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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-14384
BANCFIRST CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OKLAHOMA 73-1221379
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
101 NORTH BROADWAY, SUITE 200, OKLAHOMA CITY, OKLAHOMA 73102
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (405) 270-1086
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1.00
PAR VALUE PER SHARE
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO_____
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ____
THE AGGREGATE VALUE OF THE COMMON STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF FEBRUARY 28, 1997 WAS APPROXIMATELY $68,767,000.
AS OF FEBRUARY 28, 1997, THERE WERE 6,332,082 SHARES OF COMMON STOCK
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE PROXY STATEMENT FOR THE MAY 22, 1997 ANNUAL MEETING OF
STOCKHOLDERS OF REGISTRANT (THE "1997 PROXY STATEMENT") TO BE FILED PURSUANT TO
REGULATION 14A ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
FORM 10-K
CROSS-REFERENCE INDEX
ITEM PART I PAGE
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1. Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
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5. Market for the Registrant's Common Stock and Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on Accounting and 12
Financial
Disclosure
PART III
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10. Directors and Executive Officers of the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial Owners and Management 12
13. Certain Relationships and Related Transactions 12
PART IV
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 14
Financial Information Appendix A
PART I
ITEM 1. BUSINESS.
GENERAL
BancFirst Corporation (the "Company") is an Oklahoma business corporation
and a bank holding company under Federal law. It conducts virtually all of its
operating activities through its wholly-owned subsidiary, BancFirst (the "Bank"
or "BancFirst"), a state-chartered, Federal Reserve member bank headquartered in
Oklahoma City, Oklahoma. BancFirst Corporation also owns 100% of the common
securities of BFC Capital Trust I, a Delaware Business Trust organized in
January 1997.
The Company was incorporated as United Community Corporation in July 1984
for the purpose of becoming a bank holding company. In June 1985, it merged with
seven Oklahoma bank holding companies that had operated under common ownership
and the Company has conducted business as a bank holding company since that
time. Over the next several years the Company acquired an additional five banks,
and in November 1988 the Company changed its name to BancFirst Corporation.
Effective April 1, 1989, the Company consolidated its 12 subsidiary banks and
formed BancFirst. BancFirst currently has 49 banking locations serving 28
communities across central and eastern Oklahoma.
The Company's strategy focuses on providing a full range of commercial
banking services to retail customers and small to medium-sized businesses both
in the non-metropolitan trade centers of Oklahoma and the metropolitan markets
of Oklahoma City, Tulsa, Norman, Muskogee and Shawnee. The Company is
positioned as a "super community bank," managing its community banking offices
on a decentralized basis, which permits them to be responsive to local customer
needs. Underwriting, funding, customer service and pricing decisions are made
by Presidents in each market within the Company's strategic parameters. At the
same time, the Company generally has a larger lending capacity, broader product
line and greater operational efficiencies than its principal competitors in the
non-metropolitan market areas (which typically are independently-owned community
banks). In the metropolitan markets served by the Company, the Company's
strategy is to focus on the needs of local businesses not served effectively by
larger institutions.
The Bank maintains a strong community orientation by, among other things,
appointing selected members of the communities in which the Bank's branches are
located to a local consulting board that assists in introducing prospective
customers to the Bank and in developing or modifying products and services to
meet customer needs. As a result of the development of broad banking
relationships with its customers and the convenience and service of the Bank's
multiple offices, the Bank's lending and investing activities are funded almost
entirely by core deposits.
The Bank centralizes virtually all of its back office, support and
investment functions in order to achieve consistency and cost efficiencies in
the delivery of products and services. The Bank centrally provides services such
as data processing, operations support, bookkeeping, accounting, loan review,
compliance and internal auditing to the Bank's community banking offices to
enhance their ability to compete effectively. The Bank also provides certain
specialized financial services centrally that require unique expertise. The
community banking offices assist the Bank in maintaining its competitive
position by actively participating in the development of new products and
services needed by their customers and in making desirable changes to existing
products and services.
The Bank provides a wide range of retail and commercial banking services,
including: commercial, real estate, agricultural and consumer lending;
depository and funds transfer services; collections; safe deposit boxes; cash
management services; and other services tailored for both individual and
corporate customers. The Bank also offers trust services and acts as executor,
administrator, trustee, transfer agent and in various other fiduciary
capacities. Through Unitech, its operations division, the Bank provides proof,
item processing, statement preparation, research and other correspondent banking
services to financial institutions and governmental units.
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The Bank's primary lending activity is the financing of business and
industry in its market areas. Its commercial loan customers are generally small
to medium-sized businesses engaged in light manufacturing, local wholesale and
retail trade, services, agriculture, and the energy industry. Most forms of
commercial lending are offered, including commercial mortgages, other forms of
asset-based financing and working capital lines of credit. In addition, the Bank
offers Small Business Administration ("SBA") guaranteed loans through BancFirst
Commercial Capital, a division established in 1991.
The Bank's residential mortgage lending activities prior to 1992 consisted
primarily of short- to intermediate-term loans for purchasing personal
residences, or loans for commercial or consumer purposes secured by residential
mortgages. In early 1992, the Bank established a mortgage loan department to
originate traditional mortgage loans through its network of banking locations
and sell such loans in the secondary market with the servicing released.
Consumer lending activities of the Bank consist of traditional forms of
financing for automobiles and other personal loans, and also residential
mortgage loans. In addition, the Bank is one of Oklahoma's largest providers of
guaranteed student loans.
The Bank's range of deposit services include checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts and certificates of deposit. Overdraft protection and
autodraft services are also offered. Deposits of the Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance Corporation
("FDIC"). In addition, certain Bank employees are licensed insurance agents
qualified to offer tax deferred annuities.
Trust services offered through BancTrust, the Bank's trust division,
consist primarily of investment management and administration of trusts for
individuals, corporations and employee benefit plans. Investment options include
collective equity and fixed income funds managed by BancTrust and advised by a
nationally recognized investment management firm.
BancFirst has the following subsidiaries: BancFirst Investment Corporation,
a small business investment corporation; Citibanc Insurance Agency, Inc., a
credit life insurance agency, which in turn owns BancFirst Agency, Inc., a title
insurance agency; Lenders Collection Corporation, which is engaged in collection
of troubled loans assigned to it by BancFirst; and National Express Corporation,
a money order company. All of these companies are Oklahoma corporations.
The Company had approximately 788 full-time equivalent employees as of
December 31, 1996. Its principal executive offices are located at 101 North
Broadway, Suite 200, Oklahoma City, Oklahoma 73102, telephone number (405)270-
1086.
MARKET AREAS AND COMPETITION
The banking environment in Oklahoma is very competitive. The geographic
dispersion of the Company's banking locations presents several different levels
and types of competition. In general, however, each location competes with
other banking institutions, savings and loan associations, personal loan finance
companies and credit unions within their respective market areas. The
communities in which the Bank maintains offices are generally local trade
centers throughout Oklahoma. The major areas of competition include interest
rates charged on loans, interest rates paid on deposits, levels of service
charges on deposits, completeness of product line and quality of service.
Management believes the Company is in an advantageous competitive position
operating as a "super community bank." Under this strategy, the Company
provides a broad line of financial products and services to small to medium-
sized businesses and consumers through full service community banking offices
with decentralized management, while achieving operating efficiency through
product standardization and centralization of processing and other functions.
Each full service banking office has senior management with significant lending
experience
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who exercise substantial autonomy over credit and pricing decisions, subject to
a tiered approval process for larger credits. This decentralized management
approach, coupled with continuity of service by the same staff members, enables
the Bank to develop long-term customer relationships, maintain high quality
service and respond quickly to customer needs. The majority of its competitors
in the non-metropolitan areas are much smaller, and neither offer the range of
products and services nor have the lending capacity of BancFirst. In the
metropolitan communities, the Company's strategy is to be more responsive to,
and more focused on, the needs of local businesses not served effectively by
larger institutions.
Marketing to existing and potential customers is performed through a
variety of media advertising, direct mail and direct personal contacts. The
Company monitors the needs of its customer base through its Product Development
Group, which develops and enhances products and services in response to such
needs. Sales, customer service and product training are coordinated with
incentive programs to motivate employees to cross-sell the Bank's products and
services.
CONTROL OF THE COMPANY
Affiliates of the Company own beneficially approximately 62.55% of the
shares of the Common Stock outstanding. Under Oklahoma law, holders of a
majority of the outstanding shares of Common Stock are able to elect all of the
directors and approve significant corporate actions, including business
combinations. Accordingly, the Affiliates have the ability to control the
business and affairs of the Company.
RECENT DEVELOPMENTS
CITY BANKSHARES, INC.
