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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-14384
BANCFIRST CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OKLAHOMA 73-1221379
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
101 NORTH BROADWAY, SUITE 200, OKLAHOMA CITY, OKLAHOMA 73102
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (405) 270-1086
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1.00
PAR VALUE PER SHARE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO_____
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ____
THE AGGREGATE VALUE OF THE COMMON STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF FEBRUARY 28, 1997 WAS APPROXIMATELY $68,767,000.
AS OF FEBRUARY 28, 1997, THERE WERE 6,332,082 SHARES OF COMMON STOCK
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE PROXY STATEMENT FOR THE MAY 22, 1997 ANNUAL MEETING OF
STOCKHOLDERS OF REGISTRANT (THE "1997 PROXY STATEMENT") TO BE FILED PURSUANT TO
REGULATION 14A ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
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FORM 10-K
CROSS-REFERENCE INDEX
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ITEM PART I PAGE
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1. Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
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5. Market for the Registrant's Common Stock and Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on Accounting and 12
Financial
Disclosure
PART III
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10. Directors and Executive Officers of the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial Owners and Management 12
13. Certain Relationships and Related Transactions 12
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 14
Financial Information Appendix A
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PART I
ITEM 1. BUSINESS.
GENERAL
BancFirst Corporation (the "Company") is an Oklahoma business corporation
and a bank holding company under Federal law. It conducts virtually all of its
operating activities through its wholly-owned subsidiary, BancFirst (the "Bank"
or "BancFirst"), a state-chartered, Federal Reserve member bank headquartered in
Oklahoma City, Oklahoma. BancFirst Corporation also owns 100% of the common
securities of BFC Capital Trust I, a Delaware Business Trust organized in
January 1997.
The Company was incorporated as United Community Corporation in July 1984
for the purpose of becoming a bank holding company. In June 1985, it merged with
seven Oklahoma bank holding companies that had operated under common ownership
and the Company has conducted business as a bank holding company since that
time. Over the next several years the Company acquired an additional five banks,
and in November 1988 the Company changed its name to BancFirst Corporation.
Effective April 1, 1989, the Company consolidated its 12 subsidiary banks and
formed BancFirst. BancFirst currently has 49 banking locations serving 28
communities across central and eastern Oklahoma.
The Company's strategy focuses on providing a full range of commercial
banking services to retail customers and small to medium-sized businesses both
in the non-metropolitan trade centers of Oklahoma and the metropolitan markets
of Oklahoma City, Tulsa, Norman, Muskogee and Shawnee. The Company is
positioned as a "super community bank," managing its community banking offices
on a decentralized basis, which permits them to be responsive to local customer
needs. Underwriting, funding, customer service and pricing decisions are made
by Presidents in each market within the Company's strategic parameters. At the
same time, the Company generally has a larger lending capacity, broader product
line and greater operational efficiencies than its principal competitors in the
non-metropolitan market areas (which typically are independently-owned community
banks). In the metropolitan markets served by the Company, the Company's
strategy is to focus on the needs of local businesses not served effectively by
larger institutions.
The Bank maintains a strong community orientation by, among other things,
appointing selected members of the communities in which the Bank's branches are
located to a local consulting board that assists in introducing prospective
customers to the Bank and in developing or modifying products and services to
meet customer needs. As a result of the development of broad banking
relationships with its customers and the convenience and service of the Bank's
multiple offices, the Bank's lending and investing activities are funded almost
entirely by core deposits.
The Bank centralizes virtually all of its back office, support and
investment functions in order to achieve consistency and cost efficiencies in
the delivery of products and services. The Bank centrally provides services such
as data processing, operations support, bookkeeping, accounting, loan review,
compliance and internal auditing to the Bank's community banking offices to
enhance their ability to compete effectively. The Bank also provides certain
specialized financial services centrally that require unique expertise. The
community banking offices assist the Bank in maintaining its competitive
position by actively participating in the development of new products and
services needed by their customers and in making desirable changes to existing
products and services.
The Bank provides a wide range of retail and commercial banking services,
including: commercial, real estate, agricultural and consumer lending;
depository and funds transfer services; collections; safe deposit boxes; cash
management services; and other services tailored for both individual and
corporate customers. The Bank also offers trust services and acts as executor,
administrator, trustee, transfer agent and in various other fiduciary
capacities. Through Unitech, its operations division, the Bank provides proof,
item processing, statement preparation, research and other correspondent banking
services to financial institutions and governmental units.
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The Bank's primary lending activity is the financing of business and
industry in its market areas. Its commercial loan customers are generally small
to medium-sized businesses engaged in light manufacturing, local wholesale and
retail trade, services, agriculture, and the energy industry. Most forms of
commercial lending are offered, including commercial mortgages, other forms of
asset-based financing and working capital lines of credit. In addition, the Bank
offers Small Business Administration ("SBA") guaranteed loans through BancFirst
Commercial Capital, a division established in 1991.
The Bank's residential mortgage lending activities prior to 1992 consisted
primarily of short- to intermediate-term loans for purchasing personal
residences, or loans for commercial or consumer purposes secured by residential
mortgages. In early 1992, the Bank established a mortgage loan department to
originate traditional mortgage loans through its network of banking locations
and sell such loans in the secondary market with the servicing released.
Consumer lending activities of the Bank consist of traditional forms of
financing for automobiles and other personal loans, and also residential
mortgage loans. In addition, the Bank is one of Oklahoma's largest providers of
guaranteed student loans.
The Bank's range of deposit services include checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts and certificates of deposit. Overdraft protection and
autodraft services are also offered. Deposits of the Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance Corporation
("FDIC"). In addition, certain Bank employees are licensed insurance agents
qualified to offer tax deferred annuities.
Trust services offered through BancTrust, the Bank's trust division,
consist primarily of investment management and administration of trusts for
individuals, corporations and employee benefit plans. Investment options include
collective equity and fixed income funds managed by BancTrust and advised by a
nationally recognized investment management firm.
BancFirst has the following subsidiaries: BancFirst Investment Corporation,
a small business investment corporation; Citibanc Insurance Agency, Inc., a
credit life insurance agency, which in turn owns BancFirst Agency, Inc., a title
insurance agency; Lenders Collection Corporation, which is engaged in collection
of troubled loans assigned to it by BancFirst; and National Express Corporation,
a money order company. All of these companies are Oklahoma corporations.
The Company had approximately 788 full-time equivalent employees as of
December 31, 1996. Its principal executive offices are located at 101 North
Broadway, Suite 200, Oklahoma City, Oklahoma 73102, telephone number (405)270-
1086.
MARKET AREAS AND COMPETITION
The banking environment in Oklahoma is very competitive. The geographic
dispersion of the Company's banking locations presents several different levels
and types of competition. In general, however, each location competes with
other banking institutions, savings and loan associations, personal loan finance
companies and credit unions within their respective market areas. The
communities in which the Bank maintains offices are generally local trade
centers throughout Oklahoma. The major areas of competition include interest
rates charged on loans, interest rates paid on deposits, levels of service
charges on deposits, completeness of product line and quality of service.
Management believes the Company is in an advantageous competitive position
operating as a "super community bank." Under this strategy, the Company
provides a broad line of financial products and services to small to medium-
sized businesses and consumers through full service community banking offices
with decentralized management, while achieving operating efficiency through
product standardization and centralization of processing and other functions.
Each full service banking office has senior management with significant lending
experience
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who exercise substantial autonomy over credit and pricing decisions, subject to
a tiered approval process for larger credits. This decentralized management
approach, coupled with continuity of service by the same staff members, enables
the Bank to develop long-term customer relationships, maintain high quality
service and respond quickly to customer needs. The majority of its competitors
in the non-metropolitan areas are much smaller, and neither offer the range of
products and services nor have the lending capacity of BancFirst. In the
metropolitan communities, the Company's strategy is to be more responsive to,
and more focused on, the needs of local businesses not served effectively by
larger institutions.
Marketing to existing and potential customers is performed through a
variety of media advertising, direct mail and direct personal contacts. The
Company monitors the needs of its customer base through its Product Development
Group, which develops and enhances products and services in response to such
needs. Sales, customer service and product training are coordinated with
incentive programs to motivate employees to cross-sell the Bank's products and
services.
CONTROL OF THE COMPANY
Affiliates of the Company own beneficially approximately 62.55% of the
shares of the Common Stock outstanding. Under Oklahoma law, holders of a
majority of the outstanding shares of Common Stock are able to elect all of the
directors and approve significant corporate actions, including business
combinations. Accordingly, the Affiliates have the ability to control the
business and affairs of the Company.
RECENT DEVELOPMENTS
CITY BANKSHARES, INC.
In March 1996, BancFirst acquired City Bankshares, Inc. ("City Bankshares")
which had $136 million in total assets. The acquisition was for cash of $19.1
million, with City Bankshares and its subsidiary bank, City Bank, being merged
into BancFirst. C-Teq, Inc., an 85% owned data processing subsidiary of City
Bankshares, was spun off to the shareholders of City Bankshares prior to the
acquisition. BancFirst also paid the CEO of City Bankshares $1.25 million for
an agreement not to compete with BancFirst for a period of four years. 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. A core deposit intangible for $830,000 and
goodwill of $7.42 million were recorded in the acquisition.
COMMERCE BANCORPORATION, INC.
In October 1996, the Company acquired all of the assets and assumed all of
the liabilities of Commerce Bancorporation, Inc. ("Commerce Bancorp") which had
$17.8 million in assets. Commerce Bancorp was controlled by certain executive
officers of the Company. The acquisition was accomplished through the exchange
of 156,508 shares of BancFirst Corporation common stock for all of the Commerce
Bancorp common stock outstanding. The minority shares of Commerce Bancorp's
subsidiary bank were purchased for $102,000. 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 acquisition forward.
PEOPLES STATE BANK
In December 1996, the Company acquired 26.75% of the common stock
outstanding of Peoples State Bank of Tulsa, Oklahoma for cash of $770,000. This
investment is accounted for under the equity method of accounting.
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NATIONAL EXPRESS CORPORATION
In December 1996, the Company's money order subsidiary, National Express,
entered into an agreement for the sale of its business. Under the terms of the
agreement, National Express received cash of $600,000 in January 1997, and may
receive additional payments of up to $500,000 over a two-year period based upon
specified levels of business retained by the purchaser. The business of
National Express was transferred to the purchaser in January and February 1997.
The sale was accounted for as a disposal of a segment of a business.
Consequently, the expected net gain from the disposal will be recognized in the
Company's consolidated statement of income when the final proceeds are received.
The operations of National Express were not material in relation to the
consolidated operations of the Company.
BFC CAPITAL TRUST I
In January 1997, BancFirst Corporation established Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25 million of aggregate liquidation amount of 9.65%
Capital Securities, Series A (the "Capital Securities"). The proceeds from the
sale of the Capital Securities were invested in 9.65% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Debentures") of BancFirst
Corporation. Distributions on the Capital Securities are payable January 15 and
July 15 of each year. Such distributions may be deferred for up to ten
consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and will be presented as long-term debt in the Company's consolidated financial
statements. During any deferred period or during any event of default, BancFirst
Corporation may not declare or pay any dividends on any of its capital stock.
FIRST ADA BANCSHARES,INC.
In March 1997, the Company acquired 22.5% of the common stock outstanding
of First Ada Bancshares, Inc. of Ada, Oklahoma for cash of $4.95 million. This
investment will be accounted for under the equity method of accounting.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
The Company is registered as a bank holding company and is 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. Pursuant to such regulations, the Federal Reserve Board may
require the Company to stand ready to use its resources to provide adequate
capital funds to its banking subsidiaries during periods of financial stress or
adversity. Under the Federal Deposit Insurance 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.
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The BHCA prohibits the 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 the Company from acquiring control of any bank
operating outside the State of Oklahoma unless such action is specifically
authorized by the statutes of the state where the bank to be acquired is
located. Similar restrictions apply to acquisition of control of shares of
stock of the Company or BancFirst by other bank holding companies.
Additionally, the BHCA prohibits the 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 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 the Company is subject.
Bank holding companies, such as the Company, 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 the Company, common
stockholders' equity, less certain intangible assets) and "Tier 2 Capital" (as
applied to the Company, a limited amount of the general loan allowance).
The first two ratios, which are based on the degree of credit risk in the
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.
For information regarding the Company's recent historical capital ratios,
see "Selected Financial Data". BancFirst is subject to similar capital
requirements.
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
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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 proposed rules
prescribing standards relating to certain other of the management and
operational standards listed above. The full impact of such rules and guidelines
and proposed standards on the Company and the Bank cannot yet be ascertained.
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. Effective as of December 19,
1993, loans to undercapitalized institutions from the Federal Reserve Banks are
generally restricted.
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;
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(vii) restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution; or
(ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital standards and may be increased only
with the applicable Federal banking regulator's prior written approval. The
applicable Federal banking regulator is required to impose a forced sale of
shares or merger, restrictions on affiliate transactions and restrictions on
rates paid on deposits unless it determines that such actions would not further
an institution's capital improvement.
In addition to the foregoing, a critically undercapitalized institution
would be prohibited from making any payment of principal or interest on
subordinated debt without the concurrence of its regulator and the FDIC,
beginning 60 days after the institution becomes critically undercapitalized. A
critically undercapitalized institution may not, without FDIC approval: (i)
enter into material transactions outside of the ordinary course of business;
(ii) extend credit on highly leveraged transactions; (iii) amend its charter or
bylaws; (iv) make any material change in its accounting methods; (v) engage in
any covered transactions with affiliates; (vi) pay excessive compensation or
bonus (as defined); or (vii) pay rates on liabilities significantly in excess of
market rates.
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. BancFirst does not
accept brokered deposits.
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 the Company and BancFirst
will not be fully ascertainable until after these regulations are adopted.
REGULATORY RESTRICTIONS ON DIVIDENDS
BancFirst, as a member bank of the Federal Reserve System, may not declare
a dividend without the approval of the Federal Reserve Board unless the dividend
to be declared by BancFirst does not exceed the total of (i) BancFirst's net
profits (as defined and interpreted by regulation) for the current year to date
plus (ii) its retained net profits (as defined and interpreted by regulation)
for the preceding two years, less any required transfers to surplus. In
addition, BancFirst can only pay dividends to the extent that its retained net
profits (including the portion transferred to surplus) exceed its bad debts (as
defined by regulation). Under the Federal Deposit Insurance Act, no dividends
may be paid by an insured bank if the bank is in arrears in the payment of any
insurance assessment due to the FDIC.
