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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number: 1-13949

LOCAL FINANCIAL CORPORATION

Registrant’s telephone number, including area code: (405) 841-2100

Securities registered pursuant to Section 12(b) of the Act:
Common Stock (par value $0.01 per share)
Senior Notes Due 2004
Trust Preferred Securities at $25 per share
(Title of Class)

Securities registered pursuant to Section 12(g) of the Act: None

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 [   ]

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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes [X] No [   ]

There were 16,583,673 shares of the Registrant’s Common Stock outstanding as of the close of business on February 19, 2004. The aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $222.3 million (based upon the closing price of $14.33 on June 30, 2003, as reported on the NASDAQ National Market System).

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from the Registrant’s definitive proxy statement for the 2004 Annual Meeting of Stockholders.

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LOCAL FINANCIAL CORPORATION
INDEX

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PART I

ITEM 1. BUSINESS

Cautionary Statement Regarding Forward-Looking Statements

     A number of the presentations and disclosures in this Form 10-K, including any statements preceded by, followed by or which include the words “may,” “could,” “should,” “will,” “would,” “hope,” “might,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions constitute forward-looking statements.

     These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectations and estimates with respect to revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios of Local Financial Corporation (“Local Financial” or the “Company”).

     Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause its financial performance to differ materially from its goals, plans, objectives, intentions, expectations and other forward-looking statements:

     If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-K. Therefore, the Company cautions the reader not to place undue reliance on its forward-looking information and statements.

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     The Company does not intend to update its forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

The Company

     General. Local Financial Corporation is the holding company for Local Oklahoma Bank (“Local” or the “Bank”). The Company was chartered in 1992 as a Delaware corporation. Local Financial and the Bank are headquartered in Oklahoma City, Oklahoma. References to “Local” or the “Bank” refer to Local and its subsidiaries on a consolidated basis, as the context requires.

     At December 31, 2003, the Company had consolidated assets of $2.9 billion, substantially all of which is comprised of its 100% ownership interest in the Bank, including consolidated deposits of $1.9 billion and consolidated stockholders’ equity of $175.4 million.

     As of February 2, 2004, the Bank is the fourth largest Oklahoma-based bank ranked on total deposits. Its deposits of $1.9 billion at December 31, 2003, represent approximately four percent of the Oklahoma market. The Company and/or Local are presently regulated and examined by the Oklahoma State Banking Department, the Board of Governors of the Federal Reserve System (the “FRB”), and the Federal Deposit Insurance Corporation (the “FDIC”) and Local’s deposit accounts are insured up to applicable limits by the FDIC.

     The Company’s executive offices are located at 3601 NW 63rd Street, Oklahoma City, Oklahoma 73116-2087. The Company makes available free of charge on its website at www.localok.com its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments thereto, as soon as reasonably practicable after the Company files such reports with, or furnishes them to, the Securities and Exchange Commission (“SEC”). Investors are encouraged to access these reports and the other information about the Company’s business on its website.

Merger Agreement

     On January 22, 2004, International Bancshares Corporation (“IBC”) and Local Financial announced that they had signed a definitive agreement pursuant to which IBC will acquire Local Financial for approximately $385 million in cash and stock.

     Under the terms of the merger agreement, the Company’s stockholders will be entitled to elect to receive either cash or shares of IBC common stock valued at $22.00 (subject to upward adjustment in certain circumstances), or a combination thereof, for each share of the Company’s common stock they own. The election by the Company’s stockholders will be subject to the requirement that 75% of Local Financial’s shares be exchanged for cash and 25% be exchanged for IBC stock.

     The merger is expected to close in the summer of 2004 and is subject to various closing conditions, including receipt of all requisite regulatory approval and the approval of the Local Financial stockholders. The Boards of Directors of IBC and the Company have approved the transaction.

     IBC intends to file with the SEC a registration statement on Form S-4 concerning the transaction. The Form S-4 registration statement will include a proxy statement/prospectus (“Proxy Statement/Prospectus”). Local Financial intends to mail the Proxy Statement/Prospectus to its stockholders in connection with the Company’s 2004 Annual Meeting of Stockholders, at which the Company’s stockholders will vote upon the merger transaction with IBC. Information regarding the interests of the Company’s officers and directors in the transaction will be included in the Proxy Statement/Prospectus.

Business Strategy

     Local’s business strategy is to provide its customers with the range of banking products and services of a regional bank while retaining the appeal and level of individualized service of a community

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bank. Management feels that the Company is well positioned to attract new customers and increase its market share. The key components of its strategy are:

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Risks Relating to the Company’s Business Strategy

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Lending Activities

     General. In 1999, the Bank shifted its lending activities to focus increasingly on the origination of commercial loans within the Oklahoma market. The Bank has pursued this market by adding experienced lending officers with strong community ties and banking relationships. The Bank will continue its historical patterns of originating residential and consumer loans through its own branch network and, in the case of commercial real estate loans, through a network of real estate brokers, mortgage bankers and unaffiliated financial institutions.

