-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IHWfLspbF19+r3NE58U1auzySxxjSGSMF2t8yWlPcudkjr4+utEO7m3wOUM3H4LY ynLBJg3Ac1GBlF7XzRNyVg== 0000930661-99-000845.txt : 19990416 0000930661-99-000845.hdr.sgml : 19990416 ACCESSION NUMBER: 0000930661-99-000845 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCFIRST CORP /OK/ CENTRAL INDEX KEY: 0000760498 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 731221379 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14384 FILM NUMBER: 99595195 BUSINESS ADDRESS: STREET 1: 101 N BROADWAY STE 200 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102-8401 BUSINESS PHONE: 4052701000 MAIL ADDRESS: STREET 1: 101 NORTH BROADWAY STREET 2: STE 200 CITY: OKLAHOMA CITY STATE: OK ZIP: 73102-8401 FORMER COMPANY: FORMER CONFORMED NAME: UNITED COMMUNITY CORP DATE OF NAME CHANGE: 19890401 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-14384 BANCFIRST CORPORATION --------------------- (Exact name of registrant as specified in its charter) OKLAHOMA 73-1221379 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 NORTH BROADWAY, SUITE 200, OKLAHOMA CITY, OKLAHOMA 73102 ------------------------------------------------------------ (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (405) 270-1086 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value Per Share ------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO_____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ____ The aggregate value of the Common Stock held by nonaffiliates of the registrant as of March 31, 1999 was approximately $121,300,000. As of March 31, 1999, there were 9,321,295 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the May 27, 1999 Annual Meeting of Stockholders of registrant (the "1999 Proxy Statement") to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this report. FORM 10-K CROSS-REFERENCE INDEX
Item PART I Page - ----- --------------------------------------------------------------- ----- 1. Business 3 2. Properties 10 3. Legal Proceedings 10 4. Submission of Matters to a Vote of Security Holders 10 PART II --------------------------------------------------------------- 5. Market for the Registrant's Common Stock and Related Stockholder Matters 10 6. Selected Financial Data 11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 7A. Quantitative and Qualitative Disclosures About Market Risk 11 8. Financial Statements and Supplementary Data 11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III --------------------------------------------------------------- 10. Directors and Executive Officers of the Registrant 12 11. Executive Compensation 12 12. Security Ownership of Certain Beneficial Owners and Management 12 13. Certain Relationships and Related Transactions 12 PART IV --------------------------------------------------------------- 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12 Signatures 15 Financial Information Appendix A
2 PART I ITEM 1. BUSINESS. GENERAL BancFirst Corporation (the "Company") is an Oklahoma business corporation and a bank holding company under Federal law. It conducts virtually all of its operating activities through its principal wholly-owned subsidiary, BancFirst (the "Bank" or "BancFirst"), a state-chartered, Federal Reserve member bank headquartered in Oklahoma City, Oklahoma. BancFirst Corporation also owns 100% of the common securities of BFC Capital Trust I, a Delaware Business Trust organized in January 1997, and at December 31, 1998 owned 100% of Kingfisher Bank & Trust Co., an Oklahoma state-chartered bank. The Company was incorporated as United Community Corporation in July 1984 for the purpose of becoming a bank holding company. In June 1985, it merged with seven Oklahoma bank holding companies that had operated under common ownership and the Company has conducted business as a bank holding company since that time. Over the next several years the Company acquired additional banks and bank holding companies, and in November 1988 the Company changed its name to BancFirst Corporation. Effective April 1, 1989, the Company consolidated its 12 subsidiary banks and formed BancFirst. BancFirst currently has 73 banking locations serving 36 communities throughout Oklahoma. The Company's strategy focuses on providing a full range of commercial banking services to retail customers and small to medium-sized businesses both in the non-metropolitan trade centers of Oklahoma and the metropolitan markets of Oklahoma City, Tulsa, Lawton, Muskogee, Norman and Shawnee. The Company operates as a "super community bank", managing its community banking offices on a decentralized basis, which permits them to be responsive to local customer needs. Underwriting, funding, customer service and pricing decisions are made by Presidents in each market within the Company's strategic parameters. At the same time, the Company generally has a larger lending capacity, broader product line and greater operational efficiencies than its principal competitors in the non-metropolitan market areas (which typically are independently-owned community banks). In the metropolitan markets served by the Company, the Company's strategy is to focus on the needs of local businesses not served effectively by larger institutions. The Bank maintains a strong community orientation by, among other things, appointing selected members of the communities in which the Bank's branches are located to a local consulting board that assists in introducing prospective customers to the Bank and in developing or modifying products and services to meet customer needs. As a result of the development of broad banking relationships with its customers and the convenience and service of the Bank's multiple offices, the Bank's lending and investing activities are funded almost entirely by core deposits. The Bank centralizes virtually all of its back office, support and investment functions in order to achieve consistency and cost efficiencies in the delivery of products and services. The Bank centrally provides services such as data processing, operations support, bookkeeping, accounting, loan review, compliance and internal auditing to the Bank's community banking offices to enhance their ability to compete effectively. The Bank also provides certain specialized financial services centrally that require unique expertise. The community banking offices assist the Bank in maintaining its competitive position by actively participating in the development of new products and services needed by their customers and in making desirable changes to existing products and services. The Bank provides a wide range of retail and commercial banking services, including: commercial, real estate, agricultural and consumer lending; depository and funds transfer services; collections; safe deposit boxes; cash management services; and other services tailored for both individual and corporate customers. The Bank also offers trust services and acts as executor, administrator, trustee, transfer agent and in various other fiduciary capacities. Through Unitech, its operations division, the Bank provides, item processing, research and other correspondent banking services to financial institutions and governmental units. The Bank's primary lending activity is the financing of business and industry in its market areas. Its commercial loan customers are generally small to medium-sized businesses engaged in light manufacturing, local wholesale and retail trade, services, agriculture, and the energy industry. Most forms of commercial lending are offered, including commercial mortgages, other forms of asset-based financing and working capital lines of credit. In addition, the Bank offers Small Business Administration ("SBA") guaranteed loans through BancFirst Commercial Capital, a division established in 1991. The Bank's residential mortgage lending activities prior to 1992 consisted primarily of short- to intermediate-term loans for purchasing personal residences, or loans for commercial or consumer purposes secured by residential mortgages. In early 1992, the Bank established a mortgage loan department to originate traditional mortgage loans through its network of banking locations and sell such loans in the secondary market with the servicing released. 3 Consumer lending activities of the Bank consist of traditional forms of financing for automobiles and other personal loans, and also residential mortgage loans. In addition, the Bank is one of Oklahoma's largest providers of guaranteed student loans. The Bank's range of deposit services include checking accounts, NOW accounts, savings accounts, money market accounts, club accounts, individual retirement accounts and certificates of deposit. Overdraft protection and autodraft services are also offered. Deposits of the Bank are insured by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). In addition, certain Bank employees are licensed insurance agents qualified to offer tax deferred annuities. Trust services offered through BancTrust, the Bank's trust division, consist primarily of investment management and administration of trusts for individuals, corporations and employee benefit plans. Investment options include collective equity and fixed income funds managed by BancTrust and advised by a nationally recognized investment management firm. BancFirst has the following subsidiaries: BancFirst Investment Corporation, a small business investment corporation; Citibanc Insurance Agency, Inc., a credit life insurance agency, which in turn owns BancFirst Agency, Inc., a title insurance agency; Lenders Collection Corporation, which is engaged in collection of troubled loans assigned to it by BancFirst; and Express Financial Corporation (formerly National Express Corporation), a money order company. All of these companies are Oklahoma corporations. The Company had approximately 1,280 full-time equivalent employees as of December 31, 1998. Its principal executive offices are located at 101 North Broadway, Suite 200, Oklahoma City, Oklahoma 73102, telephone number (405) 270- 1086. MARKET AREAS AND COMPETITION The banking environment in Oklahoma is very competitive. The geographic dispersion of the Company's banking locations presents several different levels and types of competition. In general, however, each location competes with other banking institutions, savings and loan associations, personal loan finance companies and credit unions within their respective market areas. The communities in which the Bank maintains offices are generally local trade centers throughout Oklahoma. The major areas of competition include interest rates charged on loans, interest rates paid on deposits, levels of service charges on deposits, completeness of product line and quality of service. Management believes the Company is in an advantageous competitive position operating as a "super community bank." Under this strategy, the Company provides a broad line of financial products and services to small to medium- sized businesses and consumers through full service community banking offices with decentralized management, while achieving operating efficiency through product standardization and centralization of processing and other functions. Each full service banking office has senior management with significant lending experience who exercise substantial autonomy over credit and pricing decisions, subject to a tiered approval process for larger credits. This decentralized management approach, coupled with continuity of service by the same staff members, enables the Bank to develop long-term customer relationships, maintain high quality service and respond quickly to customer needs. The majority of its competitors in the non-metropolitan areas are much smaller, and neither offer the range of products and services nor have the lending capacity of BancFirst. In the metropolitan communities, the Company's strategy is to be more responsive to, and more focused on, the needs of local businesses not served effectively by larger institutions. Marketing to existing and potential customers is performed through a variety of media advertising, direct mail and direct personal contacts. The Company monitors the needs of its customer base through its Product Development Group, which develops and enhances products and services in response to such needs. Sales, customer service and product training are coordinated with incentive programs to motivate employees to cross-sell the Bank's products and services. CONTROL OF THE COMPANY Affiliates of the Company beneficially own approximately 62% of the shares of the Common Stock outstanding. Under Oklahoma law, holders of a majority of the outstanding shares of Common Stock are able to elect all of the directors and approve significant corporate actions, including business combinations. Accordingly, the Affiliates have the ability to control the business and affairs of the Company. 4 RECENT DEVELOPMENTS In February 1999, the Company sold its Anadarko, Oklahoma branch, which had deposits of approximately $15.5 million, to a local financial institution. The sale resulted in a pretax gain of approximately $900,000. SUPERVISION AND REGULATION BANK HOLDING COMPANY REGULATION The following discussion sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to the Company. This regulatory framework is intended primarily for the protection of depositors and not for the protection of the Company's stockholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to the Company or its subsidiaries may have a material effect on the business of the Company. GENERAL As a bank holding company, the Company is subject to regulation and examination by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended ("BHCA"). BancFirst is organized as a state-chartered banking association which is subject to regulation, supervision and examination by the Oklahoma State Banking Department (the "Banking Department"). BancFirst is also subject to regulation by the Federal Deposit Insurance Company (the "FDIC") and other federal and state regulatory agencies. In addition to banking laws, regulations and regulatory agencies, the Company and its subsidiaries and affiliates are subject to various other laws and regulations and supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of the Company and its ability to make distributions. The following discussion summarizes certain aspects of those laws and regulations that affect the Company. The BHCA requires the prior approval of the Reserve Board in any case where a bank holding company proposes to acquire control of more than five percent of the voting shares of any bank, unless it already controls a majority of such voting shares. Additionally, approval must also be obtained before a bank holding company may acquire all or substantially all of the assets of another bank or before it may merge or consolidate with another bank holding company. The BHCA further provides that the Reserve Board shall not approve any such acquisition, merger or consolidation that will substantially lessen competition, tend to create a monopoly or be in restraint of trade, unless it finds the anti- competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. In addition, and subject to certain exceptions, the Change in Bank Control Act (the "Control Act") and regulations promulgated thereunder by the Federal Reserve Board require any person acting directly or indirectly, or through or in concert with one or more persons, to give the Federal Reserve 60 days' written notice before acquiring control of a bank holding company. Transactions which are presumed to constitute the acquisition of control include the acquisition of any voting securities of a bank holding company having securities registered under section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if, after the transaction, the acquiring person (or persons acting in concert) owns, controls or holds with power to vote 25% or more of any class of voting securities of the institution. The acquisition may not be consummated subsequent to such notice if the Federal Reserve Board issues a notice within 60 days, or within certain extensions of such period, disapproving the same. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act"), a bank holding company may acquire banks in states other than its home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the United States and no more than 30 percent of such deposits in that state (or such lesser or greater amount set by state law). Subject to certain restrictions, the Interstate Banking and Branching Act also authorizes banks to merge across state lines, thereby creating interstate branches. Furthermore, pursuant to the Interstate Banking and Branching Act, a bank may open new branches in a state in which it does not already have banking operations if such state enacts a law permitting such de novo branching. See "State Regulation-Branch and Interstate Banking." 5 The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than five percent of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company whose activities the Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board weighs the Community Reinvestment Act activities of the bank holding company and the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities include operating a mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; servicing loans and other extensions of credit; providing investment and financial advice; acting as an insurance agent for certain types of credit- related insurance; owning and operating savings and loan associations; and leasing personal property on a full pay-out, nonoperating basis. A bank holding company and its subsidiaries are further prohibited under the BHCA from engaging in certain tie-in arrangements in connection with the provision of any credit, property or services. Thus, a subsidiary of a bank holding company may not extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that (1) the customer obtain or provide some additional credit, property or services from or to the bank holding company or any subsidiary thereof or (2) the customer may not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to insure the soundness of credit extended. The Federal Reserve Board has issued regulations under the BHCA that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. Pursuant to such regulations, the Federal Reserve Board may require the Company to stand ready to use its resources to provide adequate capital funds to its banking subsidiaries during periods of financial stress or adversity. Under the Federal Deposit Insurance Company Improvement Act of 1991 ("FDICIA"), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become "undercapitalized" (as defined in the statute) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency, up to specified limits. See "FDICIA and Related Regulations," below. Under the BHCA, the Federal Reserve Board has the authority to require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve Board's determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. CAPITAL ADEQUACY GUIDELINES The Federal Reserve Board, the Comptroller and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations. In addition, these regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. The Federal Reserve Board risk-based guidelines define a three-tier capital framework. Tier 1 capital consists of common and qualifying preferred stockholders' equity, less certain intangibles and other adjustments. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, subordinated and other qualifying debt, and the allowance for credit losses up to 1.25 percent of risk-weighted assets. Tier 3 capital includes subordinated debt that is unsecured, fully paid, has an original maturity of at least two years, is not redeemable before maturity without prior approval by the Federal Reserve and includes a lock-in clause precluding payment of either interest or principal if the payment would cause the issuing bank's risk-based capital ratio to fall or remain below the required minimum. The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents qualifying total capital, at least 50 percent of which must consist of Tier 1 capital. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. The minimum Tier 1 capital ratio is 4 percent and the minimum total capital ratio is 8 percent. The Company's Tier 1 and total risk-based capital ratios under these guidelines at December 31, 1998 were 14.31% and 15.57%, respectively. At December 31, 1998, the Company had no subordinated debt that qualified as Tier 3 capital. The Federal Reserve Board also requires bank holding companies to maintain a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 3%. These ratio requirements are minimums. Any institution operating at or near those levels would be expected by the regulators to have well-diversified risk, including no undue interest rate risk exposures, excellent asset quality, high liquidity, and good earnings and, in general, would have to be considered a strong banking organization. All other organizations and any institutions experiencing or anticipating significant growth are expected to maintain capital ratios at least one to two percent above the minimum levels, and higher capital ratios can be required if warranted by particular circumstances or risk profile. For information regarding the Company's recent historical capital ratios, see "Financial Review - Capital Resources". 6 IMPROVEMENT ACT AND RELATED REGULATIONS General. FDICIA, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective Federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5 percent of the bank's assets at the time it became "undercapitalized" or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards. The various regulatory agencies have adopted substantially similar regulations that define the five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures, and requires the respective Federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Significantly or critically undercapitalized institutions and undercapitalized institutions that do not submit and comply with capital restoration plans acceptable to the applicable Federal banking regulator are subject to one or more of the following sanctions: (i) forced sale of shares to raise capital, or, where grounds exist for the appointment of a receiver or conservator, a forced merger; (ii) restrictions on transactions with affiliates; (iii) limitations on interest rates paid on deposits; (iv) further restrictions on growth or required shrinkage; (v) replacement of directors or senior executive directors; (vi) prohibitions on the receipt of correspondent deposits; (vii) restrictions on capital distributions by the holding companies of such institutions; (viii) required divestiture of subsidiaries by the institution; or (ix) other restrictions, as determined by the regulator. In addition, the compensation of executive officers will be frozen at the level in effect when the institution failed to meet the capital standards and may be increased only with the applicable Federal banking regulator's prior written approval. The applicable Federal banking regulator is required to impose a forced sale of shares or merger, restrictions on affiliate transactions and restrictions on rates paid on deposits unless it determines that such actions would not further an institution's capital improvement. In addition to the foregoing, a critically undercapitalized institution would be prohibited from making any payment of principal or interest on subordinated debt without the concurrence of its regulator and the FDIC, beginning 60 days after the institution becomes critically undercapitalized. A critically undercapitalized institution may not, without FDIC approval: (i) enter into material transactions outside of the ordinary course of business; (ii) extend credit on highly leveraged transactions; (iii) amend its charter or bylaws; (iv) make any material change in its accounting methods; (v) engage in any covered transactions with affiliates; (vi) pay excessive compensation or bonus (as defined); or (vii) pay rates on liabilities significantly in excess of market rates. Under the regulations, a "well capitalized" institution must have a Tier 1 capital ratio of at least 6 percent, a total capital ratio of at least 10 percent and a leverage ratio of at least 5 percent and not be subject to a capital directive order. Under these guidelines, BancFirst is considered well capitalized. Banking agencies have also adopted final regulations which mandate that regulators take into consideration (i) concentrations of credit risk; (ii) interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance- sheet position); and (iii) risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. That evaluation will be made as a part of the institution's regular safety and soundness examination. In addition, the banking agencies have amended their regulatory capital guidelines to incorporate a measure for market risk. The revised guidelines did not have a material impact on the Company or BancFirst's regulatory capital ratios or their well capitalized status. REGULATORY RESTRICTIONS ON DIVIDENDS BancFirst, as a member bank of the Federal Reserve System, may not declare a dividend without the approval of the Federal Reserve Board unless the dividend to be declared by BancFirst does not exceed the total of (i) BancFirst's net profits (as defined and interpreted by regulation) for the current year to date plus (ii) its retained net profits (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. In addition, BancFirst can only pay dividends to the extent that its retained net profits (including the portion transferred to surplus) exceed its bad debts (as defined by regulation). Under the Federal Deposit Insurance Act, no dividends 7 may be paid by an insured bank if the bank is in arrears in the payment of any insurance assessment due to the FDIC. Under these provisions BancFirst may declare during 1999, without prior regulatory approval, aggregate dividends of $12 million, plus net profits earned to the date of such dividend declaration in 1999. State and federal regulatory authorities have adopted standards for the maintenance of adequate levels of capital by banks. See "Capital Adequacy Guidelines," above. Adherence to such standards further limits the ability of banks to pay dividends. The payment of dividends by any subsidiary bank may also be affected by other regulatory requirements and policies, such as the maintenance of adequate capital. