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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 2000 0-18840
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BancFirst Ohio Corp.
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(Exact name of registrant as specified in its charter)
Ohio 31-1294136
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(State or other jurisdiction of incorporation or (I.R.S. employer identification No.)
organization)
422 Main Street
Zanesville, Ohio 43701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (740) 452-8444.
Securities registered pursuant to section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
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Securities registered pursuant to Section 12 (g) of the Act:
Title of each class
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Common Stock, no par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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. _X_ Yes ___ 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. [ ]
Exhibit Index Appears on Page 64
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As of March 1, 2001, the approximate aggregate market value of the
voting stock beneficially owned by non-affiliates of the registrant was
$124,594,000 computed on the basis of $17.69 per share, the closing sales price
on the NASDAQ Stock Market on March 1, 2001. On that date, 8,795,452 shares of
Common Stock, no par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2001 Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
not later than 120 days after the close of its fiscal year, pursuant to
Regulation 14A, are incorporated by reference into Items 10, 11, 12 and 13 of
Part III of this annual report.
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TABLE OF CONTENTS
PART I Page(s)
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Item 1 - Business............................................................................................. 4
Item 2 - Properties........................................................................................... 14
Item 3 - Legal Proceedings.................................................................................... 15
Item 4 - Submission of Matters to a Vote of
Security Holders.................................................................................. 15
PART II
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Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters....................................................................... 16
Item 6 - Selected Financial Data.............................................................................. 17
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................................................................ 18
Item 8 - Financial Statements and Supplementary Data.......................................................... 34
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................................ 61
PART III
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Item 10 - Directors and Executive Officers of the
Registrant........................................................................................ 61
Item 11 - Executive Compensation............................................................................... 61
Item 12 - Security Ownership of Certain Beneficial
Owners and Management............................................................................. 61
Item 13 - Certain Relationships and Related
Transactions...................................................................................... 61
PART IV
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Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K........................................................................... 62
Signatures......................................................................................................... 63
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ITEM 1: BUSINESS
GENERAL
BancFirst Ohio Corp. ("Company") is a financial services holding
company organized under the laws of the State of Ohio and is headquartered in
Zanesville, Ohio, the county seat of Muskingum County. It conducts a
full-service commercial and retail banking business through its wholly-owned
subsidiary, The First National Bank of Zanesville ("FNB"). The Company also owns
100% of the outstanding common shares of BFOH Capital Trust I, a special purpose
trust that was formed in October 1999 for the purpose of issuing capital
securities, and 90% of Bankers Title Services, Inc. which was formed in July
2000 for the purpose of selling title insurance. FNB owns a full service
financial planning company that conducts business under the name Chornyak &
Associates, Inc. ("Chornyak") which was acquired in April 1999.
BANK SUBSIDIARY
FNB operates 27 full-service banking facilities which serve Muskingum,
Licking, Franklin, Greene, Miami and Montgomery Counties, Ohio. FNB operates as
First National Bank in Muskingum County, and as Bank First National in its other
markets. Its primary market extends along Interstate 70 in central Ohio and
includes the markets of Zanesville, Newark, Columbus, and Dayton. The Company
primarily focuses on providing personalized, high quality and comprehensive
banking services in order to develop and maintain long-term relationships with
customers. FNB offers a wide range of banking services, including:
- commercial and commercial real estate loans;
- Small Business Administration loans;
- residential real estate loans;
- consumer loans;
- personal and business checking accounts;
- savings accounts;
- demand and time deposits;
- safe deposit services; and
- private banking
INVESTMENT AND FUNDS MANAGEMENT SUBSIDIARIES
Investment and funds management services are provided through two
wholly-owned subsidiaries of FNB, Chornyak and First Financial Services Group,
N.A. ("FFSG"). Services provided by these entities include trust, financial
planning and retail sales of investment products.
COMPANY STRATEGY
The Company believes its profitability in recent years is in part
attributable to a growth strategy that it began implementing in 1992. At
December 31, 1991, the Company had nine branch offices with assets of $298.2
million (as originally reported), an equity to assets ratio of 11.82% (as
originally reported), and operations heavily concentrated in Muskingum County.
Management believed that increased size would allow the Company to:
- take advantage of increased operating efficiencies associated
with the attendant economies of scale;
- achieve greater diversification of its markets and products;
- enhance shareholder value by more effectively leveraging its
equity capital; and
- more effectively position itself to take advantage of
acquisition opportunities in the rapidly changing financial
services industry.
Given its significant market share in its primary market area, the
Company recognized that its desired growth would have to come primarily from
expansion into new markets. In recognition of these factors, management
undertook a growth strategy which emphasized:
- acquiring existing branch locations from competing
institutions as well as de novo branching;
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- increasing lending to small businesses through the formation
of small business lending centers outside Muskingum County;
- acquiring bank and thrift holding companies;
- expanding trust, private banking and investment services; and
- improving technology to enhance services and manage the cost
of operations.
The Company believes that it has been successful in implementing its
strategy. In 1992, FNB acquired a $30.6 million branch of a savings and loan
association in Dresden, Ohio. Later in 1992, FNB opened the first of four small
business lending centers to serve small businesses and specialize in loans
guaranteed by the U.S. Department of Commerce, Small Business Administration
("SBA"). During 1997, 1998, 1999, and 2000, FNB was the largest originator of
SBA 7(a) loans in Ohio. FNB has also been awarded the designation of Preferred
Lender by the SBA. Currently, FNB has small business lending centers located in
Cleveland, Columbus, Cincinnati and Dayton, Ohio, Indianapolis, Indiana,
Louisville, Kentucky and Detroit, Michigan.
The 1995 acquisition of Bellbrook Community Bank ("Bellbrook") provided
access to the Dayton metropolitan market. In August 1996, the Company acquired
County Savings Bank ("County") which had total assets of approximately $554
million. In October 1998, FNB opened a new branch location in Washington
Township, Ohio, located in the Dayton metropolitan market. In April 1999, the
Company acquired Chornyak, a full service financial planning company. An
additional branch location was opened in May 1999 in New Albany, Ohio, a rapidly
growing suburb of Columbus, Ohio. In June 2000, the Company acquired Milton
Federal Financial Corporation ("Milton") which added four branches in the Dayton
metropolitan market. As a result of this growth strategy, the Company's assets
have increased by more than $1.2 billion since December 31, 1991.
The Company's Board of Directors and management intend to seek
continued controlled growth of the organization through selective acquisitions
of banks and/or savings and loan associations. The objectives of such
acquisitions will be to:
- increase the opportunity for quality earning asset growth,
deposit generation and fee-based income opportunities;
- diversify the earning assets portfolio and core deposit base
through expansion into new geographic markets;
- improve the potential profits from its combined operations
through economies of scale; and
- enhance shareholder value.
In furtherance of such objectives, the Company intends to continue its
pursuit of business combinations which fit its strategic objectives of growth,
diversification and market expansion and which provide the potential for
enhanced shareholder value. At the present time, the Company does not have any
understanding or agreements for any acquisition or combination.
RISK FACTORS
THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY MANAGE ITS GROWTH.
The Company's general strategy for growth has been to acquire banks and
related businesses that it believes are compatible with its business. The
Company completed the acquisition of County in 1996. At that time, County had
total assets approximately equal to the Company's total assets. Following this
acquisition, the Company worked to integrate County's operations and personnel
with FNB. Because the Company did not have systems and infrastructure in place
at the time of the acquisition to accommodate the resulting doubling of its
size, a greater amount of time than initially anticipated was spent developing
systems to accommodate the growth that resulted from this acquisition. At
present, the Company believes its infrastructure is now in place to accommodate
additional growth from acquisitions, as it did with the Milton acquisition. To
the extent that the Company continues to grow, it cannot assure you that it will
be able to adequately and efficiently manage such growth. Moreover, it may not
be able to obtain regulatory approval for any acquisition it may want to make.
Acquiring other banks and businesses will involve risks, including:
- potential exposure to liabilities of banks and businesses it
acquires;
- difficulty and expense of integrating the operations and
personnel of banks and businesses;
- potential disruption of its businesses;
- inability to hire and train a sufficient number of skilled
employees;
- impairment of relationships with customers of the bank and
businesses it acquires; and
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- incurrence of amortization expense for any acquisition
accounted for as a purchase.
If the Company fails to manage its growth effectively, its business,
financial condition and results of operations could be materially and adversely
affected.
CHANGING ECONOMIC CONDITIONS AND GEOGRAPHIC CONCENTRATION IN ONE MARKET MAY
UNFAVORABLY IMPACT THE COMPANY
The operations of the Company are concentrated in the State of Ohio. As
a result of this geographic concentration, the Company's results depend largely
upon economic conditions in this area. A deterioration in economic conditions in
this market could:
- increase loan delinquencies;
- increase problem assets and foreclosures;
- increase claims and lawsuits;
- decrease demand for the Company's products and services; and
- decrease the value of collateral for loans, especially real
estate, in turn reducing customers' borrowing power, the value
of assets associated with problem loans and collateral
coverage.
THE COMPANY MAY BE UNABLE TO MANAGE INTEREST RATE RISKS, WHICH COULD REDUCE ITS
NET INTEREST INCOME.
The Company's results of operations are affected principally by net
interest income, which is the difference between interest earned on loans and
investments and interest expense paid on deposits and other borrowings. The
Company cannot predict or control changes in interest rates. Regional and local
economic conditions and the policies of regulatory authorities, including
monetary policies of the Board of Governors of the Federal Reserve System,
affect interest income and interest expense. During 2000 and the first two
months of 2001, interest rates have been very volatile. The Company expects such
volatility to continue. The Company takes measures intended to manage the risks
from changes in market interest rates. However, changes in interest rates can
still have a material adverse effect on the Company's profitability.
In addition, certain assets and liabilities may react in different
degrees to changes in market interest rates. For example, interest rates on some
types of assets and liabilities may fluctuate prior to changes in broader market
interest rates, while interest rates on other types may lag behind. Some of the
Company's assets, such as adjustable rate mortgages, have features including
rate caps, which restrict changes in their interest rates.
Interest rates are highly sensitive to many factors that are beyond the
Company's control. Some of these factors include:
- inflation;
- recession;
- unemployment;
- money supply;
- international disorders; and
- instability in domestic and foreign financial markets.
Changes in interest rates may affect:
- the level of voluntary prepayments on loans; and
- the receipt of payment on mortgage-backed securities resulting
in the receipt of proceeds that may be reinvested at a lower
rate than the loan or mortgage-backed security being prepaid.
Although the Company pursues an asset-liability management strategy
designed to control its risk from changes in market interest rates, changes in
interest rates can still have a material adverse effect on its profitability.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company - Interest Rate Risk Management."
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CHANGES IN THE SBA PROGRAM OR INCREASED COMPETITION FOR SUCH LOANS COULD
ADVERSELY AFFECT THE COMPANY'S PROFITABILITY
The SBA lending program is a federal government program. The U.S.
Congress continues to scrutinize government programs, including the SBA lending
program. The Company cannot provide assurance that its participation in the SBA
lending program will continue in its present manner. The Company's strategic
plan includes an emphasis on continued growth of its SBA lending program. Loans
generated through this program contain portions (typically 75%) which are
guaranteed by the government. The Company has typically sold these guaranteed
portions in the secondary market. The non-interest income the Company generates
from these sales has been an important source of revenue for the Company, and
continues to play a significant role in earnings. Future non-interest income
from these activities depends on the Company's ability to originate and sell
loans under the SBA lending program. If the U.S. Congress changes the SBA
lending program, or if the Company has increased competition for such loans, its
operating results could be adversely affected.
MARKET AREA AND COMPETITION
The financial services industry in the Company's primary market area is
highly competitive. FNB competes actively with regional and super-regional bank
holding companies, community banks, savings institutions, mortgage bankers,
brokerage firms, insurance companies and loan production offices in each of its
primary market areas. The primary means of competition are through interest
rates, pricing and service.
Changes in the financial services industry resulting from fluctuating
interest rates, technological changes and deregulation have resulted in an
increase in competition, cost of funds, merger activity and customer awareness
of product and service differences among competitors.
Management believes that the deposit mix coupled with the legal lending
limit regulations that FNB is subjected to is such that no material portion of
FNB's deposits or loans have been obtained from a single customer. Consequently,
the loss of any one customer would not have a materially adverse effect on its
business. The business of the Company and FNB is not seasonal to any material
degree.
REGULATION AND SUPERVISION
As a bank holding company, the Company is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System ("FRB") under the Bank Holding Company Act ("BHCA"). Under the BHCA, bank
holding companies may not, in general, directly or indirectly acquire ownership
or control of more than 5% of the voting shares of any company, including a bank
or bank holding company, without the prior approval of the FRB. In addition,
bank holding companies are generally prohibited from engaging in nonbanking
(i.e., commercial or industrial) activities, subject to certain exceptions under
the BHCA.
The enactment of the Graham-Leach-Bliley Act of 1999 (the "GLB Act")
represented a pivotal point in the history of the financial services industry.
The GLB Act swept away large parts of a regulatory framework that had its
origins in the Depression Era of the 1930s. Effective March 11, 2000, new
opportunities became available for banks, other depository institutions,
insurance companies and securities firms to enter into combinations that permit
a single financial services organization to offer customers a more complete
array of financial products and services. The GLB Act provides a new regulatory
framework for regulation through the financial holding company, which has as its
umbrella regulator the FRB. Functional regulation of the financial holding
company's separately regulated subsidiaries is conducted by their primary
functional regulator. The GLB Act requires "satisfactory" or higher Community
Reinvestment Act compliance for insured depository institutions and their
financial holding companies in order for them to engage in new financial
activities. The GLB Act provides a federal right to privacy of non-public
personal information of individual customers. The Company and its subsidiaries
are also subject to certain state laws that deal with the use and distribution
of non-public personal information.
FNB is also subject to regulation, supervision, and examination by the
Office of the Comptroller of Currency ("OCC"). Depository institutions are also
affected by various state and federal laws, including those relating to consumer
protection and similar matters, as well as by the fiscal and monetary policies
of the federal government and its agencies, including the FRB. An important
purpose of these policies is to curb inflation and control recessions through
control of the
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supply of money and credit. The FRB uses its powers to establish reserve
requirements of depository institutions and to conduct open market operations in
United States government securities so as to influence the supply of money and
credit. These policies have a direct effect on the availability of loans and
deposits and on interest rates charged on loans and paid on deposits, with the
result that federal policies have a material effect on the earnings of
depository institutions, and hence, the Company.