In March 1996, BancFirst acquired City Bankshares, Inc. ("City Bankshares")
which had $136 million in total assets. The acquisition was for cash of $19.1
million, with City Bankshares and its subsidiary bank, City Bank, being merged
into BancFirst. C-Teq, Inc., an 85% owned data processing subsidiary of City
Bankshares, was spun off to the shareholders of City Bankshares prior to the
acquisition. BancFirst also paid the CEO of City Bankshares $1.25 million for
an agreement not to compete with BancFirst for a period of four years. The
acquisition was accounted for as a purchase. Accordingly, the effect of the
acquisition is included in the Company's consolidated financial statements from
the date of the acquisition forward. A core deposit intangible for $830,000 and
goodwill of $7.42 million were recorded in the acquisition.
COMMERCE BANCORPORATION, INC.
In October 1996, the Company acquired all of the assets and assumed all of
the liabilities of Commerce Bancorporation, Inc. ("Commerce Bancorp") which had
$17.8 million in assets. Commerce Bancorp was controlled by certain executive
officers of the Company. The acquisition was accomplished through the exchange
of 156,508 shares of BancFirst Corporation common stock for all of the Commerce
Bancorp common stock outstanding. The minority shares of Commerce Bancorp's
subsidiary bank were purchased for $102,000. The merger was accounted for as a
book value purchase, which is similar to the pooling of interests method,
although the effect of the merger is included in the Company's consolidated
financial statements from the date of the acquisition forward.
PEOPLES STATE BANK
In December 1996, the Company acquired 26.75% of the common stock
outstanding of Peoples State Bank of Tulsa, Oklahoma for cash of $770,000. This
investment is accounted for under the equity method of accounting.
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NATIONAL EXPRESS CORPORATION
In December 1996, the Company's money order subsidiary, National Express,
entered into an agreement for the sale of its business. Under the terms of the
agreement, National Express received cash of $600,000 in January 1997, and may
receive additional payments of up to $500,000 over a two-year period based upon
specified levels of business retained by the purchaser. The business of
National Express was transferred to the purchaser in January and February 1997.
The sale was accounted for as a disposal of a segment of a business.
Consequently, the expected net gain from the disposal will be recognized in the
Company's consolidated statement of income when the final proceeds are received.
The operations of National Express were not material in relation to the
consolidated operations of the Company.
BFC CAPITAL TRUST I
In January 1997, BancFirst Corporation established Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act. In February
1997, the Trust issued $25 million of aggregate liquidation amount of 9.65%
Capital Securities, Series A (the "Capital Securities"). The proceeds from the
sale of the Capital Securities were invested in 9.65% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Debentures") of BancFirst
Corporation. Distributions on the Capital Securities are payable January 15 and
July 15 of each year. Such distributions may be deferred for up to ten
consecutive semi-annual periods. The stated maturity date of the Capital
Securities is January 15, 2027, but they are subject to mandatory redemption
pursuant to optional prepayment terms. The Capital Securities represent an
undivided interest in the Debentures, are guaranteed by BancFirst Corporation,
and will be presented as long-term debt in the Company's consolidated financial
statements. During any deferred period or during any event of default, BancFirst
Corporation may not declare or pay any dividends on any of its capital stock.
FIRST ADA BANCSHARES,INC.
In March 1997, the Company acquired 22.5% of the common stock outstanding
of First Ada Bancshares, Inc. of Ada, Oklahoma for cash of $4.95 million. This
investment will be accounted for under the equity method of accounting.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATION
The Company is registered as a bank holding company and is subject to the
regulations of the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended ("BHCA"). Bank holding companies are required to file periodic
reports with and are subject to examination by the Federal Reserve Board. The
Federal Reserve Board has issued regulations under the BHCA that require a bank
holding company to serve as a source of financial and managerial strength to its
subsidiary banks. Pursuant to such regulations, the Federal Reserve Board may
require the Company to stand ready to use its resources to provide adequate
capital funds to its banking subsidiaries during periods of financial stress or
adversity. Under the Federal Deposit Insurance Corporation Improvement Act of
1991 (the "Improvement Act"), a bank holding company is required to guarantee
the compliance of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency, up to specified limits. See "Improvement Act and Related Regulations,"
below. Under the BHCA, the Federal Reserve Board has the authority to require a
bank holding company to terminate any activity or relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve Board's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank subsidiary of
the bank holding company.
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The BHCA prohibits the Company from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve
Board. The BHCA also prohibits the Company from acquiring control of any bank
operating outside the State of Oklahoma unless such action is specifically
authorized by the statutes of the state where the bank to be acquired is
located. Similar restrictions apply to acquisition of control of shares of
stock of the Company or BancFirst by other bank holding companies.
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a nonbanking business unless
such business is determined by the Federal Reserve Board to be so closely
related to banking as to be a proper incident thereto. The BHCA does not place
territorial restrictions on the activities of such nonbanking-related
activities. In determining whether a particular activity is a proper incident
to banking or managing or controlling banks, the Federal Reserve Board must
consider whether performance of an activity by an affiliate of a bank holding
company can reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition or gains in efficiency. The benefits
of activity must also outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
CAPITAL ADEQUACY GUIDELINES
The Federal Reserve Board is the federal regulatory and examining authority
for bank holding companies. The Federal Reserve Board has adopted capital
adequacy guidelines for bank holding companies, to which the Company is subject.
Bank holding companies, such as the Company, and their bank subsidiaries
are required to maintain three capital ratios which measure capital adequacy.
Capital is separated into "Tier I Capital" (as applied to the Company, common
stockholders' equity, less certain intangible assets) and "Tier 2 Capital" (as
applied to the Company, a limited amount of the general loan allowance).
The first two ratios, which are based on the degree of credit risk in the
Company's assets, provide for weighting assets based on assigned risk factors
and include off-balance-sheet items such as loan commitments and stand-by
letters of credit. The ratio of total capital (Tier I Capital plus Tier 2
Capital) to risk-weighted assets and off-balance-sheet commitments and
contingencies must be at least 8.0% and the ratio of Tier I Capital to risk-
weighted assets and off-balance-sheet commitments must be at least 4.0%.
The capital leverage ratio supplements the risk-based capital guidelines.
Banks and bank holding companies are to maintain a minimum ratio of Tier I
Capital to average adjusted total assets of 3.0%.
These ratio requirements are minimums. Any institution operating at or near
those levels would be expected by the regulators to have well-diversified risk,
including no undue interest rate risk exposures, excellent asset quality, high
liquidity, and good earnings and, in general, would have to be considered a
strong banking organization. All other organizations and any institutions
experiencing or anticipating significant growth are expected to maintain capital
ratios at least one to two percent above the minimum levels, and higher capital
ratios can be required if warranted by particular circumstances or risk profile.
For information regarding the Company's recent historical capital ratios,
see "Selected Financial Data". BancFirst is subject to similar capital
requirements.
The Improvement Act directs that each federal banking agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum
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ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, a minimum ratio of market value to book value for publicly traded
shares, and such other standards as the agency deems appropriate. The Federal
Reserve Board and the FDIC, in consultation with the other federal banking
agencies, has adopted a final rule and guidelines with respect to external and
internal audit procedures and internal controls in order to implement those
provisions of the Improvement Act intended to facilitate the early
identification of problems in financial management of depository institutions.
The Federal Reserve Board and the FDIC have also issued proposed rules
prescribing standards relating to certain other of the management and
operational standards listed above. The full impact of such rules and guidelines
and proposed standards on the Company and the Bank cannot yet be ascertained.
IMPROVEMENT ACT AND RELATED REGULATIONS
Prompt Corrective Action Rule. The Improvement Act requires each Federal
banking agency to specify within nine months after the date of enactment of the
statute, by regulation, the levels at which an insured institution would be
considered "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." In October
1992, each of the Federal banking agencies issued uniform final regulations
defining such capital levels. Under these regulations, a bank would be
considered "well capitalized" if it has (i) a total risk-based capital ratio of
10% or greater, (ii) a Tier I risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level. An "adequately
capitalized" bank is defined under the regulations as one that has (i) a total
risk-based capital ratio of 8% or greater, (ii) a Tier I risk-based capital
ratio of 4% or greater, (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with the highest composite regulatory examination
rating) and (iv) does not meet the definition of a well capitalized bank. A
bank would be considered (A) "undercapitalized" if it has (i) a total risk-based
capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less
than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of a bank
with the highest regulatory examination rating of 1); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, (ii) a Tier I risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3%; and (C) "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets of equal to or less than 2%.
Notwithstanding the foregoing, the applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require an "adequately
capitalized" or "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a reclassification could
be made if the regulatory agency determines that the institution is in an unsafe
or unsound condition (which could include unsatisfactory examination ratings).
Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration plans
to the appropriate Federal banking regulator and are subject to restrictions on
operations, including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as dividends, and
growing without regulatory approval. Moreover, in order for an undercapitalized
institution's capital restoration plan to be accepted by its applicable Federal
banking regulator, a company controlling such undercapitalized depository
institution will be required to guarantee its subsidiary's compliance with the
capital restoration plan up to an amount equal to the lesser of 5% of such
subsidiary institution's assets or the amount of the capital deficiency when
such institution first fails to meet the plan. Effective as of December 19,
1993, loans to undercapitalized institutions from the Federal Reserve Banks are
generally restricted.