     The following table presents information on the Bank’s consolidated loan portfolio as of the dates indicated (dollars in thousands):

     Loan Origination and Review. The lending activities of the Bank are subject to the written, non-discriminatory underwriting standards and loan origination procedures established by the Bank’s Board of Directors and management. Loan originations are obtained by a variety of sources, including direct customer solicitations, referrals from real estate brokers, mortgage bankers, unaffiliated financial institutions, existing customers, walk-in customers and advertising. In its present marketing efforts, the Bank emphasizes its customized personal service, competitive rates, and an efficient underwriting and approval process.

     The Bank’s underwriting procedures are designed to streamline the credit approval process. The Bank’s increasing emphasis on commercial and consumer loans and its desire to meet customer needs require quicker response times than those traditionally used in a commercial bank environment. The Bank relies, in the case of residential real estate and consumer loans, on a credit scoring system and, in the case of commercial loans, on a peer or senior officer approval process, depending on the size of the loan. The Bank’s credit review procedures are designed to ensure the overall integrity of its loan portfolio. Management believes its credit approval and review processes are comparable to those used by other similar institutions.

     Commercial Loans. At December 31, 2003 and 2002, the Bank’s commercial loans amounted to $1.8 billion and $1.7 billion or 77.7% and 80.2%, respectively, of the total loan portfolio. Management believes commercial lending affords the Bank the greatest opportunity for market growth. The Bank’s current commercial loan portfolio consists of fixed-rate and adjustable-rate loans secured by commercial real estate, inventory, receivables, equipment and/or general corporate assets of the borrowers. Local’s commercial business lending activities are generally directed toward small to medium size Oklahoma

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companies with annual sales up to $100 million. Commercial business loans generally have annual maturities and prime-based interest rates. On a selective basis, the Bank originates and purchases commercial real estate loans secured by properties located throughout the United States. Commercial real estate loans generally have terms to maturity of between five and ten years and amortize over a period of up to 30 years.

     The Bank imposes an in-house lending limit, which is below the statutory lending limit. While the Oklahoma State Banking Department statutory limit is 30% of an institution’s unimpaired capital and surplus (or with respect to the Bank, approximately $78.4 million at December 31, 2003), management of the Bank generally restricts single loans to $15 million in size, but may have exposure to any single borrower up to the legal lending limit.

     Single-Family Residential Real Estate Loans. At December 31, 2003 and 2002, the Bank’s single-family residential mortgage loan portfolio, which includes home equity first mortgages, amounted to $370.9 million and $276.9 million or 16.3% and 13.1%, respectively, of the total loan portfolio. Most of the Bank’s single-family residential mortgage loans are secured by properties located in the state of Oklahoma. The majority of the single-family residential loan portfolio consists of conforming loans (i.e., not insured or guaranteed by a federal agency) with an average balance of below $100,000 per loan. The single-family residential loan portfolio was originated through a centralized residential loan origination center. Currently, the Company retains most of its 15-year loan originations and closes most 30-year loan originations through third party mortgage companies.

     Consumer Loans. Consumer loans totaled $136.7 million and $141.5 million or 6.0% and 6.7% of the total loan portfolio as of December 31, 2003 and 2002, respectively, and consisted of home equity second mortgage loans, deposit secured loans, automobile loans, property improvement loans, overdrafts, and personal loans. Total consumer loans as of December 31, 2003 and 2002 included $11.8 million and $8.6 million, respectively, in guaranteed student loans held for sale. Local originates consumer loans bearing both fixed and prime-based interest rates, primarily with terms of up to five years, other than second mortgage loans, which may have longer terms. Under the Bank’s home equity underwriting guidelines, loans are restricted to not more than $100,000, and the loan-to-value may not exceed 90% at origination (although this is not typical of most loans). Loans are originated directly through the branch network.

Asset Quality

     Loan Delinquencies. When a borrower fails to make a required payment on a loan, the Bank attempts to cure the deficiency by contacting the borrower and seeking payment. Contacts are generally made following the 15th day after a payment is due (30th day in the case of commercial loans), at which time a late payment is assessed. In most cases, deficiencies are cured promptly. If a delinquency extends beyond 15 days (30 days in the case of commercial loans), the loan and payment history are reviewed and efforts are made to collect the loan. While the Bank generally prefers to work with borrowers to resolve such problems, when it appears no other alternatives are available, legal action is instituted.

     Nonperforming Assets. All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of additional interest is deemed insufficient to warrant further accrual. As a matter of policy, the Bank does not accrue interest on loans past due 90 days or more except when the estimated value of the collateral and collection efforts are deemed sufficient to ensure full recovery. Consumer loans generally are charged off when the loan becomes over 120 days delinquent. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. See Item 7 hereof, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Nonperforming Assets and Allowance for Loan Losses”.