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The Federal Reserve Board has formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. DEPOSIT INSURANCE BancFirst is insured by the FDIC and is required to pay certain fees and premiums to the Bank Insurance Fund ("BIF"). These deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums on deposits based upon their level of capital and supervisory evaluation, with the well-capitalized banks with the highest supervisory rating paying a premium of 0.00% of deposits and the critically undercapitalized banks paying up to 0.27% of deposits. In addition, the Deposit Insurance Fund Act of 1996 implemented an additional assessment on BIF deposits and deposits insured by the Savings Association Insurance Fund ("SAIF") administered by the FDIC, in order to service the interest on the Financing Corporation ("FICO") bond obligations which were used to finance the cost of "thrift bailouts" in the 1980's. The FICO assessments do not vary depending upon a depository institution's capitalization or supervisory evaluations. The FICO assessment rates for the first semi-annual period of 1999 were set at $.0122 per $100 of insured deposits for BIF assessable deposits and $.061 per $100 in deposits for SAIF assessable deposits. These rates may be adjusted quarterly to reflect changes in assessment basis for the BIF and SAIF. By law, the FICO rate on BIF assessable deposits must be one-fifth of the rate on SAIF assessable deposits until the insurance funds are merged or until January 1, 2000, whichever occurs first. DEPOSITOR PREFERENCE STATUTE Federal legislation has been enacted providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such institution, including federal funds and letters of credit, in the "liquidation or other resolution" of the institution by any receiver. STATE REGULATION General. BancFirst is an Oklahoma-chartered state bank. Accordingly, BancFirst's operations are subject to various requirements and restrictions of state law relating to loans, lending limits, interest rates payable on deposits, investments, mergers and acquisitions, borrowings, dividends, capital adequacy, and other matters. Because BancFirst is a member of the Federal Reserve System, Oklahoma law provides that BancFirst must maintain reserves against deposits as required by the Federal Reserve Act. BancFirst is subject to primary supervision, periodic examination and regulation by the Oklahoma State Banking Department and the Federal Reserve Board. The Oklahoma State Bank Commissioner is authorized by statute to accept a Federal Reserve System examination in lieu of a state examination. In practice, the Federal Reserve Board and the Oklahoma State Banking Department alternate examinations of BancFirst. If, as a result of an examination of a bank, the Oklahoma State Banking Department determines that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the bank's operations are unsatisfactory or that the management of the bank is violating or has violated any law or regulation, various remedies, including the remedy of injunction, are available to the Oklahoma State Banking Department. Oklahoma also permits the acquisition of an unlimited number of wholly-owned bank subsidiaries so long as aggregate deposits at the time of acquisition in a multi-bank holding company do not exceed 15% of all deposits in Oklahoma financial institutions insured by the federal government, exclusive of credit union deposits. State Bank Holding Company Regulation. The BHC allows the Federal Reserve Board to approve an application of an adequately capitalized and adequately managed bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than such holding company's home state, without regard to whether the transaction is prohibited by the laws of any state. The Federal Reserve Board may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years), if any, specified by the statutory law of the host state. The BHC also prohibits the Federal Reserve Board from approving an application if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. The BHC does not affect the authority of states to limit the percentage of total insured deposits in the state which may be held or controlled by a bank or bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding 8 companies. Individual states may also waive the 30% state-wide concentration limit. Under Oklahoma law, any bank holding company or other company which submits an application to the Federal Reserve Board for approval of the acquisition of a state or national bank located in Oklahoma must submit a copy of such application to the Oklahoma Bank Board. Subject to certain exceptions for supervisory acquisitions and certain other limited exceptions, Oklahoma law further provides that it shall be unlawful for a multi-bank holding company to acquire direct or indirect ownership or control of any financial institution with deposits insured by the FDIC or the National Credit Union Administration ("NCUA") and located in Oklahoma if such acquisition results in such multi-bank holding company having direct or indirect ownership or control of banks located in Oklahoma, the total deposits of which at the time of such acquisition exceed 15% of aggregate deposits of all financial institutions with deposits insured by the FDIC and the NCUA. See "-Branch and Interstate Banking." Branch and Interstate Banking. Currently, Oklahoma law provides that Oklahoma banks may establish no more than two branches within the corporate city limits where the main bank is located or within 25 miles of the main bank if it is located in a city that has no other bank. Oklahoma banks, however, may acquire an unlimited number of offices of other banks or savings associations provided that the bank does not control more than 15% of the insured deposits in the State of Oklahoma. Recently, Oklahoma law had been interpreted to permit more extensive branching, through the use of so-called "phantom," or interim, bank charters. In late 1998, BancFirst received permission to establish an additional branch under this interpretation to support its existing operations in the Oklahoma City metropolitan market. Other Oklahoma banks also applied for, and received permission to establish, branches under this interpretation. However, the Oklahoma State Banking Board's decision approving one such interim charter became the subject of a legal challenge, and on March 30, 1999, the Oklahoma Supreme Court reversed the order of the Banking Board with respect to the charter in question. Although no parties have appeared within the requisite time period provided by the court to oppose BancFirst's interim charter, the effect of the Oklahoma Supreme Court decision will be the curtailment of branching by such method. Beginning on June 1, 1997, pursuant to the Interstate Banking and Branching Act, the federal banking agencies were authorized to approve interstate bank (as opposed to bank holding company) merger transactions without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks had "opted out" of interstate branching by enacting specific legislation prior to June 1, 1997, in which case out-of-state banks would generally not be able to branch into that state, and banks headquartered in that state would not be permitted to branch into other states. Oklahoma elected to "opt-in" to interstate branching effective May 1997 and established a 12.25% deposit cap which was subsequently increased to 15%. Federal law also generally allows bank holding companies to acquire or establish federal savings associations, without regard to location. Under federal law, federal savings associations may establish or acquire branches in or outside of their home states without regard to state restrictions. Furthermore, pursuant to the Interstate Banking and Branching Act, a bank may open new branches in a state in which it does not already have banking operations if such state enacts a law permitting such de novo branching. Currently, Oklahoma law does not. However, Section 381.24a(B) of the Oklahoma Savings and Loan Code of 1970 provides that, after July 1, 1999, new savings and loan association branches may be established with permission granted by order of the Oklahoma State Banking Commissioner without regard to the restrictions otherwise provided in such subsection, which are substantially identical to the two de novo branch limitation contained in the Oklahoma Banking Code. Accordingly, after such date, and absent further legislation, national banks would have the ability to establish de novo branches on an unlimited, state-wide basis (subject to the deposit cap), although state-chartered banks would still be subject to the branching limits contained in the Oklahoma Banking Code. In an effort to ensure parity between national and state-chartered banks, the Oklahoma legislature on March 24, 1999 amended Section 402(12) of the Oklahoma Banking Code to provide that state-chartered banks would be entitled to the same rights and privileges as those extended to national banks. The effective date of the amendment is July 1, 1999, after which time BancFirst will be able to establish an unlimited number of de novo branches in Oklahoma (assuming no successful legal challenge to the amendment). GOVERNMENTAL MONETARY AND FISCAL POLICIES The commercial banking business is affected directly by the monetary policies of the Federal Reserve Board and by the fiscal policies of federal, state and local governments. The Federal Reserve Board, in fulfilling its role of stabilizing the nation's money supply, utilizes several operating tools, all of which directly impact commercial bank operations. The primary tools used by the Federal Reserve Board are changes in reserve requirements on member bank deposits and other borrowings, open market operations in the U.S. Government securities market, and control over the availability and cost of members' direct borrowings from the "discount window." Banks act as financial intermediaries in the debt capital markets and are active participants in these markets daily. As a result, changes in governmental monetary and fiscal policies have a direct impact upon the level of loans and investments, the availability of sources of lendable funds, and the interest rates earned from and paid on these instruments. It is not possible to predict accurately the future course of such government policies and 9 the residual impact upon the operations of the Company. PENDING AND PROPOSED LEGISLATION There are various pending and proposed bills in Congress that, among other things, could restructure the federal supervision of financial institutions. The Company is unable to predict with any certainty the effect any such legislation would have on the Company, its subsidiaries or their respective activities. Additional legislation, judicial and administrative decisions also may affect the ability of banks to compete with each other as well as with other businesses. These statutes and decisions may tend to make the operations of various financial institutions more similar and increase competition among banks and other financial institutions or limit the ability of banks to compete with other businesses. Management currently cannot predict whether and, if so, when any such changes might occur or the impact any such changes would have upon the income or operations of the Company or its subsidiaries, or upon the Oklahoma regional banking environment. ITEM 2. PROPERTIES. The principal offices of the Company are located at 101 North Broadway, Suite 200, Oklahoma City, Oklahoma 73102. The Company owns substantially all of the properties and buildings in which its various offices and facilities are located. These properties include 57 full service branches and 14 limited service detached facilities. BancFirst also owns properties for future expansion. There are no significant encumbrances on any of these properties. ITEM 3. LEGAL PROCEEDINGS. The Company has been named as a defendant in various legal actions arising from the conduct of its normal business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse effect on the consolidated financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 1998. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. BancFirst Common Stock is listed on the Nasdaq National Market System ("NASDAQ/NMS") and is traded under the symbol "BANF". The following table sets forth, for the periods indicated, (i) the high and low sales prices of BancFirst Common Stock as reported in the NASDAQ/NMS consolidated transaction reporting system and (ii) the quarterly dividends declared on BancFirst Common Stock. 10
PRICE RANGE ------------------------------------------ CASH DIVIDENDS HIGH LOW DECLARED ------------ ------------ ------------ 1998 First Quarter $41.500 $32.375 $0.12 Second Quarter $48.500 $39.500 $0.12 Third Quarter $48.000 $32.500 $0.12 Fourth Quarter $41.500 $34.000 $0.14 1997 First Quarter $33.500 $27.063 $0.10 Second Quarter $33.500 $27.500 $0.10 Third Quarter $33.750 $29.250 $0.10 Fourth Quarter $34.750 $31.563 $0.12
As of March 31, 1999 there were approximately 550 holders of record of the Common Stock. Future dividend payments will be determined by the Company's Board of Directors in light of the earnings and financial condition of the Company and the Bank, their capital needs, applicable governmental policies and regulations and such other factors as the Board of Directors deems appropriate. BancFirst Corporation is a legal entity separate and distinct from the Bank, and its ability to pay dividends is substantially dependent upon dividend payments received from the Bank. Various laws, regulations and regulatory policies limit the Bank's ability to pay dividends to BancFirst Corporation, as well as BancFirst Corporation's ability to pay dividends to its shareholders. See "Liquidity and Funding" and "Capital Resources" under "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Business - Supervision and Regulation" and Note 15 of the Notes to Consolidated Financial Statements for further information regarding limitations on the payment of dividends by BancFirst Corporation and the Bank. ITEM 6. SELECTED FINANCIAL DATA. Incorporated by reference from "Selected Consolidated Financial Data" contained on page A-3 of the attached Appendix. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated by reference from "Financial Review" contained on pages A-2 through A-15 of the attached Appendix. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Incorporated by reference from "Financial Review - Market Risk" contained on page A-14 of the attached Appendix. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of BancFirst Corporation and its subsidiaries, are incorporated by reference from pages A-16 through A-45 of the attached Appendix, and include the following: a. Reports of Independent Accountants b. Consolidated Balance Sheet c. Consolidated Statement of Income d. Consolidated Statement of Stockholders' Equity e. Consolidated Statement of Cash Flows f. Notes to Consolidated Financial Statements 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no material disagreements between the Company and its independent accountants on accounting and financial disclosure matters which are required to be reported under this Item for the period for which this report is filed. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 401 of Regulation S-K will be contained in the 1999 Proxy Statement under the caption "Election of Directors" and is hereby incorporated by reference. The information required by Item 405 of Regulation S-K will be contained in the 1999 Proxy Statement under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by Item 402 of Regulation S-K will be contained in the 1999 Proxy Statement under the caption "Compensation of Directors and Executive Officers" and is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by Item 403 of Regulation S-K will be contained in the 1999 Proxy Statement under the caption "Stock Ownership" and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by Item 404 of Regulation S-K will be contained in the 1999 Proxy Statement under the caption "Transactions with Management" and is hereby incorporated by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements: Reports of Independent Accountants Consolidated Balance Sheet at December 31, 1998 and 1997 Consolidated Statement of Income for the three years ended December 31, 1998 Consolidated Statement of Stockholders' Equity for the three years ended December 31, 1998 Consolidated Statement of Cash Flows for the three years ended December 31, 1998 Notes to Consolidated Financial Statements The above financial statements are incorporated by reference from pages A- 16 through A-45 of the attached Appendix. (2) All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) The following Exhibits are filed with this Report or are incorporated by reference as set forth below: 12 Exhibit Number Exhibit ------ ------- 2.1 Purchase and Assumption Agreement between NationsBank, N.A. and BancFirst dated September 26, 1997 (filed as Exhibit 2.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by reference). 2.2 Merger Agreement dated May 6, 1998 between BancFirst Corporation and AmQuest Financial Corp. (filed as Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference). 3.1 Second Amended and Restated Certificate of Incorporation of BancFirst (filed as Exhibit 1 to BancFirst's 8-A/A filed July 23, 1998 and incorporated herein by reference). 3.2* Certificate of Designations of Preferred Stock 3.3 Amended By-Laws (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference). 4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference). 4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference). 4.3 Series A Capital Securities Guarantee Agreement dated as of February 4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference). 4.4 Rights Agreement, dated as of February 25, 1999, between BancFirst Corporation and BancFirst, as Rights Agent, including as Exhibit A the form of Certificate of Designations of the Company setting forth the terms of the Preferred Stock, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights Agreement (filed as Exhibit 1 to the Company's 8-K dated February 25, 1999 and incorporated herein by reference). 10.1 United Community Company (now BancFirst Company) Stock Option Plan (filed as Exhibit 10.09 to the Company's Registration Statement on Form S-4, file No. 33-13016 and incorporated herein by reference). 10.2 BancFirst Company Employee Stock Ownership and Thrift Plan (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference). 10.3 1988 Incentive Stock Option Plan of Security Corporation as assumed by BancFirst Corporation (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference). 10.4 1993 Incentive Stock Option Plan of Security Corporation as assumed by BancFirst Corporation (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference). 10.5 1995 Non-Employee Director Stock Plan of AmQuest Financial Corp. as assumed by BancFirst Corporation (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference). 22.1* Subsidiaries of Registrant. 23.1* Consent of PriceWaterhouseCoopers LLP 23.2* Consent of Arthur Anderson LLP 27.1* Financial Data Schedule for the year ended December 31, 1998. 27.5* Financial Data Schedule for the year ended December 31, 1997. 13 27.9* Financial Data Schedule for the year ended December 31, 1996. __________________________ * Filed herewith. (b) A report on Form 8-K was filed by the Company on October 15, 1998, reporting the October 1, 1998 merger of AmQuest Financial Corp. with and into BancFirst Corporation. The following financial statements were filed by amendment on December 15, 1998: (1) Financial statements of AmQuest Financial Corp. (A) Consolidated Statements of Financial Condition as of September 30, 1998, December 31, 1997 and December 31, 1996 (B) Consolidated Statements of Income for the Nine Months Ended September 30, 1998 and 1997, and for the Years Ended December 31, 1997, 1996 and 1995 (C) Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 (D) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997, and for the Years Ended December 31, 1997, 1996 and 1995 (2) Pro forma financial information. (A) Unaudited Pro Forma Consolidated Condensed Balance Sheet as of September 30, 1998 (B) Unaudited Pro Forma Consolidated Condensed Statement of Income and Comprehensive Income for the Nine Months Ended September 30, 1998 (C) Unaudited Pro Forma Consolidated Condensed Statement of Income and Comprehensive Income for the Nine Months Ended September 30, 1997 (D) Unaudited Pro Forma Consolidated Condensed Statement of Income and Comprehensive Income for the Year Ended December 31, 1997 (E) Unaudited Pro Forma Consolidated Condensed Statement of Income and Comprehensive Income for the Year Ended December 31, 1996 (F) Unaudited Pro Forma Consolidated Condensed Statement of Income and Comprehensive Income for the Year Ended December 31, 1995 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. April 15, 1999 BANCFIRST CORPORATION --------------------- (Registrant) /s/ David E. Rainbolt -------------------------------------- David E. Rainbolt President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 15, 1999. /s/ H.E. Rainbolt /s/ David E. Rainbolt - ---------------------------------------------- ------------------------------------------------- H. E. Rainbolt David E. Rainbolt Chairman of the Board President, Chief Executive (Principal Executive Officer) Officer and Director (Principal Executive Officer) ______________________________________________ _________________________________________________ Marion Bauman C. L. Craig, Jr. Director Director /s/ James R. Daniel /s/ K. Gordon Greer - ---------------------------------------------- ------------------------------------------------- James R. Daniel K. Gordon Greer Vice Chairman of the Board Vice Chairman of the Board (Principal Executive Officer (Principal Executive Officer) /s/ Robert A. Gregory - ---------------------------------------------- _________________________________________________ Robert A. Gregory John T. Hannah Vice Chairman of the Board Director (Principal Executive Officer) /s/ J. R. Hutchens, Jr. ______________________________________________ _________________________________________________ John C. Hugon J. R. Hutchens, Jr. Director Director /s/ William O. Johnstone /s/ J. Ralph McCalmont ______________________________________________ ------------------------------------------------- William O. Johnstone J. Ralph McCalmont Vice Chairman of the Board Vice Chairman of the Board (Principal Executive Officer) (Principal Executive Officer)
15 ______________________________________________ _________________________________________________ Tom H. McCasland, Jr. Melvin Moran Director Director /s/ Joe T. Shockley, Jr. ______________________________________________ ------------------------------------------------- Paul B. Odom, Jr. Joe T. Shockley, Jr. Director Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer) /s/ Randy Foraker - ---------------------------------------------- Randy Foraker Senior Vice President, Controller and Treasurer (Principal Accounting Officer)
