering Memorandum, due to similar considerations.
SELECTED FINANCIAL DATA
The following table summarizes Johnston County's operating results for
the past five years and the nine months ended September 30, 1995 and 1994:
72
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income. . . . . . . . . $ 322 $ 321 $ 430 $ 441 $ 481 $ 478 $ 378
Provision for possible loan
losses. . . . . . . . . . . . . . . 10 14 19 19 222 17 26
Noninterest income . . . . . . . . . 90 90 119 243 200 205 172
Noninterest expense. . . . . . . . . 338 40 447 551 528 514 401
Income before extraordinary items. . 52 42 56 105 (67) 105 102
Net income . . . . . . . . . . . . . 52 42 56 105 (67) 105 102
Accumulated preferred dividends. . . 5 5 10 10 10 10 10
Net income applicable to common
stockholders . . . . . . . . . . . 47 37 46 95 (77) 95 92
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . $10,447 $10,045 $10,210 $10,057 $11,352 $11,617 $10,560
Total loans (net of unearned
interest) . . . . . . . . . . . . . 5,478 5,558 5,491 5,411 6,238 6,780 5,147
Allowance for possible loan
losses. . . . . . . . . . . . . . . 149 110 115 127 122 80 95
Investment securities. . . . . . . . 2,615 2,224 2,307 2,921 2,739 3,606 4,124
Deposits . . . . . . . . . . . . . . 9,549 9,163 9,312 9,254 10,607 10,741 9,552
Note payable . . . . . . . . . . . . 342 380 380 354 387 416 480
10% Preferred Stock. . . . . . . . . 97 97 97 97 97 97 97
Common stockholders' equity. . . . . 302 246 255 228 220 195 99
PER COMMON SHARE DATA:
Income before extraordinary items. . $ 0.91 $ 0.71 $ 0.93 $ 1.91 $ (1.55) $ 1.91 $ 1.85
Net income . . . . . . . . . . . . . 0.91 0.71 0.93 1.91 (1.55) 1.91 1.85
Cash dividends . . . . . . . . . . . -- -- -- -- -- -- --
Book value . . . . . . . . . . . . . 6.09 4.96 5.14 4.59 4.43 3.93 2.00
SELECTED FINANCIAL RATIOS:
Return on average assets . . . . . . 0.65% 0.55% 0.55% 1.03% (0.58)% 0.91% 1.01%
Return on average stockholders'
equity. . . . . . . . . . . . . . . 18.69 16.12 16.54 32.71 (22.00) 43.03 69.62
Nonperforming and restructured
assets to total assets. . . . . . . 1.54 1.99 1.83 3.44 3.62 1.65 2.81
Allowance for possible loan losses
to nonperforming and restructured
loans . . . . . . . . . . . . . . . 156.84 99.10 121.05 55.22 50.83 800.00 137.68
Average stockholders' equity to
average total assets. . . . . . . . 3.48 3.42 3.30 3.16 2.63 2.11 1.45
</TABLE>
Net income increased $10,000, or 24%, in the period ended September 30,
1995, compared to the period ended September 30, 1994. The increase in net
income was principally due to decreased provisions for loan losses and
noninterest expense. The decrease in net income of $173,000 in the year
ended December 31, 1992 over 1991 was primarily the result of an increase in
the provision for loan losses.
73
<PAGE>
INVESTMENTS
A summary of investments held by Johnston County for the periods
indicated is as follows:
<TABLE>
<CAPTION>
JOHNSTON COUNTY BANCSHARES, INC.
INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
PORTFOLIO SUMMARY:
U.S. Treasury $1,484 $2,121 $1,531
U.S. Government agencies 603 609 1,017
State and political subdivisions 119 90 89
Other securities 101 101 102
------ ------ ------
Total $2,307 $2,921 $2,739
====== ====== ======
Estimated market value $2,277 $2,954 $2,773
====== ====== ======
</TABLE>
Johnston County has invested principally in U.S. Treasury and U.S.
Government agency securities with maturities of two years or less and has
been able to maintain an unrealized gain or loss of less than 2% of the
portfolio book value.
LOAN PORTFOLIO
Johnston County makes substantially all of its loans within Oklahoma.
The following table shows the composition of loans and leases for the periods
indicated:
JOHNSTON COUNTY BANCSHARES, INC.
LOANS BY CATEGORY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and other $ 1,226 22.33% $ 1,400 25.87% $ 1,856 29.75%
Real estate - mortgage 3,184 57.99 3,040 56.18 2,961 47.47
Installment 1,081 19.69 971 17.94 1,421 22.78
------- ------ ------- ------ ------- ------
Total loans $ 5,491 100.00% $ 5,411 100.00% $ 6,238 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, troubled debt
restructuring, and other real estate and nonperforming assets. A loan
is placed on nonaccrual status when principal and interest is due and
has remained unpaid for 90 days or more, unless the loan is both well
secured and is in process of collection. A loan also is placed on
nonaccrual status when there is reasonable doubt as to the ability of
the borrower to continue to pay principal or interest. Troubled debt
restructurings are those loans for which the original contractual terms
have been modified to provide a concession because of a deterioration in
the borrower's financial condition. Other real estate
74
<PAGE>
and nonperforming assets include assets acquired from loan settlements
and foreclosures and those assets considered to be substantively
repossessed.
Generally, all principal and interest payments received on
nonaccrual loans are applied as reductions of principal. The following
table presents, for the periods indicated, nonperforming assets and
those loans which are in nonaccrual status:
JOHNSTON COUNTY BANCSHARES, INC.
NONPERFORMING AND RESTRUCTURED ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Past due over 90 days and still accruing $ 77 $ 27 $ 8
Nonaccrual 18 203 232
Restructured -- -- --
---- ---- ----
Total nonperforming and restructured loans 95 230 240
Other real estate owned and repossessed assets 92 116 171
---- ---- ----
Total nonperforming and restructured assets $187 $346 $411
==== ==== ====
Nonperforming and restructured loans to total loans 1.73% 4.25% 3.85%
==== ==== ====
Nonperforming assets to total assets 1.83% 3.44% 3.62%
==== ==== ====
</TABLE>
As shown above, both nonperforming loans and assets have decreased since
December 31, 1992, with a $159,000 decrease from 1993 to 1994.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is established through a
provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. The allowance for loan losses is an amount that
management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans,
and current and anticipated economic conditions and trends that may affect
the borrowers' ability to pay. Loan losses and recoveries are charged or
credited directly to the allowance. It is Johnston County's policy to charge
off any loan or portion of that loan when it is deemed to be uncollectible in
the ordinary course of business.
The following table summarizes, for the periods indicated, the changes
in the allowance for possible loan losses and related ratios.
75
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
ANALYSIS OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 127 $ 122 $ 80
------- -------- -------
Charge-offs:
Commercial 28 28 188
Real estate -- 5 --
Installment 3 11 6
Other -- -- --
------- -------- -------
Total charge-offs 31 44 194
------- -------- -------
Recoveries:
Commercial -- 26 9
Real estate -- -- --
Installment -- 4 5
------- -------- -------
Total recoveries -- 30 14
------- -------- -------
Net charge-off 31 14 180
Additions charged to operations 19 19 222
------- -------- -------
Balance at end of year $ 115 $ 127 $ 122
======= ======= =======
Average loans $ 5,418 $ 5,439 $ 6,379
======= ======= =======
Total loans $ 5,491 $ 5,411 $ 6,238
======= ======= =======
Net charge-offs to average loans 0.56% 0.26% 2.89%
======= ======= =======
Allowance to total loans 2.09% 2.35% 1.96%
======= ======= =======
Allocation of the allowance by category of
loans:
Commercial $ 11 $ 28 $ 35
Real estate 10 10 13
Installment -- 1 2
Unallocated 94 88 72
------- -------- -------
Total $ 115 $ 127 $ 122
======= ======= =======
Percent of loans in each category to total
loans:
Commercial 22.32% 25.87% 29.75%
Real estate 57.99 56.18 47.48
Installment 19.69 17.95 22.77
------- -------- -------
Total 100.00% 100.00% 100.00%
======= ======= =======
</TABLE>
DEPOSITS
Deposits increased $386,000, or 4%, when comparing September 30, 1995 to
September 30, 1994. Deposits increased $58,000, or 1%, when comparing
December 31, 1994 to December 31, 1993. Deposits decreased $1,353,000, or
13%, when comparing December 31, 1994 to December 31, 1993. The fluctuation
in deposits has been due to changes in the overall rate structure as dictated
by changes in the rates being charged by financial institutions.
CAPITAL
Total equity capital increased $56,000, or 55%, for the period ended
September 30, 1995, compared to total equity capital at September 30, 1994.
Equity capital increased $27,000, or 33%, for the period ended
76
<PAGE>
December 31, 1994 compared to 1993. Equity capital increased $105,000 for
the period ended December 31, 1993, compared to 1992. The increase in all
periods was due to earnings less preferred stock dividends.
PRICE RANGE OF JOHNSTON COUNTY COMMON STOCK AND DIVIDENDS
There is no established public trading market for Johnston County Common
Stock. No dividends have ever been paid on Johnston County Common Stock and
there is no intention by Johnston County to do so in the foreseeable future.
On November 10, 1995, there were 13 holders of record of Johnston County
Common Stock amd eight holders of record of Johnston County Preferred Stock.
INFORMATION ABOUT COMMERCE
BUSINESS
Commerce Bancorporation, Inc. ("Commerce") was incorporated in July 1980
as an Oklahoma business corporation and a bank holding company under Federal
law. It conducts virtually all of its operating activities through The Bank
of Commerce of McLoud, Oklahoma, a state chartered bank ("Commerce Bank"), of
which it owns 93.90%.
Commerce Bank is a community bank that provides a wide range of
commercial banking services to retail customers and small businesses. Such
services include: commercial, real estate, agricultural and consumer lending;
depository and funds transfer services; collections; safe deposit boxes; and
other services tailored for both individual and corporate customers. The
Commerce Bank's market area includes the community of McLoud and the
surrounding area in central Oklahoma. It competes with other financial
institutions within its market area. The major areas of competition include
interest rates charged on loans, interest paid on deposits, levels of service
charges on deposits, completeness of product lines and quality of services.
Commerce Bank owns the facility in which it operates, which consists of
a 5,000 square foot building with an attached drive through facility, and one
detached automatic teller machine.
Commerce and its subsidiary have ten full-time equivalent employees as
of September 30, 1995. Its principal office is located at 5th & Broadway,
McLoud, Oklahoma 74851, and its telephone number is (405) 964-3363.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of November 15, 1995,
regarding the beneficial ownership of the capital stock of Commerce by each
person known to own 5% or more of the outstanding shares of each class of
Commerce's capital stock.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------------- ----------------
COMMON PREFERRED COMMON PREFERRED
------ --------- ------ ---------
<S> <C> <C> <C> <C>
RBLP(1)
101 North Broadway, Suite 200
Oklahoma City, Oklahoma 73102 11,286.33 -- 50% --%
Leslie E. Greathouse(2)
1500 W. Wilshire Blvd.
Oklahoma City, Oklahoma 73116 11,286.33 -- 50% --%
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------------- ----------------
COMMON PREFERRED COMMON PREFERRED
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Jeannine T. Rainbolt, Trustee of the
Katherine Rose Rainbolt-Troszak Trust
1717 Randle Rd.
Oklahoma City, Oklahoma 73116 -- 755 -- 18.00%
Jeannine T. Rainbolt, Trustee of the
Sarah Duston Rainbolt-Troszak Trust
1717 Randle Rd.
Oklahoma City, Oklahoma 73116 -- 1,226 -- 29.45%
Leslie Ann Greathouse
1500 W. Wilshire Blvd.
Oklahoma City, Oklahoma 73116 -- 1,981 -- 47.60%
</TABLE>
_____________________________
(1) H. E. Rainbolt, Chairman of the Board of BancFirst, and David E.
Rainbolt, Chief Executive Officer and a director of BancFirst, are,
respectively, a limited partner and a general partner of RBLP. See
"Interests of Certain Persons in the Mergers."
(2) Until June 1995, Mr. Greathouse was a director and an executive officer
of BancFirst.
SECURITY OWNERSHIP OF MANAGEMENT
The two stockholders who own 100% of outstanding Commerce Common Stock
are also officers and/or directors of Commerce. Affiliates of such persons
own an aggregate 3,962 shares of Commerce Preferred Stock, representing
approximately 95.19% of the shares of Commerce Preferred Stock outstanding.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following financial review presents Commerce management's discussion
and analysis of Commerce's financial condition and earnings performance.
This review highlights the major factors affecting results of operations and
any significant changes in financial condition for the interim period through
September 30, 1995 and, except with respect to the selected financial data
which presents information for each of the five years ended December 31,
1994, each of the three years ended December 31, 1994. It should be read in
conjunction with the accompanying consolidated financial statements, notes to
financial statements and other financial statistics which are part of this
Proxy Statement/Offering Memorandum. The financial statements of Commerce
have never been audited and the financial information presented herein is
limited to a compilation of information provided by management of Commerce.
An audit of the financial statements of Commerce could not, in all
practicality, have been completed in a timeframe to permit their inclusion in
this Proxy Statement/Offering Memorandum without unwarranted or undue
expense. Presentation of certain statistical information has also been
omitted from this Proxy Statement/Offering Memorandum, due to similar
considerations.
SELECTED FINANCIAL DATA
The following table summarizes Commerce's operating results for the past
five years and the nine months ended September 30, 1995 and 1994:
78
<PAGE>
COMMERCE BANCORPORATION, INC.
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income. . . . . . . . . . . $ 702 $ 750 $ 1,002 $ 998 $ 1,082 $ 963 $ 891
Provision for possible loan losses . . . -- -- -- -- 24 74 36
Noninterest income . . . . . . . . . . . 190 190 254 251 568 292 281
Noninterest expense. . . . . . . . . . . 552 517 681 706 1,065 886 911
Income before extraordinary items. . . . 217 272 365 356 364 200 185
Net income . . . . . . . . . . . . . . . 217 272 365 356 364 200 185
Accumulated preferred dividends. . . . . 3 3 6 6 6 6 6
Net income applicable to common
stockholders. . . . . . . . . . . . . . 214 269 359 350 358 194 179
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . $ 17,444 $ 18,447 $ 18,145 $ 18,983 $ 18,145 $ 19,222 $ 18,994
Total loans (net of unearned
interest) . . . . . . . . . . . . . . . 8,225 8,315 8,213 7,922 7,895 8,713 9,429
Allowance for possible loan losses . . . 104 153 147 151 160 160 130
Investment securities. . . . . . . . . . 7,693 8,698 8,542 7,803 8,216 8,176 6,643
Deposits . . . . . . . . . . . . . . . . 15,321 16,519 16,535 17,133 16,452 17,248 16,971
Note payable . . . . . . . . . . . . . . -- -- -- -- -- 250 400
10% preferred stock. . . . . . . . . . . 55 55 55 55 55 55 55
Common stockholders' equity. . . . . . . 1,512 1,437 1,268 1,422 1,473 1,421 1,283
PER COMMON SHARE DATA:
Income before extraordinary items. . . . $ 9.48 $ 11.92 $ 15.90 $ 15.51 $ 14.77 $ 6.87 $ 6.34
Net income . . . . . . . . . . . . . . . 9.48 11.92 15.90 15.51 14.77 6.87 6.34
Cash dividends . . . . . . . . . . . . . 3.54 7.09 16.39 17.72 10.72 -- --
Book value . . . . . . . . . . . . . . . 66.98 63.66 56.17 63.00 65.25 57.84 48.30
SELECTED FINANCIAL RATIOS:
Return on average assets . . . . . . . . 1.63% 1.93% 1.97% 1.92% 1.95% 1.05% 0.97%
Return on average stockholders'
equity. . . . . . . . . . . . . . . . . 20.03 24.43 26.07 23.69 24.23 14.21 14.45
Nonperforming and restructured
assets to total assets. . . . . . . . . .36 .73 .58 .61 1.20 1.12 1.02
Allowance for possible loan losses
to nonperforming and restructured
loans . . . . . . . . . . . . . . . . . 167.75 161.05 172.94 175.58 93.02 132.23 151.16
Average stockholders' equity to
average total assets. . . . . . . . . . 8.12 7.93 7.54 8.08 8.04 7.36 6.74
</TABLE>
79
<PAGE>
Net income decreased $55,000 or 20% in the period ending September 30,
1995, compared to the period ending September 30, 1994. The decrease was
primarily the result of a decrease in net interest income. Net interest
income decreased $48,000 due to an increase in interest expense on deposits.
Net income increased $9,000 or 2.5% for the year ended December 31,
1994, compared to December 31, 1993. The increase was due to a reduction in
noninterest expenses in 1994.
Net income increased $164,000 or 82% for the year ended December 31,
1992, compared to 1991. The increase is principally the result of sales of
investment securities in 1992. The sales resulted in a net gain of $303,000
before taxes.
INVESTMENTS
A summary of investments held by Commerce is as follows:
COMMERCE BANCORPORATION, INC.
INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Portfolio summary
U.S. Treasury and other federal agencies $8,395 $6,828 $7,578
State and political subdivisions 402 975 638
------ ------ ------
Total $8,797 $7,803 $8,216
====== ====== ======
Estimated market value $8,557 $7,986 $8,358
====== ====== ======
</TABLE>
Commerce has invested principally in U.S. Treasury securities. While
the market value decreased somewhat in 1994, no impairment of value has
occurred or is likely to occur. The investment portfolio continues to
provide a stable and consistent income stream to Commerce.
LOAN PORTFOLIO
Commerce makes substantially all of its loans within Oklahoma. The
following table shows the composition of loans and leases for the periods
indicated:
COMMERCE BANCORPORATION, INC.
LOANS BY CATEGORY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1994 1993 1992
----------------- ----------------- ---------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and other $ 2,582 31.45% $ 2,216 27.97% $ 2,036 25.79%
Real estate - construction 85 1.03 117 1.48 59 .75
Real estate - mortgage 3,743 45.57 3,752 47.36 4,041 51.18
Installment 1,803 21.95 1,837 23.19 1,759 22.28
------- ------ -------- ------ ------- ------
Total loans $ 8,213 100.00% $ 7,922 100.00% $ 7,895 100.00%
======= ====== ======== ====== ======= ======
</TABLE>
80
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, troubled debt
restructuring, other real estate, and nonperforming assets. A loan is placed
on nonaccrual status when principal and interest is due and has remained
unpaid for 90 days or more unless the loan is both well secured and is in
process of collection. A loan is also placed on nonaccrual status when there
is reasonable doubt as to the ability of the borrower to continue to pay
principal or interest. Troubled debt restructuring are those loans for which
the original contractual terms have been modified to provide a concession
because of a deterioration in the borrower's financial condition. Other real
estate and nonperforming assets include assets acquired from loan settlements
and foreclosures and those assets considered to be substantively repossessed.
Generally, all principal and interest payments received on nonaccrual
loans are applied as reductions of principal. The following table presents
nonperforming assets and those loans which are in the nonaccrual status:
COMMERCE BANCORPORATION, INC.
NONPERFORMING AND RESTRUCTURED ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Past due over 90 days and still accruing $ -- $ -- $ --
Nonaccrual 34 31 112
Restructured 51 55 60
---- ---- ----
Total nonperforming and restructured loans 85 86 172
Other real estate owned and repossessed assets 21 29 45
---- ---- ----
Total nonperforming and restructured assets $106 $115 $217
==== ==== ====
Nonperforming and restructured loans to total loans 1.03% 1.09% 2.18%
==== ==== ====
Nonperforming assets to total assets .58% .61% 1.20%
==== ==== ====
</TABLE>
As can be seen, loans have increased in each of the past years, while
nonperforming assets have decreased.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is the amount deemed by
management to be reasonably necessary to provide for possible losses on loans
that may become uncollectible. Additions to the allowance are charged to
expenses as the provision for possible loan losses. Loan losses and
recoveries are charged or credited directly to the allowance. It is Commerce
s policy to charge-off any loan or portion of that loan when it is deemed to
be uncollectible in the ordinary course of business.
81
<PAGE>
The following table summarizes the changes in the allowance for possible loan
losses and related ratios:
COMMERCE BANCORPORATION, INC.
ANALYSIS OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year $ 151 $ 160 $ 160
------ ------ ------
Charge-offs:
Commercial -- 2 8
Real estate -- 10 27
Installment 7 8 12
Other -- -- --
------ ------ ------
Total charge-offs 7 20 47
------ ------ ------
Recoveries:
Commercial 1 1 1
Real estate -- -- 10
Installment 2 10 12
------ ------ ------
Total recoveries 3 11 23
------ ------ ------
Net charge-offs 4 9 24
Additions charged to operations -- -- 24
------ ------ ------
Balance at end of year $ 147 $ 151 $ 160
====== ====== ======
Average loans $8,288 $7,930 $7,964
====== ====== ======
Total loans $8,225 $7,922 $7,895
====== ====== ======
Net charge-offs to average loans .05% .11% .30%
====== ====== ======
Allowance to total loans 1.79% 1.91% 2.03%
====== ====== ======
Allocation of the allowance by category of
loans:
Commercial, financial and other $ 2 $ 2 $ --
Real estate - construction -- -- --
Real estate - mortgage -- -- 7
Installment -- -- 4
Unallocated 145 149 149
------ ------ ------
Total $ 147 $ 151 $ 160
====== ====== ======
Percent of loans in each category to total
loans:
Commercial, financial and other 31.45% 27.97% 25.79%
Real estate - construction 1.03 1.48 .75
Real estate - mortgage 45.57 47.36 51.18
Installment 21.95 23.19 22.28
------ ------ ------
Total 100% 100% 100%
====== ====== ======
</TABLE>
DEPOSITS
Deposits decreased $1,198,000 or 7% when comparing September 30, 1995 to
September 30, 1994. Deposits decreased $598,000 or 3.5% when comparing
December 31, 1993 to 1994. Deposits increased $681,000 or 4% when comparing
December 31, 1993 to 1992. The fluctuation in deposits has been due to changes
in the overall rate structure as dictated by changes in the overall rates
being charged by financial institutions. Commerce does not have any large
amounts of brokered deposits.
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CAPITAL
Total equity capital increased $75,000 or 5% for the period ended
September 30, 1995, compared to total equity capital at September 30, 1994.
Equity capital decreased $154,000 or 10% for the period ended December 31,
1994 compared to 1993. The decrease from 1993 to 1994 was primarily due to
the adoption of FAS 115 for investment securities. Equity capital decreased
$51,000 or 3% in 1993 compared to 1992. The decrease was the result of
common stock dividends paid in 1993.
Capital of Commerce is in compliance with all minimum regulatory
requirements.
PRICE RANGE OF COMMERCE COMMON STOCK AND DIVIDENDS
There is no established public trading market for Commerce Common Stock.
No dividends have ever been paid on Commerce Common Stock and there is no
intention to do so in the foreseeable future.
On November 15, 1995, there were two holders of record of Commerce
Common Stock and four holders of record of Commerce Preferred Stock.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
BancFirst and each of the Merging Entities are registered as bank
holding companies and are subject to the regulations of the Federal Reserve
Board under the Bank Holding Company Act of 1956, as amended ("BHCA"). Bank
holding companies are required to file periodic reports with and are subject
to examination by the Federal Reserve Board. The Federal Reserve Board has
issued regulations under the BHCA that require a bank holding company to
serve as a source of financial and managerial strength to its subsidiary
banks. As a result, the Federal Reserve Board, pursuant to such regulations
may require BancFirst and the Merging Entities to stand ready to use their
resources to provide adequate capital funds to their respective banking
subsidiaries during periods of financial stress or adversity. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Improvement Act"), a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal
banking agency, up to specified limits. See "Improvement Act and Related
Regulations," below. Under the BHCA, the Federal Reserve Board has the
authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon the Federal Reserve Board's determination that such activity
or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
The BHCA prohibits a bank holding company from acquiring direct or
indirect control of more than 5% of the outstanding shares of any class of
voting stock or substantially all of the assets of any bank or merging or
consolidating with another bank holding company without prior approval of the
Federal Reserve Board. The BHCA also prohibits a bank holding company from
acquiring control of any bank operating outside its state unless such action
is specifically authorized by the statutes of the state where the bank to be
acquired is located.
Additionally, the BHCA prohibits a bank holding company from engaging in
or from acquiring ownership or control of more than 5% of the outstanding
shares of any class of voting stock of any company engaged in a nonbanking
business, unless such business is determined by the Federal Reserve Board to
be so closely related to banking as to be a proper incident thereto. The
BHCA does not place territorial restrictions on the activities of such
nonbanking-related activities. In determining whether a particular activity
is a proper incident to banking or managing or controlling banks, the Federal
Reserve Board must consider whether performance of an activity by an
affiliate of a bank holding company can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition or
gains in efficiency. The benefits of activity must also outweigh possible
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adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
CAPITAL ADEQUACY GUIDELINES
The Federal Reserve Board is the federal regulatory and examining
authority for bank holding companies. The Federal Reserve Board has adopted
capital adequacy guidelines for bank holding companies, to which BancFirst
and each of the Merging Entities is subject.
Bank holding companies and their bank subsidiaries are required to
maintain three capital ratios which measure capital adequacy. Capital is
separated into "Tier I Capital" (as applied to BancFirst and each of the
Merging Entities, common stockholders' equity, less certain intangible
assets) and "Tier 2 Capital" (as applied to BancFirst and each of the Merging
Entities, a limited amount of the general loan allowance).
The first two ratios, which are based on the degree of credit risk in a
bank holding company s assets, provide for weighting assets based on assigned
risk factors and include off-balance-sheet items such as loan commitments and
stand-by letters of credit. The ratio of total capital (Tier I Capital plus
Tier 2 Capital) to risk-weighted assets and off-balance-sheet commitments and
contingencies must be at least 8.0% and the ratio of Tier I Capital to
risk-weighted assets and off-balance- sheet commitments must be at least 4.0%.
The capital leverage ratio supplements the risk-based capital
guidelines. Banks and bank holding companies are to maintain a minimum ratio
of Tier I Capital to average adjusted total assets of 3.0%.
These ratio requirements are minimums. Any institution operating at or
near those levels would be expected by the regulators to have
well-diversified risk, including no undue interest rate risk exposures,
excellent asset quality, high liquidity, and good earnings and, in general,
would have to be considered a strong banking organization. All other
organizations and any institutions experiencing or anticipating significant
growth are expected to maintain capital ratios at least one to two percent
above the minimum levels, and higher capital ratios can be required if
warranted by particular circumstances or risk profile.
The Improvement Act directs that each federal banking agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value
to book value for publicly traded shares, and such other standards as the
agency deems appropriate. The Federal Reserve Board and the FDIC, in
consultation with the other federal banking agencies, has adopted a final
rule and guidelines with respect to external and internal audit procedures
and internal controls in order to implement those provisions of the
Improvement Act intended to facilitate the early identification of problems
in financial management of depository institutions. The Federal Reserve
Board and the FDIC have also issued rules prescribing standards relating to
certain other of the management and operational standards listed above.
PROPOSED FDIC REGULATIONS CONCERNING ADVERSE CONTRACTS
The FDIC has provided advance notice of a proposed rule which would
affect contracts between a bank holding company, such as BancFirst (and each
of the Merging Entities) (or its non-depository subsidiaries or related
interests under common control), and its insured depository institution
affiliates, such as the Bank and the subsidiary banks of the Merging
Entities. The FDIC proposed establishing a rebuttable regulatory presumption
that certain types of contracts between an insured depository institution and
any company which directly or indirectly controls it (or which is under
common control with it) are unsafe and unsound. The types of contracts to be
covered by such a presumption would include those related to:(1) making or
purchasing loans, (2) servicing loans, (3) performing trust functions, (4)
providing bookkeeping or data processing services, (5) furnishing management
services, (6) selling or transferring any department or subsidiary, (7)
making payments for intangible assets or (8) transferring any asset for less
than fair market value, as evidenced by an independent written appraisal, or
prepaying any liability more than 30 days prior to its due date. The FDIC
has also proposed regulations that would prohibit any insured depository
institution such as the Bank (or the subsidiary banks of the Merging
Entities) from entering into any
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contract with any person to provide goods, products or services if such
contract is determined to adversely affect the safety or soundness of the
insured institution. The proposed regulations would authorize enforcement
actions against both the contractor and the institution, including
cease-and-desist orders, civil money penalties, and prohibition orders
barring contractors from dealing with all insured depository institutions.
IMPROVEMENT ACT AND RELATED REGULATIONS
PROMPT CORRECTIVE ACTION RULE
The Improvement Act requires each Federal banking agency to specify
within nine months after the date of enactment of the statute, by regulation,
the levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." In October 1992, each of
the Federal banking agencies issued uniform final regulations defining such
capital levels. Under these regulations, a bank would be considered "well
capitalized" if it has (i) a total risk-based capital ratio of 10% or
greater, (ii) a Tier I risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any order or
written directive to meet and maintain a specific capital level. An
"adequately capitalized" bank is defined under the regulations as one that
has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I
risk-based capital ratio of 4% or greater, (iii) a leverage ratio of 4% or
greater (or 3% or greater in the case of a bank with the highest composite
regulatory examination rating) and (iv) does not meet the definition of a
well capitalized bank. A bank would be considered (A) "undercapitalized" if
it has (i) a total risk-based capital ratio of less than 8%, (ii) a Tier I
risk-based capital ratio of less than 4% or (iii) a leverage ratio of less
than 4% (or 3% in the case of a bank with the highest regulatory examination
rating of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, (ii)a Tier I risk-based
capital ratio of less than 3% or (iii) a leverage ratio of less than 3%; and
(C) "critically undercapitalized" if the bank has a ratio of tangible equity
to total assets of equal to or less than 2%. Notwithstanding the foregoing,
the applicable federal bank regulator for a depository institution could,
under certain circumstances, reclassify a "well capitalized" institution as
"adequately capitalized" or require an "adequately capitalized" or
"undercapitalized" institution to comply with supervisory actions as if it
were in the next lower category. Such a reclassification could be made if
the regulatory agency determines that the institution is in an unsafe or
unsound condition (which could include unsatisfactory examination ratings).
Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration
plans to the appropriate Federal banking regulator and are subject to
restrictions on operations, including prohibitions on branching, engaging in
new activities, paying management fees, making capital distributions such as
dividends, and growing without regulatory approval. Moreover, in order for
an undercapitalized institution's capital restoration plan to be accepted by
its applicable federal banking regulator, a company controlling such
undercapitalized depository institution will be required to guarantee its
subsidiary's compliance with the capital restoration plan up to an amount
equal to the lesser of 5% of such subsidiary institution's assets or the
amount of the capital deficiency when such institution first fails to meet
the plan. Provisions of the Improvement Act which limit Federal Reserve Bank
loans to undercapitalized institutions became effective December 19, 1993.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable Federal banking regulator are
subject to one or more of the following sanctions:(i) forced sale of shares
to raise capital, or, where grounds exist for the appointment of a receiver
or conservator, a forced merger; (ii) restrictions on transactions with
affiliates; (iii) limitations on interest rates paid on deposits; (iv)
further restrictions on growth or required shrinkage; (v) replacement of
directors or senior executive directors, subject to certain grandfather
provisions for those elected prior to the enactment of the Improvement Act;
(vi) prohibitions on the receipt of correspondent deposits; (vii)
restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution;
or (ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital standards and may be increased
only with the applicable Federal banking regulator's prior written approval.
The applicable federal banking regulator is required to impose a forced sale
of shares or merger, restrictions on affiliate
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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 bonuses (as defined); or (vii) pay rates on liabilities
significantly in excess of market rates.
BROKERED DEPOSITS
In May 1992, the FDIC issued regulations implementing provisions of the
Improvement Act regulating brokered deposits. "Brokered deposits" are
defined as deposits solicited through deposit brokers or deposits which an
insured depository institution attracts by offering significantly
above-market interest rates (as defined). Under the new regulations, "well
capitalized" banks may accept brokered deposits without restriction,
"adequately capitalized" banks may accept brokered deposits with a waiver
from the FDIC (subject to certain restrictions imposed on payment of rates),
while "undercapitalized" banks may not accept brokered deposits. "Well
capitalized" banks are defined in the regulations as those with a Tier I
risk-based capital to risk-weighted assets ratio of not less than 6%, a Tier
I leverage capital to total book assets ratio of not less than 5%, and a
total risk-based capital to risk-weighted assets ratio of not less than 10%.
"Adequately capitalized" banks are those that at least meet their regulatory
capital requirements but are not "well capitalized," as defined in the
previous sentence.
OTHER MATTERS
The Improvement Act requires the federal banking agencies to review and,
under certain circumstances, prescribe more stringent accounting and
reporting requirements than those required by generally accepted accounting
principles. Such agencies also are required to develop regulations requiring
disclosure of contingent assets and liabilities and, to the extent feasible
and practicable, supplement disclosure of the estimated fair market value of
assets and liabilities.
The foregoing necessarily is a general description of certain provisions
of the Improvement Act and does not purport to be complete. Moreover, many
of the provisions of the Improvement Act will be implemented through the
adoption of regulations by the various federal banking agencies. Several of
the significant provisions of the legislation will not become effective until
several years after enactment. The effect of the Improvement Act on
BancFirst, the Merging Entities and their subsidiary banks will not be fully
ascertainable until after these regulations are adopted.
REGULATORY RESTRICTIONS ON DIVIDENDS
The Bank, 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 the Bank does not exceed the total of (i) The
Bank'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, the Bank can only pay dividends to the extent that
its retained net profits (including the portion transferred to surplus)
exceed its bad debts (as defined by regulation). Under the Federal Deposit
Insurance Act, no dividends may be paid by an insured bank if the bank is in
arrears in the payment of any insurance assessment due to the FDIC.
Under these provisions BancFirst may declare during 1995, without prior
regulatory approval, aggregate dividends of $13.9 million, plus net profits
earned to the date of such dividend declaration in 1995.
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State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. See "Capital Adequacy
Guidelines," above. Adherence to such standards further limits the ability
of banks to pay dividends.
The payment of dividends by any subsidiary bank may also be affected by
other regulatory requirements and policies, such as the maintenance of
adequate capital. If, in the opinion of the applicable regulatory authority,
a bank under its jurisdiction is engaged in, or is about to engage in, an
unsafe or unsound practice (which, depending on the financial condition of
the bank, could include the payment of dividends), such authority may
require, after notice and hearing, that such bank cease and desist from such
practice. The Federal Reserve Board has formal and informal policies which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
DEPOSIT INSURANCE
The Improvement Act also requires that the FDIC insurance assessments
move from flat-rate premiums to a system of risk-based premium assessments,
in order to recapitalize the Bank Insurance Fund (the "BIF") at a reserve
ratio specified in the Improvement Act. Beginning in January 1993, BIF
members have paid an annual assessment rate of between 23 and 31 cents per
$100 of domestic deposits, depending on the risk classification assigned by
the FDIC to the BIF member. The FDIC was also granted authority under the
Improvement Act to impose special assessments on insured depository
institutions to repay FDIC borrowings from the United States Treasury or
other sources. In February 1995, the FDIC announced that the risk-based
assessments for BIF institutions would drop to as low as $.04 for the best
managed and well-capitalized institutions starting in late 1995. In
September 1995, as a result of the rate change, a portion of the assessments
paid for the second and third quarters of 1995 was refunded. In November
1995, the FDIC announced that assessments would be suspended in 1996.