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Under these provisions BancFirst may declare during 1997, without prior
regulatory approval, aggregate dividends of $13.4 million, plus net profits
earned to the date of such dividend declaration in 1997.
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 required 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. Effective June 1, 1995, the assessment
rates were dropped to 4 cents for the lowest risk classification and up to 31
cents for the highest risk classification. Effective January 1, 1996, the rates
were dropped to a range of zero to 27 cents. Effective January 1, 1997, a
special assessment was enacted to fund payment of Financing Corporation
obligations. The special assessment rate for 1997 through 1999 is 1.29 cents and
for 2000 through 2017, it is 2.43 cents.
STATE REGULATION
BancFirst is an Oklahoma-chartered state bank. Accordingly, BancFirst's
operations are subject to various requirements and restrictions of state law
relating to loans, lending limits, interest rates payable on deposits,
investments, mergers and acquisitions, borrowings, dividends, capital adequacy,
and other matters. Because BancFirst is a member of the Federal Reserve System,
Oklahoma law provides that BancFirst must maintain reserves against deposits as
required by the Federal Reserve Act.
BancFirst is subject to primary supervision, periodic examination and
regulation by the Oklahoma State Banking Department and the Federal Reserve
Board. The Oklahoma State Bank Commissioner is authorized by statute to accept
a Federal Reserve System examination in lieu of a state examination. In
practice, the Federal Reserve Board and the Oklahoma State Banking Department
alternate examinations of BancFirst. If, as a result of an examination of a
bank, the Oklahoma State Banking Department determines that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity, or other aspects of the bank's operations are unsatisfactory or that
the management of the bank is violating or has violated any law or regulation,
various remedies, including the remedy of injunction, are available to the
Oklahoma State Banking Department.
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
8
<PAGE>
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 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. BancFirst utilized its statutory authority to
establish a de novo branch in Oklahoma City in 1996, 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 the Company.
RECENTLY ENACTED FEDERAL LEGISLATION
The recently enacted federal Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994 will increase the ability of the Company 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
9
<PAGE>
scrutiny of compliance with both federal and state community reinvestment
statutes with respect to all of the banks involved in the proposed transaction.
The Company is unable to predict with any certainty the effect any such
legislation would have on the Company, its subsidiaries or their respective
activities.
PENDING AND PROPOSED LEGISLATION
There are various pending and proposed bills in Congress that, among other
things, could restructure the federal supervision of financial institutions.
The Company is unable to predict with any certainty the effect any such
legislation would have on the Company, its subsidiaries or their respective
activities.
ITEM 2. PROPERTIES.
The principal offices of the Company are located at 101 North Broadway,
Suite 200, Oklahoma City, Oklahoma 73102. The Company owns substantially all of
the properties and buildings in which its various offices and facilities are
located. These properties include 39 full service branches and 10 limited
service detached facilities. BancFirst also owns properties for future
expansion. There are no significant encumbrances on any of these properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as a defendant in various legal actions arising
from the conduct of its normal business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
BancFirst Common Stock is listed on the Nasdaq National Market System
("NASDAQ/NMS") and is traded under the symbol "BANF." The following table sets
forth, for the periods indicated, (i) the high and low sales prices of BancFirst
Common Stock as reported in the NASDAQ/NMS consolidated transaction reporting
system and (ii) the quarterly dividends declared on BancFirst Common Stock.
10
<PAGE>
<TABLE>
<CAPTION>
PRICE RANGE CASH
----------------- DIVIDENDS
HIGH LOW DECLARED
----- ----- --------
<S> <C> <C> <C>
1996
First Quarter....... $21 3/4 $19 $0.08
Second Quarter...... $21 3/4 $20 5/8 $0.08
Third Quarter....... $25 3/4 $20 1/2 $0.08
Fourth Quarter...... $27 1/2 $24 1/2 $0.10
1995
First Quarter....... $15 3/4 $13 3/4 $0.07
Second Quarter...... $15 3/4 $14 1/2 $0.07
Third Quarter....... $ 20 $18 7/8 $0.07
Fourth Quarter...... $22 1/2 $18 $0.08
</TABLE>
As of February 28, 1997, there were approximately 329 holders of record of
the Common Stock.
Future dividend payments will be determined by the Company's Board of
Directors in light of the earnings and financial condition of the Company and
the Bank, their capital needs, applicable governmental policies and regulations
and such other factors as the Board of Directors deems appropriate.
BancFirst Corporation is a legal entity separate and distinct from the
Bank, and its ability to pay dividends is substantially dependent upon dividend
payments received from the Bank. Various laws, regulations and regulatory
policies limit the Bank's ability to pay dividends to BancFirst Corporation, as
well as BancFirst Corporation's ability to pay dividends to its shareholders.
See "Liquidity and Funding" and "Capital Resources" under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Business - "Supervision and Regulation" and Note 15 of the Notes
to Consolidated Financial Statements for further information regarding
limitations on the payment of dividends by BancFirst Corporation and the Bank.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from "Selected Consolidated Financial Data"
contained on page A-2 of the attached Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Incorporated by reference from "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained on pages A-3 through A-
14 of the attached Appendix.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of BancFirst Corporation and its
subsidiaries, are incorporated by reference from pages A-15 through A-43 of the
attached Appendix, and include the following:
11
<PAGE>
a. Reports of Independent Accountants
b. Consolidated Balance Sheet
c. Consolidated Statement of Income
d. Consolidated Statement of Stockholders' Equity
e. Consolidated Statement of Cash Flows
f. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no material disagreements between the Company and its
independent accountants on accounting and financial disclosure matters which are
required to be reported under this Item for the period for which this report is
filed.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 401 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Election of Directors" and is hereby
incorporated by reference. The information required by Item 405 of Regulation
S-K will be contained in the 1997 Proxy Statement under the caption "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" and is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 402 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Compensation of Directors and
Executive Officers" and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 403 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Stock Ownership" and is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Transactions with Management" and is
hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheet at December 31, 1996 and 1995
Consolidated Statement of Income for the three years ended December
31, 1996
12
<PAGE>
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1996
Consolidated Statement of Cash Flows for the three years ended
December 31, 1996
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from
pages A-15 through A-43 of the attached Appendix.
(2) All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) The following Exhibits are filed with this Report or are incorporated
by reference as set forth below:
EXHIBIT
NUMBER EXHIBIT
- ------- ----------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated October 28, 1994 among
BancFirst, State National Bank, Marlow, and certain shareholders of
State National Bank (filed as Exhibit 2.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 and
incorporated herein by reference).
2.2 Agreement and Plan of Reorganization dated September 16, 1995 between
BancFirst and City Bankshares, Inc. (filed as Exhibit 2.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by reference).
2.3 Agreement dated September 16, 1995 between BancFirst and William O.
Johnstone (filed as Exhibit 2.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 and incorporated
herein by reference).
3.1 Amended and Restated Certificate of Incorporation (filed as Exhibit
No. 33 to the Company's Registration Statement on Form S-2, File No.
33-58804, and incorporated herein by reference).
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation (filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference).
3.3 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation (filed as Exhibit 3.0 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference).
3.4 Amended By-Laws (filed as Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated
as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated February 4, 1997 and incorporated herein by
reference).
4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated February 4, 1997 and
incorporated herein by reference).
4.3 Series A Capital Securities Guarantee Agreement dated as of February
4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form
8-K dated February 4, 1997 and incorporated herein by reference).
13
<PAGE>
EXHIBIT
NUMBER EXHIBIT
- ------- ----------------------------------------------------------------------
10.10 United Community Corporation (now BancFirst Corporation) Stock Option
Plan (filed as Exhibit 10.09 to the Company's Registration Statement
on Form S-4, file No. 33-13016 and incorporated herein by reference).
10.11 BancFirst Corporation Employee Stock Ownership and Thrift Plan (filed
as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
22.1* Subsidiaries of Registrant.
27.1* Financial Data Schedule.
_______________________________
* Filed herewith.
(b) No reports on Form 8-K have been filed by the Company during the fourth
quarter of the year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 31, 1997 BANCFIRST CORPORATION
(Registrant)
/s/ David E. Rainbolt
--------------------------------------------
David E. Rainbolt
President and Chief Executive Officer
14
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1997.
/s/ H. E. Rainbolt /s/ Robert A. Gregory
- ------------------------------------ ------------------------------------
H. E. Rainbolt Robert A. Gregory
Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
/s/ Stephen R. Lindemood /s/ David E. Rainbolt
- ------------------------------------ ------------------------------------
Stephen R. Lindemood David E. Rainbolt
President, BancTrust and Director President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ J. Ralph McCalmont /s/ William O. Johnstone
- ------------------------------------ ------------------------------------
J. Ralph McCalmont William O. Johnstone
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
/s/ Joe T. Shockley, Jr.
- ------------------------------------ ____________________________________
Melvin Moran
Executive Vice President, Director
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ Randy P. Foraker
____________________________________ ------------------------------------
John T. Hannah Randy P. Foraker
Director Senior Vice President, Controller
and Secretary/Treasurer
(Principal Accounting Officer)
____________________________________
J. R. Hutchens, Jr.
Director
15
<PAGE>
APPENDEX A
BANCFIRST CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGES
--------------
<S> <C>
Selected Consolidated Financial Data................................................... A-2
Management's Discussion and Analysis of Financial Condition and Results of Operations A-3 -- A-14
Reports of Independent Accountants..................................................... A-15
Consolidated Balance Sheet............................................................. A-16
Consolidated Statement of Income....................................................... A-17
Consolidated Statement of Stockholders' Equity......................................... A-18
Consolidated Statement of Cash Flows................................................... A-19
Notes to Consolidated Financial Statements............................................. A-20 -- A-43
</TABLE>
A-1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income $ 53,784 $ 43,689 $ 38,936 $ 32,971 $ 30,041
Provision for possible loan losses 994 855 380 251 700
Noninterest income 14,999 12,500 11,218 10,547 8,612
Noninterest expense 43,270 34,932 31,631 29,151 26,792
Income before extraordinary items 15,088 12,839 11,597 10,154 8,955
Net income 15,088 12,839 11,597 11,472 11,161
Accumulated preferred dividends -- -- (55) (386) (908)
Net income applicable to common stockholders 15,088 12,839 11,542 11,086 10,253
BALANCE SHEET DATA:
Total assets $1,235,711 $1,048,338 $872,915 $823,234 $705,097
Total loans (net of unearned interest) 763,559 625,162 522,314 466,356 382,498
Allowance for possible loan losses 11,945 10,646 9,729 9,027 7,202
Securities 283,857 263,113 223,044 231,546 204,001
Deposits 1,105,453 923,169 784,851 736,686 636,633
Long-term borrowings 6,636 918 -- -- --
10% Preferred Stock -- -- -- 3,898 3,829
Common stockholders' equity 112,096 98,343 81,961 76,052 46,929
PER COMMON SHARE DATA:
Income before extraordinary items $ 2.33 $ 2.01 $ 1.80 $ 1.77 $ 1.70
Net income 2.33 2.01 1.80 2.01 2.17
Cash dividends 0.34 0.29 0.25 0.21 0.05
Book value 17.52 15.80 13.21 12.27 9.94
Tangible book value 15.19 14.50 11.93 11.02 8.31
SELECTED FINANCIAL RATIOS:
Performance ratios:
Return on average assets 1.31% 1.33% 1.34% 1.54% 1.62%
Return on average stockholders' equity 14.68 14.13 14.36 17.03 21.58
Cash dividend payout ratio 14.59 14.43 13.89 10.45 2.30
Net interest spread 4.51 4.34 4.56 4.54 4.50
Net interest margin 5.35 5.20 5.20 5.14 5.08
Efficiency ratio 62.91 62.17 63.07 66.99 69.31
Balance Sheet Ratios:
Average loans to deposits 68.81% 67.02% 63.39% 61.82% 56.78%
Average earning assets to total assets 88.27 88.31 88.05 88.47 88.58
Average earning assets to interest-bearing liabilities 125.17 124.21 123.76 122.39 117.11
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.75% 0.79% 0.71% 1.00% 0.99%
Nonperforming and restructured assets to total assets 0.57 0.55 0.70 1.08 1.61
Allowance for possible loan losses to total loans 1.56 1.70 1.86 1.94 1.88
Allowance for possible loan losses to nonperforming
and restructured loans 207.31 216.73 261.53 193.21 190.88
Net chargeoffs to average loans 0.09 0.08 0.00 0.06 0.07
Capital Ratios:
Average stockholders' equity to average assets 8.93% 9.43% 9.34% 9.06% 7.50%
Leverage ratio 7.90 8.55 9.08 9.06 7.41
Tier I risk-based capital ratio 12.98 14.76 15.41 16.57 13.80
Total risk-based capital ratio 14.23 16.02 16.67 17.83 15.06
</TABLE>
A-2
<PAGE>
FINANCIAL REVIEW
The following discussion is an analysis of the financial condition and
results of operations of the Company for the three years ended December 31, 1996
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and the Selected Consolidated Financial Data included herein.
SUMMARY
BancFirst Corporation continued its growth in 1996 and posted its sixth
consecutive year of record earnings. After completing two acquisitions during
the year and opening a new branch in Oklahoma City, the Company now serves 28
communities in Oklahoma, more than any other bank. BancFirst was the first
state-chartered bank in Oklahoma to surpass $1 billion in assets and is the
fourth largest bank in the state.
Net income for 1996, rose to $15.1 million, from $12.8 million for 1995 and
$11.6 million for 1994. The corresponding earnings per share was $2.33 for 1996,
up from $2.01 for 1995 and $1.80 for 1994. Return on average assets was 1.31%
for 1996 compared to 1.33% for 1995 and 1.34% for 1994. Return on average
stockholders' equity increased to 14.68% from 14.13% for 1995 and 14.36% for
1994.