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     Assets acquired through foreclosure and repossession are recorded at estimated fair value, net of estimated selling costs at the date of foreclosure or repossession. The values of assets acquired through foreclosure and repossession are monitored by the Bank continually through sales and rental activities, and by updated appraisals and other valuation methods when needed. The Company records the gain or loss on sale and net income and expense from assets acquired through foreclosure and repossessions in other noninterest expense in the accompanying consolidated statements of operations.

     Classified Assets. The Bank adheres to internal procedures and controls to review and classify its assets. All assets are reviewed on a periodic basis. If warranted, all or a portion of any assets exhibiting the characteristics of risk associated with specific classifications are assigned those classifications. To monitor loans and to establish loss reserves, the Bank classifies its assets into the following six categories: pass, watch, special mention, substandard, doubtful, and loss. Under federal regulations, each insured institution must classify its assets on a regular basis. In connection with examinations of insured institutions, federal and state examiners have authority to identify problem assets and, if appropriate, classify them. Watch assets have all the characteristics of acceptable credit, but warrant more than the normal level of supervision. Special mention assets is a category established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets, with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectble and of such little value that continuance as an asset of the institution is not warranted. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. Federal examiners may disagree with an insured institution’s classifications and amounts reserved.

     Allowance for Loan Losses. The Bank has established valuation allowances for estimated inherent losses in its loan portfolio by charging earnings for estimated losses on loans, including the related accrued interest, using a specific and percentage reserve method. The allowance for loan losses is established and maintained through a periodic review and evaluation of various elements, which affect the loans’ collectibility and any additional allowances required result in provisions for loan losses.

     The adequacy of the Bank’s allowance for loan loss is assessed on a loan-by-loan basis for all commercial loans and on a portfolio basis for residential and consumer loans based on delinquency status. As described above, each individual commercial loan is assigned a risk classification by the responsible loan manager. Depending upon their risk classification, these loans are placed on a review cycle either annually or quarterly. All loans with risk classifications of special mention, substandard or doubtful are reviewed quarterly and all large loans are reviewed at least annually by officers of the loan review department. These officers are independent of the loan origination and underwriting process. During this review, the appropriateness of the assigned risk classification is assessed, giving consideration to numerous factors, including a review of individual borrowers’ financial status, credit standing, available collateral and other relevant factors. On a quarterly basis, loss factors are applied to the basic risk classifications to determine the allowance for loan loss. The loss factors are established by management based on a number of quantitative and qualitative factors including levels and trends of past due and nonaccrual loans; past levels and trends on asset classifications; change in volume and mix of loans; and collateral values. Although the risk classification and loss factor process set forth above is used as a discipline in the establishment of the minimum allowance required, it is not a substitute for sound judgment. Prevailing and anticipated economic conditions, portfolio trends and other relevant factors are considered in management’s assessment of the overall adequacy of the allowance. These other relevant factors include (i) change in lending policies and procedures, including underwriting standards and

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collection, charge-off and recovery practices, (ii) changes in the nature and volume of the portfolio, (iii) changes in the experience, ability and depth of lending management and staff, (iv) change in the quality of the Bank’s loan review system and the degree of oversight by the institution’s Board of Directors, (v) the existence and effect of any concentration of credit and changes in the level of such concentration and (vi) the effect of external factors such as competition on the Bank’s current portfolio. For more information, see Item 7 hereof, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Nonperforming Assets and Allowance for Loan Losses”.

Investment Activities

     At December 31, 2003 and 2002, the Bank’s securities portfolio amounted to $377.4 million and $528.3 million, respectively. The Bank’s securities portfolio is managed in accordance with a written investment policy adopted by the Board of Directors and administered by the Bank’s Asset/Liability Committee. All transactions must be approved by the Asset/Liability Committee and reported to the Board of Directors.

     The Bank is authorized to invest in obligations issued or fully guaranteed by the U.S. Government, certain federal agency obligations, certain time deposits, negotiable certificates of deposit issued by commercial banks and other insured financial institutions, investment grade corporate debt securities and other specified investments such as mortgage-backed and related securities.

     The Bank invests in mortgage-backed and related securities, including collateralized mortgage participation certificates, which are insured or guaranteed by U.S. Government agencies and government sponsored enterprises. Mortgage-backed securities (which also are known as mortgage participation certificates or pass-through certificates) represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed from the mortgage originators, through intermediaries (generally U.S. Government agencies and government sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors such as the Bank. Such U.S. Government agencies and government-sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”) and the Government National Mortgage Association (“GNMA”).

     Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. The term of a mortgage-backed pass-through security thus approximates the term of the underlying mortgages.