16 APPENDEX A BANCFIRST CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages ---------------- Financial Review A-2 to A-15 Selected Consolidated Financial Data A-3 Reports of Independent Accountants A-16 Consolidated Balance Sheet A-17 Consolidated Statement of Income A-18 Consolidated Statement of Stockholders' Equity A-19 Consolidated Statement of Cash Flows A-20 Notes to Consolidated Financial Statements A-21 to A-45
A-1 FINANCIAL REVIEW The following discussion is an analysis of the financial condition and results of operations of the Company for the three years ended December 31, 1998 and should be read in conjunction with the Consolidated Financial Statements and Notes thereto and the Selected Consolidated Financial Data included herein. SUMMARY BancFirst Corporation posted its eighth consecutive year of record earnings for 1998. At the same time, the Company grew over 73% by adding $990 million in assets through acquisitions and internal growth. Four acquisitions were completed during the year, two of which were accounted for as poolings of interests. Acquisition and restructuring costs of over $3.1 million were absorbed in current year earnings as a result of these transactions. Net income for 1998 was $21.6 million, up from $20.9 million for 1997 and $21.2 million for 1996, on a restated basis for the pooling of interests transactions. The corresponding diluted earnings per share figures were $2.27 for 1998, $2.21 for 1997 and $2.22 for 1996. Total assets increased to $2.34 billion, from $2.02 billion on a restated basis. Total loans increased $89 million, or 7.12%. Total deposits increased $263 million, or 14.9%. Stockholders' equity rose $20.7 million to $202 million, an 11.4% increase. Average stockholders' equity to average assets increased to 9.09%, from 8.95% for 1997. Asset quality remained high in 1998 with nonperforming and restructured assets to total assets of only 0.60%, compared to 0.51% for 1997. The allowance for possible loan losses to nonperforming and restructured loans was 158.69% at year-end 1998 and 206.55% at the end of 1997. In March 1998, the Company completed its purchase of 13 branches from NationsBank, N.A. and concurrently sold three of the branches to another Oklahoma financial institution. An additional four branches were subsequently sold to other local financial institutions. These transactions resulted in the acquisition of $30 million in net loans and other assets, and the assumption of $78 million in net deposits. In May 1998, the Company completed a merger with Lawton Security Bancshares, Inc. ("Lawton Security Bancshares"), which had approximately $92 million in total assets. Lawton Security Bancshares' principal subsidiary was Security Bank & Trust Company of Lawton, Oklahoma, which was merged into BancFirst. The merger was effected through an exchange of stock and was accounted for as a pooling of interests. In October 1998, the Company completed a merger with AmQuest Financial Corp. ("AmQuest"), which had approximately $526 million in total assets. AmQuest's principal subsidiaries were AmQuest Bank, N.A. and Exchange National Bank & Trust Company, which operated in six communities in south-central Oklahoma, and which were merged into BancFirst. Restructuring charges of $1.9 million were incurred, consisting of termination benefits of $345,000 and losses on facilities other assets to be sold or abandoned, of $1.57 million. The merger was effected through an exchange of stock and was accounted for as a pooling of interests. In December 1998, the Company completed an acquisition of Kingfisher Bancorp, Inc. ("Kingfisher Bancorp"), which had approximately $91 million in total assets. Kingfisher Bancorp's principal subsidiary was Kingfisher Bank & Trust Co. of Kingfisher, Oklahoma, which was merged into BancFirst in March 1999. The acquisition was for cash of $12 million and was accounted for as a purchase. A-2 SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share data)
AT AND FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------------------------------------------------------------------------- INCOME STATEMENT DATA Net interest income $ 92,752 $ 84,221 $ 77,965 $ 66,387 $ 62,485 Provision for possible loan losses 2,211 2,888 2,181 1,617 651 Noninterest income 24,019 21,508 20,001 17,399 15,851 Noninterest expense 80,482 71,455 62,386 53,926 50,810 Net income 21,550 20,905 21,150 18,243 17,778 Accumulated preferred dividends -- -- -- -- (55) Net income applicable to common stockholders 21,550 20,905 21,150 18,243 17,723 BALANCE SHEET DATA Total assets $2,335,883 $2,016,463 $1,863,056 $1,627,959 $1,426,651 Securities 582,649 510,426 477,191 469,416 423,987 Total loans (net of unearned interest) 1,338,879 1,249,705 1,125,278 947,089 837,895 Allowance for possible loan losses 19,659 17,458 16,569 14,821 13,627 Deposits 2,024,800 1,761,210 1,654,333 1,436,707 1,274,315 Long-term borrowings 12,966 7,051 12,636 1,918 1,000 9.65% Capital Securities 25,000 25,000 -- -- -- Common stockholders' equity 201,917 181,245 165,579 150,771 127,478 PER COMMON SHARE DATA Net income - basic $ 2.32 $ 2.26 $ 2.29 $ 1.95 $ 1.90 Net income - diluted 2.27 2.21 2.22 1.91 1.86 Cash dividends 0.50 0.42 0.34 0.29 0.25 Book value 21.73 19.62 17.82 16.12 13.65 Tangible book value 19.14 17.56 15.89 14.89 12.39 SELECTED FINANCIAL RATIOS Performance ratios: Return on average assets 1.00% 1.09% 1.21% 1.22% 1.25% Return on average stockholders' equity 10.95 12.14 13.61 13.32 14.25 Cash dividend payout ratio 21.55 18.58 14.85 14.87 13.09 Net interest spread 3.94 4.09 4.23 4.08 4.35 Net interest margin 4.83 4.93 5.05 4.91 4.97 Efficiency ratio (excluding restructuring charges) 67.29 67.58 63.68 64.36 64.86 Balance Sheet Ratios: Average loans to deposits 68.83% 70.12% 67.29% 65.61% 62.35% Average earning assets to total assets 90.17 90.28 90.09 90.15 89.96 Average stockholders' equity to average assets 9.09% 8.95% 8.90% 9.15% 8.74% Asset Quality Ratios: Nonperforming and restructured loans to total loans 0.93% 0.68% 0.98% 0.83% 0.78% Nonperforming and restructured assets to total assets 0.60 0.51 0.70 0.60 0.70 Allowance for possible loan losses to total loans 1.47 1.40 1.47 1.56 1.63 Allowance for possible loan losses to nonperforming 158.69 206.55 150.85 187.51 207.76 And restructured loans Net chargeoffs to average loans 0.14 0.20 0.13 0.10 0.04
A-3 CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS TAXABLE EQUIVALENT BASIS (DOLLARS IN THOUSANDS)
DECEMBER 31, 1998 DECEMBER 31, 1997 --------------------------------------- ------------------------------------- INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ------------- ------------ ---------- ----------- ------------ ---------- ASSETS Earning assets: Loans (1) $1,290,557 $121,700 9.43% $1,181,421 $111,786 9.46% Investments - taxable 527,213 32,698 6.20 452,738 28,951 6.39 Investments - tax exempt 43,269 3,356 7.76 45,773 3,504 7.65 Federal funds sold 91,736 4,835 5.27 57,787 3,150 5.45 ------------- ------------ ----------- ------------ Total earning assets 1,952,775 162,589 8.33 1,737,719 147,391 8.48 ------------- ------------ ----------- ------------ Nonearning assets: Cash and due from banks 114,137 99,966 Interest receivable and other assets 116,910 104,255 Allowance for possible loan losses (18,138) (17,185) ------------- ----------- Total nonearning assets 212,909 187,036 ------------- ----------- Total assets $2,165,684 $1,924,755 ============= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Transaction deposits $ 104,006 2,572 2.47% $ 156,478 4,055 2.59% Savings deposits 547,887 14,386 2.63 450,491 13,531 3.00 Time deposits 826,172 45,988 5.57 745,308 40,199 5.40 Short-term borrowings 40,191 2,161 5.38 19,932 1,093 5.48 Long-term borrowings 13,123 734 5.59 10,849 648 5.97 9.65% Capital Securities 25,000 2,449 9.80 22,683 2,214 9.76 ------------- ------------ ----------- ------------ Total interest-bearing liabilities 1,556,379 68,290 4.39 1,405,741 61,740 4.39 ------------- ------------ ----------- ------------ Interest-free funds: Demand deposits 396,802 332,513 Interest payable and other liabilities 15,642 14,246 Stockholders' equity 196,861 172,255 ------------- ----------- Total interest free funds 609,305 519,014 ------------- ----------- Total liabilities and stockholders' equity $2,165,684 $1,924,755 ============= =========== Net interest income $ 94,299 $ 85,651 =========== =========== Net interest spread 3.94% 4.09% ======== ======== Net interest margin 4.83% 4.93% ======== ======== DECEMBER 31, 1996 ----------------------------------- INTEREST AVERAGE AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE ------------ ---------- -------- ASSETS Earning assets: Loans (1) $1,047,771 $100,532 9.59% Investments - taxable 436,341 27,287 6.25 Investments - tax exempt 47,693 3,552 7.45 Federal funds sold 41,918 2,245 5.36 ------------ ---------- Total earning assets 1,573,723 133,616 8.49 ------------ ---------- Nonearning assets: Cash and due from banks 93,529 Interest receivable and other assets 95,592 Allowance for possible loan losses (16,040) ------------ Total nonearning assets 173,081 ------------ Total assets $1,746,804 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Transaction deposits $ 233,312 $ 6,293 2.70% Savings deposits 339,897 10,520 3.09 Time deposits 677,481 36,237 5.35 Short-term borrowings 19,247 1,059 5.50 Long-term borrowings 2,724 160 5.87 9.65% Capital Securities -- -- -- ------------ ---------- Total interest-bearing liabilities 1,272,661 54,269 4.26 ------------ ---------- Interest-free funds: Demand deposits 306,311 Interest payable and other liabilities 12,377 Stockholders' equity 155,455 ------------ Total interest free funds 474,143 ------------ Total liabilities and stockholders' equity $1,746,804 ============ Net interest income $ 79,347 ========== Net interest spread 4.23% ======== Net interest margin 5.05% ========
(1) Nonaccrual loans are included in the average loan balances and any interest on such nonaccrual loans is recognized on a cash basis. A-4 RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income, which is the Company's principal source of operating revenue, increased 10.1% in 1998 to $92.8 million, after an increase of 8.02% in 1997. The net interest margin on a taxable equivalent basis for 1998 was 4.83%, down from 4.93% for 1997 and 5.05% for 1996. Changes in the volume of earning assets and interest-bearing liabilities, and changes in interest rates determine the change in net interest income. The Volume/Rate Analysis summarizes the relative contribution of each of these components to the increases in net interest income in 1998 and 1997. The increase in net interest income in 1998 was due to growth in loans and net earning assets. Average loans rose 9.24%. At the same time, average net earning assets increased to $396 million from $332 million for 1997. In 1997, average loans increased 12.76% and average net earning assets increased to $332 million from $301 million for 1996. The declining net interest margin is the result of several factors including low interest rates, a flatter yield curve and loan pricing competition. This is reflected in the negative rate variances for 1998 and 1997.
VOLUME/RATE ANALYSIS CHANGE IN 1998 CHANGE IN 1997 ---------------------------------------------- --------------------------------------------- TAXABLE EQUIVALENT BASIS TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO VOLUME (1) RATE VOLUME (1) RATE --------- -------------- ------------- --------- -------------- ------------ (Dollars in thousands) INCREASE (DECREASE) INTEREST INCOME: Loans $ 9,914 $10,326 $ (412) $11,254 $12,824 $(1,570) Investments - taxable 3,747 4,762 (1,015) 1,664 1,025 639 Investments - tax exempt (148) (192) 44 (48) (143) 95 Federal funds sold 1,685 1,858 (173) 905 850 55 --------- -------------- ------------- --------- -------------- ------------ Total interest income 15,198 16,754 (1,556) 13,775 14,556 (781) --------- -------------- ------------- --------- -------------- ------------ INTEREST EXPENSE: Transaction deposits (1,483) (1,360) (123) (2,238) (2,072) (166) Savings deposits 855 2,926 (2,071) 3,011 3,423 (412) Time deposits 5,789 4,363 1,426 3,962 3,628 334 Short-term borrowings 1,068 1,111 (43) 34 38 (4) Long-term borrowings 86 136 (50) 488 477 11 9.65% Capital Securities 235 226 9 2,214 -- 2,214 --------- -------------- ------------- --------- -------------- ------------ Total interest expense 6,550 7,402 (852) 7,471 5,494 1,977 --------- -------------- ------------- --------- -------------- ------------ Net interest income $ 8,648 $ 9,352 $ (704) $ 6,304 $ 9,062 $(2,758) ========= ============== ============= ========= ============== ============
Interest rate sensitivity analysis measures the sensitivity of the Company's net interest margin to changes in interest rates by analyzing the repricing relationship between its earning assets and interest-bearing liabilities. This analysis is limited by the fact that it presents a static position as of a single day and is not necessarily indicative of the Company's position at any other point in time, and does not take into account the sensitivity of yields and rates of specific assets and liabilities to changes in market rates. In 1998, Management continued its strategy of creating manageable negative interest sensitivity gaps. This approach takes advantage of the Company's stable core deposit base and the relatively short maturity and repricing frequency of its loan portfolio, as well as the historical existence of a positive yield curve, which enhances the net interest margin over the long term. Although interest rate risk is increased on a controlled basis by this position, it is somewhat mitigated by the Company's high level of liquidity. The Analysis of Interest Rate Sensitivity presents the Company's earning assets and interest-bearing liabilities based on maturity and repricing frequency at December 31, 1998. At that date, interest-bearing liabilities exceeded earning assets by $492 million in the three month interval. The Company's negative gap position increased in 1998 and 1997 as a result of the majority of its earning asset growth having a maturity or repricing frequency of one to five years. This negative gap position assumes that the Company's core savings and transaction deposits are immediately rate sensitive and reflects Management's perception that the yield curve will be positively sloped over the long term. When the yield curve flattens, as it did in 1997 and 1998, the Company's net interest margin would be expected to decline, unless the Company adjusts its interest sensitivity gap position or employs other strategies to control the rise in rates on interest-bearing liabilities or to increase the yield on earning assets. A-5
ANALYSIS OF INTEREST RATE SENSITIVITY INTEREST RATE NONINTEREST RATE SENSITIVE SENSITIVE ----------------------------- -------------------------- DECEMBER 31, 1998 0 TO 3 4 TO 12 1 TO 5 OVER 5 MONTHS MONTHS YEARS YEARS TOTAL ----------- ---------- ---------- ---------- ---------- EARNING ASSETS Loans $ 601,951 $ 159,884 $ 419,482 $ 157,562 $1,338,879 Federal funds sold 187,369 -- -- -- 187,369 Securities 62,477 90,521 356,678 72,973 582,649 ----------- ---------- ---------- ---------- ---------- Total $ 851,797 $ 250,405 $ 776,160 $ 230,535 $2,108,897 =========== ========== ========== ========== ========== FUNDING SOURCES Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 252,764 $ 252,764 Savings and transaction deposits 699,278 -- -- -- 699,278 Time deposits of $100 or more 151,316 60,983 14,330 -- 226,629 Time deposits under $100 436,724 170,606 28,172 -- 635,502 Short-term borrowings 54,841 -- -- -- 54,841 Long-term borrowings 308 982 8,797 2,879 12,966 9.65% Capital Securities -- -- -- 25,000 25,000 Stockholders' equity -- -- -- 201,917 201,917 ----------- ---------- ---------- ---------- ---------- Total $1,342,467 $ 232,571 $ 51,299 $ 482,560 $2,108,897 =========== ========== ========== ========== ========== Interest sensitivity gap $ (490,670) $ 17,834 $724,861 $(252,025) Cumulative gap $ (490,670) $(472,836) $252,025 $ -- Cumulative gap as a percentage of total earning assets (23.27)% (22.42)% 11.95% -- %
(1) Represents the amount of demand deposits required to support earning assets in excess of interest-bearing liabilities and stockholders' equity. PROVISION FOR POSSIBLE LOAN LOSSES The provision for possible loan losses was $2.21 million for 1998 compared to $2.89 million for 1997, and $2.18 million for 1996. These relatively low levels of provisions reflect the Company's strong asset quality. The amounts provided for the last three years primarily relate to loan growth and net loan charge-offs. The Company establishes a 1% allowance for possible losses on non- classified loans. Net loan charge-offs were $1.85 million for 1998, compared to $2.31 million for 1997 and $1.39 million for 1996. The net charge-offs for 1998 and 1997 were equivalent to only 0.14% and 0.20% of average loans, respectively. A more detailed discussion of the allowance for possible loan losses is provided under "Loans." NONINTEREST INCOME Noninterest income increased in 1998 by $2.51 million, or 11.67%, compared to an increase of $1.51 million, or 7.53% in 1997 and $2.6 million, or 14.95%, in 1996. Noninterest income has become an increasingly important source of revenue. The Company's fee income has increased each year since 1987 due to improved pricing strategies, enhanced product lines and bank acquisitions. New products and strategies have been implemented which are expected to produce continued growth in noninterest income. Service charges on deposits increased $1.48 million, or 11.24%, compared to increases of 12.3% and 10.9% in 1997 and 1996, respectively. In 1997 and 1998, the Company implemented strategies to improve the charging and collection of various service charges. The growth in 1996 was primarily due to acquisitions. Other noninterest income decreased $1.02 million, or 12.24%, in 1998, after increasing 3.46% in 1997 and 20.41% in 1996. The primary causes of the increases were increased fees from mortgage loan originations, gains on sales of mortgage loans and higher trust revenues. Net gains on securities transactions were only $12,000 in 1998, compared to $2,000 in 1997, and $219,000 in 1996. The Company's practice is to hold its securities to maturity and it does not engage in trading activities. The small gains from securities transactions have A-6 primarily been from securities that have been called or from disposing of securities acquired in mergers which had a higher than acceptable level of risk. A more detailed discussion of securities is provided under "Securities." NONINTEREST EXPENSE Total noninterest expense increased in 1998 by 12.6% to $80.5 million, compared to increases of 14.5% for 1997 and 15.7% for 1996. Noninterest expense in 1998 included $3.1 million of acquisition and restructuring costs. The increase in 1998, before these acquisition and restructuring costs was 8.15 %. Salaries and employee benefits have increased over the past three years due to acquisitions, higher salary levels, additional staff for new product lines and increased loan demand. Occupancy and fixed asset expense, depreciation, amortization and data processing services all increased due to acquisitions. Net income from other real estate owned of $111,000 was recognized for 1998, compared to net expense of $298,000 and $57,000 for 1997 and 1996. These amounts are reflective of the Company's efforts to reduce nonperforming assets, with gains on sales of properties being recognized in 1998. INCOME TAXES Income tax expense increased to $12.5 million in 1998, from $10.5 million for 1997 and $12.2 million for 1996. The primary reasons for the difference between the Company's effective tax rate and the federal statutory rate are nondeductible amortization and state tax expense. In 1997, the Company recognized a benefit of $193,000 for a state net operating loss carryforward. The Company also utilized substantial amounts of net operating loss carryforwards in 1993 and 1994. The remaining carryforwards are limited as to the amounts which may be utilized each year. Since banks have traditionally carried large amounts of tax-exempt securities and loans, certain financial information is prepared on a taxable equivalent basis to facilitate analysis of yields and changes in components of earnings. Average balance sheets, income statements and other financial statistics on a taxable equivalent basis have been presented for this purpose. IMPACT OF INFLATION The impact of inflation on financial institutions differs significantly from that of industrial or commercial companies. The assets of financial institutions are predominantly monetary, as opposed to fixed or nonmonetary assets such as premises, equipment and inventory. As a result, there is little exposure to inflated earnings by understated depreciation charges or significantly understated current values of assets. Although inflation can have an indirect effect by leading to higher interest rates, financial institutions are in a position to monitor the effects on interest costs and yields and respond to inflationary trends through management of interest rate sensitivity. Inflation can also have an impact on noninterest expenses such as salaries and employee benefits, occupancy, services and other costs. FINANCIAL POSITION CASH AND FEDERAL FUNDS SOLD Cash consists of cash and cash items on hand, deposits and other amounts due from other banks, and reserves deposited with the Federal Reserve Bank. Federal funds sold consists of overnight investments of excess funds with other financial institutions. The amount of cash and federal funds sold carried by the Company is a function of the availability of funds presented to other institutions for clearing, the Company's requirements for liquidity, operating cash and reserves, available yields, and interest rate sensitivity management. Balances of these items can fluctuate widely based on these various factors. Cash and federal funds sold increased $155 million compared to December 31, 1997, due largely to an inflow of temporary deposits at year-end 1998 and the Company's increased level of federal funds purchased from correspendent banks. In 1997, cash and federal funds sold decreased $13.8 million as compared to year-end 1996. Based on average balances, however, there were increases of $48.1 million and $21.3 million for 1998 and 1997, respectively. Consequently, comparisons of year-end balances of cash and federal funds sold are not necessarily reflective of the overall trend. A-7 SECURITIES During 1998, total securities increased $72.2 million, or 14.1%, compared to an increase of $33.2 million, or 6.96%, in 1997. The increase in 1998 was primarily due to acquisitions, while the increase in 1997 was in line with the internal growth of the Company. Securities available for sale represented 77.6% of the total securities portfolio at year-end 1998, compared to 69.8% at year-end 1997. These levels reflect the Company's strategy of maintaining a very liquid portfolio. Securities available for sale had a net unrealized gain of $8.25 million at year-end 1998, compared to $2.78 million the preceding year. These gains are included, net of tax, in the Company's stockholders' equity as $5.43 million and $1.79 million, respectively.
SECURITIES DECEMBER 31 1998 1997 1996 -------------- ------------- ------------- (Dollars in thousands) HELD FOR INVESTMENT U.S. Treasury and other federal $ 87,520 $106,396 $112,237 agencies States and political subdivisions 43,283 47,819 45,516 Other securities -- 53 75 -------------- ------------- ------------- Total $130,803 $154,268 $157,828 ============== ============= ============= Estimated market value $132,804 $156,210 $158,753 ============== ============= ============= AVAILABLE FOR SALE U.S. Treasury and other federal $438,935 $342,679 $309,194 agencies States and political subdivisons 2,499 3,361 1,284 Other Securities 10,412 10,118 8,885 -------------- ------------- ------------- Total $451,846 $356,158 $319,363 ============== ============= =============
The Maturity Distribution of Securities summarizes the maturity and weighted average taxable equivalent yields of the securities portfolio. The Company manages its securities portfolio for liquidity and as a tool to execute its asset/liability management strategy. Consequently, the average maturity of the portfolio is relatively short. Securities maturing within five years represents 91.3% of the total portfolio.