ACQUISITIONS OF CONTROL. 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 given 60 days' prior written notice of such proposed
acquisition and within that time period the FRB has not issued a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such a disapproval may be issued, or unless the acquisition
is subject to FRB approval under the BHCA. An acquisition may be made prior to
the expiration of the disapproval period if the FRB issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the FRB, the acquisition of more than 10% of a class of voting stock of a
bank holding company with a class of securities registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such as
the Company, would constitute the acquisition of control of such bank holding
company.
In addition, any "company" would be required to obtain the approval of
the FRB under the BHCA before acquiring 25% (5% in the case of an acquirer that
is a bank holding company) or more of the outstanding shares of any class of
voting stock of the Company, or otherwise obtaining "control" over the Company.
Under the BHCA, "control" generally means (i) the ownership or control of 25% or
more of any class of voting securities of the bank holding company, (ii) the
ability to elect a majority of the bank holding company's directors, or (iii)
the ability otherwise to exercise a controlling influence over the management
and policies of the bank holding company.
REGULATORY DIVIDEND RESTRICTIONS. The Company is a legal entity
separate and distinct from its subsidiaries. The principal source of cash flow
of the Company, including cash flow to pay dividends on the Company's common
stock and debt service on its debt (including distributions to the Trust for
payment of distributions on the Trust Preferred Capital Securities), is
dividends from its subsidiaries. Various federal regulations limit the amount of
dividends that may be paid to the Company by FNB without regulatory approval.
These regulatory limitations on dividends, coupled with other regulatory
provisions discussed below, may have the effect of exacerbating any future
financial difficulties by further reducing the availability of funding sources.
The approval of the OCC is required for the payment of any dividend by
a national bank if the total of all dividends declared by the board of directors
of such bank in any calendar year would exceed the total of (i) the bank's
retained net profits (as defined and interpreted by regulation) for the current
year plus (ii) the retained net profits (as defined and interpreted by
regulation) for the preceding two years, less any required transfer to surplus
or a fund for the retirement of any preferred stock. In addition, a national
bank can pay dividends only to the extent that retained net profits (including
the portion transferred to surplus) exceed bad debts (as defined and interpreted
by regulation).
Under the Federal Deposit Insurance Act (the "FDI Act"), an insured
depository institution may not pay any dividend if it is undercapitalized or if
said payment would cause it to become undercapitalized. Also, the federal bank
regulatory agencies have issued policy statements providing that depository
institutions and their holding companies should generally pay dividends only out
of current operating earnings.
TRANSACTIONS INVOLVING BANKING SUBSIDIARIES. FNB is subject to Federal
Reserve Act restrictions that limit the transfer of funds or other items of
value from FNB to the Company in "covered transactions." In general, covered
transactions include loans and other extensions of credit, investments and asset
purchases, as well as other transactions involving the transfer of value from a
banking subsidiary to an affiliate or for the benefit of an affiliate. Unless an
exemption applies, covered transactions by a banking subsidiary with any of its
affiliates is limited in amount to 10% of that banking subsidiary's capital and
surplus (as defined and interpreted by regulation) and, with respect to covered
transactions by a banking subsidiary with any one of its affiliates is limited
in amount to 10% of the banking subsidiary's capital and surplus (as defined and
interpreted by regulation) and, with respect to covered transactions with all
affiliates, in the aggregate, to 20% of that banking subsidiary's capital and
surplus. Furthermore, loans and extensions of credit to affiliates generally are
required to be secured in specified amounts.
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LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS. Under the FDI Act, an
insured depository institution that is under common control with another insured
depository institution is generally liable for any loss incurred, or reasonably
anticipated to be incurred, by the FDIC in connection with the default of such
commonly controlled institution, or any assistance provided by the FDIC to any
such commonly controlled institution that is in danger of default. The term
"default" is defined generally to mean the appointment of a conservator or
receiver and the term "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. The effect of this provision is to
diminish the protection previously available to holding companies through
operation of separate depository institution subsidiaries.
SOURCE OF STRENGTH DOCTRINE. Under a policy asserted by the FRB, a bank
holding company is expected to serve as a source of financial and managerial
strength to each of its subsidiary banks and, under appropriate circumstances,
to commit resources to support each such subsidiary bank. This support may be
sought by the FRB at times when a bank holding company may not have the
resources to provide it or, for other reasons, would not otherwise be inclined
to provide it.
REGULATORY CAPITAL STANDARDS AND RELATED MATTERS. The FRB, the OCC, and
the FDIC have adopted substantially similar risk-based and leverage capital
guidelines for United States banking organizations. The guidelines establish a
systematic, analytical framework that makes regulatory capital requirements
sensitive to differences in risk profiles among depository institutions, takes
off-balance sheet exposure into account in assessing capital adequacy and
reduces disincentives to holding liquid, low-risk assets. Risk-based capital
ratios are determined by classifying assets and specified off-balance sheet
financial instruments into weighted categories with higher levels of capital
being required for categories perceived as representing greater risk. FRB policy
also provides that banking organizations generally, and, in particular, those
that are experiencing internal growth or actively making acquisitions, are
expected to maintain capital positions that are substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Under the risk-based capital standard, the minimum consolidated ratio
or total capital to risk-adjusted assets (including certain off-balance sheet
items, such as standby letters of credit) required by the FRB for bank holding
companies, such as the Company, is currently 8%. At least one-half of the total
capital must be composed of common equity, retained earnings, qualifying
noncumulative perpetual preferred stock, a limited amount of qualifying
cumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries, less certain items such as goodwill and
certain other intangible assets ("Tier 1 capital"). The remainder may consist of
qualifying hybrid capital instruments, perpetual debt, mandatory convertible
debt securities, a limited amount of subordinated debt, preferred stock that
does not qualify as Tier 1 capital and a limited amount of loan and lease loss
reserves ("Tier 2 capital"). As of December 31, 2000, the Company's Tier 1 and
total capital to risk-adjusted assets ratios were 10.1% and 11.1%, respectively.
In addition to the risk-based standard, the Company is subject to
minimum leverage ratio guidelines. The leverage ratio is defined to be the ratio
of a bank holding company's Tier 1 capital to its total consolidated quarterly
average assets less goodwill and certain other intangible assets (the "Leverage
Ratio"). These guidelines provide for a minimum Leverage Ratio of 3% for bank
holding companies that have the highest supervisory rating. All other bank
holding companies must maintain a minimum Leverage Ratio of at least 4% to 5%.
Neither the Company nor FNB has been advised by the appropriate federal banking
regulator of any specific Leverage Ratio applicable to it. As of December 31,
2000, the Company's Leverage Ratio was 6.9%.
The OCC has established capital requirements for banks under its
jurisdiction that are substantially similar to those imposed by the FRB on bank
holding companies. As of December 31, 2000, FNB had capital in excess of such
minimum regulatory capital requirements.
PROMPT CORRECTIVE ACTION. The FDI Act requires the federal bank
regulatory agencies to take "prompt corrective action" in respect of
FDIC-insured depository institutions that do not meet minimum capital
requirements. A depository institution's treatment for purposes of the prompt
corrective action provisions will depend upon how its capital levels compare to
various relevant capital measures and certain other factors, as established by
regulation.
The federal financial institution regulatory agencies have adopted
regulations establishing relevant capital measures and relevant capital levels.
The relevant capital measures are the total capital ratio, Tier 1 capital ratio
and the Leverage Ratio. Under the regulations, a national bank will be: (i)
"well capitalized" if it has a total capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater and a Leverage Ratio of 5% or greater and is not
subject to any order or written directive by any
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such regulatory authority to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total capital ratio
of 8% or greater, a Tier 1 capital ratio of 4% or greater and a Leverage Ratio
of 4% or greater (3% in certain circumstances) and is not "well capitalized,"
(iii) "undercapitalized" if it has a total capital ratio of less than 8%, a Tier
1 capital ratio of less than 4% or a Leverage Ratio of less than 4% (3% in
certain circumstances); (iv) "significantly undercapitalized" if it has a total
capital ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a
Leverage Ratio of less than 3%; and (v) "critically undercapitalized" if its
tangible equity is equal to or less than 2% of average quarterly tangible
assets. In addition, a depository institution's primary federal regulatory
agency is authorized to downgrade the depository institution's capital category
to the next lower category upon a determination that the depository institution
is an unsafe or unsound condition or is engaged in an unsafe or unsound
practice. An unsafe or unsound practice can include receipt by the institution
of a less than satisfactory rating on its most recent examination with respect
to its asset quality, management, earnings, or liquidity. As of December 31,
2000, FNB had capital levels that met "well capitalized" standards under such
regulations.
The banking agencies are permitted to establish, on an
institution-by-institution basis, individualized minimum capital requirements
exceeding the general requirements described above. Failure to meet the capital
guidelines described above could subject an insured bank to a variety of
sanctions, including asset growth restrictions and termination of deposit
insurance by the FDIC.
The FDI Act generally prohibits a depository institution from making
any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be "undercapitalized." Undercapitalized depository institutions are
subject to limitations on, among other things, asset growth; acquisition;
branching; new business lines; acceptance of brokered deposits; and borrowings
from the Federal Reserve System and are required to submit a capital restoration
plan. The federal bank regulatory agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lessor of (i) an amount equal to 5% of the
depository institution's total assets at the time it became undercapitalized,
and (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards applicable with
respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." Significantly undercapitalized
depository institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to become
"adequately capitalized," requirements to reduce total assets, and cessation of
receipt of deposits from correspondent banks. "Critically undercapitalized"
institutions are subject to the appointment of a receiver or conservator.
LENDING PRACTICES
Loan Portfolio Composition. In accordance with its lending policies,
the Company strives to maintain a diversified loan portfolio. The following
table sets forth in dollar amounts the composition of the Company's loan
portfolio for the past five years:
DECEMBER 31,
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2000 1999 1998 1997 1996
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(IN THOUSANDS)
Residential mortgage $ 465,745 $ 327,294 $ 353,635 $ 363,333 $ 337,911
Construction mortgage 5,112 9,484 10,203 9,215 7,716
Commercial, financial and industrial 487,541 411,489 323,544 302,098 299,630
Consumer 131,253 101,500 89,681 86,381 76,598
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Total loans 1,089,651 849,767 777,063 761,027 721,855
Allowance for possible loan losses (10,150) (7,431) (6,643) (6,617) (6,599)
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Net loans $ 1,079,501 $ 842,336 $ 770,420 $ 754,410 $ 715,256
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The Company's loan portfolio totaled $1.08 billion at December 31,
2000, representing 69.2% of total assets. At December 31, 1999, 1998, 1997 and
1996, the Company's loan portfolio represented 66.1%, 65.2%, 69.8% and 67.7% of
total assets, respectively.
Residential mortgage. At December 31, 2000, residential mortgages
outstanding represented 42.7% of total loans. The Company originates loans
secured by first lien mortgages on single-family residences located mainly in
its market areas. The Company originates adjustable and fixed-rate products with
a maturity of up to 30 years, although these loans may be repaid over a shorter
period due to prepayments and other factors. These loans generally have a
maximum loan to value ratio of 80%, although this ratio could go to 100% under
certain circumstances. The Company primarily retains adjustable-rate loans, and
the associated servicing, in its portfolio.
The adjustable-rate mortgages currently offered by the Company have
interest rates which generally adjust on the applicable one, three, five or
seven year anniversary date of the loan, subject to annual and term limitations.
Rates are generally based upon an index tied to the weekly average yield on U.S.
Treasury securities (adjusted to a constant maturity), as made available by the
FRB, plus a margin.
Fixed-rate mortgage products offered by the Company are generally sold
in the secondary market, thus limiting the interest rate risk inherent in
maintaining a large portfolio of long-term, fixed-rate assets. The Company sells
such loans on both a servicing-retained and servicing-released basis.
Construction mortgage. At December 31, 2000, construction mortgages
outstanding represented .5% of total loans. The Company originates loans to
construct commercial real estate properties and to construct single-family
residences. For owner occupied commercial construction properties, the maximum
loan to value ratio is generally 75%. For non-owner occupied commercial
construction properties, the maximum loan to value ratio is generally 70%. For
residential construction properties, the guidelines for residential mortgages
apply. All construction loans are secured by first lien mortgages. These
construction lending activities generally are limited to the Company's primary
market area.
Commercial. At December 31, 2000, commercial loans outstanding
represented 44.7% of total loans. The Company originates commercial loans for
various business purposes including the acquisition and refinancing of
commercial real estate. Such loans are originated for commercial purposes or
secured by commercial real estate. The majority of the Company's commercial real
estate loans are secured by first liens on owner-occupied properties, a majority
of which is located in the Company's primary market areas. The Company's
underwriting policy for commercial real estate loans generally requires that the
ratio of the loan amount to the value of the collateral cannot exceed 75%. At
December 31, 2000, the Company's largest commercial loan had a principal balance
of $5.3 million.
The Company is active in the SBA Section 7(a) lending program. Under
this program, a portion of qualifying loans (typically 75%) is guaranteed by the
SBA. The SBA guaranteed loans are adjustable-rate loans made at prime rate plus
a margin. The Company also originates loans under the Farmer's Home
Administration Business and Industry (Farmer's B&I) and other government
guarantee programs. The Company generally sells the guaranteed portions of
originated loans through these programs while retaining the rights to service
these loans. At December 31, 2000, the guaranteed portion of loans that were
held-for-sale totaled $2.3 million, while the unguaranteed portion of loans held
by the Company in its portfolio totaled $37.1 million.
Management continues to seek growth opportunities in small business
lending. To date, the Company has established small business lending centers in
the Columbus, Cleveland, Cincinnati and Dayton Ohio and Indianapolis, Indiana,
Louisville, Kentucky and Detroit, Michigan market areas. The Columbus location
is the center for the Company's small business lending operations. In
determining future activities in this area, management continually assesses the
uncertainties that exist surrounding government programs, including the SBA, due
to scrutiny by the United States Congress.
Consumer. At December 31, 2000, consumer loans outstanding represented
12.1% of total loans. The Company originates consumer loans which are primarily
for personal, family or household purposes, in order to offer a full range of
financial services to its customers. The underwriting standards employed by the
Company for consumer loans include a determination of the applicant's payment
history on other debts and an assessment of the applicant's ability to meet
existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is a primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount.
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Home equity loans are secured by first or second lien mortgages. Home equity
loans generally have loan to value ratios of 80% to 90%, but could go as high as
100% under certain circumstances. At December 31, 2000, 42.6% of the Company's
consumer loans consisted of home equity loans.
