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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, 1997
COMMISSION FILE NUMBER 0-14384
BANCFIRST CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OKLAHOMA 73-1221379
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
101 NORTH BROADWAY, SUITE 200, OKLAHOMA CITY, OKLAHOMA 73102
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (405) 270-1086
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1.00
PAR VALUE PER SHARE
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(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ____
THE AGGREGATE VALUE OF THE COMMON STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF FEBRUARY 28, 1998 WAS APPROXIMATELY $87,896,000.
AS OF FEBRUARY 28, 1998, THERE WERE 6,358,929 SHARES OF COMMON STOCK
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE PROXY STATEMENT FOR THE MAY 28, 1998 ANNUAL MEETING OF
STOCKHOLDERS OF REGISTRANT (THE "1998 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 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
PART II
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5. Market for the Registrant's Common Stock and Related Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
7A. Quantitative and Qualitative Disclosures About Market Risk 10
8. Financial Statements and Supplementary Data 10
9. Changes in and Disagreements with Accountants on Accounting and Financial 10
Disclosure
PART III
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10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial Owners and Management 10
13. Certain Relationships and Related Transactions 11
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
Signatures 13
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 additional banks and bank
holding companies, and in November 1988 the Company changed its name to
BancFirst Corporation. Effective April 1, 1989, the Company consolidated its 12
subsidiary banks and formed BancFirst. BancFirst currently has 61 banking
locations serving 34 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 operates as
a "super community bank", managing its community banking offices on a
decentralized basis, which permits them to be responsive to local customer
needs. Underwriting, funding, customer service and pricing decisions are made
by Presidents in each market within the Company's strategic parameters. At the
same time, the Company generally has a larger lending capacity, broader product
line and greater operational efficiencies than its principal competitors in the
non-metropolitan market areas (which typically are independently-owned community
banks). In the metropolitan markets served by the Company, the Company's
strategy is to focus on the needs of local businesses not served effectively by
larger institutions.
The Bank maintains a strong community orientation by, among other things,
appointing selected members of the communities in which the Bank's branches are
located to a local consulting board that assists in introducing prospective
customers to the Bank and in developing or modifying products and services to
meet customer needs. As a result of the development of broad banking
relationships with its customers and the convenience and service of the Bank's
multiple offices, the Bank's lending and investing activities are funded almost
entirely by core deposits.
The Bank centralizes virtually all of its back office, support and investment
functions in order to achieve consistency and cost efficiencies in the delivery
of products and services. The Bank centrally provides services such as data
processing, operations support, bookkeeping, accounting, loan review, compliance
and internal auditing to the Bank's community banking offices to enhance their
ability to compete effectively. The Bank also provides certain specialized
financial services centrally that require unique expertise. The community
banking offices assist the Bank in maintaining its competitive position by
actively participating in the development of new products and services needed by
their customers and in making desirable changes to existing products and
services.
The Bank provides a wide range of retail and commercial banking services,
including: commercial, real estate, agricultural and consumer lending;
depository and funds transfer services; collections; safe deposit boxes; cash
management services; and other services tailored for both individual and
corporate customers. The Bank also offers trust services and acts as executor,
administrator, trustee, transfer agent and in various other fiduciary
capacities. Through Unitech, its operations division, the Bank provides item
processing, research and other correspondent banking services to financial
institutions and governmental units.
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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 Express Financial Corporation
(formerly National Express Corporation), a money order company. All of these
companies are Oklahoma corporations.
The Company had approximately 849 full-time equivalent employees as of
December 31, 1997. 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 62.76% 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
NATIONAL EXPRESS CORPORATION
In December 1996, the Company's money order subsidiary, National Express
Corporation ("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 and the name of the Company was changed to Express
Financial Corporation. 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. The Series A Capital Securities and Debentures were subsequently
exchanged for Series B Captial Securities and Debentures, pursuant to a
Registration Rights Agreement. The terms of the Series A and Series B
Securities are identical in all material respects. Distributions on the Capital
Securities are payable January 15 and July 15 of each year. Such distributions
may be deferred for up to ten consecutive semi-annual periods. The stated
maturity date of the Capital Securities is January 15, 2027, but they are
subject to mandatory redemption pursuant to optional prepayment terms. The
Capital Securities represent an undivided interest in the Debentures, are
guaranteed by BancFirst Corporation, are presented as long-term debt in the
Company's consolidated financial statements, but qualify as Tier 1 regulatory
capital. During any deferral period or during any event of default, BancFirst
Corporation may not declare or pay any dividends on any of its capital stock.
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FIRST ADA BANCSHARES,INC.
In March 1997, the Company acquired 22.8% of the common stock outstanding of
First Ada Bancshares, Inc. of Ada, Oklahoma for cash of $4.95 million. First
Ada Bancshares, Inc. has approximately $170 million in total assets. This
investment is accounted for under the equity method of accounting.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to bank holding companies and their subsidiaries
and provides certain specific information relevant to the Company. This
regulatory framework is intended primarily for the protection of depositors and
not for the protection of the Company's stockholders. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to those provisions. A change in the
statutes, regulations or regulatory policies applicable to the Company or its
subsidiaries may have a material effect on the business of the Company.
GENERAL
As a bank holding company, the Company is subject to regulation and
examination by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended ("BHCA"). 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. The BHCA prohibits the Company from acquiring direct
or indirect control of more than 5% of the voting shares or substantially all
the assets of any company, including a bank, without the Federal Reserve Board's
prior approval. In addition, bank holding companies generally may engage,
directly or indirectly, only in banking and such other activities as are
determined by the Federal Reserve to be closely related to banking. 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 has adopted capital adequacy guidelines for bank
holding companies, to which the Company is subject. These capital requirements
establish higher capital standards for banks and bank holding companies that
assume greater credit risks. For this purpose, a bank's or holding company's
assets and certain specified off-balance sheet commitments are assigned to four
risk categories, each weighted differently based on the level of credit risk
that is ascribed to such assets or commitments. A bank's or holding company's
capital, in
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turn, is divided into two tiers: core ("Tier 1") capital, which includes common
equity, non-cumulative perpetual preferred stock and related surplus (excluding
auction rate issues), and minority interests in equity accounts of consolidated
subsidiaries, less goodwill, certain identifiable intangible assets and certain
other assets; and supplementary ("Tier 2") capital, which includes, among other
items, perpetual preferred stock not meeting the Tier 1 definition, mandatory
convertible securities, subordinated debt and allowances for loan and lease
losses, subject to certain limitations, less certain required deductions. The
Company, like other bank holding companies, currently is required to maintain
Tier 1 and total capital (the sum of Tier 1 and Tier 2 capital) equal to at
least 4% and 8% of its total risk-weighted assets, respectively. At December
31,1997, the Company met both requirements. The Federal Reserve Board also
requires bank holding companies to maintain a minimum "leverage ratio" (Tier 1
capital to adjusted total assets) of 3%. These ratio requirements are minimums.
Any institution operating at or near those levels would be expected by the
regulators to have well-diversified risk, including no undue interest rate risk
exposures, excellent asset quality, high liquidity, and good earnings and, in
general, would have to be considered a strong banking organization. All other
organizations and any institutions experiencing or anticipating significant
growth are expected to maintain capital ratios at least one to two percent above
the minimum levels, and higher capital ratios can be required if warranted by
particular circumstances or risk profile. For information regarding the
Company's recent historical capital ratios, see "Selected Financial Data."
IMPROVEMENT ACT AND RELATED REGULATIONS
General. The Improvement Act directs that each federal banking agency
prescribe standards for depository institutions and depository institution
holding companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value to
book value for publicly traded shares, and such other standards as the agency
deems appropriate.
Prompt Corrective Action Rule. The Improvement Act, among other things,
identifies five capital categories for insured depository institutions (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) and requires the respective
Federal regulatory agencies to implement systems for "prompt corrective action"
for insured depository institutions that do not meet minimum capital
requirements within such categories. The Improvement Act imposes progressively
more restrictive constraints on operations, management and capital
distributions, depending on the category in which an institution is classified.
An "undercapitalized" bank must develop a capital restoration plan and its
parent holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, the Improvement Act
requires the various regulatory agencies to prescribe certain non-capital
standards for safety and soundness relating generally to operations and
management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards. The
Federal Reserve Board and the FDIC have adopted rules to incorporate market and
interest rate risk components into their risk-based capital standards.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable Federal banking regulator are
subject to one or more of the following sanctions: (i) forced sale of shares to
raise capital, or, where grounds exist for the appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) limitations on interest rates paid on deposits; (iv) further restrictions
on growth or required shrinkage; (v) replacement of directors or senior
executive directors; (vi) prohibitions on the receipt of correspondent deposits;
(vii) restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution; or
(ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital
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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.
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. Under these provisions BancFirst may
declare during 1998, without prior regulatory approval, aggregate dividends of
$17,178 million, plus net profits earned to the date of such dividend
declaration in 1998. State and federal regulatory authorities have adopted
standards for the maintenance of adequate levels of capital by banks. See
"Capital Adequacy Guidelines," above. Adherence to such standards further
limits the ability of banks to pay dividends. The payment of dividends by any
subsidiary bank may also be affected by other regulatory requirements and
policies, such as the maintenance of adequate capital. If, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged
in, or is about to engage in, an unsafe or unsound practice (which, depending on
the financial condition of the bank, could include the payment of dividends),
such authority may require, after notice and hearing, that such bank cease and
desist from such practice. The Federal Reserve Board has formal and informal
policies which provide that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings.
DEPOSIT INSURANCE
BancFirst is insured by the FDIC and is required to pay certain fees and
premiums to the Bank Insurance Fund ("BIF"). The BIF has implemented a risk-
related insurance system for determining premiums to be paid by a bank. Each
bank is placed in one of nine risk categories based on its level of capital and
supervisory rating with the well-capitalized banks with the highest supervisory
rating paying a premium of 0.00% of deposits and the critically undercapitalized
banks paying up to 0.27% of deposits. In addition, the Deposit Insurance Fund
Act of 1996 implemented an additional assessment on BIF deposits and deposits
insured by the Savings Association Insurance Fund ("SAIF") administered by the
FDIC, the Financing Corporation ("FICO") Quarterly Payment. The FDIC
established the FICO assessment rates effective January 1, 1997 at $0.01256 per
$100 annually for BIF-assessable deposits and $0.0648 per $100 annually for
SAIF-assessable deposits. The FICO assessments do not vary depending upon a
depository institution's capitalization or supervisory evaluations.
DEPOSITOR PREFERENCE STATUTE
Federal legislation has been enacted providing that deposits and certain
claims for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general unsecured
claims against such institution, including federal funds and letters of credit,
in the "liquidation or other resolution" of the institution by any receiver.
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STATE REGULATION
BancFirst is an Oklahoma-chartered state bank. Accordingly, BancFirst's
operations are subject to various requirements and restrictions of state law
relating to loans, lending limits, interest rates payable on deposits,
investments, mergers and acquisitions, borrowings, dividends, capital adequacy,
and other matters. Because BancFirst is a member of the Federal Reserve System,
Oklahoma law provides that BancFirst must maintain reserves against deposits as
required by the Federal Reserve Act. BancFirst is subject to primary
supervision, periodic examination and regulation by the Oklahoma State Banking
Department and the Federal Reserve Board. The Oklahoma State Bank Commissioner
is authorized by statute to accept a Federal Reserve System examination in lieu
of a state examination. In practice, the Federal Reserve Board and the Oklahoma
State Banking Department alternate examinations of BancFirst. If, as a result
of an examination of a bank, the Oklahoma State Banking Department determines
that the financial condition, capital resources, asset quality, earnings
prospects, management, liquidity, or other aspects of the bank's operations are
unsatisfactory or that the management of the bank is violating or has violated
any law or regulation, various remedies, including the remedy of injunction, are
available to the Oklahoma State Banking Department. Oklahoma also permits the
acquisition of an unlimited number of wholly-owned bank subsidiaries so long as
aggregate deposits at the time of acquisition in a multi-bank holding company do
not exceed 15% of all deposits in Oklahoma financial institutions insured by the
federal government, exclusive of credit union deposits. Oklahoma also permits
out-of-state bank holding companies to acquire banks and bank holding companies
located in the state and, subject to certain limitations, make additional
acquisitions within the state. During the last few years the Oklahoma banking
industry has been consolidated into fewer but larger banks. During 1997, two
"super-regional" holding companies completed acquisitions of the second and
third largest banks in Oklahoma. The consolidation over the past several years
has brought about a highly competitive environment, in which many customers have
access to national and regional financial institutions for many products and
services. On September 29, 1994, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle-Neal") was signed into law. In
summary, commencing one year after passage, qualifying bank holding companies
were permitted to acquire banks in any state. As of June 1, 1997, qualifying
banks were able to engage in interstate branching by merging banks in different
states. States "opt-out" of interstate branching by enacting specific
legislation prior to June 1, 1997, in which case out-of-state banks would
generally not be able to branch into that state, and banks headquartered in that
state would not be permitted to branch into other states. The law imposes a 10%
nationwide deposit cap and a 30% state deposit cap; however, the states'
authority is preserved to impose a lower, nondiscriminatory deposit cap.