MATURITY DISTRIBUTION AFTER ONE YEAR AFTER FIVE YEARS OF SECURITIES BUT BUT WITHIN FIVE DECEMBER 31, 1998 WITHIN ONE YEAR YEARS WITHIN TEN YEARS AFTER TEN YEARS --------------------- --------------------- --------------------- ---------------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ---------- --------- ---------- --------- ---------- --------- ---------- --------- (Dollars in thousands) HELD FOR INVESTMENT U.S. Treasury and other federal agencies $ 25,100 6.44% $ 49,497 6.72% $ 8,730 6.45% $ 4,193 5.65% State and political subdivisions 9,055 7.32 19,729 7.52 9,996 7.84 4,503 7.27 Other securities -- -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- Total $ 34,155 6.67 $ 69,226 6.95 $18,726 7.19 $ 8,696 6.48 ========== ========== ========== ========== Percentage of total 26.11% 52.93% 14.32% 6.64% ========== ========== ========== ========== AVAILABLE FOR SALE U.S. Treasury and other federal agencies $ 97,273 6.36% $329,757 5.89% $ 9,032 6.78% $ 2,873 6.15% State and political subdivisions 1,287 7.31 237 7.57 288 7.45 687 7.34 Other securities -- -- -- -- -- -- 10,412 6.58 ---------- ---------- ---------- --------- Total $ 98,560 6.37 $329,994 5.89 $ 9,320 6.80 $13,972 6.52 ========== ========== ========== ========= Percentage of total 21.82% 73.03% 2.06% 3.09% ---------- ---------- ---------- ---------- Total securities $132,715 6.45% $399,220 6.07% $28,046 7.06% $22,668 6.51% ========== ========== ========== ========== Percentage of total 22.78% 68.52% 4.81% 3.89% ---------- ---------- ---------- ---------- TOTAL ---------------------------- AMOUNT YIELD ------------- --------- HELD FOR INVESTMENT U.S. Treasury and other federal agencies $ 87,520 6.56% State and political subdivisions 43,283 7.53 Other securities -- -- ------------- Total $130,803 6.88 ============= Percentage of total 100.00% ============= AVAILABLE FOR SALE U.S. Treasury and other federal agencies $438,935 6.01% State and political subdivisions 2,499 7.36 Other securities 10,412 6.58 ------------- Total $451,846 6.03 ============= Percentage of total 100.00% ============= Total securities $582,649 6.22% ============= Percentage of total 100.00% =============
A-8 LOANS The Company has generated significant loan growth over the past nine years from both acquisitions and internal originations. Total loans increased $89.2 million, or 7.14%, in 1998, and $124 million, or 11.1%, in 1997. Internal growth is being generated primarily in the Oklahoma City and Tulsa metropolitan markets, and by specialized lending activities such as guaranteed student loans, SBA guaranteed loans and residential mortgage loans. Composition The Company's loan portfolio is diversified among various types of commercial and individual borrowers. Commercial loans are comprised principally of loans to companies in light manufacturing, retail and service industries. Construction and development loans totaled only $75.9 million, or 5.67% of total loans as of the end of 1998. Real estate loans are relatively evenly divided between mortgages on personal residences and loans secured by commercial and other types of properties. Installment loans are comprised mostly of loans to individuals for the purchase of vehicles and student loans. Loans secured by real estate have always been a large proportion of the Company's loan portfolio. In 1998, this percentage was 55.2% compared to 53.3% for 1997. The Company is subject to risk of future market fluctuations in property values relating to these loans. The Company attempts to manage this risk through rigorous loan underwriting standards, training of loan officers and close monitoring of the values of individual properties.
LOANS BY CATEGORY DECEMBER 31, --------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------ ------------------ -------------------- ---------------- --------------------- % OF % OF % OF % OF % OF AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL ---------- ------- ----------- ------- ----------- ------- --------- -------- -------- ------- (Dollars in thousands) Commercial, financial and other $ 361,222 26.98% $ 342,779 27.43% $ 309,042 27.46% $255,655 26.99% $223,739 26.70% Real estate - construction 75,907 5.67 54,858 4.39 45,813 4.07 36,043 3.81 40,285 4.81 Real estate - mortgage 663,448 49.55 611,163 48.90 533,253 47.39 461,295 48.71 397,660 47.46 Consumer 238,302 17.80 240,905 19.28 237,170 21.08 194,097 20.49 176,211 21.03 ---------- ------ ----------- ------- ----------- ------- --------- ------ -------- ------- Total $1,338,879 100.00% $1,249,705 100.00% $1,125,278 100.00% $947,090 100.00% $837,895 100.00% ========== ====== =========== ======= =========== ======= ========= ====== ======== =======
The majority of the commercial real estate and other commercial loans have maturities of one year or less. However, many of these loans are renewed at existing or similar terms after scheduled principal reductions. Also, over half of the commercial real estate and other commercial loans had adjustable interest rates at year-end 1998. The short maturities and adjustable interest rates on these loans allow the Company to maintain the majority of its loan portfolio near market interest rates.
MATURITY AND RATE SENSITIVITY MATURING ------------------------------------------- OF LOANS AFTER ONE DECEMBER 31, 1998 WITHIN BUT WITHIN AFTER ONE YEAR FIVE YEARS FIVE YEARS TOTAL ------------ ------------- ------------ (Dollars in thousands) Commercial, financial and other $ 238,880 $ 110,601 $ 11,741 $ 361,222 Real estate - construction 51,160 18,097 6,650 75,907 Real estate - mortgage (excluding loans secured by 1 to 4 family residential properties) 238,435 93,138 61,026 392,599 ------------ ------------- ------------ ------------ Total $ 528,475 $ 221,836 $ 79,417 $ 829,728 ============ ============= ============ ============ Loans with predetermined interest rates $ 204,336 $ 96,870 $ 19,725 $ 320,931 Loans with adjustable interest rates 324,139 124,966 59,692 508,797 ------------ ------------- ------------ ------------ Total $ 528,475 $ 221,836 $ 79,417 $ 829,728 ============ ============= ============ ============ Percentage of total 63.69% 26.74% 9.57% 100.00% ============ ============= ============ ============
The information relating to the maturity and rate sensitivity of loans is based upon original loan terms and is not adjusted for "rollovers." In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, at interest rates prevailing at the date of renewal. A-9 Nonperforming and Restructured Loans Nonperforming and restructured loans increased from 1995 through 1996 primarily as a result of acquisitions but decreased in 1997. Nonperforming and restructured loans as a percentage of total loans was 0.93% at year-end 1998, compared to 0.68% at year-end 1997 and 0.98% at year-end 1996. From a historical perspective, nonperforming loans peaked in 1986 and have gradually decreased since that time. However, it is reasonable to expect that over the next several years the level of nonperforming loans and loan losses will rise to more historical norms as a result of economic and credit cycles. Nonaccrual loans negatively impact the Company's net interest margin. A loan is placed on nonaccrual status when, in the opinion of management, the future collectibility of interest and/or principal is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. Total interest income which was not accrued on nonaccrual loans outstanding at year end was approximately $344,000 in 1998 and $532,000 in 1997. Only a small amount of this interest was ultimately collected. The classification of a loan as nonperforming does not necessarily indicate that loan principal and interest will ultimately be uncollectible. The Company's experience is that a significant portion of both principal and interest is eventually recovered. However, the above normal risk associated with nonperforming loans is considered in the determination of the allowance for possible loan losses. At year-end 1998, the allowance for possible loan losses as a percentage of nonperforming and restructured loans was 158.69%, compared to 206.55% at the end of 1997 and 150.85% at the end of 1996.
NONPERFORMING AND RESTRUCTURED LOANS DECEMBER 31, ----------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ----------- ----------- ------------ ------------ (Dollars in thousands) Past due over 90 days and still accruing $ 2,792 $ 1,600 $ 2,943 $ 979 $ 687 Nonaccrual 8,308 6,416 7,319 6,148 4,983 Restructured 1,288 436 722 777 889 ----------- ----------- ----------- ------------ ------------ Total nonperforming and restructured loans 12,388 8,452 10,984 7,904 6,559 Other real estate owned and repossessed assets 1,639 1,766 1,977 1,883 3,471 ----------- ----------- ----------- ------------ ------------ Total nonperforming and restructured assets $14,027 $10,218 $12,961 $9,787 $10,030 =========== =========== =========== ============ ============ Nonperforming and restructured loans to total loans 0.93% 0.68% 0.98% 0.83% 0.78% =========== =========== =========== ============ ============ Nonperforming assets to total assets 0.60% 0.51% 0.70% 0.60% 0.70% =========== =========== =========== ============ ============
Other real estate owned and repossessed assets decreased in 1998 to $1.64 million from $1.77 million at year-end 1997. The slight increase in other real estate owned in 1996 was primarily due to acquisitions during the year. The Company places a substantial amount of emphasis on disposing of these assets. To encourage local management to sell the other real estate as quickly as possible and to ensure that it is carried at a conservative value, the Company's policy is to write other real estate down annually by the greater of 10% of its remaining carrying value, or the difference between its remaining carrying value and its estimated market value. Potential problem loans are performing loans to borrowers with a weakened financial condition, or which are experiencing unfavorable trends in their financial condition, which causes management to have concerns as to the ability of such borrowers to comply with the existing repayment terms. BancFirst had approximately $31 million of these loans, which are not included in nonperforming and restructured assets, at December 31, 1998. In general, these loans are well collateralized and have no identifiable loss potential. Loans which are considered to have identifiable loss potential are placed on nonaccrual status, are allocated a specific allowance for loss or are directly charged-down, and are reported as nonperforming. Allowance for Possible Loan Losses The allowance for possible loan losses reflects Management's assessment of the risk of loss inherent in the Company's loan portfolio. The allowance and its adequacy is determined through consideration of many factors, including evaluation of known problem loans, levels of adversely classified, past due and nonperforming loans, loan loss experience, and economic conditions. To facilitate Management's assessment, the Company's Asset Quality Department performs periodic loan reviews at each of the Company's locations. The process of determining the adequacy of the allowance for possible loan losses, however, necessarily involves the exercise of judgment and consideration of numerous subjective factors and, accordingly, there can be no assurance that the current level of the allowance will prove adequate in light of future developments and economic conditions. As loan quality changes with economic and credit cycles, it would be reasonable to expect the Company's net charge-offs and loan loss provisions to return to more historically normal levels. BancFirst's adversely classified loans (which includes nonperforming loans, certain restructured loans and potential problem loans described above) totaled approximately $37.4 million at the end of 1998, which was equal to 2.79% of total loans. A-10 The Company's net charge-offs have been very low in recent years. In 1998, the Company recognized $1.85million of net charge-offs, which was only 0.14% of average loans, compared to $2.31 million of net charge-offs, or 0.20% of average loans, for 1997.
ANALYSIS OF ALLOWANCE FOR YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------------------- POSSIBLE LOAN LOSSES 1998 1997 1996 1995 1994 ----------------- -------------- -------------- -------------- -------------- (Dollars in thousands) Balance at beginning of year $ 17,458 $ 16,569 $ 14,821 $ 13,627 $ 12,855 ----------------- -------------- -------------- -------------- -------------- Charge-offs: Commercial (1,805) (1,182) (743) (657) (770) Real estate (212) (238) (118) (170) (127) Consumer (989) (1,670) (968) (880) (898) Other (171) (80) (120) (78) (68) ----------------- -------------- -------------- -------------- -------------- Total charge-offs (3,177) (3,169) (1,949) (1,785) (1,863) ----------------- -------------- -------------- -------------- -------------- Recoveries: Commercial 811 320 114 436 925 Real estate 223 202 161 156 344 Consumer 258 315 247 231 239 Other 34 25 35 25 35 ----------------- -------------- -------------- -------------- -------------- Total recoveries 1,326 862 557 848 1,543 ----------------- -------------- -------------- -------------- -------------- Net (charge-offs) recoveries 1,851 (2,307) (1,392) (937) (320) Provisions charged to operations 2,211 2,888 2,181 1,617 651 Additions from acquisitions 1,841 308 959 514 441 ----------------- -------------- -------------- -------------- -------------- Balance at end of year $ 19,659 $ 17,458 $ 16,569 $ 14,821 $ 13,627 ================= ============== ============== ============== ============== Average loans $1,290,557 $1,181,421 $1,047,771 $894,412 $795,571 ================= ============== ============== ============== ============== Total loans $1,338,879 $1,249,705 $1,125,278 $947,090 $837,895 ================= ============== ============== ============== ============== Net charge-offs to average loans 0.14% 0.20% 0.13% 0.10% 0.04% ================= ============== ============== ============== ============== Allowance to total loans 1.47% 1.40% 1.47% 1.56% 1.63% ================= ============== ============== ============== ============== Allocation of the allowance by category of loans: Commercial, financial and other $ 5,277 $ 4,358 $ 4,506 $ 3,503 $ 3,290 Real estate - construction 1,400 1,085 972 889 1,027 Real estate - mortgage 9,406 7,883 7,090 6,326 5,496 Consumer 3,229 2,924 2,999 2,463 2,174 Unallocated 347 1,208 1,002 1,640 1,640 ----------------- -------------- -------------- -------------- -------------- Total $ 19,659 $ 17,458 $ 16,569 $ 14,821 $ 13,627 ================= ============== ============== ============== ============== Percent of loans in each category to total loans: Commercial, financial and other 26.98% 27.43% 27.46% 26.99% 26.70% Real estate - construction 5.67 4.39 4.07 3.81 4.81 Real estate - mortgage 49.55 48.90 47.39 48.71 47.46 Consumer 17.80 19.28 21.08 20.49 21.03 ----------------- -------------- -------------- -------------- -------------- Total 100.00% 100.00% 100.00% 100.00% 100.00% ================= ============== ============== ============== ==============
LIQUIDITY AND FUNDING The Company's principal source of liquidity and funding is its diverse deposit base generated from customer relationships. The availability of deposits is affected by economic conditions, competition with other financial institutions and alternative investments available to customers. Through interest rates paid, competitive service charges and other banking services offered, the Company can, to a limited extent, control its level of deposits. The level and maturity of deposits necessary to support the Company's lending and investment functions is determined through monitoring loan demand and through its asset/liability management process. The Company's core deposits provide it with a stable, low-cost funding source. Total deposits increased $264 million in 1998, and $107 million in 1997, primarily from acquisitions. Demand deposits as a percentage of total deposits has been increasing since 1994. Core deposits as a percentage of total deposits increased in 1998 to 90.39% from 89.14% in 1997. In 1996, interest- bearing transaction deposits decreased and savings deposits increased as a result of a new product introduced by the Company which sweeps excess funds in transaction accounts into a savings account. The effect of this change is even more apparent in the 1997 and 1998 average balances. A-11
ANALYSIS OF AVERAGE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- DEPOSITS 1998 1997 1996 1995 1994 ---------- ----------- ----------- ----------- ----------- AVERAGE BALANCES (Dollars in thousands) Demand deposits $ 396,802 $ 332,513 $ 306,311 $ 256,903 $ 241,070 Interest-bearing transaction deposits 104,006 156,478 233,312 311,884 320,352 Savings deposits 547,887 450,491 339,897 209,398 213,643 Time deposits under $100,000 646,003 562,415 517,264 452,173 407,538 ---------- ----------- ----------- ----------- ----------- Total core deposits 1,694,698 1,501,897 1,396,784 1,230,358 1,182,603 Time deposits of $100,000 or more 180,169 182,893 160,217 132,892 93,300 ---------- ----------- ----------- ----------- ----------- Total deposits $1,874,867 $1,684,790 $1,557,001 $1,363,250 $1,275,903 ========== =========== =========== =========== ===========
% OF % OF % OF % OF % OF PERCENTAGES OF TOTAL DEPOSITS TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE TOTAL RATE ------- ------ ------- ------ ------- ------ ------- ------- ------- ------ AND AVERAGE RATES PAID Demand deposits 21.16% 19.74% 19.67% 18.84% 18.89% Interest-bearing transaction deposits 5.55 2.47% 9.29 2.59% 14.98 2.70% 22.88 3.12% 25.11 2.78% Savings deposits 29.22 2.63 26.74 3.00 21.83 3.09 15.36 3.64 16.74 3.05 Time deposits under $100,000 34.46 5.49 33.37 5.39 33.23 5.33 33.17 5.34 31.95 3.94 ------- ------- ------- ------- ------- Total core deposits 90.39 89.14 89.71 90.25 92.69 Time deposits of $100,000 or more 9.61 5.84 10.86 5.41 10.29 5.41 9.75 5.54 7.31 4.02 ------- ------- ------- ------- ------- Total deposits 100.00% 100.00% 100.00% 100.00% 100.00% ======= ======= ======= ======= ======= Average rate paid on interest-bearing deposits 4.26% 4.26% 4.24% 4.42% 3.41% ===== ===== ===== ===== =====
The Company has not utilized brokered deposits. Approximately ___% of its time deposits of $100,000 or more at December 31, 1998 mature in one year or less. MATURITY OF CERTIFICATES OF DEPOSIT DECEMBER 31, $100,000 OR MORE 1998 -------------- (In thousands) Three months or less $ 99,461 Over three months through six months 45,881 Over six months through twelve months 54,994 Over twelve months 26,293 -------------- Total $ 226,629 ============== A-12 Short-term borrowings, consisting mainly of federal funds purchased and repurchase agreements, are another source of funds for the Company. The level of these borrowings is determined by various factors, including customer demand and the Company's ability to earn a favorable spread on the funds obtained. Short-term borrowings totaled $54.8 million in 1998, compared to $25.7 million in 1997. In 1998, the Company expanded its correspondent banking activities. The increase in short-term borrowings is due largely from federal funds purchased by correspondent banks. In 1995, the Bank became a member of the Federal Home Loan Bank of Topeka, Kansas (the "FHLB") and began borrowing from the FHLB at favorable interest rates. These borrowings are collateralized by a pledge of residential first mortgages. Long-term borrowings increased to $13 million in 1998 from $7.05 million in 1997. The Bank is highly liquid. This liquidity positions the Bank to respond to increased loan demand and other requirements for funds, or to decreases in funding sources. Cash flows from operations, investing activities and other funding sources have provided the funds for the increased loan activity. The liquidity of BancFirst Corporation is dependent upon dividend payments from the Bank and its ability to obtain financing. Banking regulations limit bank dividends based upon net earnings retained by the bank and minimum capital requirements. Dividends in excess of these limits require regulatory approval. During 1998, the Bank paid four common stock dividends totaling $10 million and two preferred stock dividends totaling $1.93 million. CAPITAL RESOURCES Stockholders' equity totaled $202 million at year-end 1998, compared to $181 million at year-end 1997 and $166 million at year-end 1996. The increases in stockholders' equity are primarily due to net earnings retained. The Company's average equity capital ratio at year-end 1998 was 9.09%, compared to 8.95% for 1997 and 8.89% for 1996. At December 31, 1998, the Company's leverage ratio was 8.54% and its total risk-based capital ratio was 15.57%, compared to minimum requirements of 3% and 8%, respectively. Banking institutions are generally expected to maintain capital well above the minimum levels. In January 1997, BancFirst Corporation established BFC Capital Trust I, a trust formed under the Delaware Business Trust Act. In February 1997, the Trust issued $25 million of aggregate liquidation amount of 9.65% Capital Securities, Series A. The proceeds from the sale of the Capital Securities were invested in 9.65% Junior Subordinated Deferrable Interest Debentures, Series A (the "Debentures") of BancFirst Corporation. The Series A Capital Securities and Debentures were subsequently exchanged for Series B Capital Securities and Debentures, pursuant to a Registration Rights Agreement. The terms of the Series A and Series B securities are identical in all material respects. Distributions on the Capital Securities are payable January 15 and July 15 of each year. Such distributions may be deferred for up to ten consecutive semi-annual periods. The stated maturity date of the Capital Securities is January 15, 2027, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Capital Securities represent an undivided interest in the Debentures, are guaranteed by BancFirst Corporation, and are presented as long-term debt in the Company's consolidated financial statements, but qualify as Tier 1 regulatory capital. During any deferral period or during any event of default, BancFirst Corporation may not declare or pay any dividends on any of its capital stock. Future dividend payments will be determined by the Company's Board of Directors in light of the earnings and financial condition of the Company and the Bank, their capital needs, applicable governmental policies and regulations and such other factors as the Board of Directors deems appropriate. While no assurance can be given as to the Company's ability to pay dividends, Management believes that, based upon the anticipated performance of the Company, regular dividend payments will continue in 1999. A-13 MARKET RISK Market risk is defined as the risk of loss related to financial instruments from changes in interest rates, foreign currency exchange rates and commodity prices. The Company's market risk arises principally from its lending, investing, deposit and borrowing activities. The Company is not exposed to market risk from foreign exchange rates and commodity prices. Management monitors and controls interest rate risk through sensitivity analysis and its strategy of creating manageable negative interest sensitivity gaps, as described under "Net Interest Income" above. The Company does not use derivitive financial instruments to manage its interest rate risk exposure. The table below presents the Company's financial instruments that are sensitive to changes in interest rates, their expected maturities and their estimated fair values at December 31, 1998.