Significantly or critically undercapitalized institutions and
undercapitalized institutions that do not submit and comply with capital
restoration plans acceptable to the applicable Federal banking regulator are
subject to one or more of the following sanctions: (i) forced sale of shares to
raise capital, or, where grounds exist for the appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) limitations on interest rates paid on deposits; (iv) further restrictions
on growth or required shrinkage; (v) replacement of directors or senior
executive directors, subject to certain grandfather provisions for those elected
prior to the enactment of the Improvement Act; (vi) prohibitions on the receipt
of correspondent deposits;
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(vii) restrictions on capital distributions by the holding companies of such
institutions; (viii) required divestiture of subsidiaries by the institution; or
(ix) other restrictions, as determined by the regulator. In addition, the
compensation of executive officers will be frozen at the level in effect when
the institution failed to meet the capital standards and may be increased only
with the applicable Federal banking regulator's prior written approval. The
applicable Federal banking regulator is required to impose a forced sale of
shares or merger, restrictions on affiliate transactions and restrictions on
rates paid on deposits unless it determines that such actions would not further
an institution's capital improvement.
In addition to the foregoing, a critically undercapitalized institution
would be prohibited from making any payment of principal or interest on
subordinated debt without the concurrence of its regulator and the FDIC,
beginning 60 days after the institution becomes critically undercapitalized. A
critically undercapitalized institution may not, without FDIC approval: (i)
enter into material transactions outside of the ordinary course of business;
(ii) extend credit on highly leveraged transactions; (iii) amend its charter or
bylaws; (iv) make any material change in its accounting methods; (v) engage in
any covered transactions with affiliates; (vi) pay excessive compensation or
bonus (as defined); or (vii) pay rates on liabilities significantly in excess of
market rates.
Brokered Deposits. In May 1992, the FDIC issued regulations implementing
provisions of the Improvement Act regulating brokered deposits. "Brokered
deposits" are defined as deposits solicited through deposit brokers or deposits
which an insured depository institution attracts by offering significantly
above-market interest rates (as defined). Under the new regulations, "well
capitalized" banks may accept brokered deposits without restriction, "adequately
capitalized" banks may accept brokered deposits with a waiver from the FDIC
(subject to certain restrictions imposed on payment of rates), while
"undercapitalized" banks may not accept brokered deposits. "Well capitalized"
banks are defined in the regulations as those with a Tier I risk-based capital
to risk-weighted assets ratio of not less than 6%, a Tier I leverage capital to
total book assets ratio of not less than 5%, and a total risk-based capital to
risk-weighted assets ratio of not less than 10%. "Adequately capitalized" banks
are those that at least meet their regulatory capital requirements but are not
"well capitalized," as defined in the previous sentence. BancFirst does not
accept brokered deposits.
Other Matters. The Improvement Act requires the Federal banking agencies to
review and, under certain circumstances, prescribe more stringent accounting and
reporting requirements than those required by generally accepted accounting
principles. Such agencies also are required to develop regulations requiring
disclosure of contingent assets and liabilities and, to the extent feasible and
practicable, supplement disclosure of the estimated fair market value of assets
and liabilities.
The foregoing necessarily is a general description of certain provisions of
the Improvement Act and does not purport to be complete. Moreover, many of the
provisions of the Improvement Act will be implemented through the adoption of
regulations by the various Federal banking agencies. Several of the significant
provisions of the legislation will not become effective until several years
after enactment. The effect of the Improvement Act on the Company and BancFirst
will not be fully ascertainable until after these regulations are adopted.
REGULATORY RESTRICTIONS ON DIVIDENDS
BancFirst, as a member bank of the Federal Reserve System, may not declare
a dividend without the approval of the Federal Reserve Board unless the dividend
to be declared by BancFirst does not exceed the total of (i) BancFirst's net
profits (as defined and interpreted by regulation) for the current year to date
plus (ii) its retained net profits (as defined and interpreted by regulation)
for the preceding two years, less any required transfers to surplus. In
addition, BancFirst can only pay dividends to the extent that its retained net
profits (including the portion transferred to surplus) exceed its bad debts (as
defined by regulation). Under the Federal Deposit Insurance Act, no dividends
may be paid by an insured bank if the bank is in arrears in the payment of any
insurance assessment due to the FDIC.
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Under these provisions BancFirst may declare during 1997, without prior
regulatory approval, aggregate dividends of $13.4 million, plus net profits
earned to the date of such dividend declaration in 1997.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. See "Capital Adequacy
Guidelines," above. Adherence to such standards further limits the ability of
banks to pay dividends.
The payment of dividends by any subsidiary bank may also be affected by
other regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
has formal and informal policies which provide that insured banks and bank
holding companies should generally pay dividends only out of current operating
earnings.
DEPOSIT INSURANCE
The Improvement Act also required that the FDIC insurance assessments move
from flat-rate premiums to a system of risk-based premium assessments, in order
to recapitalize the Bank Insurance Fund (the "BIF") at a reserve ratio specified
in the Improvement Act. Beginning in January 1993, BIF members have paid an
annual assessment rate of between 23 and 31 cents per $100 of domestic deposits,
depending on the risk classification assigned by the FDIC to the BIF member. The
FDIC was also granted authority under the Improvement Act to impose special
assessments on insured depository institutions to repay FDIC borrowings from the
United States Treasury or other sources. Effective June 1, 1995, the assessment
rates were dropped to 4 cents for the lowest risk classification and up to 31
cents for the highest risk classification. Effective January 1, 1996, the rates
were dropped to a range of zero to 27 cents. Effective January 1, 1997, a
special assessment was enacted to fund payment of Financing Corporation
obligations. The special assessment rate for 1997 through 1999 is 1.29 cents and
for 2000 through 2017, it is 2.43 cents.
STATE REGULATION
BancFirst is an Oklahoma-chartered state bank. Accordingly, BancFirst's
operations are subject to various requirements and restrictions of state law
relating to loans, lending limits, interest rates payable on deposits,
investments, mergers and acquisitions, borrowings, dividends, capital adequacy,
and other matters. Because BancFirst is a member of the Federal Reserve System,
Oklahoma law provides that BancFirst must maintain reserves against deposits as
required by the Federal Reserve Act.
BancFirst is subject to primary supervision, periodic examination and
regulation by the Oklahoma State Banking Department and the Federal Reserve
Board. The Oklahoma State Bank Commissioner is authorized by statute to accept
a Federal Reserve System examination in lieu of a state examination. In
practice, the Federal Reserve Board and the Oklahoma State Banking Department
alternate examinations of BancFirst. If, as a result of an examination of a
bank, the Oklahoma State Banking Department determines that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity, or other aspects of the bank's operations are unsatisfactory or that
the management of the bank is violating or has violated any law or regulation,
various remedies, including the remedy of injunction, are available to the
Oklahoma State Banking Department.
Since 1983, Oklahoma law has permitted a bank holding company to own or
control more than one bank, but each additional bank acquisition may not cause
such bank holding company's controlled banks to hold combined deposits which
exceed 11% of the aggregate deposits of all insured financial institutions in
Oklahoma. Additionally, under Oklahoma's interstate banking law, out-of-state
bank holding companies are permitted to acquire Oklahoma banks or bank holding
companies; however, further branching by an acquired Oklahoma bank is prohibited
for a four-year period from the date of its acquisition by an out-of-state bank
holding company unless that company's
8
principal place of business is in a state which has enacted reciprocal
legislation authorizing Oklahoma bank holding companies to acquire banks or bank
holding companies in such state.
The branching rights of all state and national banks located in Oklahoma
are limited by the Oklahoma Banking Code. A bank may establish and maintain up
to two de novo branches which may be located (i) within the same city as the
main bank, or (ii) within 25 miles of the main bank if located in a city or town
which has no main office of a state or national bank. In addition, a state or
national bank located in Oklahoma may form branches anywhere in Oklahoma by
acquiring an unlimited number of other Oklahoma banks, savings and loan
associations or their branches, provided that such acquisitions will not result
in the acquiring bank's direct or indirect ownership or control of more than 11%
of the aggregate deposits of all insured financial institutions in Oklahoma. A
bank located in Oklahoma may also establish two de novo off-premises limited-
purpose facilities (generally referred to as "drive-ins"), one of which must be
located within not more than 1,000 feet of the bank's main office and the second
to be located within three miles of the bank's main office. Such facilities may
be of unlimited size, and all banking functions may be performed there except
the on-premises approval of loans. BancFirst utilized its statutory authority to
establish a de novo branch in Oklahoma City in 1996, but still retains its
authority to establish one de novo branch and two de novo limited purpose
facilities with respect to its main office in Oklahoma City.