Oklahoma elected to "opt-in" to interstate branching effective May 1997 and
established a 12.25% deposit cap which was subsequently increased to 15%. It is
anticipated that the total number of Oklahoma banks may decrease and national
and regional bank presence in the state may increase. Over the near-term, these
changes are expected to increase competition with a greater number of products
and services available to Oklahoma customers. Over the long-term, the number of
competitors could decrease, depending on the extent of consolidations
nationwide, but competition could continue to increase as a result of the
remaining institutions needing to be stronger, more innovative and more
aggressive to retain a significant presence in a consolidated environment.
Additional legislation, judicial and administrative decisions also may affect
the ability of banks to compete with each other as well as with other
businesses. These statutes and decisions may tend to make the operations of
various financial institutions more similar and increase competition among banks
and other financial institutions or limit the ability of banks to compete with
other businesses. Management currently cannot predict whether and, if so, when
any such changes might occur or the impact any such changes would have upon the
income or operations of the Company or its subsidiaries, or upon the Oklahoma
regional banking environment.
Subject to the foregoing, the branching rights of all 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 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 15%of the aggregate
deposits of all insured financial institutions located in Oklahoma. A bank
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located in Oklahoma may also establish three de novo off-premises limited-
purposes 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, the second to
be located within three miles of the bank's main office, and the third which may
be located anywhere within the municipal limits of where the main bank building
is located. All branch banks of an out-of-state bank shall be regulated by the
Oklahoma Banking Department as if the branch banks comprised an Oklahoma bank
and the branch banks shall comply with applicable Oklahoma laws and rules in the
conduct of their business within the state.
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.
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, 1997.
8
<PAGE>
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.
<TABLE>
<CAPTION>
Price Range
----------------------
Cash
Dividends
High Low Declared
------------------------------
<S> <C> <C> <C>
1997
First Quarter $32 1/2 $27 1/16 $0.10
Second Quarter $33 1/2 $27 1/2 $0.10
Third Quarter $33 3/4 $29 1/4 $0.10
Fourth Quarter $34 1/4 $31 9/16 $0.12
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
</TABLE>
As of February 28, 1998, there were approximately 350 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.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from "Financial Review" contained on pages A-3
through A-15 of the attached Appendix.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Incorporated by reference from "Financial Review - Market Risk" contained on
page A-15 of the attached Appendix.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of BancFirst Corporation and its
subsidiaries, are incorporated by reference from pages A-16 through A-46 of the
attached Appendix, and include the following:
a. Reports of Independent Accountants
b. Consolidated Balance Sheet
c. Consolidated Statement of Income
d. Consolidated Statement of Stockholders' Equity
e. Consolidated Statement of Cash Flows
f. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no material disagreements between the Company and its
independent accountants on accounting and financial disclosure matters which are
required to be reported under this Item for the period for which this report is
filed.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 401 of Regulation S-K will be contained in
the 1998 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 1998 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 1998 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 1998 Proxy Statement under the caption "Stock Ownership" and is hereby
incorporated by reference.
10
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-K will be contained in
the 1998 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, 1997 and 1996
Consolidated Statement of Income for the three years ended December 31,
1997
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1997
Consolidated Statement of Cash Flows for the three years ended December
31, 1997
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from pages
A-16 through A-46 of the attached Appendix.
(2) All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) The following Exhibits are filed with this Report or are incorporated
by reference as set forth below:
Exhibit
Number Exhibit
- ------ ------------------------------------------------------------------
2.1 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).
11
<PAGE>
2.4 Purchase and Assumption Agreement between NationsBank, N.A. and BancFirst
dated September 26, 1997 (filed as Exhibit 2.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
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).
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 for the year ended December 31, 1997.
27.2* Financial Data Schedule for the quarter ended September 30, 1997.
27.3* Financial Data Schedule for the quarter ended June 30, 1997.
27.4* Financial Data Schedule for the quarter ended March 31, 1997.
27.5* Financial Data Schedule for the year ended December 31, 1996.
27.6* Financial Data Schedule for the quarter ended September 30, 1996.
27.7* Financial Data Schedule for the quarter ended June 30, 1996.
27.8* Financial Data Schedule for the quarter ended March 31, 1996.
27.9* Financial Data Schedule for the year ended December 31, 1995.
- -------------------------------------------
* 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, 1997.
12
<PAGE>
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 30, 1998 BANCFIRST CORPORATION
(Registrant)
/s/ David E. Rainbolt
---------------------
David E. Rainbolt
President and Chief Executive Officer
13
<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 30, 1998.
/s/ H.E. Rainbolt /s/David E. Rainbolt
- -------------------------------- --------------------------------
H. E. Rainbolt David E. Rainbolt
Chairman of the Board President, Chief Executive
(Principal Executive Officer) Officer and Director
(Principal Executive Officer)
/s/ K. Gordon Greer /s/ Robert A. Gregory
- -------------------------------- --------------------------------
K. Gordon Greer Robert A. Gregory
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
- -------------------------------- --------------------------------
John T. Hannah J. R. Hutchens, Jr.
Director Director
/s/ J. Ralph McCalmont
- -------------------------------- --------------------------------
J. Ralph McCalmont Melvin Moran
Vice Chairman of the Board Director
(Principal Executive Officer)
/s/ Joe T. Shockley, Jr.
- -------------------------------- --------------------------------
Joe T. Shockley, Jr. William O. Johnstone
Executive Vice President Vice Chairman of the Board
Chief Financial Officer (Principal Executive Officer)
and Director
(Principal Financial Officer)
/s/ Randy P. Foraker
- --------------------------------
Randy P. Foraker
Senior Vice President,
Controller and Treasurer
(Principal Accounting Officer)
14
<PAGE>
APPENDEX A
BANCFIRST CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Pages
-------------
Selected Consolidated Financial Data A-2
Financial Review A-3 - A-15
Reports of Independent Accountants A-16
Consolidated Balance Sheet A-17
Consolidated Statement of Income A-18
Consolidated Statement of Stockholders' Equity A-19
Consolidated Statement of Cash Flows A-20
Notes to Consolidated Financial Statements A-21 - A-46
A-1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income $ 57,699 $ 53,784 $ 43,689 $ 38,936 $ 32,971
Provision for possible loan losses 982 994 855 380 251
Noninterest income 15,821 14,999 12,500 11,218 10,547
Noninterest expense 48,537 43,270 34,932 31,631 29,151
Income before extraordinary items 15,749 15,088 12,839 11,597 10,154
Net income 15,749 15,088 12,839 11,597 11,472
Accumulated preferred dividends -- -- -- (55) (386)
Net income applicable to common stockholders 15,749 15,088 12,839 11,542 11,086
BALANCE SHEET DATA:
Total assets $1,345,789 $1,235,711 $1,048,338 $872,915 $823,234
Total loans (net of unearned interest) 857,896 763,559 625,162 522,314 466,356
Allowance for possible loan losses 12,284 11,945 10,646 9,729 9,027
Securities 310,343 283,857 263,113 223,044 231,546
Deposits 1,175,110 1,105,453 923,169 784,851 736,686
Long-term borrowings 7,051 6,636 918 -- --
9.65% Capital Securities 25,000 -- -- -- --
10% Preferred Stock -- -- -- -- 3,898
Common stockholders' equity 122,934 112,096 98,343 81,961 76,052
PER COMMON SHARE DATA:
Income before extraordinary items - basic $ 2.48 $ 2.41 $ 2.07 $ 1.86 $ 1.77
Net income - basic 2.48 2.41 2.07 1.86 2.01
Income before extraordinary items - diluted 2.41 2.32 2.01 1.80 1.71
Net income - diluted 2.41 2.32 2.01 1.80 1.94
Cash dividends 0.42 0.34 0.29 0.25 0.21
Book value 19.37 17.52 15.80 13.21 12.27
Tangible book value 17.40 15.19 14.50 11.93 11.02
SELECTED FINANCIAL RATIOS:
Performance ratios:
Return on average assets 1.23% 1.31% 1.33% 1.34% 1.54%
Return on average stockholders' equity 13.51 14.68 14.13 14.36 17.03
Cash dividend payout ratio 16.94 14.11 14.01 13.44 10.45
Net interest spread 4.25 4.51 4.34 4.56 4.54
Net interest margin 5.13 5.35 5.20 5.20 5.14
Efficiency ratio 66.02 62.91 62.17 63.07 66.99
Balance Sheet Ratios:
Average loans to deposits 71.47% 68.81% 67.02% 63.39% 61.82%
Average earning assets to total assets 88.85 88.27 88.31 88.05 88.47
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.58% 0.75% 0.79% 0.71% 1.00%
Nonperforming and restructured assets to total assets 0.45 0.57 0.55 0.70 1.08
Allowance for possible loan losses to total loans 1.43 1.56 1.70 1.86 1.94
Allowance for possible loan losses to nonperforming
and restructured loans 248.01 207.31 216.73 261.53 193.21
Net chargeoffs to average loans 0.08 0.09 0.08 0.00 0.06
Capital Ratios:
Average stockholders' equity to average assets 9.11% 8.93% 9.43% 9.34% 9.06%
Leverage ratio 10.04 7.90 8.55 9.08 9.06
Tier 1 risk-based capital ratio 15.72 12.98 14.76 15.41 16.57
Total risk-based capital ratio 16.97 14.23 16.02 16.67 17.83
</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, 1997
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and the Selected Consolidated Financial Data included herein.
SUMMARY
In 1997, BancFirst Corporation posted its seventh consecutive year of
record earnings while also enhancing its resources and operational
infrastructure. Additional personnel were added in key areas and investments in
technology were made to prepare the Company to take advantage of growth
opportunities. The Company raised additional regulatory capital through the
issuance of $25 million of trust preferred securities. Agreements were executed
for acquisitions to be completed in 1998 which will add ten new banking
locations and approximately $225 million in assets.
Net income for 1997, was $15.8 million, up from $15.1 million for 1996 and
$12.8 million for 1995. The corresponding basic earnings per share were $2.48
for 1997, $2.41 for 1996 and $2.07 for 1995.
Total assets increased $110 million, to $1.35 billion, as a result of
internal growth. Total loans increased $94 million, representing internal
growth of over 12%. Total deposits increased $70 million, or 6.3%. Average
loans to deposits rose to 71.47% from 68.81% Stockholders' equity increased
$10.8 million while average stockholders' equity to average assets increased to
9.11%, from 8.93% for 1996.
Asset quality remained high in 1997 with nonperforming and restructured
assets to total assets of 0.45%, compared to 0.57% for 1996. The allowance for
possible loan losses to nonperforming and restructured loans was 248.01% at
year-end 1997 and 207.31% at the end of 1996.
In January 1997, BancFirst Corporation established BFC Capital Trust I
which issued $25 million of 9.65% Capital Securities (the "Capital Securities")
in February 1997. The Capital Securities are included in regulatory capital and
the proceeds were used for acquisitions, purchases of the Company's common stock
and for general corporate purposes.
In March 1997, the Company acquired 22.8% of the common stock outstanding
of First Ada Bancshares, Inc. for cash of $4.95 million. First Ada Bancshares,
Inc. has approximately $170 million in total assets.
In September 1997, BancFirst entered into agreements to purchase 13
branches from NationsBank, N.A. and concurrently sell three of the branches to
another Oklahoma financial institution. The purchase and sale were completed in
March 1998 and resulted in BancFirst purchasing loans and other assets of
approximately $33 million, assuming deposits of approximately $135 million and
paying a premium on deposits of approximately $9 million.
In December 1997, the Company entered into an agreement to acquire Lawton
Security Bancshares, Inc., which has approximately $90 million in total assets.
The acquisition is expected to be completed in the second quarter of 1998 and
will be effected through the exchange of 414,794 shares of BancFirst Corporation
common stock for all of the Lawton Security Bancshares, Inc. common stock
outstanding.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is the Company's principal source of operating
revenue, increased 7.28% in 1997 to $57.7 million, after increasing 23.1% in
1996 and 12.2% in 1995. The net interest margin on a taxable equivalent basis
for 1997 was 5.13%, down from 5.35% for 1996 and 5.20% for 1994. The Company's
net interest margin has benefited in recent years from generally stable interest
rates combined with relatively strong loan demand. The margin in 1997 was
affected by a flatter yield curve and the added cost of the Capital Securities.
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 strong
loan demand or in a different interest rate environment.