MARKET RISK AVG. EXPECTED MATURITY / PRINCIPAL REPAYMENTS AT DECEMBER 31, FAIR ------------------------------------------------------- DECEMBER 31, 1998 RATE 1999 2000 2001 2002 2003 THEREAFTER BALANCE VALUE ---- ---- ---- ---- ---- ---- ---------- ------- ----- INTEREST SENSITIVE ASSETS Loans, net 9.17% $537,127 $199,230 $143,397 $118,590 $95,796 $244,739 $1,338,879 $1,346,783 Federal funds sold 4.68 187,369 -- -- -- -- -- 187,369 187,369 Securities 6.13 132,715 118,169 123,878 112,740 44,433 50,714 582,649 584,650 INTEREST SENSITIVE LIABILITIES Savings and transaction deposits 2.75 699,280 -- -- -- -- -- 699,280 699,280 Time deposits 5.08 734,054 95,454 17,160 9,616 5,767 78 862,129 863,810 Short-term borrowings 4.35 54,841 -- -- -- -- -- 54,841 54,841 Long-term borrowings 5.76 1,290 1,290 1,290 1,290 4,927 2,879 12,966 13,062 9.65% Capital Securities 9.76 -- -- -- -- -- 25,000 25,000 25,993 OFF BALANCE SHEET ITEMS Loan commitments -- -- -- -- -- -- -- 2,040 Letter of credit -- -- -- -- -- -- -- 113
The expected maturities and principle repayments are based upon the contractual terms of the instruments. Prepayments have been estimated for certain instruments with predictable prepayment rates. Savings and transaction deposits are assumed to mature all in the first year as they are not subject to withdrawal restrictions and any assumptions regarding decay rates would be very subjective. The actual maturities and principle repayments for the financial instruments could vary substantially from the contractual terms and assumptions used in the analysis. YEAR 2000 EXPOSURE Many computer systems and devices using embedded computer chips currently in operation worldwide use only two digits to specify the year. There is a significant risk that these systems and devices could produce inaccurate results, or may not function properly, beginning January 1, 2000 when two-digit year numbers could be processed as being in the previous century. The Company is exposed to the risk that not only the systems and devices it uses will malfunction, but also those of its customers, suppliers and other parties with whom it conducts business. Such malfunctions could expose the Company to losses from operational errors and failures, as well as customer claims, lawsuits and regulatory penalties for noncompliance. While the extent of these possible losses can not be estimated, such losses could have a material adverse effect on the Company's results of operations, liquidity and financial condition. During 1997, the Company commenced a Year 2000 Project to conduct a comprehensive review of its outside data processing services, internal computer systems and other mechanical and computerized equipment. The purpose of the project is to determine and plan for necessary changes to assure that its systems and equipment will function properly in the year 2000. The project also includes communications with other parties to determine the extent to which the parties are addressing the issue and the exposure to the Company in the event the parties fail to adequately plan for and resolve the issue. The plan developed by the Company consists of the following five phases: 1. Awareness 2. Assessment 3. Renovation 4. Validation 5. Implementation A-14 All five phases of the plan have been completed. Testing of mission critical applications was completed in March 1999. An evaluation of Year 2000 credit risk has been completed. Contingency plans have been prepared for each mission critical application. The total cost of addressing the Year 2000 issue is not estimated to be material. The Company's core business applications are provided by a data processing company that is devoting substantial resources to assure that the applications are certified as Year 2000 compliant by the end of 1998. Certain of the other systems either have been replaced, or were already going to be replaced with newer technology, and their replacement is not being accelerated due the Year 2000 issue. Also, no significant information technology projects are being deferred because of the Year 2000 issue. FUTURE APPLICATION OF ACCOUNTING STANDARDS See Note (1) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting announcements. SEGMENT INFORMATION See Note (21) of the Notes to Consolidated Financial Statements for disclosures regarding the Company's operating business segments. FORWARD LOOKING STATEMENTS The Company may make forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to earnings, credit quality, year 2000 compliance, corporate objectives, interest rates and other financial and business matters. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions, the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Actual results may differ materially from forward-looking statements. A-15 REPORTS OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of BancFirst Corporation: In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of BancFirst Corporation and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of AmQuest Financial Corporation which statements reflect total assets of $577,074,000 at December 31, 1997 and total revenues of $46,350,000 and $42,291,000 for the years ended December 31, 1997 and 1996, respectively. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion express herein, insofar as it relates to the amounts included for AmQuest Financial Corporation, is based solely on the report of the other auditors. We conducted our audits of the consolidated financial statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Oklahoma City, Oklahoma April 2, 1999 To the Board of Directors and Stockholders of BancFirst Corporation: We have audited the consolidated statement of financial condition of AmQuest Financial Corp. (an Oklahoma corporation) and subsidiaries as of December 31, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1997, prior to the restatement (and therefore, not presented herein) for the pooling- of-interests business combination as discussed in Note 2. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statement referred to above present fairly, in all material respects, the financial position of AmQuest Financial Corp. and subsidiaries as of December 31, 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma, January 23, 1998 (except with respect to the matter discussed in Note 15, as to which the date is March 2, 1998) A-16 BANCFIRST CORPORATION CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
DECEMBER 31, ---------------------------------- 1998 1997 --------------- --------------- ASSETS Cash and due from banks $ 132,286 $ 104,397 Interest-bearing deposits with banks 11 168 Securities (market value: $584,650 and $512,368, respectively) 582,649 510,426 Federal funds sold 187,369 60,377 Loans: Total loans (net of unearned interest) 1,338,879 1,249,705 Allowance for possible loan losses (19,659) (17,458) --------------- --------------- Loans, net 1,319,220 1,232,247 Premises and equipment, net 47,558 45,839 Other real estate owned 1,057 1,593 Intangible assets, net 24,095 19,052 Accrued interest receivable 19,589 16,374 Other assets 22,049 25,990 --------------- --------------- Total assets $2,335,883 $2,016,463 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 463,391 $ 370,042 Interest-bearing 1,561,409 1,391,168 --------------- --------------- Total deposits 2,024,800 1,761,210 Short-term borrowings 54,841 25,731 Long-term borrowings 12,966 7,051 9.65% Capital Securities 25,000 25,000 Accrued interest payable 8,315 8,401 Other liabilities 8,044 7,825 --------------- --------------- Total liabilities 2,133,966 1,835,218 --------------- --------------- Commitments and contingent liabilities Stockholders' equity: Common stock, $1.00 par (shares issued: 9,291,929 and 9,614,004, respectively) 9,292 9,614 Capital surplus 45,148 44,104 Retained earnings 142,046 131,146 Accumulated other comprehensive income 5,431 1,788 Treasury stock, at cost (377,129 shares in 1997) -- (5,407) --------------- --------------- Total stockholders' equity 201,917 181,245 --------------- --------------- Total liabilities and stockholders' equity $2,335,883 $2,016,463 =============== ===============
See accompanying notes to consolidated financial statements. A-17 BANCFIRST CORPORATION CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1998 1997 1996 ---------------- ---------------- -------------- INTEREST INCOME Loans, including fees $121,319 $111,553 $100,314 Interest-bearing deposits with banks 7 6 1 Securities: Taxable 32,698 28,730 27,099 Tax-exempt 2,190 2,314 2,385 Federal funds sold 4,828 3,358 2,432 ---------------- ---------------- -------------- Total interest income 161,042 145,961 132,231 ---------------- ---------------- -------------- INTEREST EXPENSE Deposits 62,946 57,784 53,055 Short-term borrowings 2,161 1,094 1,051 Long-term borrowings 734 648 160 9.65% Capital Securities 2,449 2,214 -- ---------------- ---------------- -------------- Total interest expense 68,290 61,740 54,266 ---------------- ---------------- -------------- Net interest income 92,752 84,221 77,965 Provision for possible loan losses 2,211 2,888 2,181 ---------------- ---------------- -------------- Net interest income after provision 90,541 81,333 75,784 for possible loan losses ---------------- ---------------- -------------- NONINTEREST INCOME Service charges on deposits 14,634 13,155 11,710 Securities transactions 12 2 219 Other 9,373 8,351 8,072 ---------------- ---------------- -------------- Total noninterest income 24,019 21,508 20,001 ---------------- ---------------- -------------- NONINTEREST EXPENSE Salaries and employee benefits 44,360 39,377 35,378 Occupancy and fixed assets expense, net 5,131 4,541 4,146 Depreciation 4,772 4,185 3,357 Amortization 3,313 2,852 2,433 Data processing services 2,176 2,178 2,029 Net income expense from other real estate owned (111) 298 57 Restructuring charges 1,912 -- -- Other 18,929 18,024 14,986 ---------------- ---------------- -------------- Total noninterest expense 80,482 71,455 62,386 ---------------- ---------------- -------------- Income before taxes 34,078 31,386 33,399 Income tax expense (12,528) (10,481) (12,249) ---------------- ---------------- -------------- Net income 21,550 20,905 21,150 Other comprehensive income, net of tax: Unrealized gains (losses) on securities 3,643 982 (1,249) ---------------- ---------------- -------------- Comprehensive income $ 25,193 $ 21,887 $ 19,901 ================ ================ ============== NET INCOME PER COMMON SHARE Basic $ 2.32 $ 2.26 $ 2.29 ================ ================ ============== Diluted $ 2.27 $ 2.21 $ 2.22 ================ ================ ==============
See accompanying notes to consolidated financial statements. A-18 BANCFIRST CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1998 1997 1996 -------------------------- ----------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------------- ------------ ------------ --------- ---------- --------- COMMON STOCK Issued at beginning of year 9,614,004 $ 9,614 9,668,913 $ 9,669 9,494,030 $ 9,494 Shares issued 53,416 53 60,600 61 174,883 175 Shares acquired and canceled (375,491) (375) (115,509) (116) -- -- ------------- ------------ ------------ --------- ---------- ---------- Issued at end of year 9,291,929 $ 9,292 9,614,004 $ 9,614 9,668,913 $ 9,669 ============= ============ ============ ========= ========== ========== CAPITAL SURPLUS Balance at beginning of year $ 44,104 $ 44,275 $ 42,759 Common stock issued 1,090 991 1,449 Treasury stock sold 319 39 67 Common stock canceled (365) (1,201) -- ------------ ---------- ---------- Balance at end of year $ 45,148 $ 44,104 $ 44,275 ============ ========== ========== RETAINED EARNINGS Balance at beginning of year $131,146 $116,200 $ 97,711 Net income 21,550 20,905 21,150 Dividends on common stock ($0.50, $0.42, and $0.34 (4,200) (3,168) (2,661) per share, respectively) Common stock canceled (6,450) (2,791) -- ------------ ---------- ---------- Balance at end of year $142,046 $131,146 $116,200 ============ ========== ========== ACCUMULATED OTHER COMPREHENSIVE INCOME Unrealized gains (losses) on securities: Balance at beginning of year $ 1,788 $ 806 $ 2,055 Net change 3,643 982 (1,249) ------------ ---------- ---------- Balance at end of year $ 5,431 $ 1,788 $ 806 ============ ========== ========== TREASURY STOCK Balance at beginning of year 377,129 $ (5,407) 379,346 $ (5,371) 142,832 $ (1,247) Common stock acquired -- -- 3,431 (67) 254,782 (4,439) Common stock sold (46,061) 253 (5,648) 31 (18,268) 315 Common stock canceled (331,068) 5,154 -- -- -- -- ------------- ------------ ------------ --------- ---------- ---------- Balance at end of year -- -- 377,129 $ (5,407) 379,346 $ (5,371) ------------- ------------ ------------ --------- ---------- ---------- Total stockholders' equity $201,917 $181,245 $165,579 ============ ========= ==========
See accompanying notes to consolidated financial statements. A-19 BANCFIRST CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
DECEMBER 31, ------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 1996 --------- --------- --------- Net income $ 21,550 $ 20,905 $ 21,150 Adjustments to reconcile to net cash provided by operating activities: Provision for possible losses 2,211 2,888 2,181 Depreciation and amortization 8,085 7,037 5,790 Net amortization of securities premiums and discounts (714) (735) (93) Unrealized losses on fixed assets 1,402 -- -- Unrealized losses on other real estate owned 120 73 179 Increase in interest receivable (1,687) (507) (14) Increase (decrease) in interest payable (2,427) 1,782 286 Increase in deferred tax asset (856) (923) (761) Other, net (1,675) 2,936 (10,531) --------- --------- --------- Net cash provided by operating activities 26,009 33,456 18,187 --------- --------- --------- INVESTING ACTIVITIES Net cash and due from banks provided by (used for) acquisitions and divestitures 39,642 (15,237) 6,335 Purchases of securities: Held for investment (24,145) (42,686) (41,238) Available for sale (173,296) (109,303) (69,206) Maturities of securities: Held for investment 49,660 45,732 50,505 Available for sale 99,043 86,856 72,831 Proceeds from sales of securities: Held for investment 1,986 644 2,476 Available for sale 9,180 173 20,402 Net (increase) decrease in federal funds sold (123,466) 13,384 (16,435) Purchases of loans (8,967) (4,775) (14,973) Proceeds from sales of loans 156,946 119,484 107,461 Net other increase in loans (165,825) (206,180) (189,603) Purchases of premises and equipment (9,106) (5,578) (6,654) Proceeds from the sale of other real estate owned and repossessed 2,913 3,749 3,300 assets Other, net 2,671 1,148 (978) --------- --------- --------- Net cash used for investing activities (142,764) (112,589) (75,777) --------- --------- --------- FINANCING ACTIVITIES Net increase in demand, transaction and savings deposits 91,515 5,624 35,234 Net increase in certificates of deposits 22,891 53,398 24,498 Net increase (decrease) in short-term borrowings 32,110 2,060 (8,314) Net increase in long-term borrowings 2,915 415 9,818 Issuance of 9.65% Capital Securities -- 23,972 -- Issuance of common stock 1,105 482 507 Acquisition of common stock (2,036) (4,175) (4,439) Cash dividends paid (4,013) (3,045) (2,518) --------- --------- --------- Net cash provided by financing activities 144,487 78,731 54,786 --------- --------- --------- Net increase (decrease) in cash and due from banks 27,732 (402) (2,804) Cash and due from banks at the beginning of the year 104,565 104,967 107,771 --------- --------- --------- Cash and due from banks at the end of the year $ 132,297 $ 104,565 $ 104,967 ========= ========= ========= SUPPLEMENTAL DISCLOSURE Cash paid during the year for interest $ 64,010 $ 61,754 $ 53,567 ========= ========= ========= Cash paid during the year for income taxes $ 13,552 $ 11,765 $ 12,606 ========= ========= ========= See accompanying notes to consolidated financial statements.