     The Bank’s mortgage-backed and related securities include collateralized mortgage obligations, or CMOs, which include securities issued by entities which have qualified under the Internal Revenue Code of 1986, as amended (the “Code”), as real estate mortgage investment conduits.

Sources of Funds

     General. Deposits are the primary source of the Bank’s funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from loan principal repayments, advances from the FHLB of Topeka and securities sold under agreements to repurchase. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows as well as securities sold under agreements to repurchase are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They may also be used on a longer-term basis for general business purposes.

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     Deposits. At December 31, 2003 and 2002, total deposits for the Bank amounted to $1.9 billion and $1.8 billion, respectively. The Bank accepts deposits through its 52 branch offices. Deposits are solicited on a regular basis directly through the Bank’s customer base and through various advertising media within its market. The Bank offers several savings account and checking account plans to its customers. Among savings account plans, the Bank offers basic savings, short-term and long-term certificates of deposit, a variable rate IRA/Keogh and regular IRAs and Keoghs. The Bank offers checking account plans that range from a no-fee, no-interest plan to a variable-fee, bundled product plan that includes services or products such as personalized checks, ATM cards, overdraft protection, no annual fee Visa/MasterCard membership, safe deposit box discounts, cash management, lock box services and assistance with travelers checks.

     Interest rates paid, maturity terms, service fees and withdrawal penalties are established by the Bank on a periodic basis. Determination of rates and terms are predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals and federal regulations.

     As of December 31, 2003, the aggregate amount of outstanding time certificates of deposit in amounts greater than or equal to $100,000 was approximately $338.6 million. The following table presents the maturity of these time certificates of deposit at such date (dollars in thousands):

     During 2000, the Bank implemented commercial deposit cash management services to accommodate the needs of large commercial borrowers. As part of this program, commercial customers are offered a cash sweep account service, which consists of the sale of unpledged securities at a guaranteed rate with the Bank’s agreement to repurchase those securities the next day. These cash sweep accounts totaled $66.4 million and $59.7 million at December 31, 2003 and 2002, respectively, and are shown on the consolidated statements of financial condition as “Securities sold under agreements to repurchase”.

     Borrowings. The Bank is a member of the Federal Home Loan Bank System and is authorized to apply for secured advances from the FHLB of Topeka. The Bank uses advances from the FHLB System to meet short-term liquidity needs and investment activities. As of December 31, 2003 and 2002, advances from FHLB totaled $637.2 million and $684.2 million, respectively.

     In September 1997, the Company issued $80.0 million of Senior Notes, which bear interest at the rate of 11.0%, payable semi-annually. Issuance costs were deferred and capitalized and the unamortized balance of $116,000 is reflected in other assets at December 31, 2003 in the consolidated statements of financial condition. As of December 31, 2003, the Company had purchased and retired $58.7 million of the Senior Notes, leaving $21.3 million outstanding. The Company funds the semiannual interest payments through dividends paid to the Company from the Bank. For additional information, see “Business-Sources of Funds—Borrowings” in Item 1 hereof and Note 9 of the Notes to Consolidated Financial Statements in Item 8 hereof.

     Pursuant to the Indenture, dated September 8, 1997, between the Company and The Bank of New York, relating to the Senior Notes, upon a change of control the Company is obligated to make an offer to purchase all of the then outstanding Senior Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. The Company is required to purchase all Senior Notes properly tendered in such offer. Notice of the offer to purchase the outstanding Senior Notes must be mailed not later than the 30^th day after the change of control to the holders of the Senior Notes. The

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Senior Notes are due to mature in September 2004. The merger between IBC and the Company would constitute a change of control for purposes of the Indenture. Under the terms of the Indenture, if the merger transaction between IBC and the Company closes prior to the maturity of the Senior Notes, the Company may be required to purchase the Notes prior to their maturity date. See “Business—Merger Agreement” in Item 1 hereof.

     Capital Issuances. During the fourth quarter of 2001, Local Financial Capital Trust I (the “Trust”) (a Delaware business trust and wholly-owned finance subsidiary of Local Financial) issued cumulative trust preferred securities in a public offering for gross proceeds of $40.3 million. The securities bear interest at a rate of 9.00% and mature in 2031. The proceeds from the sale of the trust preferred securities and the issuance of $1.2 million in common securities to Local Financial were used by the Trust to purchase approximately $41.5 million of 9% junior subordinated debentures of Local Financial which have the same payment terms as the trust preferred securities. Local Financial pays interest on the debentures to the Trust, which in turn pays dividends on the trust preferred securities and the common securities.

     In July and October 2002, the Company formed Local Financial Capital Trusts II and III (the “Trusts”) to facilitate each trust issuing adjustable rate cumulative trust preferred securities in private placements for aggregate proceeds of approximately $20.0 million. These securities bear interest rates of 3.625% and 3.45% over six and three month LIBOR, respectively, and both mature in 2032. The proceeds from the sale of the trust preferred securities and the issuance of $310,000 each in common securities to Local Financial were used by the Trusts to purchase approximately $20.6 million of adjustable rate junior subordinated debentures of Local Financial, which bear interest and have the same payment terms as the trust preferred securities. As above, Local Financial pays interest on the debentures to the Trusts, which in turn pays dividends on the trust preferred securities and the common securities.