A-3
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------ ------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
ASSETS AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ---------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans (1) $ 800,086 $77,259 9.66% $ 710,115 $69,342 9.76% $577,887 $58,199 10.07%
Investments - taxable 287,555 18,298 6.36 265,488 16,546 6.23 233,777 13,937 5.96
Investments - tax exempt 12,668 1,036 8.18 11,042 937 8.49 11,059 945 8.55
Federal funds sold 36,310 1,988 5.47 29,287 1,572 5.37 28,515 1,673 5.87
---------- --------- ---------- --------- ---------- ---------
Total earning assets 1,136,619 98,581 8.67 1,015,932 88,397 8.70 851,238 74,754 8.78
---------- -------- ---------- --------- ---------- ---------
Nonearning assets:
Cash and due from banks 76,141 73,111 67,348
Interest receivable and 78,510 73,542 55,543
other assets
Allowance for possible
loan losses (11,978) (11,598) (10,162)
---------- ---------- ---------
Total nonearning assets 142,673 135,055 112,729
---------- ---------- ---------
Total assets $1,279,292 $1,150,987 $963,967
========== ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Transaction deposits $ 20,649 545 2.64% $ 111,633 3,052 2.73% $179,435 5,882 3.28%
Savings deposits 384,726 11,550 3.00 275,868 8,582 3.11 154,482 5,848 3.79
Time deposits 470,828 25,266 5.37 416,253 21,958 5.28 346,807 18,435 5.32
Short-term borrowings 5,242 307 5.86 6,298 364 5.78 4,403 253 5.75
Line of credit -- -- -- -- -- -- -- 16 NM
Long-term borrowings 6,720 409 6.08 1,560 103 6.60 216 14 6.48
9.65% Capital Securities 22,683 2,214 9.76 -- -- -- -- -- --
---------- -------- ---------- ------- -------- -------
Total interest-bearing
liabilities 910,848 40,291 4.42 811,612 34,059 4.20 685,343 30,448 4.44
---------- -------- ---------- ------- -------- -------
Interest-free funds:
Demand deposits 243,213 228,291 181,495
Interest payable and other 8,684 8,278 6,259
liabilities
Stockholders' equity 116,547 102,806 90,870
---------- ---------- ---------
Total interest-free funds 368,444 339,375 278,624
---------- ---------- ---------
Total liabilities and
stockholders' equity $1,279,292 $1,150,987 $963,967
========== ========== =========
Net interest income $58,290 $54,338 $44,306
======== ======= =======
Net interest spread 4.25% 4.51 4.34%
====== ======= ========
Net interest margin 5.13% 5.35 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 1997 and 1996. The increase in net interest
income in 1997 can be attributed to the increase in loan volume and an increase
in net earning assets. Average loans rose 12.7%. At the same time, average net
earning assets increased to $226 million from $204 million for 1996. In 1996,
average loans increased 22.9% and average net earning assets increased to $204
million from $166 million for 1995.
<TABLE>
<CAPTION>
CHANGE IN 1997 CHANGE IN 1996
----------------------------- -------------------------------
DUE TO DUE TO
VOLUME DUE TO VOLUME DUE TO
TOTAL (1) RATE TOTAL (1) RATE
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN: (Dollars in thousands)
INTEREST INCOME:
Loans $ 7,918 $ 9,002 $ (1,084) $ 11,145 $ 13,245 $ (2,100)
Securities--taxable 1,756 1,281 475 2,609 2,112 497
Securities--tax-exempt 99 138 (39) (8) (2) (6)
Federal funds sold 416 377 39 (101) 45 (146)
------- -------- -------- -------- -------- --------
Total interest income 10,189 10,798 (609) 13,645 15,400 (1,755)
------- -------- -------- -------- -------- --------
INTEREST EXPENSE:
Transaction deposits (2,507) (2,483) (24) (2,831) (2,235) (596)
Savings deposits 2,968 2,890 78 2,734 4,368 (1,634)
Time deposits 3,309 2,890 419 3,523 3,763 (240)
Short-term borrowings (57) (83) 26 95 112 (17)
Long-term borrowings 306 341 (35) 89 87 2
9.65% Capital Securities 2,214 -- 2,214 -- -- --
------- -------- -------- -------- -------- --------
Total interest expense 6,233 3,555 2,678 3,610 6,095 (2,485)
----------------- -------- -------- -------- --------
Net interest income $ 3,956 $ 7,243 $ (3,287) $ 10,035 $ 9,305 $ 730
======= ======= ======== ======== ======== ========
</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
1997, 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, 1997. At this date, interest-bearing liabilities
exceeded earning assets by $184 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. The curve remained relatively stable in 1996, but flattened again
in 1997 as long-term interest rates declined. 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
A-5
<PAGE>
yield curve. In 1997, however, the cumulative 12 months negative gap increased
to 16.87%, from 14.06% at December 31, 1996, as much of the growth in earning
assets was in the 1 to 5 years range.
<TABLE>
<CAPTION>
INTEREST RATE NONINTEREST RATE
SENSITIVE SENSITIVE
----------------------- ---------------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
EARNING ASSETS:
Loans $ 344,898 $ 173,846 $252,751 $ 86,401 $ 857,896
Federal funds sold 40,600 -- -- -- 40,600
Securities 22,968 54,152 213,878 19,345 310,343
--------- --------- -------- --------- ----------
Total $ 408,466 $ 227,998 $466,629 $ 105,746 $1,208,839
========= ========= ======== ========= ==========
FUNDING SOURCES:
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 141,817 $ 141,817
Savings and transaction deposits 419,651 -- -- -- 419,651
Time deposits of $100 or more 54,455 62,982 21,004 -- 138,441
Time deposits under $100 112,544 179,548 55,837 -- 347,929
Short-term borrowings 6,016 -- -- -- 6,016
Long-term borrowings 26 5,168 777 1,080 7,051
9.65% Capital Securities -- -- -- 25,000 25,000
Stockholders' equity -- -- -- 122,934 122,934
--------- --------- -------- --------- ----------
Total $ 592,692 $ 247,698 $ 77,618 $ 290,831 $1,208,839
========= ========= ======== ========= ==========
Interest sensitivity gap $(184,226) $ (19,700) $389,011 $(185,085)
Cumulative gap $(184,226) $(203,926) $185,085 $ --
Cumulative gap as a percentage
of total earning assets (15.24)% (16.87)% 15.31% --%
</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 was $982,000 for 1997 compared to
$994,000 for 1996, and $855,000 for 1995. These relatively low levels of
provisions reflect the Company's strong asset quality. The amounts provided for
the last three years are primarily due to loan growth, as the Company
establishes a 1% allowance for possible losses on non-classified loans. Net
loan charge-offs were $643,000 for 1997, compared to $654,000 for 1996 and
$452,000 for 1995. The net charge-offs for 1997 and 1996 were equivalent to
only 0.08% and 0.09% of average loans, respectively. A more detailed discussion
of the allowance for possible loan losses is provided under "Loans."
NONINTEREST INCOME
Noninterest income increased in 1997 by $822,000, or 5.48%, compared to an
increase of $2.50 million, or 20% in 1996 and $1.28 million, or 11.4%, in 1995.
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 $1.18 million, or 13.2%, compared to
increases of 14% and 2.98% in 1996 and 1995, respectively. In 1997, the Company
implemented strategies to improve the charging and collection of various service
charges. The growth in 1996 was primarily due to acquisitions. Other
noninterest income decreased $173,000, or 3%, in 1997, after increases of 29.2%,
in 1996, and 26.5% in 1995. The primary
A-6
<PAGE>
causes of the increases in the prior two years were increased fees from mortgage
origination, gains on sales of mortgage loans and fees from money order sales.
Net gains on securities transactions were $1,000 in 1997, compared to
$188,000 in 1996, and $111,000 in 1995. The Company's practice is to hold its
securities to maturity and it does not engage in trading activities. The small
gains from securities transactions have primarily been from securities that have
been called or from disposing of securities acquired in mergers which had a
higher than acceptable level of risk. A more detailed discussion of securities
is provided under "Securities."
NONINTEREST EXPENSE
Total noninterest expense increased in 1997 by 12.2% to $48.5 million,
compared to increases of 23.9% for 1996 and 10.4% for 1995. 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 $242,000 was recognized for 1997,
compared to $35,000 and $89,000 for 1996 and 1995. These amounts are reflective
of the Company's efforts to reduce nonperforming assets. The increase in 1997
was due to lower gains on sales of other real estate owned.
INCOME TAXES
Income tax expense decreased to $8.25 million from $9.43 million for 1996.
The primary reasons for the difference between the Company's effective tax rate
and the federal statutory rate are nondeductible amortization and state tax
expense. Prior to 1993, the Company had net operating loss carryforwards for
financial and tax reporting purposes. The Company utilized substantial portions
of these 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 decreased $11.3 million, or 9.3% compared to
December 31, 1996. In 1996, cash and federal funds sold increased $6.23
million, or 5.4%, as compared to
A-7
<PAGE>
year-end 1995. However, based on average balances the increases for 1997 and
1996 were 9.82% and 6.8%, respectively. The year-end balances of cash and
federal funds sold are affected by funds temporarily deposited or withdrawn 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.
SECURITIES
During 1997, total securities increased $26.5 million, or 9.33%, compared to
an increase of $20.7 million, or 7.88%, in 1996. The increase in 1997 was in
line with the internal growth of the Company, while the increase in 1996 was
primarily due to acquisitions.
Securities available for sale represented 87.7% of the total securities
portfolio at year-end 1997, compared to 88.3% and 84% at year-end 1996 and 1995,
respectively. These levels reflect the Company's strategy of maintaining a very
liquid portfolio. Securities available for sale had a net unrealized gain of
$2.41 million at year-end 1997, compared to $1.16 million the preceding year.
These gains are included, net of tax, in the Company's stockholders' equity as
$1.55 million and $736,000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(Dollars in thousands)
HELD FOR INVESTMENT
U. S. Treasury and other federal agencies $ 19,507 $ 22,560 $ 30,352
States and political subdivisions 18,475 10,654 10,478
Other securities 53 75 1,175
-------- -------- --------
Total $ 38,035 $ 33,289 $ 42,005
======== ======== ========
Estimated market value $ 38,705 $ 33,653 $ 42,577
======== ======== ========
AVAILABLE FOR SALE
U. S. Treasury and other federal agencies $263,315 $242,233 $216,431
States and political subdivisions 1,147 1,284 657
Other securities 7,846 7,051 4,020
-------- -------- --------
Total $272,308 $250,568 $221,108
======== ======== ========
</TABLE>
The Maturity Distribution of Securities summarizes the maturity and weighted
average taxable equivalent yields of the securities portfolios at December 31,
1997. 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 86.45% in 1997
from 85.24% in 1996.
A-8
<PAGE>
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
BUT BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER FIVE YEARS TOTAL
----------------- ----------------- ----------------- ----------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD FOR INVESTMENT (Dollars in thousands)
U. S. Treasury and other
federal agencies $ 6,273 6.18% $ 4,553 7.67% $ 5,674 6.74% $ 3,007 6.70% $ 19,507 6.77%
State and political
subdivisions 1,573 8.47 8,483 7.37 4,026 8.07 4,393 7.27 18,475 7.59
Other securities -- -- -- -- 53 6.26 -- -- 53 6.26
------- -------- ------- -------
Total $ 7,846 6.64 $ 13,036 7.47 $ 9,753 7.29 $ 7,400 6.80 $ 38,035 7.17
======= ======== ======= ======= ========
Percentage of total 20.63% 34.27% 25.64% 19.46% 100.00%
======= ======== ======= ======= ========
AVAILABLE FOR SALE
U. S. Treasury and other
federal agencies $46,557 6.17% $200,161 6.34% $ 8,241 6.71% $ 8,356 7.22% $263,315 6.35%
State and political
subdivisions 552 6.06 140 6.44 207 7.33 248 8.17 1,147 6.79
Other securities -- -- -- -- -- -- 7,846 5.88 7,846 5.88
------- -------- ------- ------- --------
Total $47,109 6.17 $200,301 6.34 $ 8,448 6.73 $16,450 6.60 $272,308 6.34
======= ======== ======= ======= ========
Percentage of total 17.30% 73.56% 3.10% 6.04% 100.00%
======= ======== ======= ======= ========
Total securities $54,955 6.24 $213,337 6.41 $18,201 7.03 $23,850 6.47 $310,343 6.44
======= ======== ======= ======= ========
Percentage of total 17.71% 68.74% 5.86% 7.69% 100.00%
======= ======== ======= ======== ========
</TABLE>
LOANS
The Company has generated significant loan growth over the past eight years
from both acquisitions and internal originations. Total loans increased $94.3
million, or 12.4%, in 1997, and $138 million, or 22.1%, in 1996. The increase in
1997 was all due to internal growth, while internal loan growth added $57.6
million to total loans in 1996. This growth is being generated primarily in the
Oklahoma City and Tulsa metropolitan markets and by specialized lending
activities such as guaranteed student loans, SBA guaranteed loans and
residential mortgage loans.
Composition
The Company's loan portfolio is diversified among various types of commercial
and individual borrowers. Commercial loans are comprised principally of loans to
companies in light manufacturing, retail and service industries. Construction
and development loans totaled only $46.7 million, or 5.44% of total loans as of
the end of 1997, and oil and gas production loans totaled only $11.5 million, or
1.34% of total loans. Real estate loans are relatively evenly divided between
mortgages on personal residences and loans secured by commercial and other types
of properties. Installment loans are comprised mostly of loans to individuals
for the purchase of vehicles and student loans. Loans secured by real estate
have always been a large proportion of the Company's loan portfolio. In 1997,
this percentage was 53.3% compared to 52.6% for 1996. The Company is subject to
risk of future market fluctuations in property values relating to these loans.
The Company attempts to manage this risk through rigorous loan underwriting
standards, training of loan officers and close monitoring of the values of
individual properties.