Total assets increased $188 million, to $1.24 billion, as a result of
acquisitions and internal growth. Total loans increased $138 million, including
internal growth of over 8%. Total deposits increased $182 million from both
acquisitions and internal growth. Stockholders' equity increased $13.8 million
while average stockholders' equity to average assets decreased to 8.93%, from
9.43% for 1995.
Asset quality remained high in 1996 with nonperforming and restructured
assets to total assets of 0.57%, compared to 0.55% for 1995. The allowance for
possible loan losses to nonperforming and restructured loans was 207.31% at
year-end 1996 and 216.73% at the end of 1995.
In March 1996, the Company acquired City Bankshares, Inc. of Oklahoma City,
Oklahoma ("City Bankshares") which had assets of $136 million. City Bankshares'
seven locations significantly expanded the Company's branch network in Oklahoma
City. At the same time, the Company opened a de novo branch in Oklahoma City,
giving it a total of nine locations in this important metropolitan area.
In October 1996, the Company acquired Commerce Bancorporation, Inc. of
McLoud, Oklahoma ("Commerce Bancorp"), which had $18 million in total assets.
The acquisition of Commerce Bancorp complements the Company's existing locations
in Shawnee, Oklahoma.
In January 1997, BancFirst Corporation established BFC Capital Trust I (the
"Trust") which issued $25 million of 9.65% Capital Securities, Series A (the
"Capital Securities") in February 1997. The proceeds of the Capital Securities
may be used for future acquisitions, purchases of the Company's common stock and
for general corporate purposes.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is the Company's principal source of operating
revenue, increased 23.1% in 1996 to $53.8 million, after increasing 12.2% in
1995 and 18.1% in 1994. The net interest margin on a taxable equivalent basis
for 1996 was 5.35%, up from 5.20% for 1995 and 1994. The Company's net interest
margin has benefited in recent years from generally stable interest rates
combined with relatively strong loan demand. It is therefore reasonable to
expect that the Company's relatively high net interest margin may decline to
more historical levels in the absence of a continuation of this trend.
A-3
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- ----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
ASSETS BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans (1) $ 710,115 $69,342 9.76% $577,887 $58,199 10.07% $493,300 $45,995 9.32%
Investments - taxable 265,488 16,546 6.23 233,777 13,937 5.96 225,257 12,214 5.42
Investments - tax exempt 11,042 937 8.49 11,059 945 8.55 10,445 925 8.86
Federal funds sold 29,287 1,572 5.37 28,515 1,673 5.87 32,991 1,350 4.09
---------- ------- -------- ------- -------- -------
Total earning assets 1,015,932 88,397 8.70 851,238 74,754 8.78 761,993 60,484 7.94
---------- ------- -------- ------- -------- -------
Nonearning assets:
Cash and due from banks 73,111 67,348 59,400
Interest receivable and 73,542 55,543 53,392
other assets
Allowance for possible (11,598) (10,162) (9,372)
loan losses
---------- -------- --------
Total nonearning assets 135,055 112,729 103,420
---------- -------- --------
Total assets $1,150,987 $963,967 $865,413
========== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Transaction deposits $ 111,633 3,052 2.73% $179,435 $ 5,882 3.28% $173,647 $ 4,899 2.82%
Savings deposits 275,868 8,582 3.11 154,482 5,848 3.79 156,920 4,828 3.08
Time deposits 416,253 21,958 5.28 346,807 18,435 5.32 284,625 11,054 3.88
Short-term borrowings 6,298 364 5.78 4,403 253 5.75 527 19 3.60
Line of credit -- -- -- -- 16 NM -- 38 NM
Long-term borrowings 1,560 103 6.60 216 14 6.48 -- -- --
---------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 811,612 34,059 4.20 685,343 30,448 4.44 615,719 20,838 3.38
---------- ------- -------- ------- -------- -------
Interest-free funds:
Demand deposits 228,291 181,495 163,002
Interest payable and other 8,278 6,259 5,903
liabilities
Stockholders' equity 102,806 90,870 80,789
---------- -------- --------
Total interest-free funds 339,375 278,624 249,694
---------- -------- --------
Total liabilities and
stockholders' equity $1,150,987 $963,967 $865,413
========== ======== ========
Net interest income $54,338 $44,306 $39,646
======= ======= =======
Net interest spread 4.51% 4.34% 4.56%
==== ==== ====
Net interest margin 5.35% 5.20% 5.20%
==== ==== ====
</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.
A-4
<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. The Volume/Rate Analysis
summarizes the relative contribution of each of these components to the
increases in net interest income in 1996 and 1995. The increase in net interest
income in 1996 can be attributed to the increase in loan volume and an increase
in the ratio of average earning assets to interest-bearing liabilities. Average
loans rose 22.9% and average loans to deposits increased to 68.81% from 67.02%
for 1995. At the same time, average earning assets to interest-bearing
liabilities increased to 125.17% from 124.24%. Rising interest rates in 1995
produced a negative rate variance which partially offset the increase in net
interest income from loan growth.
<TABLE>
<CAPTION>
CHANGE IN 1996 CHANGE IN 1995
-------------------------------- ----------------------------
DUE TO DUE TO
VOLUME DUE TO VOLUME DUE TO
TOTAL (1) RATE TOTAL (1) RATE
---------- -------- ------- ------- ------ -------
INCREASE (DECREASE) IN: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $11,145 $13,245 $(2,100) $12,202 $7,903 $ 4,299
Securities--taxable 2,609 2,112 497 1,723 763 960
Securities--tax-exempt (8) (2) (6) 20 60 (40)
Federal funds sold (101) 45 (146) 324 (183) 507
------- ------- ------- ------- ------ -------
Total interest income 13,645 15,400 (1,755) 14,269 8,543 5,726
------- ------- ------- ------- ------ -------
INTEREST EXPENSE:
Transaction deposits (2,831) (2,235) (596) 983 162 821
Savings deposits 2,734 4,368 (1,634) 1,020 (91) 1,111
Time deposits 3,523 3,763 (240) 7,383 2,457 4,926
Short-term borrowings 95 112 (17) 234 14 220
Line of credit -- -- -- (22) -- (22)
Long-term borrowings 89 87 2 14 -- 14
------- ------- ------- ------- ------ -------
Total interest expense 3,610 6,095 (2,485) 9,612 2,542 7,070
------- ------- ------- ------- ------ -------
Net interest income $10,035 $ 9,305 $ 730 $ 4,657 $6,001 $(1,344)
======= ======= ======= ======= ====== =======
</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 the
Company's net interest margin to changes in interest rates by analyzing the
repricing relationship between its earning assets and interest-bearing
liabilities. This analysis is limited by the fact that it presents a static
position as of a single day and is not necessarily indicative of the Company's
position at any other point in time, and does not take into account the
sensitivity of yields and rates of specific assets and liabilities to changes in
market rates. In 1996, Management continued its strategy of creating manageable
negative interest sensitivity gaps. This approach takes advantage of the
Company's stable core deposit base and the relatively short maturity and
repricing frequency of its loan portfolio, as well as the historical existence
of a positive yield curve, which enhances the net interest margin over the long
term. Although interest rate risk is increased on a controlled basis by this
position, it is somewhat mitigated by the Company's high level of liquidity.
The Analysis of Interest Rate Sensitivity presents the Company's earning
assets and interest-bearing liabilities based on maturity and repricing
frequency at December 31, 1996. At this date, interest-bearing liabilities
exceeded earning assets by $180 million in the three month interval. This
negative gap position assumes that the Company's core savings and transaction
deposits are immediately rate sensitive and reflects Management's perception
that the yield curve will be 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 the
Company. In 1994 and 1995, the yield curve flattened as short-term interest
rates rose, then remained relatively stable in 1996. When the yield curve
flattens, the Company's net interest margin would be expected to decline, unless
the Company adjusts its interest sensitivity gap position, or employs other
strategies to control the rise in rates on interest-bearing liabilities or to
increase the yield on earning assets. In recent years, the Company's loan growth
and increases in noninterest-bearing funding sources have resulted in lower
negative gaps in the zero to 12 months range. This has largely offset the
effects of the flatter yield curve. In 1996, the cumulative 12 months negative
gap decreased to 14.06%, from 18.06% at December 31, 1995.
A-5
<PAGE>
<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 $ 303,142 $ 182,260 $211,142 $ 67,015 $ 763,559
Federal funds sold 44,785 -- -- -- 44,785
Securities 45,496 58,577 140,201 39,583 283,857
--------- --------- -------- --------- ----------
Total $ 393,423 $ 240,837 $351,343 $ 106,598 $1,092,201
========= ========== ======== ========= ==========
FUNDING SOURCES:
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 129,810 $ 129,810
Savings and transaction deposits 404,707 -- -- -- 404,707
Time deposits of $100 or more 48,942 50,858 13,323 -- 113,123
Time deposits under $100 116,112 163,620 42,683 -- 322,415
Short-term borrowings 3,414 -- -- -- 3,414
Long-term borrowings 50 89 5,556 941 6,636
Stockholders' equity -- -- -- 112,096 112,096
--------- --------- -------- --------- ----------
Total $ 573,225 $ 214,567 $ 61,562 $ 242,847 $1,092,201
========= ========== ======== ========= ==========
Interest sensitivity gap $(179,802) $ 26,270 $289,781 $(136,249)
Cumulative gap $(179,802) $(153,532) $136,249 --
Cumulative gap as a percentage
of total earning assets (16.46)% (14.06)% 12.47% --%
</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 $994,000 for 1996 from
$855,000 for 1995, and $380,000 for 1994. These relatively low levels of
provisions reflect the Company's strong asset quality. Net loan charge-offs were
$654,000 for 1996, compared to net charge-offs of $452,000 for 1995 and net
recoveries of $5,000 for 1994. The net charge-offs for 1996 and 1995 were
equivalent to only 0.09% and 0.08% of average loans, respectively. A more
detailed discussion of the allowance for possible loan losses is provided under
"Loans."
SECURITIES TRANSACTIONS
Net gains on securities transactions were $188,000 in 1996, compared to
$111,000 in 1995, and $5,000 in 1994. The Company's general 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 or from disposing of securities acquired in mergers which
had a higher than acceptable level of risk. A more detailed discussion of
securities is provided under "Securities."
OTHER NONINTEREST INCOME
Noninterest income, excluding securities transactions, increased in 1996 by
$2.42 million, or 19.5%, compared to an increase of $1.18 million, or 10.5% in
1995 and $870,000, or 8.4%, in 1994. Noninterest income has become an
increasingly important source of revenue. The Company's fee income has increased
each year since 1987 due to improved pricing strategies, enhanced product lines
and bank acquisitions. New products and strategies are being implemented which
are expected to produce continued growth in noninterest income.
Service charges on deposits increased $1.1 million, or 14%, compared to
increases of 2.98% and 16.4% in 1995 and 1994, respectively. Rising interest
rates in 1995 increased earnings credits allowed to customers charged through
account analysis, thereby reducing commercial service charges and partially
offsetting the growth in total service charges. Other noninterest income
increased $1.32 million, or 29.2%, in 1996, compared to an increase
A-6
<PAGE>
of 26.5%, in 1995, and a decrease of 5.4% in 1994. The primary causes of the
increases were higher fees from mortgage originations, higher gains on sales of
mortgage loans and higher fees from money order sales.
NONINTEREST EXPENSE
Total noninterest expense increased in 1996 by 23.9% to $43.3 million,
compared to increases of 10.4% for 1995 and 8.5% for 1994. Salaries and employee
benefits have increased over the past three years due to acquisitions, higher
salary levels, additional staff for new product lines and increased loan demand.
Occupancy and fixed asset expense, depreciation, amortization and data
processing services all increased due to acquisitions. Data processing services
decreased in 1995 from the renegotiation of the data processing contract. Net
expense from other real estate owned of only $35,000 and $89,000 were recognized
for 1996 and 1995, compared to net income from other real estate owned of
$312,000 recognized for 1994. These amounts are reflective of the Company's
efforts to reduce nonperforming assets. Other noninterest expense decreased in
1995 due to the reduction of FDIC premiums in the last half of that year.
INCOME TAXES
Income tax expense increased to $9.43 million from $7.56 million for 1995
and $6.55 million for 1994. Prior to 1993, the Company 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. The Company utilized substantial portions of its
net operating loss carryforwards in 1993 and 1994. The remaining carryforwards
are limited as to the amounts which may be utilized each year.
Since banks have traditionally carried large amounts of tax-exempt
securities and loans, certain financial information is prepared on a taxable
equivalent basis to facilitate analysis of yields and changes in components of
earnings. Average balance sheets, income statements and other financial
statistics on a taxable equivalent basis have been presented for this purpose.
IMPACT OF INFLATION
The impact of inflation on financial institutions differs significantly
from that of industrial or commercial companies. The assets of financial
institutions are predominantly monetary, as opposed to fixed or nonmonetary
assets such as premises, equipment and inventory. As a result, there is little
exposure to inflated earnings by understated depreciation charges or
significantly understated current values of assets. Although inflation can have
an indirect effect by leading to higher interest rates, financial institutions
are in a position to monitor the effects on interest costs and yields and
respond to inflationary trends through management of interest rate sensitivity.
Inflation can also have an impact on noninterest expenses such as salaries and
employee benefits, occupancy, services and other costs.
FINANCIAL POSITION
CASH AND FEDERAL FUNDS SOLD
Cash consists of cash and cash items on hand, deposits and other amounts
due from other banks, and reserves deposited with the Federal Reserve Bank.
Federal funds sold consists of overnight investments of excess funds with other
financial institutions. The amount of cash and federal funds sold carried by the
Company is a function of the availability of funds presented to other
institutions for clearing, the Company's requirements for liquidity, operating
cash and reserves, available yields, and interest rate sensitivity management.
Balances of these items can fluctuate widely based on these various factors.
Cash and federal funds sold increased $6.23 million, or 5.4% compared to
December 31, 1995. In 1995, cash and federal funds sold increased $33.6 million,
or 41.1%, as compared to year-end 1994. However, based on average balances the
increases for 1996 and 1995 were 6.8% and 3.76%, respectively. The year-end
balances are higher than the average balances for these years due to funds
temporarily deposited by certain customers of the bank over year end.