STATE REGULATION
The Bank and each of the subsidiary banks of the Merging Entities are
Oklahoma-chartered state banks. Accordingly, their 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 the Bank is also a member of the Federal Reserve System, Oklahoma law
provides that the Bank must maintain reserves against deposits as required by
the Federal Reserve Act.
The Bank 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 the Bank. 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.
Since 1983, Oklahoma law has permitted a bank holding company to own or
control more than one bank, but each additional bank acquisition may not
cause such bank holding company's controlled banks to hold combined deposits
which exceed 11% of the aggregate deposits of all insured financial
institutions in Oklahoma. Additionally, under Oklahoma's interstate banking
law, out-of-state bank holding companies are permitted to acquire Oklahoma
banks or bank holding companies; however, further branching by an acquired
Oklahoma bank is prohibited for a four-year period from the date of its
acquisition by an out-of-state bank holding company unless that company's
principal place of business is in a state which has enacted reciprocal
legislation authorizing Oklahoma bank holding companies to acquire banks or
bank holding companies in such state.
The branching rights of all state and national banks located in Oklahoma
are limited by the Oklahoma Banking Code. A bank may establish and maintain
up to two de novo branches which may be located (i) within the same city as
the main bank, or (ii) within 25 miles of the main bank if located in a city
or town which has no main office of a state or national bank. In addition, a
state or national bank located in Oklahoma may form
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branches anywhere in Oklahoma by acquiring an unlimited number of other
Oklahoma banks, savings and loan associations or their branches, provided
that such acquisitions will not result in the acquiring bank's direct or
indirect ownership or control of more than 11% of the aggregate deposits of
all insured financial institutions in Oklahoma. A bank located in Oklahoma
may also establish two de novo off-premises limited-purpose facilities
(generally referred to as "drive-ins"), one of which must be located within
not more than 1,000 feet of the bank's main office and the second to be
located within three miles of the bank's main office. Such facilities may be
of unlimited size, and all banking functions may be performed there except
the on-premises approval of loans. The Bank recently utilized its statutory
authority to establish a de novo branch in Oklahoma City, but still retains
its authority to establish one de novo branch and two de novo limited-purpose
facilities with respect to its main office in Oklahoma City.
GOVERNMENTAL MONETARY AND FISCAL POLICIES
The commercial banking business is affected directly by the monetary
policies of the Federal Reserve Board and by the fiscal policies of federal,
state and local governments. The Federal Reserve Board, in fulfilling its
role of stabilizing the nation's money supply, utilizes several operating
tools, all of which directly impact commercial bank operations. The primary
tools used by the Federal Reserve Board are changes in reserve requirements
on member bank deposits and other borrowings, open market operations in the
U.S. Government securities market, and control over the availability and cost
of members' direct borrowings from the "discount window."
Banks act as financial intermediaries in the debt capital markets and
are active participants in these markets daily. As a result, changes in
governmental monetary and fiscal policies have a direct impact upon the level
of loans and investments, the availability of sources of lendable funds, and
the interest rates earned from and paid on these instruments. It is not
possible to predict accurately the future course of such government policies
and the residual impact upon the operations of BancFirst or any of the
Merging Entities.
RECENTLY ENACTED FEDERAL LEGISLATION
The recently enacted federal Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994 will increase the ability of BancFirst and other bank
holding companies to make interstate acquisitions and to operate their
subsidiary banks. Commencing on September 29, 1995, adequately capitalized
and adequately managed bank holding companies will be permitted to acquire
banks located anywhere in the United States without regard to the provisions
of any state laws prohibiting such acquisitions. Interstate acquisitions
will not be permitted, however, if the potential acquirer would control more
than ten percent of the insured deposits in the United States or more than 30
percent of insured deposits in the home state of the bank to be acquired or
in any state in which such bank has a branch. States may enact statutes
increasing the 30 percent limit and may also lower such limit if they do so
on a non-discriminatory basis. States will also be permitted to prohibit
acquisitions of banks that have been established for fewer than five years.
The Board of Governors of the Federal Reserve System is required to consider
the applicant's record under the federal Community Reinvestment Act in
determining whether to approve an interstate banking acquisition.
The new statute also permits, after June 1, 1997, interstate branch
banking in all states by adequately capitalized and adequately managed banks,
but a state may enact specific legislation before June 1, 1997 prohibiting
interstate branch banking in that state, in which event banks headquartered
in the state will not be permitted to branch into other states. A state may
also enact legislation permitting non-discriminatory interstate branch
banking in such state before June 1, 1997. Applications for interstate
branching authority will be subjected to regulatory scrutiny of compliance
with both federal and state community reinvestment statutes with respect to
all of the banks involved in the proposed transaction.
BancFirst and the Merging Entities are unable to predict with any
certainty the effect any such legislation would have on their respective
activities.
PENDING AND PROPOSED LEGISLATION
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There are various pending and proposed bills in Congress that, among
other things, could restructure the federal supervision of financial
institutions. BancFirst and the Merging Entities are unable to predict with
any certainty the effect any such legislation would have on their respective
activities.
AMENDMENT TO THE BANCFIRST CHARTER
GENERAL
In connection with the proposed Mergers, the BancFirst Board approved
the Required Amendment. As described below, adoption of the Required
Amendment is necessary in order to consummate the Mergers on the terms set
forth in the respective Merger Agreements and, accordingly, approval of a
particular Merger Proposal (which approval will constitute approval of the
Required Amendment) by the requisite vote of BancFirst's stockholders is a
condition to consummation of the Merger to which the Merger Proposal relates.
The following description of the Required Amendment is qualified in its
entirety by reference to the full text thereof, which is included in each of
the Merger Agreements attached as Appendices B and C to this Proxy
Statement/Offering Memorandum and incorporated herein by reference.
Stockholders are urged to read carefully the full text of the Required
Amendment contained in the Merger Agreements.
THE BANCFIRST BOARD RECOMMENDS THAT BANCFIRST STOCKHOLDERS VOTE FOR EACH
OF THE MERGER PROPOSALS, APPROVAL OF WHICH ALSO CONSTITUTES APPROVAL OF THE
REQUIRED AMENDMENT.
INCREASE IN AUTHORIZED COMMON STOCK
BancFirst is currently authorized to issue 6,800,000 shares of BancFirst
Common Stock. As of the Record Date, 6,215,624 shares of BancFirst Common
Stock were issued and outstanding and 500,000 shares were reserved for
issuance under its nonqualified employee stock option plan. See "Description
of BancFirst Stock" below. In connection with the Mergers, up to 179,831
shares of BancFirst Common Stock will be issued. The BancFirst Board has
approved the Required Amendment which would increase the number of authorized
shares of BancFirst Common Stock from 6,800,000 to 7,000,000.
PURPOSE AND EFFECTS
An increase in the number of authorized shares of BancFirst Common Stock
is necessary to have sufficient shares available for consummation of the
Mergers. Uncommitted authorized but unissued shares of BancFirst Common
Stock may be issued from time to time to such persons and for such
consideration as the BancFirst Board may determine and holders of the then
outstanding shares of BancFirst Common Stock may or may not be given the
opportunity to vote thereon, depending upon the nature of any such
transactions, applicable law, the rules and policies of the NASD and the
judgment of the BancFirst Board regarding the submission of such issuance to
BancFirst's stockholders. BancFirst stockholders have no preemptive rights
to subscribe to newly issued shares.
Because BancFirst does not have sufficient uncommitted authorized but
unissued shares of BancFirst Common Stock to consummate the Mergers without
approval of the Required Amendment, approval of a Merger Proposal (which will
constitute approval of the Required Amendment) is required for, and a
condition to, consummation of the Merger to which such Merger Proposal
relates. Such amendment, if approved by the stockholders, will become
effective only if any of the Mergers is consummated.
DESCRIPTION OF BANCFIRST STOCK
GENERAL
The BancFirst Charter provides for authorized capital stock consisting
of 6,800,000 shares of BancFirst Common Stock, $1.00 par value per share,
10,000,000 shares of Senior Preferred Stock, $1.00 par value per share,
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and 900,000 shares of BancFirst Preferred Stock, par value $5.00 per share.
As of the date of this Proxy Statement/Offering Memorandum, there are
6,215,624 shares of BancFirst Common Stock issued and outstanding; none of
the BancFirst Preferred Stock or Senior Preferred Stock is outstanding.
BancTrust, the trust division of BancFirst, is the transfer agent and
registrar for the BancFirst Common Stock.
COMMON STOCK
VOTING AND OTHER RIGHTS
Holders of BancFirst Common Stock possess exclusive voting rights in
BancFirst. Holders of BancFirst Common Stock elect BancFirst's Board of
Directors and act on such other matters as are required to be presented to
them under Oklahoma law or as are otherwise presented to them by the Board of
Directors. Each holder of BancFirst Common Stock is entitled to one vote per
share on any matter on which stockholders are entitled to vote, and does not
have any right to cumulate votes in the election of directors. All
outstanding shares of BancFirst Common Stock are fully paid and
nonassessable. There are no preemptive, conversion, subscription, redemption
or repurchase rights associated with shares of BancFirst Common Stock.
DIVIDENDS
The holders of shares of the BancFirst Common Stock are entitled to
receive and share ratably in such dividends as the BancFirst Board, in its
discretion, may declare out of funds legally available therefor. The payment
of dividends by BancFirst is subject to limitations which are imposed by law
and applicable regulations. See "Supervision and Regulation" and
"Information About BancFirst -- Price Range of BancFirst Common Stock and
Dividends."
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Bank,
BancFirst, as a holder of the Bank's capital stock, would be entitled to
participate ratably in the assets of the Bank available for distribution,
after payment or provision for payment of all debts and liabilities of the
Bank (including all deposit accounts and accrued interest thereon). In the
event of liquidation, dissolution or winding up of BancFirst, the holders of
BancFirst Common Stock would be entitled to participate ratably in the assets
available for distribution after satisfaction of the claims of the creditors
of BancFirst and of holders of any BancFirst Preferred Stock. See
"-- BancFirst Preferred Stock -- Liquidation Preference."
RESTRICTIONS ON ACQUISITIONS
The Change in Bank Control Act and the BHCA, together with the
regulations of the Federal Reserve Board under those Acts, require that the
consent of the Federal Reserve Board be obtained prior to any person or
company acquiring "control" of a bank holding company. Under the regulations
of the Federal Reserve Board, control is conclusively presumed to exist if an
individual or company acquires more than 25% of any class of voting stock.
Control is rebuttably presumed to exist where a person acquires 10% or more
of a class of publicly-traded voting stock of a bank holding company, such as
the BancFirst Common Stock. Restrictions applicable to the operations of
bank holding companies, the policy of the Federal Reserve Board that bank
holding companies serve as a source of strength for their banking
subsidiaries, and conditions imposed by the Federal Reserve Board in
connection with approval of companies to become bank holding companies, may
deter other companies from seeking to obtain control of BancFirst. See
"Supervision and Regulation."
BancFirst, as an Oklahoma corporation with its headquarters and
operations in the state, is also subject to Section 1090.3 of the Oklahoma
General Corporation Act, which bars for a period of three years any "business
combination" (as defined in such Act, generally, a merger or other
acquisition transaction) with any person or affiliate of the person who owns
15% or more of the outstanding voting stock of the corporation, unless the
"business combination" is approved by the board of directors of the
corporation prior to the time such person became an interested stockholder or
meets certain other statutory criteria.
90
<PAGE>
BUY/SELL AGREEMENT
Certain of the holders of BancFirst Common Stock are parties
("Participants") to a Shareholders' Buy/Sell Agreement (the "Buy/Sell
Agreement"), which imposes restrictions on the sale of such holders' shares
of BancFirst Common Stock. Pursuant to the terms of the Buy/Sell Agreement,
which expires in June 2010, a Participant or Participants acting as a group,
desiring to sell shares of BancFirst Common Stock in excess of an aggregate
of 1% of the total shares of BancFirst Common Stock then outstanding must
first offer to BancFirst, and then pro rata to the other Participants, the
right to purchase such shares. For purposes of determining the 1% threshold,
all shares sold by the same offering Participant during the preceding six
months are added to the number of shares currently sought to be sold by such
Participant, and all shares first offered by any Participants during any
consecutive 30 day period shall be considered as being offered by individuals
acting as a group and selling at the same time. Accordingly, upon completion
of the Mergers, no Participant (or Participants deemed to be acting as a
group) will be able to sell in excess of an aggregate of 63,955 shares of
BancFirst Common Stock (1% of the total number of shares of BancFirst Common
Stock to be outstanding after the Mergers) during the time periods set forth
in the Buy/Sell Agreement, except pursuant to the terms of such agreement.
BANCFIRST PREFERRED STOCK
In February 1994, all outstanding shares of BancFirst Preferred Stock
were redeemed for the par value plus accumulated dividends and, accordingly,
all 900,000 authorized shares of such stock are available for issuance.
Shares of BancFirst Preferred Stock, when and if issued, are not entitled to
vote on any matter, except as otherwise required by applicable law, and are
not entitled to notice of any meeting of the stockholders of BancFirst.
Holders of BancFirst Preferred Stock have no preemptive rights. The terms of
the BancFirst Preferred Stock provide for cash dividends, when and as
declared by the Board of Directors of BancFirst, out of assets of BancFirst
legally available therefor, at the rate of 10% of the liquidation preference
per annum (equivalent to $.50 per annum per share of BancFirst Preferred
Stock). Unless full cumulative dividends on all outstanding shares of
BancFirst Preferred Stock shall have been paid or declared and set aside for
payment for all past dividend payment periods, no cash dividend may be
declared upon BancFirst Common Stock. In the event of any voluntary or
involuntary dissolution, liquidation, or winding up of BancFirst, the holders
of BancFirst Preferred Stock are entitled to receive and to be paid out of
assets of BancFirst available for distribution to its shareholders, before
any payment or distribution is made to holders of Common Stock, a liquidating
distribution of $5.00 per share of BancFirst Preferred Stock plus accrued and
unpaid dividends. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of BancFirst Preferred
Stock will have no right or claim to any of the remaining assets of
BancFirst. BancFirst Preferred Stock is subject to redemption at the option
of BancFirst, upon payment of the par value thereof and accrued dividends.
SENIOR PREFERRED STOCK
BancFirst's Board of Directors has the authority to issue Senior
Preferred Stock from time to time as a class without a series, or in one or
more series. The Senior Preferred Stock may be issued with such voting,
dividend, redemption, sinking fund, conversion, exchange, liquidation and
other rights as shall be determined by resolution of BancFirst's Board of
Directors, without the approval of the stockholders. Senior Preferred Stock
will have a preference over BancFirst Common Stock as to the payment of
dividends, as to the right to distribution of assets upon redemption of
shares or upon liquidation of BancFirst, or as to both dividends and assets,
and such other preferences as may be fixed by the Board of Directors.
Currently, no series of the Senior Preferred Stock has been established by
the Board.
SUMMARY COMPARISON OF BANCFIRST STOCK AND STOCK OF EACH MERGING ENTITY
GENERAL
BancFirst and each of the Merging Entities are Oklahoma corporations.
If a Merger with respect to a Merging Entity is consummated, stockholders of
the Merging Entity who receive BancFirst Common Stock will become
stockholders of BancFirst and, as such, their rights as stockholders will be
governed by Oklahoma law and
91
<PAGE>
by the BancFirst Charter, its bylaws and other corporate documents. Except
as otherwise indicated below, the common stock of BancFirst and each of the
Merging Entities have substantially the same rights.
Both BancFirst Common Stock and the common stock of each of the Merging
Entities have the right to vote on important matters specified by Oklahoma
law affecting the corporate structure of the issuing corporation, including
the election of directors. Outstanding shares of both BancFirst Common Stock
and the common stock of each of the Merging Entities are fully paid and
nonassessable. Each holder of a share of BancFirst Common Stock and the
common stock of each of the Merging Entities has full voting rights and is
entitled to one vote for each share held of record on all matters submitted
to a vote of the stockholders of the respective corporation. Neither the
stockholders of BancFirst nor the stockholders of any of the Merging Entities
have the right to cumulate votes in the election of directors or have any
preemptive or subscription rights. Neither BancFirst Common Stock nor the
common stock of any of the Merging Entities is redeemable or convertible, and
there are no sinking fund provisions relating to any of the shares of such
stock.
Information regarding the authorized and outstanding common stock of
BancFirst and each of the Merging Entities, as well as information regarding
the exchange ratio of BancFirst Common Stock for the common stock of each
Merging Entity, are set forth in the following table:
COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF BANCFIRST
NUMBER OF COMMON COMMON
AUTHORIZED SHARES EXCHANGE SHARES TO
NAME OF ENTITY COMMON SHARES OUTSTANDING RATIO BE ISSUED
-------------- ------------- ----------- -------- ---------
<S> <C> <C> <C> <C>
BancFirst 6,800,000 6,215,624 N/A N/A
Johnston County 55,000 49,620 0.47 23,321
Commerce 45,000 22,572.67 6.9335 156,510
-------
Total 179,831
=======
</TABLE>
Each of the Merging Entities has outstanding classes of 10% cumulative
preferred stock with substantially the same rights. Each of such classes of
preferred stock is entitled to receive cumulative dividends at the annual
rate of 10%, payable semi-annually. Commerce Preferred Stock is subject to
redemption at the option of the corporation, in whole or in part, upon
payment of the par value thereof and accrued dividends, and will be redeemed
prior to consummation of the Commerce/BancFirst Merger. None of such classes
of preferred stock has any voting rights, except under the limited
circumstances prescribed by applicable provisions of law.
Information regarding the authorized and outstanding preferred stock of
each of the Merging Entities, as well as information regarding the cash
redemption or conversion value of such stock, are set forth in the following
table:
PREFERRED STOCK INFORMATION
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PAR AGGREGATE CASH
AUTHORIZED PREFERRED VALUE TOTAL PAR PAYMENT FOR
NAME OF PREFERRED SHARES PER VALUE REDEMPTION OR
MERGING ENTITY SHARES OUTSTANDING SHARE OUTSTANDING CONVERSION
-------------- ---------- ----------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Johnston County 6,800 5,526 $17.55 $96,981 $101,844
Commerce 6,500 4,162 $13.25 $55,146 80,000(1)
--------
Total $181,844
========
</TABLE>
____________________
92
<PAGE>
(1) The Commerce/BancFirst Merger Agreement requires that the Commerce
Preferred Stock be redeemed prior to the Merger at an aggregate amount not
to exceed $80,000.
Additionally, the BancFirst Board has the authority under the BancFirst
Charter, without further approval or action by the stockholders of BancFirst,
to issue shares of Senior Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including
voting rights, dividend rights, conversion rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any additional series of Senior Preferred Stock or the
designation of such series. The issuance of any series of Senior Preferred
Stock could adversely affect the voting power of holders of BancFirst Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying or preventing
a change of control of BancFirst. BancFirst has no current plans to issue
any shares of any series of Senior Preferred Stock, and no shares of any
series of Senior Preferred Stock are currently outstanding.
DISSENTERS' RIGHTS
Johnston County was incorporated under the Old Oklahoma Corporation Act,
which was in effect prior to enactment of the OGCA. The Old Oklahoma
Corporation Act provided that all stockholders had the right to dissent,
subject to certain limitations permitted by statute to be included in a
corporation's charter documents. The charter documents of Johnston County
eliminate the appraisal rights of its stockholders in the event a given
corporate action is approved by holders of 90% of all outstanding shares of
voting stock. This provision mirrors the permissive limitation language of
the Old Oklahoma Corporation Act and was a common provision governing
pre-1986 corporations. The OGCA, however, permits no such limitation to be
made by a corporation in respect of appraisal rights, and it is unclear
whether such charter provisions, enacted under prior law, would be given
effect under the OGCA. Accordingly, the Johnston County Board has determined
to accord its stockholders dissenters' rights with respect to the matters to
be voted upon at the Johnston County Special Meeting, in accordance with the
appraisal provisions of the OGCA, regardless of any perceived limitations on
the exercise of such rights. See "Dissenting Stockholders."
Under the OGCA, holders of BancFirst Common Stock have no appraisal
rights.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under the OGCA, an Oklahoma corporation may indemnify an individual made
a party to a proceeding, because such individual is or was a director,
against liability incurred in the proceeding, if the individual acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful.
However, under the OGCA a corporation cannot indemnify a director or officer
in connection with a proceeding by or in the right of the corporation in
which the director or officer was adjudged liable to the corporation. Under
the OGCA a corporation must indemnify a director who is successful, on the
merits or otherwise, in the defense of any proceeding to which the director
was a party, because the director is or was a director of the corporation,
against expenses, including attorneys' fees, actually and reasonably incurred
by the director in connection with the proceeding. The BancFirst Charter, as
well as the bylaws of each Merging Entity, contain provisions which provide
for mandatory indemnification of the officers and directors of the respective
corporation under the circumstances permitted under the OGCA and described
above.
The BancFirst Charter includes a provision that a director of BancFirst
shall not be personally liable for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 1053 of the OGCA relating to an
unlawful distribution, and (iv) for any transaction from which the director
derives an improper personal benefit. No similar provision exists in the
charter documents of either of the Merging Entities.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
93
<PAGE>
COMMON STOCK OWNERSHIP
The following table sets forth the number of shares of BancFirst Common
Stock as of September 30, 1995, owned by each director and named executive
officers of BancFirst and by all directors and executive officers of
BancFirst as a group, together with the percentage of outstanding Common
Stock owned by each.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP PERCENT OF CLASS
-------------------- ----------------
<S> <C> <C>
David E. Rainbolt (1) 3,102,194 49.67%
H. E. Rainbolt (2) 52,721 0.84
Robert A. Gregory (3) 13,378 0.21
J. Ralph McCalmont (4) 162,055 2.59
John T. Hannah 350 0.01
J. R. Hutchens, Jr. (5) 60,109 0.97
Melvin Moran (6) 89,795 1.44
Dennis L. Brand (7) 2,196 0.04
E. Wayne Cardwell (8) 38,026 0.61
George A. Cannon (9) 23,839 0.38
Roy C. Ferguson (10) 15,530 0.25
Randy P. Foraker (11) 6,795 0.11
All directors and executive officers as a
group (13 persons) 3,566,988 56.20%
</TABLE>
______________________
(1) Includes 3,023,829 shares held by R. Banking Limited Partnership, a
family partnership of which David E. Rainbolt is the general partner; 9,302
shares held in trust for David E. Rainbolt's children; 7,766 shares held by
the ESOP; and 30,000 shares subject to exercisable options.
(2) Includes 22,721 shares held by the ESOP and 30,000 shares subject to
exercisable options.
(3) Includes 2,128 shares held by the ESOP and 11,250 shares subject to
exercisable options.
(4) Includes 14,549 shares held by the ESOP and 30,000 shares subject to
exercisable options.
(5) Includes 19,019 shares held jointly with Mr. Hutchens' wife.
(6) Includes 45,000 shares held directly by Mr. Moran's wife.
(7) Includes 228 shares held by the ESOP, and 431 shares owned by Mr. Brand's
wife.
(8) Includes 14,861 shares held by the ESOP, 12,500 shares subject to
exercisable options, and 1,041 shares owned jointly with Mr. Cardwell's
wife.
(9) Includes 6,839 shares held by the ESOP, and 17,000 shares subject to
exercisable options.
(10) Includes 353 shares held by the ESOP.
(11) Includes 4,415 shares held by the ESOP, and 625 shares subject to
exercisable options.
Excluding shares represented by presently exercisable options, the
BancFirst Affiliates own an aggregate 3,435,613 shares of BancFirst Common
Stock, or approximately 55.27% of the total BancFirst Common Stock
outstanding. The BancFirst Affiliates have indicated their intent to vote in
favor of each Merger Proposal.
Certain of the BancFirst Affiliates, including RBLP and J.R. Hutchens
(collectively, the "Interested BancFirst Stockholders"), also have stock
ownership in one or more Merging Entities, as described below.
94
<PAGE>
As of the Record Date, directors and executive officers of Johnston
County and their affiliates owned beneficially 25,430 shares, or
approximately 51.25%, of the shares of Johnston County Common Stock
outstanding on such date. See "Information About Johnston County Security
Ownership of Management." Additionally, as of such date the Interested
BancFirst Stockholders (which includes a director or Johnston County) owned
beneficially 48,050 shares, or approximately 96.83%, of Johnston County
Common Stock outstanding. As of the Record Date, directors and executive
officers of Johnston County and their affiliates owned beneficially 60,109
shares, or approximately .97%, of the total BancFirst Common Stock
outstanding.
As of the Record Date, 100% of the Commerce Common Stock outstanding was
owned beneficially by RBLP and Leslie E. Greathouse, a former director and
executive officer of BancFirst. As of the Record Date, directors and
executive officers of Commerce and their affiliates owned beneficially 52,867
shares or approximately .85% of the total BancFirst Common Stock outstanding.
PREFERRED STOCK OWNERSHIP
Certain of the BancFirst Affiliates own an aggregate 5,176 shares of
Johnston County Preferred Stock, representing approximately 93.67% of the
total shares of Johnston County Preferred Stock outstanding, and an aggregate
3,962 shares of Commerce Preferred Stock, representing approximately 95.19%
of the shares of Commerce Preferred Stock outstanding.
OPTION AGREEMENT
Leslie E. Greathouse has granted to RBLP, in connection with the 78,255
shares of BancFirst Common Stock to be issued to him in the
Commerce/BancFirst Merger, an option to acquire such shares (the Option
Shares ) over a three year period (the Option Period ) commencing one year
from the Effective Time of the Commerce/BancFirst Merger, at a price of
$16.00 per share for one-third of the Option Shares during the first year of
the Option Period, $17.00 per share for one-third of the Option Shares during
the second year of the Option Period, and $18.00 per share for one-third of
the Option Shares during the third year of the Option Period.
CONSULTING AGREEMENT
In June 1995, Leslie E. Greathouse retired from BancFirst.
Contemporaneously, he entered into a Consulting Agreement with BancFirst,
pursuant to which he is to provide consulting services to the company over a
five-year term, for aggregate payments of $250,000. The Consulting Agreement
also contains noncompete provisions whereby Mr. Greathouse may not control or
manage competing banks within BancFirst s market areas. Mr. Greathouse is
also a stockholder and director of Commerce.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934 requires directors and
certain officers of BancFirst to file reports with the Securities and
Exchange Commission reflecting transactions by such persons in BancFirst's
Common Stock. During 1994, to the knowledge of BancFirst or based on
information provided by such persons to BancFirst, all officers and directors
of BancFirst subject to such filing requirements fully complied with such
requirements, except as set forth below.
A Form 4 "Statement of Changes in Beneficial Ownership" for Randy
Foraker, Senior Vice President and Controller; Secretary/Treasurer, was filed
four days late during 1994. The form reported two transactions.
ADDITIONAL INFORMATION
Copies of all documents material to BancFirst which are not included as
appendices to this Proxy Statement/Offering Memorandum are available for
review at the offices of BancFirst, 101 N. Broadway, Suite 200, Oklahoma
City, Oklahoma 73102. BancFirst will permit the review of such documents by
the stockholders of Johnston County during normal business hours upon written
request. A listing of the additional documents available for review is set
forth in Appendix E.
95
<PAGE>
INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NUMBER
OF STATEMENT
CONTAINING
DEFINED TERM DEFINITION
- ------------ ------------
<S> <C>
BancFirst ..................................................... 1, 5
BancFirst Affiliates .......................................... 6
BancFirst Board ............................................... 7
BancFirst Charter ............................................. 1, 5
BancFirst Common Stock ........................................ 1
BancFirst Preferred Stock ..................................... 1
BancFirst Special Meeting ..................................... 5
Bank .......................................................... 5, 44
BHCA .......................................................... 83
Bid Price ..................................................... 30
BIF ........................................................... 87
BOJC .......................................................... 33, 71
Buy/Sell Agreement ............................................ 91
City Bankshares ............................................... 46
Code .......................................................... 9
Commission .................................................... 2
Commerce ...................................................... 1, 5, 77
Commerce Bank ................................................. 33,37
Commerce/BancFirst Merger ..................................... 6
Commerce/BancFirst Merger Agreement ........................... 6
Commerce Board ................................................ 7
Commerce Common Stock ......................................... 6
Commerce Preferred Stock ...................................... 6
Conversion Ratio .............................................. 30
CRSP .......................................................... 69
Dissenters' Rights ............................................ 8
Dissenters' Rights Limitation Provision ....................... 23
Dissenting Stockholder ........................................ 23
Dissenting Stockholders ....................................... 8
Effective Time ................................................ 31
ESOP .......................................................... 62
Exchange Act .................................................. 2
FAS 114 ....................................................... 58
FAS 115 ....................................................... 54
FDIC .......................................................... 45
Improvement Act ............................................... 83
Interested BancFirst Stockholders ............................. 6, 20, 94
Johnston County ............................................... 1, 5, 71
Johnston County/BancFirst Merger .............................. 6
Johnston County/BancFirst Merger Agreement .................... 6
Johnston County Board ......................................... 7
Johnston County Common Stock .................................. 6
Johnston County Preferred Stock ............................... 6
Johnston County Special Meeting ............................... 6
Merger ........................................................ 1, 5
Mergers ....................................................... 1, 5
Merger Agreement .............................................. 5
Merger Agreements.............................................. 5
</TABLE>
96
<PAGE>
<TABLE>
<S> <C>
Merger Proposal ............................................... 5
Merger Proposals .............................................. 1
Merging Entities .............................................. 1, 5
Merging Entity ................................................ 1, 5
NASDQ/NMS ..................................................... 5
OGCA .......................................................... 22
Old Oklahoma Corporation Act .................................. 22
Opinions ...................................................... 26
Option Period ................................................. 95
Option Shares ................................................. 95
Participants .................................................. 91
Proxy Statement/Offering Memorandum ........................... 1
RBLP .......................................................... 6
Record Date ................................................... 6, 20
Required Amendment ............................................ 1, 5
SBA ........................................................... 45
Securities Act ................................................ 2
Service ....................................................... 34
Sheshunoff .................................................... 8
State National Bank ........................................... 46
Transactions .................................................. 37
</TABLE>
97
<PAGE>
INDEX TO FINANCIALS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
BANCFIRST CORPORATION
Report of Accountants............................................................ F-3
Consolidated Balance Sheet for the years ended December 31, 1994 and 1993........ F-4
Consolidated Statement of Operations for the three years ended
December 31, 1994............................................................. F-5
Consolidated Statement of Stockholders' Equity for the three years ended
December 31, 1994............................................................. F-6
Consolidated Statement of Cash Flows for the three years ended December 31, 1994. F-7
Notes to Consolidated Financial Statements...................................... F-8
BANCFIRST CORPORATION
Consolidated Balance Sheet (Unaudited) at September 30, 1995.................... F-28
Consolidated Statement of Operations (Unaudited) for the periods ended
September 30, 1995 and 1994................................................... F-29
Consolidated Statement of Cash Flows (Unaudited) for the periods ended
September 30, 1995 and 1994................................................... F-30
Notes to Consolidated Financial Statements (Unaudited).......................... F-31
JOHNSTON COUNTY BANCSHARES, INC.
Accountants' Compilation Report................................................. F-34
Consolidated Balance Sheet (Unaudited) at September 30, 1995 and
December 31, 1994............................................................. F-35
Consolidated Statement of Operations (Unaudited) for the periods ended
September 30, 1995 and 1994, and for the three years ended
December 31, 1994............................................................. F-36
Consolidated Statement of Stockholders' Equity (Unaudited) for the periods
ended September 30, 1995 and 1994, and for the three years ended
December 31, 1994.............................................................. F-37
Consolidated Statement of Cash Flow (Unaudited) for the periods ended
September 30, 1995 and 1994, and for the three years ended
December 31, 1994............................................................. F-38
Notes to Consolidated Financial Statements (Unaudited).......................... F-39
COMMERCE BANCORPORATION, INC.
Accountants' Compilation Report................................................. F-46
Consolidated Balance Sheet (Unaudited) at September 30, 1995 and
December 31, 1994............................................................ F-47
Consolidated Statements of Operations (Unaudited) for the periods ended
September 30, 1995 and 1994, and for the three years ended December 31, 1994 F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statement of Stockholders' Equity (Unaudited) for the periods
ended September 30, 1995 and 1994, and for the three years ended
December 31, 1994.............................................................. F-49
Consolidated Statement of Cash Flow (Unaudited) for the periods ended
September 30, 1995 and 1994, and for the three years ended December 31, 1994... F-50
Notes to Consolidated Financial Statements (Unaudited)......................... F-51
STATE NATIONAL BANK
Auditors' Report............................................................... F-67
Balance Sheet at December 31, 1994............................................ F-68
Statement of Operations for the year ended December 31, 1994.................. F-69
Statement of Stockholders' Equity for the year ended December 31, 1994........ F-70
Statement of Cash Flow for the year period ended December 31, 1994............ F-71
Notes to the Financial Statements............................................. F-72
CITY BANKSHARES, INC.
Accountants' Compilation Report............................................... F-84
Consolidated Balance Sheet (Unaudited) at September 30, 1995 and at
December 31, 1994............................................................. F-85
Consolidated Statement of Operations (Unaudited) for the periods ended
September 30, 1995 and 1994, and for the two years ended December 31, 1994.... F-86
Consolidated Statement of Cash Flow (Unaudited) for the periods ended
September 30, 1995 and 1994, and for the two years ended December 31, 1994.... F-87
Consolidated Statement of Stockholders' Equity (Unaudited) for the periods
ended September 30, 1995 and, and for the two years December 31, 1994......... F-89
Notes to the Financial Statements............................................. F-90
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BancFirst Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of BancFirst
Corporation and its subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 4 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" effective January 1,
1994.
PRICE WATERHOUSE LLP
Oklahoma City, Oklahoma
March 29, 1995
F-3
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks ............................................................ $ 53,564 $ 48,858
Securities:
Held for investment, at cost (market value: $20,395 and $234,851, respectively) .. 20,779 231,546
Available for sale, at market value .............................................. 202,265 --
Federal funds sold ................................................................. 28,260 40,570
Loans:
Total loans (net of unearned interest) ........................................... 522,314 466,356
Allowance for possible loan losses ............................................... (9,729) (9,027)
-------- --------
Loans, net ..................................................................... 512,585 457,329
Premises and equipment, net ........................................................ 26,462 18,693
Other real estate owned ............................................................ 2,183 4,071
Intangible assets, net ............................................................. 7,960 7,776
Accrued interest receivable ........................................................ 8,518 7,495
Other assets ....................................................................... 10,339 6,896
-------- --------
Total assets ................................................................... $872,915 $823,234
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing .............................................................. $168,426 $148,422
Interest-bearing ................................................................. 616,425 588,264
-------- --------
Total deposits ................................................................. 784,851 736,686
Securities sold under repurchase agreements and other short-term borrowings ........ 117 935
Accrued interest payable ........................................................... 2,089 1,479
Other liabilities .................................................................. 3,897 3,179
Minority interest .................................................................. -- 1,005
-------- --------
Total liabilities .............................................................. 790,954 743,284
-------- --------
Commitments and contingent liabilities .............................................