GOVERNMENTAL MONETARY AND FISCAL POLICIES
The commercial banking business is affected directly by the monetary
policies of the Federal Reserve Board and by the fiscal policies of federal,
state and local governments. The Federal Reserve Board, in fulfilling its role
of stabilizing the nation's money supply, utilizes several operating tools, all
of which directly impact commercial bank operations. The primary tools used by
the Federal Reserve Board are changes in reserve requirements on member bank
deposits and other borrowings, open market operations in the U.S. Government
securities market, and control over the availability and cost of members' direct
borrowings from the "discount window."
Banks act as financial intermediaries in the debt capital markets and are
active participants in these markets daily. As a result, changes in governmental
monetary and fiscal policies have a direct impact upon the level of loans and
investments, the availability of sources of lendable funds, and the interest
rates earned from and paid on these instruments. It is not possible to predict
accurately the future course of such government policies and the residual impact
upon the operations of the Company.
RECENTLY ENACTED FEDERAL LEGISLATION
The recently enacted federal Riegle-Neal Interstate Banking and Branch
Efficiency Act of 1994 will increase the ability of the Company and other bank
holding companies to make interstate acquisitions and to operate their
subsidiary banks. Commencing on September 29, 1995, adequately capitalized and
adequately managed bank holding companies will be permitted to acquire banks
located anywhere in the United States without regard to the provisions of any
state laws prohibiting such acquisitions. Interstate acquisitions will not be
permitted, however, if the potential acquirer would control more than ten
percent of the insured deposits in the United States or more than 30 percent of
insured deposits in the home state of the bank to be acquired or in any state in
which such bank has a branch. States may enact statutes increasing the 30
percent limit and may also lower such limit if they do so on a non-
discriminatory basis. States will also be permitted to prohibit acquisitions of
banks that have been established for fewer than five years. The Board of
Governors of the Federal Reserve System is required to consider the applicant's
record under the federal Community Reinvestment Act in determining whether to
approve an interstate banking acquisition.
The new statute also permits, after June 1, 1997, interstate branch banking
in all states by adequately capitalized and adequately managed banks, but a
state may enact specific legislation before June 1, 1997 prohibiting interstate
branch banking in that state, in which event banks headquartered in the state
will not be permitted to branch into other states. A state may also enact
legislation permitting non-discriminatory interstate branch banking in such
state before June 1, 1997. Applications for interstate branching authority will
be subjected to regulatory
9
scrutiny of compliance with both federal and state community reinvestment
statutes with respect to all of the banks involved in the proposed transaction.
The Company is unable to predict with any certainty the effect any such
legislation would have on the Company, its subsidiaries or their respective
activities.
PENDING AND PROPOSED LEGISLATION
There are various pending and proposed bills in Congress that, among other
things, could restructure the federal supervision of financial institutions.
The Company is unable to predict with any certainty the effect any such
legislation would have on the Company, its subsidiaries or their respective
activities.
ITEM 2. PROPERTIES.
The principal offices of the Company are located at 101 North Broadway,
Suite 200, Oklahoma City, Oklahoma 73102. The Company owns substantially all of
the properties and buildings in which its various offices and facilities are
located. These properties include 39 full service branches and 10 limited
service detached facilities. BancFirst also owns properties for future
expansion. There are no significant encumbrances on any of these properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named as a defendant in various legal actions arising
from the conduct of its normal business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
BancFirst Common Stock is listed on the Nasdaq National Market System
("NASDAQ/NMS") and is traded under the symbol "BANF." The following table sets
forth, for the periods indicated, (i) the high and low sales prices of BancFirst
Common Stock as reported in the NASDAQ/NMS consolidated transaction reporting
system and (ii) the quarterly dividends declared on BancFirst Common Stock.
10
PRICE RANGE CASH
----------------- DIVIDENDS
HIGH LOW DECLARED
----- ----- --------
1996
First Quarter....... $21 3/4 $19 $0.08
Second Quarter...... $21 3/4 $20 5/8 $0.08
Third Quarter....... $25 3/4 $20 1/2 $0.08
Fourth Quarter...... $27 1/2 $24 1/2 $0.10
1995
First Quarter....... $15 3/4 $13 3/4 $0.07
Second Quarter...... $15 3/4 $14 1/2 $0.07
Third Quarter....... $ 20 $18 7/8 $0.07
Fourth Quarter...... $22 1/2 $18 $0.08
As of February 28, 1997, there were approximately 329 holders of record of
the Common Stock.
Future dividend payments will be determined by the Company's Board of
Directors in light of the earnings and financial condition of the Company and
the Bank, their capital needs, applicable governmental policies and regulations
and such other factors as the Board of Directors deems appropriate.
BancFirst Corporation is a legal entity separate and distinct from the
Bank, and its ability to pay dividends is substantially dependent upon dividend
payments received from the Bank. Various laws, regulations and regulatory
policies limit the Bank's ability to pay dividends to BancFirst Corporation, as
well as BancFirst Corporation's ability to pay dividends to its shareholders.
See "Liquidity and Funding" and "Capital Resources" under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Business - "Supervision and Regulation" and Note 15 of the Notes
to Consolidated Financial Statements for further information regarding
limitations on the payment of dividends by BancFirst Corporation and the Bank.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from "Selected Consolidated Financial Data"
contained on page A-2 of the attached Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Incorporated by reference from "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained on pages A-3 through A-
14 of the attached Appendix.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of BancFirst Corporation and its
subsidiaries, are incorporated by reference from pages A-15 through A-43 of the
attached Appendix, and include the following:
11
a. Reports of Independent Accountants
b. Consolidated Balance Sheet
c. Consolidated Statement of Income
d. Consolidated Statement of Stockholders' Equity
e. Consolidated Statement of Cash Flows
f. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no material disagreements between the Company and its
independent accountants on accounting and financial disclosure matters which are
required to be reported under this Item for the period for which this report is
filed.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 401 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Election of Directors" and is hereby
incorporated by reference. The information required by Item 405 of Regulation
S-K will be contained in the 1997 Proxy Statement under the caption "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" and is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 402 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Compensation of Directors and
Executive Officers" and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 403 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Stock Ownership" and is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 404 of Regulation S-K will be contained in
the 1997 Proxy Statement under the caption "Transactions with Management" and is
hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheet at December 31, 1996 and 1995
Consolidated Statement of Income for the three years ended December
31, 1996
12
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1996
Consolidated Statement of Cash Flows for the three years ended
December 31, 1996
Notes to Consolidated Financial Statements
The above financial statements are incorporated by reference from
pages A-15 through A-43 of the attached Appendix.
(2) All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) The following Exhibits are filed with this Report or are incorporated
by reference as set forth below:
EXHIBIT
NUMBER EXHIBIT
- ------- ----------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated October 28, 1994 among
BancFirst, State National Bank, Marlow, and certain shareholders of
State National Bank (filed as Exhibit 2.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 and
incorporated herein by reference).
2.2 Agreement and Plan of Reorganization dated September 16, 1995 between
BancFirst and City Bankshares, Inc. (filed as Exhibit 2.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by reference).
2.3 Agreement dated September 16, 1995 between BancFirst and William O.
Johnstone (filed as Exhibit 2.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 and incorporated
herein by reference).
3.1 Amended and Restated Certificate of Incorporation (filed as Exhibit
No. 33 to the Company's Registration Statement on Form S-2, File No.
33-58804, and incorporated herein by reference).
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation (filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference).
3.3 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation (filed as Exhibit 3.0 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference).
3.4 Amended By-Laws (filed as Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
4.1 Amended and Restated Declaration of Trust of BFC Capital Trust I dated
as of February 4, 1997 (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated February 4, 1997 and incorporated herein by
reference).
4.2 Indenture dated as of February 4, 1997 (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated February 4, 1997 and
incorporated herein by reference).
4.3 Series A Capital Securities Guarantee Agreement dated as of February
4, 1997 (filed as Exhibit 4.3 to the Company's Current Report on Form
8-K dated February 4, 1997 and incorporated herein by reference).
13
EXHIBIT
NUMBER EXHIBIT
- ------- ----------------------------------------------------------------------
10.10 United Community Corporation (now BancFirst Corporation) Stock Option
Plan (filed as Exhibit 10.09 to the Company's Registration Statement
on Form S-4, file No. 33-13016 and incorporated herein by reference).
10.11 BancFirst Corporation Employee Stock Ownership and Thrift Plan (filed
as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
22.1* Subsidiaries of Registrant.
27.1* Financial Data Schedule.
_______________________________
* Filed herewith.
(b) No reports on Form 8-K have been filed by the Company during the fourth
quarter of the year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 31, 1997 BANCFIRST CORPORATION
(Registrant)
/s/ David E. Rainbolt
--------------------------------------------
David E. Rainbolt
President and Chief Executive Officer
14
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1997.