     All outstanding trust preferred issues are included in the Company’s consolidated statement of financial condition under the caption “Mandatorily Redeemable Trust Preferred Securities” for years ended December 31, 2002 and prior. Total unamortized deferred issuance costs of approximately $2.3 million were capitalized and are included in other assets as of December 31, 2002. The Company adopted FASB Interpretation No. 46 on December 31, 2003 and, as a result, the three trusts are not consolidated in the Company’s financial statements as of that date. See Notes 1(r) and 10 to the Notes to Consolidated Financial Statements included in Item 8 herein. All interest on the debentures is tax deductible.

     Segments. The Company operates as one segment. It uses primarily the consolidated financial statements presented herein for purposes of assessing performance and making operating decisions about the Company. Neither Trust I, II or III qualifies as an operating segment under SFAS No. 131 and have no independent operations and no functions other than the issuance of securities and the related purchase of the debentures from the Company and to distribute payments thereon to the holders of its securities. Local has one active operating subsidiary, Local Securities Corporation (“Local Securities”), a registered broker-dealer under the Exchange Act, which provides retail investment products to customers of Local. While Local Securities qualifies as a separate operating segment, it is not considered material to the consolidated financial statements for the purposes of making operating decisions and does not meet the 10% threshold for disclosure under Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosure About Segments of an Enterprise and Related Information”.

Regulation and Supervision

     The following discussion sets forth the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries, and provides certain specific information relevant to Local Financial. This regulatory framework primarily is intended for the protection of depositors and the deposit insurance funds that insure deposits of banks, and not for the protection of security holders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to Local Financial or its subsidiaries may have a material effect on its business.

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     General. As a bank holding company, Local Financial is subject to regulation under the Bank Holding Company Act of 1956, as amended, and to inspection, examination and supervision by the FRB. Under the Bank Holding Company Act, bank holding companies generally may not acquire ownership or control of any company, including a bank, without the prior approval of the FRB. In addition, bank holding companies generally may engage, directly or indirectly, only in banking and those other activities as are determined by the FRB to be closely related to banking. Under legislation adopted in 1999, certain bank holding companies can elect to become financial holding companies and engage in broader financial activities. See “The Gramm-Leach-Bliley Act” below.

     Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, as amended, limit borrowings by Local Financial and its non-bank subsidiaries from Local, and also limit various other transactions between Local Financial and its non-bank subsidiaries, on the one hand, and Local, on the other. The FRB has also recently issued Regulation W which codifies prior regulations under Sections 23A and 23B and provides interpretive guidance with respect to affiliate transactions. See “Regulation W” below.

     Local, as a bank, is subject to extensive supervision, examination and regulation by federal and state bank regulatory authorities. Local Financial and its subsidiaries are also affected by the fiscal and monetary policies of the federal government and the FRB, and by various other governmental requirements and regulations.

     Liability for Local. Under FRB policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to their support. This support may be required at times when the bank holding company may not have the resources to provide it. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the “default” of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution “in danger of default.”

     Capital Requirements. Local Financial is subject to risk-based capital requirements and guidelines imposed by the FRB, which are substantially similar to the capital requirements and guidelines imposed by the Oklahoma State Banking Department and the FDIC on Local. For this purpose, a depository institution’s or holding company’s assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to those assets or commitments. In addition, risk-weighted assets are adjusted for low-level recourse and market-risk equivalent assets. A depository institution or holding company’s capital, in turn, is divided into three tiers:

     Like other bank holding companies, Local Financial currently is required to maintain Tier 1 and “Total Capital” (the sum of Tier 1, Tier 2 and Tier 3 capital) equal to at least 4% and 8% of its total risk-weighted assets (including certain off-balance-sheet items, such as unused lending commitments and standby letters of credit), respectively. At December 31, 2003, Local Financial met both requirements, with Tier 1 and Total Capital equal to 9.89% and 11.23%, respectively, of its total risk-weighted assets.

     The FRB also requires bank holding companies to maintain a minimum “Leverage Ratio”, defined as Tier 1 capital to average adjusted total assets, of 3%, if the bank holding company has the

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highest regulatory rating and meets certain other requirements, or of 3% plus an additional cushion of at least 1% to 2%, if the bank holding company does not meet these requirements. At December 31, 2003, Local Financial’s leverage ratio was 7.45%, which exceeded the minimum leverage ratio to which it was subject.