Stockholders' equity:
10% Preferred Stock .............................................................. -- 3,898
Common stock (shares issued: 6,202,814 and 6,198,439, respectively) .............. 6,203 6,198
Capital surplus .................................................................. 34,259 34,234
Retained earnings ................................................................ 45,611 35,620
Unrealized securities losses, net of tax ......................................... (4,112) --
-------- --------
Total stockholders' equity ..................................................... 81,961 79,950
-------- --------
Total liabilities and stockholders' equity ..................................... $872,915 $823,234
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees ............................................... $ 45,609 $ 37,433 $ 34,353
Securities:
Taxable ........................................................... 12,184 11,325 13,636
Tax-exempt ........................................................ 631 667 1,013
Federal funds sold .................................................. 1,350 1,099 1,528
---------- ---------- ----------
Total interest income ........................................... 59,774 50,524 50,530
---------- ---------- ----------
INTEREST EXPENSE
Deposits ............................................................ 20,780 17,298 19,615
Securities sold under repurchase agreements and other short-term
borrowings ......................................................... 19 10 118
Note payable ........................................................ -- 245 749
Line of Credit ...................................................... 39 -- --
Long-term borrowings ................................................ -- -- 7
---------- ---------- ----------
Total interest expense ......................................... 20,838 17,553 20,489
---------- ---------- ----------
Net interest income ................................................. 38,936 32,971 30,041
Provision for possible loan losses .................................. 380 251 700
---------- ---------- ----------
Net interest income after provision for possible loan losses .... 38,556 32,720 29,341
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposits ......................................... 7,641 6,566 5,683
Securities transactions ............................................. 5 204 75
Other ............................................................... 3,572 3,777 2,854
---------- ---------- ----------
Total noninterest income ........................................ 11,218 10,547 8,612
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits ...................................... 17,228 15,094 13,416
Occupancy and fixed assets expense, net ............................. 1,787 1,804 1,698
Depreciation ........................................................ 1,749 1,443 1,131
Amortization ........................................................ 1,262 1,134 1,000
Data processing services ............................................ 1,359 1,194 1,125
Net (income) expense from other real estate owned ................... (312) 547 1,256
Other ............................................................... 8,558 7,935 7,166
---------- ---------- ----------
Total noninterest expense ....................................... 31,631 29,151 26,792
---------- ---------- ----------
Income before taxes, extraordinary item and cumulative effect of
change in accounting principle ..................................... 18,143 14,116 11,161
Income tax expense .................................................. (6,546) (3,962) (2,206)
---------- ---------- ----------
Income before extraordinary item and cumulative effect of change
in accounting principle ............................................ 11,597 10,154 8,955
Extraordinary item -- tax benefit from utilization of net operating
loss carryforward .................................................. -- -- 2,206
Cumulative effect on prior years from adoption of new accounting
principle for income taxes ......................................... -- 1,318 --
---------- ---------- ----------
Net income ...................................................... $ 11,597 $ 11,472 $ 11,161
========== ========== ==========
PER SHARE DATA (PRIMARY AND FULLY DILUTED)
Income before extraordinary item and cumulative effect of change
in accounting principle ............................................ $ 1.80 $ 1.77 $ 1.70
Extraordinary item .................................................. -- -- 0.47
Cumulative effect on prior years from adoption of new accounting
principle for income taxes ......................................... -- 0.24 --
---------- ---------- ----------
Net income ...................................................... $ 1.80 $ 2.01 $ 2.17
========== ========== ==========
Average common stock and common stock equivalents ................... 6,399,518 5,513,009 4,716,552
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1993 1992
-------------------- ---------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
10% PREFERRED STOCK
Issued at beginning of year. . . . . . . . . . . . . . . . . . . . . 779,668 $ 3,898 765,739 $ 3,829 765,739 $ 3,829
Shares issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 15,809 79 -- --
Shares acquired and canceled . . . . . . . . . . . . . . . . . . . . (779,668) (3,898) (1,880) (10) -- --
--------- -------- --------- ------- --------- --------
Issued at end of year. . . . . . . . . . . . . . . . . . . . . . . . -- $ -- 779,668 $ 3,898 765,739 $ 3,829
========= ======== ========= ======= ========= ========
FLOATING RATE PREFERRED STOCK
Issued at beginning of year. . . . . . . . . . . . . . . . . . . . . -- $ -- -- $ -- 100,000 $ 10,000
Shares acquired and canceled . . . . . . . . . . . . . . . . . . . . -- -- -- -- (100,000) (10,000)
--------- -------- --------- ------- --------- --------
Issued at end of year. . . . . . . . . . . . . . . . . . . . . . . . -- $ -- -- $ -- -- $ --
========= ======== ========= ======= ========= ========
COMMON STOCK
Issued at beginning of year. . . . . . . . . . . . . . . . . . . . . 6,198,439 $ 6,198 4,816,982 $ 4,817 4,813,012 $ 4,813
Shares issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,375 5 1,478,618 1,478 4,000 4
Shares acquired and canceled . . . . . . . . . . . . . . . . . . . . -- -- (97,161) (97) (30) --
--------- -------- --------- ------- --------- --------
Issued at end of year. . . . . . . . . . . . . . . . . . . . . . . . 6,202,814 $ 6,203 6,198,439 $ 6,198 4,816,982 $ 4,817
========= ======== ========= ======= ========= ========
CAPITAL SURPLUS
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . $ 34,234 $16,484 $ 12,478
Common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . 25 17,750 6
Addition from cancellation of Floating Rate Preferred Stock. . . . . -- -- 4,000
-------- ------- --------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . $ 34,259 $34,234 $ 16,484
======== ======= ========
RETAINED EARNINGS
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . $ 35,620 $26,227 $ 16,643
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,597 11,472 11,161
Dividends on 10% Preferred Stock ($0.07, $0.50 and $1.75 per share,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . (55) (386) (1,340)
Dividends on common stock ($0.25, $0.21 and $0.05 per share,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,551) (1,186) (236)
Common stock canceled. . . . . . . . . . . . . . . . . . . . . . . . -- (507) (1)
-------- ------- --------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . $ 45,611 $35,620 $ 26,227
======== ======= ========
UNREALIZED SECURITIES LOSSES
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . $ --
Net change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,112)
--------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . $ (4,112)
========
TREASURY STOCK
10% Preferred Stock:
Held at beginning of year . . . . . . . . . . . . . . . . . . . . . -- $ -- 940 $ (5) -- $ --
Shares acquired . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 940 (5)
Shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (940) 5 -- --
--------- -------- --------- ------- --------- --------
Held at end of year . . . . . . . . . . . . . . . . . . . . . . . . -- $ -- -- $ -- 940 $ (5)
========= ======== ========= ======= ========= ========
Common Stock:
Held at beginning of year . . . . . . . . . . . . . . . . . . . . . -- $ -- 96,798 $ (599) 96,470 $ (597)
Shares acquired . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 358 (3)
Shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (96,798) 599 (30) 1
--------- -------- --------- ------- --------- --------
Held at end of year . . . . . . . . . . . . . . . . . . . . . . . . -- $ -- -- $ -- 96,798 $ (599)
========= ======== ========= ======= ========= ========
Total treasury stock. . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ (604)
======== ======= ========
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . $ 81,961 $79,950 $ 50,753
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,597 $ 11,472 $ 11,161
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses . . . . . . . . . . . . . . . . . . . . . . . . . 380 251 700
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,011 2,577 2,131
Net amortization of securities premiums and discounts. . . . . . . . . . . . . . . . 1,783 1,560 1,254
Unrealized losses on other real estate owned . . . . . . . . . . . . . . . . . . . . 4 343 734
(Increase) decrease in interest receivable . . . . . . . . . . . . . . . . . . . . . (681) 193 82
Increase (decrease) in interest payable. . . . . . . . . . . . . . . . . . . . . . . 530 (394) (1,019)
(Increase) decrease in deferred tax asset. . . . . . . . . . . . . . . . . . . . . . 477 (568) (2,274)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,765) (27) (2,294)
-------- -------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . 15,336 15,407 10,475
-------- -------- --------
INVESTING ACTIVITIES
Cash and due from banks from acquisitions . . . . . . . . . . . . . . . . . . . . . . 414 5,716 806
Purchases of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71,577) (82,349) (70,874)
Maturities of securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,154 87,676 91,435
Proceeds from sales of securities . . . . . . . . . . . . . . . . . . . . . . . . . . 14,517 872 1,162
Net decrease in federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . . 13,281 6,103 9,649
Purchases of loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,968) (11,460) (22,068)
Proceeds from sales of loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,298 55,318 44,714
Net other increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,949) (77,403) (67,577)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (9,158) (2,390) (1,008)
Proceeds from the sale of other real estate owned and repossessed assets. . . . . . . 3,613 3,243 978
Purchase of minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,121) (645) --
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (236) 252 150
-------- -------- --------
Net cash used for investing activities. . . . . . . . . . . . . . . . . . . . . . . (19,732) (15,067) (12,633)
-------- -------- --------
FINANCING ACTIVITIES
Net increase in demand, transaction and savings deposits. . . . . . . . . . . . . . . 7,742 41,866 48,242
Net increase (decrease) in certificates of deposits . . . . . . . . . . . . . . . . . 7,784 (38,565) (36,978)
Net increase (decrease) in securities sold under repurchase agreements and
other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (818) 869 (3,313)
Principal repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . -- (13,983) (6,000)
Proceeds from borrowings on note payable. . . . . . . . . . . . . . . . . . . . . . . -- -- 6,000
Principal repayments on long-term borrowings. . . . . . . . . . . . . . . . . . . . . -- -- (113)
Issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 14,448 10
Purchase and retirement of common stock . . . . . . . . . . . . . . . . . . . . . . . -- -- (8)
Purchase and retirement of Floating Rate Preferred Stock. . . . . . . . . . . . . . . -- -- (6,000)
Redemption of 10% Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . (3,953) -- --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,683) (1,196) (1,385)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (12) (178)
-------- -------- --------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . 9,102 3,427 277
-------- -------- --------
Net increase (decrease) in cash and due from banks. . . . . . . . . . . . . . . . . . 4,706 3,767 (1,881)
Cash and due from banks at the beginning of the year. . . . . . . . . . . . . . . . . 48,858 45,091 46,972
-------- -------- --------
Cash and due from banks at the end of the year. . . . . . . . . . . . . . . . . . . . $53,564 $ 48,858 $ 45,091
======== ======== ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest. . . . . . . . . . . . . . . . . . . . . . . . $20,228 $ 17,533 $ 21,508
======== ======== ========
Cash paid during the year for income taxes. . . . . . . . . . . . . . . . . . . . . . $ 5,579 $ 3,889 $ 2,084
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BancFirst Corporation and its
subsidiaries (the "Company") conform to generally accepted accounting
principles and general practice within the banking industry. A summary of
the significant accounting policies follows.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of BancFirst Corporation, BancFirst Investment Corporation, BancFirst,
Lenders Collection Corporation and National Express Corporation. All
significant intercompany accounts and transactions have been eliminated.
Assets held in a fiduciary or agency capacity are not assets of the Company
and, accordingly, are not included in the consolidated financial statements.
Certain amounts for 1993 and 1992 have been reclassified to conform with the
1994 presentation.
SECURITIES
The Company's practice is to hold its securities to maturity and it does
not engage in trading activities. Any sales of securities are to execute the
Company's asset/liability management strategy, to eliminate a perceived
credit risk in a specific security, or to provide liquidity. After January
1, 1994, securities that are being held for indefinite periods of time, or
that may be sold as part of the Company's asset/liability management
strategy, to provide liquidity or for other reasons, are classified as
available for sale and are stated at estimated market value. Unrealized
gains or losses on securities available for sale are reported as a component
of stockholders' equity, net of income tax. Securities for which the Company
has the intent and ability to hold to maturity are classified as held for
investment and are stated at cost, adjusted for amortization of premiums and
accretion of discounts computed under the interest method, unless such
investments are considered permanently impaired, in which case they are
adjusted to the lower of cost or market. Prior to January 1, 1994, all
securities were classified as held for investment. Gains or losses from
sales of securities are based upon the book value of the specific securities
sold.
LOANS
Loans are stated at the principal amount outstanding. Interest income on
certain installment loans is recorded by use of a method which produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on all other loans is recognized based upon the principal amount
outstanding.
A loan is placed on nonaccrual status when, in the opinion of management,
the future collectibility of interest and/or principal is in serious doubt.
Interest income is recognized on certain of these loans on a cash basis if
the full collection of the remaining principal balance is reasonably
expected. Otherwise, interest income is not recognized until the principal
balance is fully collected.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is increased by annual provisions
charged to operating expense and is reduced by net loan charge-offs. The
provision for loan losses charged to operating expense is based on past loan
loss experience and other factors which, in Management's judgment, deserve
current recognition in estimating possible loan losses. Such other factors
considered by Management include evaluations of known problem loans, levels
of adversely classified and nonperforming loans, and general economic
conditions.
F-8
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operating expense and is computed by the use of
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, loans
secured by real estate which are in substance foreclosed and loans from sales
of other real estate owned which do not satisfy the requirements of generally
accepted accounting principles to be classified as loans. These properties
and loans are carried at the lower of the recorded investment in the loan or
the fair market value of the property based upon appraised value. Losses
arising at the time of classification of such properties and loans as other
real estate owned are charged directly to the allowance for possible loan
losses. Losses from declines in value of the properties subsequent to
classification as other real estate owned are charged directly to operating
expense.
INTANGIBLE ASSETS
Core deposit intangibles are amortized on a straight-line basis over the
estimated useful lives of the core deposits. The excess of cost over the fair
value of assets acquired (goodwill) is amortized on a straight-line basis
over fifteen to twenty years. Organization cost and trademarks are amortized
on a straight-line basis over five years and fifteen years, respectively.
INCOME TAXES
The Company files a consolidated income tax return. In January 1993, the
Company adopted Statement of Financial Accounting Standards No. 109 ("FAS
109"), "Accounting for Income Taxes." The adoption of FAS 109 changed the
method of accounting for income taxes from the deferred method to an asset
and liability approach. Under the asset and liability approach, deferred
taxes are recognized for the future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, based
upon the tax rates expected to apply to taxable income in the periods when
the related temporary differences are expected to be realized. Prior to
1993, deferred income taxes were recognized for the differences between the
period in which certain income and expense items were recognized for
financial statement purposes and the period in which they affected taxable
income.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, less
preferred dividends requirement, by the weighted average of common shares and
common stock equivalents outstanding, as restated for shares issued in
business combinations accounted for as poolings of interests.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers cash
and due from banks as cash equivalents.
F-9
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
In 1994, in connection with the acquisition of First City Bank, the
Company paid cash of $4,029, acquired assets of $37,177 and assumed
liabilities of $33,132. The statement of cash flows for 1994 is presented
net of the assets acquired and liabilities assumed.
In 1993, in connection with the acquisition of United Bank and Trust of
Norman and the mergers with Coweta Bancshares, Inc., First Stratford
Bancorporation, Inc. and Weatherford Bancorporation, Inc. the Company issued
common and preferred stock of $4,878, acquired assets of $103,338 and assumed
liabilities of $100,008. The statement of cash flows for 1993 is presented
net of the stock issued, assets acquired and liabilities assumed.
In connection with the merger with First State Bank of Stroud in 1992,
BancFirst issued common stock totaling $631, acquired assets of $15,052, and
assumed liabilities of $14,421. The statement of cash flows for 1992 is
presented net of the stock issued, assets acquired and liabilities assumed.
(2) FORMATION OF BANCFIRST CORPORATION, MERGERS AND ACQUISITIONS
BancFirst Corporation was incorporated in Oklahoma in July 1984. In June
1985, it merged with seven Oklahoma bank holding companies and has conducted
business as a bank holding company since that time. Additional mergers and
acquisitions have been completed and, as a result, BancFirst Corporation is
the surviving corporation along with the aforementioned subsidiaries, while
the holding companies, banks and other companies that were merged or acquired
ceased to exist as separate companies.
In September 1992, First State Bank of Stroud, Oklahoma was merged into
BancFirst. The merger was accomplished through the exchange of 54,340 shares
of BancFirst common stock for all 220,000 shares outstanding of First State
Bank common stock. H. E. Rainbolt, at that time the majority stockholder of
the Company, also owned 98.35% of the stock of First State Bank. The merger
was accounted for as a book value purchase, which is similar to the pooling
of interests method, although the effect of the merger is included in the
Company's consolidated financial statements from the date of the merger
forward. First State Bank had total assets of $15,052 at the time of the
merger and the merger did not have a material effect on the results of
operations of the Company.
In February 1993, BancFirst purchased the majority of the assets and
assumed the majority of the liabilities of United Bank and Trust Company of
Norman, Oklahoma, by assuming net liabilities, including acquisition costs,
of $1,617. The assets acquired had a total value of $32,670. A core deposit
intangible of $520 and goodwill of $1,097 were recorded in the acquisition.
The acquisition was accounted for as a purchase. Accordingly, the effect of
the acquisition is included in the Company's consolidated financial
statements from the date of the acquisition forward. The acquisition did not
have a material effect on the results of operations of the Company.
On December 31, 1993 the Company completed mergers with Coweta
Bancshares, Inc., First Stratford Bancorporation, Inc. and Weatherford
Bancorporation, Inc. (the "Merged Companies"). The mergers were accomplished
through the exchange of 406,091 shares of common stock and 15,809 shares of
10% Preferred Stock for all of the outstanding common and preferred stock of
the Merged Companies. The Company and its officers and directors owned from
64% to 100% of the outstanding common stock of each of the Merged Companies.
The mergers were accounted for as a book value purchase, which is similar to
the pooling of interests method, although the effect of the mergers is
included in the Company's consolidated financial statements from the date of
the mergers forward. The Merged Companies had total assets of approximately
$72,000 at the time of the mergers and the mergers did not have a material
effect on the results of operations of the Company for 1993.
In March 1994, the Company acquired First City Bank of Tulsa, Oklahoma,
which had total assets of $37,177. The acquisition was for cash of $4,029,
with First City Bank being merged into BancFirst. In a related transaction,
the Company purchased the building in which First City Bank was located for
$3,472. The acquisitions were accounted for as purchases. Accordingly, the
effect of the acquisitions are included in the Company's
F-10
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
consolidated financial statements from the date of the acquisitions forward.
The acquisitions did not have a material effect on the operations of the
Company.
In April 1994, the Company acquired certain of the assets of National
Express Money Orders, Inc., a money order company operating in Oklahoma and
Texas. The new business is operated as a subsidiary of BancFirst under the
name National Express Corporation. The acquisition was for cash and was
accounted for as a purchase. Accordingly, the effect of the acquisition is
included in the Company's consolidated financial statements from the date of
the acquisition forward. The assets acquired were not material in relation
to the Company's financial position and the acquisition did not have a
material effect on the operations of the Company.
In July 1994, BancFirst Corporation purchased the minority interest in
its bank subsidiary, BancFirst, for $1,121, which was 1.1 times the book
value of the respective shares of BancFirst common stock at June 30, 1994.
The excess of the cost over the book value of the stock acquired was $103.
In October 1994, the Company entered into an agreement to acquire State
National Bank of Marlow, Oklahoma. The acquisition was completed in March
1995. State National Bank had total assets of approximately $100,000 and net
assets, after fair value adjustments, of approximately $16,500. The
acquisition was for cash of $17,500 with an additional $500 placed in escrow
pending the resolution of certain matters. State National Bank was
immediately merged with BancFirst. The acquisition will be accounted for as
a purchase. Accordingly, the effect of the acquisition will be included in
the Company's consolidated financial statements from the date of the
acquisition forward.
(3) DUE FROM BANKS AND FEDERAL FUNDS SOLD
The Company maintains accounts with various other financial institutions
and the Federal Reserve Bank, primarily for the purpose of clearing cash
items. Also, it sells federal funds to certain of these institutions on an
overnight basis. As a result, the Company had concentrations of credit risk
in three institutions totaling $42,996 at December 31, 1994 and in two
institutions totaling $36,847 at December 31, 1993. These institutions are
selected based on the strength of their financial condition and their
creditworthiness. No collateral is required on such balances.
The Company is required, as a matter of law, to maintain a reserve
balance on deposit with the Federal Reserve Bank. The average amount of
reserves maintained for each of the years ended December 31, 1994 and 1993
was approximately $24,110 and $21,100, respectively.
(4) SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS
115"), effective January 1, 1994. FAS 115 requires that investments in debt
securities be classified and accounted for in three categories: held for
investment, available for sale, and trading. As a result of adopting FAS 115,
the Company transferred approximately $183,000 from securities held for
investment to securities available for sale. These securities were adjusted
to market value, resulting in an initial unrealized net gain of $2,640 which
increased stockholders' equity $1,716 on an after-tax basis. During 1994,
the unrealized net gain became an unrealized net loss of $6,327 and the
amount included in stockholders' equity decreased $5,828 to an unrealized net
loss of $4,112. Prior to January 1, 1994, all securities were classified as
held for investment.
F-11
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The table below summarizes the book values and estimated market values
of securities held for investment:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury........................ $ 2,691 $ -- $ (54) $ 2,637
Other federal agencies............... 6,814 45 (272) 6,587
States and political subdivisions.... 9,191 73 (173) 9,091
Other securities..................... 2,083 -- (3) 2,080
-------- ------ ------- --------
Total........................... $ 20,779 $ 118 $ (502) $ 20,395
======== ====== ======= ========
DECEMBER 31, 1993
U.S. Treasury........................ $175,420 $1,803 $ (223) $177,000
Other federal agencies............... 40,188 1,256 (66) 41,378
States and political subdivisions.... 10,606 545 (24) 11,127
Other securities..................... 5,332 17 (3) 5,346
-------- ------ ------- --------
Total........................... $231,546 $3,621 $ (316) $234,851
======== ====== ======= ========
DECEMBER 31, 1992
U.S. Treasury........................ $124,956 $1,873 $ (153) $126,676
Other federal agencies............... 57,491 2,017 (135) 59,373
States and political subdivisions.... 14,426 674 (84) 15,016
Other securities..................... 7,128 29 (4) 7,153
-------- ------ ------- --------
Total........................... $204,001 $4,593 $ (376) $208,218
======== ====== ======= ========
</TABLE>
The table below summarizes the cost and estimated market values of
securities available for sale:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury........................ $178,192 $ 24 $(5,825) $172,391
Other federal agencies............... 28,209 82 (541) 27,750
States and political subdivisions.... 814 -- (67) 747
Other securities..................... 1,377 -- -- 1,377
-------- ------ ------- --------
Total........................... $208,592 $ 106 $(6,433) $202,265
======== ====== ======= ========
</TABLE>
F-12
<PAGE>
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.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1994 1993
-------------------- --------------------
ESTIMATED ESTIMATED
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
HELD FOR INVESTMENT
Contractual maturity of debt securities:
Within one year....................... $ 4,242 $ 4,231 $ 68,876 $ 69,743
After one year but within five years.. 10,452 10,339 146,378 148,506
After five years but within ten years. 4,654 4,456 3,116 3,316
After ten years....................... 1,431 1,369 11,935 12,045
-------- -------- -------- --------
Total debt securities............ 20,779 20,395 230,305 233,610
Equity securities.......................... -- -- 1,241 1,241
-------- -------- -------- --------
Total............................ $ 20,779 $ 20,395 $231,546 $234,851
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
MARKET
COST VALUE
-------- ---------
<S> <C> <C>
AVAILABLE FOR SALE
Contractual maturity of debt securities:
Within one year....................... $ 66,312 $ 65,827
After one year but within five years.. 126,009 120,663
After five years but within ten years. 2,792 2,750
After ten years....................... 12,102 11,648
-------- --------
Total debt securities............ 207,215 200,888
Equity securities.......................... 1,377 1,377
-------- --------
Total............................ $208,592 $202,265
======== ========
</TABLE>
Sales of securities are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ---- ------
<S> <C> <C> <C>
Proceeds......................... $14,517 $872 $1,162
Gross gains realized............. 74 24 86
Gross losses realized............ 69 -- 11
</TABLE>
Securities having book values of $160,556, $151,606 and $155,779 at
December 31, 1994, 1993 and 1992, respectively, were pledged to secure public
funds on deposit, repurchase agreements and for other purposes as required or
permitted by law.
F-13
<PAGE>
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:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Commercial and industrial................ $112,750 21.59% $ 84,866 18.20%
Agriculture.............................. 24,492 4.69 21,943 4.71
State and political subdivisions:
Taxable............................. 950 0.18 1,056 0.23
Tax-exempt.......................... 6,121 1.17 9,063 1.94
Oil and gas production................... 6,049 1.16 5,965 1.28
Real Estate:
Construction........................ 29,760 5.70 19,258 4.13
Farmland............................ 15,289 2.93 16,340 3.50
One to four family residences....... 116,655 22.33 107,702 23.10
Multifamily residential properties.. 10,863 2.08 9,247 1.98
Commercial.......................... 99,336 19.02 95,901 20.56
Consumer................................. 62,542 11.97 56,422 12.10
Guaranteed student loans................. 30,491 5.84 29,725 6.37
Credit card receivables.................. 1,451 0.28 1,449 0.31
Other.................................... 6,480 1.24 8,350 1.79
-------- ------ -------- ------
523,229 467,287
Unearned interest........................ (915) (0.18) (931) (0.20)
-------- ------ -------- ------
Total loans......................... $522,314 100.00% $466,356 100.00%
======== ====== ======== ======
</TABLE>
The Company's loans are mostly to customers within Oklahoma and over
half of the loans are secured by real estate. Credit risk on loans is
managed through limits on amounts loaned to individual borrowers,
underwriting standards and loan monitoring procedures. The amounts and types
of collateral obtained to secure loans is based upon the Company's
underwriting standards and management's credit evaluation. Collateral
varies, but may include real estate, equipment, accounts receivable,
inventory, livestock and securities. The Company's interest in collateral is
secured through filing mortgages and liens, and in some cases, by possession
of the collateral. The amount of estimated loss due to credit risk in the
Company's loan portfolio is provided for in the allowance for possible loan
losses. The amount of the allowance required to provide for all existing
losses in the loan portfolio is 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.
Changes in the allowance for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of year......... $9,027 $ 7,202 $ 5,967
====== ======= =======
Charge-offs.......................... (919) (1,154) (1,035)
Recoveries........................... 924 905 803
------ ------- -------
Net (charge-offs) recoveries.... 5 (249) (232)
------ ------- -------
Provisions charged to operations..... 380 251 700
Additions from acquisitions.......... 317 1,823 767
------ ------- -------
Total additions................. 697 2,074 1,467
------ ------- -------
Balance at end of year............... $9,729 $ 9,027 $ 7,202
====== ======= =======
</TABLE>
F-14
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
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:
<TABLE>
<CAPTION>
BALANCE BALANCE
YEAR ENDED BEGINNING AMOUNTS END OF
DECEMBER 31, OF YEAR ADDITIONS COLLECTED YEAR
------------ --------- --------- --------- -------
<S> <C> <C> <C> <C>
1992 $ 390 $1,058 $378 $1,070
1993 1,070 222 242 1,050
1994 1,050 581 441 1,190
</TABLE>
Interest income attributable to related party loans amounted to $63, $68 and
$67, in 1994, 1993 and 1992, respectively.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("FAS 114"), was issued in May 1993.
This new accounting standard requires that impaired loans be measured based
upon the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when, based on current information
and events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. The Company plans to
adopt FAS 114 in January 1995. The adoption of FAS 114 is not expected to
have a material effect on the financial position or results of operation of
the Company.
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Land............................................... $ 5,883 $ 4,602
Buildings.......................................... 26,644 19,454
Furniture, fixtures and equipment.................. 14,195 13,576
Accumulated depreciation........................... (20,260) (18,939)
-------- --------
Total......................................... $ 26,462 $ 18,693
======== ========
</TABLE>
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------ ------
<S> <C> <C>
Excess of cost over fair value of assets acquired... $6,298 $6,565
Core deposit intangibles............................ 1,641 1,180
Organization costs.................................. 9 18
Trademarks.......................................... 12 13
------ ------
Total.......................................... $7,960 $7,776
====== ======
</TABLE>
F-15
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled
$57,327 and $51,707 at December 31, 1994 and 1993, respectively.
(9) NOTE PAYABLE
In October 1992, the Company entered into a Modification, Renewal and
Extension Agreement (the "Modification") related to the note payable which
originated in December 1991, and borrowed an additional $6,000 for the
purpose of financing the purchase and retirement of its Floating Rate
Preferred Stock. Under the terms of the Modification, the note payable
carried interest at prime plus 1%. Interest payments were due on: December
16, 1992; March 16, 1993; June 16, 1993; September 16, 1993; and December 16,
1993. Principal payments of $2,000 each were due on December 16, 1992 and
May 16, 1993. The note matured on December 16, 1993 but could be renewed
annually until December 16, 1997, at the option of the lender, after
principal payments of $2,000 at each maturity date. Collateral for the note
consisted of all the common stock of BancFirst owned by the Company and the
guaranty of the majority stockholder of the Company. The loan agreement
contained restrictive covenants regarding levels of capital, issuance of
additional capital stock, additional indebtedness, liens and encumbrances on
assets, salaries, bank dividends, redemption of bank stock, investments,
mergers, disposal of assets and shareholder loans. The Company paid this
note in full in April 1993 using a portion of the proceeds from its public
stock offering.
In August 1993, the Company entered into a $10,000 line of credit
agreement to be used specifically for acquisitions. The line of credit
matured June 1, 1994, but was renewed to June 1, 1995 and may be renewed
annually until June 1, 1998. Borrowings under the line of credit would bear
interest at prime rate. Collateral for the line of credit consists of the
shares of BancFirst common stock owned by BancFirst Corporation. The line of
credit agreement contains restrictive covenants regarding the issuance of
additional capital stock, additional indebtedness, liens and encumbrances,
salaries, dividends and mergers. As of the date of this report, no advances
have been made under the line of credit.
(10) LONG-TERM BORROWINGS
Long-term borrowings in 1992 consisted of a mortgage note at 4% above
the six month Treasury Bill rate, payable in monthly installments, with no
prepayments allowed. The note was secured by the real estate for one of the
Company's branch locations. The note matured and was paid in October 1992.
(11) INCOME TAXES
The components of the Company's income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current taxes: Federal.............................. $(5,554) $(3,144) $(2,206)
State.............................. (638) -- --
Deferred taxes...................................... (354) (818) --
------- ------- -------
Income tax expense............................. (6,546) (3,962) (2,206)
Cumulative effect on prior years from adoption of
new accounting principle for income taxes...... -- 1,318 --
Tax benefit from utilization of net operating
loss carryforward.............................. -- -- 2,206
------- ------- -------
Total income taxes............................. $(6,546) $(2,644) $ --
======= ======= =======
</TABLE>
F-16
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The tax expense for 1994 reflects the return of the Company to a fully
taxable basis, with a limited amount of net operating loss carryforwards
available to reduce taxable income. The remainder of the Company's state tax
net operating loss carryforwards were fully utilized in 1994 and state tax
expense of $638 was recognized.
In January 1993, the Company adopted FAS 109. The cumulative effect on
prior years of the change in accounting for income taxes was recorded with a
corresponding increase in the Company's deferred tax asset. The Company
realized current taxable income for 1993, which was partially offset by the
utilization of tax net operating loss carryforwards and alternative minimum
tax credit carryforwards. Deferred tax expense was recognized for the change
in temporary differences during the year, which was partially offset by an
adjustment to the deferred tax asset to reflect the increase in the federal
statutory tax rate from 34% to 35%.
The Company realized current taxable income for 1992. This taxable income
was partially offset by the utilization of a portion of the Company's tax net
operating loss carryforwards. In addition, the Company utilized a portion of
its alternative minimum tax credit carryforwards to further reduce the amount
of current tax expense recognized. The tax benefit from the utilization of
financial net operating loss carryforward, reported as an extraordinary item,
was recognized by recording a corresponding deferred tax asset.
At December 31, 1994, the Company had net operating loss carryforwards for
tax purposes of approximately $594. If not utilized, the tax net operating
loss carryforwards will expire as follows: $9 in 1999, $165 in 2000 and 2001,
$110 in 2003, and $145 in 2004.
A reconciliation of tax expense at the federal statutory tax rate applied
to income before taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Tax expense at the federal statutory tax rate....... $(6,344) $(4,841) $(3,795)
(Increase) decrease in tax expense from:
Tax-exempt income, net......................... 500 546 666
Excess cost amortization....................... (288) (248) (239)
Alternative minimum tax credit carryforward
utilized..................................... 58 384 815
Net operating loss carryforward utilized....... -- -- 2,206
Adoption of new accounting principle for
income taxes................................. -- 1,318 --
State tax expense, net of federal tax benefit.. (396) -- --
Other, net..................................... (76) 197 347
------- ------- -------
Total tax expense.............................. $(6,546) $(2,644) $ --
======= ======= =======
</TABLE>
F-17
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATMENTS--(CONT.)
The net deferred tax asset consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- ------
<S> <C> <C>
Provisions for possible loan losses.................... $ 2,681 $2,508
Unrealized net loss on securities available for sale... 2,214 --
Write-downs of other real estate owned................. 161 475
Net operating loss carryforwards....................... 208 235
Provision for contingent losses........................ 88 112
Other.................................................. 210 147
------- ------
Gross deferred tax assets.............................. 5,562 3,477
------- ------
Depreciation........................................... (868) (585)
Other.................................................. (182) (118)
------- ------
Gross deferred tax liabilities......................... (1,050) (703)
------- ------
Net deferred tax asset................................. $ 4,512 $2,774
======= ======
</TABLE>
Income tax expense applicable to securities transactions approximated $2,
$9 and $15 for the years ended December 31, 1994, 1993 and 1992,
respectively. Prior to 1993, the principal timing differences between
financial income and taxable income of the Company were the provision for
possible loan losses and write-downs of other real estate owned.
(12) EMPLOYEE BENEFITS
In May 1986, the Company adopted the BancFirst Corporation Employee
Stock Ownership and Thrift Plan (the "Plan") effective January 1, 1985. The
Plan covers all eligible employees, as defined in the Plan, of the Company
and its subsidiaries. The Plan allows employees to defer up to 15% of their
base salary, of which the Company may match 50%, but not to exceed 3% of
their base salary. In addition, the Company may make discretionary
contributions to the Plan, as determined by the Company's Board of Directors.
The aggregate amounts of contributions by the Company to the Plan for the
years ended December 31, 1994, 1993 and 1992, were approximately $582, $595
and $527, respectively.
The Company also adopted a nonqualified stock option plan in May 1986.
The maximum number of common shares approved to be issued under the plan is
500,000. The options are exercisable beginning four years from the date of
grant at the rate 25% per year for four years and expire at the end of eleven
years from the date of grant. Options currently outstanding will become
exercisable through the year 2001. The option price must be no less than
100% of the fair market value of the stock relating to such option. A
summary of the number of options outstanding follows.