/s/ H. E. Rainbolt /s/ Robert A. Gregory
- ------------------------------------ ------------------------------------
H. E. Rainbolt Robert A. Gregory
Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
/s/ Stephen R. Lindemood /s/ David E. Rainbolt
- ------------------------------------ ------------------------------------
Stephen R. Lindemood David E. Rainbolt
President, BancTrust and Director President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ J. Ralph McCalmont /s/ William O. Johnstone
- ------------------------------------ ------------------------------------
J. Ralph McCalmont William O. Johnstone
Vice Chairman of the Board Vice Chairman of the Board
(Principal Executive Officer) (Principal Executive Officer)
/s/ Joe T. Shockley, Jr.
- ------------------------------------ ____________________________________
Melvin Moran
Executive Vice President, Director
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ Randy P. Foraker
____________________________________ ------------------------------------
John T. Hannah Randy P. Foraker
Director Senior Vice President, Controller
and Secretary/Treasurer
(Principal Accounting Officer)
____________________________________
J. R. Hutchens, Jr.
Director
15
APPENDEX A
BANCFIRST CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
PAGES
--------------
Selected Consolidated Financial Data................................................... A-2
Management's Discussion and Analysis of Financial Condition and Results of Operations A-3 -- A-14
Reports of Independent Accountants..................................................... A-15
Consolidated Balance Sheet............................................................. A-16
Consolidated Statement of Income....................................................... A-17
Consolidated Statement of Stockholders' Equity......................................... A-18
Consolidated Statement of Cash Flows................................................... A-19
Notes to Consolidated Financial Statements............................................. A-20 -- A-43
A-1
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- --------- --------- ---------
INCOME STATEMENT DATA:
Net interest income $ 53,784 $ 43,689 $ 38,936 $ 32,971 $ 30,041
Provision for possible loan losses 994 855 380 251 700
Noninterest income 14,999 12,500 11,218 10,547 8,612
Noninterest expense 43,270 34,932 31,631 29,151 26,792
Income before extraordinary items 15,088 12,839 11,597 10,154 8,955
Net income 15,088 12,839 11,597 11,472 11,161
Accumulated preferred dividends -- -- (55) (386) (908)
Net income applicable to common stockholders 15,088 12,839 11,542 11,086 10,253
BALANCE SHEET DATA:
Total assets $1,235,711 $1,048,338 $872,915 $823,234 $705,097
Total loans (net of unearned interest) 763,559 625,162 522,314 466,356 382,498
Allowance for possible loan losses 11,945 10,646 9,729 9,027 7,202
Securities 283,857 263,113 223,044 231,546 204,001
Deposits 1,105,453 923,169 784,851 736,686 636,633
Long-term borrowings 6,636 918 -- -- --
10% Preferred Stock -- -- -- 3,898 3,829
Common stockholders' equity 112,096 98,343 81,961 76,052 46,929
PER COMMON SHARE DATA:
Income before extraordinary items $ 2.33 $ 2.01 $ 1.80 $ 1.77 $ 1.70
Net income 2.33 2.01 1.80 2.01 2.17
Cash dividends 0.34 0.29 0.25 0.21 0.05
Book value 17.52 15.80 13.21 12.27 9.94
Tangible book value 15.19 14.50 11.93 11.02 8.31
SELECTED FINANCIAL RATIOS:
Performance ratios:
Return on average assets 1.31% 1.33% 1.34% 1.54% 1.62%
Return on average stockholders' equity 14.68 14.13 14.36 17.03 21.58
Cash dividend payout ratio 14.59 14.43 13.89 10.45 2.30
Net interest spread 4.51 4.34 4.56 4.54 4.50
Net interest margin 5.35 5.20 5.20 5.14 5.08
Efficiency ratio 62.91 62.17 63.07 66.99 69.31
Balance Sheet Ratios:
Average loans to deposits 68.81% 67.02% 63.39% 61.82% 56.78%
Average earning assets to total assets 88.27 88.31 88.05 88.47 88.58
Average earning assets to interest-bearing liabilities 125.17 124.21 123.76 122.39 117.11
Asset Quality Ratios:
Nonperforming and restructured loans to total loans 0.75% 0.79% 0.71% 1.00% 0.99%
Nonperforming and restructured assets to total assets 0.57 0.55 0.70 1.08 1.61
Allowance for possible loan losses to total loans 1.56 1.70 1.86 1.94 1.88
Allowance for possible loan losses to nonperforming
and restructured loans 207.31 216.73 261.53 193.21 190.88
Net chargeoffs to average loans 0.09 0.08 0.00 0.06 0.07
Capital Ratios:
Average stockholders' equity to average assets 8.93% 9.43% 9.34% 9.06% 7.50%
Leverage ratio 7.90 8.55 9.08 9.06 7.41
Tier I risk-based capital ratio 12.98 14.76 15.41 16.57 13.80
Total risk-based capital ratio 14.23 16.02 16.67 17.83 15.06
A-2
FINANCIAL REVIEW
The following discussion is an analysis of the financial condition and
results of operations of the Company for the three years ended December 31, 1996
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and the Selected Consolidated Financial Data included herein.
SUMMARY
BancFirst Corporation continued its growth in 1996 and posted its sixth
consecutive year of record earnings. After completing two acquisitions during
the year and opening a new branch in Oklahoma City, the Company now serves 28
communities in Oklahoma, more than any other bank. BancFirst was the first
state-chartered bank in Oklahoma to surpass $1 billion in assets and is the
fourth largest bank in the state.
Net income for 1996, rose to $15.1 million, from $12.8 million for 1995 and
$11.6 million for 1994. The corresponding earnings per share was $2.33 for 1996,
up from $2.01 for 1995 and $1.80 for 1994. Return on average assets was 1.31%
for 1996 compared to 1.33% for 1995 and 1.34% for 1994. Return on average
stockholders' equity increased to 14.68% from 14.13% for 1995 and 14.36% for
1994.
Total assets increased $188 million, to $1.24 billion, as a result of
acquisitions and internal growth. Total loans increased $138 million, including
internal growth of over 8%. Total deposits increased $182 million from both
acquisitions and internal growth. Stockholders' equity increased $13.8 million
while average stockholders' equity to average assets decreased to 8.93%, from
9.43% for 1995.
Asset quality remained high in 1996 with nonperforming and restructured
assets to total assets of 0.57%, compared to 0.55% for 1995. The allowance for
possible loan losses to nonperforming and restructured loans was 207.31% at
year-end 1996 and 216.73% at the end of 1995.
In March 1996, the Company acquired City Bankshares, Inc. of Oklahoma City,
Oklahoma ("City Bankshares") which had assets of $136 million. City Bankshares'
seven locations significantly expanded the Company's branch network in Oklahoma
City. At the same time, the Company opened a de novo branch in Oklahoma City,
giving it a total of nine locations in this important metropolitan area.
In October 1996, the Company acquired Commerce Bancorporation, Inc. of
McLoud, Oklahoma ("Commerce Bancorp"), which had $18 million in total assets.
The acquisition of Commerce Bancorp complements the Company's existing locations
in Shawnee, Oklahoma.
In January 1997, BancFirst Corporation established BFC Capital Trust I (the
"Trust") which issued $25 million of 9.65% Capital Securities, Series A (the
"Capital Securities") in February 1997. The proceeds of the Capital Securities
may be used for future acquisitions, purchases of the Company's common stock and
for general corporate purposes.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is the Company's principal source of operating
revenue, increased 23.1% in 1996 to $53.8 million, after increasing 12.2% in
1995 and 18.1% in 1994. The net interest margin on a taxable equivalent basis
for 1996 was 5.35%, up from 5.20% for 1995 and 1994. The Company's net interest
margin has benefited in recent years from generally stable interest rates
combined with relatively strong loan demand. It is therefore reasonable to
expect that the Company's relatively high net interest margin may decline to
more historical levels in the absence of a continuation of this trend.