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 67.6% of the commercial real estate and other commercial loans had
adjustable interest rates at year-
A-9
<PAGE>
end 1997. 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.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------- ------------------ ------------------ ------------------ -----------------
% 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 $253,684 29.57% $223,116 29.22% $180,923 28.94% $156,718 30.00% $131,088 28.11%
and other
Real estate -- 46,662 5.44 37,555 4.92 27,620 4.42 29,760 5.70 19,258 4.13
construction
Real estate -- 409,712 47.76 363,671 47.63 305,456 48.86 242,143 46.36 229,143 49.13
mortgage
Consumer 147,838 17.23 139,217 18.23 111,163 17.78 93,693 17.94 86,867 18.63
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $857,896 100.00% $763,559 100.00% $625,162 100.00% $522,314 100.00% $466,356 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</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 $169,159 $ 70,098 $14,427 $253,684
Real estate -- construction 28,849 13,656 4,157 46,662
Real estate -- mortgage (excluding loans secured by 1-4
family residential properties) 100,729 85,832 28,765 215,326
-------- -------- ------- --------
Total $298,737 $169,586 $47,349 $515,672
======== ======== ======= ========
Loans with predetermined interest rates $ 82,298 $ 65,318 $19,445 $167,061
Loans with adjustable interest rates 216,439 104,268 27,904 348,611
-------- -------- ------- --------
Total $298,737 $169,586 $47,349 $515,672
======== ======== ======= ========
Percentage of total 57.93% 32.89% 9.18% 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 increased in 1995 and 1996 primarily as
a result of acquisitions but decreased in 1997. Nonperforming and restructured
loans as a percentage of total loans was 0.58% at year-end 1997, compared to
0.75% at year-end 1996 and 0.79% at year-end 1995. 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 $206,000 in 1997 and $172,000 in
1996. Only a small amount of this interest was ultimately collected.
A-10
<PAGE>
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 1997, the allowance for possible loan losses
as a percentage of nonperforming and restructured loans was 248%, compared to
207% at the end of 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Past due over 90 days and still accruing $ 1,076 $ 1,476 $ 500 $ 351 $ 590
Nonaccrual 3,511 3,643 3,724 2,715 3,278
Restructured 366 643 688 654 804
--------- -------- ------- ------- --------
Total nonperforming and restructured loans 4,953 5,762 4,912 3,720 4,672
Other real estate owned and repossessed assets 1,088 1,252 858 2,354 4,220
--------- -------- ------- ------- --------
Total nonperforming and restructured assets $ 6,041 $ 7,014 $ 5,770 $ 6,074 $ 8,892
========= ======== ======= ======= ========
Nonperforming and restructured loans to total loans 0.58% 0.75% 0.79% 0.71% 1.00%
========= ======= ====== ====== =======
Nonperforming assets to total assets 0.45% 0.57% 0.55% 0.70% 1.08%
========= ======= ====== ====== =======
</TABLE>
Other real estate owned and repossessed assets decreased in 1997 to $1.09
million from $1.25 million at year-end 1996. The slight increase in other real
estate owned in 1996 was due to acquisitions during the year. The Company
places a substantial amount of emphasis on disposing of these assets. To
encourage local management to sell the other real estate as quickly as possible
and to ensure that it is carried at a conservative value, the Company's policy
is to write other real estate down annually by the greater of 10% of its
remaining carrying value, or the difference between its remaining carrying value
and its estimated market value.
Potential problem loans are performing loans to borrowers with a weakened
financial condition, or which are experiencing unfavorable trends in their
financial condition, which causes management to have concerns as to the ability
of such borrowers to comply with the existing repayment terms. These loans,
which are not included in nonperforming and restructured assets, totaled $12.3
million at December 31, 1997. 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, exclusive of the
effect of acquisitions, have been declining, 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
$14.8 million at the end of 1997, compared to $20.7 million for 1996 and $15.8
million at the end of 1995. The percentage of classified loans to total loans
was 1.72% for 1997, 2.71% for 1996 and 2.53% for 1995.
A-11
<PAGE>
The Company's net charge-offs have been very low in recent years. In 1997,
the Company recognized $643,000 of net charge-offs, which was only 0.08% of
average loans, compared to $654,000 of net charge-offs, or 0.09% of average
loans for 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 11,945 $ 10,646 $ 9,729 $ 9,027 $ 7,202
---------- --------- --------- --------- ----------
Charge-offs:
Commercial (363) (481) (457) (285) (218)
Real estate (90) (82) (130) (116) (436)
Consumer (707) (384) (348) (450) (417)
Other (80) (120) (78) (68) (83)
---------- --------- --------- --------- ----------
Total charge-offs (1,240) (1,067) (1,013) (919) (1,154)
---------- --------- --------- --------- ----------
Recoveries:
Commercial 242 98 232 400 431
Real estate 163 125 154 341 251
Consumer 166 155 150 148 185
Other 26 35 25 35 38
---------- --------- --------- --------- ----------
Total recoveries 597 413 561 924 905
---------- --------- --------- --------- ----------
Net (charge-offs) recoveries (643) (654) (452) 5 (249)
Provisions charged to operations 982 994 855 380 251
Additions from acquisitions -- 959 514 317 1,823
---------- --------- --------- --------- ----------
Balance at end of year $ 12,284 $ 11,945 $ 10,646 $ 9,729 $ 9,027
========== ========= ========= ========= ==========
Average loans $ 800,086 $ 710,115 $ 577,887 $ 493,300 $ 412,306
========== ========= ========= ========= ==========
Total loans $ 857,896 $ 763,559 $ 625,162 $ 522,314 $ 466,356
========== ========= ========= ========= ==========
Net charge-offs to average loans 0.08% 0.09% 0.08% 0.00% 0.06%
========== ========= ========= ========= ==========
Allowance to total loans 1.43% 1.56% 1.70% 1.86% 1.94%
========== ========= ========= ========= ==========
ALLOCATION OF THE ALLOWANCE BY CATEGORY OF LOANS:
Commercial, financial and other $ 467 $ 821 $ 505 $ 720 $ 647
Real estate--construction 436 426 466 564 747
Real estate--mortgage 806 731 917 927 729
Consumer 149 170 188 149 155
Unallocated 10,426 9,797 8,570 7,369 6,749
---------- --------- --------- --------- ----------
Total $ 12,284 $ 11,945 $ 10,646 $ 9,729 $ 9,027
========== ========= ========= ========= ==========
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS:
Commercial, financial and other 29.57% 29.22% 28.94% 30.00% 28.11%
Real estate--construction 5.44 4.92 4.42 5.70 4.13
Real estate--mortgage 47.76 47.63 48.86 46.36 49.13
Consumer 17.23 18.23 17.78 17.94 18.63
---------- --------- --------- --------- ----------
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
A-12
<PAGE>
charges and other banking services offered, the Company can, to a limited
extent, control its level of deposits. The level and maturity of deposits
necessary to support the Company's lending and investment functions is
determined through monitoring loan demand and through its asset/liability
management process.
The Company's core deposits provide it with a stable, low-cost funding
source. 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 $69.7 million in 1997, and $43.4 million
in 1996. Much of the deposit growth has been in time deposits of $100,000 or
more. Core deposits as a percentage of total deposits decreased,
correspondingly, to 88.84% in 1997 and 89.50% in 1996. In 1996, interest-
bearing transaction deposits decreased and savings deposits increased as a
result of a new product introduced by the Company which sweeps excess funds in
transaction accounts into a savings account. The effect of this change is even
more apparent in the 1997 average balances.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- --------------- ---------------- --------------- ---------------
AVERAGE BALANCES (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Demand deposits $ 243,213 $ 228,291 $ 181,495 $ 163,002 $ 132,847
Interest-bearing 20,649 111,633 179,435 173,647 146,187
transaction deposits
Savings deposits 384,726 275,868 154,482 156,920 124,798
Time deposits under 345,847 307,839 257,052 228,429 213,895
$100,000
------------- --------------- ---------------- --------------- ---------------
Total core deposits 994,435 923,631 772,464 721,998 617,727
Time deposits of $100,000 124,981 108,414 89,755 56,196 49,206
or more
------------- --------------- ---------------- --------------- ---------------
Total deposits $ 1,119,416 $ 1,032,045 $ 862,219 $ 778,194 $ 666,933
============= =============== ================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGES OF TOTAL % OF % OF % OF % OF % OF
DEPOSITS AND AVERAGE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE
RATES PAID ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits 21.73% 22.12% 21.05% 20.95% 19.92%
Interest-bearing
transaction deposits 1.84 2.64% 10.82 2.73% 20.81 3.28% 22.32 2.82% 21.92 2.83%
Savings deposits 34.37 3.00 26.73 3.11 17.92 3.79 20.16 3.08 18.71 3.03
Time deposits under
$100,000 30.90 5.40 29.83 5.31 29.81 5.32 29.35 3.87 32.07 3.56
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total core deposits 88.84 89.50 89.59 92.78 92.62
Time deposits of $100,000
or more 11.16 5.29 10.50 5.17 10.41 5.32 7.22 3.96 7.38 3.58
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
Average rate paid on
interest-bearing deposits 4.26% 4.18% 4.43% 3.38% 3.24%
===== ===== ===== ===== =====
</TABLE>
The Company has not utilized brokered deposits. Approximately 85% of its
time deposits of $100,000 or more at December 31, 1997 mature in one year or
less.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(In thousands)
<S> <C>
Three months or less 54,455
Over three through six months 30,699
Over six through twelve months 32,283
Over twelve months 21,004
--------
Total $138,441
========
</TABLE>
A-13
<PAGE>
Short-term borrowings, consisting of federal funds purchased and repurchase
agreements, are another source of funds for the Company. The level of these
borrowings is determined by various factors, including customer demand and the
Company's ability to earn a favorable spread on the funds obtained. Federal
funds purchased and repurchase agreements totaled $6.02 million in 1997,
compared to $3.41 million in 1996.
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,
which matured in 1996. From 1995 through 1997, approximately $2.1 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 collateralized 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 1997, the Bank paid four dividends totaling $11.6 million.
CAPITAL RESOURCES
Stockholders' equity totaled $123 million at year-end 1997, compared to $112
million at year-end 1996 and $98 million at year-end 1995. The increases in
stockholders' equity are primarily due to net earnings retained. The Company's
average equity capital ratio at year-end 1997 was 9.11%, compared to 8.93% for
1996 and 9.43% for 1995. At December 31, 1997, the Company's leverage ratio was
10.04% and its total risk-based capital ratio was 16.97%, compared to 7.90% and
14.23%, respectively in 1996. These increases are primarily due to the issuance
of the Capital Securities and accumulated earnings. 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. In 1997, the SRP was amended to increase the authorized shares to
be repurchased to 350,000. 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. During
1997, the Company repurchased and canceled 37,900 shares and the ESOP purchased
20,000 shares. 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, a
trust formed under the Delaware Business Trust Act. In February 1997, the Trust
issued $25 million of aggregate liquidation amount of 9.65% Capital Securities,
Series A. The proceeds from the sale of the Capital Securities were invested in
9.65% Junior Subordinated Deferrable Interest Debentures, Series A (the
"Debentures") of BancFirst Corporation. The Series A Capital Securities and
Debentures were subsequently exchanged for Series B Capital Securities and
Debentures, pursuant to a Registration Rights Agreement. The terms of the
Series A and Series B securities are identical in all material respects.
Distributions on the Capital Securities are payable January 15 and July 15 of
each year. Such distributions may be deferred for up to ten consecutive semi-
annual periods. The stated maturity date of the Capital Securities is January
15, 2027, but they are subject to mandatory redemption pursuant to optional
prepayment terms. The Capital Securities represent an undivided interest in the
Debentures, are guaranteed by BancFirst Corporation, and are presented as long-
term debt in the Company's consolidated financial statements, but qualify as
Tier 1 regulatory capital. During any deferral period or during any event of
default, BancFirst Corporation may not declare or pay any dividends on any of
its capital stock.
A-14
<PAGE>
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 1998.
MARKET RISK
Market risk is defined as the risk of loss related to financial instruments
from changes in interest rates, foreign currency exchange rates and commodity
prices. The Company's market risk arises principally from its lending,
investing, deposit and borrowing activities. The Company is not exposed to
market risk from foreign exchange rates and commodity prices. Management
monitors and controls interest rate risk through sensitivity analysis and its
strategy of creating manageable negative interest sensitivity gaps, as described
under "Net Interest Income" above. The Company does not use derivitive
financial instruments to manage its interest rate risk exposure.
The table below presents the Company's financial instruments that are
sensitive to changes in interest rates, their expected maturities and their
estimated fair values at December 31, 1997.
<TABLE>
<CAPTION>
AVERAGE EXPECTED MATURITY/PRINCIPAL REPAYMENTS AT DECEMBER 31, FAIR
RATE 1998 1999 2000 2001 2002 THEREAFTER BALANCE VALUE
------- -------- --------- ------- ------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Loans, net 9.91% $437,287 $133,974 $81,404 $58,759 $41,631 $92,557 $845,612 $845,852
Federal funds sold 6.27 40,600 -- -- -- -- -- 40,600 40,600
Securities 6.52 56,955 62,023 54,276 56,920 38,118 42,051 310,343 311,013
INTEREST SENSITIVE LIABILITIES:
Savings and transaction deposits 3.01 419,651 -- -- -- -- -- 419,651 419,651
Time deposits 5.40 409,529 54,402 13,212 4,510 4,717 -- 486,370 486,350
Short-term borrowings 5.35 6,016 -- -- -- -- -- 6,016 6,016
Long-term borrowings 6.14 5,194 194 194 194 194 1,081 7,051 7,051
9.65% Capital Securities 9.91 -- -- -- -- -- 25,000 25,000 27,908
OFF BALANCE SHEET ITEMS:
Loan commitments -- -- -- -- -- -- -- 1,314
Letter of credit -- -- -- -- -- -- -- 109
</TABLE>
The expected maturities and principle repayments are based upon the
contractual terms of the instruments. Prepayments have been estimated for
certain instruments with predictable prepayment rates. Savings and transaction
deposits are assumed to mature all in the first year as they are not subject to
withdrawal restrictions and any assumptions regarding decay rates would be very
subjective. The actual maturities and principle repayments for the financial
instruments could vary substantially from the contractual terms and assumptions
used in the analysis.