F-18
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATMENTS--(CONT.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Beginning of year.................................... 381,000 400,000 424,500
Options issued (average option price $14.19, $16.06
and $7.87, respectively)........................... 45,000 11,000 68,000
Options exercised (average option price $6.79 and
$6.80, respectively)............................... (4,375) (25,000) --
Options canceled..................................... -- (5,000) (92,500)
------- ------- -------
End of year.......................................... 421,625 381,000 400,000
======= ======= =======
</TABLE>
At December 31, 1994 there were 208,125 shares eligible to be exercised
at an option price per share of $6.50 to $7.00.
(13) STOCKHOLDERS' EQUITY
The following is a description of the capital stock of the Company:
(a) 10% Preferred Stock: cumulative dividends,
non-voting; $5 par value, redeemable at the Company's option at
$5 per share plus accumulated dividends; 900,000 shares
authorized. Shares issued were 779,668 shares at December 31,
1993 and 765,739 at December 31, 1992. Shares outstanding were
779,668 shares at December 31, 1993 and 764,799 shares at
December 31, 1992. This issue of preferred stock was redeemed in
February 1994 for the par value plus accumulated dividends of
$0.07 per share.
(b) Floating Rate Preferred Stock: cumulative dividends,
non-voting; $100 par value, redeemable at the Company's option at
$100 per share plus accumulated dividends; 100,000 shares
authorized. Dividends are payable quarterly in an amount equal
to 75% of the floating prime rate of interest, with a maximum
rate of 15% and a minimum rate of 7% as determined on December 31
of each year, and are senior to dividends on the 10% Preferred
Stock. This issue of preferred stock was purchased and retired
by the Company in October 1992.
(c) Common stock: $1 par value; 6,800,000 shares
authorized. Shares issued and outstanding were 6,202,814 shares
at December 31, 1994 and 6,198,439 shares at December 31, 1993.
In April 1993, the Company completed a public offering of its common
stock and issued 1,010,950 new shares. The offering price was $15.00 per
share and the net proceeds to the Company, after expenses of the offering,
was approximately $13,900. A portion of the proceeds was used to retire the
Company's note payable.
In connection with the acquisition of Arbuckle Bancorp, Inc. in 1987,
45,634 shares of common stock were placed in escrow to be issued over a
three-year period upon the satisfaction of certain conditions. Stock issued
from the escrow was recorded at the fair market value as of the date of
issuance and increased the excess of cost over the fair value of assets
acquired. During 1991, 5,285 shares were issued with a value of $15 and 11
fractional shares were paid in cash. During 1993, certain matters regarding
the escrowed stock were resolved, and 21,973 shares were issued with a value
of $352 and 15 fractional shares were paid in cash. The escrow was then
terminated.
F-19
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATMENTS--(CONT.)
In January 1992, the Company entered into a Stock Option Agreement with
the owner of the Floating Rate Preferred Stock, which gave the Company the
option to purchase and retire all 100,000 shares of the stock for $6,000. In
October 1992, the Company exercised its option and the stock was purchased
and retired using funds provided by an additional borrowing under the
Company's note payable. This transaction increased common capital surplus
$4,000 and eliminated $2,174 of accumulated preferred dividends. The
combined effect was an increase in book value per common share of
approximately $1.31.
Prior to 1992, dividends on the Company's preferred stock and common
stock were limited by depressed earnings, regulatory commitments and loan
covenants. In October 1992, the Company's Floating Rate Preferred Stock was
redeemed. In December 1992, the Company paid all accumulated 10% Preferred
Stock dividends in arrears and resumed the regular semi-annual dividend on
the 10% Preferred Stock. In addition, the Company resumed regular quarterly
common dividends in December 1992. The 10% Preferred Stock was redeemed in
February 1994.
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.
(14) NET INCOME PER COMMON SHARE
Net income per common share is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net income........................................... $11,597 $11,472 $11,161
------- ------- -------
Less preferred dividends:
10% Preferred Stock............................. (55) (386) (383)
Floating Rate Preferred Stock................... -- -- (525)
------- ------- -------
(55) (386) (908)
------- ------- -------
Net income applicable to common shareholders......... $11,542 $11,086 $10,253
======= ======= =======
Average common shares and common stock equivalents
outstanding (in thousands)........................... 6,400 5,513 4,717
======= ======= =======
Net income per common share (primary and fully
diluted)........................................... $ 1.80 $ 2.01 $ 2.17
======= ======= =======
</TABLE>
Average common shares and common stock equivalents for 1994 includes
shares relating to stock options exercisable within the next five years.
The 10% Preferred Stock was redeemed in February 1994. The Floating
Rate Preferred Stock dividends ceased accumulating and were eliminated when
the stock was purchased and retired in October 1992. Net income per common
share for the year ended December 31, 1992, excluding the Floating Rate
Preferred Stock dividend, would have been $2.28.
F-20
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATMENTS--(CONT.)
(15) ACCUMULATED PREFERRED DIVIDENDS
Preferred dividends accumulated and unpaid as of each year end is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1993 1992
----- -----
<S> <C> <C>
10% Preferred Stock............................... $ 195 $ 191
===== =====
Equivalent amount per common share outstanding.... $0.03 $0.04
===== =====
</TABLE>
The 10% Preferred Stock dividends accumulated and unpaid as of December
31, 1993 and 1992 were paid on the scheduled due dates in January 1994 and
1993. In February 1994, the 10% Preferred Stock was retired.
F-21
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(16) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- -------
<S> <C> <C>
ASSETS
Cash.................................... $ 307 $ 3,080
Investment in subsidiaries, at equity... 76,605 71,818
Intangible assets....................... 4,659 5,394
Deferred tax asset...................... 210 224
Other assets............................ 593 55
------- -------
Total assets....................... $82,374 $80,571
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities............................. $ 413 $ 621
Stockholders' equity.................... 81,961 79,950
------- -------
Total liabilities and
stockholders' equity............. $82,374 $80,571
======= =======
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
OPERATING INCOME
Dividends from subsidiaries..................... $ 4,236 $ 5,642 $ 8,451
Interest........................................ 22 137 47
Other........................................... 2 65 12
------- ------- -------
Total operating income..................... 4,260 5,844 8,510
------- ------- -------
OPERATING EXPENSE
Salaries and employee benefits.................. -- -- 75
Interest........................................ 39 245 748
Amortization.................................... 811 751 751
Other........................................... 31 38 9
------- ------- -------
Total operating expense.................... 881 1,034 1,583
------- ------- -------
Income before income taxes, equity in undistributed
earnings of subsidiaries, extraordinary items and
cumulative effect of change in accounting
principle.......................................... 3,379 4,810 6,927
Allocated income tax benefit......................... 364 1,040 1,477
------- ------- -------
Income before equity in undistributed earnings of
subsidiaries, extraordinary items and cumulative
effect of change in accounting principle........... 3,743 5,850 8,404
Equity in undistributed earnings of subsidiaries
before extraordinary items......................... 7,854 4,304 551
------- ------- -------
Income before extraordinary items and cumulative
effect in accounting principle..................... 11,597 10,154 8,955
Extraordinary item -- tax benefit from utilization
of net operating loss carryforward................. -- -- 2,206
Cumulative effect on prior years from adoption of
new accounting principle for income taxes.......... -- 1,318 --
------- ------- -------
Net income...................................... $11,597 $11,472 $11,161
======= ======= =======
</TABLE>
F-22
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 11,597 $ 11,472 $11,161
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization............... 811 751 751
Net income of subsidiaries.................. (12,180) (10,198) (9,167)
Minority interest in income of subsidiaries. 90 252 165
(Increase) decrease in deferred tax asset... 14 2,050 (2,274)
Other, net.................................. (590) (3,741) 117
-------- -------- -------
Net cash provided (used) by operating activities. (258) 586 753
-------- -------- -------
INVESTING ACTIVITIES
Cash dividends received from subsidiaries............. 4,236 5,642 8,451
Purchases of stock of subsidiaries.................... (1,121) (3,145) (3)
Cash from mergers..................................... -- 141 --
Other, net............................................ (24) -- --
-------- -------- -------
Net cash provided by investing activities........ 3,091 2,638 8,448
-------- -------- -------
FINANCING ACTIVITIES
Principal repayments on notes payable................. -- (13,983) (6,000)
Proceeds from borrowings on note payable.............. -- -- 6,000
Issuance of common stock.............................. 30 14,096 10
Purchase and retirement of Floating Rate Preferred
Stock............................................... -- -- (6,000)
Redemption of 10% Preferred Stock..................... (3,953) -- --
Purchase of common stock.............................. -- (1,613) --
Cash dividends paid................................... (1,683) (1,196) (1,384)
-------- -------- -------
Net cash used by financing activities............ (5,606) (2,696) (7,374)
-------- -------- -------
Net increase (decrease) in cash............................ (2,773) 528 1,827
Cash at the beginning of the year.......................... 3,080 2,552 725
-------- -------- -------
Cash at the end of the year................................ $ 307 $ 3,080 $ 2,552
======== ======== =======
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest..................... $ 54 $ 326 $ 759
======== ======== =======
Cash received during the year for income taxes, net........ $ (220) $ (796) $(1,537)
======== ======== =======
</TABLE>
F-23
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(17) RELATED PARTY TRANSACTIONS
BancFirst provides item processing and correspondent services to
affiliated institutions. At December 31, 1994 and 1993, balances due to
these institutions totaled $224 and $673, respectively. Service charges to
these affiliate institutions for December 31, 1994, 1993 and 1992 totaled
$131, $312 and $396, respectively.
The Company purchases supplies, furniture and equipment from an
affiliated company. During the years ended December 31, 1994, 1993 and 1992,
such purchases totaled $179, $341 and $484, 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, 1994, 1993 and 1992 were $564, $602 and $522, respectively.
Refer to note (5) for information regarding loan transactions with
related parties.
(18) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments and standby
letters of credit which involve elements of credit and interest rate risk to
varying degrees. The Company's exposure to credit loss in the event of
nonperformance by the other party to the instrument is represented by the
instrument's contractual amount. To control this credit risk, the Company
uses the same underwriting standards as it uses for loans recorded on the
balance sheet. The amounts of financial instruments with off-balance-sheet
risk are as follows:
December 31,
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Loan commitments....................... $102,590 $ 50,308 $35,792
Letters of credit...................... 10,953 8,347 4,530
</TABLE>
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.
During 1993, the Company leased the office space for its main office
under a lease expiring in 2009. The Company had the right of first refusal
if the building was offered for sale. If the building was not sold by March
1999, then the Company had the option to purchase the building at its market
price. The lease also contained provisions for rental escalation based upon
increases in operating expenses of the building and for the base rental rate
to be adjusted beginning in 1996. The Company purchased the building in
February 1994 for $2,800. The Company also leases office space in one other
building and two parcels of land on which it owns buildings. These leases
expire at various dates through 2016. The future minimum rental payments
under these leases are as follows:
F-24
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1995 $ 83
1996 70
1997 70
1998 70
1999 70
Later years 928
------
Total $1,291
======
</TABLE>
Rental expense on all property and equipment rented, including those rented
on a monthly or temporary basis, totaled $176, $293 and $286 during 1994,
1993 and 1992, respectively.
The Company is a defendant in legal actions arising from normal business
activities. During 1992, the Company accrued estimated amounts to settle
certain of these actions. Management believes that all other legal actions
against the Company are without merit or that the ultimate liability, if any,
resulting from them will not materially affect the Company's financial
position or results of operations.
(19) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values reported below for financial instruments are based on a
variety of factors. In some cases, fair values represent quoted market
prices for identical or comparable instruments. In other cases, fair values
have been estimated based on assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates reflecting varying
degrees of risk. Accordingly, the fair values may not represent actual
values of the financial instruments that could have been realized as of year
end or that will be realized in the future.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND DUE FROM BANKS; FEDERAL FUNDS SOLD
The carrying amount of these short-term instruments is a reasonable
estimate of fair value.
SECURITIES
For securities, fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
LOANS
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. For residential mortgage loans held for sale, guaranteed
student loans and participations in pools of credit card receivables, the
carrying amount is a reasonable estimate of fair value. The fair value of
other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
F-25
<PAGE>
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.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND OTHER SHORT-TERM BORROWINGS
The amount payable on these short-term instruments is a reasonable
estimate of fair value.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1994 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks........................... $ 53,564 $ 53,564 $ 48,858 $ 48,858
Federal funds sold................................ 28,260 28,260 40,570 40,570
Securities........................................ 223,044 222,660 231,546 234,851
Loans:
Loans (net of unearned interest)............. 522,314 466,356
Allowance for possible loan losses........... (9,729) (9,027)
-------- --------
Loans, net.............................. 512,585 508,911 457,329 460,853
FINANCIAL LIABILITIES
Deposits.......................................... 784,851 783,193 736,686 736,825
Securities sold under repurchase agreements and
other short-term borrowings....................... 117 117 935 935
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments.................................. 672 395
Letters of credit................................. 81 67
</TABLE>
F-26
<PAGE>
BANCFIRST CORPORATION
Unaudited Consolidated Balance Sheet and the Related Unaudited Consolidated
Statements of Income at September 30, 1995 and for the Nine Months Ended
September 30, 1995.
F-27
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- DECEMBER 31,
1995 1994 1994
------- -------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $57,919 $59,033 $53,564
Interest-bearing deposits with banks 65 -- --
Securities:
Held for investment, at cost
(market value: $42,643, $22,189
and $20,395, respectively) 42,148 22,333 20,779
Available for sale, at market 213,201 209,786 202,265
value
Federal funds sold 17,368 24,965 28,260
Loans:
Total Loans (net of unearned
interest) 604,642 510,106 522,314
Allowance for possible loan losses (10,338) (9,585) (9,729)
-------- -------- --------
Loans, net 594,304 500,521 512,585
Premises and equipment, net 27,729 26,713 26,462
Other real estate owned 2,149 2,091 2,183
Intangible assets, net 8,195 8,267 7,960
Accrued interest receivable 10,293 8,387 8,518
Other assets 7,858 9,917 10,339
-------- -------- --------
Total assets $981,229 $872,013 $872,915
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $173,346 $167,411 $ 168,426
Interest-bearing 693,684 617,601 616,425
-------- -------- --------
Total deposits 867,030 785,012 784,851
Securities sold under repurchase
agreements and other short-term
borrowings 11,532 34 117
Long-term borrowings 810 -- --
Accrued interest payable 3,434 2,197 2,089
Other liabilities 3,629 3,681 3,897
-------- -------- --------
Total liabilities 886,435 790,924 790,954
-------- -------- --------
Commitments and contingent liabilities
Stockholders' equity:
Common stock (shares issued:
6,210,624, 6,202,814 and 6,202,814,
respectively) 6,211 6,203 6,203
Capital surplus 34,408 34,259 34,259
Retained earnings 53,293 43,089 45,611
Unrealized securities gains
(losses), net of tax 882 (2,462) (4,112)
-------- -------- --------
Total stockholders' equity 94,794 81,089 81,961
-------- -------- --------
Total liabilities and
stockholders' equity $981,229 $872,013 $872,915
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1995 1994 1995 1994
------- -------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $15,060 $11,763 $42,711 $33,017
Interest-bearing deposits with banks 1 -- 9 --
Securities:
Taxable 3,585 3,168 10,184 9,223
Tax-exempt 151 150 446 457
Federal funds sold 363 360 1,226 1,008
------- ------- ------- -------
Total interest income 19,160 15,441 54,576 43,705
------- ------- ------- -------
INTEREST EXPENSE
Deposits 7,809 5,322 22,329 14,951
Securities sold under repurchase
agreements and other short-term
borrowings 20 4 58 16
Line of credit -- 10 -- 29
------- ------- ------- -------
Total interest expense 7,829 5,336 22,387 14,996
------- ------- ------- -------
Net interest income 11,331 10,105 32,189 28,709
Provision for possible loan losses 150 321 408 49
------- ------- ------- -------
Net interest income after provision
for possible loan losses 11,181 9,784 31,781 28,660
------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposits 1,987 1,943 5,909 5,727
Securities transactions 48 (1) 111 (1)
Other 1,145 857 3,153 2,688
------- ------- ------- -------
Total noninterest income 3,180 2,799 9,173 8,414
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 5,141 4,524 14,970 13,134
Occupancy and fixed assets expense, net 550 516 1,475 1,293
Depreciation 431 440 1,374 1,288
Amortization 397 325 1,071 949
Data processing services 284 325 878 1,061
Net (income) expense from other real
estate owned 16 (45) 50 (370)
Other 1,806 2,196 6,128 6,343
------- ------- ------- -------
Total noninterest expense 8,625 8,281 25,946 23,698
------- ------- ------- -------
Income before taxes 5,736 4,302 15,008 13,376
Income tax expense (2,097) (1,528) (5,594) (4,735)
------- ------- ------- -------
Net income $ 3,639 $ 2,774 $ 9,414 $ 8,641
======= ======= ======= =======
PER SHARE DATA (PRIMARY and FULLY
DILUTED)
Net income $ 0.57 $ 0.43 $ 1.47 $ 1.34
========= ========= ========= =========
Average common stock and common
stock equivalents 6,408,592 6,398,009 6,388,743 6,398,553
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
------ -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 11,614 $10,613
-------- -------
INVESTING ACTIVITIES
Purchases of securities (42,263) (52,136)
Maturities of securities 57,147 49,525
Proceeds from sales and calls of securities 4,043 2,287
Net decrease in federal funds sold 21,199 16,576
Purchases of loans (9,383) (8,877)
Proceeds from sales of loans 38,102 40,944
Net other increase in loans (68,233) (51,356)
Cash and due from banks from acquisition (15,542) 164
Purchases of premises and equipment (2,175) (8,922)
Proceeds from sales of other real estate owned 812 2,662
Other, net 926 (857)
-------- -------
Net cash used by investing activities (15,367) (9,990)
-------- -------
FINANCING ACTIVITIES
Net increase (decrease) in demand, transaction
and savings deposits (17,263) 6,775
Net increase in certificates of deposit 14,786 8,912
Net increase (decrease) in securities sold under
repurchase agreements and other short-term
borrowings 11,415 (901)
Net increase in long-term borrowings 810 --
Issuance of common stock 305 30
Cash dividends paid (1,303) (1,311)
Other, net (577) (3,953)
-------- -------
Net cash provided (used) by financing
activities 8,173 9,552
-------- -------
Net increase in cash and due from banks 4,420 10,175
Cash and due from banks at the beginning of
the period 53,564 48,858
-------- -------
Cash and due from banks at the end of the
period $ 57,919 $ 59,033
======== ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the period for interest $ 21,042 $ 14,278
======== ========
Cash paid during the period for income taxes $ 5,439 $ 3,714
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(1) GENERAL
The accompanying consolidated financial statements include the accounts
of BancFirst Corporation, BancFirst Investment Corporation, BancFirst,
Lenders Collection Corporation and National Express Corporation. All
significant intercompany accounts and transactions have been eliminated.
Assets held in a fiduciary or agency capacity are not assets of the Company
and, accordingly, are not included in the consolidated financial statements.
There have been no significant changes in the accounting policies of the
Company since December 31, 1994, the date of the most recent annual report,
other than the adoption of Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" as discussed in note
(3) below.
The interim financial statements contained herein reflect all
adjustments which are, in the opinion of management, necessary to provide a
fair statement of the financial position and results of operations of the
Company for the interim periods presented. All such adjustments are of a
normal and recurring nature. Certain amounts in the 1994 financial
statements have been reclassified to conform with the 1995 presentation.
(2) ACQUISITIONS
In March 1995, the Company acquired State National Bank of Marlow,
Oklahoma, which had total assets of $101,976. The acquisition was for cash
of $17,485, with an additional $500 placed in escrow pending the resolution
of certain matters. State National Bank was immediately merged into
BancFirst. The acquisition was accounted for as a purchase. Accordingly,
the effect of the transaction is included in the Company's consolidated
financial statements from the date of the acquisition forward. A core
deposit intangible of $406 and goodwill of $810 were recorded for the
acquisition. Subsequent payments from the escrow, if any, to the former
shareholders of State National Bank will increase the goodwill recorded. Pro
forma condensed results of operations, as though State National Bank had been
acquired January 1, 1994, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net interest income $32,850 $42,160
Net income $ 9,593 12,296
Net income per common share
and common stock equivalent $ 1.50 $ 1.91
</TABLE>
In June 1995, the Company entered into an agreement of merger with
Commerce Bancorporation, Inc. of McLoud, Oklahoma ("Commerce Bancorp"), which
has approximately $18,000 in total assets. Commerce Bancorp is controlled by
certain executive officers of the Company. Under the terms of the agreement,
156,510 shares of BancFirst Corporation common stock would be issued for the
22,573 shares of Commerce Bancorp common stock outstanding. The merger is
subject to regulatory and shareholder approvals and is expected to be
completed in mid-1996.
In September 1995, the Company entered into an agreement of merger with
Johnston County Bancshares, Inc. of Tishomingo, Oklahoma ("Johnston County
Bancshares"), which has approximately $10,000 in total assets. Johnston
County Bancshares is controlled by certain executive officers and directors
of the Company. Under the terms of the agreement, each of the 49,620 shares
outstanding of Johnston County Bancshares common stock would be exchanged for
0.47 shares of Company common stock, subject to adjustment based upon the
market price of Company common stock at the effective time of the merger.
Preferred stock of Johnston County Bancshares would be purchased for cash of
approximately $97 and minority shares of Johnston County Bancshares'
subsidiary bank would be purchased for cash of approximately $120. The
merger is subject to regulatory and shareholder approvals and is expected to
be completed in December 1995.
In September 1995, BancFirst entered into an agreement to acquire City
Bankshares, Inc. of Oklahoma City, Oklahoma ("City Bankshares"), which has
approximately $140,000 in total assets. Under the terms of the agreement,
the Company
F-31
<PAGE>
would acquire all the stock outstanding of City Bankshares for cash of
$19,125. C-Teq, Inc., an 85% owned data processing subsidiary of City
Bankshares, would be spun off to the shareholders of City Bankshares prior to
the acquisition. Additionally, City Bankshares would be required to have
stockholders' equity of at least $13,000 at the time of closing. BancFirst
also entered into an agreement with the CEO of City Bankshares whereby upon
consummation of the acquisition BancFirst would pay the CEO $1,250 in
exchange for an agreement not to compete with BancFirst for a period of four
years. The acquisition is subject to regulatory approval and is expected to
be completed in the first half of 1996.
(3) LOANS
The Company adopted Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan", effective January 1, 1995. This new
accounting standard requires that impaired loans be measured based upon the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when, based on current information
and events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. The adoption of FAS 114
did not have a material effect on the financial position or results of
operation of the Company.
(4) FEDERAL HOME LOAN BANK BORROWINGS
BancFirst joined the Federal Home Loan Bank of Topeka, Kansas ("the
FHLB") in May 1995, for the primary purpose of participating in the borrowing
programs offered by the FHLB. BancFirst was subsequently approved for a
$19,600 credit line secured by residential mortgages held by the Bank, and
has made two borrowings under the credit line as follows.
(a)Short-term borrowing of $10,000; interest at 5.92%, payable
monthly; due on May 22, 1996.
(b)Long-term borrowing of $810; principle payments due every
six months; interest at 6.64%, payable monthly; due September
30, 2010.
(5) NET INCOME PER SHARE
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $3,639 $2,774 $9,414 $8,641
Less 10% Preferred dividends -- -- -- (55)
------ ------ ------ ------
Net income applicable to common stockholders $3,639 $2,774 $9,414 $8,586
====== ====== ====== ======
Average common shares and common stock
equivalents outstanding (in thousands) 6,409 6,398 6,389 6,399
====== ====== ====== ======
Net income per common share
and common stock equivalent $ 0.57 $ 0.43 $ 1.47 $ 1.34
====== ====== ====== ======
</TABLE>
The 10% Preferred dividends for 1994 represent the accumulated dividends
paid upon the redemption of the 10% Preferred Stock. Average common shares
and common stock equivalents includes shares relating to stock options
exercisable within the next five years.
F-32
<PAGE>
(6) STOCK REPURCHASE PROGRAM
In March 1995, the Company adopted a Stock Repurchase Program
authorizing management to repurchase up to 200,000 shares of the Company's
common stock. The program is to be used for purchases of stock by the
Company's Employee Stock Ownership and Thrift Plan, and may also be used to
enhance earnings per share, provide stock for the exercise of stock options
under the Company's Stock Option Plan or to provide additional liquidity for
the stock. Stock purchases under the program must satisfy certain criteria
regarding effects on earnings per share and book value dilution, resulting
equity ratios and the price to book value of comparable size institutions.
F-33
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
Board of Directors and Stockholders of
JOHNSTON COUNTY BANCSHARES, INC.
We have compiled the accompanying balance sheet of Johnston County
Bancshares, Inc. as of September 30, 1995 and December 31, 1994, 1993, and
1992 and the related statements of operation, stockholders' equity and cash
flows for the period ended September 30, 1995 and 1994 and the years ended
December 31, 1994, 1993 and 1992 in accordance with Statements and Standards
for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representations of management. We have not audited
or reviewed the accompanying financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
HORNE & COMPANY, P.C.
November 11, 1995
Ada, Oklahoma
F-34
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994 1993
------------- ------ ------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 815 $ 726 $ 633
Investment securities 2,615 2,307 2,921
Federal funds sold 1,139 1,240 570
Loans:
Total loans (net of unearned interest) 5,478 5,491 5,411
Allowance for possible loan losses (149) (115) (127)
------- ------- -------
Loans, net 5,329 5,376 5,284
Premises and equipment, net 338 347 386
Other real estate owned 66 87 116
Accrued interest receivable 119 93 98
Other assets 26 34 49
------- ------- -------
Total assets $10,447 $10,210 $10,057
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 1,410 $ 1,734 $ 1,690
Interest-bearing 8,139 7,578 7,564
------- ------- -------
Total deposits 9,549 9,312 9,254
------- ------- -------
Notes payable 342 380 354
Accrued interest payable 48 39 25
Other liabilities 8 29 3
Total liabilities 9,947 9,760 9,636
------- ------- -------
Commitments and contingent liabilities (Note 13)
Minority interest in subsidiary bank 101 98 96
------- ------- -------
Stockholders' equity:
10% preferred stock 97 97 97
Common stock 50 50 50
Capital surplus 95 95 95
Retained earnings 157 110 83
------- ------- -------
Total stockholders' equity 399 352 325
------- ------- -------
Total liabilities and stockholders' equity $10,447 $10,210 $10,057
======= ======= =======
Preferred stock dividends in arrears $ -- $ -- $ 15
======= ======= =======
</TABLE>
See accountants' compilation report and notes to consolidated financial
statements.
F-35
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------
1995 1994 1994 1993 1992
------------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loan, including fees $ 398 $ 385 $ 521 $ 567 $ 700
Investment securities:
Taxable 148 99 130 130 207
Tax-exempt 5 4 6 5 5
Federal funds sold 47 31 49 18 21
------ ------ ------ ------ ------
Total interest income 598 519 706 720 933
------ ------ ------ ------ ------
INTEREST EXPENSE
Deposits 252 176 245 247 424
Notes payable 24 22 31 32 28
------ ------ ------ ------ ------
Total interest expense 276 198 276 279 452
------ ------ ------ ------ ------
Net interest income 322 321 430 441 481
Provision for possible loan losses 10 14 19 19 222
------ ------ ------ ------ ------
Net interest income after provision for
possible loan losses 312 307 411 422 259
------ ------ ------ ------ ------
NONINTEREST INCOME
Service charges on deposits 71 71 94 93 110
Securities transactions 0 0 0 0 47
Other 19 19 25 150 43
------ ------ ------ ------ ------
Total noninterest income 90 90 119 243 200
------ ------ ------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 122 122 164 163 171
Occupancy and fixed asset expense, net 65 68 89 90 88
Depreciation 33 35 47 47 43
Losses and expenses on other real estate
owned 8 2 7 50 12
Other 110 113 140 201 214
------ ------ ------ ------ ------
Total noninterest expense 338 340 447 551 528
------ ------ ------ ------ ------
Income before income taxes 64 57 83 114 (69)
Income tax expense (benefit) 12 15 27 9 (2)
------ ------ ------ ------ ------
Net income $ 52 $ 42 $ 56 $ 105 $ (67)
====== ====== ====== ====== ======
PER SHARE DATA
Net income $ 0.91 $ 0.71 $ 0.93 $ 1.91 $(1.55)
====== ====== ====== ====== ======
Average common shares outstanding 49,620 49,620 49,620 49,620 49,620
====== ====== ====== ====== ======
</TABLE>
See accountants' compilation report and notes to consolidated financial
statements.
F-36
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
10% PREFERRED STOCK
Issued at beginning of period $ 97 $ 97 $ 97 $ 97 $ 97
Purchase and retirements of shares 0 0 0 0 0
--- --- --- --- ---
Balance at end of period $ 97 $ 97 $ 97 $ 97 $ 97
=== === === === ===
COMMON STOCK
Issued at beginning of period $ 50 $ 50 $ 50 $ 50 $ 50
Shares acquired and canceled 0 0 0 0 0
--- --- --- --- ---
Balance at end of period $ 50 $ 50 $ 50 $ 50 $ 50
=== === === === ===
CAPITAL SURPLUS
Balance at beginning of period $ 95 $ 95 $ 95 $ 95 $ 95
Purchase and retirements of shares 0 0 0 0 0
--- --- --- --- ---
Balance at end of period $ 95 $ 95 $ 95 $ 95 $ 95
=== === === === ===
RETAINED EARNINGS
Balance at beginning of period $110 $ 83 $ 83 $(22) $ 50
Net income 52 42 56 105 (67)
Dividends on 10% preferred stock 5 24 29 0 5
--- --- --- --- ---
Balance at end of period $157 $101 $110 $ 83 $(22)
=== === === === ===
</TABLE>
See accountants' compilation report and notes to consolidated financial
statements.
F-37
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1994 1993 1992
-------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 52 $ 42 $ 56 $ 105 $ (67)
Adjustments to reconcile net income to net cash provided by
operating activities:
Provisions for possible loan losses 10 14 19 19 222
Depreciation 33 35 47 47 43
Net amortization of investment securities premiums and
discounts (19) 22 21 34 20
(Increase) decrease in interest receivable (26) (19) 5 41 13
Increase (decrease) in interest payable 9 7 14 (20) (35)
Other, net 11 68 72 85 (72)
--- --- --- --- ---
Net cash provided by operating activities 70 169 234 311 124
--- --- --- --- ---
INVESTING ACTIVITIES
Purchase of investment securities (1,889) (625) (1,307) (1,416) (2,358)
Maturities of investment securities 1,600 1,300 1,900 1,200 390
Proceeds from sales of investment securities 0 0 0 0 2,861
Net (increase) decrease in loans 37 (178) (111) 813 362
Other, net 77 (315) (678) 210 (888)
--- --- --- --- ---
Net cash provided (used) by investing activities (175) 182 (196) 807 367
--- --- --- --- ---
FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing deposits (324) (162) 44 (255) 479
Net increase (decrease) in interest-bearing deposits 561 71 14 (1,098) (613)
Principal repayments on note payable (38) (354) (354) (79) (45)
Proceeds from borrowings on note payable 0 380 380 46 32
Purchase and retirement of common stock 0 0 0 0 0
Cash dividends paid (4) (23) (29) 0 (4)
--- --- --- --- ---
Net cash provided (used) by financing activities 195 (88) 55 (1,386) (151)
--- --- --- --- ---
Net increase (decrease) in cash and due from banks 89 262 93 (268) 339
Cash and due from banks at the beginning of the year 726 633 633 901 562
--- --- --- --- ---
Cash and due from banks at the end of the year $ 815 $ 895 $ 726 $ 633 $ 901
=== === === === ===
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 267 $ 191 $ 262 $ 299 $ 487
Cash paid (received) during the year for income taxes 24 6 9 12 14
</TABLE>
See accountants' compilation report and notes to consolidated financial
statements.
F-38
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Johnston County Bancshares, Inc.
(the Company) , conform to generally accepted accounting principles and
general practices within the banking industry. The primary activity of the
Company is ownership of 87.8% of Bank of Johnston County common stock and
100% of Johnston County Insurance Agency common stock. The Bank provides
financial services to individuals and corporate customers principally in
Tishomingo, Oklahoma, and the surrounding areas. A summary of the
significant accounting policies follows.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Johnston County Bancshares, Inc.; Bank of Johnston County, Tishomingo,
Oklahoma (the "Bank"); and Johnston County Insurance Agency. 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.
INVESTMENT SECURITIES
The Company adopted, at January 1, 1994, the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires debt and
equity securities be classified into one of three categories, each with a
different accounting treatment:
Debt securities that the institution has a positive intent and ability to
hold to maturity are classified as held-to-maturity and reported at
amortized cost. The company's entire portfolio is classified as
held-to-maturity.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value with unrealized gains and losses
included in earnings. No investment securities within the portfolio
are considered trading.
Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale and
reported at fair market value with unrealized gains and losses excluded
from earnings and reported as a separate component of shareholders'
equity net of tax effects. No investment securities within the portfolio
are considered available-for-sale.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a charge
to earnings and the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using a method that approximates the
interest method. Interest income is recognized when earned.
Realized gains or losses on the sale of investment securities are recorded in
other operating income on the trade date, based on the net proceeds and the
adjusted carrying amount of the securities sold using the specific
identification method.
Investment securities at December 31, 1993 and prior are stated at cost,
adjusted for accretion of discounts and amortization of premiums, computed on
the interest method.
LOANS
Loans are stated at the principal amount outstanding. Interest income on
certain installment loans is recorded by use of a method which produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on other loans is recognized based upon the principal amount
outstanding.
A loan is placed on nonaccrual status when, in the opinion of management, the
future collectibility of interest and/or principal is in serious doubt.
Interest income is recognized on certain of these loans on a cash basis if
the full collection of the remaining principal balance is reasonably
expected. Otherwise, interest income is not recognized until the principal
balance is fully collected.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal
is unlikely. The allowance for loan losses is an amount that management
believes will be adequate to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans, and current and
anticipated economic conditions and trends that may affect the borrowers'
ability to pay.
F-39
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operating expense and is computed by the use of
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, loans
secured by real estate which are in substance foreclosed and loans from sales
of other real estate owned which do not satisfy the requirements of generally
accepted accounting principals to be classified as loans. These properties
and loans are carried at the lower of the recorded investment in the loan or
the fair market value of the property based upon appraised value. Losses
arising at the time of classification of such properties and loans 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.
INCOME TAXES
The Company files a consolidated income tax return. Each of the entities is
charged or credited with the current cost or benefit resulting from including
the entity in the income tax returns.
In February 1992, the FASB issued Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires a change
from the income statement method of accounting for income taxes of APB
Opinion 11 to the asset and liability method of accounting for income taxes.
Under the asset liability method of SFAS 109, net deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Effective January 1, 1993, the
Company has adopted SFAS 109.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, less preferred
dividends requirement, by the weighted average of common shares outstanding.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers cash and
due from banks as cash equivalents.
NOTE 2. DUE FROM BANKS AND FEDERAL FUNDS SOLD
The Company maintains accounts with various other financial institutions
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 one institution totaling
$1,839 and $1,062 at December 31, 1994 and 1993, respectively. These
institutions are selected based upon on the strength of their financial
condition and their creditworthiness. No collateral is required on such
balances.
