BancFirst - 10-Q quarterly report FY

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

OR

For the transition period from                     to                    

Commission File Number 0-14384

BancFirst Corporation

(Exact name of registrant as specified in charter)

101 N. Broadway, Oklahoma City, Oklahoma

73102-8401

(Address of principal executive offices)

(Zip Code)

(405) 270-1086

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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  ¨.

As of April 30, 2003 there were 7,786,719 shares of the registrant’s Common Stock outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

BANCFIRST CORPORATION

CONSOLIDATED BALANCE SHEET

(Unaudited)

(Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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BANCFIRST CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)

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BANCFIRST CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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BANCFIRST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

The accompanying consolidated financial statements include the accounts of BancFirst Corporation, BFC Capital Trust I, Century Life Assurance Company, Council Oak Capital, Inc., Council Oak Partners, LLC, and BancFirst and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the consolidated financial statements.

The unaudited interim financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2002, the date of the most recent annual report. Certain amounts in the 2002 financial statements have been reclassified to conform to the 2003 presentation.

The preparation of financial statements in conformity with generally accepted accounting principles inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for loan losses, income taxes and the fair values of financial instruments. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.

In June 2001, the FASB issued FAS No. 143, “Accounting for Asset Retirement Obligations”. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Statement 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In June 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement is effective for exit or disposal activities that are initiated after December 31, 2002, and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity (including Certain Costs Incurred in a Restructuring).” Statement 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than when an entity commits to an exit plan. This statement also establishes that fair value is the objective for the initial measurement of the liability. Since the provisions of this statement are to be applied prospectively, the adoption of this new standard did not have a material effect on the Company’s consolidated financial statements.

In October 2002, the FASB issued FAS No. 147, “Acquisitions of Certain Financial Institutions – an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9.” This Statement was effective October 1, 2002. FAS No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions”, and FASB Interpretation No. 9, “Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method”, provide interpretive guidance on the application of the purchase method to acquisitions of financial institutions. This Statement removes acquisitions of financial institutions from the scope of both FAS No. 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FAS No. 141 and FAS No. 142. In addition, this Statement amends FAS 144 to include in its scope long-term customer relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. The adoption of these new standards did not have a material effect on the Company’s consolidated financial statements.

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In December 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123.” This Statement amends FAS No. 123, “Accounting for Stock-Based Compensation” to provide two additional transition methods for entities that adopt the fair value method of accounting for stock-based compensation. This Statement also prohibits the use of the prospective method of transition for changes to the fair value method made in fiscal years beginning after December 15, 2003. In addition, this Statement requires new disclosures about the effect of stock-based compensation on reported results and requires more prominent disclosures about stock-based compensation by prescribing specific tabular format and by requiring disclosure in the “Summary of Significant Accounting Policies.” The adoption of this new standard did not have a material effect on the Company’s consolidated financial statements, as the Company uses the intrinsic value method of accounting for stock-based compensation. Pro forma disclosures as if the Company adopted the cost recognition provisions of FAS 123 in 1995 are presented below.

The effects of applying FAS 123 to the pro forma disclosure are not indicative of future results. FAS 123 does not apply to grants of options prior to 1995 and the Company anticipates making additional grants in the future.

In January 2003, BancFirst Corporation repurchased 320,000 shares of its common stock for $14,400. The shares were repurchased through a market-maker in the Company’s stock and was not a part of the Company’s ongoing Stock Repurchase Program

The table below summarizes securities held for investment and securities available for sale.

The following is a schedule of loans outstanding by category:

The Company’s loans are mostly to customers within Oklahoma and over half of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual borrowers, underwriting standards

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and loan monitoring procedures. The amounts and types of collateral obtained to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral. The amount of estimated loss due to credit risk in the Company’s loan portfolio is provided for in the allowance for loan losses. The amount of the allowance required to provide for all existing losses in the loan portfolio is an estimate based upon evaluations of loans, appraisals of collateral and other estimates which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated allowance for loan losses in the near term.