At December 31, 2000, 47.6% of the Company's consumer loans consisted
of direct and indirect loans to finance the purchase of new and used automobiles
and the remainder of the consumer loans consisted of loans for various other
individual purposes. The targeted loan to value ratio for loans secured by new
and used automobiles is 80%. Depending on market conditions and customer credit
ratings, the Company may lend up to a 100% loan to value ratio.
Loan maturities and repricing periods of the loan portfolio at December
31, 2000 were as follows:
WITHIN ONE ONE TO FIVE AFTER FIVE
YEAR YEARS YEARS TOTAL
-------------- -------------- -------------- --------------
Commercial $ 195,690 $ 225,383 $ 66,468 $ 487,541
Real estate mortgage 154,433 218,886 92,426 465,745
Real estate - construction 936 3,649 527 5,112
Consumer 65,827 49,440 15,986 131,253
---------- ---------- ---------- ----------
$ 416,886 $ 497,358 $ 175,407 $1,089,651
========== ========== ========== ==========
Loans due after one year with:
Floating rates $ 438,723
Predetermined rates 234,042
INVESTMENT SECURITIES
The Company's investment strategy is to manage the portfolio to include
interest rate sensitive assets to reduce interest rate risk against interest
rate sensitive liabilities. The portfolio is also structured to generate cash
flows and, coupled with the readily marketable nature of such assets, it serves
as a secondary source of liquidity to accommodate heavy loan demand, as well as
deposit withdrawals. Subject to various government regulatory restrictions,
banks may own direct obligations of the U.S. Treasury, federal agency
securities, bank-qualified tax-exempt securities (including those issued by
states and municipalities), certificates of deposit and time deposits, bankers'
acceptances, commercial paper, corporate bonds, and mortgage-backed and
asset-backed securities and related products.
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The following table sets forth certain information relating to the
Company's investment securities portfolio. Yields are stated on a fully tax
equivalent ("FTE") basis.
OBLIGATIONS
OF STATE
OTHER U.S. AND MORTGAGE- CORPORATE
U.S. GOVERNMENT POLITICAL BACKED OBLIGATIONS YIELD
TREASURY AGENCIES SUBDIVISIONS SECURITIES AND OTHER TOTAL (FTE)
-------- -------- ------------ ---------- --------- ----- -----
(DOLLARS IN THOUSANDS)
DECEMBER 31, 2000
- -----------------
SECURITIES
AVAILABLE-FOR-SALE:
Maturity/Repricing
Within one year $ -- $ -- $ 142 $ 13,500 $ -- $ 13,642 7.18%
After one through five years 254 -- 1,746 98,289 40,385 140,674 6.65%
After five through ten years -- -- 7,848 84,571 3,785 96,204 7.09%
After ten years -- 1,622 14,410 8,911 41,330 66,273 7.93%
-------- -------- -------- -------- -------- --------
Total carrying value $ 254 $ 1,622 $ 24,146 $205,271 $ 85,500 $316,793
======== ======== ======== ======== ======== ========
Amortized cost $ 250 $ 1,566 $ 24,489 $203,156 $ 90,072 $319,533
Yield (FTE) 6.55% 7.08% 7.63% 6.88% 7.39% 7.08%
Average maturity (in years) 1.3 10.8 15.5 4.9 15.7 5.1
SECURITIES HELD-TO-MATURITY:
Maturity/Repricing
Within one year $ -- $ -- $ 521 $ 3,594 $ -- $ 4,115 7.73%
After one through five years -- -- 758 8,065 414 9,237 7.54%
After five through ten years -- -- 101 -- -- 101 6.97%
-------- -------- -------- -------- -------- --------
Total carrying value $ -- $ -- $ 1,380 $ 11,659 $ 414 $ 13,453
======== ======== ======== ======== ======== ========
Fair value $ -- $ -- $ 1,391 $ 11,691 $ 414 $ 13,496
Yield (FTE) -- -- 7.28% 7.52% 10.64% 7.59%
Average maturity (in years) -- -- 2.2 2.5 2.9 2.5
DECEMBER 31, 1999
- -----------------
SECURITIES
AVAILABLE-FOR-SALE:
Maturity/Repricing
Within one year $ -- $ -- $ -- $ 14,212 $ -- $ 14,212 6.35%
After one through five years 252 -- 813 96,322 12,335 109,722 6.86%
After five through ten years -- 1,408 8,046 83,562 18,212 111,228 6.69%
After ten years -- 3,871 14,156 18,046 39,214 75,287 7.80%
-------- -------- -------- -------- -------- --------
Total carrying value $ 252 $ 5,279 $ 23,015 $212,142 $ 69,761 $310,449
======== ======== ======== ======== ======== ========
Amortized cost $ 250 $ 5,592 $ 25,771 $217,916 $ 73,740 $323,269
Yield (FTE) 6.55% 7.09% 7.67% 6.73% 7.60% 7.00%
Average maturity (in years) 2.3 12.3 16.6 5.9 18.1 6.0
SECURITIES HELD-TO-MATURITY:
Maturity/Repricing
Within one year $ -- $ -- $ 899 $ 250 $ -- $ 1,149 6.90%
After one through five years -- -- 3,338 13,568 1,722 18,628 7.85%
After five through ten years -- -- 549 -- 460 1,009 8.96%
-------- -------- -------- -------- -------- --------
Total carrying value $ -- $ -- $ 4,786 $ 13,818 $ 2,182 $ 20,786
======== ======== ======== ======== ======== ========
Fair value $ -- $ -- $ 4,839 $ 13,580 $ 2,182 $ 20,601
Yield (FTE) -- -- 7.55% 7.52% 10.64% 7.85%
Average maturity (in years) -- -- 2.9 3.4 3.2 3.3
DECEMBER 31, 1998
- -----------------
SECURITIES
AVAILABLE-FOR-SALE:
Maturity/Repricing
Within one year $ -- $ 173 $ 1,264 $ 15,268 $ 50 $ 16,755 6.63%
After one through five years 265 -- 3,308 94,130 3,907 101,610 6.80%
After five through ten years -- 2,503 8,278 83,733 22,592 117,106 6.35%
After ten years -- 2,162 9,496 28,657 25,311 65,626 6.95%
-------- -------- -------- -------- -------- --------
Total carrying value $ 265 $ 4,838 $ 22,346 $221,788 $ 51,860 $301,097
======== ======== ======== ======== ======== ========
Amortized cost $ 251 $ 4,759 $ 21,724 $222,537 $ 52,503 $301,774
Yield (FTE) 6.55% 6.81% 7.69% 6.62% 6.32% 6.65%
Average maturity (in years) 3.3 10.7 12.1 6.1 18.2 8.7
SECURITIES HELD-TO-MATURITY:
Maturity/Repricing
Within one year $ -- $ -- $ 396 $ 2 $ -- $ 398 7.27%
After one through five years -- -- 3,520 12,139 1,849 17,508 7.81%
After five through ten years -- -- 1,280 6,839 493 8,612 7.82%
-------- -------- -------- -------- -------- --------
Total carrying value $ -- $ -- $ 5,196 $ 18,980 $ 2,342 $ 26,518
======== ======== ======== ======== ======== ========
Fair value $ -- $ -- $ 5,413 $ 19,054 $ 2,342 $ 26,809
Yield (FTE) -- -- 7.53% 7.53% 10.64% 7.80%
Average maturity (in years) -- -- 3.7 4.4 3.2 4.1
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DEPOSITS
Deposits from local markets serve as the Company's major source of
funds for investments and lending. The Company offers a wide variety of retail
and commercial deposit accounts designed to attract both short-term and
long-term funds. Certificates of deposit, regular savings, money market
deposits, and NOW checking accounts have been the primary sources of new funds
for the Company.
Maturities of the Company's time certificates of deposit of $100,000 or
more outstanding at December 31, 2000 are summarized as follows:
AMOUNT
(IN THOUSANDS)
------------------
3 months or less $ 78,199
3 through 6 months 64,512
6 through 12 months 36,930
Over 12 months 28,466
------
Total $ 208,107
=======
BORROWINGS
The Company has historically funded its earning assets principally
through customer deposits within its primary market area. In its attempt to
manage its cost of funding sources, management has pursued a strategy which
includes a mix of the traditional retail funding sources, combined with the
utilization of wholesale funding sources. These funding sources have been
utilized by management to grow the Company in its efforts to leverage its
capital base. Additionally, the Company has used such funding sources to manage
its interest rate risk by match funding and maintaining certain assets on its
balance sheet and structuring various other funding sources which traditionally
are not available to the Company in the retail market.
FNB is a member of the Federal Home Loan Bank ("FHLB") system. This
membership is maintained to enhance shareholder value through the utilization of
FHLB advances to aid in the management of the Company's cost of funds by
providing alternative funding sources. FHLB advances provide flexibility in the
management of interest rate risk through the wide range of available products
with characteristics not necessarily present in the existing deposit base, as
well as the ability to manage liquidity.
EMPLOYEES
At December 31, 2000, the Company had 439 employees, 355 of who were
full-time and 84 of whom were part-time. Full-time employees receive a
comprehensive range of employee benefit programs and salaries that management
considers to be generally competitive with those provided by other major
employers in its market areas. None of the Company's employees are represented
by any union or other labor organization, and management believes that its
employee relations are good. The Company has never experienced a work stoppage.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company does not have any banking offices located in a foreign
country and has no foreign assets, liabilities, or related income and expense
for the years presented.
ITEM 2: PROPERTIES
The Company's headquarters and FNB's main office are located in The
First National Bank Building, 422 Main Street, Zanesville, Ohio. The building
contains approximately 34,000 square feet and is used exclusively by the Company
and FNB. The Company also owns, free and clear of any encumbrances, 20 other
buildings with square footage ranging from approximately 800 to 15,000 that are
used as full service banking locations. Three additional full service branch
locations are located in buildings owned by the Company on land that is being
purchased on a land contract or is being leased on an
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extended basis under favorable terms. One full service branch is located in a
15,000 square foot facility that is leased by the Company. This facility is also
used by the Company for business lending, private banking, administrative and
various operational activities. The Company also leases space ranging from
approximately 600 square feet to 26,000 square feet in nine additional
locations. This lease spaced is used primarily for business lending and
operational activities. The aggregate annual rentals paid by the Company during
its last fiscal year did not exceed five percent of its operating expenses.
Management of the Company believes that its properties are adequately insured.
ITEM 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company,
other than ordinary litigation incidental to its business. In the opinion of
management, the ultimate resolution of these proceedings will not have a
material adverse effect on the financial position of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders of the Company
during the fourth quarter of 2000.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
QUARTERLY MARKET AND DIVIDEND INFORMATION
Per Share Data
2000 1999
------------------------------------------ ------------------------------------------
MARKET PRICE MARKET PRICE
--------------------------- CASH --------------------------- CASH
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------------------------- -------------- --------------------------- --------------
1st Quarter $ 21.67 $ 17.38 $ .138 $ 28.57 $ 23.57 $ .133
2nd Quarter 20.42 14.05 .138 25.95 22.03 .133
3rd Quarter 16.19 13.22 .138 24.10 20.00 .133
4th Quarter 16.25 14.29 .145 24.05 18.22 .138
QUARTERLY MARKET AND DIVIDEND INFORMATION
On April 30, 1993, the Company's common stock commenced trading on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
National Market System under the symbol BFOH. The high and low market prices
represent high and low sales prices for the Company's common stock as furnished
to the Company by the NASDAQ Stock Market. There were 2,289 and 1,138
shareholders of record of the Company's common stock at December 31, 2000 and
1999, respectively. The Company plans to continue to pay quarterly cash
dividends. The ability of the Company to pay cash dividends is based upon
receiving dividends from FNB, as well as existing cash balances. As discussed in
Note 18 to the consolidated financial statements, certain restrictions exist
regarding the ability of FNB to pay cash dividends.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2000(5) 1999 1998 1997 1996(5)
------- ---- ---- ---- -------
(Dollars in Thousands Except per Share Data)
STATEMENT OF INCOME DATA:
Interest income $ 111,725 $ 88,114 $ 86,657 $ 84,692 $ 53,177
Interest expense 70,946 49,647 50,150 48,256 28,630
---------- ---------- ---------- ---------- ----------
Net interest income 40,779 38,467 36,507 36,436 24,547
Provision for possible loan losses 1,800 1,580 1,225 1,221 1,257
Non-interest income 13,121 10,753 9,948 7,768 6,258
Non-interest expense 31,617 29,651 29,827 26,677 21,235
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary item 20,483 17,989 15,403 16,306 8,313
Provision for federal income tax 6,552 5,685 4,835 5,536 2,354
---------- ---------- ---------- ---------- ----------
Income before extraordinary item 13,931 12,304 10,568 10,770 5,959
Extraordinary item-prepayment Charges
on early repayment of Federal Home
Loan Bank Advances, net of tax -- -- 400 -- --
---------- ---------- ---------- ---------- ----------
Net income $ 13,931 $ 12,304 $ 10,168 $ 10,770 $ 5,959
========== ========== ========== ========== ==========
PER SHARE DATA: (1)
Income before extraordinary item:
Basic $ 1.67 $ 1.50 $ 1.26 $ 1.29 $ .85
Diluted 1.66 1.50 1.26 1.29 .85
Net income:
Basic 1.67 1.50 1.22 1.29 .85
Diluted 1.66 1.50 1.22 1.29 .85
Dividends .56 .54 .52 .50 .49
Book value 12.20 10.05 10.56 10.21 9.32
Tangible book value 9.71 8.47 9.12 8.70 7.63
BALANCE SHEET DATA:
Total assets $1,559,601 $1,274,206 $1,181,011 $1,081,618 $1,056,920
Loans 1,089,651 849,767 777,063 761,027 721,855
Allowance for possible loan losses 10,150 7,431 6,643 6,617 6,599
Securities 330,246 331,235 327,615 271,521 284,576
Deposits 1,113,555 799,176 789,622 747,047 732,689
Borrowings 325,368 385,498 296,750 239,449 236,609
Shareholders' equity 107,142 80,108 87,535 85,333 77,894
PERFORMANCE RATIOS:
Return on average assets 0.96% 1.02% 0.89% 0.98% 0.85%
Return on average equity 15.42 14.29 11.55 13.20 10.05
Net interest margin 3.09 3.47 3.48 3.55 3.78
Interest rate spread 2.78 3.12 3.05 3.08 3.22
Non-interest income to average assets 0.90 0.89 0.88 0.71 0.90
Non-interest expense to average
assets(2) 2.06 2.33 2.36 2.30 2.59
Efficiency ratio(3) 54.66 56.56 56.81 56.67 57.33
ASSET QUALITY RATIOS:
Non-performing loans to total loans 0.91% 0.42% 0.48% 0.29% 0.35%
Non-performing assets to total assets 0.67 0.30 0.37 0.28 0.29
Allowance for possible loan losses to
total loans 0.93 0.87 0.85 0.87 0.91
Allowance for possible loan losses to
non-performing loans 102.27 208.97 178.29 298.33 257.97
Net charge-offs to average loans 0.09 0.10 0.16 0.16 0.19
CAPITAL RATIOS:(4)
Shareholders' equity to total assets 6.87% 6.29% 7.41% 7.89% 7.37%
Tier 1 capital to average total assets 6.88 7.77 6.52 6.52 6.06
Tier 1 capital to risk-weighted assets 10.13 11.37 10.34 10.37 10.08
(1) Per share data has been restated to reflect all stock dividends and
stock splits.