A-20 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of BancFirst Corporation and its subsidiaries (the "Company") conform to generally accepted accounting principles and general practice within the banking industry. A summary of the significant accounting policies follows. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of BancFirst Corporation, BancFirst and its subsidiaries BancFirst Investment Corporation, Lenders Collection Corporation and Express Financial Corporation, and Kingfisher Bank & Trust Co. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the consolidated financial statements. Certain amounts for 1997 and 1996 have been reclassified to conform with the 1998 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles inherently involves the use of estimates and assumptions, which affect the amounts reported in the financial statements and the related disclosures. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported. SECURITIES The Company does not engage in securities trading activities. Any sales of securities are for the purpose of executing the Company's asset/liability management strategy, eliminating a perceived credit risk in a specific security, or providing liquidity. Securities that are being held for indefinite periods of time, or that may be sold as part of the Company's asset/liability management strategy, to provide liquidity or for other reasons, are classified as available for sale and are stated at estimated market value. Unrealized gains or losses on securities available for sale are reported as a component of stockholders' equity, net of income tax. Securities for which the Company has the intent and ability to hold to maturity are classified as held for investment and are stated at cost, adjusted for amortization of premiums and accretion of discounts computed under the interest method, unless such investments are considered permanently impaired, in which case they are adjusted to the lower of cost or market. Gains or losses from sales of securities are based upon the book value of the specific securities sold. LOANS Loans are stated at the principal amount outstanding. Interest income on certain installment loans is recorded by use of a method that produces a reasonable approximation of a constant yield on the outstanding principal. Interest on all other performing loans is recognized based upon the principal amount outstanding. A loan is placed on nonaccrual status when, in the opinion of management, the future collectibility of interest and/or principal is in serious doubt. Interest income is recognized on certain of these loans on a cash basis if the full collection of the remaining principal balance is reasonably expected. Otherwise, interest income is not recognized until the principal balance is fully collected. A-21 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is increased by annual provisions charged to operating expense and is reduced by net loan charge-offs. The provision for loan losses charged to operating expense is based on past loan loss experience and other factors which, in Management's judgement, deserve current recognition in estimating possible loan losses. Such other factors considered by Management include evaluations of known problem loans, levels of adversely classified and nonperforming loans, and general economic conditions. A loan is considered impaired when it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company's impaired loans are collateral dependent. Accordingly, the amount of impairment is measured based upon the fair value of the underlying collateral and is included in the allowance for possible loan losses. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is charged to operating expense and is computed using the straight- line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred while improvements are capitalized. When assets are sold or otherwise retired, the cost and applicable accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in operations. OTHER REAL ESTATE OWNED Other real estate owned is comprised of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These properties are carried at the lower of the book value of the related loan or fair market value based upon appraisals. Losses arising at the time of classification of such properties as other real estate owned are charged directly to the allowance for possible loan losses. Losses from declines in value of the properties subsequent to classification as other real estate owned are charged directly to operating expense. INTANGIBLE ASSETS Core deposit intangibles are amortized on a straight-line basis over the estimated useful lives of the core deposits. The excess of cost over the fair value of assets acquired (goodwill) is amortized on a straight-line basis over fifteen to forty years, depending upon when the goodwill originated. Organization cost and trademarks are amortized on a straight-line basis over five years and fifteen years, respectively. INCOME TAXES The Company files a consolidated income tax return. Deferred taxes are recognized under the asset and liability approach based upon the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized. A-22 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) EARNINGS PER COMMON SHARE Basic earnings per common share is computed by dividing net income, less any preferred dividends requirement, by the weighted average of common shares outstanding, as restated for shares issued in business combinations accounted for as poolings of interests, if any. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. STATEMENT OF CASH FLOWS For purposes of the statement of cash flows, the Company considers cash and due from banks, and interest-bearing deposits with banks as cash equivalents. Acquisitions accounted for as purchases or as book value purchases are presented net of any stock issued, assets acquired and liabilities assumed. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those financial instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and its resulting designation. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements. In October 1998, the FASB issued Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This Statement amends Statement of Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking Activities" to require that after the securitization of Mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. The Statement is effective for the first fiscal quarter beginning after December 15, 1998. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements. A-23 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (2) FORMATION OF BANCFIRST CORPORATION; MERGERS, ACQUISITIONS AND DISPOSALS BancFirst Corporation was incorporated in Oklahoma in July 1984. In June 1985, it merged with seven Oklahoma bank holding companies and has conducted business as a bank holding company since that time. Additional mergers and acquisitions have been completed and, as a result, BancFirst Corporation is the surviving corporation along with the aforementioned subsidiaries, while the holding companies, banks and other companies that were merged or acquired ceased to exist as separate companies. In March 1996, BancFirst acquired City Bankshares, Inc. ("City Bankshares") which had $136,251 in total assets. The acquisition was for cash of $19,125, with City Bankshares and its subsidiary bank, City Bank & Trust, being merged into BancFirst. C-Teq, Inc., an 85% owned data processing subsidiary of City Bankshares, was spun off to the shareholders of City Bankshares prior to the acquisition. BancFirst also paid the CEO of City Bankshares $1,250 for an agreement not to compete with BancFirst for a period of four years. The acquisition was accounted for as a purchase. Accordingly, the effects of the acquisition are included in the Company's consolidated financial statements from the date of the acquisition forward. A core deposit intangible of $830 and goodwill of $7,419 were recorded in the acquisition. The acquisition did not have a material effect on the results of operations of the Company for 1996. In October 1996, the Company acquired all of the assets and assumed all of the liabilities of Commerce Bancorp which had $17,786 in assets. Commerce Bancorp was controlled by certain executive officers of the Company. The acquisition was effected through the exchange of 156,508 shares of BancFirst Corporation common stock for all of the Commerce Bancorp common stock outstanding. The minority shares of Commerce Bancorp's subsidiary bank were purchased for $102. The merger was accounted for as a book value purchase, which is similar to the pooling of interests method, although the effects of the merger are included in the Company's consolidated financial statements from the date of the acquisition forward. The acquisition did not have a material effect on the results of operations of the Company for 1996. In December 1996, the Company acquired 26.75% of the common stock outstanding of Peoples State Bank of Tulsa, Oklahoma for cash of $770. Peoples State Bank has approximately $51,000 in total assets. This investment is accounted for under the equity method of accounting and did not have a material effect on the results of operations of the Company for 1996. In March 1997, the Company acquired 22.8% of the common stock outstanding of First Ada Bancshares, Inc. for cash of $4,954. First Ada Bancshares, Inc. has approximately $170,000 in total assets. This investment is accounted for under the equity method of accounting and did not have a material effect on the results of operations of the Company for 1997. In March 1998, BancFirst completed the purchase of 13 branches from NationsBank, N.A. and concurrently sold three of the branches to another Oklahoma financial institution. The purchase and sale resulted in BancFirst purchasing loans and other assets of approximately $32,800, assuming deposits of approximately $132,100 and paying a premium on deposits of approximately $9,100. The transaction was accounted for as a purchase. Accordingly, the effects of the purchase are included in the Company's consolidated financial statements from the date of the purchase forward. BancFirst subsequently sold an additional four of the branches during 1998. These branches had loans and other assets of approximately $2,500, and deposits of approximately $54,000. These transactions did not have a material effect on the results of operations of the Company for 1998. In May 1998, the Company completed a merger with Lawton Security Bancshares, Inc. ("Lawton Security Bancshares"), which had approximately $92,000 in total assets. The merger was effected through the exchange of 414,790 shares of BancFirst Corporation common stock for all of the Lawton Security Bancshares common stock outstanding, and was accounted for as a pooling of interests. Accordingly, the consolidated accounts of Lawton Security Bancshares have been combined with the accounts of the Company and are included in the Company's consolidated financial statements for all periods presented. A-24 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) In October 1998, the Company completed a merger with AmQuest Financial Corp. ("AmQuest") of Duncan, Oklahoma, which had approximately $526,000 in total assets. The merger was effected through the exchange of 2,522,594 shares of BancFirst Corporation common stock for all of the AmQuest common stock outstanding, and was accounted for as a pooling of interests. Accordingly, the consolidated accounts of AmQuest have been combined with the accounts of the Company and are included in the Company's consolidated financial statements for all periods presented. The Company recorded estimated restructuring charges of $1,912 upon consummation of the merger in October 1998. These charges consist of termination benefits of $345 for 37 employees terminated and $1,567 for loss on facilities and other assets to be sold or abandoned. Other merger and conversion related expenses estimated at $1,200 were incurred. Additionally, the Company restated AmQuest's allowance for possible loan losses to conform to its own methodology; accordingly, the allowance for possible loan losses was increased by $1,400, which was applied retroactively to prior periods. Prior to the merger with BancFirst Corporation, AmQuest had made acquisitions of its own. In March 1996, AmQuest purchased certain assets and assumed certain liabilities of the Anadarko, Oklahoma branch of First Southwest Bank. The net purchase price of $398 resulted in total intangible assets of $81. In April 1997, AmQuest acquired American National Bank of Lawton, which had total assets of approximately $61,000, for cash of $12,073. This resulted in total intangible assets of $4,083. Both of these transactions were accounted as purchases. Accordingly, the effects of the acquisitions are included in the Company's consolidated financial statements from the dates of the acquisitions forward. The acquisitions did not have a material effect on the results of operations of the Company. In December 1998, the Company completed the acquisition of Kingfisher Bancorp, Inc. which had total assets of approximately $91,000. The acquisition was for cash of $12,000 and was accounted for as a purchase. Accordingly, the effects of the acquisition are included in the Company's consolidated financial statements from the date of the acquisition forward. A core deposit intangible of $286 and goodwill of $1,871 were recorded in the acquisition. The acquisition did not have a material effect on the results of operations of the Company for 1998. In February 1999, the Company sold the previously mentioned Anadarko, Oklahoma branch, which had deposits of approximately $15,500. The sale resulted in a pretax gain of approximately $900. (3) DUE FROM BANKS AND FEDERAL FUNDS SOLD The Company maintains accounts with various other financial institutions and the Federal Reserve Bank, primarily for the purpose of clearing cash items. Also, it sells federal funds to certain of these institutions on an overnight basis. As a result, the Company had concentrations of credit risk in four institutions totaling $142,220 at December 31, 1998 and in two institutions totaling $39,063 at December 31, 1997. These institutions are selected based on the strength of their financial condition and their creditworthiness. No collateral is required on such balances. The Company is required, as a matter of law, to maintain a reserve balance in the form of vault cash or on deposit with the Federal Reserve Bank. The average amount of reserves maintained for each of the years ended December 31, 1998 and 1997 was approximately $29,151 and $29,200, respectively. (4) SECURITIES The table below summarizes securities held for investment and securities available for sale:
DECEMBER 31, ------------------------- 1998 1997 ----------- ----------- Held for investment at cost (market value; $132,804 and $156,210, respectively) $130,803 $154,268 Available for sale, at market value 451,846 356,158 ----------- ----------- Total $582,649 $510,426 =========== ===========
A-25 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) The table below summarizes the amortized cost and estimated market values of securities held for investment:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE -------------- ----------------- ----------------- -------------- DECEMBER 31, 1998 U.S. Treasury $ 24,513 $ 74 $ (28) $ 24,559 Other federal agencies 5,042 48 -- 5,090 Mortgage backed securities 57,965 908 (207) 58,666 States and political subdivisions 43,283 1,227 (21) 44,489 Other securities -- -- -- -- -------------- ----------------- ----------------- -------------- Total $ 130,803 $ 2,257 $ (256) $ 132,804 ============== ================= ================= ============== DECEMBER 31, 1997 U.S. Treasury $ 42,239 $ 265 $ (16) $ 42,488 Other federal agencies 15,865 116 (24) 15,957 Mortgage backed securities 48,292 761 (107) 48,946 States and political subdivisions 47,819 992 (43) 48,768 Other securities 53 -- (2) 51 -------------- ----------------- ----------------- -------------- Total $ 154,268 $ 2,134 $ (192) $ 156,210 ============== ================= ================= ==============
The table below summarizes the amortized cost and estimated market values of securities available for sale:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------- --------------- ------------------ ------------- DECEMBER 31, 1998 U.S. Treasury $ 267,040 $ 6,549 $ (7) $ 273,582 Other federal agencies 121,936 1,777 (359) 123,354 Mortgage backed securities 41,734 398 (133) 41,999 States and political subdivisions 2,471 32 (4) 2,499 Other securities 10,412 -- -- 10,412 ------------- --------------- ------------------ ------------- Total $ 443,593 $ 8,756 $ (503) $ 451,846 ============= =============== ================== ============= DECEMBER 31, 1997 U.S. Treasury $ 224,193 $ 2,398 $ (84) $ 226,507 Other federal agencies 43,138 367 (333) 43,172 Mortgage backed securities 72,591 627 (218) 73,000 States and political subdivisions 3,336 26 (1) 3,361 Other securities 10,118 -- -- 10,118 ------------- --------------- ------------------ ------------- Total $ 353,376 $ 3,418 $ (636) $ 356,158 ============= =============== ================== =============
A-26 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) The maturities of securities held for investment and available for sale are summarized below. Actual maturities may differ from contractual maturities due to obligations that are called or prepaid.
DECEMBER 31, ----------------------------------------------------------------- 1998 1997 ------------------------------- ------------------------------- ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE -------------- -------------- -------------- -------------- HELD FOR INVESTMENT Contractual maturity of debt securities: Within one year $ 34,155 $ 34,315 $ 35,970 $ 36,040 After one year but within five years 69,226 70,121 62,033 62,892 After five years but within ten years 18,726 19,426 13,668 13,940 After ten years 8,696 8,942 42,597 43,338 -------------- -------------- -------------- -------------- Total $ 130,803 $ 132,804 $ 154,268 $ 156,210 ============== ============== ============== ============== AVAILABLE FOR SALE Contractual maturity of debt securities: Within one year $ 97,990 $ 98,560 $ 60,574 $ 60,711 After one year but within five years 322,347 329,994 233,811 236,308 After five years but within ten years 9,247 9,320 10,899 10,970 After ten years 3,597 3,560 39,974 40,051 -------------- -------------- -------------- -------------- Total debt securities 433,181 441,434 345,258 348,040 Equity securities 10,412 10,412 8,118 8,118 -------------- -------------- -------------- -------------- Total $ 443,593 $ 451,846 $ 353,376 $ 356,158 ============== ============== ============== ==============
Sales of securities are summarized below:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ----------- ------------- ----------- Proceeds $11,166 $ 817 $22,878 Gross gains realized 12 2 233 Gross losses realized -- -- 14
Securities having book values of $359,000, $279,513 and $289,602 at December 31, 1998, 1997 and 1996, respectively, were pledged as collateral for public funds on deposit, repurchase agreements and for other purposes as required or permitted by law. A-27 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (5) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES The following is a schedule of loans outstanding by category:
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------- ------------------------ AMOUNT PERCENT AMOUNT PERCENT ----------- ---------- ---------- --------- Commercial and industrial $ 274,497 20.50% $ 262,463 21.00% Agriculture 62,655 4.68 46,887 3.75 State and political subdivisions: Taxable 822 0.06 1,402 0.11 Tax-exempt 6,370 0.48 8,314 0.67 Real Estate: Construction 75,907 5.67 54,858 4.39 Farmland 39,500 2.95 35,255 2.82 One to four family residences 318,882 23.82 292,573 23.41 Multifamily residential properties 19,412 1.45 20,292 1.62 Commercial 285,654 21.33 263,043 21.05 Consumer 238,302 17.80 240,905 19.28 Other 16,878 1.26 23,713 1.90 ----------- ---------- ---------- --------- Total loans $1,338,879 100.00% $1,249,705 100.00% =========== ========== ========== =========
The Company's loans are mostly to customers within Oklahoma and over half of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained to secure loans are based upon the Company's underwriting standards and management's credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company's interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral. The amount of estimated loss due to credit risk in the Company's loan portfolio is provided for in the allowance for possible loan losses. The amount of the allowance required to provide for all existing losses in the loan portfolio is an estimate based upon evaluations of loans, appraisals of collateral and other estimates which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated allowance for possible loan losses in the near term. A-28 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) Changes in the allowance for possible loan losses are summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Balance at beginning of year $17,458 $16,569 $14,821 ----------- ----------- ----------- Charge-offs (3,177) (3,169) (1,948) Recoveries 1,326 862 556 ----------- ----------- ----------- Net (charge-offs) recoveries (1,851) (2,307) (1,392) ----------- ----------- ----------- Provisions charged to operations 2,211 2,888 2,181 Additions from acquisitions 1,841 308 959 ----------- ----------- ----------- Total additions 4,052 3,196 3,140 ----------- ----------- ----------- Balance at end of year $19,659 $17,458 $16,569 =========== =========== ===========
BancFirst has made loans in the ordinary course of business to the executive officers and directors of the Company and to certain affiliates of these executive officers and directors. Management believes that all such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons and do not represent more than a normal risk of collectibility or present other unfavorable features. A summary of these loans is as follows:
BALANCE BALANCE YEAR ENDED BEGINNING OF COLLECTIONS/ END OF DECEMBER 31, YEAR ADDITIONS TERMINATIONS YEAR ---------------- ------------- ----------- ------------ --------- 1996 $ 9,551 $ 8,688 $ (6,227) $12,012 1997 $12,012 $14,864 $ (6,969) $19,907 1998 $19,907 $ 3,303 $(13,491) $ 9,719
Below is a summary of impaired loans and the amounts included in the allowance for possible loan losses for impaired loans.