YEAR 2000 EXPOSURE
Many computer systems currently in operation worldwide use only two digits to
specify the year. There is a significant risk that these systems will process
the year 2000 as the year 1900. Such an error could cause the systems to not
work or to produce inaccurate information. The Company is exposed to the risk
that not only the systems it uses will malfunction, but also those of its
customers, suppliers and other parties with whom it conducts business. Such
system failures could expose the Company to losses from operational errors, as
well as customer claims, lawsuits and regulatory penalties for noncompliance.
During 1997, the Company commenced a Year 2000 Project to conduct a
comprehensive review of its outside data processing services, internal computer
systems and other mechanical and computerized equipment. The purpose of the
project is to determine and plan for necessary changes to assure that its
systems and equipment will function properly in the year 2000. The Project also
includes communications with other parties to determine the extent to which the
parties are addressing the issue and the exposure to the Company in the event
the parties fail to adequately plan for and resolve the issue. The Company's
core business applications are provided by a data processing company that is
devoting substantial resources to assure that the applications are certified as
year 2000 compliant by the end of 1998. Other required changes to systems and
equipment, and the cost of the Year 2000 Project will not materially affect the
results of operations of the Company.
A-15
<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, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 audits provide 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, 1997 and 1996 and the consolidated results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
March 30, 1998
To the Board of Directors and Stockholders of BancFirst Corporation:
In our opinion, the accompanying consolidated statements of income, of
stockholders' equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows of BancFirst Corporation and its
subsidiaries for the year ended December 31, 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 audit. We conducted our
audit 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
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Oklahoma City, Oklahoma
March 27, 1996
A-16
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 69,652 $ 76,877
Interest-bearing deposits with banks 147 62
Securities (market value: $311,013 and $284,221, respectively) 310,343 283,857
Federal funds sold 40,600 44,785
Loans:
Total loans (net of unearned interest) 857,896 763,559
Allowance for possible loan losses (12,284) (11,945)
---------- ----------
Loans, net 845,612 751,614
Premises and equipment, net 33,598 33,556
Other real estate owned 915 1,101
Intangible assets, net 12,500 14,871
Accrued interest receivable 11,357 10,627
Other assets 21,065 18,361
---------- ----------
Total assets $1,345,789 $1,235,711
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 269,089 $ 265,209
Interest-bearing 906,021 840,244
---------- ----------
Total deposits 1,175,110 1,105,453
Short-term borrowings 6,016 3,414
Long-term borrowings 7,051 6,636
9.65% Capital Securities 25,000 --
Accrued interest payable 5,722 3,940
Other liabilities 3,956 4,172
---------- ----------
Total liabilities 1,222,855 1,123,615
---------- ----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $1.00 par (shares issued: 6,345,429 and 6,400,338, respectively) 6,345 6,400
Capital surplus 36,008 36,218
Retained earnings 79,032 68,742
Unrealized securities gains, net of tax 1,549 736
---------- ----------
Total stockholders' equity 122,934 112,096
---------- ----------
Total liabilities and stockholders' equity $1,345,789 $1,235,711
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
A-17
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $77,026 $69,116 $57,914
Interest-bearing deposits with banks 4 1 14
Securities:
Taxable 18,298 16,546 13,924
Tax-exempt 674 608 614
Federal funds sold 1,988 1,572 1,673
------- ------- -------
Total interest income 97,990 87,843 74,139
------- ------- -------
INTEREST EXPENSE
Deposits 37,361 33,592 30,167
Short-term borrowings 307 364 253
Line of Credit -- -- 16
Long-term borrowings 409 103 14
9.65% Capital Securities 2,214 -- --
------- ------- -------
Total interest expense 40,291 34,059 30,450
------- ------- -------
Net interest income 57,699 53,784 43,689
Provision for possible loan losses 982 994 855
------- ------- -------
Net interest income after provision for possible loan losses 56,717 52,790 42,834
------- ------- -------
NONINTEREST INCOME
Service charges on deposits 10,154 8,972 7,869
Securities transactions 1 188 111
Other 5,666 5,839 4,520
------- ------- -------
Total noninterest income 15,821 14,999 12,500
------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 27,749 24,883 19,909
Occupancy and fixed assets expense, net 3,064 2,750 2,049
Depreciation 3,012 2,350 1,871
Amortization 2,210 2,006 1,453
Data processing services 1,372 1,347 1,164
Net expense from other real estate owned 242 35 89
Other 10,888 9,899 8,397
------- ------- -------
Total noninterest expense 48,537 43,270 34,932
------- ------- -------
Income before taxes 24,001 24,519 20,402
Income tax expense (8,252) (9,431) (7,563)
------- ------- -------
Net income $15,749 $15,088 $12,839
======= ======= =======
EARNINGS PER COMMON SHARE
Basic $2.48 $2.41 $2.07
======= ======= =======
Diluted $2.41 $2.32 $2.01
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
A-18
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Issued at beginning of year 6,400,338 $ 6,400 6,225,455 $ 6,225 6,202,814 $ 6,203
Shares issued 60,600 61 174,883 175 85,081 85
Shares acquired and canceled (115,509) (116) -- -- (62,440) (63)
--------- -------- --------- -------- --------- -------
Issued at end of year 6,345,429 $ 6,345 6,400,338 $ 6,400 6,225,455 $ 6,225
========= ======== ========= ======== ========= =======
CAPITAL SURPLUS
Balance at beginning of year $ 36,218 $ 34,769 $34,259
Common stock issued 991 1,449 620
Shares acquired and canceled (1,201) -- (110)
-------- -------- ------
Balance at end of year $ 36,008 $ 36,218 $34,769
======== ======== =======
RETAINED EARNINGS
Balance at beginning of year $ 68,742 $ 55,792 $45,611
Net income 15,749 15,088 12,839
Dividends on common stock ($0.42, $0.34 and $0.29 (2,668) (2,138) (1,801)
per share, respectively)
Common stock canceled (2,791) -- (857)
-------- -------- -------
Balance at end of year $ 79,032 $ 68,742 $55,792
======== ======== =======
UNREALIZED SECURITIES GAINS (LOSSES)
Balance at beginning of year $ 736 $ 1,557 (4,112)
Net change 813 (821) 5,669
-------- -------- -------
Balance at end of year $ 1,549 $ 736 $ 1,557
======== ======== =======
Total stockholders' equity $122,934 $112,096 $98,343
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
A-19
<PAGE>
BANCFIRST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net income $ 15,749 $ 15,088 $ 12,839
Adjustments to reconcile to net cash provided by operating activities:
Provision for possible losses 982 1,394 985
Depreciation and amortization 5,222 4,356 3,324
Net amortization of securities premiums and discounts (829) (196) 966
Unrealized losses on other real estate owned 73 149 111
(Increase) decrease in interest receivable (730) 271 (1,208)
(Increase) decrease in other receivables (4,277) (7,082) 884
Increase in interest payable 1,782 286 808
(Increase) decrease in deferred tax asset (247) (568) (398)
Other, net 6,596 (4,092) (2,373)
--------- --------- --------
Net cash provided by operating activities 24,321 9,606 15,938
--------- --------- --------
INVESTING ACTIVITIES
Cash and due from banks used for acquisitions (5,008) (9,825) (15,524)
Purchases of securities:
Held for investment (11,597) (3,277) (10,693)
Available for sale (89,287) (58,894) (51,655)
Maturities of securities:
Held for investment 6,711 7,086 5,117
Available for sale 68,950 64,274 66,808
Proceeds from sales of securities:
Held for investment 669 -- 454
Available for sale 148 16,315 3,785
Net (increase) decrease in federal funds sold 4,185 (1,315) 8,482
Purchases of loans (4,775) (14,973) (16,395)
Proceeds from sales of loans 119,484 107,461 56,741
Net other increase in loans (209,465) (150,335) (93,480)
Purchases of premises and equipment (4,584) (5,148) (2,941)
Proceeds from the sale of other real estate owned and repossessed assets 1,803 1,610 1,448
Other, net 900 (977) 347
--------- --------- --------
Net cash used for investing activities (121,866) (49,998) (47,506)
--------- --------- --------
FINANCING ACTIVITIES
Net increase in demand, transaction and savings deposits 18,825 18,626 20,109
Net increase in certificates of deposits 50,832 24,795 26,138
Net increase (decrease) in short-term borrowings 2,602 (15,291) 18,588
Net increase in long-term borrowings 415 5,718 918
Issuance of 9.65% Capital Securities 23,972 -- --
Issuance of common stock 412 125 370
Purchase and retirement of common stock (4,108) -- (1,029)
Cash dividends paid (2,545) (1,995) (1,737)
--------- --------- --------
Net cash provided by financing activities 90,405 31,978 63,357
--------- --------- --------
Net increase (decrease) in cash and due from banks (7,140) (8,414) 31,789
Cash and due from banks at the beginning of the year 76,939 85,353 53,564
--------- --------- --------
Cash and due from banks at the end of the year $ 69,799 $ 76,939 $ 85,353
========= ========= ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 38,509 $ 33,356 $ 29,301
========= ========= ========
Cash paid during the year for income taxes $ 8,017 $ 9,531 $ 7,649
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
A-20
<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 Express Financial 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 1996
and 1995 have been reclassified to conform with the 1997 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 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. 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-21
<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 the lower of the book value of the related loan or
fair market value based upon appraisals. Losses arising at the time of
classification of such properties as other real estate owned are charged
directly to the allowance for possible loan losses. Losses from declines in
value of the properties subsequent to classification as other real estate owned
are charged directly to operating expense.
INTANGIBLE ASSETS
Core deposit intangibles are amortized on a straight-line basis over the
estimated useful lives of the core deposits. The excess of cost over the fair
value of assets acquired (goodwill) is amortized on a straight-line basis over
fifteen to 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-22
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("FAS 128"), in December 1997. This accounting standard
replaces the presentation of primary and fully diluted earnings per share with
new computations of basic and diluted earnings per common share. Basic earnings
per common share is computed by dividing net income, less any preferred
dividends requirement, by the weighted average of common shares outstanding, as
restated for shares issued in business combinations accounted for as poolings of
interests, if any. Diluted earnings per common share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the company.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers cash and
due from banks, and interest-bearing deposits with banks as cash equivalents.
Acquisitions accounted for as purchases or as book value purchases are presented
net of any stock issued, assets acquired and liabilities assumed.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
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 relating to repurchase agreements,
securities lending and similar transactions that were 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 June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This Statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This standard requires that all items that are to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. This standard also requires that the Company (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Statement is effective for periods
beginning after December 15, 1997. The Company does not expect that the adoption
of this standard will have a material effect on its consolidation financial
statements.
A-23
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise and Related Information". This
Statement establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. The Statement is effective
for financial statements for periods beginning after December 15, 1997. The
Company expects that the adoption of this standard may require additional
disclosures.
(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 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:
Basic $ 2.10 $ 1.98
Diluted $ 2.04 $ 1.92
</TABLE>
In December 1995, the Company acquired all the assets and assumed all of the
liabilities of Johnston County Bancshares, Inc. ("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
effected through the exchange of 28,831 shares of BancFirst Corporation common
stock for all of the outstanding common and preferred stock of 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.
A-24
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.)
In March 1996, BancFirst acquired City Bankshares, Inc. ("City Bankshares")
which had $136,251 in total assets. The acquisition was for cash of $19,125,
with City Bankshares and its subsidiary bank, City Bank & Trust, being merged
into BancFirst. C-Teq, Inc., an 85% owned data processing subsidiary of City
Bankshares, was spun off to the shareholders of City Bankshares prior to the
acquisition. BancFirst also paid the CEO of City Bankshares $1,250 for an
agreement not to compete with BancFirst for a period of four years. The
acquisition was accounted for as a purchase. Accordingly, the 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:
Basic $ 2.39 $ 2.11
Diluted $ 2.30 $ 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 effected through the exchange of 156,508 shares of BancFirst
Corporation common stock for all of the Commerce Bancorp common stock
outstanding. The minority shares of Commerce Bancorp's subsidiary bank were
purchased for $102. The merger was accounted for as a book value purchase,
which is similar to the pooling of interests method, although the 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. Peoples State Bank
has approximately $51,000 in total assets. This investment is accounted for
under the equity method of accounting and did not have a material effect on the
results of operations of the Company for 1996.