NOTE 3. INVESTMENTS
As discussed in Note 1, the Company adopted SFAS 115 as of January 1, 1994.
The net effect of this change in accounting principles was $0, net of taxes,
since the Company determination that all investments would be classified as
held-to-maturity.
Management believes there has been no permanent impairment in the value of
the Company's investment securities.
F-40
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 3. INVESTMENTS (Continued)
The amortized cost, gross unrealized gains, gross realized losses, and fair
value for the Company's securities, all of which are classified as
held-to-maturity securities, by major security type, were as follows for the
dates indicated:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1995
U.S. Treasury $2,096 $3 $1 $2,098
U.S. Government agencies 299 0 1 298
State of Oklahoma and political subdivisions 120 2 0 122
Other securities 100 1 0 101
------ -- -- ------
Total $2,615 $6 $2 $2,619
====== == == ======
DECEMBER 31, 1994
U.S. Treasury $1,484 0 7 $1,477
U.S. Government agencies 603 0 23 580
State of Oklahoma and political subdivisions 119 0 0 119
Other securities 101 0 0 101
------ -- -- ------
Total $2,307 0 30 $2,277
====== == == ======
DECEMBER 31, 1993
U.S. Treasury $2,121 13 1 $2,133
U.S. Government agencies 609 12 1 620
State of Oklahoma and political subdivisions 90 4 0 94
Other securities 101 6 0 107
------ -- -- ------
Total $2,921 35 2 $2,954
====== == == ======
</TABLE>
The book values and estimated market values of investment securities are
summarized below by contractual maturity. Actual maturities may differ from
contractual maturities due to obligations that are called or prepaid.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
ESTIMATED ESTIMATED ESTIMATED
BOOK VALUE MARKET VALUE BOOK VALUE MARKET VALUE BOOK VALUE MARKET VALUE
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Contractual maturity:
Within one year $2,585 $2,588 $1,483 $1,476 $1,916 $1,923
After one year but within five years 0 0 794 771 805 832
After five years but within ten years 30 31 30 30 200 199
After ten years 0 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total $2,615 $2,619 $2,307 $2,277 $2,921 $2,954
====== ====== ====== ====== ====== ======
</TABLE>
Sales of investment securities are summarized below:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Proceeds $0 $0 $0 $0 $2,861
Gross gains realized 0 0 0 0 50
Gross losses realized 0 0 0 0 3
</TABLE>
Investment securities having book values of $200, $0 and $100 at September
30, 1995, December 31, 1994 and December 31, 1993, respectively, were pledged
to secure public funds on deposit and for other purposes as required or
permitted by law.
F-41
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 4. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a schedule of loans outstanding by category:
<TABLE>
SEPTEMBER 30, DECEMBER 31,
------------ --------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Commercial, financial and other $ 973 $1,226 $1,400
Real estate - mortgage 3,179 3,184 3,040
Installment, net 1,326 1,081 971
------ ------ ------
Total loans $5,478 $5,491 $5,411
====== ====== ======
</TABLE>
The Company's loans are mostly to customers within Oklahoma. Credit risk on
loans is managed through limits on amounts loaned to individual borrowers,
underwriting standards and loan monitoring procedures. The amounts and types
of collateral obtained to secure loans is based upon the Company's
underwriting standards and management's credit evaluation. Collateral
varies, but may include real estate, equipment, accounts receivable,
inventory, livestock and securities. The Company's interest in collateral is
secured through filing mortgages and liens, and in some cases by possession
of the collateral. The amount of 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 based upon evaluations of loans, conditions and the
economic prospects of borrowers.
Changes in the allowance for possible loan losses are summarized as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $115 $127 $127 $122 $ 79
Loans charged off 23 31 31 44 194
Recoveries on loans 47 0 0 30 14
---- ---- ---- ---- ----
Net loans charged off (24) 31 31 14 180
---- ---- ---- ---- ----
Provisions charged to operating expense 10 14 19 19 222
---- ---- ---- ---- ----
Balance at end of period $149 $110 $115 $127 $122
==== ==== ==== ==== ====
</TABLE>
The Bank 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. The
aggregate amount of loans to such related parties at December 31, 1994, 1993,
1992 was $227, $249, $53, respectively, and at September 30, 1995 was $209.
Interest income attributable to related party loans amounted to $5, $5 and
$6, in 1995, 1994, and 1992, respectively; and $4, and $4 for the periods
ended September 30, 1995 and 1994, respectively.
NOTE 5. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------ --------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Land $ 39 $ 39 $ 39
Buildings 415 415 415
Furniture, fixtures and equipment 294 270 268
Accumulated depreciation (410) (377) (336)
---- ---- ----
Total $338 $347 $386
==== ==== ====
</TABLE>
NOTE 6. TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $800, $600
and $200 at September 30, 1995, December 31, 1994 and 1993, respectively.
F-42
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 7. NOTES PAYABLE
The notes payable consist of a note to a bank due at maturity on April 26,
1996. The note bears interest at the bank's corporate base rate. The note
is secured by all outstanding stock of the Company's subsidiary bank, Bank
of Johnston County.
NOTE 8. INCOME TAXES
The components of the Company's income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current taxes:
Federal $(16) $(7) $(13) $(25) $22
State 0 0 0 0 0
Deferred taxes 4 (8) (14) 16 (20)
---- ---- ---- ---- ----
Total income tax
(expense) benefit $(12) $(15) $(27) $(9) $ 2
==== ==== ==== ==== ====
</TABLE>
A reconciliation of tax (expense) benefit at the federal statutory tax rate
(34%) applied to income before taxes follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tax (expense) benefit at the
federal statutory tax rate $(22) $(19) $(28) ($39) $23
(Increase) decrease in tax expense from:
Tax-exempt income, net 1 1 2 1 1
Other, net 9 3 (1) 29 (22)
---- ---- ---- ---- ----
Total tax (expense) benefit (12) (15) (27) (9) 2
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
NOTE 9. STOCKHOLDERS' EQUITY
The following is a description of the capital stock of the Company:
(a) 10% Preferred Stock: cumulative dividends, non-voting; $17.55 par
value, redeemable at the Company's option at $17.55 per share plus
accumulated dividends; 6,800 shares authorized. At September 30, 1995 and
December 31, 1994, 1993 and 1992, 5,526 shares were issued and
outstanding.
(b) Common stock: $1 par value; 55,000 shares authorized. At September 30,
1995 and December 31, 1994, 1993 and 1992, 49,620 shares were issued
and outstanding.
The Company's ability to pay dividends is dependent upon dividend payments
received from the Bank. Banking regulations limit bank dividends based upon
net earnings retained and minimum capital requirements. Dividends in excess
of these requirements require regulatory approval. Quantitative measures
established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios of Tier I capital (as defined in the
regulations) to total average assets (as defined), and minimum ratios of Tier
I and total capital (as defined) to risk-weighted assets (as defined). The
Bank's actual capital amounts and ratios exceeded the regulatory requirements
at September 30, 1995 and December 31, 1994 and 1993.
NOTE 10. EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $52 $42 $56 $105 $(67)
Less preferred dividend requirements:
10% preferred stock 7 7 10 10 10
------ ------ ------ ------ ------
Net income applicable to common
shareholders $45 $35 $46 $ 95 $(77)
====== ====== ====== ====== ======
Average common shares outstanding 49,620 49,620 49,620 49,620 49,620
====== ====== ====== ====== ======
Earnings per common share $0.91 $0.71 $0.93 $1.91 $(1.55)
====== ====== ====== ====== ======
</TABLE>
F-43
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 11. PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
ASSETS
Cash $ 41 $ 14 $ 0
Investment in subsidiaries, at equity 809 787 773
Other assets 2 50 2
---- ---- ----
Total assets $852 $851 $775
==== ==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $342 $380 $354
Other liabilities 111 119 96
Stockholders' equity 399 352 325
---- ---- ----
Total liabilities and stockholders' equity $852 $851 $775
==== ==== ====
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating income:
Dividends from subsidiaries $44 $22 $70 $ 66 $44
Interest 0 0 0 0 0
-- -- -- --- ---
Total operating income 44 22 70 66 44
-- -- -- --- ---
Operating expense:
Interest 24 22 31 32 28
Other 2 2 2 2 3
-- -- -- --- ---
Total operating expense: 26 24 33 34 31
-- -- -- --- ---
Income before income taxes and equity in undistributed
earnings of subsidiaries 18 (2) 37 32 13
Allocated income tax (expense) benefit 14 2 7 14 4
-- -- -- --- ---
Income before equity in undistributed earnings of
subsidiaries 32 0 44 46 17
Equity in undistributed earnings of subsidiaries 20 42 12 59 (84)
-- -- -- --- ---
Net income (loss) $52 $42 $56 $105 $(67)
== == == === ===
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $52 $ 42 $ 56 $105 $(67)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Increase (decrease) in interest payable (1) 5 6 (13) (3)
Net income of subsidiaries (64) (64) (82) (125) 40
Other, net 38 10 (33) 0 1
--- ---- ---- --- ---
Net cash provided (used) by operating activities 25 (7) (53) (33) (29)
--- ---- ---- --- ---
INVESTING ACTIVITIES
Cash dividends received from subsidiaries 44 22 70 66 44
--- ---- ---- --- ---
Net cash provided by investing activities 44 22 70 66 44
--- ---- ---- --- ---
FINANCING ACTIVITIES
Principal repayments on note payable (38) (354) (354) (79) (45)
Proceeds from borrowings on note payable 0 380 380 46 32
Cash dividends paid on preferred stock (5) (24) (29) 0 (5)
--- ---- ---- --- ---
Net cash provided (used) by financing activities (43) 2 (3) (33) (18)
--- ---- ---- --- ---
Net increase (decrease) in cash and due from banks 26 17 14 0 (3)
Cash and due from banks at the beginning of the year 14 0 0 0 2
--- ---- ---- --- ---
Cash and due from banks at the end of the year $ 41 $ 18 $ 14 $ 0 $ 0
=== ==== ==== === ===
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 25 $ 17 $ 25 $ 45 $ 31
=== ==== ==== === ===
Cash paid (received) during the year for income taxes $ 24 $ 6 $ 9 $ 12 $ 14
=== ==== ==== === ===
</TABLE>
F-44
<PAGE>
JOHNSTON COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 12. RELATED PARTY TRANSACTIONS
The Company purchases supplies and services from companies which are owned by
one of the major stockholders of the Company. During the years ended
December 31,1994, 1993 and 1992, payments to these related companies
approximated $23, $23, and $31 respectively; and $15 and $16 for the periods
ended September 30, 1995 and 1994.
Also, the Company had notes payable outstanding to two major stockholders of
the Company at December 31, 1993 and 1992 totaling $104 and $68, respectively.
NOTE 13. 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:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------
1995 1994 1993
------------------------------
<S> <C> <C> <C>
Loan commitments $274 $284 $132
Standby letters of credit 0 0 0
</TABLE>
Loan commitments are agreements to lend to a customer, as long as there is no
violation of any condition established in the contract. Standby 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 is a defendant in legal actions arising from normal business
activities. Management believes that all legal actions against the Company
are without merit or that the ultimate liability, if any, resulting from them
will not materially affect the Company's financial position or results of
operations.
F-45
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
Board of Directors and Stockholders of
COMMERCE BANCORPORATION, INC.
We have compiled the accompanying consolidated balance sheet of Commerce
Bancorporation, Inc., as of September 30, 1995 and December 31, 1994 and
1993, and the related consolidated statement of operations, stockholders'
equity, and cash flows for the period ended September 30, 1995 and 1994, and
the years ended December 31, 1994, 1993 and 1992, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not
express an opinion of any other form of assurance on them.
FINLEY & COOK
Shawnee, Oklahoma
November 11, 1995
F-46
<PAGE>
COMMERCE BANCORPORATION, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION> DECEMBER 31,
SEPTEMBER 30, -------------------
1995 1994 1993
------------- ------- -------
<S> <C> <C> <C>
ASSETS
Cash and due from banks .............................. $ 1,044 $ 736 $ 953
Securities:
Held for investment, at cost (market value: $7,673,
$417, and $7,986, respectively) .................. 7,693 402 7,803
Available for sale, at market value ................ - 8,140 -
Federal funds sold ................................... - 75 1,700
Loans:
Total loans (net of unearned interest) ............. 8,225 8,213 7,922
Allowance for possible loan losses ................. (104) (147) (151)
------- ------- -------
Loans, net ..................................... 8,121 8,066 7,771
Premises and equipment, net .......................... 224 225 232
Other real estate owned .............................. - - 29
Intangible assets, net ............................... 194 200 208
Accrued interest receivable .......................... 141 172 170
Other assets ......................................... 27 129 117
------- ------- -------
Total assets ................................... $17,444 $18,145 $18,983
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing ................................ $ 2,863 $ 2,865 $ 2,994
Interest-bearing ................................... 12,458 13,670 14,139
------- ------- -------
Total deposits ................................. 15,321 16,535 17,133
Federal funds purchased .............................. 375 - -
Accrued interest payable ............................. 58 45 50
Other liabilities .................................... 43 176 242
Minority interest .................................... 80 66 81
------- ------- -------
Total liabilities .............................. 15,877 16,822 17,506
------- ------- -------
Commitments and contingent liabilities ...............
Stockholders' equity:
10% preferred stock ................................ 55 55 55
Common stock ....................................... 36 36 36
Capital surplus .................................... 638 638 638
Retained earnings .................................. 1,169 1,035 1,046
Unrealized securities loss, net of tax ............. (33) (143) -
Treasury stock ..................................... (298) (298) (298)
------- ------- -------
Total stockholders' equity ..................... 1,567 1,323 1,477
------- ------- -------
Total liabilities and stockholders' equity ..... $17,444 $18,145 $18,983
======= ======= =======
</TABLE>
See Accountants' Compilation Report.
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
COMMERCE BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ -----------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees ..................... $ 671 $ 639 $ 860 $ 891 $ 965
Investment securities:
Taxable ................................. 366 378 511 461 521
Tax-exempt .............................. 15 36 44 56 59
Federal fund sold ......................... 16 10 11 38 25
Interest-bearing deposits with banks ...... 4 4 5 9 16
------- ------- ------- ------- -------
Total interest income ................. 1,072 1,067 1,431 1,455 1,586
------- ------- ------- ------- -------
INTEREST EXPENSE
Deposits .................................. 368 315 429 457 486
Federal funds purchased ................... 2 2 - - -
Note payable .............................. - - - - 18
------- ------- ------- ------- -------
Total interest expense ................ 370 317 429 457 504
------- ------- ------- ------- -------
Net interest income ....................... 702 750 1,002 998 1,082
Provision for possible loan losses ........ - - - - 24
------- ------- ------- ------- -------
Net interest income after provision for
possible loan losses ................. 702 750 1,002 998 1,058
------- ------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposits ............... 176 166 222 227 240
Securities transactions ................... (15) (1) (1) - 303
Other ..................................... 29 25 33 24 25
------- ------- ------- ------- -------
Total noninterest income .............. 190 190 254 251 568
------- ------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits ............ 243 230 295 325 631
Occupancy and fixed assets expense, net ... 41 46 59 58 77
Depreciation .............................. 18 19 26 27 36
Amortization .............................. 6 6 8 8 8
Data processing services .................. 65 65 87 89 92
Other ..................................... 179 151 206 199 221
------- ------- ------- ------- -------
Total noninterest expense ............. 552 517 681 706 1,065
------- ------- ------- ------- -------
Income before taxes ....................... 340 423 575 543 561
Income tax expense ........................ 123 151 210 187 197
------- ------- ------- ------- -------
Net income ........................... $ 217 $ 272 $ 365 $ 356 $ 364
======= ======= ======= ======= =======
PER SHARE DATA
Net income ............................... $ 9.48 $ 11.92 $ 15.90 $ 15.51 $ 14.77
======= ======= ======= ======= =======
Average common shares outstanding ........ 22,573 22,573 22,573 22,573 24,236
======= ======= ======= ======= =======
</TABLE>
See Accountants' Compilation Report.
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
COMMERCE BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED ---------------------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992
------------------ --------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10% PREFERRED STOCK
Issued at beginning and
end of period................ 4,162 $ 55 4,162 $ 55 4,162 $ 55 4,162 $ 55
====== ====== ====== ====== ====== ====== ====== ======
COMMON STOCK
Issued at beginning and
end of period................ 36,275 $ 36 36,275 $ 36 36,275 $ 36 36,275 $ 36
====== ====== ====== ====== ====== ====== ====== ======
CAPITAL SURPLUS
Balance at beginning and
end of period................ $ 638 $ 638 $ 638 $ 638
====== ====== ====== ======
RETAINED EARNINGS
Balance at beginning of year... $1,035 $1,043 $1,096 $ 998
Net income..................... 217 365 356 364
Dividends on 10% preferred
stock ($.66, $1.33, $1.33,
and $1.33 per share,
respectively)................ (3) (6) (6) (6)
Dividends on common
stock ($3.54, $16.39, $17.72,
and $10.72 per share,
respectively)................ (80) (370) (400) (260)
------ ------ ------ ------
Balance at end of period....... $1,169 $1,035 $1,046 $1,096
====== ====== ====== ======
UNREALIZED SECURITIES LOSSES
Balance at beginning of year... (143) - - -
Net change..................... 110 (143) - -
------ ------ ------ ------
Balance at end of period....... $ (33) $ (143) $ - $ -
====== ====== ====== ======
TREASURY STOCK
Common stock:
Held at beginning of year.... 13,702 (298) 13,702 (298) 13,702 (298) 11,703 (248)
Shares purchased............. - - - - - - 1,996 (50)
------ ------ ------ ------ ------ ------ ------ ------
Held at end of period........ 13,702 $ (298) 13,702 $ (298) 13,702 $ (298) 13,702 $ (298)
====== ====== ====== ====== ====== ====== ====== ======
Total treasury of stock...... $ (298) $ (298) $ (298) $ (298)
====== ====== ====== ======
Total stockholders' equity... $1,567 $1,323 $1,477 $1,527
====== ====== ====== ======
</TABLE>
See Accountants' Compilation Report.
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
COMMERCE BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 217 $ 272 $ 365 $ 356 $ 364
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses.................... - - - - 24
Depreciation and amortization......................... 24 25 34 35 44
Decrease (increase) in interest receivable............ 31 25 (2) (2) 89
Increase (decrease) in interest payable............... 13 (7) (5) 2 (55)
Other, net............................................ 93 (130) 32 122 (7)
------- ------- ------- ------- -------
Net cash provided by operating activities........ 378 185 424 513 459
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Purchase of investment securities......................... (7,397) (4,268) (4,268) (850) (4,357)
Maturities of investment securities....................... 7,097 790 790 1,263 485
Proceeds from sales of investment securities.............. 1,149 2,500 2,500 - 3,832
Net (increase) decrease in federal funds sold............. 75 1,700 1,625 (1,300) 650
Net other (increase) decrease in loans.................... (55) (391) (295) (36) 818
Other, net................................................ (17) (19) (19) (17) (34)
------- ------- ------- ------- -------
Net cash provided (used) by investing
activities..................................... 852 312 333 (940) 1,394
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing deposits... (2) (291) (129) (384) 118
Net increase (decrease) in interest-bearing deposits...... (1,212) (323) (469) 1,065 (914)
Increase in federal funds purchased....................... 375 250 - - -
Principal repayments on note payable...................... - - - - (250)
Purchase of common stock.................................. - - - - (50)
Cash dividend paid........................................ (83) (163) (376) (406) (266)
------- ------- ------- ------- -------
Net cash used by financing activities............ (922) (527) (974) 275 (1,362)
------- ------- ------- ------- -------
Net increase (decrease) in cash and due from banks........ 308 (30) (217) (152) 491
Cash and due from banks at the beginning of the year...... 736 953 953 1,105 614
------- ------- ------- ------- -------
Cash and due from banks at the end of the period.......... $ 1,044 $ 923 $ 736 $ 953 $ 1,105
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest.................... $ 357 $ 324 $ 434 $ 455 $ 559
======= ======= ======= ======= =======
Cash paid during the year for income taxes................ $ 125 $ 153 $ 203 $ 184 $ 214
======= ======= ======= ======= =======
</TABLE>
See Accountants' Compilation Report.
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Commerce Bancorporation, Inc.,
and its subsidiary (the "Company"), conform to generally accepted accounting
principals and general practices within the banking industry. A summary of
the significant accounting policies follows.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the account
of Commerce Bancorporation, Inc.; and The Bank of Commerce, McLoud, Oklahoma
(the "Bank"). 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.
SECURITIES
The Company's practice is to hold its securities to maturity as it does
not engage in trading activities. Any sales of securities are to execute the
Company's asset/liability management strategy, to eliminate a perceived
credit risk in a specific security, or to provide liquidity. After January
1, 1994, securities that are being held for indefinite periods of time, or
that may be sold as part of the Company's asset/liability management
strategy, to provide liquidity or for other reasons, are classified as
available for sale and are stated at estimated market value. Unrealized
gains or losses on securities available for sale are reported as a component
of stockholders' equity, net of income tax. Securities for which the Company
has the intent and ability to hold to maturity are classified as held for
investment and are stated at cost, adjusted for amortization of premiums and
accretion of discounts computed under the interest method, unless such
investments are considered permanently impaired, in which case they are
written down to market value, which establishes a new cost basis. Prior to
January 1, 1994, all securities were classified as held for investment.
Gains or losses from sales of securities are based upon the book value of the
specific securities sold.
F-51
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
LOANS
Loans are stated at the principal amount outstanding. Interest income
on certain installment loans is recorded by use of a method which produces a
reasonable approximation of a constant yield on the outstanding principal.
Interest on other loans is recognized based upon the principal amount
outstanding.
A loan is placed on nonaccrual status when, in the opinion of
management, the future collectibility of interest and/or principal is in
serious doubt. Interest income is recognized on certain of these loans on a
cash basis if the full collection of the remaining principal balance is
reasonably expected. Otherwise, interest income is not recognized until the
principal balance is fully collected.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is increased by provisions
charged to operating expense and is reduced by net charge-offs. The
provision for loan losses charged to operating expense is based on past loan
loss experience and other factors which, in management's judgment, deserve
current recognition in estimating possible loan losses. Such other factors
considered by management include evaluations of known problem loans, levels
of adversely classified and nonperforming loans, and general economic
conditions.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operating expense and is computed
by the use of 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, loans
secured by real estate which are in substance foreclosed and loans from sales
of other real estate owned which do not satisfy the requirements of generally
accepted accounting principles to be classified as loans. These properties
and loans are carried at the lower of the recorded investment in the loan or
the fair market value of the property based upon appraised value. Losses
arising at the time of classification of such properties and loans 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.
F-52
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
INTANGIBLE ASSETS
The excess of cost over the fair value of assets acquired (goodwill) is
amortized on a straight-line basis over 40 years.
INCOME TAXES
The Company files a consolidated income tax return. In January 1993,
the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). The adoption of FAS 109 changed the
method of accounting for income taxes from the deferred method to an asset
and liability approach. Under the asset and liability approach, deferred
taxes are recognized for the future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, based
upon the tax rates expected to apply to taxable income in the periods when
the related temporary differences are expected to be realized. Prior to
1993, deferred income taxes were recognized for the differences between the
period in which certain income and expense items were recognized for
financial statement purposes and the period in which they affected taxable
income.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, less
preferred dividends requirement, by the weighted average of common shares
outstanding.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considered
cash and due from banks as cash equivalents.
(2) 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 institutions totaling $472, $256, and $2,120
at September 30, 1995, and December 31, 1994 and 1993, respectively. These
institutions are selected based on the strength of their financial condition
and their creditworthiness. No collateral is required on such balances.
F-53
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(3) SECURITIES
The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS
115), effective January 1, 1994. FAS 115 requires that investments in debt
securities be classified and accounted for in three categories: held for
investment, available for sale, and trading. Prior to January 1, 1994, all
securities were classified as held for investment. The Company does not
engage in any trading activities.
The table below summarizes the book values and estimated market values
of securities held for investment:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1995
U.S. Treasury and other federal agencies $7,493 $ 20 $(51) $7,462
States and political subdivisions 200 11 - 211
------ ---- ---- -------
Total $7,693 $ 31 $(51) $7,673
====== ==== ==== ======
DECEMBER 31, 1994
U.S. Treasury and other federal agencies - - - -
States and political subdivisions 402 15 - 417
------ ---- ---- -------
Total $ 402 $ 15 $ - $ 417
====== ==== ==== ======
DECEMBER 31, 1993
U.S. Treasury and other federal agencies 6,828 151 (8) 6,971
States and political subdivisions 975 40 - 1,015
------ ---- ---- -------
Total $7,803 $191 $ (8) $7,986
====== ==== ==== ======
</TABLE>
F-54
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The table below summarizes the cost and estimated market values of
securities available for sale:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1995
U.S. Treasury and other federal agencies $ - $- $ - $ -
States and political subdivisions - - - -
Other securities - - - -
------ -- ----- ------
Total $ - $- $ - $ -
====== == ===== ======
DECEMBER 31, 1994
U.S. Treasury and other federal agencies $8,395 $2 $(257) $8,140
====== == ===== ======
</TABLE>
During 1995, the Company transferred all securities from available for
sale to held to maturity. As a result of the transfer, a net unrealized
market value loss of approximately $33 is still reflected in equity, even
though the Company has no securities classified as available for sale. The
unrealized loss will be amortized over the remaining life of the investments
transferred.
F-55
<PAGE>
COMMERCE BANCORPORATION, INC.
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.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------
1995 1994 1993
------------------- ------------------- --------------------
ESTIMATED ESTIMATED ESTIMATED
BOOK MARKET BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
------ --------- ----- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
HELD FOR INVESTMENT
Contractual maturity of debt securities:
Within 1 year $1,926 $1,926 $ - $ - $ 591 $ 593
After 1 year but within 5 years 3,144 3,219 402 417 2,587 2,722
After 5 years but within 10 years 760 753 - - 1,232 1,273
After 10 years 1,863 1,775 - - 3,393 3,398
------ ------ ---- ---- ------ ------
Total $7,693 $7,673 $402 $417 $7,803 $7,986
====== ====== ==== ==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
---- --------- ------ ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Contractual maturity of debt securities:
Within 1 year $ - $ - $3,492 $3,423
After 1 year but within 5 years - - 815 809
After 5 years but within 10 years - - 46 46
After 10 years - - 4,042 3,862
--- --- ------ ------
Total $ - $ - $8,395 $8,140
=== === ====== ======
</TABLE>
Sales of investment securities are summarized below:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------
1995 1994 1994 1993 1992
------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C>
Proceeds ....................... $1,149 $2,500 $2,500 $ - $3,832
Gross gains realized ........... 9 22 22 - 306
Gross losses realized .......... (24) (23) (23) - (3)
</TABLE>
Investment securities having book values of $1,781, $3,138, and $85 at
September 30, 1995, and December 31, 1994 and 1993, respectively, were
pledged to secure public funds on deposit, repurchase agreements, and for
other purposes as required or permitted by law.
F-56
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(4) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a schedule of loans outstanding by category:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1995 1994 1993
------------- ------ ------
<S> <C> <C> <C>
Commercial, financial, and other ....... $2,684 $2,582 $2,216
Real estate -- mortgage ................ 3,466 3,743 3,752
Real estate -- construction ............ 183 85 117
Installment, net ....................... 1,892 1,803 1,837
------ ------ ------
Total loans ........................ $8,225 $8,213 $7,922
====== ====== ======
</TABLE>
The Company's loans are mostly to customers within Oklahoma Credit risk
on loans is managed through limits on amounts loaned to individual borrowers,
underwriting standards, and loan monitoring procedures The amounts and types
of collateral obtained to secure loans is based upon the Company's
underwriting standards and management's credit evaluation Collateral varies,
but may include real estate, equipment, accounts receivable, inventory,
livestock, and securities. The Company's interest in collateral is secured
through filing mortgages and liens, and in some cases by possession of the
collateral. The amount of 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 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.
Changes in the allowance for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ------------------------
1995 1994 1994 1993 1992
------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ....... $147 $151 $151 $160 $160
---- ---- ---- ---- ----
Loans charged-off .................. (46) (1) (7) (20) (47)
Recoveries on loans ................ 3 3 3 11 23
---- ---- ---- ---- ----
Net loans charged-off .......... (43) 2 (4) (9) (24)
---- ---- ---- ---- ----
Provision charged to operating
expense .......................... - - - - 24
---- ---- ---- ---- ----
Balance at end of period ........... $104 $153 $147 $151 $160
==== ==== ==== ==== ====
</TABLE>
F-57
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The Bank 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:
<TABLE>
<CAPTION>
BALANCE BALANCE
BEGINNING AMOUNTS END OF
PERIOD ENDED OF YEAR ADDITIONS COLLECTED PERIOD
------------ --------- --------- --------- -------
<S> <C> <C> <C> <C>
December 31, 1992 $ 34 $ - $ 2 $32
December 31, 1993 32 95 20 107
December 31, 1994 107 - 38 69
September 30, 1995 69 1 30 40
</TABLE>
Interest income attributable to related party loans amounted to $4, $4, and
$5 in 1994, 1993, and 1992, respectively; and $1 and $4 for the periods ended
September 30, 1995 and 1994, respectively.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (FAS 114), was issued in May 1993. This
new accounting standard requires that impaired loans be measured based upon
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when, based on current information
and events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. The Company adopted FAS
114 in January 1995. The adoption of FAS 114 did not have a material effect
on the financial position or results of operation of the Company. As of
September 30, 1995, the number and amount of impaired loans and the required
impairment allowance was not material.
(5) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------
1995 1994 1993
------------- ------ ------
<S> <C> <C> <C>
Land................................. $ 78 $ 78 $ 78
Buildings............................ 296 296 296
Furniture, fixtures, and equipment... 306 289 291
Accumulated depreciation............. (456) (438) (433)
----- ----- -----
Total............................ $ 224 $ 225 $ 232
===== ===== =====
</TABLE>
F-58
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(6) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------
1995 1994 1993
------------- ---- ----
<S> <C> <C> <C>
Excess of cost over fair value of assets acquired... $194 $200 $208
==== ==== ====
</TABLE>
(7) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $300,
$1,060, and $1,000 at September 30, 1995, and December 31, 1994 and 1993,
respectively.
(8) INCOME TAXES
The components of the Company's income tax expense are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- -----------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current taxes:
Federal................................ $104 $127 $177 $157 $193
State.................................. 17 20 28 19 26
Deferred taxes........................... 2 4 5 11 (22)
---- ---- ---- ---- ----
Total income tax expense............. $123 $151 $210 $187 $197
==== ==== ==== ==== ====
</TABLE>
A reconciliation of tax expense at the federal statutory tax rate (34%)
applied to income before taxes follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- -----------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tax expense at the federal statutory
tax rate............................... $116 $144 $196 $185 $191
Increase (decrease) in tax expense from:
Tax-exempt income, net................. (5) (12) (15) (19) (20)
Amortization of excess cost............ 2 2 3 3 3
Other, net............................. 10 17 26 18 23
---- ---- ---- ---- ----
Total tax expense.................... $123 $151 $210 $187 $197
==== ==== ==== ==== ====
</TABLE>
F-59
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
Income tax expense applicable to securities transactions were not
material for any of the periods presented, expect for 1992. Income tax
associated with the $303 net gain in 1992 was approximately $115.
The principal timing and temporary differences between financial income
and taxable income of the Company are the provision for possible loan losses
and write-downs on other real estate owned. These items and the deferred tax
effect on the unrealized securities loss comprises deferred income taxes.
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109), which requires recording deferred tax liabilities of assets
based upon tax rates expected to apply to taxable income in the periods when
the related temporary differences are expected to be realized. FAS 109
became effective for years beginning after December 15, 1992. The Company
adopted FAS 109 effective January 1, 1993. Prior years financials were not
restated and the adoption of FAS 109 resulted in no material adjustments to
the financial statements of the Company.
(9) EMPLOYEE BENEFITS
The Company has a profit sharing plan which is available to all eligible
employees. Generally, to be eligible, the employee must be at least 21 years
of age and have been employed at least 12 months and have 1,000 hours of
service to the Bank. Contributions are made at the sole discretion of the
Board of Directors. Amounts vest at 20% per year commencing the third year.
Expense for the plan was $14 and $9 for the periods ended September 30, 1995
and 1994, and $12 for each of the years ended December 31, 1994, 1993, and
1992.
(10) STOCKHOLDERS' EQUITY
The following is a description of the capital stock of the Company:
(a) 10% preferred stock: cumulative dividends, non-voting;
$13.25 par value, redeemable at the Company's option at $13.25 per
share plus accumulated dividends; 6,500 shares authorized. At
September 30, 1995, and December 31, 1994 and 1993, 4,162 shares
were issued.
(b) Common stock: $1 par value; 45,000 shares authorized.
Shares issued were 36,275 shares at September 30, 1995, December
31, 1994 and 1993. At September 30, 1995, December 31, 1994 and
1993, 13,702.33 of treasury shares had been purchased.
F-60
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The Company's ability to pay dividends is dependent upon dividend
payments received from the Bank. Banking regulations limit bank dividends
based upon net earnings retained and minimum capital requirements. Dividends
in excess of these requirements require regulatory approval.