A-3
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSIS
Taxable Equivalent Basis (Dollars in thousands)
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- ----------------------------- -----------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
ASSETS BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ---- ------- ------- ----
Earning Assets:
Loans (1) $ 710,115 $69,342 9.76% $577,887 $58,199 10.07% $493,300 $45,995 9.32%
Investments - taxable 265,488 16,546 6.23 233,777 13,937 5.96 225,257 12,214 5.42
Investments - tax exempt 11,042 937 8.49 11,059 945 8.55 10,445 925 8.86
Federal funds sold 29,287 1,572 5.37 28,515 1,673 5.87 32,991 1,350 4.09
---------- ------- -------- ------- -------- -------
Total earning assets 1,015,932 88,397 8.70 851,238 74,754 8.78 761,993 60,484 7.94
---------- ------- -------- ------- -------- -------
Nonearning assets:
Cash and due from banks 73,111 67,348 59,400
Interest receivable and 73,542 55,543 53,392
other assets
Allowance for possible (11,598) (10,162) (9,372)
loan losses
---------- -------- --------
Total nonearning assets 135,055 112,729 103,420
---------- -------- --------
Total assets $1,150,987 $963,967 $865,413
========== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Transaction deposits $ 111,633 3,052 2.73% $179,435 $ 5,882 3.28% $173,647 $ 4,899 2.82%
Savings deposits 275,868 8,582 3.11 154,482 5,848 3.79 156,920 4,828 3.08
Time deposits 416,253 21,958 5.28 346,807 18,435 5.32 284,625 11,054 3.88
Short-term borrowings 6,298 364 5.78 4,403 253 5.75 527 19 3.60
Line of credit -- -- -- -- 16 NM -- 38 NM
Long-term borrowings 1,560 103 6.60 216 14 6.48 -- -- --
---------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 811,612 34,059 4.20 685,343 30,448 4.44 615,719 20,838 3.38
---------- ------- -------- ------- -------- -------
Interest-free funds:
Demand deposits 228,291 181,495 163,002
Interest payable and other 8,278 6,259 5,903
liabilities
Stockholders' equity 102,806 90,870 80,789
---------- -------- --------
Total interest-free funds 339,375 278,624 249,694
---------- -------- --------
Total liabilities and
stockholders' equity $1,150,987 $963,967 $865,413
========== ======== ========
Net interest income $54,338 $44,306 $39,646
======= ======= =======
Net interest spread 4.51% 4.34% 4.56%
==== ==== ====
Net interest margin 5.35% 5.20% 5.20%
==== ==== ====
(1) Nonaccrual loans are included in the average loan balances and any interest
on such nonaccrual loans is recognized on a cash basis.
NM -- Not Meaningful.
A-4
Changes in the volume of earning assets and interest-bearing liabilities,
and changes in interest rates determine the change in net interest income. The
substantial increases in net interest income in recent years have been due to
volume changes rather than changes in interest rates. The Volume/Rate Analysis
summarizes the relative contribution of each of these components to the
increases in net interest income in 1996 and 1995. The increase in net interest
income in 1996 can be attributed to the increase in loan volume and an increase
in the ratio of average earning assets to interest-bearing liabilities. Average
loans rose 22.9% and average loans to deposits increased to 68.81% from 67.02%
for 1995. At the same time, average earning assets to interest-bearing
liabilities increased to 125.17% from 124.24%. Rising interest rates in 1995
produced a negative rate variance which partially offset the increase in net
interest income from loan growth.
CHANGE IN 1996 CHANGE IN 1995
-------------------------------- ----------------------------
DUE TO DUE TO
VOLUME DUE TO VOLUME DUE TO
TOTAL (1) RATE TOTAL (1) RATE
---------- -------- ------- ------- ------ -------
INCREASE (DECREASE) IN: (Dollars in thousands)
INTEREST INCOME:
Loans $11,145 $13,245 $(2,100) $12,202 $7,903 $ 4,299
Securities--taxable 2,609 2,112 497 1,723 763 960
Securities--tax-exempt (8) (2) (6) 20 60 (40)
Federal funds sold (101) 45 (146) 324 (183) 507
------- ------- ------- ------- ------ -------
Total interest income 13,645 15,400 (1,755) 14,269 8,543 5,726
------- ------- ------- ------- ------ -------
INTEREST EXPENSE:
Transaction deposits (2,831) (2,235) (596) 983 162 821
Savings deposits 2,734 4,368 (1,634) 1,020 (91) 1,111
Time deposits 3,523 3,763 (240) 7,383 2,457 4,926
Short-term borrowings 95 112 (17) 234 14 220
Line of credit -- -- -- (22) -- (22)
Long-term borrowings 89 87 2 14 -- 14
------- ------- ------- ------- ------ -------
Total interest expense 3,610 6,095 (2,485) 9,612 2,542 7,070
------- ------- ------- ------- ------ -------
Net interest income $10,035 $ 9,305 $ 730 $ 4,657 $6,001 $(1,344)
======= ======= ======= ======= ====== =======
(1) The change in interest due to change in mix has been allocated in total to
volume changes.
Interest rate sensitivity analysis measures the sensitivity of the
Company's net interest margin to changes in interest rates by analyzing the
repricing relationship between its earning assets and interest-bearing
liabilities. This analysis is limited by the fact that it presents a static
position as of a single day and is not necessarily indicative of the Company's
position at any other point in time, and does not take into account the
sensitivity of yields and rates of specific assets and liabilities to changes in
market rates. In 1996, Management continued its strategy of creating manageable
negative interest sensitivity gaps. This approach takes advantage of the
Company's stable core deposit base and the relatively short maturity and
repricing frequency of its loan portfolio, as well as the historical existence
of a positive yield curve, which enhances the net interest margin over the long
term. Although interest rate risk is increased on a controlled basis by this
position, it is somewhat mitigated by the Company's high level of liquidity.
The Analysis of Interest Rate Sensitivity presents the Company's earning
assets and interest-bearing liabilities based on maturity and repricing
frequency at December 31, 1996. At this date, interest-bearing liabilities
exceeded earning assets by $180 million in the three month interval. This
negative gap position assumes that the Company's core savings and transaction
deposits are immediately rate sensitive and reflects Management's perception
that the yield curve will be positive over the long term. In 1991 through 1993
the yield curve became steeper as short-term interest rates decreased
significantly. This condition resulted in higher net interest margins for the
Company. In 1994 and 1995, the yield curve flattened as short-term interest
rates rose, then remained relatively stable in 1996. When the yield curve
flattens, the Company's net interest margin would be expected to decline, unless
the Company adjusts its interest sensitivity gap position, or employs other
strategies to control the rise in rates on interest-bearing liabilities or to
increase the yield on earning assets. In recent years, the Company's loan growth
and increases in noninterest-bearing funding sources have resulted in lower
negative gaps in the zero to 12 months range. This has largely offset the
effects of the flatter yield curve. In 1996, the cumulative 12 months negative
gap decreased to 14.06%, from 18.06% at December 31, 1995.
A-5
INTEREST RATE NONINTEREST RATE
SENSITIVE SENSITIVE
---------------------- ----------------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
-------- ------- ------- -------- ----------
(Dollars in thousands)
EARNING ASSETS:
Loans $ 303,142 $ 182,260 $211,142 $ 67,015 $ 763,559
Federal funds sold 44,785 -- -- -- 44,785
Securities 45,496 58,577 140,201 39,583 283,857
--------- --------- -------- --------- ----------
Total $ 393,423 $ 240,837 $351,343 $ 106,598 $1,092,201
========= ========== ======== ========= ==========
FUNDING SOURCES:
Noninterest-bearing demand deposits (1) $ -- $ -- $ -- $ 129,810 $ 129,810
Savings and transaction deposits 404,707 -- -- -- 404,707
Time deposits of $100 or more 48,942 50,858 13,323 -- 113,123
Time deposits under $100 116,112 163,620 42,683 -- 322,415
Short-term borrowings 3,414 -- -- -- 3,414
Long-term borrowings 50 89 5,556 941 6,636
Stockholders' equity -- -- -- 112,096 112,096
--------- --------- -------- --------- ----------
Total $ 573,225 $ 214,567 $ 61,562 $ 242,847 $1,092,201
========= ========== ======== ========= ==========
Interest sensitivity gap $(179,802) $ 26,270 $289,781 $(136,249)
Cumulative gap $(179,802) $(153,532) $136,249 --
Cumulative gap as a percentage
of total earning assets (16.46)% (14.06)% 12.47% --%
(1) Represents the amount of demand deposits required to support earning assets
in excess of interest-bearing liabilities and stockholders' equity.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses increased to $994,000 for 1996 from
$855,000 for 1995, and $380,000 for 1994. These relatively low levels of
provisions reflect the Company's strong asset quality. Net loan charge-offs were
$654,000 for 1996, compared to net charge-offs of $452,000 for 1995 and net
recoveries of $5,000 for 1994. The net charge-offs for 1996 and 1995 were
equivalent to only 0.09% and 0.08% of average loans, respectively. A more
detailed discussion of the allowance for possible loan losses is provided under
"Loans."
SECURITIES TRANSACTIONS
Net gains on securities transactions were $188,000 in 1996, compared to
$111,000 in 1995, and $5,000 in 1994. The Company's general practice is to hold
its securities to maturity and it does not engage in trading activities. The
small gains from securities transactions have primarily been from securities
that have been called or from disposing of securities acquired in mergers which
had a higher than acceptable level of risk. A more detailed discussion of
securities is provided under "Securities."
OTHER NONINTEREST INCOME
Noninterest income, excluding securities transactions, increased in 1996 by
$2.42 million, or 19.5%, compared to an increase of $1.18 million, or 10.5% in
1995 and $870,000, or 8.4%, in 1994. Noninterest income has become an
increasingly important source of revenue. The Company's fee income has increased
each year since 1987 due to improved pricing strategies, enhanced product lines
and bank acquisitions. New products and strategies are being implemented which
are expected to produce continued growth in noninterest income.