     The FRB may set capital requirements higher than the minimums noted above for holding companies whose circumstances warrant it. For example, bank holding companies experiencing or anticipating significant growth may be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the FRB has indicated that it will consider a “Tangible Tier 1 Capital Leverage Ratio”, which would deduct all intangibles and other indicia of capital strength in evaluating proposals for expansion or new activities.

     The Bank is subject to similar risk-based and leverage capital requirements adopted by the Oklahoma State Banking Department. Local was in compliance with the applicable minimum capital requirements as of December 31, 2003.

     Failure to meet capital requirements could subject Local to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business, which are described immediately below.

     FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, identifies five capital categories for insured depository institutions — well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized — and requires Federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Unless a bank is well-capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the bank’s compliance with the plan up to the lesser of 5% of a bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan.

     As of December 31, 2003, Local was well-capitalized, based on the prompt corrective action ratios and guidelines described above. It should be noted, however, that a bank’s capital category is determined solely for the purpose of applying the prompt corrective action regulations and that the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects.

     Dividend Restrictions. State statutory provisions limit the amount of dividends that Local can pay to Local Financial without regulatory approval. Dividend payments by state banks are limited to the lesser of:

     At the beginning of the calendar year 2004, approximately $36.2 million of the total stockholders’ equity of Local was available for payment of dividends to Local Financial without regulatory approval.

     In addition, state bank regulatory authorities have authority to prohibit Local from engaging in an unsafe or unsound practice in conducting business. The payment of dividends, depending upon Local’s financial condition at the time of the proposed dividend payment, could be deemed to constitute an unsafe or unsound practice. Local’s ability to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines.

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     Deposit Insurance Assessments. The deposits of Local are insured up to regulatory limits by the FDIC, and, accordingly, are subject to deposit insurance assessments to maintain the Bank Insurance Fund (the “BIF”), which is administered by the FDIC. The FDIC has adopted regulations establishing a permanent risk-related deposit insurance assessment system. Under this system, the FDIC places each insured bank in one of nine risk categories based on (1) the bank’s capitalization and (2) supervisory evaluations provided to the FDIC by the institution’s primary Federal regulator. Each insured bank’s insurance assessment rate is then determined by the risk category in which it is classified by the FDIC. The annual insurance premiums on bank deposits insured by the BIF currently vary between $0.00 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $0.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories.

     Interstate Banking and Branching. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act (“Interstate Act”), subject to certain concentration limits and other requirements:

     Control Acquisitions. The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the FRB has been notified and has not objected to the transaction. Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as Local Financial, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.

     In addition, a company is required to obtain the approval of the FRB under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over that bank holding company.

     The Gramm-Leach-Bliley Act. In November 1999, the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the “GLBA”) was signed into law, which allows bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities. Under the GLBA, a bank holding company that elects to become a financial holding company may engage in any activity that the FRB, in consultation with the Secretary of the Treasury, determines by regulation or order is (1) financial in nature, (2) incidental to any such financial activity, or (3) complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The GLBA makes significant changes in U.S. banking law, principally by repealing the restrictive provisions of the 1933 Glass-Steagall Act. The GLBA specifies certain activities that are deemed to be financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services; underwriting, dealing in or making a market in, securities; and any activity currently permitted for bank holding companies by

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the FRB under section 4(c)(8) of the Bank Holding Company Act. The GLBA does not authorize banks or their affiliates to engage in commercial activities that are not financial in nature. A bank holding company may elect to be treated as a financial holding company only if all depository institution subsidiaries of the holding company are well-capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment Act. Local Financial has not elected to be a financial holding company.

     National banks are also authorized by the GLBA to engage, through “financial subsidiaries”, in any activity that is permissible for a financial holding company (as described above) and any activity that the Secretary of the Treasury, in consultation with the FRB, determines is financial in nature or incidental to any such financial activity, except (1) insurance underwriting, (2) real estate development or real estate investment activities (unless otherwise permitted by law), (3) insurance company portfolio investments and (4) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from the bank’s capital outstanding investments in financial subsidiaries). The GLBA provides that state banks may invest in financial subsidiaries (assuming they have the requisite investment authority under applicable state law) subject to the same conditions that apply to national bank investments in financial subsidiaries.

     The GLBA also contains a number of other provisions that affect Local Financial’s operations and the operations of all financial institutions. One of the provisions relates to the financial privacy of consumers, authorizing federal banking regulators to adopt rules that will limit the ability of banks and other financial entities to disclose non-public information about consumers to non-affiliated entities. These limitations require more disclosure to consumers, and in some circumstances will require consent by the consumer before information is allowed to be provided to a third party.

     USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 (the “Patriot Act”) was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C., which occurred on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

     Sarbanes-Oxley Act of 2002. In July 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “SOA”), implementing legislative reforms intended to address corporate and accounting improprieties. The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the SEC under the Exchange Act.