(2) Excludes amortization of intangibles and non-recurring charges totaling
$1,629 in 1998 for merger, restructuring and branch closing costs and
$2,632 in 1996 related to the special one-time Savings Association
Insurance Fund assessment and restructuring costs.
(3) The efficiency ratio is equal to non-interest expense (excluding
non-recurring charges) less amortization of intangible assets divided
by net interest income determined on a fully tax equivalent basis plus
non-interest income less gains or losses on securities transactions and
non-recurring income.
(4) For definitions and further information relating to the Company's
regulatory capital requirements, see "Supervision and Regulation."
(5) The Company's acquisition of Milton in June 2000 and County in August
1996 significantly affects the comparability of the Company's results
of operations for prior years.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE COMPANY
For a comprehensive understanding of the Company's financial condition
and performance, this discussion should be considered in conjunction with the
Company's Consolidated Financial Statements, accompanying notes, and other
information contained elsewhere herein.
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included herein will prove to be accurate.
Factors that could cause actual results to differ from the results discussed in
the forward-looking statements include, but are not limited to: economic
conditions (both generally and more specifically in the markets in which the
Company and FNB operate); competition for the Company's customers from other
providers of financial services; government legislation and regulation (which
changes from time to time and over which the Company has no control); changes in
interest rates; material unforeseen changes in the liquidity, results of
operations, or financial condition of the Company's customers; and other risks
detailed in "Item 1: Business - Risk Factors" and the Company's filings with the
Securities and Exchange Commission, all of which are difficult to predict and
many of which are beyond the control of the Company.
OVERVIEW
The reported results of the Company primarily reflect the operations of
the Company's bank subsidiary. The Company's results of operations are dependent
on a variety of factors, including the general interest rate environment,
competitive conditions in the industry, governmental policies and regulations
and conditions in the markets for financial assets. Like most financial
institutions, the Company's primary source of income is net interest income. Net
interest income is defined as the difference between the interest the Company
earns on interest-earning assets, such as loans and securities, and the interest
the Company pays on interest-bearing liabilities, such as deposits and
borrowings. The Company's operations are also affected by non-interest income,
such as checking account and trust fees and gains from sales of loans. The
Company's principal operating expenses, aside from interest expense, consist of
salaries and employee benefits, occupancy costs and other general and
administrative expenses.
On April 5, 1999, the Company acquired Chornyak, a full service
financial planning company. Chornyak provides comprehensive financial planning
services to its clients and receives fees for these services either directly
from, or in the form of commissions earned from handling and processing
investment transactions for, its clients. This acquisition was accounted for as
a purchase transaction and, accordingly, the results of Chornyak are included in
the Company's results of operations from the date of acquisition.
In October 1999, BFOH Capital Trust I (the "Trust"), a wholly-owned
subsidiary of the Company, was formed for the purpose of issuing $20.0 million
aggregate liquidation amount of 9.875% Capital Securities. The Trust's
obligations under the Capital Securities are fully and unconditionally
guaranteed by the Company. The Capital Securities are included with borrowings
and presented as a separate line item in the Company's consolidated balance
sheet. Distributions on the Capital Securities are recorded as interest expense
in the Company's consolidated statement of operations.
On June 20, 2000, the Company completed the acquisition of Milton. In
connection with the acquisition, the Company issued 964,829 common shares having
a total value of approximately $14.2 million and paid cash of $14.1 million to
the Milton shareholders. The acquisition is being accounted for as a purchase.
Accordingly, Milton's results of operations have been included from the date of
acquisition. Total assets added from this acquisition approximated $259.2
million.
All per share data for the periods presented have been restated to
reflect all stock dividends and stock splits.
BUSINESS LINE RESULTS
The Company is managed along two major lines of business: the community
banking group and the investment and funds management affiliates. The community
banking group consists of the Company's bank subsidiary, FNB. The
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investment and funds management affiliates include FFSG, a trust company, and
Chornyak, a full service financial planning company. Additional information
regarding the Company's business lines and the financial measurement
methodologies is provided in Note 23 to the consolidated financial statements.
The Company's business line results for each of the three years ended
December 31, 2000 are summarized in the following table:
NET INCOME (LOSS), YEAR ENDED DECEMBER 31,
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Community Banking $ 15,022 $ 13,334 $ 13,076
Investment and Funds Management 833 470 328
Parent and Other (1,924) (1,500) (3,236)
-------- -------- --------
Consolidated Total $ 13,931 $ 12,304 $ 10,168
======== ======== ========
The increase in community banking net income in 2000 was primarily due
to growth in net interest income and other non- interest income, offset in part
by increases in other non-interest expenses and the provision for possible loan
losses. The increase in net interest income was primarily attributed to the
Milton acquisition which added approximately $2.9 million to the results for
2000. The increase in non-interest expense was also primarily attributed to
Milton which added $1.4 million of such expenses to the results for 2000.
The increase in earnings from investment and funds management services
in 2000 compared to 1999 primarily resulted from increased levels of financial
planning fee income due to the 2000 results including twelve months of such
revenues compared to nine months in 1999. Also, FFSG's results benefited from
expense control measures as non-interest expenses were $127,000 lower in 2000
compared to 1999 while revenue levels were $111,000 higher.
Parent and other includes the net funding costs of the parent company
and all significant non-recurring items of income and expense. The increased
loss in 2000 compared to 1999 resulted primarily from higher interest costs
associated with capital securities issued by BFOH Capital Trust I in October
1999.
NET INTEREST INCOME
Average Balances and Yields. The following tables present, for each of
the periods indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
percentage rates, and the net interest margin. Net interest margin is calculated
by dividing net interest income on a fully tax equivalent basis ("FTE") by total
interest-earning assets. The net interest margin is influenced by the level and
relative mix of interest-earning assets and interest-bearing liabilities. FTE
income includes tax-exempt income, restated to a pre-tax equivalent amount based
on the statutory federal income tax rate. All average balances are daily average
balances. Non-accruing loans are included in average loan balances.
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Year Ended December 31,
2000 1999
-----------------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ----
(Dollars in Thousands)
Securities:
Taxable $ 330,190 $ 24,817 7.52% $ 292,510 $ 19,601 6.70%
Non-taxable (2) 29,291 2,502 8.55 33,997 2,751 8.09
---------- ---------- ---------- ----------
Total securities 359,481 27,319 7.60 326,507 22,352 6.85
Loans:
Commercial 451,755 41,358 9.15 375,834 33,944 9.03
Real estate 421,384 33,311 7.91 337,967 24,987 7.39
Consumer 117,672 10,562 8.98 96,981 7,821 8.06
---------- ---------- ---------- ----------
Total loans(1) 990,811 85,231 8.60 810,782 66,752 8.23
Federal funds sold 1,673 108 6.46 704 39 5.54
---------- ---------- ---------- ----------
Total earning assets(2) $1,351,965 $ 112,658 8.33% $1,137,993 $ 89,143 7.83%
---------- ----------
Non interest-earning assets 98,590 72,084
---------- ----------
Total assets $1,450,555 $1,210,077
========== ==========
Interest Bearing Deposits:
Demand and savings $ 242,125 $ 7,267 3.00% $ 234,288 $ 5,973 2.55%
Time deposits 641,402 38,216 5.96 495,747 26,026 5.25
---------- ---------- ---------- ----------
Total 883,527 45,483 5.15 730,035 31,999 4.38
Borrowings 395,846 25,463 6.43 324,282 17,648 5.44
---------- ---------- ---------- ----------
Total interest-bearing
liabilities $1,279,373 $ 70,946 5.55% $1,054,317 $ 49,647 4.71%
---------- ----------
Non interest-bearing deposits 69,090 62,431
---------- ----------
Subtotal 1,348,463 1,116,748
Other liabilities 11,763 7,238
---------- ----------
Total liabilities 1,360,226 1,123,986
Shareholders' equity 90,329 86,091
---------- ----------
Total liabilities and
shareholders' equity $1,450,555 1,210,077
========== ==========
Net interest income and
interest rate spread(3) $ 41,712 2.78% $ 39,496 3.12%
========== ==== ========== ====
Net interest margin(4) 3.09% 3.47%
==== ====
Average interest-earning
assets to average
interest-bearing
liabilities 105.7% 107.9%
Year Ended December 31,
1998
------------------------------------------
Average Income/ Yield/
Balance Expense Cost
------- ------- ----
(Dollars in Thousands)
Securities:
Taxable $ 272,760 $ 18,514 6.79%
Non-taxable (2) 27,246 2,130 7.82
---------- ----------
Total securities 300,006 20,644 6.88
Loans:
Commercial 315,242 29,776 9.45
Real estate 362,580 28,599 7.89
Consumer 91,865 8,275 9.01
---------- ----------
Total loans(1) 769,687 66,650 8.66
Federal funds sold 2,907 154 5.30
---------- ----------
Total earning assets(2) $1,072,600 $ 87,448 8.15%
----------
Non interest-earning assets 63,978
----------
Total assets $1,136,578
==========
Interest Bearing Deposits:
Demand and savings $ 215,358 $ 6,251 2.90%
Time deposits 489,265 27,648 5.65
---------- ----------
Total 704,623 33,899 4.81
Borrowings 279,004 16,251 5.82
---------- ----------
Total interest-bearing
liabilities $ 983,627 $ 50,150 5.10%
----------
Non interest-bearing deposits 56,845
----------
Subtotal 1,040,472
Other liabilities 8,108
----------
Total liabilities 1,048,580
Shareholders' equity 87,998
----------
Total liabilities and
shareholders' equity $1,136,578
==========
Net interest income and
interest rate spread(3) $ 37,298 3.05%
========== ====
Net interest margin(4) 3.48%
====
Average interest-earning
assets to average
interest-bearing
liabilities 109.0%
(1) Non-accrual loans are included in the average loan balances.
(2) Computed on an FTE basis utilizing a 35% tax rate. The applicable
adjustments were $933, $1,029 and $791 for the years ended December 31,
2000, 1999, and 1998, respectively.
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percentage
of average interest-earning assets.
20
21
Rate and Volume Variances. Net interest income may also be analyzed by
segregating the volume and rate components of interest income and interest
expense. The following table discloses the dollar changes in the Company's net
interest income attributable to changes in levels of interest-earning assets or
interest-bearing liabilities (volume), changes in average yields on
interest-earning assets and average rates on interest-bearing liabilities (rate)
and the combined volume and rate effects (total). For the purposes of this
table, the change in interest due to both rate and volume has been allocated to
volume and rate change in proportion to the relationship of the dollar amounts
of the change in each. In general, this table provides an analysis of the effect
on income of balance sheet changes which occurred during the periods and the
changes in interest rate levels.
YEAR ENDED DECEMBER 31,
2000 VS. 1999 1999 VS. 1998
INCREASE (DECREASE) INCREASE (DECREASE)
---------------------------------------------------------------------------------
(IN THOUSANDS) VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
Interest-earning assets:
Loans:
Commercial $ 6,945 $ 469 $ 7,414 $ 5,519 $ (1,351) $ 4,168
Real estate 6,501 1,823 8,324 (1,878) (1,734) (3,612)
Consumer 1,792 949 2,741 444 (898) (454)
-------- -------- -------- -------- -------- --------
Total loans 15,238 3,241 18,479 4,085 (3,983) 102
Securities:
Taxable 2,683 2,531 5,214 1,326 (239) 1,087
Non-taxable (396) 149 (247) 544 77 621
-------- -------- -------- -------- -------- --------
Total securities 2,287 2,680 4,967 1,870 (162) 1,708
Fed funds sold 62 7 69 (122) 7 (115)
-------- -------- -------- -------- -------- --------
Total interest-earning assets 17,587 5,928 23,515 5,833 (4,138) 1,695
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 205 1,089 1,294 521 (799) (278)
Time deposits 8,354 3,836 12,190 361 (1,983) (1,622)
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits 8,559 4,925 13,484 882 (2,782) (1,900)
Borrowings 4,283 3,532 7,815 2,512 (1,115) 1,397
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 12,842 8,457 21,299 3,394 (3,897) (503)
-------- -------- -------- -------- -------- --------
Net interest income $ 4,745 $ (2,529) $ 2,216 $ 2,439 $ (241) $ 2,198
======== ======== ======== ======== ======== ========
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Income. Net income for the year ended December 31, 2000 was $13.9
million, or $1.67 per basic share and $1.66 per diluted share, compared to net
income of $12.3 million, or $1.50 per basic and diluted share, for the year
ended December 31, 1999. Net income for the year ended December 31, 2000
includes approximately $969,000 of earnings contributed by Milton. Net interest
income increased 6.0% and non-interest income increased 22.0% in the twelve
months ended December 31, 2000, as compared to the same period in 1999 while
non-interest expense increased 6.6%. Excluding Milton's contribution to the 2000
results, net interest income decreased 1.5%, non-interest income increased 20.2%
and non-interest expense increased 2.0% compared to 1999. The provision for
possible loan losses increased 13.9% to $1.8 million in 2000 from $1.6 million
in 1999. The Company's net interest margin decreased to 3.09% in 2000, compared
to 3.47% in 1999. The Company's return on average assets and return on average
equity were .96% and 15.42%, respectively, for the year ended December 31, 2000,
compared to 1.02% and 14.29%, respectively, for the year ended December 31,
1999.
Interest Income. Total interest income increased 26.8% to $111.7
million for the year ended December 31, 2000, compared to $88.1 million for the
comparable period in 1999. This increase resulted from a $214.0 million increase
in average earning assets for the year ended December 31, 2000 compared to 1999,
and a 50 basis point increase in the average yield on interest-earning assets.
Milton contributed $8.8 million of interest income and $102.4 million in average
21
22
earning assets to the results in 2000. Excluding Milton's contribution of $80.2
million, the average balance of loans increased $99.9 million, or 12.3%. The
increase in loan balances was a result of the Company's continued emphasis on
loan growth to increase overall yields on earning assets.