Changes in the allowance for loan losses are summarized as follows:

The net charge-offs by category are summarized as follows:

Below is a summary of nonperforming and restructured assets:

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The following is a summary of intangible assets:

Amortization of intangible assets and estimated amortization of intangible assets are as follows:

The following is a summary of goodwill by business segment:

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The Company is subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System. These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’s assets, liabilities, and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s financial statements. The required minimums and the Company’s respective ratios are shown below.

To be “well capitalized” under federal bank regulatory agency definitions, a depository institution must have a leverage ratio of at least 5%, a Tier 1 ratio of at least 6%, and a combined total capital ratio of at least 10%. As of March 31, 2003 and 2002, and December 31, 2002, BancFirst was considered to be “well capitalized”. There are no conditions or events since the most recent notification of BancFirst’s capital category that management believes would change its category.

(9) STOCK REPURCHASE PLAN

In November 1999, the Company adopted a new Stock Repurchase Program (the “SRP”) authorizing management to repurchase up to 300,000 shares of the Company’s common stock. The SRP was amended in May 2001 to increase the shares authorized to be purchased by 277,916 shares and was amended again in August 2002 to increase the number of shares authorized to be purchased by 182,265 shares. The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options, and to provide liquidity for shareholders wishing to sell their stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and must be approved by the Company’s Executive Committee. At March 31, 2003 there were 279,701 shares remaining that could be repurchased under the SRP. Below is a summary of the shares repurchased under the program.

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The only component of comprehensive income reported by the Company is the unrealized gain or loss on securities available for sale. The amount of this unrealized gain or loss, net of tax, has been presented in the statement of income for each period as a component of other comprehensive income. Below is a summary of the tax effects of this unrealized gain or loss.

The amount of unrealized gain or loss included in accumulated other comprehensive income is summarized below.

Basic and diluted net income per common share are calculated as follows:

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Below is the number and average exercise prices of options that were excluded from the computation of diluted net income per share for each period because the options’ exercise prices were greater than the average market price of the common shares.

The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The four principal business units are metropolitan banks, community banks, other financial services, and executive, operations and support. Metropolitan and community banks offer traditional banking products such as commercial and retail lending, and a full line of deposit accounts. Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Other financial services are specialty product business units including guaranteed small business lending, guaranteed student lending, residential mortgage lending, electronic banking, trust services, insurance services, merchant banking and brokerage services. The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units. The results of operations and selected financial information for the four business units are as follows:

The financial information for each business unit is presented on the basis used internally by management to evaluate performance and allocate resources. The Company utilizes a transfer pricing system to allocate the benefit or cost of funds provided or used by the various business units. Certain revenues related to other financial services are allocated to the banks whose customers receive the services and, therefor, are not reflected in the income for other financial services. Certain services provided by the support group to other business units, such as item processing, are allocated at rates approximating the cost of providing the services. Eliminations are adjustments to consolidate the business units and companies.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

BANCFIRST CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY

Net income for the first quarter ended March 31, 2003 was $8.6 million, compared to $7.92 million for the first quarter of 2002. Diluted net income per share was $1.07, compared to $0.96 for the first quarter of 2002. Net income per share for 2003 was positively impacted by the repurchase of 320,000 shares of the Company’s stock for $14.4 million in January 2003.

Total assets at March 31, 2003 was $2.84 billion, up $41.4 million from December 31, 2002 and up $89.4 million from March 31, 2002. Stockholders’ equity was $243 million at March 31, 2003, down $8.93 million from December 31, 2002 due to the stock repurchase in the first quarter, and up $20.2 million compared to March 31, 2002.

RESULTS OF OPERATIONS

Net interest income for the first quarter of 2003 remained stable compared to the prior year at $26.7 million. The net interest margin decreased to 4.32% from 4.43% for the first quarter of 2002. Earning asset growth, primarily in loans, produced volume and mix variances that helped to offset a negative rate variance, keeping net interest income at about the same level as the prior year. In the current low interest rate environment, the value of the Company’s noninterest-bearing deposits is reduced, causing a decrease in the Company’s net interest margin. Assuming no change in this rate environment, or in the volume or mix of the Company’s loans and deposits, the Company’s net interest income would reasonably be expected to decline over the next several quarters.