(11) EARNINGS PER COMMON SHARE
Earnings per common share is calculated as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1994 1993 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income ......................... $ 217 $ 272 $ 365 $ 356 $ 364
------- ------- ------- ------- -------
Less preferred dividends:
10% preferred stock .............. (3) (3) (6) (6) (6)
------- ------- ------- ------- -------
Net income applicable to
common shareholders .............. $ 214 $ 269 $ 359 $ 350 $ 358
======= ======= ======= ======= =======
Average common shares outstanding .. 22,573 22,573 22,573 22,573 24,236
======= ======= ======= ======= =======
Earnings per common share .......... $ 9.48 $ 11.92 $ 15.90 $ 15.51 $ 14.77
======= ======= ======= ======= =======
</TABLE>
F-61
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(12) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1995 1994 1993
------------- ------ ------
<S> <C> <C> <C>
ASSETS
Cash ............................................. $ 65 $ 16 $ 18
Investment in subsidiary, at equity .............. 1,231 1,014 1,251
Intangible assets ................................ 194 200 208
Other assets ..................................... 80 122 105
------ ------ ------
Total assets ................................. $1,570 $1,352 $1,582
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable ..................................... $ - $ - $ -
Other liabilities ................................ 3 125 105
Stockholders' equity ............................. 1,567 1,227 1,477
------ ------ ------
Total liabilities and stockholders' equity ... $1,570 $1,352 $1,582
====== ====== ======
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating income:
Dividends from subsidiary ............. $239 $260 $382 $387 $584
Interest .............................. - - - 1 4
---- ---- ---- ---- ----
Total operating income ............. 239 260 382 388 588
---- ---- ---- ---- ----
Operating expense:
Salaries .............................. - - - 27 329
Interest .............................. - - - - 8
Amortization .......................... 6 6 8 8 8
Other ................................. 53 15 20 20 20
---- ---- ---- ---- ----
Total operating expense ............ 59 21 28 55 365
---- ---- ---- ---- ----
Income before income taxes and equity in
undistributed earnings of subsidiary ... 180 239 354 333 223
Allocated income tax benefit ............ 24 6 8 20 140
---- ---- ---- ---- ----
Income before equity of undistributed
earnings of subsidiary ................. 204 245 362 353 363
Equity in undistributed earnings of
subsidiary ............................. 13 27 3 3 1
---- ---- ---- ---- ----
Net income ......................... $217 $272 $365 $356 $364
==== ==== ==== ==== ====
</TABLE>
F-62
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................... $ 217 $ 272 $ 365 $ 356 $ 364
Adjustments to reconcile net income to net cash
used by operating activities:
Amortization ...................................... 6 6 8 8 8
Decrease (increase) in other assets ............... 42 9 (17) (96) 93
Increase and (decrease) in other payables ......... (122) (103) 20 101 (23)
Net income of subsidiary .......................... (252) (287) (385) (390) (585)
Other, net ........................................ 2 1 1 - 8
----- ----- ----- ----- -----
Net cash provided (used) by operating activities .... (107) (102) (8) (21) (135)
----- ----- ----- ----- -----
INVESTING ACTIVITIES
Cash dividends received from subsidiary ............. 239 260 382 387 584
Increase in investment of subsidiary ................ - - - - (23)
----- ----- ----- ----- -----
Net cash provided by investing activities ........... 239 260 382 387 561
----- ----- ----- ----- -----
FINANCING ACTIVITIES
Principal repayments on note payable ................ - - - - (250)
Purchase of common stock ............................ - - - - (50)
Cash dividends paid ................................. (83) (163) (376) (406) (266)
----- ----- ----- ----- -----
Net cash used by financing activities ........... (83) (163) (376) (406) (566)
----- ----- ----- ----- -----
Net increase (decrease) in cash ..................... 49 (5) (2) (40) (140)
Cash at beginning of the year ....................... 16 18 18 58 198
----- ----- ----- ----- -----
Cash at the end of the period ....................... $ 65 $ 13 $ 16 $ 18 $ 58
===== ===== ===== ===== =====
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest .............. $ - $ - $ - $ $ 33
===== ===== ===== ===== =====
Cash paid during the year for income taxes .......... $ 125 $ 153 $ 203 $ 184 $ 214
===== ===== ===== ===== =====
</TABLE>
(13) RELATED PARTY TRANSACTIONS
The Company purchases supplies and services from companies which are
owned or controlled by the stockholders of the Company. During the years
December 31, 1994, 1993, and 1992, payments to these related companies
approximated $91, $93, and $96, respectively; and $69, and $70 for the
periods ended September 30, 1995 and 1994, respectively.
Refer to Note 4 for information regarding loan transactions with related
parties.
F-63
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(14) 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:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------
1995 1994 1993
------------- ---- ----
<S> <C> <C> <C>
Loan commitments............. $184 $128 $140
Standby letters of credit.... 45 45 23
</TABLE>
Loan commitments are agreements to lend to a customer, as long as there
is no violation of any condition established in the contract. Standby
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 is a defendant in legal arising from normal business
activities. Management believes that all legal actions against the Company
are without merit or that the ultimate liability, if any, resulting from them
will not materially affect the Company's financial position or results of
operations.
F-64
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(15) 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
September 30, 1995, 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. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSIT LIABILITIES
The fair value of transaction and savings accounts is the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
FEDERAL FUNDS PURCHASED
The amount payable on these short-term instruments is a reasonable
estimate of fair value.
F-65
<PAGE>
COMMERCE BANCORPORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
LOAN COMMITMENTS AND LETTERS OF CREDIT
The fair value of commitment, standby letters of credit, and commercial
letters of credit (collectively "commitments") can be estimated in various
ways, depending on the type and amounts of fees charged, if any, the
probability of credit being extended, among other factors.
At September 30, 1995, the majority of the commitments outstanding
represented commitments to extend variable-rate loans, generally expiring
within 1 year from the original contract date. Fixed-rate loan commitments
are typically associated with real estate mortgage loans with normally
shorter commitment periods. Commitment fees charged by the Company for
credit extensions are believed to be at a level on par with the local market.
Accordingly, given the limited interest rate exposure posed by the
commitments outstanding at September 30, 1995, due to their general variable
nature, coupled with the general short-term nature of the commitment periods
entered into and the market rate of fees charged, the Company has not
estimated the fair value of commitments outstanding and believes that, if
measured, the resulting fair value would be immaterial.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-----------------
CARRYING FAIR
AMOUNT VALUE
-------- ------
<S> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 1,044 $1,044
Securities 7,693 7,673
Loans:
Loans (net of unearned interest) 8,225
Allowance for possible loan losses (104)
-------
Loans, net 8,121 7,937
FINANCIAL LIABILITIES
Deposits 15,321 15,050
Federal funds purchased 375 375
OFF-BALANCE-SHEET FINANCIAL
INSTRUMENTS
Loan commitments
Letters of credit
</TABLE>
F-66
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
State National Bank
We have audited the balance sheet of State National Bank as of December 31,
1994, and the related statements of income, stockholders' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of State National Bank at
December 31, 1994, and the results of its operations, stockholders' equity,
and cash flows for the year then ended in conformity with generally accepted
accounting principles.
Finley & Cook
March 21, 1995
F-67
<PAGE>
STATE NATIONAL BANK
BALANCE SHEET
- -------------------------------------------------------------------------------
DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 3,293,191
Federal funds sold 7,650,000
Securities available for sale 9,743,096
Securities to be held to maturity 37,031,707
Loans (net of allowance for possible
loan losses of $372,600) 42,362,434
Premises and equipment, net 510,836
Interest receivable 934,797
Other real estate owned, net 445,118
Deferred tax asset, net 199,663
Other assets 54,760
------------
$102,225,602
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 8,599,638
Interest-bearing 77,076,106
------------
Total deposits 85,675,744
Interest payable 293,840
Income taxes payable 8,737
Other liabilities 19,516
------------
Total liabilities 85,997,837
------------
Stockholders' equity:
Common stock 300,000
Additional paid-in capital 300,000
Undivided profits 15,882,807
Unrealized loss on securities available for sale,
net of deferred taxes (255,042)
------------
Total stockholders' equity 16,227,765
------------
$102,225,602
============
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE>
STATE NATIONAL BANK
STATEMENT OF INCOME
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Interest income:
Loans, including fees $3,590,622
Investment securities:
Taxable 2,796,598
Tax-exempt 111,930
Federal funds sold 187,696
Other 43,461
----------
Total interest income 6,730,307
----------
Interest expense:
Deposits 2,733,299
Short-term borrowings 2,363
----------
Total interest expense 2,735,662
----------
Net interest income 3,994,645
Provision for possible loan losses 21,170
----------
Net interest income after provision for
possible loan losses 3,973,475
----------
Other income:
Service charges on deposit accounts 289,453
Other service charges and fees 70,650
Other 46,542
----------
Total other income 406,645
----------
Other expenses:
Salaries and employee benefits 1,185,251
Occupancy 84,320
Depreciation 66,246
Realized losses on securities available for sale 131,520
Data processing expense 109,774
Legal and accounting 132,342
Litigation settlement 83,500
Regulatory insurance and assessments 190,919
Other 339,477
----------
Total other expenses 2,323,349
----------
Income before income taxes 2,056,771
Income tax expense 699,000
----------
Net income $1,357,771
==========
Income per average outstanding common share $ 452.59
==========
</TABLE>
See Independent Auditors' Report.
See accompanying notes to financial statements.
F-69
<PAGE>
STATE NATIONAL BANK
STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
Common stock (par value $100 per share;
6,000 shares authorized, 3,000 shares
issued, and outstanding):
Balance at beginning and end of year $ 300,000
-----------
Additional paid-in capital:
Balance at beginning and end of year 300,000
-----------
Undivided profits:
Balance at beginning of year 14,543,036
Net income 1,357,771
Dividends paid (18,000)
-----------
Balance at end of year 15,882,807
-----------
Unrealized loss on securities available
for sale, net of deferred taxes (255,042)
-----------
Total stockholders' equity $16,227,765
===========
</TABLE>
See Independent Auditors' Report.
See accompanying notes to financial statements.
F-70
<PAGE>
STATE NATIONAL BANK
STATEMENT OF CASH FLOWS
INCREASE IN CASH AND DUE FROM BANKS
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,357,771
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 66,246
Deferred income tax 43,000
Premium amortization and discount accretion of investments, net (41,520)
Provision for possible loan losses 21,170
Realized losses on securities available for sale 131,520
Increase in interest receivable (17,297)
Increase in interest payable 38,899
Increase in other assets and other real estate owned (153,573)
Decrease in income taxes receivable 48,701
Increase in other liabilities (65,891)
-----------
Net cash provided by operating activities 1,429,026
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in federal funds sold (5,475,000)
Purchase of securities:
Available for sale (17,523,919)
Held to maturity (14,044,194)
Proceeds from maturities of securities:
Available for sale 7,800,000
Held to maturity 190,000
Proceeds from sales of securities:
Available for sale 22,636,185
Proceeds from principal payments received on securities:
Available for sale 4,269,476
Held to maturity 3,794,216
Net increase in loans (1,555,762)
Purchase of premises and equipment, net (110,564)
-----------
Net cash provided by investing activities (19,562)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits 713,180
Net decrease in interest-bearing deposits (1,413,413)
Dividends paid (18,000)
-----------
Net cash used in financing activities (718,233)
-----------
NET INCREASE IN CASH AND DUE FROM BANKS 691,231
Cash and due from banks at beginning of year 2,601,960
-----------
Cash and due from banks at end of year $ 3,293,191
===========
</TABLE>
See Independent Auditors' Report.
See accompanying notes to financial statements.
F-71
<PAGE>
STATE NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
DECEMBER 31, 1994
- ------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of State National Bank, Marlow,
Oklahoma, (the "Bank") conform to generally accepted accounting
principles and general practices within the banking industry.
The following represent the more significant of the accounting and
reporting policies and practices.
INVESTMENT SECURITIES
In May 1993, the Financial Accounting Standards Board issued FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." (FASB No. 115), which became effective for years beginning
after December 15, 1993. The Bank implemented FASB No. 115 as of
January 1, 1994. FASB No. 115 requires investment securities to be
categorized into the following three groups:
* Investments to be held to maturity;
* Investments available for sale; and
* Trading investments.
The Bank has no investments classified as trading. Investment securities
classified as "available for sale" are carried at their market value with
market value adjustments, net of deferred taxes, reflected as a component
of stockholders' equity. Investments classified as "held to maturity"
are carried at cost adjusted for the amortization of premiums and
accretion of discounts using a method which approximates the interest
method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary will result in write-downs of the individual securities to
their fair value. The related write-downs will be included in earnings
as realized losses. For the year ended December 31, 1994, there have
been no such write-downs.
Gains and losses on the sales of investment securities are recognized on
a completed transaction basis. The basis of the securities sold is
determined by specific identification of each security.
LOANS
Loans are stated at the principal amount outstanding, net of unearned
discount and allowances for possible loan losses. Interest income on
installment loans is recorded by use of a method which produces a
reasonable approximation of constant yield on outstanding principal.
Interest on other loans is recognized based upon the principal amount
outstanding.
A loan is placed on nonaccrual status when, in the opinion of management,
the future collectability of interest and principal is in serious doubt.
Interest income on these loans is only recognized to the extent payments
are received and only when all doubt regarding future collectability of
principal is removed.
See Independent Auditors' Report.
F-72
<PAGE>
STATE NATIONAL BANK
In May 1993, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan" (FASB No. 114). FASB No. 114 became effective for years
beginning after December 15, 1994, and requires banks to specifically
identify impaired loans, as defined in the statement, and to measure the
impairment based on the fair value of the collateral, if the loan is
collateral dependent, or upon the present value of expected future
discounted cash flows.
The Bank will adopt FASB No. 114 on a prospective basis during 1995.
The impact that FASB No. 114 will have on the Bank's financial
statements is not known or reasonably determinable at this time.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees less certain direct origination costs, if
material, are capitalized and recognized as an adjustment of yield.
Such fees and origination costs were not considered material during 1994.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to operating expense is
based upon management's evaluation of the inherent risks in the loan
portfolio. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible. The allowance is determined based on the results of
continuing internal loan review procedures, including evaluation of the
collectability of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may adversely affect
the borrowers' ability to pay.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to occupancy expense and is
computed primarily by the use of the straight-line method over the
estimated useful lives of the assets, ranging from 5 to 40 years.
Maintenance and repairs are charged to expense as incurred, while
improvements are capitalized. When assets are retired or otherwise
disposed of, the cost and applicable accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is
reflected in income.
OTHER REAL ESTATE OWNED (OREO)
Real estate and other assets acquired in actual or in-substance
foreclosures are carried at the lower of cost or fair market value.
Fair market value is based on independent appraisals and other relevant
factors. Prior to foreclosure, the value of the underlying loan is
written-down to the fair market value of the assets acquired by a charge
to the OREO valuation reserve, if necessary. Any subsequent write-downs
are charged against noninterest expense.
PENSION PLAN
Pension plan cost, determined in accordance with Statement of Financial
Standards No. 87, includes current costs less the amortization of
transition assets and the deferral of unrecognized gains.
See Independent Auditors' Report.
F-73
<PAGE>
STATE NATIONAL BANK
RELATED PARTY TRANSACTIONS
Certain officers, directors, and their associated businesses were
customers of and engaged in transactions with the Bank, consisting
primarily of deposits and loans.
INCOME TAXES
Effective January 1, 1993, the Bank adopted Financial Accounting
Standards Board No. 109, "Accounting for Income Taxes" which requires a
liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax bases of
assets and liabilities is determined annually. Deferred income tax
assets and liabilities are computed for those differences that have
future tax consequences using the currently enacted tax laws and rates
that apply to the years in which they are expected to affect taxable
income. Valuation allowances are established, if necessary, to reduce
deferred tax asset amounts to the amounts that will more likely than not
be realized. Income tax expense is the current tax payable or
refundable for the year, plus or minus the net change in the deferred
tax asset and liability accounts.
DIVIDEND RESTRICTIONS
All banks have regulatory restrictions regarding the payment of cash
dividends. The approval of the Comptroller of the Currency is required
for any national bank desiring to pay dividends in excess of earnings
retained in the current year plus retained net profits for the preceding
2 years.
OFF-BALANCE-SHEET INFORMATION
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to
extend credit and standby letters of credit. Such financial instruments
are recorded in the financial statements when they become payable.
EARNINGS PER SHARE
Income per share of common stock is based on net income divided by the
weighted average number of shares outstanding during the year. During
1994, the average number of common shares outstanding was 3,000.
STATEMENT OF CASH FLOWS
For purposes of presentation in the Statement of Cash Flows for 1994,
cash and cash equivalents are defined as those amounts in the balance
sheet caption "Cash and due from banks."
During 1994, additional cash flow information is as follows:
<TABLE>
<S> <C>
Cash paid for:
Interest $2,696,763
==========
Income taxes $ 615,834
==========
</TABLE>
See Independent Auditors' Report.
F-74
<PAGE>
STATE NATIONAL BANK
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
Aggregate reserves (in the form of vault cash and deposits with the
Federal Reserve Bank) of approximately $455,000 were required to satisfy
federal regulatory and other correspondent banking requirements at
December 31, 1994.
(3) INVESTMENT SECURITIES
The carrying amounts of investment securities as shown on the Bank's
balance sheet at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale:
Debt securities issued by:
U.S. Treasury $ 4,973,189 $ - $ (62,015) $ 4,911,174
Other U.S. Government
corporations and
agencies 4,283,041 $19,112 (70,263) 4,231,890
Debt securities issued by
states of the U.S. and
political subdivision of
the states 100,000 $ 5,232 - 105,232
Other securities 494,800 - - 494,800
----------- ------- ----------- -----------
$ 9,851,030 $24,344 $ (132,278) $ 9,743,096
=========== ======= =========== ===========
Securities held to maturity:
Debt securities issued by:
U.S. Treasury $ 2,470,393 $ - $ (41,880) $ 2,428,513
Other U.S. Government
corporations and
agencies 32,572,990 32,482 (1,221,422) 31,384,050
Debt securities issued by
states of the U.S. and
political subdivisions of
the states 1,988,324 10,701 (42,745) 1,956,280
----------- ------- ----------- -----------
$37,031,707 $43,183 $(1,306,047) $35,768,843
=========== ======= =========== ===========
</TABLE>
The amortized and estimated market value of debt securities at December
31, 1994, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
See Independent Auditors' Report.
F-75
<PAGE>
STATE NATIONAL BANK
<TABLE>
<CAPTION>
SECURITIES SECURITIES TO BE
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Due in 1 year or less $2,273,106 2,252,695 160,627 160,678
Due after 1 through 5 years 3,775,033 3,745,023 3,764,544 3,707,969
Due after 5 through 10 years 489,706 494,930 796,732 787,222
Due after 10 years 2,818,385 2,755,648 32,309,804 31,112,974
Securities with no
scheduled repayment 494,800 494,800 - -
---------- --------- ---------- ----------
$9,851,030 9,743,096 37,031,707 35,768,843
========== ========= ========== ==========
</TABLE>
At December 31, 1994, investment securities with a carrying value of
approximately $14,945,000 and a market value of approximately
$18,625,000 were pledged as collateral to secure public funds on deposit
and for other purposes required or permitted by law.
During 1994, the Bank transferred $21,848,536 of investments from
"available for sale" to "held to maturity." At the time of the
transfer, there was a net unrealized loss of $279,231 on the
investments. The amount of unrealized loss was accounted for as an
adjustment to the amortized cost of the investments and is being
amortized over the remaining life of the investments. The amount of the
unrealized loss, net of deferred taxes, on the investments transferred
was left as a component of stockholders' equity and is also being
amortized over the life of the investments.
During 1994, all sales of investments were from the "available for sale"
category. A summary of such sales is as follows:
<TABLE>
<S> <C>
Gross realized gains:
U.S. Treasury securities $ 502
U.S. Government agencies 33,825
---------
34,327
---------
Gross realized losses:
U.S. Treasury securities (8,822)
U.S. Government agencies (157,025)
---------
(165,847)
---------
Net realized losses on sales of
securities available for sale $(131,520)
=========
</TABLE>
See Independent Auditors' Report.
F-76
<PAGE>
STATE NATIONAL BANK
(4) LOANS
A summary of the Bank's loans at December 31, 1994, is as follows:
<TABLE>
<S> <C>
Commercial $13,560,310
Real estate 18,325,487
Installment loans 4,962,315
Agriculture 1,673,935
Other, including overdrafts 4,247,370
-----------
42,769,417
Less unearned discount 34,383
-----------
Loans, net of unearned discount 42,735,034
Less allowance for possible loan losses 372,600
-----------
Net loans $42,362,434
===========
</TABLE>
Loans on which the accrual of interest has been discontinued or
reduced amounted to $680,604 at December 31, 1994. Interest income
earned on the nonaccrual loans at December 31, 1994, was approximately
$11,000. Had interest accrued during the entire year, interest income
from these loans would have approximated $46,000 for the year ended.
The Bank granted loans, in the ordinary course of business, to certain
executive officers, directors, and their affiliates. The Bank
believes that all such loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated persons and do not
involve more than the normal risk of collectability. The aggregate
dollar amount of these loans was approximately $477,000 at December
31, 1994.
Changes in the allowance for possible loan losses account for the year
ended December 31, 1994, is as follows:
<TABLE>
<S> <C>
Balance at beginning of year $403,762
Provision charged to expense 21,170
Recoveries of loans previously charged-off 17,116
Loans charged-off (69,448)
--------
Balance at end of year $372,600
========
</TABLE>
The Bank grants commercial, real estate, agribusiness, and consumer
loans to customers in the state of Oklahoma. Although the Bank has a
diversified loan portfolio, the majority of their customers are
borrowers who are local residents within the Marlow and Duncan area.
The economic conditions of the market area may have an impact on the
debtors' ability to repay their loans.
See Independent Auditors' Report.
F-77
<PAGE>
STATE NATIONAL BANK
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1994, is summarized as follows:
<TABLE>
<S> <C>
Land $ 63,528
Building and improvements 738,405
Furniture, fixtures, and equipment 665,061
----------
1,466,994
Less accumulated depreciation 956,158
----------
$ 510,836
==========
</TABLE>
(6) OTHER REAL ESTATE OWNED (OREO)
Other real estate owned (OREO) consists of the following:
<TABLE>
<S> <C>
OREO $ 516,664
Allowance for possible write-downs and
disposal costs 71,546
----------
$ 445,118
==========
</TABLE>
Changes in the allowance for possible write-downs and disposal costs
of the OREO account for the year ended December 31, 1994, is as
follows:
<TABLE>
<S> <C>
Balance at beginning of year $ 35,930
Provisions charged to expense 39,616
Write-down in carrying value of properties (4,000)
----------
Balance at end of year $ 71,546
==========
</TABLE>
(7) DEPOSITS
Certificates of deposit in denominations of $100,000 or more amounted
to approximately $18,262,000 at December 31, 1994. NOW accounts
amounted to approximately $11,554,000 at December 31, 1994.
Deposits of executive officers, directors, principle shareholders, and
their related affiliates totaled approximately $8,449,000, of which
$7,750,000 were interest-bearing, at December 31, 1994.
(8) INCOME TAXES
The components of income tax expense at December 31, 1994, is as
follows:
<TABLE>
<S> <C>
Current tax expense -- federal $ 656,000
Deferred tax expense 43,000
----------
Income tax expense $ 699,000
==========
</TABLE>
See Independent Auditors' Report.
F-78
<PAGE>
STATE NATIONAL BANK
The primary difference between the expected tax expense at the federal
statutory income tax rate of 34% and the expense reflected in the financial
statements, is due to tax exempt interest income on securities and loans.
The Bank has approximately $388,000 of net operating loss carryforwards
available for Oklahoma income taxes. The net operating loss carryforwards
will expire by 2005, if not used sooner.
Deferred tax assets recorded as of December 31, 1994, is as follows:
<TABLE>
<S> <C>
Assets:
Benefit of net operating loss carryforward
for state income tax purposes $ 19,462
Difference in financial and tax reporting
methods for:
Allowance for loan losses 28,052
OREO 20,765
Deferred tax asset established as a
result of FASB No. 115 for market value
adjustments on securities 131,384
----------
Net deferred tax assets $ 199,663
==========
</TABLE>
(9) EMPLOYEE BENEFIT PLANS
PROFIT SHARING
The Bank has a profit sharing plan (the "Profit Sharing Plan") which
covers all employees who meet certain eligibility requirements. An
eligible employee must be at least 21 years of age and must have completed
at least 1 year of service. Under the terms of the Profit Sharing Plan,
participants cannot contribute to the Profit Sharing Plan. The Bank may
make optional contributions annually out of net profits. Participants
become fully vested after 6 years of service.
The Bank made no optional contributions during the year ended December 31,
1994.
PENSION PLAN
The Bank has a defined benefit pension plan (the "Pension Plan") covering
all employees who meet certain eligibility requirements. To be eligible
for the Pension Plan, an employee must have been employed 12 months and
have at least 1,000 hours of service. The pension benefits are payable at
age 65 as a life annuity (with 120 guaranteed payments) equal to the sum
of 1.05% of the average monthly compensation, plus .585% of the average
monthly compensation in excess of the covered compensation times the years
of service with the Bank. The Pension Plan assets consist primarily of
cash and securities. The Bank's funding policy is to fund an amount, as
determined by the Bank and its independent actuary, that will meet the
minimum funding required by applicable law and maximize the tax benefit
to the Bank. During 1994, the Bank contributed $60,220 to the Pension
Plan. The assumptions used in determining the pension
See Independent Auditors' Report.
F-79
<PAGE>
STATE NATIONAL BANK
expense and funded status information below were a discount rate of 7.25%,
a long-term rate of return on assets of 7.25%, and salary progression of 3%.
The net periodic cost for December 31, 1994, includes the following
components:
<TABLE>
<S> <C>
Service cost $ 41,049
Interest cost on projected benefit obligation 62,036
Return on Pension Plan assets 10,163
Net amortization and deferred items (47,905)
---------
Net periodic pension cost as determined by
FASB No. 87 65,343
Amount not recorded due to immateriality 5,123
---------
Pension expense recorded by Bank $ 60,220
=========
</TABLE>
The Pension Plan was amended as of December 31, 1994. The amendment
ceased the accrual of benefits by participants in the Pension Plan. In
addition, all participants were deemed 100% vested in the accrued benefits
earned by the participants as of December 31, 1994. No further benefits
will accrue on behalf of any of the participants after December 31, 1994.
Also, in January 1995, the Board of Directors passed a resolution to
terminated the Pension Plan effective April 1, 1995. While the amendment
of the Pension Plan curtailed benefits which would normally result in a
gain for the Bank, the amendment and termination were done in response to
the Bank being sold, as more fully described in Note 12. No gain on the
curtailment will be recognized in 1994. The curtailment gain along with
any provision for settlement and termination benefits will be recognized
in 1995 when the actual termination of the Pension Plan takes place and
when the costs can be reasonably estimated. Subsequent to December 31,
1994, the Bank and their consulting actuary estimated $231,000 to be needed
to fully fund the Pension Plan and pay certain termination costs. An
estimate of expense and costs in accordance with FASB No. 87 and 88 has
not been made.
As a result of the amendment and curtailment of benefits, a gain of
$159,511 will be recognized in 1995. The gain results from the following:
<TABLE>
<S> <C>
Reduction in projected benefit obligation $ 234,339
Recognition of previous unrealized loss (74,828)
---------
Net curtailment gain to be recognized $ 159,511
=========
</TABLE>
However, the Bank will also have to recognize settlement and termination
costs in 1995 when the Pension Plan is terminated.
See Independent Auditors' Report.
F-80
<PAGE>
STATE NATIONAL BANK
The following table summarizes the funded status of the Pension Plan and
the related amounts recognized in the Bank's financial statements as of
December 31, 1994:
<TABLE>
<S> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 722,905
Nonvested benefit obligation --
----------
Accumulated benefit obligation $ 722,905
==========
Plan assets at fair value $ 701,567
Projected benefit obligation 957,244
----------
Projected benefit obligation in excess of plan assets (255,677)
Unrecognized transition liability, being amortized
over 16 years 175,726
Adjustment required to recognize minimum liability (16,215)
Unrecognized net loss 74,828
----------
Pension (liability) to be recognized at
December 31, 1994 $ (21,338)
==========
</TABLE>
The above liability was not recorded by the Bank.
(10) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank 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
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has
in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
<TABLE>
<CAPTION>
1994
CONTRACT OR
NOTIONAL AMOUNT
---------------
<S> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit:
Loans $ 779,000
Letters of credit 142,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of
See Independent Auditors' Report.
F-81
<PAGE>
STATE NATIONAL BANK
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter party. Collateral
held varies, but may include accounts receivable, inventory,
property, plant and equipment, livestock, and real estate.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral supporting those
commitments for which collateral is deemed necessary.
(11) CONCENTRATION OF CREDIT RISK
At December 31, 1994, the Bank had a significant concentration of
credit risk with the following financial institutions. The credit
risk was in the form of cash clearings, federal funds sold, and
correspondent bank accounts held. The Bank evaluates the stability
of the financial institutions they do business with in determining
overall credit risk. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial
instruments noted above is represented by the contractual notional
amount of those instruments.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
---------------
<S> <C>
Federal Home Loan Bank,
Topeka, Kansas $5,000,482
Boatmen's First National Bank,
Oklahoma City, Oklahoma 2,620,294
First Tennessee Bank,
Knoxville, Tennessee 1,008,013
The Boatmen's National Bank,
St. Louis, Missouri 1,001,514
----------
$9,630,303
==========
</TABLE>
(12) AGREEMENT AND PLAN OF REORGANIZATION
On October 28, 1994, the Bank entered into an agreement to sell 100%
of its issued and outstanding shares of common stock to BancFirst of
Oklahoma City. The purchase is subject to approval by the Oklahoma
State Banking Board and the Federal Reserve Bank. Such approvals
have been received and closing occurred during March 1995. State
National Bank was merged with BancFirst, with BancFirst being the
surviving entity. The acquisition will be accounted for by
BancFirst as a purchase.
See Independent Auditors' Report.
F-82
<PAGE>
STATE NATIONAL BANK
(13) DIVIDENDS PER SHARE
The Bank declared and paid dividends of $18,000 or $6 per share of
outstanding common stock as of December 31, 1994.
(14) COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is a defendant in legal actions arising from normal
business activities. Management believes that those actions are
without merit or that the ultimate liability, if any, from them will
not materially affect the Bank's financial position.
See Independent Auditors' Report.
F-83
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of City Bankshares, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of City
Bankshares, Inc. and its subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Oklahoma City, Oklahoma
February 3, 1995
F-84
<PAGE>
CITY BANKSHARES, INC.
CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 8,683 $ 10,191 $ 11,098
Interest bearing deposits with banks 18 24 25
Investment securities 42,932 46,303 41,013
Federal funds sold 300 12,000 7,800
Loans, net 75,701 66,196 65,416
Premises and equipment, net 5,596 6,042 5,839
Intangible assets, net 1,331 1,595 1,972
Other assets, net 4,707 4,879 4,638
Deferred tax asset, net 10 106 85
-------- -------- --------
$139,278 $147,336 $137,886
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 42,112 $ 45,751 $ 40,335
Interest bearing 80,835 85,996 83,164
-------- -------- --------
Total deposits 122,947 131,747 123,499
Long-term borrowings 1,500 1,800 1,961
Other liabilities 716 507 510
Current taxes payable -- 49 --
-------- -------- --------
Total liabilities 125,163 134,103 125,970
-------- -------- --------
Minority interest 324 289 234
-------- -------- --------
Commitments and Contingencies (Note 14)
Stockholders' equity:
Common stock; $1.00 par value, 2,000,000 shares
authorized; 889,650 shares issued and
outstanding 890 890 890
Capital surplus 8,002 8,002 8,002
Retained earnings 4,911 4,172 2,912
Unrealized holding loss on investment securities (7) (115) --
Loan to ESOP -- -- (117)
Treasury stock, at cost (5) (5) (5)
-------- -------- --------
13,791 12,944 11,682
-------- -------- --------
$139,278 $147,336 $137,886
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
CITY BANKSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1995 1994 1994 1993
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 5,120 $ 4,162 $ 5,716 $ 5,485
Investment securities 1,917 1,882 2,549 2,145
Federal funds sold 164 64 99 159
Interest-bearing deposits 1 1 1 2
------- ------- ------- -------
Total interest income 7,202 6,109 8,365 7,791
------- ------- ------- -------
Interest expense:
Deposits 2,395 1,770 2,470 2,493
Short-term borrowings 22 60 99 22
Long-term borrowings 111 96 126 163
------- ------- ------- -------
Total interest expense 2,528 1,926 2,695 2,678
------- ------- ------- -------
Net interest income 4,674 4,183 5,670 5,113
Provision for possible loan losses 75 22 22 156
------- ------- ------- -------
Net interest income after provision
for possible loan losses 4,599 4,161 5,648 4,957
------- ------- ------- -------
Non-interest income:
Data processing income 7,643 6,459 8,803 7,989
Service charges on deposits 776 828 1,080 1,183
Securities transactions -- -- -- 135
Other 186 187 250 316
------- ------- ------- -------
Total non-interest income 8,605 7,474 10,133 9,623
------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits 5,272 4,661 6,388 6,075
Occupancy, net 640 711 945 968
Depreciation and amortization 1,100 1,025 1,392 1,332
Data processing services 2,578 1,983 2,781 2,171
Net expense from other real estate owned 56 70 155 275
Other 1,746 1,678 2,136 2,116
------- ------- ------- -------
Total non-interest expense 11,392 10,128 13,797 12,937
------- ------- ------- -------
Income before taxes and cumulative
effect of accounting change 1,812 1,507 1,984 1,643
Income tax expense 718 584 724 445
------- ------- ------- -------
Net income before cumulative effect
of accounting change 1,094 923 1,260 1,198
Cumulative effect of accounting change -- -- -- (214)
------- ------- ------- -------
Net income $ 1,094 $ 923 $ 1,260 $ 1,412
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE>
CITY BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1995 1994 1994 1993
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net income $ 1,094 $ 923 $ 1,260 $ 1,412
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 75 22 22 156
Provision for other real estate losses 24 68 113 403
Depreciation and amortization 1,100 1,025 1,392 1,332
Net accretion of investment
security premiums and discounts (11) 286 311 211
Accretion of loan discounts, net 43 (26) (28) (64)
(Increase) decrease in interest receivable (52) (74) (193) 277
Increase (decrease) in interest payable 71 (27) 15 96
Change in current taxes (84) (27) 87 (81)
Change in deferred taxes 26 44 53 (334)
Other, net 407 (145) (162) 179
------- ------- -------- --------
Net cash provided by operating activities 2,693 2,069 2,870 3,587
------- ------- -------- --------
Investing activities:
Proceeds from sales and maturities of
investment securities 5,919 15,316 13,845 26,707
Purchases of investment securities (2,359) (19,944) (19,635) (33,133)
Net (increase) decrease in loans (9,623) (1,150) (773) 1,054
Excess cost over assets acquired -- -- -- 83
Purchases of premises and equipment (389) (921) (1,219) (643)
Decrease in loan to ESOP -- 117 117 59
------- ------- -------- --------
Net cash used in investing activities (6,452) (6,582) (7,665) (5,873)
------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE>
CITY BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1995 1994 1994 1993
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Financing activities:
Net increase in savings accounts and
demand deposits (9,840) (8,899) 6,275 15,315
Net increase (decrease) in certificates
of deposit 1,040 (257) 1,973 (7,284)
Net increase in short-term borrowings -- 6,100 -- --
Net decrease in long-term borrowings (300) (61) (161) (291)
Issuance of common stock -- -- -- 42
Dividends paid (355) -- -- --
-------- ------- ------- -------
Net cash provided by (used in) financing
activities (9,455) (3,117) 8,087 7,782
-------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents (13,214) (7,630) 3,292 5,496
Cash and cash equivalents at the beginning
of the period 22,215 18,923 18,923 13,427
-------- ------- ------- -------
Cash and cash equivalents at the end of the
period $ 9,001 $11,293 $22,215 $18,923
======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,457 $ 1,953 $ 2,680 $ 2,774
======== ======= ======= =======
Cash paid during the period for taxes $ 776 $ 567 $ 604 $ 620
======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Unrealized holding loss on investment securities,
net of $5, $52 and $74 tax effect, respectively $ 7 $ 79 $ 115 $ --
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
CITY BANKSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C>
Common stock:
Balance at beginning of period (889,650, 889,650
and 885,650 shares, respectively) $ 890 $ 890 $ 886
Issuance of common stock -- -- 4
------- ------- -------
Balance at end of period (889,650 shares) 890 890 890
------- ------- -------
Capital surplus:
Balance at beginning of period 8,002 8,002 7,964
Issuance of common stock -- -- 38
------- ------- -------
Balance at end of period 8,002 8,002 8,002
------- ------- -------
Retained earnings:
Balance at beginning of period 4,172 2,912 1,500
Net income 1,094 1,260 1,412
Dividend paid ($.40 per common share) (355) -- --
------- ------- -------
Balance at end of period 4,911 4,172 2,912
------- ------- -------
Unrealized holding loss on investment securities, net (7) (115) --
------- ------- -------
Loan to ESOP:
Balance at beginning of period (0, 13,000 and 19,500
shares, respectively) -- (117) (176)
Net payments on ESOP loan (0, 13,000 and 6,500
shares, respectively) -- 117 59
------- ------- -------
Balance at end of period (0, 0 and 13,000 shares,
respectively) -- -- (117)
------- ------- -------
Treasury stock:
Balance at beginning and end of period (5,000 shares) (5) (5) (5)
------- ------- -------
Total stockholders' equity $13,791 $12,944 $11,682
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
CITY BANKSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
City Bankshares, Inc. ("Bankshares") was incorporated in Oklahoma in June 1985
for the purpose of becoming a bank holding company. The accounting and
reporting policies of Bankshares and its wholly-owned subsidiary City Bank and
Trust (the "Company") conform to generally accepted accounting principles and
general practice within the banking industry. The following represent the more
significant of those policies and practices.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bankshares and the
following subsidiaries: City Bank and Trust, C-Teq, Inc. and C-Teq, Inc.'s
subsidiary, Versateq, Inc.