Consequently, comparisons of year-end balances of cash and federal funds sold
are not necessarily reflective of the overall trend.
A-7
<PAGE>
SECURITIES
During 1996, total securities increased $20.7 million, or 7.88%, compared
to an increase of $40 million, or 17.9%, in 1995. These increases were primarily
due to acquisitions.
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 million from securities held for investment to
securities available for sale. Prior to January 1, 1994, all securities were
classified as held for investment.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
HELD FOR INVESTMENT
U. S. Treasury and other federal agencies $ 22,560 $ 30,352 $ 9,505
States and political subdivisions 10,654 10,478 9,191
Other securities 75 1,175 2,083
-------- -------- --------
Total $ 33,289 $ 42,005 $ 20,779
======== ======== ========
Estimated market value $ 33,653 $ 42,577 $ 20,395
======== ======== ========
AVAILABLE FOR SALE
U. S. Treasury and other federal agencies $242,733 $216,431 $200,141
States and political subdivisions 1,284 657 747
Other securities 7,051 4,020 1,377
-------- -------- --------
Total $250,568 $221,108 $202,265
======== ======== ========
</TABLE>
The Maturity Distribution of Securities summarizes the maturity and
weighted average taxable equivalent yields of the securities portfolios at
December 31, 1996. The Company manages its securities portfolio for liquidity
and as a tool to execute its asset/liability management strategy. Consequently,
the average maturity of the portfolio has been shortened significantly in recent
years. The percentage of securities maturing within five years increased to
85.24% in 1996 from 81.77% in 1995.
A-8
<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
------- -------- ---------- --------- ---------- -------- -------- ------- --------- ------
HELD FOR INVESTMENT (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury and other
federal agencies $ 1,708 6.86% $ 10,980 6.86% $ 7,273 6.79% $ 2,599 6.62% $ 22,560 6.81%
State and political
subdivisions 2,235 5.47 4,834 5.35 2,372 5.59 1,213 6.19 10,654 5.52
Other securities -- -- -- -- 75 6.26 -- -- 75 6.26
------- -------- ------- ------- --------
Total $ 3,943 6.07 $ 15,814 6.40 $ 9,720 6.49 $ 3,812 6.48 $ 33,289 6.40
======= ======== ======= ======= ========
Percentage of total 11.84% 47.51% 29.20% 11.45% 100.00%
======= ======== ======= ======= ========
AVAILABLE FOR SALE
U. S. Treasury and other
federal agencies $60,833 5.79% $160,594 6.48% $11,275 6.91% $ 9,531 6.64% $242,233 6.33%
State and political
subdivisions 35 3.75 754 4.03 221 4.97 274 5.34 1,284 4.47
Other securities -- -- -- -- -- -- 7,051 5.87 7,051 5.87
------- -------- ------- ------- --------
Total $60,868 5.79 $161,348 6.47 $11,496 6.87 $16,856 6.30 $250,568 6.31
======= ======== ======= ======= ========
Percentage of total 24.29% 64.39% 4.59% 6.73 100.00%
======= ======== ======= ======= ========
Total securities $64,811 5.81 $177,162 6.46 $21,216 6.70 $20,668 6.33 $283,857 6.32
======= ======== ======= ======= ========
Percentage of total 22.83% 62.41% 7.48% 7.28% 100.00%
======= ======== ======= ======= ========
</TABLE>
LOANS
The Company has generated significant loan growth over the past seven years
from both acquisitions and internal originations. Total loans increased $138
million, or 22.1%, in 1996, and $103 million, or 19.7%, in 1995. In 1996,
internal loan growth added $57.6 million to total loans, compared to $54 million
in 1995. Internal growth is being generated primarily by continued growth in the
Oklahoma City and Tulsa metropolitan markets and by specialized lending
activities such as guaranteed student loans, SBA guaranteed loans and
residential mortgage loans.
Composition
The Company's loan portfolio is diversified among 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 $37.6 million, or 4.92% of total loans as of the end of 1996,
while oil and gas production loans totaled only $5.83 million, or 0.76% of total
loans at such date. Real estate loans are relatively equally divided between
mortgages on personal residences and loans secured by commercial and other types
of properties. Installment loans are comprised mostly of loans to individuals
for the purchase of vehicles and student loans. Loans secured by real estate
have 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 1996, this percentage was 52.6% compared to 56.6% for
1989. Although the percentage of the portfolio represented by real estate loans
has declined, the Company remains subject to risk from future market
fluctuations in property values. The Company attempts to manage this risk
through rigorous loan underwriting standards, training of loan officers and
close monitoring of the values of individual properties.
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 73% of the commercial real estate and other commercial loans had
adjustable interest rates at year-end 1996. The short maturities and adjustable
interest rates on these loans allow the Company to maintain the majority of its
loan portfolio near market interest rates.
A-9
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ---------------- --------------- ---------------- ---------------
% 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 $223,116 29.22% $180,923 28.94% $156,718 30.00% $131,088 28.11% $115,037 30.08%
Real estate --
construction 37,555 4.92 27,620 4.42 29,760 5.70 19,258 4.13 10,028 2.62
Real estate --
mortgage 363,671 47.63 305,456 48.86 242,143 46.36 229,143 49.13 185,982 48.62
Consumer 139,217 18.23 111,163 17.78 93,693 17.94 86,867 18.63 71,451 18.68
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $763,559 100.00% $625,162 100.00% $522,314 100.00% $466,356 100.00% $382,498 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</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 $ 193,435 $ 29,681 $ -- $223,116
Real estate -- construction 35,051 2,504 -- 37,555
Real estate -- mortgage (excluding loans secured
by 1-4 family residential properties) 142,486 24,415 -- 166,901
--------- -------- ------- --------
Total $ 370,972 $ 56,600 $ -- $427,572
========= ======== ======= ========
Loans with predetermined interest rates $ 81,692 $ 32,909 $ -- $114,601
Loans with adjustable interest rates 289,280 23,691 -- 312,971
--------- --------- ------- -------
Total $ 370,972 $ 56,600 $ -- $427,572
========= ======== ======= ========
Percentage of total 86.76% 13.24% --% 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 have increased since 1994 primarily as
a result of acquisitions. However, nonperforming and restructured loans as a
percentage of total loans was 0.75% at year-end 1996, compared to 0.79% at year-
end 1995 and 0.71% at year-end 1994. From a historical perspective,
nonperforming loans peaked in 1986 and have gradually decreased since that time.
However, it is reasonable to expect that over the next several years the level
of nonperforming loans and loan losses will rise to more historical norms as a
result of economic and credit cycles.
Nonaccrual loans negatively impact the Company's net interest margin. A
loan is placed on nonaccrual status when, in the opinion of management, the
future collectibility of interest and/or principal is in serious doubt. Interest
income is recognized on certain of these loans on a cash basis if the full
collection of the remaining principal balance is reasonably expected. Otherwise,
interest income is not recognized until the principal balance is fully
collected. Total interest income which was not accrued on nonaccrual loans
outstanding at year end was approximately $172,000 in 1996 and $166,000 in 1995.
Only a small amount of this interest was ultimately collected.
The classification of a loan as nonperforming does not necessarily indicate
that loan principal and interest will ultimately be uncollectible. The Company's
experience is that a significant portion of both principal and interest is
eventually recovered. However, the above normal risk associated with
nonperforming loans is considered in the determination of the allowance for
possible loan losses. At year-end 1996, the allowance for possible loan losses
as a percentage of nonperforming and restructured loans was 207%, compared to
217% at the end of 1995.
A-10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- ------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Past due over 90 days and still accruing $ 1,476 $ 500 $ 351 $ 590 $ 378
Nonaccrual 3,643 3,724 2,715 3,278 2,370
Restructured 643 688 654 804 1,025
--------- ------- ------- ------- --------
Total nonperforming and restructured loans 5,762 4,912 3,720 4,672 3,773
Other real estate owned and repossessed assets 1,252 858 2,354 4,220 7,574
--------- ------- ------- ------- --------
Total nonperforming and restructured assets $ 7,014 $ 5,770 $ 6,074 $ 8,892 $ 11,347
========= ======= ======= ======= ========
Nonperforming and restructured loans to total loans 0.75% 0.79% 0.71% 1.00% 0.99%
========= ======= ======= ======= ========
Nonperforming assets to total assets 0.57% 0.55% 0.70% 1.08% 1.61%
========= ======= ======= ======= ========
</TABLE>
Other real estate owned and repossessed assets have decreased from a high
of $21.3 million in 1989 to $1.25 million at year-end 1996, as a result of a
substantial effort by the Company 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, the Company's policy is to write
other real estate down annually by the greater of 10% of its remaining carrying
value or the difference between its remaining carrying value and its estimated
market value. The slight increase in other real estate owned in 1996 was due to
acquisitions during the year.
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 restrucutured assets, totaled $17.3
million at December 31, 1996. In general, these loans are well collateralized
and have no identifiable loss potential. Loans which are considered to have
identifiable loss potential are placed on nonaccrual status, are allocated a
specific allowance for loss or are directly charged-down, and are reported as
nonperforming.
Allowance for Possible Loan Losses
The allowance for possible loan losses reflects Management's assessment of
the risk of loss inherent in the Company's loan portfolio. The allowance and its
adequacy is determined through consideration of many factors, including
evaluation of known problem loans, levels of adversely classified, past due and
nonperforming loans, loan loss experience, and economic conditions. To
facilitate Management's assessment, the Company's Asset Quality Department
performs periodic loan reviews at each of the Company's locations. The process
of determining the adequacy of the allowance for possible loan losses, however,
necessarily involves the exercise of judgment and consideration of numerous
subjective factors and, accordingly, there can be no assurance that the current
level of the allowance will prove adequate in light of future developments and
economic conditions. As loan quality changes with economic and credit cycles, it
would be reasonable to expect the Company's net charge-offs and loan loss
provisions to return to more historically normal levels.
Adversely classified loans as a percentage of total loans have declined
every year since 1986, excluding bank acquisitions, primarily as a result of the
improving state economy and the Company'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
$20.7 million at the end of 1996, compared to $15.8 million for 1995 and $16.3
million at the end of 1994. The percentage of classified loans to total loans
was 2.71% for 1996, 2.53% for 1995 and 3.12% for 1994.
Net charge-offs as a percentage of average loans decreased each year from
1989 through 1993, with $5,000 of net recoveries recognized in 1994. In 1996,
the Company recognized $654,000 of net charge-offs, which was only 0.09% of
average loans, compared to $452,000 of net charge-offs, or 0.08% of average
loans for 1995.
A-11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 10,646 $ 9,729 $ 9,027 $ 7,202 $ 5,967
----------- -------- -------- -------- --------
Charge-offs:
Commercial (481) (457) (285) (218) (285)
Real estate (82) (130) (116) (436) (317)
Consumer (384) (348) (450) (417) (330)
Other (120) (78) (68) (83) (103)
----------- -------- -------- -------- --------
Total charge-offs (1,067) (1,013) (919) (1,154) (1,035)
----------- -------- -------- -------- --------
Recoveries:
Commercial 98 232 400 431 428
Real estate 125 154 341 251 239
Consumer 155 150 148 185 93
Other 35 25 35 38 43
----------- -------- -------- -------- --------
Total recoveries 413 561 924 905 803
----------- -------- -------- -------- --------
Net (charge-offs) recoveries (654) (452) 5 (249) (232)
Provisions charged to operations 994 855 380 251 700
Additions from acquisitions 959 514 317 1,823 767
----------- -------- -------- -------- --------
Balance at end of year $ 11,945 $ 10,646 $ 9,729 $ 9,027 $ 7,202
=========== ======== ======== ======== ========
Average loans $ 710,115 $577,887 $493,300 $412,306 $350,882
=========== ======== ======== ======== ========
Total loans $ 763,559 $625,162 $522,314 $466,356 $382,498
=========== ======== ======== ======== ========
Net charge-offs to average loans 0.09% 0.08% 0.00% 0.06% 0.07%
=========== ======== ======== ======== ========
Allowance to total loans 1.56% 1.70% 1.86% 1.94% 1.88%
=========== ======== ======== ======== ========
ALLOCATION OF THE ALLOWANCE BY CATEGORY OF LOANS:
Commercial, financial and other $ 821 $ 505 $ 720 $ 647 $ 333
Real estate--construction 426 466 564 747 --
Real estate--mortgage 731 917 927 729 872
Consumer 170 188 149 155 156
Unallocated 9,797 8,570 7,369 6,749 5,841
----------- -------- -------- -------- --------
Total $ 11,945 $ 10,646 $ 9,729 $ 9,027 $ 7,202
=========== ======== ======== ======== ========
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS:
Commercial, financial and other 29.22% 28.94% 30.00% 28.11% 30.08%
Real estate--construction 4.92 4.42 5.70 4.13 2.62
Real estate--mortgage 47.63 48.86 46.36 49.13 48.62
Consumer 18.23 17.78 17.94 18.63 18.68
----------- -------- -------- -------- --------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
=========== ======== ======== ======== ========
</TABLE>
The Company adopted Statement of Financing Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), in January 1995.
This accounting standard requires that impaired loans be measured based upon the
present value of 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 it is probable that the creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. The
Company's impaired loans are collateral dependent. Accordingly, the amount of
impairment is measured based upon the fair value of the underlying collateral
and is included in the allowance for possible loan losses. The adoption of FAS
114 did not have a material effect on the financial position or results of
operations of the Company.
LIQUIDITY AND FUNDING
The Company's principal source of liquidity and funding is its diverse
deposit base generated from customer relationships. The availability of deposits
is affected by economic conditions, competition with other financial
institutions and alternative investments available to customers. Through
interest rates paid, competitive service charges and other banking services
offered, the Company can, to a limited extent, control its level of deposits.
The level and maturity of deposits necessary to support the Company's lending
and investment functions is determined through monitoring loan demand and
through its asset/liability management process.