The Company provided $783,000 for loan losses in the first quarter of 2003, compared to $964,000 for the same period of 2002. Net loan charge-offs decreased to $456,000 for the first quarter of 2003, from $1.44 million for the first quarter of 2002. The net charge-offs represent annualized rates of 0.10% and 0.33% of average total loans for the first quarter of 2003 and 2002, respectively.

Noninterest income increased $1.75 million, or 17.4%, compared to the first quarter of 2002. This increase was the result of growth in service charges on deposits, gains on securities sold, higher income from sales of loans, and growth in fees for other services. Noninterest income excluding securities gains increased $1.13 million, or 11.3%. Noninterest expense increased $959,000, or 4.06%, compared to the first quarter of 2002. This increase was due to an operational loss of $1.18 million recognized in the first quarter, which will not affect future periods. Excluding this operational loss, noninterest expense decreased $221,000, or 0.94%. Income tax expense increased $277,000 compared to the first quarter of 2002 due to higher income in 2003. The effective tax rate on income before taxes was 34.61%, down from 35.04% in the first quarter of 2002.

FINANCIAL POSITION

Cash and due from banks, interest-bearing deposits with banks, and federal funds sold increased a combined total of $51.8 million from December 31, 2002 and $29.7 million from March 31, 2002. These decreases were mainly due to growth in deposits.

Total securities decreased $19.2 million compared to December 31, 2002 and $13.5 million compared to March 31, 2002. The size of the Company’s securities portfolio is a function of liquidity management and excess funds available for investment. The Company has maintained a very liquid securities portfolio to provide funds for loan growth. The net unrealized gain on securities available for sale was $22.3 million at the end of the first quarter of 2003, compared to a gain of $24.3 million at December 31, 2002 and a gain of $8.25 million at March 31, 2002. The average taxable equivalent yield on the securities portfolio for the first quarter decreased to 4.91% from 5.69% for the same quarter of 2002.

Total loans increased $4.74 million from December 31, 2002 and $74.4 million from March 31, 2002, due to internal growth. The allowance for loan losses increased $327,000 from year-end 2002 and $636,000 from the first quarter of 2002. The allowance as a percentage of total loans was 1.36%, 1.34% and 1.38% at March 31, 2003,

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December 31, 2002 and March 31, 2002, respectively. The allowance to nonperforming and restructured loans at the same dates was 140.94%, 175.16% and 156.40%, respectively.

Nonperforming and restructured loans totaled $17.5 million at March 31, 2003, compared to $13.9 million at December 31, 2002 and $15.4 million at March 31, 2002. The ratio of nonperforming and restructured loans to total loans for the same periods was 0.96%, 0.77% and 0.88%, respectively. It is reasonable to expect nonperforming loans and loan losses to rise over time to historical norms as a result of economic and credit cycles.

Total deposits increased $49.1 million compared to December 31, 2002, and $99.7 million compared to March 31, 2002 due to internal growth. The Company’s deposit base continues to be comprised substantially of core deposits, with large denomination certificates of deposit being only 9.53% of total deposits at March 31, 2003.

Short-term borrowings increased $559,000 from December 31, 2002, and decreased $32.5 million from March 31, 2002. Fluctuations in short-term borrowings are a function of federal funds purchased from correspondent banks, customer demand for repurchase agreements and liquidity needs of the bank.

Long-term borrowings decreased $1.61 million from year-end 2002and $1.49 million from the first quarter of 2002. The Company uses these borrowings from the Federal Home Loan Bank primarily to match-fund long-term fixed-rate loans.

Stockholders’ equity decreased $8.93 million from year-end 2002 due to the stock repurchase in the first quarter. Compared to March 31, 2002, stockholders’ equity increased $20.2 million due to accumulated earnings. Average stockholders’ equity to average assets for the first quarter of 2003 was 8.96%, compared to 8.25% for the first quarter of 2002. The Company’s leverage ratio and total risk-based capital ratio were 8.29% and 12.74%, respectively, at March 31, 2003, well in excess of the regulatory minimums.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

See note (2) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

SEGMENT INFORMATION

See note (12) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.

FORWARD LOOKING STATEMENTS

The Company may make forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions, the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Actual results may differ materially from forward-looking statements.

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BANCFIRST CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except per share data)

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BANCFIRST CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES

(Unaudited)

Taxable Equivalent Basis (Dollars in thousands)