In December 1996, the Company's money order subsidiary, National Express
Corporation ("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, and the name of the company was changed to Express
Financial Corporation. 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 Express Financial Corporation are included in the Company's
consolidated balance sheet:
A-25
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
<TABLE>
<CAPTION>
December 31,
1997 1996
-------------------
<S> <C> <C>
Cash and due from BancFirst $2,290 $ 6,611
Interest-bearing deposit with BancFirst 3,674 3,674
Securities held for investment 508 776
Premises and equipment, net 6 185
Intangible assets, net -- 515
Receivables from money order sales, net 283 7,371
Other assets 9 17
-------------------
Total assets $6,770 $19,149
===================
Outstanding money orders $1,693 $13,839
Other liabilities 16 58
-------------------
Total liabilities $1,709 $13,897
===================
</TABLE>
Only the intangible assets were acquired by the purchaser and the purchaser did
not assume any liabilities of Express Financial Corporation.
In March 1997, the Company acquired 22.8% of the common stock outstanding of
First Ada Bancshares, Inc. for cash of $4,954. First Ada Bancshares, Inc. has
approximately $170,000 in total assets. This investment is accounted for under
the equity method of accounting and did not have a material effect on the
results of operations of the Company for 1997.
In March 1998, BancFirst completed the purchase of 13 branches from
NationsBank, N.A. and concurrently sold three of the branches to another
Oklahoma financial institution. The purchase and sale resulted in BancFirst
purchasing loans and other assets of approximately $33,000, assuming deposits of
approximately $135,000 and paying a premium on deposits of approximately $9,000.
The transaction will be accounted for as a purchase. Accordingly, the effects
of the purchase will be included in the Company's consolidated financial
statements from the date of the purchase forward.
In December 1997, the Company entered into an agreement to acquire Lawton
Security Bancshares, Inc. ("Lawton Security Bancshares"), which has
approximately $90,000 in total assets. The acquisition is expected to be
completed in the second quarter of 1998 and will be effected through the
exchange of 414,794 shares of BancFirst Corporation common stock for all of the
Lawton Security Bancshares common stock outstanding. The acquisition is subject
to regulatory approval and will be accounted for as a pooling of interests.
Accordingly, upon completion of the acquisition, the consolidated accounts of
Lawton Security Bancshares will be combined with the accounts of the Company and
will be included in the Company's consolidated financial statements for all
periods presented.
A-26
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
(3) DUE FROM BANKS AND FEDERAL FUNDS SOLD
The Company maintains accounts with various other financial institutions and
the Federal Reserve Bank, primarily for the purpose of clearing cash items.
Also, it sells federal funds to certain of these institutions on an overnight
basis. As a result, the Company had concentrations of credit risk in two
institutions totaling $39,063 at December 31, 1997 and in three institutions
totaling $55,043 at December 31, 1996. These institutions are selected based on
the strength of their financial condition and their creditworthiness. No
collateral is required on such balances.
The Company is required, as a matter of law, to maintain a reserve balance on
deposit with the Federal Reserve Bank. The average amount of reserves
maintained for each of the years ended December 31, 1997 and 1996 was
approximately $21,501 and $25,566, respectively.
(4) SECURITIES
The table below summarizes securities held for investment and securities
available for sale:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
----------------------
<S> <C> <C>
Held for investment at cost (market value; $38,705 $ 38,035 $ 33,289
and $33,653, respectively)
Available for sale, at market value 272,308 250,568
----------------------
Total $310,343 $283,857
======================
</TABLE>
A-27
<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
------ ---------- ----------- ---------
DECEMBER 31, 1997
<S> <C> <C> <C> <C>
U.S. Treasury $ 6,092 $ 14 $ -- $ 6,106
Other federal agencies -- -- -- --
Mortgage backed securities 13,415 258 (82) 13,591
States and political subdivisions 18,475 508 (26) 18,957
Other securities 53 -- (2) 51
------- ---- ----- -------
Total $38,035 $780 $(110) $38,705
======= ==== ===== =======
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
======= ==== ===== =======
</TABLE>
A-28
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
The table belows 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, 1997
U.S. Treasury $205,706 $2,149 $ (72) $207,783
Other federal agencies 14,044 227 (291) 13,980
Mortgage backed securities 41,163 421 (31) 41,553
States and political subdivisions 1,137 10 (1) 1,146
Other securities 7,846 -- -- 7,846
-------- ------ ---- --------
Total $269,896 $2,807 $(395) $272,308
======== ====== ===== ========
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
======== ====== ===== ========
</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-29
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
--------------------- -------------------
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 $ 7,846 $ 7,876 $ 3,943 $ 3,966
After one year but within five years 13,036 13,268 15,814 16,016
After five years but within ten years 9,753 9,909 9,720 9,840
After ten years 7,400 7,652 3,812 3,831
--------- --------- --------- ---------
Total $ 38,035 $ 38,705 $ 33,289 $ 33,653
========= ========= ========= =========
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
AVAILABLE FOR SALE
Contractual maturity of debt securities:
Within one year $ 48,994 $ 49,110 $ 61,980 $ 60,868
After one year but within five years 198,133 200,300 159,114 161,348
After five years but within ten years 8,377 8,448 11,369 11,496
After ten years 8,546 8,604 11,882 11,795
--------- --------- --------- ---------
Total debt securities 264,050 266,462 244,345 245,507
Equity securities 5,846 5,846 5,061 5,061
--------- --------- --------- ---------
Total $269,896 $272,308 $249,406 $250,568
========= ========= ========= =========
</TABLE>
Sales of securities are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Proceeds $ 817 $16,315 $4,239
Gross gains realized 1 189 172
Gross losses realized -- 1 61
</TABLE>
Securities having book values of $216,315, $208,153 and $197,904 at December
31, 1997, 1996 and 1995, respectively, were pledged as collateral for public
funds on deposit, repurchase agreements and for other purposes as required or
permitted by law.
A-30
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
(5) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a schedule of loans outstanding by category:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Commercial and industrial $183,115 21.35% $168,325 22.04%
Agriculture 32,455 3.78 28,128 3.68
State and political subdivisions:
Taxable 273 0.03 419 0.05
Tax-exempt 6,664 0.78 4,711 0.62
Oil and gas production 11,527 1.34 5,826 0.76
Real Estate:
Construction 46,662 5.44 37,555 4.92
Farmland 18,871 2.20 15,111 1.98
One to four family residences 194,386 22.66 196,804 25.78
Multifamily residential properties 15,191 1.77 12,055 1.58
Commercial 181,265 21.13 139,626 18.29
Consumer 102,549 11.96 100,075 13.11
Guaranteed student loans 43,022 5.01 37,288 4.88
Credit card receivables 2,267 0.26 1,854 0.24
Other 19,649 2.29 15,782 2.07
---------- -------- -------- --------
Total loans $857,896 100.00% $763,559 100.00%
========== ======== ======== =======
</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-31
<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,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $11,945 $10,646 $ 9,729
------- ------- -------
Charge-offs (1,240) (1,067) (1,013)
Recoveries 597 413 561
------- ------- -------
Net (charge-offs) recoveries (643) (654) (452)
------- ------- -------
Provisions charged to operations 982 994 855
Additions from acquisitions -- 959 514
------- ------- -------
Total additions 982 1,953 1,369
------- ------- -------
Balance at end of year $12,284 $11,945 $10,646
======= ======= =======
</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>
1995 $1,190 $ 750 $ 387 $1,553
1996 1,553 2,444 819 3,178
1997 3,178 6,065 1,415 7,828
</TABLE>
Interest income attributable to related party loans amounted to $221, $162 and
$94, in 1997, 1996 and 1995, respectively.
Below is a summary of the amount included in the allowance for possible loan
losses for loans considered to be impaired under FAS 114.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
--------- --------
<S> <C> <C>
Allowance for possible loss on impaired loans $1,858 $2,148
Recorded balance of impaired loans 5,531 6,056
</TABLE>
A-32
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment by classification:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Land $ 7,247 $ 7,242
Buildings 31,216 31,069
Furniture, fixtures and equipment 18,244 18,513
Accumulated depreciation (23,109) (23,268)
--------- --------
Total $ 33,598 $ 33,556
========= =========
</TABLE>
(7) INTANGIBLE ASSETS
The following is a summary of intangible assets, net of accumulated
amortization:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Excess of cost over fair value of assets acquired $10,937 $12,861
Core deposit intangibles 1,555 1,999
Organization costs -- 2
Trademarks 8 9
------- -------
Total $12,500 $14,871
======= =======
</TABLE>
(8) TIME DEPOSITS
Certificates of deposit in denominations of $100 or more totaled $138,441
and $113,123 at December 31, 1997 and 1996, respectively.
(9) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
--------- --------
<S> <C> <C>
Federal funds purchased $3,696 $3,414
Repurchase agreements 2,320 --
--------- --------
Total $6,016 $3,414
========= ========
Weighted average interest rate 5.35% 4.81%
========= ========
</TABLE>
Federal funds purchased represents borrowings of overnight funds from other
financial institutions.
A-33
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
The Company enters into sales of securities to certain of its customers with
simultaneous agreements to repurchase. These agreements represent an overnight
borrowing of funds.
(10) 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.
(11) LONG-TERM BORROWINGS
In 1995 the Company began borrowing under a line of credit from the Federal
Home Loan Bank of Topeka, Kansas in order to match-fund certain long-term fixed
rate loans. Such advances are at rates of from 5.93% to 7.21% and mature from
2003 through 2011. Interest on the advances is payable monthly. Semiannual
principal payments on the advances total $97.
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.
Residential first mortgages are pledged as collateral for the borrowings
under the line of credit.
(12) 9.65% CAPITAL SECURITIES
In January 1997, BancFirst Corporation established BFC Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25,000 of aggregate liquidation amount of 9.65% Capital
Securities, Series A (the "Capital Securities"). The proceeds from the sale of
the Capital Securities were invested in 9.65% Junior Subordinated Deferrable
Interest Debentures, Series A (the "Debentures") of BancFirst Corporation. The
Series A Capital Securities and Debentures were subsequently exchanged for
Series B Capital Securities and Debentures, pursuant to a Registration Rights
Agreement. The terms of the Series A and Series B securities are identical in
all material respects. Distributions on the Capital Securities are payable
January 15 and July 15 of each year. Such distributions may be deferred for up
to ten consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and are presented as long-term debt in the Company's consolidated financial
statements, but qualify as Tier 1 regulator capital. During any deferral period
or during any event of default, BancFirst Corporation may not declare or pay any
dividends on any of its capital stock.
A-34
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
(13) INCOME TAXES
The components of the Company's income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current taxes: Federal $(7,669) $(8,091) $(6,993)
State (839) (1,039) (904)
Deferred taxes 256 (301) 334
-------- -------- -------
Total income taxes $(8,252) $(9,431) $(7,563)
======== ======== =======
</TABLE>
Income tax expense applicable to securities transactions approximated $1, $6
and $19 for the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the Company had net operating loss carryforwards for
tax purposes of approximately $1,291. If not utilized, the tax net operating
loss carryforwards will expire as follows: $59 in 2000, $159 in 2001, $142 in
2004, and $931 in 2010.
A reconciliation of tax expense at the federal statutory tax rate applied to
income before taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tax expense at the federal statutory tax rate $(8,400) $(8,582) $(7,141)
(Increase) decrease in tax expense from:
Tax-exempt income, net 387 367 400
Excess cost amortization (522) (474) (332)
State tax expense, net of federal tax benefit (570) (662) (600)
Other, net 853 (80) 110
------- ------- -------
Total tax expense $(8,252) $(9,431) $(7,563)
======= ======= =======
</TABLE>
A-35
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
The net deferred tax asset consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
--------- -------
<S> <C> <C>
Provisions for possible loan losses $ 3,989 $ 3,511
Discount on securities of banks acquired 275 400
Write-downs of other real estate owned 106 277
Net operating loss carryforwards 452 489
Provision for contingent losses 17 2
Other 285 300
--------- -------
Gross deferred tax assets 5,124 4,979
--------- -------
Unrealized net gain on securities available for sale (844) (407)
Depreciation (1,460) (1,361)
Other (123) (324)
--------- -------
Gross deferred tax liabilities (2,427) (2,092)
--------- -------
Net deferred tax asset $ 2,697 $ 2,887
========= =======
</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,
1997, 1996 and 1995, were approximately $1,050, $841 and $621, respectively.
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, 1997 will become exercisable
through the year 2004. The option price must be no less than 100% of the fair
market value of the stock relating to such option at the date of grant.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for the ISOP. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123") was issued in 1995 which,
if fully adopted by the Company, would change the method the Company applies in
recognizing the cost of the 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:
A-36
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995
----------------- ----------------- ---------------
OPTIONS AVG. OPTIONS AVG. OPTIONS AVG.
PRICE PRICE PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 501,750 $12.39 384,125 $ 8.62 421,625 $ 8.01
Options granted 84,000 30.99 136,000 22.29 25,000 17.23
Options exercised
or repurchased (123,125) 6.87 (18,375) 6.79 (56,250) 6.59
Options canceled (17,500) 19.92 -- -- (6,250) --
---------- ---------- ----------
Outstanding at end of
year 445,125 17.14 501,750 12.39 384,125 8.62
========== ========== ==========
Exercisable at end of
year 133,625 8.19 219,625 6.67 209,875 6.62
========== ========== ==========
Weighted average fair
value of options granted $ 10.16 $ 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 from 17.77% to 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, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------- ------------------------
WGTD AVG.