The weighted average yield on interest-earning assets increased to
8.33% during 2000, compared to 7.83% during 1999. The Company's yield on average
loans increased from 8.23% during the year ended December 31, 1999 to 8.60%
during the year ended December 31, 2000. The increase in yield resulted
primarily from increases in market interest rates. Yields on the investment
portfolio increased from 6.85% during 1999 to 7.60% during 2000, also due
primarily to increases in market interest rates as well as portfolio
restructuring activities.
Interest Expense. Total interest expense increased 42.9% to $70.9
million for the year ended December 31, 2000, compared to $49.6 million for the
year ended December 31, 1999. Interest expense increased due to a higher cost of
funds and a higher balance of interest-bearing liabilities during 2000, as
compared to 1999. The average balance of interest-bearing deposit accounts
increased $153.5 million, or 21.0%, during the year ended December 31, 2000
compared to 1999 while the average balance of borrowings increased 22.1%, from
$324.3 million to $395.8 million. Milton contributed $5.9 million of interest
expense and $103.7 million of average interest-bearing liabilities to the 2000
results.
The Company's cost of funds increased to 5.55% for the year ended
December 31, 2000 compared to 4.71% for the year ended December 31, 1999,
primarily due to increases in market interest rates which resulted in higher
rates being paid on short-term repricing borrowings as well as renewals of
maturing certificates of deposits.
Provision for Possible Loan Losses. The provision for possible loan
losses was $1.8 million for the year ended December 31, 2000, compared to $1.6
million for the year ended December 31, 1999 and was considered sufficient to
maintain the Company's allowance for possible loan losses at an adequate level.
The increased provision in 2000 resulted primarily from increases in the loan
portfolio.
Non-Interest Income. Total non-interest income increased $2.4 million,
or 22.0%, to $13.1 million for the year ended December 31, 2000 from $10.8
million for the year ended December 31, 1999. The following table sets forth the
Company's non-interest income for the periods indicated:
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Trust and custodian fees $ 2,620 $ 2,508 $ 2,121
Financial planning fees 1,468 695 --
Customer service fees 2,403 2,245 2,129
Investment securities gains, net 240 318 34
Gain on sale of loans 2,732 2,449 3,677
Other 3,658 2,538 1,987
------- ------- -------
Total $13,121 $10,753 $ 9,948
======= ======= =======
Trust income increased 4.5% to $2.6 million in 2000, from $2.5 million
in 1999. Growth in trust and custodian fees resulted primarily from the
expansion of the customer base, higher asset values, and increased sales of
retail investment products.
Financial planning fee income increased $773,000 to $1.5 million due to
the results in 2000 including a full year of activity compared to nine months in
1999. Also, higher levels of fee income on new investment activity and increases
in assets under management contributed to the improved results in 2000.
Customer service fees, representing service charges on deposits and
fees from other banking services, increased 7.0% for the year ended December 31,
2000 to $2.4 million. Milton contributed $161,000 of such income to the 2000
results.
22
23
Gains on sales of loans increased from $2.4 million for the year
ended December 31, 1999 to $2.7 million for the year ended December 31, 2000.
During 2000, the Company sold approximately $30.1 million of the guaranteed
portion of its SBA and other government guaranteed loan originations in the
secondary market compared to $27.8 million during 1999, realizing gains of $2.1
million in 2000, compared to gains of $1.8 million in 1999. In addition, the
Company sold $19.0 million of residential real estate loans realizing gains of
$639,000 in 2000, compared to $627,000 of gains on sales of loans totaling $37.1
million in 1999.
Other income increased $1.1 million to $3.7 million in 2000 compared to
$2.5 million in 1999 primarily as a result of higher levels of electronic
banking fee income which increased $137,000, SBA net servicing fee income which
increased $549,000 and earnings from bank-owned life insurance which increased
$397,000.
Non-Interest Expense. Total non-interest expense increased $2.0
million, or 6.6%, during the year ended December 31, 2000 compared to the same
period in 1999. Excluding expenses totaling $1.4 million added by Milton, total
non-interest expense increased 2.0%. The following table sets forth the
Company's non-interest expense for the periods indicated:
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Salaries and employee benefits $17,646 $16,791 $15,764
Net occupancy expense 2,063 1,699 1,540
Furniture and equipment expense 1,060 922 898
Data processing expense 1,408 1,214 1,095
Taxes other than income taxes 781 921 850
Federal deposit insurance 198 279 263
Amortization of intangibles 1,775 1,411 1,376
Other 6,686 6,414 8,041
------- ------- -------
Total $31,617 $29,651 $29,827
======= ======= =======
Salary and employee benefits expense increased $855,000, or 5.1%
primarily as a result of expenses totaling $568,000 contributed by Milton to the
results for 2000. Salaries and employee benefits accounted for 55.8% of total
non-interest expense for the year ended December 31, 2000 compared to 56.6% in
1999. The average full-time equivalent staff was 394 in 2000 compared to 383 in
1999.
Net occupancy expense increased 21.4%, or $364,000 in 2000 compared to
1999. This increase resulted primarily from rent associated with the Company's
training and technology facility that opened in November 1999, as well as from a
full year of expenses associated with the New Albany branch that opened in May
1999. Also, Milton added $155,000 of expense to the results for 2000.
Furniture, fixtures and equipment expense increased $138,000, or 15.0%
for the year ended December 31, 2000 compared to the same period in 1999. The
increase in furniture and equipment expense was due principally to higher
depreciation and repairs and maintenance costs. Also, Milton added $45,000 of
expense to the results for 2000.
Data processing expense totaled $1.4 million for the year ended
December 31, 2000, compared to $1.2 million in 1999. Higher costs in 2000
resulted primarily from higher depreciation and amortization of equipment and
software enhancements due to technological advancements.
Taxes other than income taxes decreased $140,000, or 15.2%, in 2000
compared to 1999. This decrease resulted primarily from lower tax rates.
Federal deposit insurance expense decreased $81,000 to $198,000 in 2000
from $279,000 in 1999, reflecting lower premium rates in effect in 2000, offset
in part by $42,000 of expense added by Milton.
23
24
Amortization of goodwill and other intangible assets approximated $1.8
million for the year ended December 31, 2000 compared to $1.4 million in 1999.
This increase was primarily due to $399,000 of amortization related to goodwill
resulting from the Milton acquisition.
Other non-interest expenses increased $272,000 to $6.7 million during
the year ended December 31, 2000 from $6.4 million during 1999. Excluding
$151,000 of expenses added by Milton, other non-interest expenses increased
$121,000, or 1.9%, due primarily to higher levels of advertising and marketing
expenses.
The efficiency ratio is one method used in the banking industry to
assess profitability. It is defined as non-interest expense less amortization
expense and non-recurring charges divided by the net revenue stream. The net
revenue stream is the sum of net interest income on a FTE basis and non-interest
income excluding net investment securities gains or losses and non-recurring
income. The Company's efficiency ratio was 54.7% for 2000, as compared to 56.6%
for 1999 and 56.8% for 1998. Controlling costs and improving productivity, as
measured by the efficiency ratio, is considered by management a primary factor
in enhancing performance.
Provision for Income Taxes. The Company's provision for Federal income
taxes was $6.6 million, or 32.0% of pretax income, for the year ended December
31, 2000 compared to $5.7 million, or 31.6% of pretax income, for the year ended
December 31, 1999. The effective tax rate for each period differed from the
federal statutory rate principally as a result of tax-exempt income from
obligations of state and political subdivisions and non-taxable loans, earnings
on bank-owned life insurance, and the non-deductibility, for tax purposes, of
goodwill and core deposit intangible amortization expense.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Income. The Company's net income totaled $12.3 million for the year
ended December 31, 1999, an increase of $2.1 million, or 21.0% from 1998. Basic
and diluted earnings per share (hereinafter referred to as "earnings per share")
in 1999 equaled $1.50, compared to $1.22 in 1998, a 23.0% increase. Income
before extraordinary item also totaled $12.3 million, or $1.50 per share, in
1999 compared to $10.6 million, or $1.26 per share, in 1998. During 1998, the
Company repaid various fixed rate Federal Home Loan Bank (FHLB) advances that
had interest rates in excess of current market rates and incurred prepayment
charges of $613,000 which were recorded, net of taxes of $213,000, as an
extraordinary item. Operating results in 1998 also included the after tax
effects of charges totaling $1.1 million recorded as a result of merger,
restructuring and planned branch closing activities. Earnings in 1998 adjusted
to exclude the effects of non-recurring charges were $11.6 million, or $1.39 per
share. Net interest income and non-interest income increased 5.4% and 8.1%,
respectively, in 1999 as compared to 1998 while non-interest expense, excluding
non-recurring charges in 1998, increased 5.2%. The provision for possible loan
losses was $1.6 million in 1999 compared to $1.2 million in 1998. The Company's
net interest margin decreased to 3.47% in 1999 as compared to 3.48% in 1998. The
Company's return on average assets and return on average equity were 1.02% and
14.29%, respectively, in 1999, compared to .89% and 11.55%, respectively, in
1998. Excluding the non-recurring charges noted above, the Company's return on
average assets and return on average equity in 1998 were 1.02% and 13.21%,
respectively.
Interest Income. Total interest income increased 1.7% to $88.1 million
for 1999, compared to $86.7 million for 1998. This increase resulted from a
$65.4 million, or 6.1%, increase in average interest-earning assets in 1999. The
average balance of loans increased $41.1 million, or 5.3%, while the average
balance of securities increased $26.5 million, or 8.8%.
The weighted average yield on interest-earning assets was 7.83% in
1999, a decrease of 32 basis point from 1998. The Company's yield on average
loans decreased from 8.66% in 1998 to 8.23% in 1999. Yields on the investment
portfolio decreased from 6.88% in 1998 to 6.85% in 1999.
Interest Expense. Total interest expense decreased 1.0% to $49.6
million for 1999 as compared to $50.2 million for 1998. Interest expense
decreased due to a lower cost of funds during 1999 as compared to 1998, offset
in part by a higher average balance of interest-bearing liabilities. The average
balance of interest-bearing deposit accounts increased $25.4 million, or 3.6%,
during 1999 as compared to 1998 while the average balance of borrowings
increased 16.2% from $279.0 million in 1998 to $324.3 million in 1999.
24
25
The Company's cost of funds decreased to 4.71% in 1999 as compared to
5.10% in 1998. The lower cost of funds in 1999 was primarily a result of the
repricing of maturing certificates of deposit at lower rates, interest rate
reductions on demand and savings accounts and the repayment and refinancing of
higher rate FHLB advances in December 1998.
Provision for Possible Loan Losses. The provision for possible loan
losses was $1.6 million in 1999 compared to $1.2 million in 1998. The provision
for possible loan losses was considered sufficient by management for maintaining
an adequate allowance for possible loan losses. The increased provision in 1999
resulted primarily from increases in, as well as a change in the mix of, the
loan portfolio.
Non-Interest Income. Total non-interest income increased 8.1% to $10.8
million in 1999 as compared to $9.9 million in 1998.
Trust and custodian fees increased 18.2% to $2.5 million in 1999 from
$2.1 million in 1998. Growth in trust income continued to result primarily from
the expansion of the customer base, higher asset values and changes in fee
structure.
Customer service fees, representing service charges on deposits and
fees for other banking services, increased $116,000, or 5.4% in 1999. This
increase resulted from the Company's continued emphasis on increasing fee income
on fee-based accounts.
Gains on sales of loans decreased $1.3 million to $2.4 million for 1999
compared to $3.7 million for 1998. During 1998, the Company sold $27.8 million
of the guaranteed portion of its SBA and other government guarantee loan
originations in the secondary market compared to $26.7 million during 1998,
realizing gains of $1.8 million in 1999 compared to gains of $2.1 million in
1998. Also, the Company recorded gains of $627,000 from the sales of residential
loans during 1999 compared to $1.6 million in 1998. Residential loan origination
and sale activity during 1999 declined particularly in the later half of the
year due to increasing interest rates.
The Company continues to emphasize its small business lending
activities, including the evaluation of expansion into new markets. The nature
of the political climate in Washington, D.C. may subject existing government
programs to much scrutiny and possible cutbacks. It is not currently known
whether the SBA program will ultimately be impacted. Management believes that
any such cutbacks could negatively affect the Company's activities in the SBA
lending programs as well as the planned expansion of such activities.
Financial planning fee income from Chornyak totaled $695,000 in 1999
with no comparable amount in 1998.
Other income increased $551,000 to $2.5 million in 1999 compared to
$2.0 million in 1998 primarily as a result of electronic banking fee income
increases of $253,000 and earnings from bank-owned life insurance increases of
$148,000 in 1999 compared to 1998.
Non-Interest Expense. Excluding non-recurring merger, integration and
restructuring charges of $1.6 million in 1998, total non-interest expense
increased $1.5 million to $29.7 million in 1999, compared to $28.2 million in
1998. This increase generally resulted from expansion of the Company's operating
and loan production activities, offset in part by efficiencies achieved from the
May 1998 merger of the Company's banking subsidiaries.
Salaries and employee benefits accounted for approximately 59.5% of
total operating expenses (non-interest expense less amortization of intangibles
and non-recurring charges) in 1999 compared to 58.8% in 1998. The average full
time equivalent staff level decreased to 383 in 1999 compared to 392 in 1998.
Excluding non-recurring salary and employee benefits expense of $378,000 in
1998, salaries and employee benefits increased 9.1%, from $15.4 million in 1998
to $16.8 million in 1999. In general, higher salaries and employee benefits
costs resulted from the addition of loan production personnel, expansion of
operating activities and the acquisition of Chornyak in April 1999.
Net occupancy expense increased 10.3% to $1.7 million in 1999 from $1.5
million in 1998. This increase resulted primarily from higher costs associated
with new branch facilities opened and acquired in the fourth quarter of 1998 and
second quarter of 1999.
25
26
Furniture and equipment expense increased $24,000, or 2.7% in 1999.
This increase was due principally to higher depreciation costs.
Data processing expense was $1.2 million in 1999 compared to $1.1
million in 1998. Higher costs in 1999 resulted from equipment and software
enhancements due to technological advancements.
Taxes other than income taxes increased $71,000, or 8.4%, in 1999
compared to 1998. This increase resulted primarily from higher capital levels.
Also, the expense recorded for 1998 benefited from refunds received for taxes
paid in prior years.
Federal deposit insurance expense increased $16,000 to $279,000 in 1999
from $263,000 in 1998, as a result of higher deposit levels.