YEAR ENDED DECEMBER 31, --------------------- 1998 1997 --------- --------- Allowance for possible loss on impaired loans $1,944 $2,329 Recorded balance of impaired loans 8,978 8,210
A-29 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (6) PREMISES AND EQUIPMENT The following is a summary of premises and equipment by classification:
DECEMBER 31, ---------------------- 1998 1997 -------- --------- Land $ 10,882 $ 9,618 Buildings 45,038 44,987 Furniture, fixtures and equipment 30,864 27,017 Accumulated depreciation (39,226) (35,783) -------- -------- Total $ 47,558 $ 45,839 ======== ========
(7) INTANGIBLE ASSETS The following is a summary of intangible assets, net of accumulated amortization:
DECEMBER 31, --------------------- 1998 1997 ------- ------- Excess of cost over fair value of assets acquired $21,533 $16,124 Core deposit intangibles 2,555 2,920 Trademarks 7 8 ------- ------- Total $24,095 $19,052 ======= =======
(8) TIME DEPOSITS Certificates of deposit in denominations of $100 or more totaled $226,629 and $192,670 at December 31, 1998 and 1997, respectively. (9) SHORT-TERM BORROWINGS The following is a summary of short-term borrowings:
DECEMBER 31, ---------------------- 1998 1997 ------- ------- Federal funds purchased $45,065 $ 3,696 Repurchase agreements 9,737 14,105 TT&L note 39 -- Federal Home Loan Bank advances -- 6,000 Notes payable -- 1,930 ------- ------- Total $54,841 $25,731 ======= ======= Weighted average interest rate 4.49% 5.39% ======= =======
Federal funds purchased represents borrowings of overnight funds from other financial institutions. A-30 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) The Company enters into sales of securities to certain of its customers with simultaneous agreements to repurchase. These agreements represent an overnight borrowing of funds. The TT&L note is a demand note issued to the U.S. Treasury. The Federal Home Loan Bank advances in 1997 matured at various dates through December 22, 1998. The notes payable in 1997 were notes held by trusts controlled by stockholders of Lawton Security Bancshares. These notes were paid subsequent to the merger in May 1998. (10) LINE OF CREDIT AmQuest maintained a $25,000 line of credit specifically for the purpose of acquiring other financial institutions. Advances would have converted to 10- year term loans at the lender's reference rate at the time of the advance. Quarterly principal and interest payments would have been required on the term loans. The line of credit was secured by the stock of AmQuest's subsidiary banks and the stock of any other bank acquired with the advances. No advances were made under the line of credit, and the line of credit was not assumed by the Company after the merger in October 1998. (11) LONG-TERM BORROWINGS In 1995 the Company began borrowing under a line of credit from the Federal Home Loan Bank of Topeka, Kansas in order to match-fund certain long- term fixed rate loans. Such advances are at rates of from 4.86% to 7.21% and mature from 2003 through 2013. Interest payments on the advances are due monthly. Semiannual principal payments on the advances total $1,290 per year. In December 1996, the Company borrowed $5,000 under the line of credit to fund general loan growth. This advance was at a rate of 5.97% and matured December 1998. Interest on the advance was payable monthly. Residential first mortgages are pledged as collateral for the borrowings under the line of credit. (12) 9.65% CAPITAL SECURITIES In January 1997, BancFirst Corporation established BFC Capital Trust I (the "Trust"), a trust formed under the Delaware Business Trust Act. In February 1997, the Trust issued $25,000 of aggregate liquidation amount of 9.65% Capital Securities, Series A (the "Capital Securities"). The proceeds from the sale of the Capital Securities were invested in 9.65% Junior Subordinated Deferrable Interest Debentures, Series A (the "Debentures") of BancFirst Corporation. The Series A Capital Securities and Debentures were subsequently exchanged for Series B Capital Securities and Debentures, pursuant to a Registration Rights Agreement. The terms of the Series A and Series B securities are identical in all material respects. Distributions on the Capital Securities are payable January 15 and July 15 of each year. Such distributions may be deferred for up to ten consecutive semi-annual periods. The stated maturity date of the Capital Securities is January 15, 2027, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Capital Securities represent an undivided interest in the Debentures, are guaranteed by BancFirst Corporation, and are presented as long-term debt in the Company's consolidated financial statements, but qualify as Tier 1 regulator capital. During any deferral period or during any event of default, BancFirst Corporation may not declare or pay any dividends on any of its capital stock. A-31 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (13) INCOME TAXES The components of the Company's income tax expense are as follows:
YEAR ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 -------- -------- -------- Current taxes: Federal $(11,718) $(10,574) $(11,304) State (1,433) (839) (1,039) Deferred taxes 623 932 94 -------- -------- -------- Total income taxes $(12,528) $(10,481) $(12,249) ======== ======== ========
Income tax expense applicable to securities transactions approximated $4, $1 and $16 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, the Company had net operating loss carryforwards for tax purposes of approximately $283. If not utilized, the tax net operating loss carryforwards will expire as follows: $9 in 2000, $155 in 2001, and $119 in 2004. A reconciliation of tax expense at the federal statutory tax rate applied to income before taxes follows:
YEAR ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 -------- -------- -------- Tax expense at the federal statutory tax rate $(11,927) $(10,901) $(11,595) (Increase) decrease in tax expense from: Tax-exempt income, net 976 983 1,046 Excess cost amortization (710) (752) (632) State tax expense, net of federal tax benefit (898) (758) (895) Other, net 31 947 (173) -------- -------- -------- Total tax expense $(12,528) $(10,481) $(12,249) ======== ======== ========
A-32 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) The net deferred tax asset consisted of the following:
DECEMBER 31, ------------------------- 1998 1997 --------- --------- Provisions for possible loan losses $ 6,199 $ 4,249 Discount on securities of banks acquired 116 275 Write-downs of other real estate owned 108 183 Net operating loss carryforwards 272 645 Provision for contingent losses 34 492 Deferred compensation 653 450 Other 480 312 --------- --------- Gross deferred tax assets 7,862 6,606 --------- --------- Unrealized net gain on securities available for sale (2,942) (975) Depreciation (2,692) (2,815) Other (561) (520) --------- --------- Gross deferred tax liabilities (6,195) (4,310) --------- --------- Net deferred tax asset $ 1,667 $ 2,296 ========= =========
(14) EMPLOYEE BENEFITS In May 1986, the Company adopted the BancFirst Corporation Employee Stock Ownership and Thrift Plan (the "ESOP") effective January 1, 1985. The ESOP covers all eligible employees, as defined in the ESOP, of the Company and its subsidiaries. The ESOP allows employees to defer up to 12% of their base salary, of which the Company may match 50%, but not to exceed 3% of their base salary. In addition, the Company may make discretionary contributions to the ESOP, as determined by the Company's Board of Directors. The aggregate amounts of contributions by the Company to the ESOP for the years ended December 31, 1998, 1997 and 1996, were approximately $1,000, $1,050 and $841, respectively. Both Lawton Security Bancshares and AmQuest had Section 401(k) plans. These plans were merged into the ESOP effective January 1, 1999. Contributions to these plans totaled $576, $545 and $478 for the years ended December 31, 1998, 1997 and 1996. BancFirst Corporation also adopted a nonqualified incentive stock option plan (the "BancFirst ISOP") in May 1986. In 1998, the Company amended the BancFirst ISOP to increase the number of shares to be issued under the plan to 850,000. The options are exercisable beginning four years from the date of grant at the rate of 25% per year for four years. Options granted prior to 1996 expire at the end of eleven years from the date of grant. Options granted after January 1, 1996 expire at the end of fifteen years from the date of grant. Options outstanding as of December 31, 1998 will become exercisable through the year 2005. The option price must be no less than 100% of the fair market value of the stock relating to such option at the date of grant. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for the ISOP. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") was issued in 1995 which, if fully adopted by the Company, would change the method the Company applies in recognizing the cost of the BancFirst ISOP. Adoption of the cost recognition provisions of FAS 123 is optional and the Company has elected to not adopt such provisions. However, pro forma disclosures as if the Company adopted the cost recognition provisions of FAS 123 in 1995 are required and are presented below. A summary of the options granted under the BancFirst ISOP is as follows: A-33 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 1998 1997 1996 ---------------------- --------------------- --------------------- AVG. AVG. AVG. OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------- ------- ----------- ------ ----------- ------- Outstanding at beginning of year 449,625 $17.14 501,750 $12.39 384,125 $ 8.62 Options granted 110,500 36.55 88,500 30.99 136,000 22.29 Options exercised or repurchased (47,750) 7.63 (123,125) 6.87 (18,375) 6.79 Options canceled (20,750) 26.19 (17,500) 19.92 -- -- ----------- ----------- ----------- Outstanding at end of year 491,625 22.18 449,625 17.14 501,750 12.39 =========== =========== =========== Exercisable at end of year 134,250 10.28 133,625 8.19 219,625 6.67 =========== =========== =========== Weighted average fair value of options granted $ 15.36 $ 10.16 $ 6.61 =========== =========== ===========
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: a dividend yield of 1.5%; risk-free interest rates are different for each grant and range from 4.98% to 7.74%; the expected lives of the options are from five to ten years; and volatility of the Company's stock price is from 17.77% to 30.98% for all grants. A summary of options outstanding under the BancFirst ISOP as of December 31, 1998 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------------------------- ---------------------------- WGTD. AVG. REMAINING WGTD. AVG. WGTD. AVG. RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE --------------- ------------ ----------- ---------- ----------- ---------- $6.00 to $10.00 121,375 2.65 $ 6.92 105,250 $ 6.80 $12.88 to $18.63 68,250 6.66 $15.50 7,750 $14.87 $20.00 to $40.00 302,000 13.61 $29.83 21,250 $25.84 ------------ ----------- $6.00 to $40.00 491,625 9.94 $22.18 134,250 $10.28 ============ ===========
The pro forma effect as if the Company had adopted the cost recognition provisions of FAS 123 is as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------- --------------------------- --------------------------- REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ---------- ----------- ----------- ----------- ----------- ----------- APB 25 charge $ -- $ -- $ -- $ -- $ -- $ -- FAS 123 charge $ -- $ 186 $ -- $ 95 $ -- $ 78 Net income $21,550 $21,364 $20,905 $20,810 $21,150 $21,099 Net income per share: Basic $ 2.32 $ 2.30 $ 2.26 $ 2.25 $ 2.29 $ 2.28 Diluted $ 2.27 $ 2.25 $ 2.21 $ 2.20 $ 2.22 $ 2.22
The effects of applying FAS 123 to the pro forma disclosure are not indicative of future results. FAS 123 does not apply to grants of options prior to 1995 and the Company anticipates making additional grants in the future. A-34 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) AmQuest had four stock option plans. These plans have been assumed by the Company, but no new options will be issued under the plans. Pro forma disclosures, as if the cost recognition provision of FAS 123 had been applied, have not been presented for these plans since such disclosures would not result in material differences from the intrinsic value method. Three of the plans are qualified incentive stock option plans for employees (the "AmQuest Employees Stock Option Plans"). A total of 178,135 shares were authorized to be issued under the plans. These options became fully vested at the time of the merger and will expire at various dates through November 2006. A summary of the options granted under the AmQuest Employees Stock Option Plans is as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1998 1997 1996 ------------------------- ------------------------- ------------------------ AVG. AVG. AVG. OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------------ --------- ----------- --------- ---------- --------- Outstanding at beginning of year 123,590 $13.54 132,420 $13.39 86,060 $ 9.74 Options granted -- -- -- -- 64,414 16.97 Options exercised or repurchased (47,784) 11.83 (2,969) 6.84 (16,292) 8.24 Options canceled (1,921) 15.73 (5,861) 13.62 (1,762) 13.58 ------------ ----------- ---------- Outstanding at end of year 73,885 14.58 123,590 13.54 132,420 13.39 ============ =========== ==========
A summary of options outstanding under the AmQuest Employees Stock Option Plans as of December 31, 1998 is as follows:
OPTIONS OUTSTANDING AND EXERCISABLE ------------------------------------------------------------------------------- Wgtd. Avg. REMAINING WGTD. AVG. RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL EXERCISE OUTSTANDING LIFE PRICE ------------------------- --------------- --------------- --------------- $6.84 10,690 3.18 $ 6.84 $10.69 to $17.05 63,195 6.96 $15.89 --------------- $6.84 to $17.05 73,885 6.41 $14.58 ===============
AmQuest's other stock option plan was for non-employee directors (the "AmQuest Directors Stock Option Plan"). The AmQuest Directors Stock Option Plan was authorized to issue up to 118,755 shares and the options were fully exercisable when granted. A summary of the options granted under the AmQuest Directors Stock Option Plan is as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1998 1997 1996 ------------------------- ------------------------- ------------------------ AVG. AVG. AVG. OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------------ --------- ----------- --------- ---------- --------- Outstanding at beginning of year 26,539 $17.10 18,459 $15.19 9,901 $13.58 Options granted -- -- 10,933 20.62 10,538 17.05 Options exercised or repurchased (17,820) 17.05 (2,615) 18.30 (1,980) 17.05 Options canceled -- -- (238) 17.05 -- -- ------------ ----------- ---------- Outstanding at end of year 8,719 17.19 26,539 17.10 18,459 15.19 ============ =========== ==========
A-35 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) A summary of options outstanding under the AmQuest Directors Stock Option Plan as of December 31, 1998 is as follows:
OPTIONS OUTSTANDING AND EXERCISABLE ------------------------------------------------------------------------------- Wgtd. Avg. REMAINING WGTD. AVG. RANGE OF NUMBER CONTRACTUAL EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE ------------------------- --------------- --------------- --------------- $13.58 to $20.84 8,719 7.50 $17.19
(15) STOCKHOLDERS' EQUITY The following is a description of the capital stock of the Company: (a) Senior Preferred Stock: $1.00 par value; 10,000,000 shares authorized; no shares issued or outstanding. Shares may be issued with such voting, dividend, redemption, sinking fund, conversion, exchange, liquidation and other rights as shall be determined by the Company's Board of Directors, without approval of the stockholders. The Senior Preferred Stock would have a preference over common stock as to payment of dividends, as to the right to distribution of assets upon redemption of such shares or upon liquidation of the Company. (b) 10% Cumulative Preferred Stock: $5.00 par value, redeemable at the Company's option at $5.00 per share plus accumulated dividends; non- voting; cumulative dividends at the rate of 10% payable semi-annually on January 15 and July 15; 900,000 shares authorized; no shares issued or outstanding. (c) Common stock: $1.00 par value; 15,000,000 shares authorized. At December 31, 1998, there were 9,291,929 shares issued and outstanding. At December 31, 1997 there were 9,614,004 shares issued and 9,236,875 shares outstanding. In March 1995, the Company adopted a Stock Repurchase Program (the "SRP") authorizing management to repurchase up to 200,000 shares of the Company's common stock. In 1997 the SRP was amended to increase the shares authorized to be repurchased to 350,000. The SRP was to be used for purchases of stock by the Company's ESOP, and could also be used to enhance earnings per share, provide stock for the exercise of stock options under the Company's ISOP or to provide additional market liquidity for the stock. During 1997, the Company purchased and canceled 37,900 shares and the ESOP purchased 20,000 shares. No purchases were made under the SRP during 1996. The SRP was terminated in April 1998. BancFirst Corporation's ability to pay dividends is dependent upon dividend payments received from BancFirst. Banking regulations limit bank dividends based upon net earnings retained and minimum capital requirements. Dividends in excess of these requirements require regulatory approval. At December 31, 1998, approximately $20,361 of the equity of BancFirst was available for dividend payments to BancFirst Corporation. During any deferral period or any event of default on the 9.65% Capital Securities, BancFirst Corporation may not declare or pay any dividends on any of its capital stock. A-36 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) The Company is subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System. These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company's assets, liabilities, and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company's financial statements. The required minimums and the Company's respective ratios are shown below.
DECEMBER 31, -------------------------------------- MINIMUM REQUIRED 1998 1997 --------------- ----------------- ----------------- Tier 1 capital $ 197,390 $ 185,405 Total capital $ 214,656 $ 200,949 Leverage ratio 3.00% 8.54% 9.28% Tier 1 capital ratio 4.00% 14.31% 14.93% Total capital ratio 8.00% 15.57% 16.18%
To be "well capitalized" under federal bank regulatory agency definitions, a depository institution must have a Tier 1 ratio of at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5%. As of December 31, 1998 and 1997, BancFirst was considered to be "well capitalized". There are no conditions or events since the most recent notification of BancFirst's capital category that management believes would change its category. A-37 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (16) NET INCOME PER COMMON SHARE Basic and diluted net income per common share are calculated as follows:
INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------------- ----------------- --------------- YEAR ENDED DECEMBER 31, 1998 ---------------------------- BASIC Income available to common stockholders $ 21,550 9,276,526 $ 2.32 =============== Effect of stock options -- 233,010 ----------------- ----------------- DILUTED Income available to common stockholders plus assumed exercises of stock options $ 21,550 9,509,536 $ 2.27 ================= ================= =============== YEAR ENDED DECEMBER 31, 1997 ---------------------------- BASIC Income available to common stockholders $ 20,905 9,244,739 $ 2.26 =============== Effect of stock options -- 228,960 ----------------- ----------------- DILUTED Income available to common stockholders plus assumed exercises of stock options $ 20,905 9,473,699 $ 2.21 ================= ================= =============== YEAR ENDED DECEMBER 31, 1996 ---------------------------- BASIC Income available to common stockholders $ 21,150 9,249,416 $ 2.29 =============== Effect of stock options -- 264,147 ----------------- ----------------- DILUTED Income available to common stockholders plus assumed exercises of stock options $ 21,150 9,513,562 $ 2.22 ================= ================= ===============
Below is the number and average exercise price of options that were excluded from the computation of diluted net income per common share for each year because the options' exercise prices were greater than the average market price of the common shares.
AVERAGE EXERCISE SHARES PRICE ------------- ------------- DECEMBER 31, 1998 -- $ -- DECEMBER 31, 1997 41,500 $32.77 DECEMBER 31, 1996 35,500 $25.88
A-38 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.) (17) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
BALANCE SHEET DECEMBER 31, ------------------------------- ASSETS 1998 1997 ------------- --------------- Cash $ 19,691 $ 13,699 Securities 2,000 2,000 Loans (net of unearned interest) 3,744 4,949 Investment in subsidiaries, at equity 193,779 179,576 Intangible assets 4,184 4,026 Other assets 5,833 5,840 ------------- --------------- Total assets $ 229,231 $210,090 ============= =============== LIABILITIES AND STOCKHOLDERS' EQUITY Miscellaneous liabilities $ 2,314 $ 1,915 Notes payable -- 1,930 9.65% Capital Securities 25,000 25,000 Stockholders' equity 201,917 181,245 ------------- --------------- Total liabilities and stockholders' equity $ 229,231 $210,090 ============= ===============
STATEMENT OF INCOME YEAR ENDED DECEMBER 31, ------------------------------------- OPERATING INCOME 1998 1997 1996 ----------- ---------- ---------- Dividends from subsidiaries $17,246 $17,754 $ 14,109 Interest: Loans 534 824 493 Interest-bearing deposits 659 483 334 Securities 325 119 35 Other 339 514 610 ----------- ---------- ---------- Total operating income 19,103 19,694 15,581 ----------- ---------- ---------- OPERATING EXPENSE Interest 2,495 2,327 152 Amortization 1,084 1,130 1,135 Other 1,913 1,322 1,111 ----------- ---------- ---------- Total operating expense 5,492 4,779 2,398 ----------- ---------- ---------- Income before income taxes and equity in undistributed earnings of subsidiaries 13,611 14,915 13,183 Allocated income tax benefit 811 1,250 25 ----------- ---------- ---------- Income before equity in undistributed earnings of subsidiaries 14,422 16,165 13,208 Equity in undistributed earnings of subsidiaries 7,128 4,740 7,942 ----------- ---------- ---------- Net income $21,550 $20,905 $ 21,150 =========== ========== ==========
A-39 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Cont.) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 21,550 $ 20,905 $ 21,150 Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation and amortization 1,122 1,225 1,461 Net income of subsidiaries (24,374) (22,494) (22,051) Increase in dividends receivable -- (965) (2,537) Other, net 840 3,056 (899) ----------- ----------- ------------ Net cash provided (used) by operating activities (862) 1,727 (2,876) ----------- ----------- ------------ INVESTING ACTIVITIES Cash dividends received from subsidiaries 16,281 16,789 14,109 Purchases of stock of subsidiaries -- (29,015) (770) Sale of stock of subsidiaries 9,356 -- -- Net cash from acquisitions and mergers (13,537) -- 305 Purchases of securities -- -- (2,981) Proceeds from maturities of securities -- -- 5,000 Proceeds from sales of securities -- -- 180 Purchase of loans -- -- (6,335) Net other decrease in loans 1,205 1,630 281 Other, net -- 2 (15) ----------- ----------- ------------ Net cash provided (used) by investing activities 13,305 (10,594) 9,774 ----------- ----------- ------------ FINANCING ACTIVITIES Issuance of common stock 1,715 482 507 Issuance of 9.65% Capital Securities -- 23,972 -- Payments on notes payable (1,930) -- (900) Purchases of common stock (2,036) (4,175) (4,439) Cash dividends paid (4,200) (3,045) (2,518) ----------- ----------- ------------ Net cash provided (used) by financing activities (6,451) 17,234 (7,350) ----------- ----------- ------------ Net increase (decrease) in cash 5,992 8,367 (452) Cash at the beginning of the year 13,699 5,332 5,784 ----------- ----------- ------------ Cash at the end of the year $ 19,691 $ 13,699 $ 5,332 =========== =========== ============ SUPPLEMENTAL DISCLOSURE Cash paid during the year for interest $ 2,495 $ 1,201 $ 149 =========== =========== ============ Cash (received) during the year for income taxes, net $ (858) $ (1,529) $ (92) =========== =========== ============
A-40 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (18) RELATED PARTY TRANSACTIONS BancFirst has provided item processing and correspondent services to affiliated institutions. By year-end 1996, all of these institutions had been merged with BancFirst or sold to other nonaffiliated owners. Service charges to these affiliated institutions for December 31, 1996 totaled $69. The Company purchases supplies, furniture and equipment from an affiliated company. During the years ended December 31, 1998, 1997 and 1996, such purchases totaled $237, $114 and $144, respectively. The Company also sells credit life and credit accident and health insurance policies for an affiliated insurance company. The Company retains a 40% commission for such sales, which is the maximum amount permitted by law. Net premiums paid to the affiliated insurance company for the years ended December 31, 1998, 1997 and 1996 were $706, $645 and $755, respectively. Refer to note (5) for information regarding loan transactions with related parties. (19) COMMITMENTS AND CONTINGENT LIABILITIES The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit which involve elements of credit and interest rate risk to varying degrees. The Company's exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the instrument's contractual amount. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet. The amounts of financial instruments with off-balance-sheet risk are as follows:
December 31, ----------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Loan commitments $ 309,163 $ 240,353 $185,781 Letters of credit 15,383 16,131 10,553
Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the instruments are expected to expire without being drawn upon, the total amounts do not necessarily represent commitments that will be funded in the future. The Company leases office space in three buildings and two parcels of land on which it owns buildings. These leases expire at various dates through 2064. The future minimum rental payments under these leases are as follows: A-41 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.)