REMAINING WGTD. AVG. WGTD. AVG.
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
---------------- ------------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$6.50 to $10.00 163,500 3.08 $ 6.89 122,750 $ 6.71
$10.01 to $32.88 281,625 12.33 $23.09 10,875 $24.85
------- -------
$6.50 to $32.88 445,125 8.93 $17.14 133,625 $ 8.19
======= =======
</TABLE>
A-37
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
---------- --------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
APB 25 charge $ -- $ -- $ -- $ -- $ -- $ --
FAS 123 charge $ -- $ 158 $ -- $ 78 $ -- $ 32
Net income $15,749 $15,591 $15,088 $15,037 $12,839 $12,818
Net income per
share:
Basic $ 2.48 $ 2.45 $ 2.41 $ 2.40 $ 2.07 $ 2.07
Diluted $ 2.41 $ 2.39 $ 2.32 $ 2.31 $ 2.01 $ 2.00
</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) Senior Preferred Stock: $1.00 par value; 10,000,000 shares authorized;
no shares issued or outstanding. Shares may be issued with such voting,
dividend, redemption, sinking fund, conversion, exchange, liquidation
and other rights as shall be determined by the Company's Board of
Directors, without approval of the stockholders. The Senior Preferred
Stock would have a preference over common stock as to payment of
dividends, as to the right to distribution of assets upon redemption of
such shares or upon liquidation of the Company.
(b) Common stock: $1 par value; 7,500,000 shares authorized. Shares issued
and outstanding were 6,345,429 shares at December 31, 1997 and
6,400,338 shares at December 31, 1996.
In March 1995, the Company adopted a Stock Repurchase Program (the "SRP")
authorizing management to repurchase up to 200,000 shares of the Company's
common stock. In 1997 the SRP was amended to increase the shares authorized to
be repurchased to 350,000. The SRP 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. During 1997, the Company purchased
and canceled 37,900 shares and the ESOP purchased 20,000 shares. No purchases
were made under the SRP during 1996. During 1995, the Company purchased and
canceled 62,440 shares and the ESOP purchased 30,684 shares.
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, 1997,
approximately $17,178 of the equity of BancFirst was available for dividend
payments to BancFirst Corporation.
During any deferral period or any event of default on the 9.65% Capital
Securities, BancFirst Corporation may not declare or pay any dividends on any of
its capital stock.
A-38
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
The Company is subject to risk-based capital guidelines issued by the Board
of Governors of the Federal Reserve System. These guidelines are used to
evaluate capital adequacy and include the required minimums shown below.
<TABLE>
<CAPTION>
MINIMUM DECEMBER 31,
-------------------
REQUIRED 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Tier 1 capital $133,894 $ 96,500
Total capital 144,563 105,826
Leverage ratio 3.00% 10.04% 7.90%
Tier 1 capital ratio 4.00% 15.72% 12.98%
Total capital ratio 8.00% 16.97% 14.23%
</TABLE>
To be "well capitalized" under federal bank regulatory agency definitions, a
depository institution must have a Tier 1 ratio of at least 6%, a combined Tier
1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5%. The
regulatory agencies are required by law to take specific prompt action with
respect to institutions that do not meet the minimum capital standards. As of
December 31, 1997 and 1996, BancFirst was considered to be "well capitalized".
A-39
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
(16) EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share is calculated as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
BASIC
Income available to common stockholders $ 15,749 6,355,242 $ 2.48
==========
Effect of stock options -- 177,669
---------- ---------
DILUTED
Income available to common stockholders
plus assumed exercises of stock options $ 15,749 6,532,911 $ 2.41
========== ========= ==========
YEAR ENDED DECEMBER 31, 1996
- ----------------------------
BASIC
Income available to common stockholders $ $15,088 6,268,726 $ 2.41
==========
Effect of stock options -- 229,312
---------- ----------
DILUTED
Income available to common stockholders
plus assumed exercises of stock options $ 15,088 6,498,038 $ 2.32
========== ========= ==========
YEAR ENDED DECEMBER 31, 1995
- ----------------------------
BASIC
Income available to common stockholders $ 12,839 6,205,717 $ 2.07
========== ========= ==========
Effect of stock options -- 190,942
---------- ---------
DILUTED
Income available to common stockholders
plus assumed exercises of stock options $ 12,839 6,396,659 $ 2.01
========== ========= ==========
</TABLE>
Below is the number and average exercise price of options that were
excluded from the computation of diluted earnings per common share for each year
because the options' exercise prices were greater than the average market price
of the common shares.
<TABLE>
<CAPTION>
AVERAGE
EXERCISE
SHARES PRICE
-------- ----------
<S> <C> <C>
December 31, 1997 41,500 $32.77
December 31, 1996 35,500 $25.88
December 31, 1995 -- $ --
</TABLE>
A-40
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
(17) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEET DECEMBER 31,
----------------------
ASSETS 1997 1996
----------- --------
<S> <C> <C>
Cash $ 8,530 $ 568
Securities 2,000 2,000
Loans (net of unearned interest) 4,949 6,580
Investment in subsidiaries, at equity 127,812 97,371
Intangible assets 2,411 3,218
Deferred tax asset 85 154
Other assets 3,828 2,596
----------- --------
Total assets $149,615 $112,487
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Miscellaneous liabilities $ 1,681 $ 391
9.65% Capital Securities 25,000 --
Stockholders' equity 122,934 112,096
----------- --------
Total liabilities and stockholders'
equity $149,615 $112,487
=========== ========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---------- -------- -------
<S> <C> <C> <C>
OPERATING INCOME
Dividends from subsidiaries $12,593 $10,149 $ 5,075
Interest:
Loans 824 493 --
Interest-bearing deposits 365 116 36
Securities 119 35 1
Other 2 170 58
---------- -------- -------
Total operating income 13,903 10,963 5,170
---------- -------- -------
OPERATING EXPENSE
Interest 2,214 -- 16
Amortization 807 812 814
Other 59 55 41
---------- -------- -------
Total operating expense 3,080 867 871
---------- -------- -------
Income before income taxes and equity in
undistributed earnings of subsidiaries 10,823 10,096 4,299
Allocated income tax (expense) benefit 769 (170) 222
---------- -------- -------
Income before equity in undistributed
earnings of subsidiaries 11,592 9,926 4,521
Equity in undistributed earnings
of subsidiaries 4,157 5,162 8,318
---------- -------- -------
Net income $15,749 $15,088 $12,839
========== ======== =======
</TABLE>
A-41
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,749 $ 15,088 $ 12,839
Adjustments to reconcile to net cash provided (used) by operating activities:
Amortization 807 812 814
Net income of subsidiaries (16,750) (15,311) (13,393)
Increase in dividends receivable (965) (2,537) --
(Increase) decrease in deferred tax asset 69 43 (13)
Other, net 3,559 (698) 766
---------- -------- --------
Net cash provided (used) by operating activities 2,469 (2,603) 1,013
---------- -------- --------
INVESTING ACTIVITIES
Cash dividends received from subsidiaries 11,628 10,149 5,075
Purchases of stock of subsidiaries (25,515) (770) --
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 1,630 281 --
Other, net 20 -- 99
---------- -------- --------
Net cash provided by investing activities (12,237) 1,810 4,308
---------- -------- --------
FINANCING ACTIVITIES
Issuance of common stock 412 125 370
Issuance of 9.65% Capital Securities 23,972 -- --
Purchases of common stock (4,107) -- (1,029)
Cash dividends paid (2,547) (1,996) (1,737)
---------- -------- --------
Net cash used by financing activities 17,730 (1,871) (2,396)
---------- -------- --------
Net increase (decrease) in cash 7,962 (2,664) 2,925
Cash at the beginning of the year 568 3,232 307
---------- -------- --------
Cash at the end of the year $ 8,530 $ 568 $ 3,232
========== ======== ========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 1,085 $ -- $ 16
========== ======== ========
Cash paid (received) during the year for income taxes, net $ (1,539) $ 220 $ (296)
========== ======== ========
</TABLE>
A-42
<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. Service charges to
these affiliate institutions for December 31, 1996 and 1995 totaled $69 and
$121, respectively.
The Company purchases supplies, furniture and equipment from an affiliated
company. During the years ended December 31, 1997, 1996 and 1995, such
purchases totaled $114, $144 and $95, 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, 1997, 1996 and 1995 were $645, $755 and $763, respectively.
Refer to note (5) for information regarding loan transactions with related
parties.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit which involve elements of credit and interest rate risk to varying
degrees. The Company's exposure to credit loss in the event of nonperformance
by the other party to the instrument is represented by the instrument's
contractual amount. To control this credit risk, the Company uses the same
underwriting standards as it uses for loans recorded on the balance sheet. The
amounts of financial instruments with off-balance-sheet risk are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Loan commitments $200,565 $153,030 $117,418
Letters of credit 14,502 7,992 8,386
</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-43
<PAGE>
BANCFIRST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Cont.)
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1998 $ 461
1999 426
2000 408
2001 413
2002 406
Later years 1,426
---------
Total $3,540
=========
</TABLE>
Rental expense on all property and equipment rented, including those rented
on a monthly or temporary basis, totaled $465, $435 and $133 during 1997, 1996
and 1995, 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
participation in pools of credit card receivables, the carrying amount is a
reasonable estimate of fair value. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
A-44
<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,
--------------------------------------------------
1997 1996
----------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 69,799 $ 69,799 $ 76,939 $ 76,939
Federal funds sold 40,600 40,600 44,785 44,785
Securities 310,343 311,013 283,857 284,221
Loans:
Loans (net of unearned interest) 857,896 763,559
Allowance for possible loan losses (12,284) (11,945)
---------- ----------
Loans, net 845,612 845,852 751,614 752,428
FINANCIAL LIABILITIES
Deposits 1,175,110 1,175,090 1,105,453 1,105,358
Short-term borrowings 6,016 6,016 3,414 3,414
Long-term borrowings 7,051 7,051 6,636 6,636
9.65% Capital Securities 25,000 27,908 -- --
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Loan commitments 1,314 1,002
Letters of credit 109 60
</TABLE>
A-45
<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, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
QUARTER
--------------------------------------
1997 FOURTH THIRD SECOND FIRST
- ---- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net interest income $15,062 $14,564 $14,212 $13,862
Provision for possible loan losses 537 162 186 96
Noninterest income 4,159 4,018 3,836 3,807
Noninterest expense 12,775 12,223 12,026 11,514
Net income 4,232 4,108 3,648 3,761
Earnings per common share:
Basic 0.67 0.65 0.58 0.59
Diluted 0.65 0.62 0.55 0.57
1996
- ----
Net interest income $14,238 $14,000 $13,525 $12,021
Provision 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
Earnings per common share:
Basic 0.61 0.63 0.61 0.56
Diluted 0.58 0.61 0.59 0.54
</TABLE>
A-46
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Description Page number at which exhibit appears
in sequentially numbered pages
- ----------------------------------------------- --------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization Exhibit 2.4 to the Company's
Quarterly Report on Form 10-Q
dated October 28, 1994 for the quarter ended September 30,
1994 and incorporated
herein by reference.
2.2 Agreement and Plan of Reorganization Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q
dated September 16, 1995 between for the quarter ended September 30,
1995 and incorporated herein by
BancFirst and City Bankshares, Inc. reference.
2.3 Agreement dated September 16, 1995 Exhibit 2.3 to the Company's
Quarterly Report on Form 10-Q
between BancFirst and William O. for the quarter ended September 30,
Johnstone. herein by reference.
2.4 Purchase and Assumption agreement Exhibit 2.4 to the Company's
Quarterly Report on Form 10-Q
between NationsBank, N.A. for the quarter ended September 30,
1997 and incorporated
and BancFirst dated September 26, 1997. herein by reference.
3.1 Amended and Restated Certificate of Exhibit 33 to the Company's
Registration Statement on Form
Incorporation. S-2, File No. 33-58804, and
incorporated herein by reference.
3.2 Certificate of Amendment to the Amended Exhibit 3.2 to the Company's Annual
Report on Form 10-K
and Restated Certificate of for the fiscal year ended December
Incorporation. 31, 1993 and incorporated
herein by reference.
3.3 Certificate of Amendment to the Amended Exhibit 3.0 to the Company's
Quarterly Report on Form 10-Q
and Restated Certificate of for the quarter ended September 30,
Incorporation. 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 Exhibit 4.1 to the Company's
Trust of Current Report on Form 8-K
BFC Capital Trust I dated as of dated February 4, 1997 and
February 4, 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 Exhibit 4.3 to the Company's
Agreement Current Report on Form 8-K
dated as of February 4, 1997. dated February 4, 1997 and
incorporated herein by reference.
10.10 United Community Corporation (now Exhibit 10.09 to the Company's
Registration Statement
BancFirst Corporation) Stock Option on Form S-4, File No. 33-13016 and
Plan. incorporated herein by reference.
10.12 BancFirst Corporation Employee Stock Exhibit 10.12 to the Company's
Annual Report on Form 10-K
Ownership and Thrift Plan. for the fiscal year ended December
31, 1992 and incorporated
herein by reference.
</TABLE>
<TABLE>
<S> <C>
22.1* Subsidiaries
27.1* Financial Data Schedule for the year ended December 31, 1997.