A-12
<PAGE>
The Company's core deposits provide it with a stable, low-cost funding
source. In prior years, because of its relatively low loan to deposit ratio, the
Company was highly liquid and did not need to retain deposits unless a favorable
spread could be earned on the funds. However, loan growth and securities
pledging requirements have reached a level which have made it desirable for the
Company to generate internal deposit growth. Excluding acquisitions, total
deposits increased $43.4 million in 1996, and $46.2 million in 1995. Much of the
deposit growth for 1996 and 1995 was in time deposits of $100,000 or more. Core
deposits as a percentage of total deposits decreased, correspondingly, to 89.50%
in 1996 and 89.59% in 1995. However, demand deposits have increased to 22.12%
and 21.05% of total deposits in 1996 and 1995, respectively. In 1996, interest-
bearing transaction deposits decreased and savings deposits increased as a
result of a new product introduced by the Company which sweeps excess funds in
transaction accounts into a savings account.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ -------- --------- -------- --------
AVERAGE BALANCES (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Demand deposits $ 228,291 $181,495 $ 163,002 $132,847 $110,512
Interest-bearing transaction deposits 111,633 179,435 173,647 146,187 126,165
Savings deposits 275,868 154,482 156,920 124,798 106,826
Time deposits under $100,000 307,839 257,052 228,429 213,895 228,656
------------ -------- --------- -------- --------
Total core deposits 923,631 772,464 721,998 617,727 572,159
Time deposits of $100,000 or more 108,414 89,755 56,196 49,206 45,811
------------ -------- --------- -------- --------
Total deposits $ 1,032,045 $862,219 $ 778,194 $666,933 $617,970
============ ======== ========= ======== ========
PERCENTAGES OF TOTAL DEPOSITS % OF % OF % OF % OF % OF
AND AVERAGE RATES PAID TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE
----- ---- ------ ----- ------ ---- ------ ---- ----- ----
Demand deposits 22.12 21.05% 20.95% 19.92% 17.88%
Interest-bearing transaction deposits 10.82 2.73% 20.81 3.28% 22.32 2.82% 21.92 2.83% 20.42 3.05%
Savings deposits 26.73 3.11 17.92 3.79 20.16 3.08 18.71 3.03 17.29 3.32
Time deposits under $100,000 29.83 5.31 29.81 5.32 29.35 3.87 32.07 3.56 37.00 4.48
------ ------ ------ ------ ------
Total core deposits 89.50 89.59 92.78 92.62 92.59
Time deposits of $100,000 or more 10.50 5.17 10.41 5.32 7.22 3.96 7.38 3.58 7.41 4.36
------ ------ ------ ------ ------
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ========= ====== ======
Average rate paid on interest-
bearing deposits 4.18% 4.43% 3.38% 3.24% 3.87%
==== ==== ==== ==== ====
</TABLE>
The Company has not utilized brokered deposits. Approximately 88% of its
time deposits of $100,000 or more at December 31, 1996 mature in one year or
less.
<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------
(In thousands)
<S> <C>
Three months or less $ 48,942
Over three through six months 23,431
Over six through twelve months 27,427
Over twelve months 13,323
-----------
Total $113,123
===========
</TABLE>
Federal funds purchased and repurchase agreements are another source of
funds for the Company. The level of these borrowings is determined by various
factors, including customer demand and the Company's ability to earn a favorable
spread on the funds obtained. Federal funds purchased and repurchase agreements
totaled $3.41 million in 1996, compared to $3.71 million in 1995.
A-13
<PAGE>
In 1995, the Bank became a member of the Federal Home Loan Bank of Topeka,
Kansas (the "FHLB") and began borrowing from the FHLB at favorable interest
rates. In 1995, a total of $15 million was borrowed on a short-term basis. In
1996 and 1995, $1.73 million was borrowed on a long-term basis to match-fund
certain long-term fixed-rate loans. Also in 1996, the Bank borrowed $5 million
on a two-year term. These borrowings are secured by a pledge of residential
first mortgages.
The Bank is highly liquid. This liquidity positions the Bank to respond to
increased loan demand and other requirements for funds, or to decreases in
funding sources. Cash flows from operations, investing activities and other
funding sources have provided the funds for the increased loan activity.
The liquidity of BancFirst Corporation is dependent upon dividend payments
from the Bank and its ability to obtain financing. Banking regulations limit
bank dividends based upon net earnings retained by the bank and minimum capital
requirements. Dividends in excess of these limits require regulatory approval.
During 1996, the Bank paid four dividends totaling $10.1 million.
CAPITAL RESOURCES
Stockholders' equity totaled $112 million at year-end 1996, compared to
$98.3 million at year-end 1995 and $82 million at year-end 1994. The increases
in 1996 and 1995 were primarily due to net earnings retained. 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 Company's average equity capital ratio at year-end 1996 was 9.18%,
compared to 9.43% for 1995 and 9.34% for 1994. At December 31, 1996, the
Company's leverage ratio was 7.90% and its total risk-based capital ratio was
14.23%, compared to 8.55% and 16.02%, respectively in 1995. The minimum leverage
ratio is 3% and the minimum total risk-based capital ratio is 8%. The standards
are considered to be minimum requirements and banking institutions are generally
expected to maintain capital well above the minimum levels. The decreases in the
capital ratios in 1996 were primarily due to leverage added by acquisitions.
In March 1995, the Company adopted a Stock Repurchase Program (the "SRP")
authorizing management to repurchase up to 200,000 shares of the Company's
common stock. The SRP is to be used for purchases of stock by the Company's
ESOP, and may also be used to enhance earnings per share, provide stock for the
exercise of stock options under the Company's Incentive Stock Option Plan or to
provide additional market liquidity for the stock. Stock purchases under the SRP
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. No purchases were made under the SRP during 1996.
During 1995, the Company purchased and canceled 62,440 shares and the ESOP
purchased 30,684 shares.
In January 1997, BancFirst Corporation established BFC Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25 million of aggregate liquidation amount of 9.65%
Capital Securities, Series A (the "Capital Securities"). The proceeds from the
sale of the Capital Securities were invested in 9.65% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Debentures") of BancFirst
Corporation. Distributions on the Capital Securities are payable January 15 and
July 15 of each year. Such distributions may be deferred for up to ten
consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and will be presented as long-term debt in the Company's consolidated financial
statements, but will qualify as Tier I regulatory capital. During any deferred
period or during any event of default, BancFirst Corporation may not declare or
pay any dividends on any of its capital stock.
Future dividend payments will be determined by the Company's Board of
Directors in light of the earnings and financial condition of the Company and
the Bank, their capital needs, applicable governmental policies and regulations
and such other factors as the Board of Directors deems appropriate. While no
assurance can be given as to the Company's ability to pay dividends, Management
believes that, based upon the anticipated performance of the Company, regular
dividend payments will continue in 1997.
A-14
<PAGE>
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BancFirst Corporation:
We have audited the accompanying consolidated balance sheet of BancFirst
Corporation (the "Company") as of December 31, 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with 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 consolidated financial position of the Company as of
December 31, 1996 and the consolidated results of its operations and its cash
flows for the year ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
March 28, 1997
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, 1995, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, 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 L.L.P.
Oklahoma City, Oklahoma
March 27, 1996
A-15
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 76,877 $ 85,352
Interest-bearing deposits with banks 62 1
Securities (market value: $284,221 and $263,685, respectively) 283,857 263,113
Federal funds sold 44,785 30,085
Loans:
Total loans (net of unearned interest) 763,559 625,162
Allowance for possible loan losses (11,945) (10,646)
-------------- ----------
Loans, net 751,614 614,516
Premises and equipment, net 33,556 28,308
Other real estate owned 1,101 781
Intangible assets, net 14,871 8,106
Accrued interest receivable 10,627 10,403
Other assets 18,361 7,673
-------------- ----------
Total assets $1,235,711 $1,048,338
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 265,209 $ 196,597
Interest-bearing 840,244 726,572
-------------- ----------
Total deposits 1,105,453 923,169
Short-term borrowings 3,414 18,705
Long-term borrowings 6,636 918
Accrued interest payable 3,940 3,237
Other liabilities 4,172 3,966
-------------- ----------
Total liabilities 1,123,615 949,995
-------------- ----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1.00 par (shares issued: 6,400,338 and 6,225,455, respectively) 6,400 6,225
Capital surplus 36,218 34,769
Retained earnings 68,742 55,792
Unrealized securities gains, net of tax 736 1,557
-------------- ----------
Total stockholders' equity 112,096 98,343
-------------- ----------
Total liabilities and stockholders' equity $1,235,711 $1,048,338
============== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
A-16
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 69,116 $ 57,914 $ 45,609
Interest-bearing deposits with banks 1 14 --
Securities:
Taxable 16,546 13,924 12,184
Tax-exempt 608 614 631
Federal funds sold 1,572 1,673 1,350
------------ --------- ---------
Total interest income 87,843 74,139 59,774
------------ --------- ---------
INTEREST EXPENSE
Deposits 33,592 30,167 20,780
Short-term borrowings 364 253 19
Line of Credit -- 16 39
Long-term borrowings 103 14 --
------------ --------- ---------
Total interest expense 34,059 30,450 20,838
------------ --------- ---------
Net interest income 53,784 43,689 38,936
Provision for possible loan losses 994 855 380
------------ --------- ----------
Net interest income after provision for possible loan losses 52,790 42,834 38,556
------------ --------- ----------
NONINTEREST INCOME
Service charges on deposits 8,972 7,869 7,641
Securities transactions 188 111 5
Other 5,839 4,520 3,572
------------ --------- ----------
Total noninterest income 14,999 12,500 11,218
------------ --------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 24,883 19,909 17,228
Occupancy and fixed assets expense, net 2,750 2,049 1,787
Depreciation 2,350 1,871 1,749
Amortization 2,006 1,453 1,262
Data processing services 1,347 1,164 1,359
Net (income) expense from other real estate owned 35 89 (312)
Other 9,899 8,397 8,558
------------ ---------- ----------
Total noninterest expense 43,270 34,932 31,631
------------ ---------- ----------
Income before taxes 24,519 20,402 18,143
Income tax expense (9,431) (7,563) (6,546)
------------ ---------- ----------
Net income $ 15,088 $ 12,839 $ 11,597
============ ========== ==========
PER SHARE DATA (PRIMARY AND FULLY DILUTED)
Net income $ 2.33 $ 2.01 $ 1.80
============ ========== ==========
Average common stock and common stock equivalents 6,483,399 6,391,424 6,399,518
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
A-17
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------- -------------------------- -----------------------
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
Shares acquired and canceled -- -- -- -- (779,668) (3,898)
Issued at end of year -- $ -- -- $ -- -- $ --
=========== =========== ========== =========== =========== ==========
COMMON STOCK
Issued at beginning of year 6,225,455 $ 6,225 6,202,814 $ 6,203 6,198,439 6,198
Shares issued 174,883 175 85,081 85 4,375 5
Shares acquired and canceled -- -- (62,440) (63) -- --
------------ ----------- =--------- ----------- ----------- ----------
Issued at end of year 6,400,338 $ 6,400 6,225,455 $ 6,225 6,202,814 6,203
============ =========== ========== =========== =========== ==========
CAPITAL SURPLUS
Balance at beginning of year $ 34,769 $ 34,259 34,234
Common stock issued 1,449 620 25
Shares acquired and canceled -- (110) --
----------- ----------- ----------
Balance at end of year $ 36,218 $ 34,769 34,259
=========== =========== ==========
RETAINED EARNINGS
Balance at beginning of year $ 55,792 $ 45,611 $ 35,620
Net income 15,088 12,839 11,597
Dividends on 10% Preferred Stock ($0.07 per share -- -- (55)
in 1994)
Dividends on common stock ($0.34, $0.29 and $0.25
per share, respectively) (2,138) (1,801) (1,551)
Common stock canceled -- (857) --
----------- ----------- ----------
Balance at end of year $ 68,742 $ 55,792 $ 45,611
=========== =========== ==========
UNREALIZED SECURITIES GAINS (LOSSES)
Balance at beginning of year $ 1,557 $ (4,112) $ --
Net change (821) 5,669 (4,112)
----------- ----------- ----------
Balance at end of year $ 736 $ 1,557 (4,112)
=========== =========== =========
Total stockholders' equity $ 112,096 $ 98,343 $ 81,961
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
A-18
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995 1994
------------- ----------- ---------
<S> <C> <C> <C>
Net income $ 15,088 $ 12,839 $ 11,597
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible losses 1,394 985 380
Depreciation and amortization 4,356 3,324 3,011
Net amortization of securities premiums and discounts (196) 966 1,783
Unrealized losses on other real estate owned 149 111 4
(Increase) decrease in interest receivable 271 (1,208) (681)
(Increase) decrease in other receivables (7,082) 884 (1,241)
Increase in interest payable 286 808 530
(Increase) decrease in deferred tax asset (568) (398) 477
Other, net (4,092) (2,373) (524)
------------ ---------- ---------
Net cash provided by operating activities 9,606 15,938 15,336
------------ ---------- ---------
INVESTING ACTIVITIES
Cash and due from banks provided by/(used for) acquisitions (9,825) (15,524) 414
Purchases of securities (64,171) (62,348) (71,577)
Maturities of securities 71,360 71,925 63,154
Proceeds from sales of securities 16,315 4,239 14,517
Net (increase) decrease in federal funds sold (1,315) 8,482 13,281
Purchases of loans (14,973) (16,395) (9,968)
Proceeds from sales of loans 107,461 56,741 51,298
Net other increase in loans (150,335) (93,480) (73,949)
Purchases of premises and equipment (5,148) (2,941) (9,158)
Proceeds from the sale of other real estate owned and repossessed assets 1,610 1,448 3,613
Purchase of minority interest -- -- (1,121)
Other, net (977) 347 (236)
------------ ---------- ---------
Net cash used for investing activities (49,998) (47,506) (19,732)
------------ ---------- ---------
FINANCING ACTIVITIES
Net increase in demand, transaction and savings deposits 18,626 20,109 7,742
Net increase in certificates of deposits 24,795 26,138 7,784
Net increase (decrease) in short-term borrowings (15,291) 18,588 (818)
Net increase in long-term borrowings 5,718 918 --
Issuance of common stock 125 370 30
Purchase and retirement of common stock -- (1,029) --
Redemption of 10% Preferred Stock -- -- (3,953)
Cash dividends paid (1,995) (1,737) (1,683)
------------ ---------- ---------
Net cash provided by financing activities 31,978 63,357 9,102
------------ ---------- ---------
Net (decrease) increase in cash and due from banks (8,414) 31,789 4,706
Cash and due from banks at the beginning of the year 85,353 53,564 48,858
------------ ---------- ---------
Cash and due from banks at the end of the year $ 76,939 $ 85,353 $ 53,564
============ ========== =========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 33,356 $ 29,301 $ 20,228
============= ========== =========
Cash paid during the year for income taxes $ 9,531 $ 7,649 $ 5,579
============= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
A-19
<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, BancFirst Investment Corporation, 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 1995
and 1994 have been reclassified to conform with the 1996 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles inherently involves the use of estimates and
assumptions which affect the amounts reported in the financial statements and
the related disclosures. Such estimates and assumptions may change over time and
actual amounts realized may differ from those reported.