All significant intercompany accounts and transactions have been eliminated.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements for the nine-month
periods ended September 30, 1995 and 1994 have been prepared in accordance with
the instructions for interim financial reporting as prescribed by the Securities
and Exchange Commission. All material adjustments (consisting solely of normal
recurring adjustments) which, in the opinion of management, were necessary for a
fair presentation of the results for the interim periods have been reflected.
The results for the nine months ended September 30, 1995, are not necessarily
indicative of the results to be expected for the full year.
INVESTMENT SECURITIES
Effective January 1, 1994, the Company prospectively adopted the Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("FAS 115"). Under FAS 115, the Company's
marketable securities are classified as either available-for-sale or as held-to-
maturity. Investments which are classified as available-for-sale are recorded
at current market value, with an offsetting adjustment to stockholders' equity.
Investments which are classified as held to maturity are carried at cost,
adjusted for amortization of premium and accretion of discount on a basis that
approximates the interest method. Gains or losses on the disposition of
investment securities are recognized based upon the adjusted cost of the
specific securities sold. The Company's policy is to hold its investment
securities to maturity and does not engage in trading activities. The effect of
adoption of this statement did not have a material effect on the Company's
consolidated financial position.
LOANS
Loans are stated at the principal amount outstanding, net of unearned discount.
Interest income on installment loans is recognized using the interest method.
Interest on other loans is recognized based on the principal amount of loans
outstanding. A loan is placed on non-accrual status when, in the opinion of
management, the future collectibility of interest and principal is in doubt.
Interest income on these loans is only recognized to the extent payments are
received.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for
possible loan losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes will
be adequate to absorb possible loan losses on existing loans that may become
uncollectible, based on evaluations of the
F-90
<PAGE>
collectibility of loans. The evaluations take into consideration such
factors as changes in the nature and volume of the portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets. The estimated useful lives range from
three to thirty-five years. Maintenance and repairs are charged to expense as
incurred, while improvements are capitalized. When assets are retired or
otherwise disposed of, the cost and applicable accumulated depreciation are
removed from the respective accounts and any resulting gain or loss is reflected
in operations.
INTANGIBLE ASSETS
Intangible assets consist of core deposit intangible, data processing contracts,
a non-compete agreement and excess cost over net assets of acquired
subsidiaries. Core deposit intangible and excess cost over net assets of
acquired subsidiaries are amortized on a straight-line basis over 15 years.
Data processing contracts are amortized under the straight-line method over the
estimated life of the related contracts, which ranges from 3 to 10 years. The
non-compete agreement is amortized using the straight-line method over 5 years.
OTHER REAL ESTATE AND REPOSSESSED ASSETS
Other real estate and repossessed assets are included in other assets and are
comprised of real property and other miscellaneous assets acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These
assets are carried at the lower of the recorded investment in the loan or fair
value based on appraised value. Losses arising from acquisition of such assets
are charged against the allowance for possible loan losses. Other real estate
and repossessed assets approximated $1,694 at December 31, 1994 and $1,957 at
December 31, 1993.
DATA PROCESSING INCOME
Check and data processing income is recognized as the services are performed.
INCOME TAXES
Bankshares and its subsidiaries file a consolidated tax return. Beginning
January 1, 1993, the Company adopted the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109") and applied the
provisions prospectively in 1993.
The adoption of FAS 109 changes the Company's method of accounting for income
taxes from the deferred method (APB 11) to an asset and liability method.
Previously, the Company has provided deferred income taxes to reflect the effect
of certain items of income and expense which are recognized for financial
reporting purposes in a time period which differs from the period in which they
are recognized for federal income taxes purposes. The asset and liability
method requires the recognition of deferred taxes for the expected future tax
consequences of temporary differences between tax bases and financial reporting
bases of assets and liabilities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers cash and due
from banks, interest bearing deposits with banks, and federal funds sold as cash
equivalents.
F-91
<PAGE>
RECLASSIFICATIONS
Certain 1993 amounts have been reclassified to conform with 1994 presentation.
2. RESTRICTIONS ON DUE FROM FEDERAL RESERVE
The Company is required, as a matter of law, to maintain an average reserve
balance with the Federal Reserve Bank. The average amount of reserve
balances for the years ended December 31, 1994 and 1993 was approximately
$1,270 and $1,073, respectively.
3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY DECEMBER 31, 1994
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $37,667 $ 6 $(2,990) $34,683
Mortgage-backed securities 820 -- (33) 787
Other debt securities 1,194 -- (26) 1,168
------- ---- ------- -------
Totals $39,681 $ 6 $(3,049) $36,638
======= ==== ======= =======
<CAPTION>
AVAILABLE-FOR-SALE DECEMBER 31, 1994
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 6,811 $ -- $ (189) $ 6,622
======= ==== ======= =======
</TABLE>
An unrealized holding loss on investment securities of $115, net of $74 tax
effect, is reflected in a separate component of stockholders' equity.
<TABLE>
<CAPTION>
HELD-TO-MATURITY DECEMBER 31, 1993
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $36,453 $162 $ (32) $36,583
Mortgage-backed securities 2,766 38 -- 2,804
Other debt securities 1,794 12 -- 1,806
------- ---- ------- -------
Totals $41,013 $212 $ (32) $41,193
======= ==== ======= =======
</TABLE>
F-92
<PAGE>
The amortized cost and estimated market value of debt securities at December 31,
1994, by contractual maturities, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
HELD-TO-MATURITY COST VALUE
<S> <C> <C>
Due in one year or less $ 3,002 $ 3,003
Due after one year, through five years 9,472 8,637
Due after five years, through ten years 4,310 3,766
Due after ten years 22,077 20,445
---------- ----------
38,861 35,851
Mortgage-backed securities 820 787
---------- ----------
$ 39,681 $ 36,638
========== ==========
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
AVAILABLE-FOR-SALE COST VALUE
<S> <C> <C>
Due in one year or less $ 5,000 $ 4,858
Due after one year, through five years -- --
Due after five years, through ten years 58 58
Due after ten years 1,753 1,706
---------- ----------
$ 6,811 $ 6,622
========== ==========
</TABLE>
Although the stated final maturities are within the time frames stated, the
estimated actual life may be shorter.
Investment securities having a book value of $27,708 and $17,076 at December 31,
1994 and 1993, respectively, were pledged to secure public funds on deposit and
for other purposes as required or permitted by law.
4. LOANS
The following is a schedule of loans outstanding, by category:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Commercial, financial and other $51,715 50,355
Real estate mortgage - personal 9,930 10,253
Installment 5,303 5,672
-------- -------
Total loans 66,948 66,280
Unearned discount (12) (40)
-------- -------
Loans, net of unearned discount 66,936 66,240
Allowance for possible loan losses (740) (824)
-------- -------
Loans, net $ 66,196 $65,416
======== =======
</TABLE>
F-93
<PAGE>
Loans on which the accrual of interest has been discontinued or reduced amounted
to $157 at December 31, 1994 and $482 at December 31, 1993.
Certain of Bankshares' officers, directors and stockholders had transactions
with the Company in the ordinary course of business. In the opinion of
management, such transactions were made on substantially the same terms as those
prevailing at the time for comparable transactions with unrelated parties and
did not involve more than a normal amount of risk. Loan transactions with
officers, directors, principal stockholders and their affiliated interests are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
<S> <C> <C>
Balance at beginning of year $ 3,817 $ 3,014
Additions 9,921 6,736
Amounts collected (8,785) (5,933)
------- -------
Balance at end of year $ 4,953 $ 3,817
======= =======
</TABLE>
Interest income attributable to related party loans amounted to $337 and $227
during 1994 and 1993, respectively.
Changes in the allowance for possible loan losses are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
<S> <C> <C>
Balance at beginning of year $ 824 $ 796
Provisions 22 156
Recoveries 12 9
Loans charged off (118) (137)
------ -----
Balance at end of year $ 740 $ 824
====== =====
</TABLE>
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("FAS 114"), was issued in May 1993. This new
accounting standard requires that impaired loans be measured based upon the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
A loan is impaired when, based on current information and events, it is probable
that all amounts due according the contractual terms of the loan agreement will
not be collected. The Company plans to adopt FAS 114 in January 1995. The
adoption of FAS 114 is not expected to have a material effect on the financial
position or results of operation of the Company.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of their customers. The
financial instruments include commitments to advance funds on existing credit
facilities and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position. The contractual amounts of
these instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
F-94
<PAGE>
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to advance funds on
existing credit facilities and standby letters of credit is represented by the
contractual amounts of the instruments. Management uses the same credit
policies in making these commitments as they do for on-balance sheet
instruments.
Commitments to advance funds on existing credit facilities are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. These commitments have fixed expiration dates or other
termination clauses and may require payment of a fee. At December 31, 1994, the
Company's total unfunded commitments to extend credit on existing facilities
amounted to $17,973. Management evaluates each customer's credit worthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary by
management, upon extension of credit is based on management's evaluation of the
customer. Collateral held varies but may include accounts receivable,
inventory, marketable securities, fixed assets and real estate.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party and total $667 at
December 31, 1994. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral held varies but may include accounts receivable, inventory,
marketable securities, fixed assets and real estate. Since most of the letters
of credit are expected to expire without being drawn upon, they do not
necessarily represent future cash requirements.
6. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company's principal area of business is the Oklahoma City Metro area and, as
a result, at December 31, 1994, the loan portfolio contained concentrations of
credit risk with borrowers located in this area.
7. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment, by category:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Land $ 1,067 $ 1,067
Buildings 1,998 1,998
Furniture, fixtures and equipment 9,177 8,036
------- -------
12,242 11,101
Accumulated depreciation (6,200) (5,262)
------- -------
$ 6,042 $ 5,839
======= =======
</TABLE>
Depreciation expense was $1,016 and $945 for years ended December 31, 1994 and
1993, respectively.
F-95
<PAGE>
8. INTANGIBLE ASSETS
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Core deposit $ 2,399 $ 2,399
Data processing contracts 1,089 1,089
Non-compete agreement 250 250
Excess cost over net assets of acquired subsidiaries 704 704
------- -------
4,442 4,442
Accumulated amortization (2,847) (2,470)
------- -------
$ 1,595 $ 1,972
======= =======
</TABLE>
Amortization expense amounted to $377 and $384 in 1994 and 1993, respectively.
9. TIME DEPOSITS
Certificates of deposit in denominations of $100 or more amounted to $14,624 and
$9,652 at December 31, 1994 and 1993, respectively.
10. LONG-TERM BORROWINGS
Information related to long-term borrowings is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Term loan agreement $1,800 $1,200
Guaranteed ESOP debt -- 117
Convertible subordinated debentures -- 644
------ ------
$1,800 $1,961
====== ======
</TABLE>
TERM LOAN AGREEMENT
Bankshares has a $2,000 term loan with Boatmen's First National Bank of Oklahoma
(Boatmen's). The terms of the loan provide for interest equal to Boatmen's
corporate base rate plus 1/4% fixed annually at the note's anniversary date
(6.25% at December 31, 1994). The term loan is due December 31, 2003, with
semi-annual principal payments of $100, plus accrued interest quarterly. The
indebtedness is secured by all of the outstanding capital stock of the Company
and Bankshares' interest in the outstanding stock of C-Teq. The terms of the
agreement contain certain provisions regarding maintenance of minimum capital
ratios at the subsidiary bank.
GUARANTEED ESOP DEBT
Bankshares has guaranteed two term loans of its ESOP, the proceeds of which were
used to purchase shares of Bankshares common stock. During the year, the ESOP
fully retired all indebtedness with cash that had been accumulated within the
plan.
F-96
<PAGE>
CONVERTIBLE SUBORDINATED DEBENTURES
As of December 31, 1993, Bankshares had outstanding $644 principal amount of
its 10% Convertible Subordinated Debentures due December 31, 1996. The
debentures were convertible into common stock at $15.00 per share and were
subordinate in right of payment to all senior indebtedness. As of the
election date December 31, 1993, no debenture holders elected to convert into
common stock of the Company. Under the terms of the debenture agreement, the
Company elected to retire all of the outstanding debentures during the
current fiscal year.
Amounts due on long-term borrowings in each of the next five years are as
follows:
<TABLE>
<S> <C>
1995 $ 200
1996 200
1997 200
1998 200
1999 & Thereafter 1,000
------
$1,800
======
</TABLE>
11. INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
<S> <C> <C>
Current tax expense:
Federal $615 $ 571
State 56 11
---- -----
Total current 671 582
---- -----
Deferred tax expense (benefit):
Federal 46 (125)
State 7 (12)
---- -----
Total deferred 53 (137)
---- -----
Total income tax expense $724 $ 445
==== =====
</TABLE>
The income tax provision for 1994 differs from the expected corporate income tax
rate primarily as a result of permanent differences in the determination of pre-
tax and taxable income. The majority of the permanent differences are
attributable to amortization of intangibles.
F-97
<PAGE>
The deferred tax asset under FAS 109 is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
Loan loss reserve $ 57 $128
Other real estate owned 405 446
Unrealized holding loss on investment securities 74 --
---- ----
Gross deferred tax asset 536 574
---- ----
Premises and equipment 365 389
Intangible assets 65 100
---- ----
Gross deferred tax liability 430 489
---- ----
Deferred tax asset, net $106 $ 85
==== ====
</TABLE>
A reconciliation of tax expense at the federal statutory tax rate applied to
income before taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
<S> <C> <C>
Tax expense at the federal statutory tax rate $675 $ 559
(Increase) decrease in tax expense from:
Excess cost amortization 56 44
Adoption of new accounting principle for taxes -- (214)
State tax expense, net of federal tax benefit 38 --
Other, net (45) (158)
---- -----
Total tax expense $724 $ 231
==== =====
</TABLE>
12. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The following condensed financial statements are for City Bankshares, Inc. only:
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and temporary investments $ 277 $ 442
Investment in subsidiaries; at equity 13,941 12,697
Excess cost over net assets of acquired subsidiaries 392 416
Current tax asset, net 101 68
Other assets 37 37
------- ------
$14,748 $13,660
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term borrowings $ 1,800 $ 1,961
Other liabilities 4 17
Stockholders' equity 12,944 11,682
------- -------
$14,748 $13,660
======= =======
</TABLE>
F-98
<PAGE>
12. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994 1993
<S> <C> <C>
Operating income:
Dividends from subsidiaries $ -- $ 300
Interest 18 12
------ ------
Total operating income 18 312
------ ------
Operating expense:
Interest 126 163
Other 38 52
------ ------
Total operating expense 164 215
------ ------
(Loss) income before income tax benefit, equity in undistributed earnings
of subsidiaries and cumulative effect of accounting change (146) 97
Allocated income tax benefit 48 134
------ ------
(Loss) income before equity in undistributed earnings of subsidiaries and
cumulative effect of account change (98) 231
Undistributed earnings of subsidiaries 1,358 871
------ ------
Net income before cumulative effect of accounting change 1,260 1,102
Cumulative effect of accounting change -- 310
------ ------
Net income $1,260 $1,412
------ ------
------ ------
</TABLE>
F-99
<PAGE>
12. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994 1993
<S> <C> <C>
Operating activities:
Net income $ 1,260 $ 1,412
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 23 25
Change in deferred taxes -- (310)
Change in current taxes (33) (100)
Equity in earnings of subsidiaries (1,358) (1,171)
Unrealized holding losses (115) --
Other, net (15) (26)
-------- --------
Net cash used in operating activities (238) (170)
-------- --------
Investing activities:
Issuance of common stock -- 42
Dividends received -- 300
Decrease in loan to ESOP 117 59
-------- --------
Net cash provided by investing activities 117 401
-------- --------
Financing activities:
Principal payments on long-term debt (44) (232)
-------- --------
Net decrease in cash and cash equivalents (165) (1)
Cash and cash equivalents at the beginning of the year 442 443
-------- --------
Cash and cash equivalents at the end of the year $ 277 $ 442
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 139 $ 165
======== ========
Cash paid during the year for income taxes $ 604 $ 620
======== ========
</TABLE>
F-100
<PAGE>
13. EMPLOYEE AND OTHER BENEFITS
In September, 1985, Bankshares adopted the City Bankshares, Inc. Employee Stock
Ownership Plan ("Plan") effective October 1, 1985. The Plan covers all eligible
employees, as defined in the Plan, of Bankshares and its subsidiaries. The
participants are not permitted to contribute to the Plan, and the annual
contribution to the Plan by the Bankshares is at the discretion of the Board of
Directors. The aggregate amount of cash contributions to the Plan for the years
ending December 31, 1994 and 1993 were approximately $168 and $280,
respectively.
Bankshares also adopted the City Bankshares, Inc. Stock Option Plan ("Option
Plan") in December, 1985. The Option Plan authorizes the Board of Directors to
grant incentive stock options ("the options") for up to a maximum of 200,000
shares of Bankshares' common stock. The options are exercisable six months
after the date of the grant and expire 10 years after the date of the grant if
unexercised. The exercise price of the options approximated the fair market
value of the stock at the date of the grant.
During 1990, Bankshares adopted the City Bankshares, Inc. Directors Stock Option
Plan ("Directors Option Plan"). The Directors Option Plan is intended to
further the interests of Bankshares by providing recognition to its outside
directors for their time, effort and participation. Each outside director shall
be granted 5,000 shares, and shall become vested with respect to the options at
20% for each year of service. The Directors Option Plan provides that a maximum
of 50,000 may be exercised pursuant to the Directors Option Plan at any time
after issuance for up to 10 years.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-------------------
OPTION
PRICE
STOCK OPTION PLANS DIRECTORS INCENTIVE RANGE
<S> <C> <C> <C>
Outstanding at December 31, 1992 32,000 142,350 $10.00 to
$11.66
Granted 4,000 -- $10.39
Canceled -- 1,000 $10.00 to
$11.66
Exercised 4,000 -- $10.39
-------- --------- ---------
Outstanding at December 31, 1993 32,000 141,350 $10.00 to
$10.62
Granted 3,000 -- $10.39
Canceled -- 500 $10.62
Exercised -- -- --
-------- --------- ---------
Outstanding at December 31, 1994 35,000 140,850 $10.00 to
$10.62
======== ======== =========
</TABLE>
F-101
<PAGE>
C-Teq, Inc. has outstanding incentive stock options to certain officers and
directors. Holders of these incentive options are entitled to purchase 109 of
the outstanding shares of C-Teq, Inc. (representing approximately 15% of the
company). Such options are exercisable at $1,200 per share on or before
December 18, 1999.
In October 1991, Bankshares adopted the Savings Incentive Plan for City
Bankshares, Inc. ("401k Plan"). As defined in the 401k Plan, all eligible
employees may participate. Bankshares contributed a total of $52 and $27 in
1994 and 1993, respectively, in employer contributions.
14. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office space under cancelable and
non-cancelable operating leases. Future minimum lease commitments relating
to operating leases which have remaining terms in excess of one year at
December 31, 1994, are as follows:
<TABLE>
<S> <C>
1995 $ 556
1996 555
1997 504
1998 518
1999 486
Thereafter 1,181
</TABLE>
Total rental expense, including rental on cancelable and non-cancelable leases,
amounted to approximately $718 and $758 for the periods ending December 31, 1994
and 1993, respectively.
15. SUBSEQUENT EVENT (UNAUDITED)
In September 1995, Bankshares entered into an agreement in which all the
outstanding stock of Bankshares would be acquired. Under the terms of the
agreement, C-Teq, Inc. would be spun off to the shareholders of Bankshares prior
to the acquisition. The acquisition is subject to regulatory approval and is
expected to be completed in early 1996.
F-102
<PAGE>
APPENDIX A
SECTION 1091 OF THE OKLAHOMA GENERAL CORPORATION ACT
SECTION 1091. APPRAISAL RIGHTS
A. Any shareholder of a corporation of this state who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection D of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with the provisions of subsection D of this
section and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to the provisions of Section 1073 of
this title shall be entitled to an appraisal by the district court of the
fair value of his shares of stock under the circumstances described in
subsections B and C of this section. As used in this section, the word
"shareholder" means a holder of record of stock in a stock corporation and
also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation. The
provisions of this subsection shall be effective only with respect to mergers
or consolidations consummated pursuant to an agreement of merger or
consolidation entered into after November 1, 1988.
B. 1. Except as otherwise provided for in this subsection, appraisal
rights shall be available for the shares of any class or series of stock of a
constituent corporation in a merger or consolidation, or of the acquired
corporation in a share acquisition, to be effected pursuant to the provisions
of Sections 1081, 1082, 1086, 1087, or 1091.1 of this title or Section 12 of
this act. (1)
2. a. No appraisal rights under this section shall be available for
the shares of any class or series of stock which, at the record
date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting of shareholders to act upon the
agreement of merger or consolidation, were either:
(1) listed on a national securities exchange; or
(2) held of record by more than two thousand shareholders.
b. In addition, no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the
vote of the shareholders of the surviving corporation as
provided for in subsection F of section 1081 of this title.
3. Notwithstanding the provisions of paragraph 2 of this subsection,
appraisal rights provided for in this section shall be available for the
shares of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to the provisions of Sections 1081, 1082, 1086, or
1087 of this title to accept for such stock anything except:
a. shares of stock of the corporation surviving or resulting from such
merger or consolidation; or
b. shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or held of record by more that two
thousand shareholders; or
c. cash in lieu of fractional shares of the corporations described in
subparagraphs a and b of this paragraph; or
d. any combination of the shares of stock and cash in lieu of the
fractional shares described in subparagraphs a, b and c of this
paragraph.
_________________________________
(1) Section 1090.2 of this title.
<PAGE>
4. In the event all of the stock of a subsidiary Oklahoma corporation
party to a merger effected pursuant to the provisions of Section 1083 of this
title in not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Oklahoma
corporation.
C. Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those
set forth in subsections D and E of this section, shall apply as nearly as is
practicable.
D. Appraisals rights shall be perfected as follows:
1. If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting
of shareholders, the corporation, not less than twenty (20) days prior to the
meeting, shall notify each of its shareholders entitled to such appraisal
rights that appraisal rights are available for any or all of the shares of
the constituent corporations, and shall include in such notice a copy of this
section. Each shareholder electing to demand the appraisal of the shares of
the shareholder shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for appraisal of the
shares of the shareholder. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the shareholder and that the
shareholder intends thereby to demand the appraisal of the shares of the
shareholder. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A shareholder electing to take such action must do
so by a separate written demand as herein provided. Within ten (10) days
after the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each shareholder of each constituent
corporation who has complied with the provisions of this subsection and has
not voted in favor of or consented to the merger or consolidation as of the
date that the merger or consolidation has become effective; or
2. If the merger or consolidation was approved pursuant to the
provisions of Section 1073 or 1083 of this title, the surviving or resulting
corporation, either before the effective date of the merger or consolidation
or within ten (10) days thereafter, shall notify each of the shareholders
entitled to appraisal rights of the effective date of the merger or
consolidation and that appraisal rights are available for any or all of the
shares of the constituent corporation, and shall include in such notice a
copy of this section. The notice shall be sent by certified or registered
mail, return receipt requested, addressed to the shareholder at the address
of the shareholder as it appears on the records of the corporation. Any
shareholder entitled to appraisal rights may, within twenty (20) days after
the date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of the shares of the shareholder. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the shareholder and that the shareholder intends to demand the
appraisal of the shares of the shareholder.
E. Within one hundred twenty (120) days after the effective date of
the merger or consolidation, the surviving or resulting corporation or any
shareholder who has complied with the provisions of subsections A and D of
this section and who is otherwise entitled to appraisal rights, may file a
petition in district court demanding a determination of the value of the
stock of all such shareholders. Provided, however, at any time within sixty
(60) days after the effective date of the merger or consolidation, any
shareholder shall have the right to withdraw the demand of the shareholder
for appraisal and to accept the terms offered upon the merger or
consolidation. Within one hundred twenty (120) days after the effective date
of the merger or consolidation, any shareholder who has complied with the
requirements of subsection A and D of this section, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to
the shareholder within (10) days after the shareholder's written request for
such a statement is received by the surviving or resulting corporation or
within ten (10) days after expiration of the period for delivery of demands
for appraisal pursuant to the provisions of subsection D of this section,
whichever is later.
<PAGE>
F. Upon the filing of any such petition by a shareholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which, within twenty (20) days after such service, shall file in the office
of the court clerk of the district court in which the petition was filed a
duly verified list containing the names and addresses of all shareholders who
have demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly verified list.
The court clerk, if so ordered by the court, shall give notice of the time
and place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the shareholders shown
on the list at the addresses therein stated. Such notice shall also be given
by one or more publications at least one (1) week before the day of the
hearing, in a newspaper of general circulation published in the City of
Oklahoma City, Oklahoma, or such publication as the court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
court, and the costs thereof shall be borne by the surviving or resulting
corporation.
G. At the hearing on such petition, the court shall determine the
shareholders who have complied with the provisions of this section and who
have become entitled to appraisal rights. The court may require the
shareholders who have demanded an appraisal for their shares and who hold
stock represented by certificates to submit their certificates of stock to
the court clerk for notation thereon of the pendency of the appraisal
proceedings; and if any shareholder fails to comply with such direction, the
court may dismiss the proceedings as to such shareholder.
H. After determining the shareholders entitled to an appraisal, the
court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such
fair value, the court shall take into account all relevant factors. In
determining the fair rate of interest, the court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any shareholder entitled to participate in the appraisal proceeding, the
court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the shareholder entitled to an appraisal. Any shareholder whose name
appears of the list filed by the surviving or resulting corporation pursuant
to the provisions of subsection F of this section and who has submitted the
certificates of stock of the shareholder to the court clerk, if such is
required, may participate fully in all proceedings until it is finally
determined that the shareholder is not entitled to appraisal rights pursuant
to the provisions of this section.
I. The court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the shareholders entitled thereto. Interest may be simple or compound, as
the court may direct. Payment shall be so made to each such shareholder, in
the case of holders of uncertificated stock immediately, and in the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The court's decree
may be enforced as other decrees in the district court may be enforced,
whether such surviving or resulting corporation be a corporation of this
state or of any other state.
J. The costs of the proceeding may be determined by the court and
taxed upon the parties as the court deems equitable in the circumstances.
Upon application of a shareholder, the court may order all or a portion of
the expenses incurred by any shareholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
K. From and after the effective date of the merger or consolidation,
no shareholder who has demanded the appraisal rights of the shareholder as
provided for in subsection D of this section shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other
distributions on the stock, except dividends or other distributions payable
to shareholders of record at a date which is prior to the effective date of
the merger or consolidation; provided, however, that if no petition for an
appraisal shall be filed within the time provided for in subsection E of this
section, or if such shareholder shall deliver to the surviving or resulting
corporation a written withdrawal of the shareholder's demand for an appraisal
and an acceptance of the merger or consolidation, either within sixty (60)
days after the effective date of the merger or consolidation as provided for
in subsection E of this section or thereafter with the written approval of
the corporation, then the right of such shareholder to an appraisal shall
cease. Provided, however, no appraisal proceeding in the district court
shall be dismissed as to any shareholder without the approval of the court,
and such approval may be conditioned upon such terms as the court deems just.
L. The shares of the surviving or resulting corporation into which the
shares of such objecting
<PAGE>
shareholders would have been converted had they assented to the merger or
consolidation shall have the status of authorized and unissued shares of the
surviving or resulting corporation.
Amended by Laws 1987, c. 146, Section 7, operative Nov. 1, 1987; Laws 1988,
c. 323, Section 19, eff. Nov. 1, 1988; Laws 1990, c. 328, Section 6, eff.
Sept. 1, 1990.
<PAGE>
APPENDIX B
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Merger
Agreement") is made and entered into the 27th day of September 1995, by and
between BANCFIRST CORPORATION, an Oklahoma corporation ("BancFirst Corp"),
and JOHNSTON COUNTY BANCSHARES, INC., an Oklahoma corporation
("Bancshares"), which corporations are also sometimes hereinafter referred to
collectively as the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, BancFirst Corp is a registered bank holding company duly
organized and existing under the laws of the State of Oklahoma, having an
authorized capital stock consisting of (i) 6,800,000 shares of common stock,
par value of $1.00 per share, 6,210,624 of which are currently issued and
outstanding, (ii) 900,000 shares of 10% preferred stock, par value $5.00
per share, none of which are currently issued and outstanding, and (iii)
10,000,000 shares of senior preferred stock, par value $1.00 per share, none
of which are currently issued and outstanding; and
WHEREAS, Bancshares is a registered bank holding company duly organized
and existing under the laws of the State of Oklahoma, having an authorized
capital stock consisting of (i) 55,000 shares of common stock, par value
$1.00 per share, 49,620 of which are currently issued and outstanding; and
(ii) 6,800 shares of 10% cumulative preferred stock, par value $17.55 per
share, 5,526 of which are currently issued and outstanding; and
WHEREAS, it is deemed advisable and to the benefit of the Constituent
Corporations and their respective shareholders that Bancshares merge with and
into BancFirst Corp pursuant to the terms of this Merger Agreement, in
accordance with the applicable provisions of the laws of the State of
Oklahoma and of the United States; and
WHEREAS, it is desirable that at the effective time of the merger all of
the capital stock of Bancshares be cancelled, that each of the 49,620
outstanding shares of common stock of Bancshares be converted into 0.47
resulting shares of common stock of BancFirst Corp (subject to certain
adjustments for market price), and that each of the 5,526 outstanding shares
of preferred stock be converted into the right to receive cash;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, the parties hereto agree as follows:
<PAGE>
1. THE MERGER.
1.01 THE MERGER. At the Effective Time, as defined in Section 1.02
hereof, Bancshares shall be merged with and into BancFirst Corp (the
"Merger"), and BancFirst Corp shall be (and is hereinafter sometimes referred
to as) the ""Resulting Corporation," which shall have the name BancFirst
Corporation.
1.02 EFFECTIVE TIME. The parties intend that the Merger be
accomplished on: (i) the date 15 days after the date of the prior written
consent by the Federal Reserve Board ("Federal Reserve") to the Merger
pursuant to Section 3 of the Bank Holding Company Act of 1956, as amended (or
if such fifteenth day is not a business day, then the next business day
following); or (ii) such later date as the Constituent Corporations may agree
upon. Subject to the terms of and upon satisfaction of the conditions
specified in this Merger Agreement, and subject to satisfaction of all
requirements of law, the time when the Merger shall become effective (the
"Effective Time") shall be: 1) the time of filing by BancFirst Corp of a
Certificate of Merger (as contemplated by 18 O.S. Section 1082) in the office
of the Secretary of State of the State of Oklahoma, or 2) such later
effective time, if any, as shall be stated in the Certificate of Merger filed
with the Secretary of State.
1.03 EFFECT OF MERGER. At the Effective Time, all rights,
franchises and interests of BancFirst Corp and Bancshares, respectively, in
and to every type of property (real, personal and mixed) and causes of action
shall be transferred to and vested in the Resulting Corporation by virtue of
the Merger without any deed or other transfer. The Resulting Corporation,
upon the Merger and without any order or other action on the part of any
court or otherwise, shall hold and enjoy all rights of property, franchises
and interests, in the same manner and to the same extent as such rights,
franchises and interests were held or enjoyed by BancFirst Corp and
Bancshares, respectively, immediately prior to the Merger. The Resulting
Corporation shall be liable for all liabilities of BancFirst Corp and
Bancshares. All debts, liabilities, obligations and contracts of BancFirst
Corp and Bancshares, respectively, matured or unmatured, whether accrued,
absolute, contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account or records of BancFirst Corp or
Bancshares, as the case may be, shall be those of the Resulting Corporation
and shall not be released or impaired by the Merger. All rights of creditors
and other obligees and all liens on property of either BancFirst Corp or
Bancshares shall be preserved unimpaired.
2
<PAGE>
2. CONVERSION OF SHARES.
2.01 BANCFIRST CORP STOCK. Each of the shares of common stock of
BancFirst Corp outstanding immediately prior to the Effective Time shall
continue to be the same number of outstanding shares of stock of BancFirst
Corp after the Effective Time.
2.02 BANCSHARES COMMON STOCK. Each of the 49,620 shares of common
stock of Bancshares issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger, cease to be outstanding at the Effective
Time and each such share shall be automatically converted at the Effective
Time into 0.47 resulting shares of common stock of BancFirst Corp.
2.03 ADJUSTMENT FOR MARKET PRICE. Notwithstanding the conversion
ratio stated in Section 2.02 hereof, if the "bid" price for BancFirst Corp's
common stock as published on the last business day occurring prior to the
Effective Time (the "Bid Price") is less than $16.00 per share or more than
$19.00 per share, the number of shares of BancFirst Corp common stock
issuable in the Merger in conversion of each share of Bancshares common stock
shall instead be determined as follows:
(a) If the Bid Price per share is less than $16.00, then
the number of shares of BancFirst Corp common stock issuable in
conversion of each share of Bancshares common stock shall equal 0.47
multiplied by that decimal number which is determined by dividing
$16.00 by the Bid Price; and
(b) If the Bid Price per share is more than $19.00, then the
number of shares of BancFirst Corp common stock issuable in conversion
of each share of Bancshares common stock shall equal 0.47 multiplied
by that decimal number which is determined by dividing $19.00 by the
Bid Price.
2.04 CASH IN LIEU OF FRACTIONAL SHARES. Notwithstanding the
provisions of Section 2.02 and 2.03 hereof, BancFirst Corp shall not issue a
fraction of a share of its common stock to any shareholder of Bancshares, but
rather shall pay in cash, in lieu of any fractional share to which the
shareholder otherwise would have been entitled, an amount of money equal to
(a) the Bid Price for one share of BancFirst Corp common stock, multiplied by
(b) the applicable fractional portion of a share.