27.2* Financial Data Schedule for the quarter ended September 30, 1997.
27.3* Financial Data Schedule for the quarter ended June 30, 1997.
27.4* Financial Data Schedule for the quarter ended March 31, 1997.
27.5* Financial Data Schedule for the year ended December 31, 1996.
27.6* Financial Data Schedule for the quarter ended September 30, 1996.
27.7* Financial Data Schedule for the quarter ended June 30, 1996.
27.8* Financial Data Schedule for the quarter ended March 31, 1996.
27.9* Financial Data Schedule for the year ended December 31, 1995.
- ------------------------------
*Filed herewith
</TABLE>
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
<PAGE>
BANCFIRST CORPORATION
SUBSIDIARIES
STATE OF PERCENTAGE
SUBSIDIARY NAME INCORPORATION OF OWNERSHIP
- -------------------------------- ------------- -------------
BancFirst Oklahoma 100.00%
Express Financial 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> <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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 69,652
<INT-BEARING-DEPOSITS> 147
<FED-FUNDS-SOLD> 40,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 272,308
<INVESTMENTS-CARRYING> 38,035
<INVESTMENTS-MARKET> 38,705
<LOANS> 857,896
<ALLOWANCE> 12,284
<TOTAL-ASSETS> 1,345,789
<DEPOSITS> 1,175,110
<SHORT-TERM> 6,016
<LIABILITIES-OTHER> 9,678
<LONG-TERM> 32,051
0
0
<COMMON> 6,345
<OTHER-SE> 116,589
<TOTAL-LIABILITIES-AND-EQUITY> 1,345,789
<INTEREST-LOAN> 77,026
<INTEREST-INVEST> 18,972
<INTEREST-OTHER> 1,992
<INTEREST-TOTAL> 97,990
<INTEREST-DEPOSIT> 37,361
<INTEREST-EXPENSE> 40,291
<INTEREST-INCOME-NET> 57,699
<LOAN-LOSSES> 982
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 48,537
<INCOME-PRETAX> 24,001
<INCOME-PRE-EXTRAORDINARY> 15,749
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,749
<EPS-PRIMARY> 2.48
<EPS-DILUTED> 2.41
<YIELD-ACTUAL> 5.08
<LOANS-NON> 3,511
<LOANS-PAST> 1,076
<LOANS-TROUBLED> 366
<LOANS-PROBLEM> 12,300
<ALLOWANCE-OPEN> 11,945
<CHARGE-OFFS> 1,240
<RECOVERIES> 597
<ALLOWANCE-CLOSE> 12,284
<ALLOWANCE-DOMESTIC> 12,284
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,426
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 97,619
<INT-BEARING-DEPOSITS> 183
<FED-FUNDS-SOLD> 54,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 259,504
<INVESTMENTS-CARRYING> 38,040
<INVESTMENTS-MARKET> 38,644
<LOANS> 819,133
<ALLOWANCE> 12,002
<TOTAL-ASSETS> 1,335,981
<DEPOSITS> 1,172,303
<SHORT-TERM> 1,406
<LIABILITIES-OTHER> 9,112
<LONG-TERM> 32,094
0
0
<COMMON> 6,375
<OTHER-SE> 114,691
<TOTAL-LIABILITIES-AND-EQUITY> 1,335,981
<INTEREST-LOAN> 56,939
<INTEREST-INVEST> 14,107
<INTEREST-OTHER> 1,413
<INTEREST-TOTAL> 72,459
<INTEREST-DEPOSIT> 27,728
<INTEREST-EXPENSE> 29,822
<INTEREST-INCOME-NET> 42,637
<LOAN-LOSSES> 444
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 35,763
<INCOME-PRETAX> 18,091
<INCOME-PRE-EXTRAORDINARY> 11,516
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,516
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 5.09
<LOANS-NON> 4,302
<LOANS-PAST> 1,005
<LOANS-TROUBLED> 376
<LOANS-PROBLEM> 13,365
<ALLOWANCE-OPEN> 11,945
<CHARGE-OFFS> 817
<RECOVERIES> 430
<ALLOWANCE-CLOSE> 12,002
<ALLOWANCE-DOMESTIC> 12,002
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,120
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 80,069
<INT-BEARING-DEPOSITS> 76
<FED-FUNDS-SOLD> 51,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 264,168
<INVESTMENTS-CARRYING> 35,855
<INVESTMENTS-MARKET> 36,291
<LOANS> 799,559
<ALLOWANCE> 11,954
<TOTAL-ASSETS> 1,302,851
<DEPOSITS> 1,144,885
<SHORT-TERM> 1,419
<LIABILITIES-OTHER> 8,199
<LONG-TERM> 31,567
0
0
<COMMON> 6,349
<OTHER-SE> 110,432
<TOTAL-LIABILITIES-AND-EQUITY> 1,302,851
<INTEREST-LOAN> 37,364
<INTEREST-INVEST> 9,346
<INTEREST-OTHER> 862
<INTEREST-TOTAL> 47,572
<INTEREST-DEPOSIT> 18,169
<INTEREST-EXPENSE> 19,498
<INTEREST-INCOME-NET> 28,074
<LOAN-LOSSES> 282
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 23,540
<INCOME-PRETAX> 11,895
<INCOME-PRE-EXTRAORDINARY> 7,409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,409
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 5.08
<LOANS-NON> 3,107
<LOANS-PAST> 1,090
<LOANS-TROUBLED> 747
<LOANS-PROBLEM> 15,363
<ALLOWANCE-OPEN> 11,945
<CHARGE-OFFS> 491
<RECOVERIES> 218
<ALLOWANCE-CLOSE> 11,954
<ALLOWANCE-DOMESTIC> 11,954
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,113
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 67,421
<INT-BEARING-DEPOSITS> 62
<FED-FUNDS-SOLD> 32,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 270,458
<INVESTMENTS-CARRYING> 32,302
<INVESTMENTS-MARKET> 32,527
<LOANS> 783,296
<ALLOWANCE> 11,925
<TOTAL-ASSETS> 1,251,914
<DEPOSITS> 1,096,286
<SHORT-TERM> 1,291
<LIABILITIES-OTHER> 9,790
<LONG-TERM> 31,587
0
0
<COMMON> 6,339
<OTHER-SE> 106,621
<TOTAL-LIABILITIES-AND-EQUITY> 1,251,914
<INTEREST-LOAN> 18,164
<INTEREST-INVEST> 4,666
<INTEREST-OTHER> 369
<INTEREST-TOTAL> 23,199
<INTEREST-DEPOSIT> 8,847
<INTEREST-EXPENSE> 9,337
<INTEREST-INCOME-NET> 13,862
<LOAN-LOSSES> 96
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,514
<INCOME-PRETAX> 6,059
<INCOME-PRE-EXTRAORDINARY> 3,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,761
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 5.13
<LOANS-NON> 3,111
<LOANS-PAST> 784
<LOANS-TROUBLED> 608
<LOANS-PROBLEM> 14,630
<ALLOWANCE-OPEN> 11,945
<CHARGE-OFFS> 218
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 11,925
<ALLOWANCE-DOMESTIC> 11,925
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,978
</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>
<RESTATED>
<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> 2.41
<EPS-DILUTED> 2.32
<YIELD-ACTUAL> 5.29
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 89,288
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 10,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 256,034
<INVESTMENTS-CARRYING> 25,937
<INVESTMENTS-MARKET> 26,154
<LOANS> 737,356
<ALLOWANCE> 12,006
<TOTAL-ASSETS> 1,186,578
<DEPOSITS> 1,059,632
<SHORT-TERM> 10,665
<LIABILITIES-OTHER> 8,342
<LONG-TERM> 1,448
0
0
<COMMON> 6,243
<OTHER-SE> 100,248
<TOTAL-LIABILITIES-AND-EQUITY> 1,186,578
<INTEREST-LOAN> 50,995
<INTEREST-INVEST> 12,596
<INTEREST-OTHER> 1,214
<INTEREST-TOTAL> 64,805
<INTEREST-DEPOSIT> 24,849
<INTEREST-EXPENSE> 25,259
<INTEREST-INCOME-NET> 39,546
<LOAN-LOSSES> 849
<SECURITIES-GAINS> 180
<EXPENSE-OTHER> 31,825
<INCOME-PRETAX> 18,017
<INCOME-PRE-EXTRAORDINARY> 11,220
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,220
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 5.26
<LOANS-NON> 4,134
<LOANS-PAST> 1,642
<LOANS-TROUBLED> 661
<LOANS-PROBLEM> 18,885
<ALLOWANCE-OPEN> 10,646
<CHARGE-OFFS> 601
<RECOVERIES> 270
<ALLOWANCE-CLOSE> 12,006
<ALLOWANCE-DOMESTIC> 12,006
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,668
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 85,792
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 30,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 249,203
<INVESTMENTS-CARRYING> 27,431
<INVESTMENTS-MARKET> 27,595
<LOANS> 725,122
<ALLOWANCE> 11,843
<TOTAL-ASSETS> 1,187,216
<DEPOSITS> 1,073,794
<SHORT-TERM> 1,030
<LIABILITIES-OTHER> 8,062
<LONG-TERM> 1,497
0
0
<COMMON> 6,242
<OTHER-SE> 96,591
<TOTAL-LIABILITIES-AND-EQUITY> 1,187,216
<INTEREST-LOAN> 32,963
<INTEREST-INVEST> 8,236
<INTEREST-OTHER> 896
<INTEREST-TOTAL> 42,095
<INTEREST-DEPOSIT> 16,185
<INTEREST-EXPENSE> 16,551
<INTEREST-INCOME-NET> 25,544
<LOAN-LOSSES> 416
<SECURITIES-GAINS> 180
<EXPENSE-OTHER> 20,692
<INCOME-PRETAX> 11,814
<INCOME-PRE-EXTRAORDINARY> 7,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,300
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 5.20
<LOANS-NON> 2,741
<LOANS-PAST> 1,621
<LOANS-TROUBLED> 658
<LOANS-PROBLEM> 20,713
<ALLOWANCE-OPEN> 10,646
<CHARGE-OFFS> 254
<RECOVERIES> 192
<ALLOWANCE-CLOSE> 11,843
<ALLOWANCE-DOMESTIC> 11,843
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,806
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 69,435
<INT-BEARING-DEPOSITS> 6
<FED-FUNDS-SOLD> 42,555
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 226,732
<INVESTMENTS-CARRYING> 61,022
<INVESTMENTS-MARKET> 61,447
<LOANS> 715,290
<ALLOWANCE> 11,577
<TOTAL-ASSETS> 1,182,327
<DEPOSITS> 1,060,648
<SHORT-TERM> 10,290
<LIABILITIES-OTHER> 9,576
<LONG-TERM> 1,341
0
0
<COMMON> 6,239
<OTHER-SE> 94,233
<TOTAL-LIABILITIES-AND-EQUITY> 1,182,327
<INTEREST-LOAN> 15,597
<INTEREST-INVEST> 3,935
<INTEREST-OTHER> 443
<INTEREST-TOTAL> 19,975
<INTEREST-DEPOSIT> 7,714
<INTEREST-EXPENSE> 7,954
<INTEREST-INCOME-NET> 12,021
<LOAN-LOSSES> 98
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 9,713
<INCOME-PRETAX> 5,571
<INCOME-PRE-EXTRAORDINARY> 3,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,501
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 5.21
<LOANS-NON> 3,186
<LOANS-PAST> 392
<LOANS-TROUBLED> 672
<LOANS-PROBLEM> 19,248
<ALLOWANCE-OPEN> 10,646
<CHARGE-OFFS> 122
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 11,577
<ALLOWANCE-DOMESTIC> 11,577
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,528
</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, 1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 85,352
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 30,085
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 221,108
<INVESTMENTS-CARRYING> 42,005
<INVESTMENTS-MARKET> 42,577
<LOANS> 625,162
<ALLOWANCE> 10,646
<TOTAL-ASSETS> 1,048,338
<DEPOSITS> 923,169
<SHORT-TERM> 18,705
<LIABILITIES-OTHER> 7,203
<LONG-TERM> 918
0
0
<COMMON> 6,225
<OTHER-SE> 92,118
<TOTAL-LIABILITIES-AND-EQUITY> 1,048,338
<INTEREST-LOAN> 57,914
<INTEREST-INVEST> 14,538
<INTEREST-OTHER> 1,687
<INTEREST-TOTAL> 74,139
<INTEREST-DEPOSIT> 30,167
<INTEREST-EXPENSE> 30,450
<INTEREST-INCOME-NET> 43,689
<LOAN-LOSSES> 855
<SECURITIES-GAINS> 111
<EXPENSE-OTHER> 34,932
<INCOME-PRETAX> 20,402
<INCOME-PRE-EXTRAORDINARY> 12,839
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,839
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.01
<YIELD-ACTUAL> 5.13
<LOANS-NON> 3,724
<LOANS-PAST> 500
<LOANS-TROUBLED> 688
<LOANS-PROBLEM> 12,300
<ALLOWANCE-OPEN> 9,729
<CHARGE-OFFS> 1,013
<RECOVERIES> 561
<ALLOWANCE-CLOSE> 10,646
<ALLOWANCE-DOMESTIC> 10,646
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,570
</TABLE>