SECURITIES
The Company's general 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, to eliminate a perceived credit risk
in a specific security, or to provide liquidity. Securities that are being held
for indefinite periods of time, or that may be sold as part of the Company's
asset/liability management strategy, to provide liquidity or for other reasons,
are classified as available for sale and are stated at estimated market value.
Unrealized gains or losses on securities available for sale are reported as a
component of stockholders' equity, net of income tax. Securities for which the
Company has the intent and ability to hold to maturity are classified as held
for investment and are stated at cost, adjusted for amortization of premiums and
accretion of discounts computed under the interest method, unless such
investments are considered permanently impaired, in which case they are adjusted
to the lower of cost or market. 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 performing loans is recognized based upon the principal
amount outstanding.
A loan is placed on nonaccrual status when, in the opinion of management,
the future collectibility of interest and/or principal is in serious doubt.
Interest income is recognized on certain of these loans on a cash basis if the
full collection of the remaining principal balance is reasonably expected.
Otherwise, interest income is not recognized until the principal balance is
fully collected.
A-20
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is increased by annual provisions
charged to operating expense and is reduced by net loan charge-offs. The
provision for loan losses charged to operating expense is based on past loan
loss experience and other factors which, in Management's 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.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), in January 1995.
This accounting standard requires that impaired loans be measured based upon
the present value of 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 it is probable that the creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company's impaired loans are collateral dependent. Accordingly,
the amount of impairment is measured based upon the fair value of the underlying
collateral and is included in the allowance for possible loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operating expense and is computed using the straight-
line method over the estimated useful lives of the assets. Maintenance and
repairs are charged to expense as incurred while improvements are capitalized.
When assets are sold or otherwise retired, the cost and applicable accumulated
depreciation are removed from the respective accounts and any resulting gain or
loss is reflected in operations.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These
properties are carried at fair market value based upon appraisals. Losses
arising at the time of classification of such properties as other real estate
owned are charged directly to the allowance for possible loan losses. Losses
from declines in value of the properties subsequent to classification as other
real estate owned are charged directly to operating expense.
INTANGIBLE ASSETS
Core deposit intangibles are amortized on a straight-line basis over the
estimated useful lives of the core deposits. The excess of cost over the fair
value of assets acquired (goodwill) is amortized on a straight-line basis over
fifteen to 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. Deferred taxes are
recognized under the asset and liability approach based upon the future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using the tax rates expected to apply to taxable
income in the periods when the related temporary differences are expected to be
realized.
A-21
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, less any
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, if any.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers cash and
due from banks, and interest-bearing deposits with banks as cash equivalents.
Acquisitions accounted for as purchases or as book value purchases are presented
net of any stock issued, asset acquired and liabilities assumed.
In 1996, in connection with the acquisitions of City Bankshares, Inc. of
Oklahoma City, Oklahoma ("City Bankshares") and Commerce Bancorporation, Inc. of
McLoud, Oklahoma ("Commerce Bancorp"), the Company paid cash of $19,227, issued
common stock of $1,451, acquired assets of $160,928 and assumed liabilities of
$140,250.
In 1995, in connection with the acquisitions of State National Bank of
Marlow, Oklahoma ("State National Bank") and Johnston County Bancshares, Inc. of
Tishomingo, Oklahoma ("Johnston County Bancshares"), the Company paid cash of
$17,960, including retirement of debt, issued common stock of $335, acquired
assets of $111,050 and assumed liabilities of $92,755.
In 1994, in connection with the acquisition of First City Bank of Tulsa,
Oklahoma ("First City Bank"), the Company paid cash of $4,029, acquired assets
of $37,177 and assumed liabilities of $33,132.
RECENT ACCOUNTING PRONOUNCEMENTS NOT EFFECTIVE
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfer
and Servicing of Financial Assets and Extinguishments of Liabilities." This
standard is based on a financial-components approach under which an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred as a result of a transfer of financial assets, and derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This standard is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 (except for certain provisions deferred for one year by Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125"), and must be applied
prospectively. The Company does not expect that, upon adoption, this standard
will have a material effect on its consolidated financial statements.
In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share." The standard specifies the computation,
presentation and disclosure requirements for earnings per share, and will
simplify the computation required by existing guidelines. The standard is
effective for financial statements issued for periods ending after December 15,
1997, and must be applied prospectively. The Company does not expect that, upon
adoption, this standard will have a material effect on its calculation of
earnings per share.
A-22
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(2) FORMATION OF BANCFIRST CORPORATION; MERGERS, ACQUISITIONS
AND DISPOSALS
BancFirst Corporation was incorporated in Oklahoma in July 1984. In June
1985, it merged with seven Oklahoma bank holding companies and has conducted
business as a bank holding company since that time. Additional mergers and
acquisitions have been completed and, as a result, BancFirst Corporation is the
surviving corporation along with the aforementioned subsidiaries, while the
holding companies, banks and other companies that were merged or acquired ceased
to exist as separate companies.
In March 1994, the Company acquired First City Bank 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 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 was operated as a subsidiary of BancFirst under the name
National Express Corporation ("National Express"). 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
subsidiary bank, 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 March 1995, the Company acquired State National Bank 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>
UNAUDITED
---------------------
YEAR ENDED
DECEMBER 31,
---------------------
1995 1994
----------- ---------
<S> <C> <C>
Net interest income $44,350 $42,160
Net income $13,018 $12,296
Net income per common share and common stock equivalent $ 2.04 $ 1.91
</TABLE>
In December 1995, the Company acquired all the assets and assumed all of
the liabilities of Johnston County Bancshares which had total assets of $10,051.
Johnston County Bancshares was controlled by certain executive officers and
directors of the Company. The acquisition was accomplished through the exchange
of 28,831 shares of BancFirst Corporation common stock for all of the
outstanding common and preferred stock of
A-23
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
Johnston County Bancshares. The minority shares of Johnston County Bancshares'
subsidiary bank were purchased for $120. The acquisition was accounted for as a
book value purchase, which is similar to the pooling of interests method,
although 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 for
1995.
In March 1996, BancFirst acquired City Bankshares which had $136,251 in
total assets. The acquisition was for cash of $19,125, with City Bankshares and
its subsidiary bank, City Bank, being merged into BancFirst. C-Teq, Inc., an 85%
owned data processing subsidiary of City Bankshares, was spun off to the
shareholders of City Bankshares prior to the acquisition. BancFirst also paid
the CEO of City Bankshares $1,250 for an agreement not to compete with BancFirst
for a period of four years. The acquisition was accounted for as a purchase.
Accordingly, the effect of the acquisition is included in the Company's
consolidated financial statements from the date of the acquisition forward. A
core deposit intangible of $830 and goodwill of $7,419 were recorded in the
acquisition. Pro forma condensed results of operations, as though City
Bankshares had been acquired January 1, 1995, are as follows:
<TABLE>
<CAPTION>
UNAUDITED
--------------------
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
---------- ---------
<S> <C> <C>
Net interest income $55,199 $49,226
Net income $14,998 $13,122
Net income per common share and common stock equivalent $ 2.31 $ 2.05
</TABLE>
In October 1996, the Company acquired all of the assets and assumed all of
the liabilities of Commerce Bancorp which had $17,786 in assets. Commerce
Bancorp was controlled by certain executive officers of the Company. The
acquisition was accomplished through the exchange of 156,508 shares of BancFirst
Corporation common stock for all of the Commerce Bancorp common stock
outstanding. The minority shares of Commerce Bancorp's subsidiary bank were
purchased for $102. The merger was accounted for as a book value purchase,
which is similar to the pooling of interests method, although the effect of the
merger 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 for 1996.
In December 1996, the Company acquired 26.75% of the common stock
outstanding of Peoples State Bank of Tulsa, Oklahoma for cash of $770. This
investment is accounted for under the equity method of accounting and did not
have a material effect on the results of operations of the Company for 1996.
In December 1996, the Company's money order subsidiary, National Express,
entered into an agreement for the sale of its business. Under the terms of the
agreement, National Express received cash of $600 in January 1997, and may
receive additional payments of up to $500 over a two-year period based upon
specified levels of business retained by the purchaser. The business of
National Express was transferred to the purchaser in January and February 1997.
The sale was accounted for as a disposal of a segment of a business.
Consequently, the expected net gain from the disposal will be recognized in the
Company's consolidated statement of income when the final proceeds are received.
The operations of National Express were not material in relation to the
consolidated operations of the Company. The following assets and liabilities of
National Express are included in the Company's consolidated balance sheet at
December 31, 1996:
A-24
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
<TABLE>
<CAPTION>
<S> <C>
Cash and due from BancFirst $ 6,611
Interest-bearing deposit with BancFirst 3,674
Securities held for investment 776
Premises and equipment, net 185
Intangible assets, net 515
Receivables from money order sales, net 7,371
Other assets 17
----------
Total assets $19,149
==========
Outstanding money orders $13,839
Other liabilities 58
----------
Total liabilities $13,897
==========
</TABLE>
Only the intangible assets were acquired by the purchaser and the purchaser did
not assume any liabilities of National Express.
In March 1997, the Company acquired 22.5% of the common stock outstanding
of First Ada Bancshares, Inc. of Ada, Oklahoma for cash of $4,954. This
investment will be accounted for under the equity method of accounting.
(3) ISSUANCE OF 9.65% CAPITAL SECURITIES, SERIES A
In January 1997, BancFirst Corporation established BFC Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25,000 of aggregate liquidation amount of 9.65% Capital
Securities, Series A (the "Capital Securities"). The proceeds from the sale of
the Capital Securities were invested in 9.65% Junior Subordinated Deferrable
Interest Debentures, Series A (the "Debentures") of BancFirst Corporation.
Distributions on the Capital Securities are payable January 15 and July 15 of
each year. Such distributions may be deferred for up to ten consecutive semi-
annual periods. The stated maturity date of the Capital Securities is January
15, 2027, but they are subject to mandatory redemption pursuant to optional
prepayment terms. The Capital Securities represent an undivided interest in the
Debentures, are guaranteed by BancFirst Corporation, and will be presented as
long-term debt in the Company's consolidated financial statements. During any
deferred period or during any event of default, BancFirst Corporation may not
declare or pay any dividends on any of its capital stock.
(4) 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 $55,043 at December 31, 1996 and in two institutions
totaling $33,903 at December 31, 1995. These institutions are selected based on
the strength of their financial condition and their creditworthiness. No
collateral is required on such balances.
A-25
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
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, 1996 and 1995 was
approximately $25,566 and $26,546, respectively.
(5) 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. Prior to January 1, 1994, all securities were
classified as held for investment.
The table below summarizes securities held for investment and securities
available for sale:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----------------------
<S> <C> <C>
Held for investment at cost (market value; $33,653 $ 33,289 $ 42,005
and $42,577, respectively)
Available for sale, at market value 250,568 221,108
----------------------
Total $283,857 $263,113
======================
</TABLE>
A-26
<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, 1996
U.S. Treasury $ 6,571 $ 28 $ -- $ 6,599
Other federal agencies -- -- -- --
Mortgage backed securities 15,989 264 (87) 16,166
States and political subdivisions 10,654 195 (32) 10,817
Other securities 75 -- (4) 71
---------- ------------- ------------ -----------
Total $ 33,289 $ 487 $ (123) $ 33,653
========== ============= ============ ===========
DECEMBER 31, 1995
U.S. Treasury $ 2,395 $ 5 $ (1) $ 2,399
Other federal agencies 10,778 293 (10) 11,061
Mortgage backed securities 17,179 88 (49) 17,218
States and political subdivisions 10,478 263 (15) 10,726
Other securities 1,175 1 (3) 1,173
---------- ------------- ------------ -----------
Total $ 42,005 $ 650 $ (78) $ 42,577
========== ============= ============ ===========
DECEMBER 31, 1994
U.S. Treasury $ 2,691 $ -- $ (54) $ 2,637
Other federal agencies 519 -- (12) 507
Mortgage backed securities 6,295 45 (260) 6,080
States and political subdivisions 9,191 73 (173) 9,091
Other securities 2,083 -- (3) 2,080
---------- ------------- ------------ -----------
Total $ 20,779 $ 118 $ (502) $ 20,395
========== ============= ============ ===========
</TABLE>
A-27
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The table below summarizes the amortized cost and estimated market values
of securities available for sale:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ------------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury $ 177,213 $ 1,267 $ (531) $ 177,949
Other federal agencies 15,206 427 (172) 15,461
Mortgage backed securities 48,640 411 (228) 48,823
States and political subdivisions 1,286 2 (4) 1,284
Other securities 7,061 -- (10) 7,051
------------ ------------ ------------- ----------
Total $ 249,406 $ 2,107 $ (945) $ 250,568
============ ============ ============= ==========
DECEMBER 31, 1995
U.S. Treasury $ 170,388 $ 2,179 $ (444) $ 172,123
Other federal agencies 12,224 355 (19) 12,560
Mortgage backed securities 31,417 557 (226) 31,748
States and political subdivisions 662 -- (5) 657
Other securities 4,020 -- -- 4,020
------------ ------------ ------------- ----------
Total $ 218,711 $ 3,091 $ (694) $ 221,108
============ ============ ============= ==========
DECEMBER 31, 1994
U.S. Treasury $ 178,192 $ 24 $ (5,825) $ 172,391
Other federal agencies 12,002 37 (99) 11,940
Mortgage backed securities 16,207 45 (442) 15,810
States and political subdivisions 814 -- (67) 747
Other securities 1,377 -- -- 1,377
------------ ------------ ------------- ----------
Total $ 208,592 $ 106 $ (6,433) $ 202,265
============ ============ ============= ==========
</TABLE>
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.