YEAR ENDING DECEMBER 31: 1999 $ 957 2000 922 2001 802 2002 599 2003 394 Later years 2,609 ----------- Total $ 6,283 ===========
Rental expense on all property and equipment rented, including those rented on a monthly or temporary basis, totaled $1,065, $899 and $868 during 1998, 1997 and 1996, respectively. The Company is a defendant in legal actions arising from normal business activities. During 1992, BancFirst accrued estimated amounts to settle certain of these actions. During 1995 and 1996, these actions were resolved in the Company's favor and the accruals were reversed. In 1997, AmQuest accrued $1,250 related to a lawsuit filed in December 1989 involving a bond issue. The lawsuit was settled in March 1998 and the amount accrued was paid. Management believes that all other legal actions against the Company are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Company's financial position, results of operations or cash flows. (20) FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values reported below for financial instruments are based on a variety of factors. In some cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND DUE FROM BANKS; FEDERAL FUNDS SOLD The carrying amount of these short-term instruments is a reasonable estimate of fair value. SECURITIES For securities, fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS For certain homogeneous categories of loans, such as some residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. For residential mortgage loans held for sale, guaranteed student loans and participation in pools of credit card receivables, the carrying amount is a reasonable estimate of fair value. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. A-42 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) DEPOSIT LIABILITIES The fair value of transaction and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. SHORT-TERM BORROWINGS The amount payable on these short-term instruments is a reasonable estimate of fair value. LONG-TERM BORROWINGS The fair value of fixed-rate long-term borrowings is estimated using the rates that would be charged for borrowings of similar remaining maturities. LOAN COMMITMENTS AND LETTERS OF CREDIT The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the terms of the agreements. The fair value of letters of credit is based on fees currently charged for similar agreements. The estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, ---------------------------------------------------------- 1998 1997 ---------------------------- --------------------------- CARRYING Fair Value CARRYING FAIR AMOUNT AMOUNT VALUE ------------ ------------ ------------ ----------- FINANCIAL ASSETS Cash and due from banks $ 132,297 $ 132,297 $ 104,565 $ 104,565 Federal funds sold 187,369 187,369 60,377 60,377 Securities 582,649 584,650 510,426 512,368 Loans: Loans (net of unearned interest) 1,338,879 1,249,705 Allowance for possible loan losses (19,659) (17,458) ------------ ------------ Loans, net 1,319,220 1,327,124 1,232,247 1,229,486 FINANCIAL LIABILITIES Deposits 2,024,800 2,026,481 1,761,210 1,761,808 Short-term borrowings 54,841 54,841 25,731 25,731 Long-term borrowings 12,966 13,062 7,051 7,051 9.65% Capital Securities 25,000 25,993 25,000 27,908 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Loan commitments 2,040 1,577 Letters of credit 113 121
A-43 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) (21) SEGMENT INFORMATION The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The four principal business units were metropolitan banks, community banks, other financial services, and executive, operations and support. Metropolitan and community banks offer traditional banking products such as commercial and retail lending, and a full line of deposit accounts. Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Other financial services are specialty product business units including guaranteed small business lending, guaranteed student lending, residential mortgage lending, trust services, correspondent banking and electronic banking. The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units. The results of operations and selected financial information for the four business units are as follows:
OTHER EXECUTIVE, METROPOLITAN COMMUNITY FINANCIAL OPERATIONS BANKS BANKS SERVICES & SUPPORT ELIMINATIONS CONSOLIDATED --------------- ------------- ------------- -------------- ---------------- --------------- DECEMBER 31, 1998 Net interest income $ 19,969 $ 70,034 $ 4,127 $ (1,271) $ (107) $ 92,752 (expense) Provisions for loan losses 607 1,450 239 (85) -- 2,211 Noninterest income 3,613 15,844 3,575 27,039 (26,052) 24,019 Depreciation and 1,789 3,633 250 2,413 -- 8,085 amortization Merger related costs -- -- -- 3,134 -- 3,134 Other expenses 13,199 43,861 4,850 8,644 (1,291) 69,263 ------------- ------------- ------------- -------------- -------------- ------------ Income before taxes $ 7,987 $ 36,934 $ 2,363 $ 11,662 (24,868) $ 34,078 ============= ============= ============= ============== ============== ============ Total Assets $ 486,965 $ 1,731,606 $ 107,665 $ 227,269 (217,622) $ 2,335,883 ============= ============= ============= ============== ============== ============ Capital expenditures $ 2,951 $ 4,500 $ 606 $ 1,049 -- $ 9,106 ============= ============= ============= ============== ============ DECEMBER 31, 1997 Net interest income (expense) $ 16,316 $ 66,535 $ 2,484 $ (1,075) $ (39) $ 84,221 Provisions for loan losses 224 2,577 87 -- -- 2,888 Noninterest income 3,274 14,093 2,976 23,756 (22,591) 21,508 Depreciation and amortization 1,594 3,020 158 2,328 (63) 7,037 Other expenses 10,372 42,938 4,497 7,595 (984) 64,418 ------------- ------------- ------------- -------------- --------------- ----------- Income before taxes $ 7,400 $ 32,093 $ 718 $ 12,758 (21,583) $ 31,386 ============= ============= ============= ============== =============== =========== Total Assets $ 408,613 $ 1,569,414 $ 91,698 $ 152,663 (205,925) $ 2,016,463 ============= ============= ============= ============== =============== =========== Capital expenditures $ 1,029 $ 2,953 $ 96 $ 1,500 -- $ 5,578 ============= ============= ============= ============== =========== DECEMBER 31, 1996 Net interest income (expense) $ 13,909 $ 61,514 $ 2,477 $ 65 $ -- $ 77,965
A-44 Provisions for loan losses 130 2,047 4 -- -- 2,181 Noninterest income 2,546 12,546 3,366 24,098 (22,555) 20,001 Depreciation and amortization 1,290 2,524 177 2,073 (274) 5,790 Other expenses 8,518 37,415 4,454 6,459 (250) 56,596 ------------- ------------- -------------- --------------- -------------- ----------- Income before taxes $ 6,517 $ 32,074 $ 1,208 $ 15,631 (22,031) $ 33,399 ============= ============= ============== =============== ============== =========== Total Assets $ 351,303 $ 1,486,672 $ 86,439 $ 110,840 (172,198) $ 1,863,056 ============= ============= ============== =============== ============== =========== Capital expenditures $ 672 $ 2,756 $ 301 $ 2,925 -- $ 6,654 ============= ============= ============== =============== ============== ===========
A-45 BANCFIRST CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONT.) The financial information for each business unit is presented on the basis used internally by management to evaluate performance and allocate resources. The Company utilizes a transfer pricing system to allocate the benefit or cost of funds provided or used by the various business units. Certain services provided by the support group to other business units, such as item processing, are allocated rates approximating the cost of providing the services. Eliminations are adjustments to consolidate the business units and companies. In 1998, the costs related to the AmQuest merger have been segregated because of their impact on the results of executive, operations and support. Capital expenditures are generally charged to the business unit using the asset. (22) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of the unaudited quarterly results of operations for the years ended December 31, 1998 and 1997 is as follows:
QUARTER ------------------------------------------------- 1998 FOURTH THIRD SECOND FIRST ---- ---------- ---------- ---------- ---------- Net interest income $23,254 $23,385 $23,836 $22,277 Provision for possible loan losses 344 596 482 789 Noninterest income 5,688 6,381 6,172 5,778 Noninterest expense 21,511 20,617 19,979 18,375 Net income 4,554 5,789 5,612 5,595 Net income per common share: Basic 0.49 0.62 0.61 0.60 Diluted 0.48 0.61 0.59 0.59 1997 ---- Net interest income $21,815 $21,474 $20,908 $20,024 Provision for possible loan losses 1,181 478 860 369 Noninterest income 5,777 5,517 5,163 5,051 Noninterest expense 19,928 17,698 17,430 16,399 Net income 4,889 5,839 4,911 5,266 Net income per common share: Basic 0.53 0.63 0.53 0.57 Diluted 0.51 0.61 0.52 0.55
A-46 INDEX TO EXHIBITS Exhibit Number Name of Exhibit ------ --------------- 2.1 Purchase and Assumption Agreement between NationsBank, N.A. and BancFirst dated September 26, 1997 (filed as Exhibit 2.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by reference). 2.2 Merger Agreement dated May 6, 1998 between BancFirst Corporation and AmQuest Financial Corp. (filed as Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference). 3.1 Second Amended and Restated Certificate of Incorporation of BancFirst (filed as Exhibit 1 to BancFirst's 8-A/A filed July 23, 1998 and incorporated herein by reference). 3.2* Certificate of Designations of Preferred Stock 3.3 Amended By-Laws (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference). 4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference). 4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference). 4.3 Series A Capital Securities Guarantee Agreement dated as of February 4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated February 4, 1997 and incorporated herein by reference). 4.5 Rights Agreement, dated as of February 25, 1999, between BancFirst Corporation and BancFirst, as Rights Agent, including as Exhibit A the form of Certificate of Designations of the Company setting forth the terms of the Preferred Stock, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights Agreement (filed as Exhibit 1 to the Company's 8-K dated February 25, 1999 and incorporated herein by reference). 10.1 United Community Company (now BancFirst Company) Stock Option Plan (filed as Exhibit 10.09 to the Company's Registration Statement on Form S-4, file No. 33-13016 and incorporated herein by reference). 10.2 BancFirst Company Employee Stock Ownership and Thrift Plan (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference). 10.3 1988 Incentive Stock Option Plan of Security Corporation as assumed by BancFirst Corporation (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference). 10.4 1993 Incentive Stock Option Plan of Security Corporation as assumed by BancFirst Corporation (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference). 10.5 1995 Non-Employee Director Stock Plan of AmQuest Financial Corp. as assumed by BancFirst Corporation (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8, File No. 333-65129 and incorporated herein by reference). Exhibit Number Name of Exhibit ------ --------------- 22.1* Subsidiaries of Registrant. 23.1* Consent of PriceWaterhouseCoopers LLP 23.2* Consent of Arthur Andersen LLP 27.1* Financial Data Schedule for the year ended December 31, 1998. 27.5* Financial Data Schedule for the year ended December 31, 1997. 27.9* Financial Data Schedule for the year ended December 31, 1996. _________________________ * Filed herewith. EX-3.2 2 CERTIFICATE OF DESIGNATIONS OF PREFERRED STOCK Exhibit 3.2 CERTIFICATE OF THE VOTING POWERS, DESIGNATION, PREFERENCES, PARTICIPATING OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF WHICH HAVE NOT BEEN SET FORTH IN THE CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THERETO OF THE SERIES A PREFERRED STOCK (Par Value $.01 Per Share) OF BANCFIRST CORPORATION Pursuant to Section 1032 of the General Corporation Law of the State of Oklahoma, the undersigned hereby certifies that the following resolution was duly adopted on February 25, 1999, by the Board of Directors of BancFirst Corporation, an Oklahoma corporation (the "Company") pursuant to authority conferred on the Board of Directors by the provisions of the Certificate of Incorporation of the Company and in accordance with the provisions of the General Corporation Law of the State of Oklahoma and that said resolution has not been amended or rescinded and is in full force and effect at the date hereof. RESOLVED, that pursuant to authority conferred on the Board of Directors of the Company by its Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, is created and the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated "Series A Preferred Stock" and the number of shares constituting such series shall be 200,000 Shares of Series A Preferred Stock shall have a par value of $.01 per share. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the possible prior and superior rights of the holders of any shares of preferred stock of the Company ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends. each holder of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for that purpose: (i) quarterly dividends payable in cash on January 15. April 15, July 15 and October 15 in each year (each such date being a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of such share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $5.00 or (b) subject to the provision for adjustment hereinafter set forth. 100 times the aggregate per share amount of all cash dividends declared on shares of the Common Stock of the Company, par value $1.00 per share (the "Common Stock"), since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of a share of Series A Preferred Stock, and (ii) subject to the provision for adjustment hereinafter set forth, quarterly distributions (payable in kind) on each Quarterly Dividend Payment Date in an amount per share equal to 100 times the aggregate per share amount of all non-cash dividends or other distributions (other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock, by reclassification or otherwise) declared on shares of Common Stock since the immediately preceding Quarterly Dividend Payment Date, or with respect to the first Quarterly Dividend Payment Date, since the first issuance of a share of Series A Preferred Stock. If the Quarterly Dividend Payment Date is a Saturday, Sunday or legal holiday, then such Quarterly Dividend Payment Date shall be the first immediately preceding calendar day which is not a Saturday, Sunday or legal holiday. In the event that the Company shall at any time after February 25, 1999 (the "Rights Declaration Date") (i) declare any dividend on outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii) combine outstanding shares of Common Stock into a smaller number or shares, then in each such case, the amount to which the holder of a share of Series A Preferred Stock was entitled immediately prior to such event pursuant to the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which shall be the number of shares of Common Stock that are outstanding immediately after such event, and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on shares of Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the shares of Common Stock (other than a dividend payable in shares of Common Stock); PROVIDED, HOWEVER, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $5.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and shall be cumulative on each outstanding share of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of such share of Series A Preferred Stock, unless the date of issuance of such share is prior to the record date for the first Quarterly Dividend Payment Date, in which case, dividends on such share shall begin to accrue from the date of issuance of such share, or unless the date of issuance is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on shares of Series A Preferred Stock in an amount less than the aggregate amount of all such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all shares of Series A Preferred Stock at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. (D) Dividends payable on the Series A Preferred Stock for the initial dividend period and for any period less than a full quarterly period, shall be computed on the basis of a 360-day year of 30-day months. SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights. (A) Each share of Series A Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the shareholders of the Company. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (C) If at the time of any annual meeting of shareholders for the election of directors a "default in preference dividends" on the Series A Preferred Stock shall exist, the holders of the Series A Preferred Stock shall have the right at such meeting, voting together as a single class, to the exclusion of the holders of Common Stock, to elect two (2) directors of the Company. Such right shall continue until there are no dividends in arrears upon the Series A Preferred Stock. Either or both of the two directors to be elected by the holders of the Series A Preferred Stock may be to fill a vacancy or vacancies created by an increase by the Board of Directors in the number of directors constituting the Board of Directors. Each director elected by the holders of Preferred Stock (a "Preferred Director") shall continue to serve as such director for the full term for which he or she shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding Series A Preferred Stock voting together as a single class, at a meeting of the shareholders or of the holders of Preferred Stock called for the purpose. So long as a default in preference dividends on the Series A Preferred Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the Company and ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding Series A Preferred Stock voting together as single class, at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be 2 deemed, for all purposes hereof, to be a Preferred Director. For the purposes hereof, a "default in preference dividends" on the Preferred Stock shall be deemed to have occurred whenever the amount of accrued and unpaid dividends upon the Series A Preferred Stock shall be equivalent to six (6) full quarterly dividends or more, and having so occurred, such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all Series A Preferred Stock then outstanding shall have been paid to the end of the last preceding quarterly dividend period. The provisions of this paragraph (C) shall govern the election of Directors by holders of Series A Preferred Stock during any default in preference dividends notwithstanding any provisions of the Company's Certificate of Incorporation to the contrary. (D) Except as set forth herein, holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of shares of Common Stock as set forth herein) for taking any corporate action. SECTION 4. CERTAIN RESTRICTIONS (A) Until all accrued and unpaid dividends and distributions, whether or not declared, on outstanding shares of Series A Preferred Stock shall have been paid in full, the Company shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of junior stock; (ii) declare or pay dividends on or make any other distributions on any shares of parity stock, except dividends paid ratably on shares of Series A Preferred Stock and shares of all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of such Series A Preferred Stock and all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any junior stock, PROVIDED, HOWEVER, that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any other junior stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of parity stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Certificate of Incorporation of the Company creating a series of Preferred Stock or any similar shares or as otherwise required by law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distributions shall be made (i) to the holders of shares of junior stock unless the holders of Series A Preferred Stock shall have received, subject to adjustment as hereinafter provided in paragraph (B), the greater or either (a) $100.00 per share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not 3 declared, to the date of such payment, or (b) an amount per share equal to 100 times the aggregate per share amount to be distributed to holders of shares of Common Stock or (ii) to the holders of shares of parity stock, unless simultaneously therewith distributions are made ratably on shares of Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i)(a) of this Sentence and to which the holders of shares of such parity stock are entitled, in each case, upon such liquidation, dissolution or winding up. (B) In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock, or (iii) combine outstanding shares of Common Stock into a smaller number of shares, then in each such case, the aggregate amount to which holders of Series A Preferred Stock were entitled immediately prior to such event pursuant to clause (i)(b) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which shall be the number of shares of Common Stock that are outstanding immediately after such event, and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or converted into other stock or securities, cash and/or any other property, then in any such case, each share of Series A Preferred Stock shall at the same time be similarly exchanged for or converted into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is converted or exchanged. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock, or (iii) combine outstanding shares of Common Stock into a smaller number of shares, then in each such case, the amount set forth in the immediately preceding sentence with respect to the exchange or conversion of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which shall be the number of shares of Common Stock that are outstanding immediately after such event, and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 8. REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. SECTION 9. RANKING. The shares of Series A Preferred Stock shall rank junior to all other series of the Preferred Stock and to any other class of preferred stock that hereafter may be issued by the Company as to the payment of dividends and the distribution of assets, unless the terms of any such series or class shall provide otherwise. SECTION 10. AMENDMENT. The provisions of this Certificate of Designation shall not hereafter be amended, either directly or indirectly, or through merger or consolidation with another corporation, in any manner that would alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, voting separately as a class. SECTION 11. FRACTIONAL SHARES. The Series A Preferred Stock may be issued in fractions of a share, which fractions shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions, and to have the benefit of all other rights of holders of Series A Preferred Stock. SECTION 12. CERTAIN DEFINITIONS. As used herein with respect to the Series A Preferred Stock, the following terms shall have the following meanings: (A) The term "junior stock" (i) as used in Section 4, shall mean the Common Stock and any other class or series of capital stock of the Company hereafter authorized or issued over which the Series A Preferred 4 Stock has preference or priority as to the payment of dividends, and (ii) as used in Section 6, shall mean the Common Stock and any other class or series of capital stock of the Company over which the Series A Preferred Stock has preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Company. (B) The term "parity stock" (i) as used in Section 4, shall mean any class or series of stock of the Company hereafter authorized or issued ranking PARI PASSU with the Series A Preferred Stock as to dividends, and (ii) as used in Section 6, shall mean any class or series of stock of the Company ranking PARI PASSU with the Series A Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up. IN WITNESS WHEREOF, BancFirst Corporation has caused this Certificate to be signed and arrested on this 25th day of February, 1999. BANCFIRST CORPORATION /s/ David E. Rainbolt -------------------------------------- By: David E. Rainbolt, President and Chief Executive Officer ATTEST: /s/ Sam D. Ott -------------------------------------- By: Sam D. Ott, Secretary EX-22.1 3 SUBSIDIARIES OF REGISTRANT EXHIBIT 22.1 BANCFIRST CORPORATION SUBSIDIARIES
STATE OF PERCENTAGE SUBSIDIARY NAME INCORPORATION OF OWNERSHIP BancFirst Oklahoma 100.00% Express Financial Corporation Corporation Oklahoma 100.00% Citibanc Insurance Agency, Inc. Oklahoma 100.00% BancFirst Agency, Inc. Oklahoma 100.00% BancFirst Investment Corporation Oklahoma 100.00% Kingfisher Bank & Trust Co. Oklahoma 100.00% BFC Capital Trust I Delaware 100.00%
EX-23.1 4 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of BancFirst Corporation on Form S-4/A (File No. 333-59913) and of our report dated April 2, 1999 on our audit of the consolidated financial statements of BancFirst Corporation as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and 1996 which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Oklahoma City, Oklahoma April 13, 1999 EX-23.2 5 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 23, 1998, (except with respect to the matter discussed in Note 15, as to which the date is March 2, 1998), on the consolidated financial statements of AmQuest Financial Corp. and subsidiaries, included in this Form 10-K, into BancFirst Corporation's previously filed Registration Statement File No. 333-59913. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma April 13, 1999 EX-27.1 6 FINANCIAL DATA SCHEDULE Y.E. DEC, 31, 1998
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED ANNUAL FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 132,286 11 187,369 0 451,846 130,803 132,804 1,338,879 19,659 2,335,883 2,024,800 54,841 16,359 37,966 0 0 9,292 192,625 2,335,883 121,319 34,888 4,828 161,042 62,946 68,290 92,752 2,211 12 80,482 34,078 21,550 0 0 21,550 2.32 2.27 4.75 8,308 2,792 1,288 31,000 17,458 3,177 1,326 19,659 19,659 0 347
EX-27.5 7 FINANCIAL DATA SCHEDULE Y.E. DEC, 31, 1997
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED ANNUAL FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 104,397 168 60,377 0 356,158 154,268 156,210 1,249,705 17,458 2,016,463 1,761,210 25,731 16,226 32,051 0 0 9,614 171,631 2,016,463 111,553 31,044 3,358 145,961 57,784 61,740 84,221 2,888 2 71,455 31,386 20,905 0 0 20,905 2.26 2.22 4.85 6,416 1,600 436 29,042 16,569 3,170 863 17,458 17,458 0 1,208
EX-27.9 8 FINANCIAL DATA SCHEDULE Y.E. DEC 31, 1996
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED ANNUAL FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 103,974 993 73,761 0 319,363 157,828 158,753 1,125,278 16,569 1,863,056 1,654,333 17,671 12,837 12,636 0 0 9,669 155,910 1,863,056 100,314 29,484 2,433 132,231 53,055 54,266 77,965 2,181 219 62,386 33,399 21,150 0 0 21,150 2.29 2.22 4.95 7,319 2,943 722 28,452 14,821 1,949 557 16,569 16,569 0 1,002
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