Service charges on deposits increased $1.1 million, or 14%, compared to
increases of 2.98% and 16.4% in 1995 and 1994, respectively. Rising interest
rates in 1995 increased earnings credits allowed to customers charged through
account analysis, thereby reducing commercial service charges and partially
offsetting the growth in total service charges. Other noninterest income
increased $1.32 million, or 29.2%, in 1996, compared to an increase
A-6
of 26.5%, in 1995, and a decrease of 5.4% in 1994. The primary causes of the
increases were higher fees from mortgage originations, higher gains on sales of
mortgage loans and higher fees from money order sales.
NONINTEREST EXPENSE
Total noninterest expense increased in 1996 by 23.9% to $43.3 million,
compared to increases of 10.4% for 1995 and 8.5% for 1994. Salaries and employee
benefits have increased over the past three years due to acquisitions, higher
salary levels, additional staff for new product lines and increased loan demand.
Occupancy and fixed asset expense, depreciation, amortization and data
processing services all increased due to acquisitions. Data processing services
decreased in 1995 from the renegotiation of the data processing contract. Net
expense from other real estate owned of only $35,000 and $89,000 were recognized
for 1996 and 1995, compared to net income from other real estate owned of
$312,000 recognized for 1994. These amounts are reflective of the Company's
efforts to reduce nonperforming assets. Other noninterest expense decreased in
1995 due to the reduction of FDIC premiums in the last half of that year.
INCOME TAXES
Income tax expense increased to $9.43 million from $7.56 million for 1995
and $6.55 million for 1994. Prior to 1993, the Company had net operating loss
carryforwards for financial and tax reporting purposes. Consequently, its income
tax expense or benefit primarily related to matters other than the provision of
taxes for current operations. The Company utilized substantial portions of its
net operating loss carryforwards in 1993 and 1994. The remaining carryforwards
are limited as to the amounts which may be utilized each year.
Since banks have traditionally carried large amounts of tax-exempt
securities and loans, certain financial information is prepared on a taxable
equivalent basis to facilitate analysis of yields and changes in components of
earnings. Average balance sheets, income statements and other financial
statistics on a taxable equivalent basis have been presented for this purpose.
IMPACT OF INFLATION
The impact of inflation on financial institutions differs significantly
from that of industrial or commercial companies. The assets of financial
institutions are predominantly monetary, as opposed to fixed or nonmonetary
assets such as premises, equipment and inventory. As a result, there is little
exposure to inflated earnings by understated depreciation charges or
significantly understated current values of assets. Although inflation can have
an indirect effect by leading to higher interest rates, financial institutions
are in a position to monitor the effects on interest costs and yields and
respond to inflationary trends through management of interest rate sensitivity.
Inflation can also have an impact on noninterest expenses such as salaries and
employee benefits, occupancy, services and other costs.
FINANCIAL POSITION
CASH AND FEDERAL FUNDS SOLD
Cash consists of cash and cash items on hand, deposits and other amounts
due from other banks, and reserves deposited with the Federal Reserve Bank.
Federal funds sold consists of overnight investments of excess funds with other
financial institutions. The amount of cash and federal funds sold carried by the
Company is a function of the availability of funds presented to other
institutions for clearing, the Company's requirements for liquidity, operating
cash and reserves, available yields, and interest rate sensitivity management.
Balances of these items can fluctuate widely based on these various factors.
Cash and federal funds sold increased $6.23 million, or 5.4% compared to
December 31, 1995. In 1995, cash and federal funds sold increased $33.6 million,
or 41.1%, as compared to year-end 1994. However, based on average balances the
increases for 1996 and 1995 were 6.8% and 3.76%, respectively. The year-end
balances are higher than the average balances for these years due to funds
temporarily deposited by certain customers of the bank over year end.
Consequently, comparisons of year-end balances of cash and federal funds sold
are not necessarily reflective of the overall trend.
A-7
SECURITIES
During 1996, total securities increased $20.7 million, or 7.88%, compared
to an increase of $40 million, or 17.9%, in 1995. These increases were primarily
due to acquisitions.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"),
effective January 1, 1994. FAS 115 requires that investments in debt securities
be classified and accounted for in three categories: held for investment,
available for sale, and trading. As a result of adopting FAS 115, the Company
transferred approximately $183 million from securities held for investment to
securities available for sale. Prior to January 1, 1994, all securities were
classified as held for investment.
DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
HELD FOR INVESTMENT
U. S. Treasury and other federal agencies $ 22,560 $ 30,352 $ 9,505
States and political subdivisions 10,654 10,478 9,191
Other securities 75 1,175 2,083
-------- -------- --------
Total $ 33,289 $ 42,005 $ 20,779
======== ======== ========
Estimated market value $ 33,653 $ 42,577 $ 20,395
======== ======== ========
AVAILABLE FOR SALE
U. S. Treasury and other federal agencies $242,733 $216,431 $200,141
States and political subdivisions 1,284 657 747
Other securities 7,051 4,020 1,377
-------- -------- --------
Total $250,568 $221,108 $202,265
======== ======== ========
The Maturity Distribution of Securities summarizes the maturity and
weighted average taxable equivalent yields of the securities portfolios at
December 31, 1996. The Company manages its securities portfolio for liquidity
and as a tool to execute its asset/liability management strategy. Consequently,
the average maturity of the portfolio has been shortened significantly in recent
years. The percentage of securities maturing within five years increased to
85.24% in 1996 from 81.77% in 1995.
A-8
AFTER ONE YEAR AFTER FIVE YEARS
BUT BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- -------- ---------- --------- ---------- -------- -------- ------- --------- ------
HELD FOR INVESTMENT (Dollars in thousands)
U. S. Treasury and other
federal agencies $ 1,708 6.86% $ 10,980 6.86% $ 7,273 6.79% $ 2,599 6.62% $ 22,560 6.81%
State and political
subdivisions 2,235 5.47 4,834 5.35 2,372 5.59 1,213 6.19 10,654 5.52
Other securities -- -- -- -- 75 6.26 -- -- 75 6.26
------- -------- ------- ------- --------
Total $ 3,943 6.07 $ 15,814 6.40 $ 9,720 6.49 $ 3,812 6.48 $ 33,289 6.40
======= ======== ======= ======= ========
Percentage of total 11.84% 47.51% 29.20% 11.45% 100.00%
======= ======== ======= ======= ========
AVAILABLE FOR SALE
U. S. Treasury and other
federal agencies $60,833 5.79% $160,594 6.48% $11,275 6.91% $ 9,531 6.64% $242,233 6.33%
State and political
subdivisions 35 3.75 754 4.03 221 4.97 274 5.34 1,284 4.47
Other securities -- -- -- -- -- -- 7,051 5.87 7,051 5.87
------- -------- ------- ------- --------
Total $60,868 5.79 $161,348 6.47 $11,496 6.87 $16,856 6.30 $250,568 6.31
======= ======== ======= ======= ========
Percentage of total 24.29% 64.39% 4.59% 6.73 100.00%
======= ======== ======= ======= ========
Total securities $64,811 5.81 $177,162 6.46 $21,216 6.70 $20,668 6.33 $283,857 6.32
======= ======== ======= ======= ========
Percentage of total 22.83% 62.41% 7.48% 7.28% 100.00%
======= ======== ======= ======= ========
LOANS
The Company has generated significant loan growth over the past seven years
from both acquisitions and internal originations. Total loans increased $138
million, or 22.1%, in 1996, and $103 million, or 19.7%, in 1995. In 1996,
internal loan growth added $57.6 million to total loans, compared to $54 million
in 1995. Internal growth is being generated primarily by continued growth in the
Oklahoma City and Tulsa metropolitan markets and by specialized lending
activities such as guaranteed student loans, SBA guaranteed loans and
residential mortgage loans.
Composition
The Company's loan portfolio is diversified among commercial and individual
borrowers. Commercial loans are comprised principally of loans to companies in
light manufacturing, retail and service industries. Construction and development
loans totaled only $37.6 million, or 4.92% of total loans as of the end of 1996,
while oil and gas production loans totaled only $5.83 million, or 0.76% of total
loans at such date. Real estate loans are relatively equally divided between
mortgages on personal residences and loans secured by commercial and other types
of properties. Installment loans are comprised mostly of loans to individuals
for the purchase of vehicles and student loans. Loans secured by real estate
have been a large proportion of the loan portfolio for a number of years;
however, since 1989 the percentage of total loans secured by real estate has
decreased slightly. In 1996, this percentage was 52.6% compared to 56.6% for
1989. Although the percentage of the portfolio represented by real estate loans
has declined, the Company remains subject to risk from future market
fluctuations in property values. The Company attempts to manage this risk
through rigorous loan underwriting standards, training of loan officers and
close monitoring of the values of individual properties.