2.05 BANCSHARES PREFERRED STOCK. Each of the shares of Bancshares
preferred stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger, and without any action on the part of
the holder thereof, cease to be
3
<PAGE>
outstanding and shall be converted at the Effective Time into the right to
receive cash in an amount equal to the sum of (a) the $17.55 par value of
each such share, plus (b) the amount of dividends accrued but unpaid on each
such share through the Effective Time.
2.06 DISSENTING SHAREHOLDERS. The provisions of Sections 2.02,
2.03, 2.04 and 2.05 shall not apply to any shares of the Bancshares stock in
respect of which dissenters' rights are ultimately perfected in accordance
with the provisions of 18 O.S. Section 1091.
2.07 CANCELLATION OF STOCK. With respect to each share of
bancshares stock which is not excluded by Section 2.06 hereof, promptly after
the Effective Time, BancFirst Corp shall deliver to the holder of record of
the outstanding certificate or certificates which, immediately prior thereto,
had represented shares of such stock, a letter of instructions for use in
effecting the surrender of such certificates. After the Effective Time, the
holder of such certificate or certificates shall surrender the same to
BancFirst Corp for cancellation. Regardless of whether the certificates
representing shares of stock of Bancshares are surrendered, such certificates
shall be deemed to be cancelled at the Effective Time and to evidence solely
the right to receive shares of stock of BancFirst Corp or cash, as
applicable, in accordance with Sections 2.02, 2.03, 2.04 and 2.05.
If any certificate or certificates shall have been lost or destroyed,
BancFirst Corp may require the holder thereof to deliver an affidavit to such
effect and a bond or indemnity agreement in form and amount reasonably
satisfactory to BancFirst Corp before Bancfirst Corp delivers to such holder
certificates representing resulting shares of BancFirst Corp stock.
3. RESTRICTIVE LEGEND. The stock certificates evidencing shares of
BancFirst Corp common stock issued in the Merger will bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES
ACT OF 1933, AND/OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.
4
<PAGE>
4. CERTIFICATE OF INCORPORATION; BYLAWS.
4.01 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of BancFirst Corp, as previously amended and in effect
immediately prior to the Effective Time, shall remain in effect and become
that of the Resulting Corporation.
4.02 BYLAWS. The Bylaws of BancFirst Corp, as in effect
immediately prior to the Effective Time, shall continue to be the Bylaws of
the Resulting Corporation until altered, amended or repealed as provided by
law, the Certificate of Incorporation of the Resulting Corporation or said
Bylaws.
5. DIRECTORS AND OFFICERS OF THE RESULTING CORPORATION. At the
Effective Time, the directors of BancFirst Corp immediately prior to the
Effective Time shall be the directors of the Resulting Corporation, to serve
in accordance with the Bylaws of the Resulting Corporation. At the Effective
Time, the officers of BancFirst Corp immediately prior to the Effective Time
shall be the officers of the Resulting Corporation until their respective
successors shall be duly elected and qualified.
6. BANCSHARES' COVENANT. Bancshares agrees that, prior to the
Effective Time, Bancshares and its banking subsidiary, Bank of Johnston
County, Tishomingo, Oklahoma (the "Bank") shall conduct their respective
operations only in the ordinary and usual course of business consistent with
past and current practices.
7. ACCOUNTING MATTERS. For accounting purposes the transaction shall
be treated as a merger. The assets and liabilities of Bancshares at the
Effective Time shall be taken upon the books of the Resulting Corporation at
their respective values as reflected on the books of Bancshares.
8. SUBMISSION TO SHAREHOLDERS AND THE FEDERAL RESERVE. The Merger
Agreement is subject to obtaining the approval of the shareholders of
BancFirst Corp and Bancshares and of the Federal Reserve. The Merger
Agreement shall be submitted to the shareholders of BancFirst Corp and
Bancshares, at meetings called for such purpose, and to the Federal Reserve.
Upon approval by the requisite votes of the shareholders of BancFirst Corp and
Bancshares and approval by the Federal Reserve, this Merger Agreement shall
be made effective as soon as practicable thereafter in the manner provided in
Section 1.02 hereof.
9. TERMINATION. This Merger Agreement may be terminated and abandoned
at any time prior to the Effective Time,
5
<PAGE>
whether before or after action thereon by the shareholders of BancFirst Corp
and Bancshares:
(a) by the mutual consent in writing of the boards of directors of
BancFirst Corp and of Bancshares; or
(b) by the board of directors of BancFirst Corp in writing at any
time prior to the Effective Time if BancFirst Corp determines, in its sole
discretion, that there has been a material adverse change in the financial
condition of Bancshares or of the Bank; or
(c) by the board of directors of Bancshares in writing at any time
prior to the Effective Time if Bancshares determines, in its sole discretion,
that there has been a material adverse change in the financial condition of
BancFirst Corp or of BancFirst; or
(d) by the board of directors of either of the Constituent
Corporations in writing at any time prior to the Effective Time if (1) a
material breach shall exist with respect to any written representation or
warranty made by the other Constituent Corporation in connection with the
merger, or (2) the other Constituent Corporation, without prior written
consent of such Constituent Corporation, shall take any action prohibited by
this agreement, or (3) in the opinion of the board of directors of such
Constituent Corporation, any consent of any third party to the consummation
of the Merger is reasonably necessary to carry out the merger, or to prevent
a default under any outstanding obligation of either Constituent Corporation,
and such consent is not obtainable; or
(e) by the board of directors of BancFirst Corp in writing at any
time prior to the Effective Time if the covenant contained in Section 6 has
been breached by Bancshares; or
(f) by the board of directors of either BancFirst Corp or
Bancshares in writing if the Effective Time has not occurred by March 1, 1996.
In the event of the termination and abandonment of this Merger Agreement
pursuant to the provisions of this Section 9, the same shall be of no further
force or effect.
10. WAIVER, EXTENSION AND AMENDMENT. Any of the terms or conditions
of this Merger Agreement may be waived at any time, whether before or after
action thereon by the shareholders of BancFirst Corp or Bancshares, by the
party which is entitled to the benefits thereof; and this Merger Agreement
may be modified or amended at any time, whether before or after action
thereon by the
6
<PAGE>
shareholders of BancFirst Corp or Bancshares, by the parties hereto. Any
waiver, modification or amendment shall be in writing.
IN WITNESS WHEREOF, BancFirst Corp and Bancshares have caused this
Merger Agreement to be executed by their duly authorized officers and their
corporate seals to be affixed as of the date first above written.
"BANCFIRST CORP" BANCFIRST CORPORATION
Oklahoma City, Oklahoma
By DAVID E. RAINBOLT
------------------------------------
David E. Rainbolt, Chief
Executive Officer and President
ATTEST:
RANDY FORAKER
- --------------------------------
Randy Foraker, Secretary
(SEAL)
"BANCSHARES" JOHNSTON COUNTY BANCSHARES, INC.
Tishomingo, Oklahoma
By CHARLES V. PARTIN
------------------------------------
Charles V. Partin, President
ATTEST:
DONNA K. POWELL
- --------------------------------
Donna K. Powell, Secretary
(SEAL)
7
<PAGE>
APPENDIX C
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Merger
Agreement") is made and entered into this 2nd day of June, 1995, by and
between BANCFIRST CORPORATION, an Oklahoma corporation ("BancFirst Corp"),
and COMMERCE BANCORPORATION, INC., an Oklahoma corporation ("Commerce"),
which corporations are also sometimes hereinafter referred to collectively as
the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, BancFirst Corp is a registered bank holding company duly
organized and existing under the laws of the State of Oklahoma, having an
authorized capital stock consisting of (i) 6,800,000 shares of common stock,
par value $1.00 per share, 6,204,874 of which are currently issued and
outstanding, (ii) 900,000 shares of 10% preferred stock, par value $5.00 per
share, none of which are currently issued and outstanding, and (iii)
10,000,000 shares of senior preferred stock, par value $1.00 per share, none
of which are currently issued and outstanding; and
WHEREAS, Commerce is a registered bank holding company duly organized
and existing under the laws of the State of Oklahoma, having an authorized
capital stock consisting of (i) 45,000 shares of common stock, par value
$1.00 per share, 22,572.67 of which are currently issued and outstanding; and
(ii) 6,500 shares of 10% cumulative preferred stock, par value $13.25 per
share, 4,162 of which are currently issued and outstanding; and
WHEREAS, it is deemed advisable and to the benefit of the Constituent
Corporations and their respective shareholders that Commerce merge with
and into BancFirst Corp pursuant to the terms of this Merger Agreement,
in accordance with the applicable provisions of the laws of the State of
Oklahoma and of the United States; and
WHEREAS, it is desirable that at the effective time of the merger all of
the capital stock of Commerce be cancelled and that the outstanding shares of
common stock of Commerce be converted into resulting shares of common stock
of BancFirst Corp;
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained herein, the parties hereto agree as follows:
<PAGE>
1. THE MERGER.
1.01 THE MERGER. At the Effective Time, as defined in Section 1.02
hereof, Commerce shall be merged with and into BancFirst Corp (the "Merger"),
and BancFirst Corp shall be (and is hereinafter sometimes referred to as) the
"Resulting Corporation," which shall have the name BancFirst Corporation.
1.02 EFFECTIVE TIME. The Merger shall not occur prior to that date
(the "First Permissible Date") which occurs 15 days after the date of the
prior written consent by the Federal Reserve Board ("Federal Reserve") to the
Merger pursuant to Section 3 of the Bank Holding Company Act of 1956, as
amended (or if such fifteenth day is not a business day, then the next
business day following). Notwithstanding any other provision of this
paragraph, the parties intend that the Merger be accomplished on the first
business day of a calendar month. Subject to the foregoing requirements, the
Merger shall occur as soon as possible following the first month-end date as
of which Commerce's "Common Equity Capital" (as defined in Section 2.02)
equals not less than $1,600,000. By mutual agreement of the Constituent
Corporations the Merger instead may occur at any other time on or after the
First Permissible Date.
Subject to the terms of and upon satisfaction of the conditions
specified in this Merger Agreement, and subject to satisfaction of all
requirements of law, the time when the Merger shall become effective (the
"Effective Time") shall be: 1) the time of filing by BancFirst Corp of a
Certificate of Merger (as contemplated by 18 O.S. Section 1081) in the office
of the Secretary of State of the State of Oklahoma, or 2) such later
effective time, if any, as shall be stated in the Certificate of Merger filed
with the Secretary of State.
1.03 EFFECT OF MERGER. At the Effective Time, all rights,
franchises, and interests of BancFirst Corp and Commerce, respectively, in
and to every type of property (real, personal, and mixed) and causes of
action shall be transferred to and vested in the Resulting Corporation by
virtue of the Merger without any deed or other transfer. The Resulting
Corporation, upon the Merger and without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, in the same manner and to the same extent as such
rights, franchises, and interests were held or enjoyed by BancFirst Corp and
Commerce, respectively, immediately prior to the Merger. The Resulting
Corporation shall be liable for all liabilities of BancFirst Corp and
Commerce. All debts, liabilities, obligations, and contracts of BancFirst
Corp and Commerce, respectively, matured or unmatured, whether accrued,
absolute, contingent, or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account, or records of BancFirst Corp or
Commerce, as the case may be, shall be those of the Resulting Corporation
and shall
2
<PAGE>
not be released or impaired by the Merger. All rights of creditors and other
obligees and all liens on property of either BancFirst Corp or Commerce shall
be preserved unimpaired.
2. CONVERSION OF SHARES.
2.01 BANCFIRST CORP STOCK. Each of the individual shares of capital
stock of BancFirst Corp which are outstanding immediately prior to the
Effective Time shall continue to be outstanding after the Effective Time.
Additional shares of capital stock of BancFirst Corp shall be issued to
shareholders of Commerce, as provided in Section 2.02.
2.02 COMMERCE COMMON STOCK. Each of the 22,573 shares of common
stock of Commerce issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger, cease to be outstanding at the Effective
Time and shall be automatically converted at the Effective Time into 6.9335
resulting and newly issued shares of common stock of BancFirst Corp;
provided, no fractional shares shall be issued and the total number of shares
of BancFirst Corp common stock issuable to any holder of Commerce common
stock shall be rounded up or down, as appropriate, to the nearest whole
number.
"Common Equity Capital" shall be determined by taking the amount of
Commerce's total equity capital attributable to the holders of its common
stock, determined in accordance with generally accepted accounting
principles, as further adjusted to carry out each of the following adjustments:
(a) Any investment in McLoud Insurance Agency or its assets shall
be reduced to $0;
(b) Any common stock dividend declared or paid by Commerce between
the month-end preceding the Effective Time and the Effective Time shall be
deducted;
(c) Any dividend accrued or payable on Commerce's preferred stock,
as well as any redemption premium anticipated to be paid with respect to
Commerce's preferred stock on or before the Effective Time, shall be deducted;
(d) Any adjustment to loan loss reserve which otherwise might be
required by generally accepted accounting principles shall be eliminated,
provided that the requirements of Section 7 hereof are met; and
(e) Any entries to account for the future benefits payable under
that certain agreement effective January 11, 1995, by and between Commerce and
Donald Bierman, shall be added back in determining Common Equity Capital.
3
<PAGE>
2.03 DISSENTING SHAREHOLDERS. The provisions of Section 2.02 shall not
apply to any of the Commerce Shares in respect of which dissenters' rights
are ultimately perfected in accordance with the provisions of 18 O.S. Section
1091.
2.04 CANCELLATION OF STOCK. With respect to each share of Commerce common
stock which is not excluded by Section 2.03 hereof, promptly after the
Effective Time BancFirst Corp shall deliver to the holder of record of the
outstanding certificate or certificates which, immediately prior thereto, had
represented shares of such stock, a letter of instructions for use in
effecting the surrender of such certificates. After the Effective Time, the
holder of such certificate or certificates shall surrender the same to
BancFirst Corp for cancellation. Regardless of whether the certificates
representing shares of stock of Commerce are surrendered, such certificates
shall be deemed to be cancelled at the Effective Time and to evidence solely
the right to receive shares of stock of BancFirst Corp.
If any certificate or certificates shall have been lost or destroyed,
BancFirst Corp may require the holder thereof to deliver an affidavit to such
effect and a bond or indemnity agreement in form and amount reasonably
satisfactory to BancFirst Corp before BancFirst Corp delivers to such holder
certificates representing resulting shares of BancFirst Corp stock.
3. RESTRICTIVE LEGEND. The stock certificates evidencing shares of
BancFirst Corp common stock issued in the Merger will bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE OKLAHOMA
SECURITIES ACT. FOR A PERIOD OF NINE MONTHS FROM [the Effective
Time of the Merger], NONE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED TO ANY PERSON WHO IS NOT A RESIDENT
OF THE STATE OF OKLAHOMA. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES
ACT OF 1933, AND/OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.
4
<PAGE>
4. CERTIFICATE OF INCORPORATION; BYLAWS.
4.01 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
BancFirst Corp, as previously amended and in effect immediately prior to the
Effective Time, shall remain in effect and become that of the Resulting
Corporation; provided, however, at the Effective Time Section A of Article 5
of the Certificate of Incorporation shall be amended in its entirety to read
as follows:
"ARTICLE 5
A. The aggregate number of shares of all classes which the Corporation
shall have authority to allot is 17,900,000. The designation of each class,
the number of shares of each class, the par value of each class and the total
authorized capital of the Corporation are as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE TOTAL PAR VALUE
CLASS SHARES PER SHARE AUTHORIZED
----- -------- --------- ---------------
<S> <C> <C> <C>
Senior Preferred Stock 10,000,000 $1.00 $10,000,000
10% Cumulative
Preferred Stock 900,000 5.00 4,500,000
Common Stock 7,000,000 1.00 7,000,000
---------- -----------
Total 17,900,000 $21,500,000"
========== ===========
</TABLE>
4.02 BYLAWS. The Bylaws of BancFirst Corp, as in effect immediately prior to
the Effective Time, shall continue to be the Bylaws of the Resulting
Corporation until altered, amended, or repealed as provided by law, the
Certificate of Incorporation of the Resulting Corporation or said Bylaws.
5. DIRECTORS AND OFFICERS OF THE RESULTING CORPORATION. At the Effective
Time, the directors of BancFirst Corp immediately prior to the Effective
Time shall be the directors of the Resulting Corporation, to serve in
accordance with the Bylaws of the Resulting Corporation. At the Effective
Time, the officers of BancFirst Corp immediately prior to the Effective Time
shall be the officers of the Resulting Corporation until their respective
successors shall be duly elected and qualified.
6. COMMERCE'S COVENANTS. Commerce agrees that prior to the Effective Time:
5
<PAGE>
6.01 BUSINESS OPERATIONS. Commerce and its banking subsidiary, The Bank of
Commerce, McLoud, Oklahoma (the "Bank") shall conduct their respective
operations only in the ordinary and usual course of business consistent with
past and current practices. Exclusive of lending and deposit contracts,
neither Commerce nor the Bank will enter into any new contract, or renew or
extend any existing contract, without the prior consent of BancFirst Corp.
Neither Commerce nor the Bank will (a) sell any assets (except as permitted
by Section 6.04), or (b) purchase any fixed assets at a price of more than
$10,000 in the aggregate.
6.02 EMPLOYEE COMENSATION. Except with BancFirst Corp's prior written
consent or pursuant to contracts in existence as of the date hereof and
except for normal annual salary increases consistent with past practices, no
increase will be made in the compensation or rate of compensation payable or
to become payable to the officers or employees of the Company or the Bank,
and no bonus, profit sharing, retirement, insurance, death, fringe benefit or
other extraordinary or indirect compensation shall accrue, be set aside or be
paid to, for or on behalf of any of such officers or employees other than as
required by presently existing pension, profit sharing, bonus and similar
benefit plans as presently constituted, and no agreement or plan other than
those now in effect shall be adopted or committed for. Provided, however,
this section shall not limit Commerce's ability to commit to pay consulting
fees for a term ending on or before the Effective Time.
6.03 RETIREMENT OF PREFERRED STOCK. On or prior to the Effective Time,
Commerce will retire all of its 4,162 outstanding shares of 10% cumulative
preferred stock at a price not to exceed $80,000.
6.04 DURATION OF SECURITIES. The Bank shall have eliminated from its
securities portfolio any securities that, as of the date of the Merger
Agreement, have a duration beyond June 1, 1998. Further, the Bank shall not
purchase any securities after the date hereof which have a duration beyond
June 1, 1998.
7. ADEQUACY OF BANK'S RESERVES FOR LOAN LOSSES. If the Bank's loan loss
reserve equals or exceeds 1.5% of the Bank's total loans outstanding as of
the month-end immediately preceding the Effective Time, BancFirst Corp shall
deem the reserve to be adequate. Prior to the month-end immediately preceding
the Effective Time, the Bank may reduce its reserve for loan losses to an
amount not less than 1.5% of total loans outstanding, crediting any amount in
excess of that percentage to income.
8. ACCOUNTING MATTERS. For accounting purposes the transaction shall be
treated as a merger. The assets and liabilities of Commerce at the Effective
Time shall be taken upon
6
<PAGE>
the bookds of the Resulting Corporation at their respective values as
reflected on the books of Commerce.
9. BINDING EFFECT; SUBMISSION TO SHAREHOLDERS AND THE FEDERAL RESERVE.
This Merger Agreement has been approved by the respective boards of directors
of BancFirst Corp and Commerce, and shall be binding on the parties, subject
only to obtaining necessary approval of the shareholders of BancFirst Corp
and Commerce and the approval of the Federal Reserve. The Merger Agreement
shall be submitted to the shareholders of BancFirst Corp and Commerce, at
meetings called for such purpose, and to the Federal Reserve.
10. EXAMINATION BY BANCFIRST CORP. Commerce shall afford BancFirst Corp,
its officers, authorized representatives, accountants, and counsel full
access to the offices, properties, records, files, minute books, books of
account, and copies of tax returns of Commerce and its banking subsidiary,
The Bank of Commerce, McLoud, Oklahoma (the "Bank"), for the examination of
the financial condition, corporate status, liabilities, contracts, business
operations, property and title thereto, litigation, and all other matters
pertaining to the business, properties, and assets of Commerce and the Bank
(the "Examination"); provided, however, that the Examination shall be
conducted during normal business hours and in a manner that does not
unreasonably interfere with the normal operations of Commerce or the Bank.
Commerce and the Bank shall cause their personnel to cooperate with BancFirst
Corp in making the Examination and shall cause their counsel, accountants,
employees, and other representatives to be reasonably available to BancFirst
Corp for such purposes. BancFirst shall complete the Examination within sixty
days followiing the date of execution of this Merger Agreement by all parties.
11. TERMINATION. This Merger Agreement may be terminated prior to the
Effective Time, whether before or after action thereon by the shareholders
of BancFirst Corp and Commerce:
(a) at any time by the mutual consent in writing of the boards of
directors of BancFirst Corp and of Commerce; or
(b) by the board of directors of BancFirst Corp in writing within
forty-five days after completion of the Examination if BancFirst Corp
determines, in its sole discretion, that the financial condition of Bancorp
or of the Bank, determined in accordance with generally accepted accounting
principles, is materially adversely different from the financial condition
reflected on the most recent financial statements of Commerce and the Bank
that were delivered to BancFirst Corp prior to execution of this Merger
Agreement; or
7
<PAGE>
(c) by the board of directors of BancFirst Corp in writing at any
time prior to the Effective Time if BancFirst Corp determines, in its sole
discretion, that there has been a material adverse change in the financial
condition of Commerce or of the Bank since the Examination; or
(d) by the board of directors of Commerce in writing at any time
prior to the Effective Time if Commerce determines, in its sole discretion,
that there has been a material adverse change in the financial condition of
BancFirst Corp since the date hereof; or
(e) by the board of directors of BancFirst Corp in writing at any
time prior to the Effective Time if any covenant contained in Section 6 has
been breached by Commerce, but only after prior notice of the alleged breach
has been given by BancFirst Corp to Commerce and a reasonable period of time
for Commerce to cure the alleged breach has expired; or
(f) by the board of directors of either of the Constituent
Corporations in writing at any time prior to the Effective Time if (1) a
material breach shall exist with respect to any written representation or
warranty contained in this Merger Agreement and made by the other Constituent
Corporation in connection with the Merger, but only after prior notice and a
reasonable period to cure, or (2) the other Constituent Corporation, without
prior written consent of such Constituent Corporation, shall take any other
action prohibited by this Merger Agreement, or (3) in the opinion of the
board of directors of such Constituent Corporation, any required prior
approval of a bank regulatory agency is not obtainable; or
(g) by the board of directors of either BancFirst Corp or Commerce
in writing if the Effective Time has not occurred by December 2, 1996.
In the event of the termination and abandonment of this Merger Agreement
pursuant to the provisions of this Section 11, the same shall be of no
further force or effect.
12. NOTICES. Any notice or communication, required or permitted to be
made hereunder shall be in writing, and shall be deemed to have been made if
personally delivered in return for a receipt, or if mailed, by registered or
certified mail, return receipt requested, to the parties at the addresses
shown below. The date of personal delivery shall be the date of giving notice
or if mailed in the manner prescribed above, notice shall be deemed to have
been given three business days after the mailing.
8
<PAGE>
If to BancFirst Corp:
Mr. David E. Rainbolt
101 North Broadway
P.O. Box 26788
Oklahoma City, Oklahoma 73126
If to Commerce:
Mr. Leslie E. Greathouse
Commerce Bancorporation, Inc.
P.O. Box 130
McLoud, Oklahoma 74851
13. WAIVER, EXTENSION, AND AMENDMENT. Any of the terms or conditions
of this Merger Agreement may be waived at any time, whether before or after
action thereon by the shareholders of BancFirst Corp or Commerce, by the
party which is entitled to the benefits thereof; and this Merger Agreement
may be modified or amended at any time, whether before or after action
thereon by the shareholders of BancFirst Corp or Commerce, by the parties
hereto. Any waiver, modification, or amendment shall be in writing.
IN WITNESS WHEREOF, BancFirst Corp and Commerce have caused this Merger
Agreement to be executed by their duly authorized officers and their corporate
seals to be affixed as of the date first above written.
"BANCFIRST CORP" BANCFIRST CORPORATION
Oklahoma City, Oklahoma
By: /s/ David E. Rainbolt
-------------------------------------
David E. Rainbolt, Chief
Executive Officer and President
ATTEST:
/s/ Randy Foraker
- -----------------------------
Randy Foraker, Secretary
(SEAL)
9
<PAGE>
"COMMERCE" COMMERCE BANCORPORATION, INC.
McLoud, Oklahoma
By: Leslie E. Greathouse
------------------------------------
Leslie E. Greathouse, Secretary/Treasurer
ATTEST:
/s/ D.E. Rainbolt
- -----------------------------
D.E. Rainbolt, President
(SEAL)
10
<PAGE>
APPENDIX D
<PAGE>
[LETTERHEAD]
November 21, 1995
Board of Directors
BancFirst Corporation
101 North Broadway, Suite 200
Oklahoma City, Oklahoma 73102
Members of the Board:
You have requested our opinion, as an independent financial analyst to the
common shareholders of BancFirst Corporation, Oklahoma City, Oklahoma,
("BancFirst"), as to the fairness, from a financial point of view to the
common shareholders of BancFirst, of the terms of the proposed merger of
Johnston County Bancshares, Inc., Tishomingo, Oklahoma, ("Johnston") with
BancFirst. Pursuant to the terms of the Agreement and Plan of Reorganization
and Merger, each of the 49,620 shares of common stock of Johnston issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger, cease to be outstanding at the Effective Time and each such share
shall be automatically converted at the Effective Time into 0.47 resulting
shares of common stock of BancFirst. If the "bid" price for BancFirst's
common stock as published on the last business day occurring prior to the
Effective Time (the "Bid Price") is less than $16.00 per share or more than
$19.00 per share, the number of shares of BancFirst common stock issuable in
the Merger in conversion of each share of Johnston common stock shall instead
be determined as follows: (a) If the Bid Price per share is less than $16.00,
then the number of shares of BancFirst common stock issuable in conversion
of each share of Johnston common stock shall equal 0.47 multiplied by that
decimal number which is determined by dividing $16.00 by the Bid Price; and
(b) If the Bid Price per share is more than $19.00, then the number of shares
of BancFirst common stock issuable in conversion of each share of Johnston
common stock shall equal 0.47 multiplied by that decimal number which is
determined by dividing $19.00 by the Bid Price.
As part of its banking analysis business, Alex Sheshunoff & Co. Investment
Banking is continually engaged in the valuation of bank, bank holding company
and thrifts securities in connection with mergers and acquisitions
nationwide. Prior to being retained for this assignment, Alex Sheshunoff &
Co. Investment Banking has provided professional services and products to
BancFirst and Johnston. The revenues derived from such services and products
are insignificant when compared to the firm's total gross revenues.
<PAGE>
Board of Directors
BancFirst Corporation
November 21, 1995
Page 2
In connection with this assignment, we reviewed (i) the Agreement and Plan of
Reorganization and Merger between BancFirst and Johnston, (ii) the most
recent external auditor's reports to the Board of Directors of each
organization; (iii) the September 30, 1995 Report of Condition and Income for
each organization, the unaudited December 31, 1994 Balance Sheet and Income
Statement for Johnston and the audited December 31, 1994 Balance Sheet and
Income Statement for BancFirst; (iv) the Rate Sensitivity Analysis reports
for each organization; (v) each organization's listing of marketable
securities showing rate, maturity and market value as compared to book value;
(vi) each organization's internal loan classification list; (vii) a listing
of other real estate owned for each organization; (viii) the budget and long
range operating plan of each organization; (ix) a listing of unfunded letters
of credit and any other off-balance sheet risks for each organization; (x)
the Minutes of the Board of Directors of each organization; (xi) the most
recent Board report for each organization; (xii) the listing and description
of significant real properties for BancFirst; (xiii) material leases on real
and personal property; (xiv) the directors and officers liability and blanket
bond insurance policies for each organization; and (xv) market conditions and
current trading levels of outstanding equity securities of both organizations.
We have also had discussions with the management of BancFirst and Johnston
regarding their respective financial results and have analyzed the most
current financial data available on BancFirst and Johnston. We also
considered such other information, financial studies, analyses and
investigations, and economic and market criteria which we deemed relevant. We
have met with the management of BancFirst and Johnston to discuss the
foregoing information with them.
We have considered certain financial data of BancFirst and Johnston, and have
compared that data with similar data for other banks and bank holding
companies which have recently merged or been acquired; furthermore, we have
considered the financial terms of these business combinations involving said
banks and bank holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of
BancFirst or Johnston.
In reaching our opinion we took into consideration the financial benefits of
the proposed transaction to all BancFirst shareholders. Based on all factors
that we deem relevant and assuming the accuracy and completeness of the
information and data provided to us by
<PAGE>
Board of Directors
BancFirst Corporation
November 21, 1995
Page 3
BancFirst and Johnston, it is our opinion as of November 10, 1995, that the
proposed transaction is fair and equitable to all BancFirst shareholders from
a financial point of view.
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the
merger transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
By: /s/ WADE SCHUESSLER
-------------------------------
Wade Schuessler
Vice President
HWS/kac
<PAGE>
[LETTERHEAD]
November 21, 1995
Board of Directors
BancFirst Corporation
101 North Broadway, Suite 200
Oklahoma City, Oklahoma 73102
Members of the Board:
You have requested our opinion, as an independent financial analyst to the
common shareholders of BancFirst Corporation, Oklahoma City, Oklahoma
("BancFirst"), as to the fairness, from a financial point of view to the
common shareholders of BancFirst, of the terms of the proposed merger of
Commerce Bancorporation, Inc., McLoud, Oklahoma, ("McLoud") with BancFirst.
Pursuant to the terms of the Agreement and Plan of Reorganization and Merger,
each of the 22,573 shares of common stock of McLoud issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, cease
to be outstanding at the Effective Time and shall be automatically converted
at the Effective Time into 6.9335 resulting and newly issued shares of common
stock of BancFirst.
As part of its banking analysis business, Alex Sheshunoff & Co. Investment
Banking is continually engaged in the valuation of bank, bank holding company
and thrifts securities in connection with mergers and acquisitions
nationwide. Prior to being retained for this assignment, Alex Sheshunoff &
Co. Investment Banking has provided professional services and products to
BancFirst and McLoud. The revenues derived from such services and products
are insignificant when compared to the firm's total gross revenues.
In connection with this assignment, we reviewed (i) the Agreement and Plan of
Reorganization and Merger between BancFirst and McLoud; (ii) the most recent
external auditor's reports to the Board of Directors of each organization;
(iii) the September 30, 1995 Report of Condition and Income for each
organization, the audited December 31, 1994 Balance Sheet and Income
Statements for BancFirst and the December 31, 1994 Call Report and Income Tax
Return for McLoud; (iv) the Rate Sensitivity Analysis reports for each
organization; (v) each organization's listing of marketable securities
showing rate, maturity and market value as compared to book value; (vi) each
organization's internal loan classification list; (vii) a listing of other
real estate owned for BancFirst; (viii) the budget and long range operating
plan of each organization; (ix) a listing of unfunded letters of credit and
any other off-balance sheet risks for each organization; (x) the Minutes of
the Board of Directors of each organization; (xi) the most recent Board
report for each organization; (xii) the listing and description of
significant real properties for each
<PAGE>
Board of Directors
BancFirst Corporation
November 21, 1995
Page 2
organization; (xiii) material leases on real and personal property for
BancFirst; (xiv) the directors and officers liability and blanket bond
insurance policies for each organization; and (xv) market conditions and
current trading levels of outstanding equity securities of both organizations.
We have also had discussions with the management of BancFirst and McLoud
regarding their respective financial results and have analyzed the most
current financial data available on BancFirst and McLoud. We also considered
such other information, financial studies, analyses and investigations, and
economic and market criteria which we deemed relevant. We have met with the
management of BancFirst and McLoud to discuss the foregoing information with
them.
We have considered certain financial data of BancFirst and McLoud, and have
compared that data with similar data for other banks and bank holding
companies which have recently merged or been acquired; furthermore, we have
considered the financial terms of these business combinations involving said
banks and bank holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of
BancFirst of McLoud.
In reaching our opinion we took into consideration the financial benefits of
the proposed transaction to all BancFirst shareholders. Based on all factors
that we deem relevant and assuming the accuracy and completeness of the
information and data provided to us by BancFirst and McLoud; it is our
opinion as of November 10, 1995, that the proposed transaction is fair and
equitable to all BancFirst shareholders from a financial point of view.
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the
merger transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
WADE SCHUESSLER
By: -------------------
Wade Schuessler
Vice President
HWS/keh
<PAGE>
BANCFIRST COMMON STOCK
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
BANCFIRST CORPORATION
The undersigned hereby appoints David E. Rainbolt and Randy P. Foraker,
or either of them, as proxies, each with full power of substitution, and
hereby authorizes them to attend the special meeting of stockholders of
BancFirst Corporation ("BancFirst"), to be held on Thursday, December 28,
1995 at 9:00 a.m., Central Time, and at any adjournment thereof (the
"BANCFIRST SPECIAL MEETING"), and to vote, as specified in this Proxy, all
the shares of BancFirst common stock, $1.00 par value per share ("BANCFIRST
COMMON STOCK"), which the undersigned would be entitled to vote if personally
present.
This transmittal also provides voting instructions for shares of
BANCFIRST COMMON STOCK held in the BancFirst Corporation Employee Stock
Ownership and Thrift Plan.
1. To consider and vote upon, as a single proposal, a proposal to approve
and adopt the Agreement and Plan of Reorganization and Merger, dated
as of September 27, 1995, between BancFirst and Johnston County
Bancshares, Inc. ("Johnston County") and all of the transactions
contemplated thereby, including (a) the merger of Johnston County
with and into BancFirst, the conversion of each outstanding share of
Johnston County common stock into shares of BancFirst common stock,
and the conversion of each outstanding share of Johnston County
preferred stock into the right to receive cash, on the terms
described in the accompanying Proxy Statement/Offering Memorandum,
and (b) a related amendment (the "Required Amendment") to BancFirst's
Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of BancFirst common stock from 6,800,000
to 7,000,000.
/ / FOR / / AGAINST
2. To consider and vote upon, as a single proposal, a proposal to approve
and adopt the Agreement and Plan of Reorganization and Merger, dated
as of June 2, 1995, between BancFirst and Commerce Bancorporation,
Inc. ("Commerce") and all of the transactions contemplated thereby,
including (a) the merger of Commerce with and into BancFirst and the
conversion of each outstanding share of Commerce common stock into
shares of BancFirst common stock, on the terms described in the
accompanying Proxy Statement/Offering Memorandum, and (b) the
Required Amendment.
/ / FOR / / AGAINST
3. To transact such other business as may properly come before the
BancFirst Special Meeting or any adjournments or postponements
thereof.
<PAGE>
IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY
SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD.
AS TO ITEMS 1 AND 2, THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO
DIRECTIONS ARE INDICATED, IT WILL BE VOTED FOR ITEMS 1 AND 2.
Dated: December ___, 1995
_________________________________________
Signature of BancFirst Common Stockholder
_________________________________________
Signature of Additional Stockholder,
if any
Please sign your name exactly as it appears on this card.
When signing as corporate officer, attorney, executor,
administrator, trustee or guardian, please give full title.
Joint owners should each sign personally.