     The SOA includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The SOA represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

     The SOA addresses, among other matters: audit committees; certification of financial statements by the chief executive office and the chief financial officer; the forfeiture of bonuses and profits made by directors and senior officers in the twelve month period covered by restated financial statements; a prohibition on insider trading during pension plan back out periods; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers (excluding Federally insured

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financial institutions); expedited filing requirements for stock transaction reports by officers and directors; disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; “real time” filing of periodic reports; the formation of a public accounting oversight board; auditor independence; and various increased criminal penalties for violations of securities laws.

     Regulation W. Transactions between a bank and its “affiliates” are governed by Sections 23A and 23B of the Federal Reserve Act. The FRB has also recently issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and provides interpretative guidance with respect to affiliate transactions. Affiliates of a bank include, among other entities, the Bank’s holding company and companies that are under common control with the Bank. The Company is considered to be an affiliate of the Bank. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

     In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

     In addition, under Regulation W:

     Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the FRB decides to treat these subsidiaries as affiliates.

     Under the present exemption from compliance with the quantitative limits and collateral requirements of Regulation W and Section 23A, a bank can purchase loans, or other extensions of credit, from an affiliate without being subject to the 10% and 20% limitation for “covered transactions” as long as:

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     Future Legislation. Changes in U.S. or state laws and regulations relating to banks and other financial institutions can affect the operating environment of bank holding companies and their subsidiaries in substantial and unpredictable ways. Local Financial cannot accurately predict whether legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or implementing regulations, would have upon Local Financial’s financial condition or results of operations.

     Broker-Dealer Regulation. Local Securities is a registered broker-dealer with the SEC. As a registered broker-dealer, Local Securities is subject to various regulations and reporting requirements imposed by the SEC, as well as by certain state authorities.

Personnel

     As of December 31, 2003, the Company (on a consolidated basis) had 793 full-time employees and 105 part-time employees. The employees are not represented by a collective bargaining agreement and the Company believes that it has good relations with its employees.

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ITEM 2. PROPERTIES

Offices and Other Material Properties

     The following table provides information on the Company’s consolidated branch network as of December 31, 2003:

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ITEM 3. LEGAL PROCEEDINGS

     On December 30, 2002, the Company entered into a Settlement and Termination Agreement with the FDIC to settle litigation relating to an assistance agreement entered into by the Company with the FDIC in connection with an acquisition of a federal savings bank in 1988. The liability owed to the FDIC under the litigation was settled for approximately $24.7 million net of the set off of certain uncollected assistance, and the 1988 assistance agreement with the FDIC was completely terminated. All liability of the Company to the FDIC has now been fully and completely resolved without any adverse financial effect on the Company.

     Pursuant to the terms of the Settlement and Termination Agreement with the FDIC, the Company reserved its claim regarding the elimination of certain tax benefits which would otherwise have been available to the Company had it not been for the enactment of Section 13224 of the Omnibus Budget Reconciliation Act of 1993 (“OBRA”). A Resolution and Modification Agreement was entered into between the prior owners and the Company under which the prior owners agreed to pay all attorney fees and all third-party costs and expenses as they are incurred by the Company in prosecution of the claim to a conclusion. Under the terms of this agreement the prior owners are entitled to be paid substantially all of any award or settlement payment received by the Company pursuant to such claim net of taxes, if any. The Company does not anticipate incurring any liability, loss, damage or material expense with regard to its continuing prosecution of the OBRA claim.

     In the ordinary course of business, the Company is subject to other legal actions and complaints. Management, after consultation with legal counsel, and based on available facts and proceedings to date, believes the ultimate liability, if any, arising from such legal actions or complaints, will not have a material adverse effect on the Company’s consolidated financial position or future results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted during the fourth quarter of the fiscal year covered by this annual report to a vote of the Company’s security holders.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the name and age of each executive officer, his principal position with the Company, and the year he became an officer.

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     Biographical information regarding Messrs. Edward A. Townsend and Jan A. Norton are incorporated herein by reference to the Proxy Statement/Prospectus. Biographical information regarding Messrs. Robert L. Vanden, Richard L. Park, Christopher C. Turner, James N. Young, Harold A. Bowers, William C. Lee, Kenneth K. McIlhaney and K. Randy Roper are set forth below.

     The executive officers serve until their successors are elected and qualified. No executive officer is related to any director or other executive officer of the Company by blood, marriage or adoption. There are no arrangements or understandings between any director of the Company and any other person pursuant to which such person was elected an executive officer.

     Robert L. Vanden. Mr. Vanden was elected as a director and began serving as Executive Vice President of the Bank in 1997. From January 1997 until September 1997, Mr. Vanden served as President and Chief Executive Officer of the Bank. From February 1990 through December 1996, Mr. Vanden served as Executive Vice President of Local Federal Bank, FSB, (the predecessor of Local) in charge of wholesale commercial lending. Prior to joining the Bank in February 1990, Mr. Vanden served as Executive Vice President of the Richard Gill Company and Gill Savings. In June 2000, Mr. Vanden assumed the duties of a member of the Board of Directors for Central Oklahoma Habitat for Humanity, a non-profit organization. Mr. Vanden still holds this position today.