A-28
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995
---------------------------- ------------------------
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 $ 3,943 $ 3,966 $ 4,916 $ 4,902
After one year but within five years 15,814 16,016 12,502 12,748
After five years but within ten years 9,720 9,840 20,789 21,030
After ten years 3,812 3,831 3,798 3,897
------------ ----------- ----------- -----------
Total $ 33,289 $ 33,653 $ 42,005 $ 42,577
============ =========== =========== ===========
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET COST MARKET
VALUE VALUE
------------ ----------- ----------- -----------
AVAILABLE FOR SALE
Contractual maturity of debt securities:
Within one year $ 61,980 $ 60,868 $ 50,455 $ 50,359
After one year but within five years 159,114 161,348 144,962 147,369
After five years but within ten years 11,369 11,496 8,231 8,363
After ten years 11,882 11,795 11,043 10,997
------------ ----------- ----------- -----------
Total debt securities 244,345 245,507 214,691 217,088
Equity securities 5,061 5,061 4,020 4,020
------------ ----------- ----------- -----------
Total $ 249,406 $ 250,568 $ 218,711 $221,108
============ =========== =========== ===========
</TABLE>
Sales of securities are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
-------------- ---------- -------------
<S> <C> <C> <C>
Proceeds $ 16,315 $ 4,239 $ 14,517
Gross gains realized 189 172 74
Gross losses realized 1 61 69
</TABLE>
Securities having book values of $208,153, $197,904 and $160,556 at
December 31, 1996, 1995 and 1994, respectively, were pledged to secure public
funds on deposit, repurchase agreements and for other purposes as required or
permitted by law.
A-29
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(6) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a schedule of loans outstanding by category:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- --------------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Commercial and industrial $168,449 22.06% $132,003 21.12%
Agriculture 28,128 3.68 27,222 4.35
State and political subdivisions:
Taxable 419 0.05 686 0.11
Tax-exempt 4,711 0.62 5,901 0.94
Oil and gas production 5,826 0.76 6,531 1.04
Real Estate:
Construction 37,555 4.92 27,620 4.42
Farmland 15,111 1.98 15,051 2.41
One to four family residences 196,804 25.78 158,104 25.29
Multifamily residential properties 12,050 1.58 8,686 1.39
Commercial 139,658 18.29 123,698 19.79
Consumer 101,047 13.24 75,715 12.11
Guaranteed student loans 37,288 4.88 34,968 5.59
Credit card receivables 1,854 0.24 1,266 0.20
Other 15,782 2.07 8,676 1.39
---------- ----------
764,682 626,127
Unearned interest (1,123) (0.15) (965) (0.15)
---------- ---------- ---------- ------------
Total loans $763,559 100.00% $625,162 100.00%
========== ========== ========== ============
</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 an estimate based upon evaluations of loans,
appraisals of collateral and other estimates which are subject to rapid change
due to changing economic conditions and the economic prospects of borrowers. It
is reasonably possible that a material change could occur in the estimated
allowance for possible loan losses in the near term.
A-30
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
Changes in the allowance for possible loan losses are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Balance at beginning of year $10,646 $ 9,729 $9,027
------- ------- ------
Charge-offs (1,067) (1,013) (919)
Recoveries 413 561 924
------- ------- ------
Net (charge-offs) recoveries (654) (452) 5
------- ------- ------
Provisions charged to operations 994 855 380
Additions from acquisitions 959 514 317
------- ------- ------
Total additions 1,953 1,369 697
------- ------- ------
Balance at end of year $11,945 $10,646 $9,729
======= ======= ======
</TABLE>
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>
1994 $1,050 $ 581 $441 $1,190
1995 1,190 750 387 1,553
1996 1,553 2,444 819 3,178
</TABLE>
Interest income attributable to related party loans amounted to $162, $94 and
$63, in 1996, 1995 and 1994, respectively.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), in January 1995.
This 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 it is probable that all amounts due will not
be collected according to the contractual terms of the loan agreement. Below is
a summary of the amount included in the allowance for possible loan losses for
loans considered to be impaired.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
--------- --------
<S> <C> <C>
Allowance for possible loss on impaired loans $2,148 $2,076
Recorded balance of impaired loans 6,056 5,685
</TABLE>
A-31
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(7) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Land $ 7,242 $ 6,293
Buildings 31,069 29,033
Furniture, fixtures and equipment 18,513 14,134
Accumulated depreciation (23,268) (21,152)
------------- -------------
Total $ 33,556 $ 28,308
============= =============
</TABLE>
(8) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
---------------- --------------
<S> <C> <C>
Excess of cost over fair value of assets acquired $ 12,861 $ 6,451
Core deposit intangibles 1,999 1,641
Organization costs 2 4
Trademarks 9 10
---------------- --------------
Total $ 14,871 $ 8,106
================ ==============
</TABLE>
(9) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $113,123
and $93,057 at December 31, 1996 and 1995, respectively.
(10) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Federal funds purchased $3,414 $ 205
Repurchase agreements -- 3,500
Federal Home Loan Bank borrowings -- 15,000
--------- --------
Total $3,414 $18,705
========= ========
Weighted average interest rate 4.81% 5.82%
========= ========
</TABLE>
Federal funds purchased represents a borrowing of overnight funds from
another financial institution.
The Company enters into sales of securities to certain of its customers
with simultaneous agreements to repurchase. These agreements represent an
overnight borrowing of funds.
A-32
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The borrowings from the Federal Home Loan Bank of Topeka, Kansas consisted
of the following:
(a) $5,000 borrowing at 5.91%; due February 20, 1996; secured by a pledge
of residential first mortgages.
(b) $10,000 borrowing at 5.92%; due May 22, 1996; secured by a pledge of
residential first mortgages.
(11) LINE OF CREDIT
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, 1995 and was not renewed. Borrowings under the line of credit would bear
interest at prime rate. Collateral for the line of credit consisted of the
shares of BancFirst common stock owned by BancFirst Corporation. The line of
credit agreement contained restrictive covenants regarding the issuance of
additional capital stock, additional indebtedness, liens and encumbrances,
salaries, dividends and mergers. No advances were made under the line of credit.
(12) LONG-TERM BORROWINGS
In 1995 the Company began borrowing under a line of credit from the
Federal Home Loan Bank of Topeka, Kansas in order to match-fund certain long-
term fixed rate loans. Such advances are at rates of from 5.87% to 7.21% and
mature from 2003 through 2011. Interest on the advances is payable monthly.
Semiannual principal payments on the advances total $69.
In December 1996, the Company borrowed $5,000 under the line of credit to
fund general loan growth. This advance is at a rate of 5.97% and matures
December 1998. Interest on the advance is payable monthly.
Borrowings under the line of credit are secured by a pledge of residential
first mortgages.
(13) INCOME TAXES
The components of the Company's income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ------------ ---------
<S> <C> <C> <C>
Current taxes: Federal $(8,091) $(6,993) $(5,554)
State (1,039) (904) (638)
Deferred taxes (301) 334 (354)
----------- ------------ ---------
Total income taxes $(9,431) $(7,563) $(6,546)
=========== ============ =========
</TABLE>
Income tax expense applicable to securities transactions approximated $6,
$19 and $2 for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company had net operating loss carryforwards for
tax purposes of approximately $1,397. If not utilized, the tax net operating
loss carryforwards will expire as follows: $85 in 2000, $167 in 2001, $41 in
2003, $146 in 2004 and $958 in 2010.
A reconciliation of tax expense at the federal statutory tax rate applied
to income before taxes follows:
A-33
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ ----------- ---------
<S> <C> <C> <C>
Tax expense at the federal statutory tax rate $(8,582) $(7,141) $(6,344)
(Increase) decrease in tax expense from:
Tax-exempt income, net 367 400 500
Excess cost amortization (474) (332) (288)
Alternative minimum tax credit carryforward utilized -- -- 58
State tax expense, net of federal tax benefit (662) (600) (396)
Other, net (80) 110 (76)
------------ ----------- ---------
Total tax expense $(9,431) $(7,563) $(6,546)
============ =========== =========
</TABLE>
The net deferred tax asset consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----------- --------
<S> <C> <C>
Provisions for possible loan losses $ 3,511 $ 3,120
Discount on securities of banks acquired 400 --
Write-downs of other real estate owned 277 139
Net operating loss carryforwards 489 181
Provision for contingent losses 2 76
Other 300 229
----------- --------
Gross deferred tax assets 4,979 3,745
----------- --------
Unrealized net gain on securities available for sale (407) (838)
Depreciation (1,361) (820)
Key man life insurance policies (251) (236)
Other (73) --
----------- --------
Gross deferred tax liabilities (2,092) (1,894)
----------- --------
Net deferred tax asset $ 2,887 $ 1,851
=========== ========
</TABLE>
(14) EMPLOYEE BENEFITS
In May 1986, the Company adopted the BancFirst Corporation Employee Stock
Ownership and Thrift Plan (the "ESOP") effective January 1, 1985. The ESOP
covers all eligible employees, as defined in the ESOP, of the Company and its
subsidiaries. The ESOP allows employees to defer up to 12% of their base
salary, of which the Company may match 50%, but not to exceed 3% of their base
salary. In addition, the Company may make discretionary contributions to the
ESOP, as determined by the Company's Board of Directors. The aggregate amounts
of contributions by the Company to the ESOP for the years ended December 31,
1996, 1995 and 1994, were approximately $841, $621 and $582, respectively.
A-34
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
The Company also adopted a nonqualified incentive stock option plan (the
"ISOP") in May 1986. In 1996, the Company amended the ISOP to increase the
number of shares to be issued under the plan and increase the life of the
options. The maximum number of common shares approved to be issued under the
ISOP is 650,000. The options are exercisable beginning four years from the date
of grant at the rate of 25% per year for four years. Options granted prior to
1996 expire at the end of eleven years from the date of grant. Options granted
beginning in 1996 and later expire at the end of fifteen years from the date of
grant. Options outstanding as of December 31, 1996 will become exercisable
through the year 2003. The option price must be no less than 100% of the fair
market value of the stock relating to such option at the date of grant.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB25") and related interpretations
in accounting for the ISOP. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123") was issued in 1995 which,
if fully adopted by the Company, would change the method the Company applies in
recognizing the cost of the ISOP. Adoption of the cost recognition provisions of
FAS 123 is optional and the Company has elected to not adopt such provisions.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of FAS 123 in 1995 are required and are presented below. A summary of
the options granted under the ISOP is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------------------- -------------------- --------------------
AVG. AVG. AVG.
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ -------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 384,125 $ 8.62 421,625 $ 8.01 381,000 $ 7.27
Options granted 106,000 21.34 25,000 17.23 45,000 14.19
Options exercised (18,375 6.79 (56,250) 6.59 (4,375) 6.79
Options canceled -- (6,250) --
---------- ---------- ---------
Outstanding at end of
year 471,750 11.55 384,125 8.62 421,625 8.01
========== ========== =========
Exercisable at end of
year 219,625 6.67 209,875 6.62 208,125 6.72
========== ========= =========
Weighted average fair
value of options granted $ 6.61 $ 8.75
========== =========
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 1.5% to 2%; risk-free interest rates are
different for each grant and range from 5.56% to 7.74%; the expected lives of
the options are eight years; and volatility of 19.19% for all grants (based upon
monthly high stock prices for the most recent four-year period).
A summary of options outstanding as of December 31, 1996 is as follows:
A-35
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXECISABLE
- ------------------------------------------------------------------- -----------------------------------------
WGTD. AVG.
RANGE OF REMAINING WGTD. AVG. WGTD. AVG.
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ---------------- -------------- -------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 6.50 to $10.00 284,750 3.23 $ 6.82 219,125 $ 6.52
$10.01 to $27.25 187,000 11.83 18.76 -- --
------------ --------------
$ 6.50 to $27.25 471,750 6.64 11.55 219,125 6.52
============ =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995
---------------------------- ------------------------
AS AS
REPORTED PRO FORMA REPORTED PRO FORMA
------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
APB 25 charge $ -- $ -- $ -- $ --
FAS 123 charge $ -- 78 $ -- 32
Net income $ 15,088 $ 15,037 $ 12,839 $ 12,818
Net income per share $ 2.33 $ 2.32 $ 2.01 $ 2.01
</TABLE>
The effects of Applying FAS 123 to the pro forma disclosure are not
indicative of future results. FAS 123 does not apply to grants of options prior
to 1995 and the Company anticipates making additional grants in the future.
(15) 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) Senior Preferred Stock: $1.00 par value; 10,000,000 shares authorized;
no shares issued or outstanding. Shares may be issued with such
voting, dividend, redemption, sinking fund, conversion, exchange,
liquidation and other rights as shall be determined by the Company's
Board of Directors,
A-36
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
without approval of the stockholders. The Senior Preferred Stock would
have a preference over BancFirst common stock as to payment of
dividends, as to the right to distribution of assets upon redemption
of such shares or upon liquidation of the Company.
(c) Common stock: $1 par value; 7,500,000 shares authorized. Shares issued
and outstanding were 6,400,338 shares at December 31, 1996 and
6,225,455 shares at December 31, 1995.
In March 1995, the Company adopted a Stock Repurchase Program (the "SRP")
authorizing management to repurchase up to 200,000 shares of the Company's
common stock. The SRP is to be used for purchases of stock by the Company's
ESOP, and may also be used to enhance earnings per share, provide stock for the
exercise of stock options under the Company's ISOP or to provide additional
market liquidity for the stock. Stock purchases under the SRP 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. No purchases were made under the SRP during 1996. During 1995,
the Company purchased and canceled 62,440 shares and the ESOP purchased 30,684
shares.
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.
Dividends accumulated and unpaid on the 10% Preferred Stock as of December
31, 1993 totaled $195, or the equivalent of $0.03 per common share outstanding.