Amortization of goodwill and other intangibles totaled $1.4 million
during both 1999 and 1998.
Excluding non-recurring charges of $1.3 million in 1998, other
non-interest expenses decreased $376,000, or 5.6%. This decrease resulted
primarily from efficiencies achieved from the May 1998 merger of the Company's
banking subsidiaries and cost control initiatives.
Provision for Income Taxes. The provision for Federal income taxes
increased $850,000 to $5.7 million in 1999, for an effective tax rate of 31.6%.
This compared to Federal income tax expense of $4.8 million in 1998 which
represented an effective tax rate of 31.4%. The effective tax rate for each
period differed from the federal statutory rate principally as a result of tax
exempt income from obligations of states and political subdivisions and
non-taxable loans, earnings on bank-owned life insurance and the
non-deductibility, for tax purposes, of goodwill and core deposit amortization
expense.
ASSET QUALITY
Non-Performing Assets. To maintain the level of credit risk of the loan
portfolio at an appropriate level, management sets underwriting standards and
internal lending limits and provides for proper diversification of the portfolio
by placing constraints on the concentration of credits within the portfolio. In
monitoring the level of credit risk within the loan portfolio, management
utilizes a formal loan review process to monitor, review, and consider relevant
factors in evaluating specific credits in determining the adequacy of the
allowance for possible loan losses. FNB formally documents its evaluation of the
adequacy of the allowance for possible loan losses on a quarterly basis and the
evaluations are reviewed and discussed with its Board of Directors.
Failure to receive principal and interest payments when due on any loan
results in efforts to restore such loan to current status. Loans are classified
as non-accrual when, in the opinion of management, full collection of principal
and accrued interest is in doubt. Continued unsuccessful collection efforts
generally lead to initiation of foreclosure or other legal proceedings. Property
acquired by the Company as a result of foreclosure or by deed in lieu of
foreclosure is classified as "other real estate owned" until such time as it is
sold or otherwise disposed of. The Company owned $466,000 of such property at
December 31, 2000 and $222,000 at December 31, 1999.
Non-performing loans totaled $9.9 million, or 0.91% of total loans, at
December 31, 2000, compared to $3.6 million, or 0.42% of total loans, at
year-end 1999. Non-performing assets totaled $10.4 million, or 0.67% of total
assets at December 31, 2000, compared to $3.8 million, or 0.30% of total assets,
at December 31, 1999. The increase in non-performing loans was primarily
attributed to non-performing single-family residential mortgage loans which
totaled $2.3 million at December 31, 1999 compared to $6.8 million at December
31, 2000. This increase has resulted from delinquency trends in general as well
as from loans added by the Milton acquisition. Management of the Company is not
aware of any material amounts of loans outstanding, not disclosed in the table
below, for which there is significant uncertainty as to the ability of the
borrower to comply with present payment terms. The following is an analysis of
the composition of non-performing assets:
26
27
DECEMBER 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Non-accrual loans $ 3,316 $ 1,312 $ 1,294 $ 832 $ 991
Accruing loans 90 days or more past due 6,609 2,244 2,432 1,386 1,567
------- ------- ------- ------- -------
Total non-performing loans 9,925 3,556 3,726 2,218 2,558
Other real estate owned 466 222 607 785 539
------- ------- ------- ------- -------
Total non-performing assets $10,391 $ 3,778 $ 4,333 $ 3,003 $ 3,097
======= ======= ======= ======= =======
Restructured loans $ 2,925 $ 2,986 $ -- $ -- $ --
======= ======= ======= ======= =======
Non-performing loans to total loans 0.91% 0.42% 0.48% 0.29% 0.35%
Non-performing assets to total assets 0.67% 0.30% 0.37% 0.28% 0.29%
Non-performing loans plus restructured loans
to total loans 1.18% 0.77% 0.48% 0.29% 0.35%
Restructured loans consist of one loan that was restructured in May
1999. At December 31, 2000, this loan was performing in accordance with its
restructured terms.
OCC regulations require that banks classify their assets on a regular
basis. Problem assets are classified as "substandard", "doubtful" or "loss".
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that some loss will be sustained if deficiencies are
not corrected. Doubtful assets have the same weaknesses as substandard assets,
with the additional characteristics that (1) the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable and (2) there is a high possibility of loss. An asset
classified loss is considered uncollectible and of such little value that
continuance of recording as an asset is not warranted. The regulations also
contain a "special mention" category which consists of assets which do not
expose an insured institution to a sufficient degree of risk to warrant
classification but which possess credit deficiencies or potential weaknesses
deserving management's close attention.
The aggregate amounts of the Company's classified assets as of the
dates indicated were as follows:
DECEMBER 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
Substandard $16,567 $ 8,277 $ 9,512 $ 5,353 $ 6,346
Doubtful 275 -- 21 423 626
Loss -- -- -- 456 847
------- ------- ------- ------- -------
Total classified assets $16,842 $ 8,277 $ 9,533 $ 6,232 $ 7,819
======= ======= ======= ======= =======
The largest classified loan at December 31, 2000 was the restructured
loan discussed above which was classified as substandard. This loan was also
included in the substandard classification at December 31, 1999, 1998, 1997 and
1996. The increase in classified assets from December 31, 1999 to December 31,
2000 resulted primarily from an increase in the classification of residential
mortgage loans past due greater than 90 days, which totaled $1.3 million at
December 31, 1999 compared to $6.3 million at December 31, 2000.
Allowance for Possible Loan Losses. The Company records a provision
necessary to maintain the allowance for possible loan losses at a level
sufficient to provide for potential future credit losses. The allowance for loan
losses is increased by the provision for loan losses and recoveries and is
decreased by charged-off loans. The evaluation process to determine potential
losses includes consideration of the industry, the general economic environment,
historical losses by loan type, changes in the size and composition of the
portfolio, delinquency trends and specific conditions of the individual
borrower. While analytical techniques are used to identify potential losses on
loans, future additions may be necessary based on loan growth and changes in
economic conditions.
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The following table summarizes the Company's loan loss experience, and
provides a breakdown of the charge-off, recovery and other activity for the
periods indicated:
YEAR ENDED DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
BALANCE AT BEGINNING OF PERIOD $ 7,431 $ 6,643 $ 6,617 $ 6,599 $ 3,307
Charge-offs:
Residential mortgage (107) (179) (87) (32) (12)
Construction mortgage -- -- -- -- --
Commercial (695) (408) (890) (666) (67)
Consumer (542) (983) (825) (1,074) (1,020)
---------- -------- -------- -------- --------
Total charge-offs (1,344) (1,570) (1,802) (1,772) (1,099)
---------- -------- -------- -------- --------
Recoveries:
Residential mortgage 41 93 46 8 5
Construction mortgage -- -- -- -- --
Commercial 179 214 267 91 41
Consumer 270 471 290 470 227
---------- -------- -------- -------- --------
Total recoveries 490 778 603 569 273
---------- -------- -------- -------- --------
Net charge-offs (854) (792) (1,199) (1,203) (826)
Provision charged to operations 1,800 1,580 1,225 1,221 1,257
Acquired allowance for possible
loan losses 1,773 -- -- -- 2,861
---------- -------- -------- -------- --------
Balance at end of period $ 10,150 $ 7,431 $ 6,643 $ 6,617 $ 6,599
========== ======== ======== ======== ========
Loans outstanding at end of
period $1,089,651 $849,767 $777,063 $761,027 $721,855
Average loans outstanding $ 990,811 $810,782 $769,687 $751,799 $445,514
Allowance as a percent of loans
outstanding 0.93% 0.87% 0.85% 0.87% 0.91%
Net charge-offs to average loans 0.09% 0.10% 0.16% 0.16% 0.19%
Allowance for possible loan
losses to non-performing loans 102.27% 208.97% 178.29% 298.33% 257.97%
The allowance for possible loan losses totaled $10.2 million, or .93%
of total loans, at December 31, 2000 compared to $7.4 million, or .87% of total
loans, at December 31, 1999. Charge-offs represent the amount of loans actually
removed as earning assets from the balance sheet due to uncollectibility.
Amounts recovered on previously charged-off assets are netted against
charge-offs, resulting in net charge-offs for the period. Net loan charge-offs
for the year ended December 31, 2000 were $854,000 compared to $792,000 for the
year ended December 31, 1999. Net charge-offs as a percentage of average loans
in 2000 were .09% compared to .10% in 1999. Charge-offs have been made in
accordance with the Company's standard policy and have occurred primarily in the
commercial and consumer loan portfolios.
The allowance for possible loan losses as a percentage of
non-performing loans ("coverage ratio") was 102.3% at December 31, 2000,
compared to 209.0% at the end of 1999. Although used as a general indicator, the
coverage ratio is not a primary factor in the determination of the adequacy of
the allowance by management. Total non-performing loans as a percentage of total
loans remained a relatively low 0.91% of total loans at December 31, 2000
compared to .42% at December 31, 1999.
The allowance for loan losses is allocated according to the amount
systematically estimated as necessary to provide for the inherent losses within
the various categories of loans. General allocations of the allowance are based
primarily on previous charge-off experience adjusted for changes in the risk
characteristics of each category. In addition, classified and non-performing
loans are evaluated separately and specific reserves are allocated based on
expected losses on each individual classified or non-performing loan.
The following table sets forth the allocation of the Company's
allowance for possible loan losses for each of the periods presented:
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29
DECEMBER 31,
-------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 (1) 1999 1998
-------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Allowance Loans to Total Allowance Loans to Total Allowance Loans to Total
--------- -------------- --------- -------------- --------- --------------
Residential mortgage $ 1,988 42.7% $ 1,646 38.5% $ 946 45.5%
Construction mortgage 39 .5 55 1.1 25 1.3
Commercial 5,864 44.7 3,440 48.4 2,947 41.6
Consumer 2,259 12.1 2,290 12.0 2,725 11.6
------- ----- ------- ----- ------- -----
Total $10,150 100.0% $ 7,431 100.0% $ 6,643 100.0%
======= ===== ======= ===== ======= =====
DECEMBER 31,
---------------------------------------------------------------
(Dollars in thousands) 1997 1996
---------------------------------------------------------------
Percent of Percent of
Allowance Loans to Total Allowance Loans to Total
--------- -------------- --------- --------------
Residential mortgage $ 1,120 47.7% $ 1,392 46.8%
Construction mortgage 24 1.2 24 1.1
Commercial 2,830 39.7 2,704 41.5
Consumer 2,643 11.4 2,479 10.6
------- ----- ------- -----
Total $ 6,617 100.0% $ 6,599 100.0%
======= ===== ======= =====
(1) The increase in the allowance for possible loan losses at December 31,
2000, compared to 1999, resulted partially from the addition of
Milton's allowance at the time the Company acquired Milton.
COMPARISON OF DECEMBER 31, 2000 AND DECEMBER 31, 1999 FINANCIAL CONDITION
Total assets increased $285.4 million, or 22.4%, to $1.56 billion at
December 31, 2000, as compared to $1.27 billion at December 31, 1999. Total
assets added from the Milton acquisition approximated $259.2 million. Total
investment securities decreased by $989,000 to $330.2 million. The Company's
general investment strategy is to manage the investment portfolio to include
rate sensitive assets, matched against interest sensitive liabilities to reduce
interest rate risk. In recognition of this strategy, as well as to provide a
secondary source of liquidity to accommodate loan demand and possible deposit
withdrawals, the Company has chosen to classify the majority of its investment
securities as available-for-sale. At December 31, 2000, 95.9% of the total
investment portfolio was classified as available-for-sale, while those
securities which the Company intends to hold to maturity represented the
remaining 4.1%. This compares to 93.7% and 6.3% classified as available-for-sale
and held to maturity, respectively, at December 31, 1999.
Total loans increased $239.9 million, or 28.2%, to $1.09 billion at
December 31, 2000. The increase in loans was attributed to a $76.1 million
increase in commercial and commercial real estate loans, a $138.5 million
increase in residential real estate loans and a $29.8 million increase in
consumer loans, offset by a decrease of $4.4 million in construction mortgage
loans. Excluding $126.4 million of loans added by the Milton acquisition, total
loans increased $113.5 million.
Premises and equipment increased $3.6 million to $18.4 million at
December 31, 2000. This increase resulted primarily from $3.5 million of fixed
assets added by the Milton acquisition.
Other assets increased from $32.6 million at December 31, 1999 to $36.4
million at December 31, 2000. This increase was attributed to the Milton
acquisition which contributed $6.1 million to the year-end 2000 total.
Deposits totaled $1.1 billion at December 31, 2000, an increase of
$314.4 million over total deposits at December 31, 1999, with $162.8 million
attributable to the Milton acquisition. The Company continues to emphasize
growth in its existing retail deposit base provided that deposit growth is cost
effective compared to alternative funding sources. Total interest-bearing
deposits accounted for 93.1% of total deposits at December 31, 2000 as compared
to 91.9% at December 31, 1999.
Total borrowings, including federal funds purchased, decreased $60.1
million to $325.4 million at December 31, 2000, as compared to $385.5 million at
December 31, 1999. This decrease resulted primarily from the use of funding
provided by increases in deposits to reduce short-term borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
funds to accommodate customer loan demand as well as deposit withdrawals while
continuously seeking higher yields from longer term lending and investing
opportunities. This is accomplished principally by maintaining sufficient cash
flows and liquid assets along with consistent stable core deposits and the
capacity to maintain immediate access to funds. These immediately accessible
funds may include federal funds sold, unpledged marketable securities, reverse
repurchase agreements or available lines of credit from the FRB, FHLB, or other
financial institutions. An important factor in the preservation of liquidity is
the maintenance of public confidence, as this facilitates the retention and
growth of a large, stable supply of core deposits in funds.
29
30
The Company's principal source of funds to satisfy short-term liquidity
needs comes from cash, due from banks and federal funds sold. The investment
portfolio serves as an additional source of liquidity for the Company. At
December 31, 2000, securities with a market value of $316.8 million were
classified as available-for-sale, representing 95.9% of the total investment
portfolio. Classification of securities as available-for-sale provides for
flexibility in managing net interest margin, interest rate risk, and liquidity.
Cash flows from operating activities amounted to $13.8 million and $14.0 million
for 2000 and 1999, respectively.
The Company's bank subsidiary is a member of the FHLB. Membership
provides an opportunity to control the bank's cost of funds by providing
alternative funding sources, to provide flexibility in the management of
interest rate risk through the wide range of available funding sources, to
manage liquidity via immediate access to such funds, and to provide flexibility
through utilization of customized funding products to fund various loan and
investment products and strategies.