     Richard L. Park. Mr. Park began serving as Executive Vice President and Chief Financial Officer of the Company and the Bank in September 1997. Mr. Park served as Chief Financial Officer of Green Country Bank from October 1996 until it was acquired by the Company. From January 1991 through May 1996, Mr. Park was Chief Financial Officer of Western Farm Credit Bank in Sacramento, California, the Eleventh District Bank in the Federal Farm Credit System. Mr. Park is a Certified Public Accountant.

     Christopher C. Turner. Mr. Turner has served as Executive Vice President of the Bank and architect of Local’s retail sales culture, in charge of residential and consumer lending, branch administration, marketing and investment services since October 1996. Prior to that time, Mr. Turner held various positions in the Bank including Internal Audit Director, Marketing Director and Director of Branch Administration. Mr. Turner joined the Company in November 1980.

     James N. Young. Mr. Young has served as President of the Tulsa region since February 1998. From 1994 to January 1998, Mr. Young served as Senior Commercial Lending Manager for BankIV and its successors, Boatmen’s Bank and NationsBank in Oklahoma City. Mr. Young’s last position with NationsBank (now Bank of America) was President, Oklahoma City, and Senior Commercial Lending Manager for the state of Oklahoma. From 1973 to 1994, Mr. Young served in various commercial lending capacities with Bank of Oklahoma in both Tulsa and Oklahoma City, his last assignment being President, Oklahoma City.

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     Harold A. Bowers. Mr. Bowers began serving the Bank as Executive Vice President and Chief Credit Officer in 1998. From 1981 to 1998, Mr. Bowers served with NationsBank and its predecessor banks with both senior credit and commercial lending management responsibilities. In 1980 and 1981, Mr. Bowers managed the Credit Department for Bank of Oklahoma, Tulsa, Oklahoma. Mr. Bowers started his banking career with Liberty National Bank in Oklahoma City, Oklahoma after serving four years as an officer in the United States Air Force. From 1970 to 1980 Mr. Bowers served in various credit capacities ultimately serving six years as Manager of Loan Administration.

     William C. Lee. Mr. Lee joined the Bank in May 1998. Mr. Lee serves as Executive Vice President and is the Bank’s principal Operations Officer. Prior to joining the Bank, Mr. Lee was Executive Vice President and Chief Financial Officer of the Annuity Board of the Southern Baptist Convention, a pension and insurance management company, joining that institution in July 1991. Mr. Lee is a Certified Public Accountant.

     Kenneth K. McIlhaney. Mr. McIlhaney joined the Bank in 2000 and serves as Executive Vice President in charge of Community Banking. Mr. McIlhaney served in various executive officer positions at Union Bank and Trust Company of Oklahoma City, Oklahoma, from 1979 to 2000, including serving as President and Chief Executive Officer for ten years immediately prior to joining the Bank. Mr. McIlhaney began his banking career in 1972, serving as Executive Vice President of United Oklahoma Bank and later serving as President of First Bank and Trust Company of Duncan, and City National Bank and Trust Company of Oklahoma City, Oklahoma.

     K. Randy Roper. Mr. Roper began serving the Bank in December 1998 as President of the Oklahoma City Region. From 1982 to 1998, Mr. Roper served in various capacities for First National Bank of Oklahoma City and its successors, First Interstate Bank of Oklahoma, N.A., Boatmen’s First National Bank of Oklahoma and NationsBank specializing in energy and commercial finance. Mr. Roper completed his tenure at NationsBank (now Bank of America) as President, Oklahoma City.

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PART II

     The following table sets forth the range of high and low closing prices for the period indicated:

     The Company’s Common Stock began trading on April 22, 1998 and, as of July 15, 1999, began trading on the Nasdaq National Market System under the symbol “LFIN”. On December 31, 2003, there were approximately 28 holders of record of the Company’s Common Stock, which does not include the persons or entities holding stock in nominee or street name through various brokers and banks.

     The Company has not paid and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company’s principal source of funds to pay cash dividends on its Common Stock would be cash dividends from the Bank. There are certain statutory limitations on the payment of dividends by state banks. At the beginning of the calendar year 2004, approximately $36.2 million was available for payment of dividends by the Bank to the Company under these restrictions without regulatory approval. See “Item 1. Business - Regulation and Supervision.” In connection with the issuance of the Company’s Senior Notes, the Company entered into an Indenture, dated September 8, 1997, the terms of which could limit the Company’s ability to pay dividends on its Common Stock under certain circumstances.

     In accordance with the terms of the merger agreement between the Company and IBC, the Company may not pay dividends on its capital stock.

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