The 10% Preferred Stock dividends accumulated and unpaid as of December 31, 1993
were paid on the scheduled due date in January 1994. In February 1994, the 10%
Preferred Stock was retired.
BancFirst Corporation's ability to pay dividends is dependent upon
dividend payments received from BancFirst. Banking regulations limit bank
dividends based upon net earnings retained and minimum capital requirements.
Dividends in excess of these requirements require regulatory approval. At
December 31, 1996, approximately $21,257 of the equity of BancFirst was
available for dividend payments to BancFirst Corporation.
(16) NET INCOME PER COMMON SHARE
Net income per common share is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $15,088 $12,839 $11,597
Less 10% Preferred Stock dividends -- -- (55)
---------- ---------- ----------
Net income applicable to common shareholders $15,088 $12,839 $11,542
========== ========== ==========
Average common shares and common stock equivalents 6,483 6,391 6,400
outstanding (in thousands)
========== ========== ==========
Net income per common share (primary and fully diluted) $ 2.33 $ 2.01 $ 1.80
========== ========== ==========
</TABLE>
Average common shares and common stock equivalents for 1996, 1995 and 1994
includes shares relating to stock options exercisable within the next five
years.
A-37
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(17) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEET DECEMBER 31,
---------------------------
ASSETS 1996 1995
----------- --------------
<S> <C> <C>
Cash 568 $ 3,232
Securities 2,000 --
Loans (net of unearned interest) 6,580 --
Investment in subsidiaries, at equity 97,371 91,247
Intangible assets 3,218 3,845
Deferred tax asset 154 197
Other assets 2,596 563
----------- ------------
Total assets $112,487 $99,084
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 391 $ 741
Stockholders' equity 112,096 98,343
---------- -------------
Total liabilities and stockholders' equity $112,487 $99,084
========== =============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME YEAR ENDED DECEMBER 31,
--------------------------------
OPERATING INCOME 1996 1995 1994
------------ ---------- --------
<S> <C> <C> <C>
Dividends from subsidiaries $ 10,149 $ 5,075 $ 4,236
Interest:
Loans 493 -- --
Interest-bearing deposits 116 36 22
Securities 35 1 2
Other 170 58 --
----------- ---------- -------
Total operating income 10,963 5,170 4,260
----------- ---------- -------
OPERATING EXPENSE
Interest -- 16 39
Amortization 812 814 811
Other 55 41 31
------------ --------- -------
Total operating expense 867 871 881
------------ --------- -------
Income before income taxes and equity in undistributed earnings of subsidiaries 10,096 4,299 3,379
Allocated income tax (expense) benefit (170) 222 364
------------ --------- -------
Income before equity in undistributed earnings of subsidiaries 9,926 4,521 3,743
Equity in undistributed earnings of subsidiaries 5,162 8,318 7,854
------------ --------- -------
Net income $ 15,088 $12,839 $11,597
============ ========= ========
</TABLE>
A-38
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,088 $ 12,839 $ 11,597
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization 812 814 811
Net income of subsidiaries (15,311) (13,393) (12,180)
Minority interest in income of subsidiaries -- -- 90
Increase in dividends receivable (2,537) -- --
(Increase) decrease in deferred tax asset 43 (13) 14
Other, net (698) 766 (590)
----------- ------------ -------
Net cash provided (used) by operating activities (2,603) 1,013 (258)
----------- ------------ -------
INVESTING ACTIVITIES
Cash dividends received from subsidiaries 10,149 5,075 4,236
Purchases of stock of subsidiaries (770) -- (1,121)
Net cash from acquisitions and mergers 305 (320) --
Purchases of securities (2,000) -- --
Proceeds from sale of securities 180 (21) --
Purchase of loans (6,335) (525) --
Net other decrease in loans 281 -- --
Other, net -- 99 (24)
------------ --------- -------
Net cash provided by investing activities 1,810 4,308 3,091
------------ --------- -------
FINANCING ACTIVITIES
Issuance of common stock 125 370 30
Redemption of 10% Preferred Stock -- -- (3,953)
Purchases of common stock -- (1,029) --
Cash dividends paid (1,996) (1,737) (1,683)
----------- ---------- -------
Net cash used by financing activities (1,871) (2,396) (5,606)
----------- ---------- -------
Net increase (decrease) in cash (2,664) 2,925 (2,773)
Cash at the beginning of the year 3,232 307 3,080
----------- --------- -------
Cash at the end of the year $ 568 $ 3,232 $ 307
=========== ========= ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ -- $ 16 $ 54
=========== ========== =========
Cash paid (received) during the year for income taxes, net $ 220 $ (296) $ (220)
=========== ========== =========
</TABLE>
A-39
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(18) RELATED PARTY TRANSACTIONS
BancFirst has provided item processing and correspondent services to
affiliated institutions. By year-end 1996, all of these institutions had been
merged with BancFirst or sold to other nonaffiliated owners. At December 31,
1995, balances due to these institutions totaled $673. Service charges to these
affiliate institutions for December 31, 1996, 1995 and 1994 totaled $69, $121
and $131, respectively.
The Company purchases supplies, furniture and equipment from an affiliated
company. During the years ended December 31, 1996, 1995 and 1994, such
purchases totaled $144, $95 and $179, 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, 1996, 1995 and 1994 were $755, $763 and $564, respectively.
Refer to note (6) for information regarding loan transactions with related
parties.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include loan commitments and standby
letters of credit which involve elements of credit and interest rate risk to
varying degrees. The Company's exposure to credit loss in the event of
nonperformance by the other party to the instrument is represented by the
instrument's contractual amount. To control this credit risk, the Company uses
the same underwriting standards as it uses for loans recorded on the balance
sheet. The amounts of financial instruments with off-balance-sheet risk are as
follows :
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Loan commitments $153,030 $117,418 $102,590
Letters of credit 7,992 8,386 10,953
</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.
The Company leases office space in three buildings and two parcels of land
on which it owns buildings. These leases expire at various dates through 2016.
The future minimum rental payments under these leases are as follows:
A-40
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1997 $ 393
1998 400
1999 370
2000 362
2001 363
Later years 1,514
---------
Total $3,402
=========
</TABLE>
Rental expense on all property and equipment rented, including those
rented on a monthly or temporary basis, totaled $435, $133 and $176 during 1996,
1995 and 1994, 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. During 1995 and 1996, these actions were resolved in
the Company's favor and the accruals were reversed. Management believes that
all other legal actions against the Company are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
Company's financial position, results of operations or cash flows.
(20) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values reported below for financial instruments are based on a
variety of factors. In some cases, fair values represent quoted market prices
for identical or comparable instruments. In other cases, fair values have been
estimated based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying degrees of risk.
Accordingly, the fair values may not represent actual values of the financial
instruments that could have been realized as of year end or that will be
realized in the future.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND DUE FROM BANKS; FEDERAL FUNDS SOLD
The carrying amount of these short-term instruments is a reasonable
estimate of fair value.
SECURITIES
For securities, fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan characteristics. For
residential mortgage loans held for sale, guaranteed student loans and
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.
A-41
<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.
SHORT-TERM BORROWINGS
The amount payable on these short-term instruments is a reasonable
estimate of fair value.
LONG-TERM BORROWINGS
The fair value of fixed-rate long-term borrowings is estimated using the
rates that would be charged for borrowings of similar remaining maturities.
LOAN COMMITMENTS AND LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the terms of the
agreements. The fair value of letters of credit is based on fees currently
charged for similar agreements.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995
------------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 76,939 $ 76,939 $ 85,353 $ 85,353
Federal funds sold 44,785 44,785 30,085 30,085
Securities 283,857 284,221 263,113 263,685
Loans:
Loans (net of unearned interest) 763,559 625,162
Allowance for possible loan losses (11,945) (10,646)
------------ ----------
Loans, net 751,614 752,428 614,516 614,974
FINANCIAL LIABILITIES
Deposits 1,105,453 1,105,358 923,169 923,368
Short-term borrowings 3,414 3,414 18,705 18,705
Long-term borrowings 6,636 6,636 918 918
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments 1,002 769
Letters of credit 60 63
</TABLE>
A-42
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the unaudited quarterly results of operations for the years ended
December 31, 1996 and 1995 is as follows:
Quarter
------------------------------------
1996 Fourth Third Second First
----- ------- ------ ------- -------
Net interest income $14,238 $14,000 $13,525 $12,021
Provisions for possible loan losses 145 432 319 98
Noninterest income 3,854 3,766 4,017 3,361
Noninterest expense 11,445 11,134 10,978 9,713
Net income 3,868 3,917 3,802 3,501
Net income per share 0.59 0.61 0.59 0.54
1995
-----
Net interest income $11,501 $11,331 $10,912 $ 9,945
Provisions for possible loan losses 448 150 196 61
Noninterest income 3,327 3,180 3,164 2,829
Noninterest expense 8,987 8,625 9,032 8,290
Net income 3,426 3,639 3,020 2,754
Net income per share 0.53 0.57 0.47 0.43
A-43
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER AT WHICH EXHIBIT APPEARS IN
NUMBER DESCRIPTION SEQUENTIALLY NUMBERED PAGES
- ------- ----------------------------------------------- ---------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated Exhibit 2.4 to the Company's Quarterly Report
October 28, 1994 among BancFirst, State on Form 10-Q for the quarter ended September 30,
National Bank, Marlow, and certain shareholders 1994 and incorporated herein by reference.
of State National Bank.
2.2 Agreement and Plan of Reorganization dated Exhibit 2.2 to the Company's Quarterly Report
September 16, 1995 between BancFirst and City on Form 10-Q for the quarter ended September 30,
Bankshares, Inc. 1995 and incorporated herein by reference.
2.3 Agreement dated September 16, 1995 between Exhibit 2.3 to the Company's Quarterly Report
BancFirst and William O. Johnstone. on Form 10-Q for the quarter ended September 30,
1995 and incorporated herein by reference.
3.1 Amended and Restated Certificate of Exhibit 33 to the Company's Registration
Incorporation. Statement on Form S-2, File No. 33-58804, and
incorporated herein by reference.
3.2 Certificate of Amendment to the Amended and Exhibit 3.2 to the Company's Annual Report on
Restated Certificate of Incorporation. Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
3.3 Certificate of Amendment to the Amended and Exhibit 3.0 to the Company's Quarterly Report
Restated Certificate of Incorporation. on Form 10-Q for the quarter ended September 30,
1996 and incorporated herein by reference.
3.4 Amended By-Laws. Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fisal year ended December 31,
1992 and incorporated herein by reference.
4.1 Amended and Restated Declaration of Trust of Exhibit 4.1 to the Company's Current Report on
BFC Capital Trust I dated as of February 4, Form 8-K dated February 4, 1997 and
1997. incorporated herein by reference.
4.2 Indenture dated as of February 4, 1997. Exhibit 4.2 to the Company's Current Report on
Form 8-K dated February 4, 1997 and
incorporated herein by reference.
4.3 Series A Capital Securities Guarantee Agreement Exhibit 4.3 to the Company's Current Report on
dated as of February 4, 1997. Form 8-K dated February 4, 1997 and
incorporated herein by reference.
10.10 United Community Corporation (now BancFirst Exhibit 10.09 to the Company's Registration
Corporation) Stock Option Plan. Statement on Form S-4, file No. 33-13016 and
incorporated herein by reference.
10.11 BancFirst Corporation Employee Stock Exhibit 10.12 to the Company's Annual Report on
Ownership and Thrift Plan. Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by
reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER AT WHICH EXHIBIT APPEARS IN
NUMBER DESCRIPTION SEQUENTIALLY NUMBERED PAGES
- ------- ----------------------------------------------- ---------------------------------------------
<S> <C> <C>
22.1* Subsidiaries of Registrant.
27.1* Financial Data Schedule.
- -----------------------------------------------------------
*Filed herewith
</TABLE>
<PAGE>
EXHIBIT 22.1
BANCFIRST CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF PERCENTAGE OF
SUBSIDIARY NAME INCORPORATION OWNERSHIP
- --------------------------------- ------------------ ----------------
<S> <C> <C>
BancFirst Oklahoma 100.00%
National Express Corporation Oklahoma 100.00%
Lenders Collection Corporation Oklahoma 100.00%
Citibanc Insurance Agency, Inc. Oklahoma 100.00%
BancFirst Agency, Inc. Oklahoma 100.00%
BancFirst Investment Corporation Oklahoma 100.00%
BFC Capital Trust I Delaware 100.00%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 76,877
<INT-BEARING-DEPOSITS> 62
<FED-FUNDS-SOLD> 44,785
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 250,568
<INVESTMENTS-CARRYING> 33,289
<INVESTMENTS-MARKET> 33,653
<LOANS> 763,559
<ALLOWANCE> 11,945
<TOTAL-ASSETS> 1,235,711
<DEPOSITS> 1,105,453
<SHORT-TERM> 3,414
<LIABILITIES-OTHER> 8,112
<LONG-TERM> 6,636
0
0
<COMMON> 6,400
<OTHER-SE> 105,696
<TOTAL-LIABILITIES-AND-EQUITY> 1,235,711
<INTEREST-LOAN> 69,116
<INTEREST-INVEST> 17,154
<INTEREST-OTHER> 1,573
<INTEREST-TOTAL> 87,843
<INTEREST-DEPOSIT> 33,592
<INTEREST-EXPENSE> 34,059
<INTEREST-INCOME-NET> 53,784
<LOAN-LOSSES> 994
<SECURITIES-GAINS> 188
<EXPENSE-OTHER> 43,270
<INCOME-PRETAX> 24,519
<INCOME-PRE-EXTRAORDINARY> 15,088
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,088
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
<YIELD-ACTUAL> 8.65
<LOANS-NON> 3,643
<LOANS-PAST> 1,476
<LOANS-TROUBLED> 643
<LOANS-PROBLEM> 17,300
<ALLOWANCE-OPEN> 10,646
<CHARGE-OFFS> 1,067
<RECOVERIES> 413
<ALLOWANCE-CLOSE> 11,945
<ALLOWANCE-DOMESTIC> 11,945
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,797
</TABLE>