The Company obtained a $15 million term loan with a financial
institution in order to partially fund the 1996 acquisition of County. This
loan, which was amended September 29, 2000, had an outstanding balance of $8.0
million at December 31, 2000. Under the terms of the amended loan agreement, the
Company is required to make quarterly interest payments and annual principal
payments of $1.0 million commencing in September 2001. The unpaid loan balance
is due in full in September 2007. At December 31, 2000, the Company had pledged
67% of the stock of FNB as security for the loan. The loan agreement contains
certain financial covenants which requires that (i) the Company maintain a
minimum ratio of total capital to risk-weighted assets of 10%; (ii) each of the
Company's banking subsidiaries, which represent greater than 10% of the
Company's consolidated capital, maintain a minimum ratio of Tier 1 capital to
risk-weighted assets of 6.0%, Tier 1 capital to average assets of 5.0% and total
capital to risk-weighted assets of 10.0%; (iii) the Company maintain, on a
consolidated basis, a minimum annualized return on average assets of not less
than 0.75% ; and (iv) the Company maintain, on a consolidated basis, a ratio of
non-performing loans to equity capital of less than 25.0% and a minimum ratio of
allowance for possible loan losses to non-performing loans of 75.0%. At December
31, 2000, the Company was in compliance with each of these financial covenants.
The loan agreement also restricts the Company's ability to sell assets, grant
security interests in the stock of its banking subsidiaries, merge or
consolidate, and engage in business activity unrelated to banking.
Shareholders' equity at December 31, 2000 was $107.1 million, compared
to $80.1 million at December 31, 1999, an increase of $27.0 million, or 33.7%.
This increase resulted primarily from the issuance of common shares in
connection with the Milton acquisition (discussed below), the retention of
earnings (net of dividends paid) and a $6.6 million decrease in unrealized
holding losses on available-for-sale securities, offset in part by purchases of
treasury shares under a 350,000 share repurchase program authorized by the
Company's Board of Directors. As of December 31, 2000, the Company has purchased
302,000 common shares toward the 350,000 share authorization.
Under the risk-based capital guidelines, a minimum capital to
risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must
consist of Tier 1 capital (equity capital net of goodwill). Additionally, a
minimum leverage ratio (Tier 1 capital to total assets) of 4.0% must be
maintained. At December 31, 2000, the Company had a total risk-based capital
ratio of 11.1%, of which 10.1% consisted of Tier 1 capital. The leverage ratio
of the Company at December 31, 2000 was 6.9%.
Cash dividends declared to shareholders of the Company totaled $4.6
million, or $.56 per share, during 2000. This compared to dividends of $4.4
million, or $.54 per share, for 1999. Cash dividends paid as a percentage of net
income amounted to 33.7% and 35.8% for the years ended December 31, 2000 and
1999, respectively.
On June 20, 2000, the Company completed the acquisition of Milton
Federal Financial Corporation. In connection with the acquisition, the company
issued 964,829 common shares having a total value of approximately $14.2 million
and paid cash of $14.1 million to the Milton shareholders.
On October 18, 1999, the Company completed an offering of $20.0 million
aggregate liquidation amount of 9.875% Capital Securities, Series A, due 2029.
These securities represent preferred beneficial interests in BFOH Capital Trust
I, a special purpose trust formed for the purpose of the offering. The proceeds
from the offering were used by the Trust to purchase Junior Subordinated
Deferrable Interest Debentures ("Debentures") from the Company. Under Federal
Reserve Board regulations, these Capital Securities may represent up to 25% of a
bank holding company's Tier 1 capital. The holders of the Capital Securities are
entitled to receive cumulative cash distributions at the annual rate of 9.875%
of the liquidation amount. Distributions are payable semi-annually on April 15
and October 15 of each year. The Company has fully and
30
31
unconditionally guaranteed the payment of the Capital Securities, and payment of
distributions on the Capital Securities. The Trust is required to redeem the
Capital Securities on or, in certain circumstances, prior to October 15, 2029.
There are no significant covenants or limitations with respect to the business
of the Company that are contained in the instruments which govern the Capital
Securities and the Debentures.
In April 1999, the Company issued 82,000 common shares in connection
with the acquisition of Chornyak, a full service financial planning company. The
Company also entered into a five-year employment agreement with the sole
shareholder of Chornyak. Under the terms of this agreement, the Company granted
this individual an option to purchase up to 30,000 common shares, subject to a
four-year vesting schedule.
At its April 1998 meeting, the Company's Board of Directors authorized
a two-for-one stock split in the form of a 100% stock dividend, payable May 19,
1998 to shareholders of record on April 28, 1998. On September 21, 2000, the
Company's Board of Directors declared a 5% stock dividend payable October 31,
2000 to shareholders of record as of October 10, 2000. This stock split and
dividend had no effect on the total capital of the Company.
The Company's Board of Directors and management intend to seek
continued controlled growth of the organization through selective acquisitions
which fit the Company's strategic objectives of growth, diversification and
market expansion and which provide the potential for enhanced shareholder value.
At the present time, the Company does not have any understandings or agreements
for any acquisitions or combination.
Considering the Company's capital adequacy, profitability, available
liquidity sources and funding sources, the Company's liquidity is considered by
management to be adequate to meet current and projected needs.
INTEREST RATE RISK MANAGEMENT
The Company's principal market risk exposure is interest rates. The
objectives of the Company's interest rate risk management are to minimize the
adverse effects of changing interest rates on the earnings of the Company while
maintaining adequate liquidity and optimizing net interest margin. Interest rate
risk is managed by maintaining an acceptable matching of the Company's asset and
liability maturity and repricing periods, thus controlling and limiting the
level of earnings volatility arising from rate movements. Modeling simulations
to project the potential effect of various rate scenarios on net interest income
are the primary tools utilized by management to measure and manage interest rate
exposure within established policy limits. The Company's Asset/Liability
Management Committee ("ALCO") monitors rate sensitive assets and liabilities and
develops appropriate strategies and pricing policies. Interest rate sensitivity
measures the exposure of net interest income to changes in interest rates. In
its simulations, management estimates the effect on net interest income of
changes in the overall level of interest rates. ALCO policy guidelines provide
that a 200 basis point increase or decrease over a 12-month period should not
result in more than a 12.5% negative impact on net interest income. The
following table summarizes results of simulations as of December 31, 2000.
Projected Net Increase
Change in Interest Rates Interest Income (Decrease) % Change
- ------------------------ --------------- ---------- --------
200 basis point increase $45,638 $ (637) (1.4)%
No Change 46,275 -- --
200 basis point decrease 45,715 (559) (1.2)
Management also measures the Company's exposure to interest rate risk
by computing estimated changes in the net present value (NPV) of cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet items. This
analysis assesses the risk of loss in market rate sensitive instruments in the
event of sudden and sustained increases in market interest rates. The following
table presents the Company's projected change in NPV for various levels of
interest rates as of December 31, 2000. All market rate sensitive instruments
included in these computations are classified as either held-to-maturity or
available-for-sale. The Company holds no trading securities.
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32
Estimated Percent
Change in Interest Rates NPV Change Change
- ------------------------ --- ------ ------
200 basis point increase $ 89,898 $(21,320) (19.2)%
100 basis point increase 102,922 (8,296) (7.5)
Base scenario 111,218 -- --
100 basis point decrease 112,077 859 .8
200 basis point decrease 106,902 (4,316) (3.9)
The preceding table indicates that at December 31, 2000, in the event
of a sudden and sustained increase in prevailing market interest rates, the
Company's NPV would be expected to decrease while in the event of a sudden and
sustained decrease in prevailing market interest rates, the Company's NPV would
be expected to increase or decrease, depending on the severity of the decrease
in rates.
Computations of forecasted effects of hypothetical interest rate
changes are based on numerous assumptions. These assumptions include levels of
market interest rates, loan prepayments ranging from 10% to 43% for adjustable
rate loans and 8% to 40% for fixed rate loans and deposit decay rates. The
computed forecasted effects should not be relied upon as indicative of actual
future results. Further, the computations do not contemplate any actions the
ALCO could undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented
in the computation of NPV. Actual results may differ from those projections
presented should market conditions vary from assumptions used in the
calculations of NPV. Certain assets, such as adjustable rate loans, which
represent one of the Company's primary loan products, have features which
restrict changes in interest rates on a short-term basis and over the life of
the assets. In addition, the proportion of adjustable rate loans in the
Company's loan portfolio could decrease in future periods if market interest
rates remain at or decrease below current levels due to refinance activity.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in NPV
calculations. Finally, the ability of many borrowers to repay their adjustable
rate mortgage loans could decrease in the event of interest rate increases.
Interest rate sensitivity gap ("gap") analysis measures the difference
between assets and liabilities repricing or maturing within specified time
periods. Although a useful tool, gap analysis has several limitations. Gap
analysis assumes a consistent reaction in the rates of all rate-sensitive assets
and liabilities to changes in overall rates. Additionally, it does not consider
changes to the overall slope of the yield curve or other factors which affect
the timing and pricing of the balance sheet. A positive gap, or asset sensitive
position, indicates a higher level of rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specified time horizons and would
generally imply a favorable effect on net interest income in periods of rising
interest rates. Conversely, a negative gap, or liability sensitive position,
results when rate-sensitive liabilities exceed the amount of rate-sensitive
assets repricing or maturing within applicable time frames and would generally
imply a favorable impact on net interest income in periods of declining interest
rates.
The following table reflects the Company's gap position at December 31,
2000. Savings and interest-bearing demand deposits are essentially subject to
immediate withdrawal and rate change and, accordingly, are classified in the one
year or less time period. However, historical experience indicates, and it is
expected, that a portion of these deposits represent long-term core deposits
and, accordingly, are less than 100% rate sensitive. Mortgage-backed securities
included in investments are included at the earlier of repricing or maturity. As
a result of these assumptions, management believes that the gap analysis
overstates the liability-sensitive nature of the Company's balance sheet.
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AS OF DECEMBER 31, 2000 1 YEAR OR LESS 1 TO 3 YEARS 3 TO 5 YEARS OVER 5 YEARS TOTAL
-------------- ------------ ------------ ------------ -----
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Federal funds sold $ 30,159 $ -- $ -- $ -- $ 30,159
Loans 498,927 319,606 228,146 42,972 1,089,651
Investment securities 100,314 47,508 34,849 147,575 330,246
---------- ---------- ---------- ---------- ----------
Total 629,400 367,114 262,995 190,547 1,450,056
---------- ---------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Demand, interest-bearing 130,870 -- -- -- 130,870
Savings 116,427 -- -- -- 116,427
Time 597,120 165,412 21,793 5,100 789,425
Borrowings 130,523 62,045 31,290 101,510 325,368
---------- ---------- ---------- ---------- ----------
Total 974,940 227,457 53,083 106,610 1,362,090
Off balance sheet items
- - interest rate swaps (50,000) 20,000 15,000 15,000 --
---------- ---------- ---------- ---------- ----------
Total gap $ (295,540) $ 119,657 $ 194,912 $ 68,937 $ 87,966
========== ========== ========== ========== ==========
Cumulative gap $ (295,540) $ (175,883) $ 19,029 $ 87,966
========== ========== ========== ==========
Cumulative gap as a
percentage of total assets (18.95)% (11.27)% 1.22% 5.64%
========== ========== ========== ==========
The Company has entered into certain interest rate swap contracts as
part of its asset-liability management program to assist in managing the
Company's interest rate risk and not for speculative reasons. The notional
principal amount of these instruments reflect the extent of the Company's
involvement in this type of financial instrument and do not represent the
Company's risk of loss due to counter-party nonperformance or due to declines in
market value of the swap contracts from changing interest rates. Such swaps are
accounted for as hedges on a historical cost basis, with the related swap income
or expense recognized currently.
At December 31, 2000 and 1999, the Company had $64.4 million and $40.6
million, respectively, of notional swap principal contracts outstanding related
to asset-liability management activities. These swaps were entered into
principally to manage the timing differences in repricing characteristics of
various variable rate borrowings. All swap contracts require the Company to pay
a fixed rate of interest in return for receiving a variable rate of interest
based on the three month LIBOR. The net expense associated with interest rate
swap contracts was $58,000, $500,000 and $344,000 during 2000, 1999 and 1998,
respectively, and is included with interest on borrowings. The following
summarizes information with respect to swap contracts outstanding at December
31, 2000:
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
MATURITY NOTIONAL AMOUNT RECEIVE RATE PAY RATE
- -------- --------------- ------------ --------
2001 $14,375 6.63% 6.36%
2002 20,000 6.79 6.29
2005 15,000 6.58 7.23
2010 15,000 6.46 6.05
------- ---- ----
Total $64,375 6.63% 6.47%
======= ==== ====
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or magnitude as the prices of goods and services.
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the market risk of the Company's financial
instruments, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company - Interest Rate Risk Management".