The majority of the commercial real estate and other commercial loans have
maturities of one year or less. However, many of these loans are renewed at
existing or similar terms after scheduled principal reductions. Also,
approximately 73% of the commercial real estate and other commercial loans had
adjustable interest rates at year-end 1996. The short maturities and adjustable
interest rates on these loans allow the Company to maintain the majority of its
loan portfolio near market interest rates.
A-9
DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ---------------- --------------- ---------------- ---------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Commercial, financial
and other $223,116 29.22% $180,923 28.94% $156,718 30.00% $131,088 28.11% $115,037 30.08%
Real estate --
construction 37,555 4.92 27,620 4.42 29,760 5.70 19,258 4.13 10,028 2.62
Real estate --
mortgage 363,671 47.63 305,456 48.86 242,143 46.36 229,143 49.13 185,982 48.62
Consumer 139,217 18.23 111,163 17.78 93,693 17.94 86,867 18.63 71,451 18.68
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $763,559 100.00% $625,162 100.00% $522,314 100.00% $466,356 100.00% $382,498 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
MATURING
------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- -------
(Dollars in thousands)
Commercial, financial and other $ 193,435 $ 29,681 $ -- $223,116
Real estate -- construction 35,051 2,504 -- 37,555
Real estate -- mortgage (excluding loans secured
by 1-4 family residential properties) 142,486 24,415 -- 166,901
--------- -------- ------- --------
Total $ 370,972 $ 56,600 $ -- $427,572
========= ======== ======= ========
Loans with predetermined interest rates $ 81,692 $ 32,909 $ -- $114,601
Loans with adjustable interest rates 289,280 23,691 -- 312,971
--------- --------- ------- -------
Total $ 370,972 $ 56,600 $ -- $427,572
========= ======== ======= ========
Percentage of total 86.76% 13.24% --% 100.00%
========= ======== ======= ========
The information relating to the maturity and rate sensitivity of loans is
based upon original loan terms and is not adjusted for "rollovers." In the
ordinary course of business, loans maturing within one year may be renewed, in
whole or in part, at interest rates prevailing at the date of renewal.
Nonperforming and Restructured Loans
Nonperforming and restructured loans have increased since 1994 primarily as
a result of acquisitions. However, nonperforming and restructured loans as a
percentage of total loans was 0.75% at year-end 1996, compared to 0.79% at year-
end 1995 and 0.71% at year-end 1994. From a historical perspective,
nonperforming loans peaked in 1986 and have gradually decreased since that time.
However, it is reasonable to expect that over the next several years the level
of nonperforming loans and loan losses will rise to more historical norms as a
result of economic and credit cycles.
Nonaccrual loans negatively impact the Company's net interest margin. A
loan is placed on nonaccrual status when, in the opinion of management, the
future collectibility of interest and/or principal is in serious doubt. Interest
income is recognized on certain of these loans on a cash basis if the full
collection of the remaining principal balance is reasonably expected. Otherwise,
interest income is not recognized until the principal balance is fully
collected. Total interest income which was not accrued on nonaccrual loans
outstanding at year end was approximately $172,000 in 1996 and $166,000 in 1995.
Only a small amount of this interest was ultimately collected.
The classification of a loan as nonperforming does not necessarily indicate
that loan principal and interest will ultimately be uncollectible. The Company's
experience is that a significant portion of both principal and interest is
eventually recovered. However, the above normal risk associated with
nonperforming loans is considered in the determination of the allowance for
possible loan losses. At year-end 1996, the allowance for possible loan losses
as a percentage of nonperforming and restructured loans was 207%, compared to
217% at the end of 1995.
A-10
DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- ------- ------- ------- --------
(Dollars in thousands)
Past due over 90 days and still accruing $ 1,476 $ 500 $ 351 $ 590 $ 378
Nonaccrual 3,643 3,724 2,715 3,278 2,370
Restructured 643 688 654 804 1,025
--------- ------- ------- ------- --------
Total nonperforming and restructured loans 5,762 4,912 3,720 4,672 3,773
Other real estate owned and repossessed assets 1,252 858 2,354 4,220 7,574
--------- ------- ------- ------- --------
Total nonperforming and restructured assets $ 7,014 $ 5,770 $ 6,074 $ 8,892 $ 11,347
========= ======= ======= ======= ========
Nonperforming and restructured loans to total loans 0.75% 0.79% 0.71% 1.00% 0.99%
========= ======= ======= ======= ========
Nonperforming assets to total assets 0.57% 0.55% 0.70% 1.08% 1.61%
========= ======= ======= ======= ========
Other real estate owned and repossessed assets have decreased from a high
of $21.3 million in 1989 to $1.25 million at year-end 1996, as a result of a
substantial effort by the Company to dispose of these assets. To encourage local
management to sell the other real estate as quickly as possible and to ensure
that it is carried at a conservative value, the Company's policy is to write
other real estate down annually by the greater of 10% of its remaining carrying
value or the difference between its remaining carrying value and its estimated
market value. The slight increase in other real estate owned in 1996 was due to
acquisitions during the year.
Potential problem loans are performing loans to borrowers with a weakened
financial condition, or which are experiencing unfavorable trends in their
financial condition, which causes management to have concerns as to the ability
of such borrowers to comply with the existing repayment terms. These loans,
which are not included in nonperforming and restrucutured assets, totaled $17.3
million at December 31, 1996. In general, these loans are well collateralized
and have no identifiable loss potential. Loans which are considered to have
identifiable loss potential are placed on nonaccrual status, are allocated a
specific allowance for loss or are directly charged-down, and are reported as
nonperforming.
Allowance for Possible Loan Losses
The allowance for possible loan losses reflects Management's assessment of
the risk of loss inherent in the Company's loan portfolio. The allowance and its
adequacy is determined through consideration of many factors, including
evaluation of known problem loans, levels of adversely classified, past due and
nonperforming loans, loan loss experience, and economic conditions. To
facilitate Management's assessment, the Company's Asset Quality Department
performs periodic loan reviews at each of the Company's locations. The process
of determining the adequacy of the allowance for possible loan losses, however,
necessarily involves the exercise of judgment and consideration of numerous
subjective factors and, accordingly, there can be no assurance that the current
level of the allowance will prove adequate in light of future developments and
economic conditions. As loan quality changes with economic and credit cycles, it
would be reasonable to expect the Company's net charge-offs and loan loss
provisions to return to more historically normal levels.
Adversely classified loans as a percentage of total loans have declined
every year since 1986, excluding bank acquisitions, primarily as a result of the
improving state economy and the Company's efforts to reduce the level of problem
loans. Total adversely classified loans (which includes nonperforming loans,
certain restructured loans and potential problem loans described above) were
$20.7 million at the end of 1996, compared to $15.8 million for 1995 and $16.3
million at the end of 1994. The percentage of classified loans to total loans
was 2.71% for 1996, 2.53% for 1995 and 3.12% for 1994.
Net charge-offs as a percentage of average loans decreased each year from
1989 through 1993, with $5,000 of net recoveries recognized in 1994. In 1996,
the Company recognized $654,000 of net charge-offs, which was only 0.09% of
average loans, compared to $452,000 of net charge-offs, or 0.08% of average
loans for 1995.
A-11
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- -------- -------- ------- --------
(Dollars in thousands)
Balance at beginning of year $ 10,646 $ 9,729 $ 9,027 $ 7,202 $ 5,967
----------- -------- -------- -------- --------
Charge-offs:
Commercial (481) (457) (285) (218) (285)
Real estate (82) (130) (116) (436) (317)
Consumer (384) (348) (450) (417) (330)
Other (120) (78) (68) (83) (103)
----------- -------- -------- -------- --------
Total charge-offs (1,067) (1,013) (919) (1,154) (1,035)
----------- -------- -------- -------- --------
Recoveries:
Commercial 98 232 400 431 428
Real estate 125 154 341 251 239
Consumer 155 150 148 185 93
Other 35 25 35 38 43
----------- -------- -------- -------- --------
Total recoveries 413 561 924 905 803
----------- -------- -------- -------- --------
Net (charge-offs) recoveries (654) (452) 5 (249) (232)
Provisions charged to operations 994 855 380 251 700
Additions from acquisitions 959 514 317 1,823 767
----------- -------- -------- -------- --------
Balance at end of year $ 11,945 $ 10,646 $ 9,729 $ 9,027 $ 7,202
=========== ======== ======== ======== ========
Average loans $ 710,115 $577,887 $493,300 $412,306 $350,882
=========== ======== ======== ======== ========
Total loans $ 763,559 $625,162 $522,314 $466,356 $382,498
=========== ======== ======== ======== ========
Net charge-offs to average loans 0.09% 0.08% 0.00% 0.06% 0.07%
=========== ======== ======== ======== ========
Allowance to total loans 1.56% 1.70% 1.86% 1.94% 1.88%
=========== ======== ======== ======== ========
ALLOCATION OF THE ALLOWANCE BY CATEGORY OF LOANS:
Commercial, financial and other $ 821 $ 505 $ 720 $ 647 $ 333
Real estate--construction 426