ITEM 8: REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 2000, 1999 AND 1998
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BANCFIRST OHIO CORP.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
BancFirst Ohio Corp. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
January 23, 2001
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36
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
DECEMBER 31,
---------------------------------------
2000 1999
---- ----
ASSETS:
Cash and due from banks (Note 3) $ 32,511 $ 32,191
Federal funds sold 30,159 183
Securities held-to-maturity (approximate fair value of $13,496 and
$20,601 at December 31, 2000 and 1999, respectively) (Note 4) 13,453 20,786
Securities available-for-sale, at fair value (Note 4) 316,793 310,449
----------- -----------
Total investment securities 330,246 331,235
----------- -----------
Loans (Notes 5 and 6) 1,089,651 849,767
Allowance for possible loan losses (10,150) (7,431)
----------- -----------
Net loans 1,079,501 842,336
----------- -----------
Premises and equipment, net (Note 7) 18,385 14,789
Accrued interest receivable 10,503 8,260
Goodwill and other intangibles, net of accumulated amortization of $6,548
and $4,773 at December 31, 2000 and 1999, respectively 21,889 12,606
Other assets 36,407 32,606
----------- -----------
Total assets $ 1,559,601 $ 1,274,206
=========== ===========
LIABILITIES:
Deposits (Note 8):
Non-interest-bearing deposits $ 76,833 $ 65,086
Interest-bearing deposits 1,036,722 734,090
----------- -----------
Total deposits 1,113,555 799,176
Federal funds purchased (Note 9) -- 24,100
Federal Home Loan Bank advances and other borrowings (Note 10) 305,368 341,398
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely junior subordinated deferrable
interest debentures of the parent (Note 11) 20,000 20,000
Accrued interest payable 6,343 3,618
Other liabilities 7,193 5,806
----------- -----------
Total liabilities 1,452,459 1,194,098
----------- -----------
Commitments and contingencies (Notes 16, 17 and 20)
SHAREHOLDERS' EQUITY (NOTE 18):
Common stock, no par value 20,000,000 shares authorized:
shares issued - 9,517,612 in 2000; 8,536,796 in 1999 86,855 66,318
Retained earnings 38,898 35,795
Accumulated other comprehensive income (Note 22) (1,782) (8,334)
Less: 734,629 and 569,628 shares of common stock in treasury, at cost,
at December 31, 2000 and 1999, respectively (16,829) (13,671)
----------- -----------
Total shareholders' equity 107,142 80,108
----------- -----------
Total liabilities and shareholders' equity $ 1,559,601 $ 1,274,206
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
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BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-------------------------------------------------------
2000 1999 1998
---- ---- ----
Interest income:
Interest and fees on loans $ 85,174 $ 66,685 $ 66,529
Interest and dividends on securities:
Taxable 24,817 19,601 18,566
Tax exempt 1,626 1,789 1,408
Other interest income 108 39 154
----------- ----------- -----------
Total interest income 111,725 88,114 86,657
----------- ----------- -----------
Interest expense:
Time deposits, $100 and over 10,284 7,872 5,988
Other deposits 35,199 24,127 27,911
Borrowings 25,463 17,648 16,251
----------- ----------- -----------
Total interest expense 70,946 49,647 50,150
----------- ----------- -----------
Net interest income 40,779 38,467 36,507
Provision for possible loan losses (Note 6) 1,800 1,580 1,225
----------- ----------- -----------
Net interest income after provision for possible loan losses 38,979 36,887 35,282
----------- ----------- -----------
Other income:
Trust and custodian fees 2,620 2,508 2,121
Financial planning fees 1,468 695 --
Customer service fees 2,403 2,245 2,129
Investment securities gains, net 240 318 34
Gains on sale of loans 2,732 2,449 3,677
Other 3,658 2,538 1,987
----------- ----------- -----------
Total other income 13,121 10,753 9,948
----------- ----------- -----------
Other expenses:
Salaries and employee benefits 17,646 16,791 15,764
Net occupancy expense 2,063 1,699 1,540
Furniture and equipment expense 1,060 922 898
Data processing expense 1,408 1,214 1,095
Taxes other than income taxes 781 921 850
Federal deposit insurance 198 279 263
Amortization of intangibles 1,775 1,411 1,376
Other 6,686 6,414 8,041
----------- ----------- -----------
Total other expenses 31,617 29,651 29,827
----------- ----------- -----------
Income before income taxes and extraordinary item 20,483 17,989 15,403
Provision for federal income taxes (Note 14) 6,552 5,685 4,835
----------- ----------- -----------
Income before extraordinary item 13,931 12,304 10,568
Extraordinary item - prepayment charges on early repayment of
Federal Home Loan Bank advances, net of tax of $213 -- -- 400
----------- ----------- -----------
Net income $ 13,931 $ 12,304 $ 10,168
=========== =========== ===========
Basic earnings per share:
Before extraordinary item $ 1.67 $ 1.50 $ 1.26
Extraordinary item -- -- (.04)
----------- ----------- -----------
After extraordinary item $ 1.67 $ 1.50 $ 1.22
=========== =========== ===========
Diluted earnings per share:
Before extraordinary item $ 1.66 $ 1.50 $ 1.26
Extraordinary item -- -- (.04)
----------- ----------- -----------
After extraordinary item $ 1.66 $ 1.50 $ 1.22
=========== =========== ===========
Weighted average number of shares outstanding 8,363,494 8,183,912 8,357,330
=========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
37
38
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER
------------------------------ RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME
------ ------ -------- ------
Balance at December 31, 1997 8,434,978 $ 63,343 $ 22,057 $ 1,140
Net income -- -- 10,168 --
Other comprehensive income,
net of tax - unrealized
losses on
available-for-sale securities,
net of reclassification
adjustment -- -- -- (1,580)
Comprehensive income -- -- -- --
Issuance of common shares 9,083 203 -- --
Purchase of 116,000 shares
of common stock at cost -- -- -- --
Treasury stock, 43,202 shares issued -- 550 -- --
Cash dividend -- -- (4,333) --
--------- --------- --------- ---------
Balance at December 31, 1998 8,444,061 64,096 27,892 (440)
--------- --------- --------- ---------
Net income 12,304
Other comprehensive income,
net of tax-unrealized
losses on available-
for-sale securities net of
reclassification adjustment -- -- -- (7,894)
Comprehensive income -- -- -- --
Issuance of common shares 92,735 2,220 -- --
Purchase of 403,752 shares
of common stock at cost -- -- -- --
Treasury stock, 14,581 shares issued -- 2 -- --
Cash dividend -- -- (4,401) --
--------- --------- --------- ---------
Balance at December 31, 1999 8,536,796 66,318 35,795 (8,334)
--------- --------- --------- ---------
Net income 13,931
Other comprehensive income,
net of tax - unrealized
gains on available-
for-sale securities net of
reclassification adjustment -- -- -- 6,552
Comprehensive income -- -- -- --
Issuance of common shares in
connection with Milton acquisition 964,829 14,243 -- --
Issuance of common shares 15,987 287 -- --
Purchase of 188,978 shares
of common stock at cost -- -- -- --
Treasury stock, 23,977 shares issued -- (169) -- --
Stock dividend -- 6,176 (6,185) --
Cash dividend -- -- (4,643) --
--------- --------- --------- ---------
Balance at December 31, 2000 9,517,612 $ 86,855 $ 38,898 $ (1,782)
========= ========= ========= =========
TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
STOCK INCOME EQUITY
----- ------ ------
Balance at December 31, 1997 $ (1,207) $ 85,333
Net income -- $ 10,168 10,168
Other comprehensive income,
net of tax - unrealized
losses on
available-for-sale securities,
net of reclassification
adjustment -- (1,580) (1,580)
---------
Comprehensive income -- $ 8,588 --
=========
Issuance of common shares -- 203
Purchase of 116,000 shares
of common stock at cost (3,394) (3,394)
Treasury stock, 43,202 shares issued 588 1,138
Cash dividend -- (4,333)
--------- ---------
Balance at December 31, 1998 (4,013) 87,535
--------- ---------
Net income $ 12,304 12,304
Other comprehensive income,
net of tax-unrealized
losses on available-
for-sale securities net of
reclassification adjustment -- (7,894) (7,894)
---------
Comprehensive income -- $ 4,410 --
=========
Issuance of common shares -- 2,220
Purchase of 403,752 shares
of common stock at cost (9,942) (9,942)
Treasury stock, 14,581 shares issued 284 286
Cash dividend -- (4,401)
--------- ---------
Balance at December 31, 1999 (13,671) 80,108
--------- ---------
Net income $ 13,931 13,931
Other comprehensive income,
net of tax - unrealized
gains on available-
for-sale securities net of
reclassification adjustment -- 6,552 6,552
---------
Comprehensive income -- $ 20,483 --
=========
Issuance of common shares in
connection with Milton acquisition -- 14,243
Issuance of common shares -- 287
Purchase of 188,978 shares
of common stock at cost (3,716) (3,716)
Treasury stock, 23,977 shares issued 558 389
Stock dividend -- (9)
Cash dividend -- (4,643)
--------- ---------
Balance at December 31, 2000 $ (16,829) $ 107,142
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
38
39
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------
2000 1999 1998
---- ---- ----
Cash flow from operating activities:
Net income $ 13,931 $ 12,304 $ 10,168
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 5,278 5,762 2,813
Provision for possible loan losses 1,800 1,580 1,225
Deferred taxes payable 2,198 (179) (104)
Gains on sale of assets (3,083) (3,027) (3,711)
Increase in interest receivable (1,136) (982) (332)
Increase in other assets (4,721) (2,902) (2,335)
Increase in interest payable 1,350 1,108 84
Increase (decrease) in other liabilities (389) 1,327 (1,841)
FHLB stock dividend (1,435) (1,002) (992)
--------- --------- ---------
Net cash provided by operating activities 13,793 13,989 4,975
--------- --------- ---------
Cash flows from investing activities:
Decrease (increase) in federal funds sold (29,976) 286 (420)
Proceeds from maturities and sales of securities held-to-maturity 7,356 5,906 9,030
Proceeds from maturities and sales of securities available-for-sale 152,498 95,721 99,592
Purchase of securities available-for-sale (28,043) (117,143) (166,985)
Purchase of loans -- -- (61,573)
Increase in loans, net (169,898) (136,375) (71,669)
Acquisition of Chornyak -- (2,050) --
Acquisition of Milton Federal Financial Corp., net of cash acquired (28,455) -- --
Purchase of equipment and other assets (1,902) (3,308) (4,007)
Purchase of bank-owned life insurance -- (5,000) (15,000)
Proceeds from sale of assets 51,874 64,969 120,235
--------- --------- ---------
Net cash used in investing activities (46,546) (96,994) (90,797)
--------- --------- ---------
Cash flows from financing activities:
Purchase of deposits -- -- 8,002
Net increase in deposits, excluding purchase of deposits 151,584 9,554 33,986
Increase (decrease) in federal funds purchased (24,100) 24,100 (12,300)
Net increase (decrease) in Federal Home Loan Bank advances and other borrowings (100,962) 44,648 69,601
Issuance of Company obligated manditorily redeemable preferred securities -- 20,000 --
Cash dividends paid (4,652) (4,401) (4,333)
Purchase of treasury stock (3,716) (9,942) (3,394)
Issuance of stock, net 14,919 2,506 1,341
--------- --------- ---------
Net cash provided by financing activities 33,073 86,465 92,903
--------- --------- ---------
Net increase in cash and due from banks 320 3,460 7,081
Cash and due from banks, beginning of period 32,191 28,731 21,650
--------- --------- ---------
Cash and due from banks, end of period $ 32,511 $ 32,191 $ 28,731
========= ========= =========
Supplemental cash flow disclosures:
Income taxes paid $ 5,700 $ 5,700 $ 6,100
Interest paid $ 69,596 $ 48,539 $ 50,066
Non cash transfers:
Exchange of mortgage loans for mortgage-backed securities $ 51,643 $ -- $ --
The accompanying notes are an integral part of the consolidated
financial statements.
39
40
BANCFIRST OHIO CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
The following is a summary of the significant accounting policies
followed in the preparation of the consolidated financial statements.
Principles of Consolidation:
The consolidated financial statements include the accounts of BancFirst
Ohio Corp. (Company), its wholly-owned subsidiaries, The First National Bank of
Zanesville (FNB) and BFOH Capital Trust I (the Trust) and its 90%-owned
subsidiary, Bankers Title Services, Inc. (Bankers Title). The Trust is a special
purpose subsidiary that was formed in October 1999 for the purpose of issuing
$20,000 aggregate liquidation amount of capital securities (see Note 11).
Bankers Title was formed in July 2000 for the purpose of selling title insurance
policies. Effective May 16, 1998, Bellbrook Community Bank (Bellbrook) and
County Savings Bank (County) were merged under the national bank charter of FNB.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
Investment Securities:
Investment securities are classified upon acquisition into one of three
categories: held-to-maturity, available-for-sale, or trading. Held-to-maturity
securities are those securities that the Company has the positive intent and
ability to hold to maturity and are recorded at amortized cost.
Available-for-sale securities are those securities that would be available to be
sold in the future in response to the Company's liquidity needs, changes in
market interest rates, and asset-liability management strategies, among others.
Available-for-sale securities are reported at fair value, with unrealized
holding gains and losses excluded from earnings and reported as a separate
component of other comprehensive income, net of applicable income taxes. At
December 31, 2000 and 1999, the Company did not hold any trading securities.
Gains and losses on the disposition of investment securities are
accounted for on the completed transaction basis using the specific
identification method.
Income Recognition:
Income earned by the Company and its subsidiaries is recognized on the
accrual basis of accounting. The Company suspends the accrual of interest on
loans when, in management's opinion, the collection of all or a portion of the
interest has become doubtful. When a loan is placed on non-accrual, all
previously accrued and unpaid interest deemed uncollectible is charged against
either the loan loss reserve or the current period interest income depending on
the period the interest was recorded. In future periods, interest will be
included in income to the extent received only if complete principal recovery is
reasonably assured.
Loans Held for Sale:
Loans held for sale are carried at the lower of aggregate cost or
market value and are included with loans on the balance sheet.
Loan Servicing Rights:
The total cost of loans originated and sold or purchased is allocated
between loans and servicing rights based on the relative fair values of each.
The servicing rights are capitalized and amortized over the estimated servicing
lives of the underlying loans. Amortization is calculated based on the estimated
net servicing revenue, considering various factors including prepayment
experience and market rates. Impairment of the carrying value of capitalized
loan servicing rights is periodically evaluated by management in relation to the
estimated fair value of those rights.
40
41
Provision for Possible Loan Losses:
The provision for possible loan losses charged to operating expense is
based upon management's evaluation of potential losses in the current loan
portfolio and past loss experience. In management's opinion, the provision is
sufficient to maintain the allowance for possible loan losses at a level that
adequately provides for potential loan losses.
Loans considered to be impaired are reduced to the present value of
expected future cash flows, and secured loans that are in foreclosure are
recorded at the fair value of the underlying collateral securing the loan. The
difference between the recorded investment in the loan and the impaired
valuation is the amount of impairment. A specific allocation of the allowance
for possible loan losses is assigned to such loans. If these allocations require
an increase to the allowance, the increase is reported as bad debt expense.
Interest Rate Swap Contracts:
The Company has entered into certain interest rate swap contracts as
part of its asset-liability management program to assist in managing the
Company's interest rate risk and not for speculative reasons. The notional
principal amount of these instruments reflects the extent of the Company's
involvement in this type of financial instrument and does not represent the
Company's risk of loss due to counterparty nonperformance or due to declines in
market value of the swap contracts from changing interest rates. Such swaps are
accounted for as hedges on an accrual basis since the swaps were entered into
principally to manage the timing differences in repricing characteristics of
various outstanding variable rate borrowings. The related swap income or expense
is recognized currently, and recorded in the same category as the interest
income or expense on the hedged item.
Goodwill and Other Identified Intangibles:
Intangible assets are amortized using straight-line and accelerated
methods over the estimated remaining benefit periods which approximate 15 to 25
years for goodwill, 10 to 15 years for core deposit intangibles and 5 years for
covenants not to compete.
Premises and Equipment:
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation expense is computed principally on
the straight-line method over the estimated useful lives of the assets. Upon the
sale or other disposition of assets, cost and related accumulated depreciation
are removed from the accounts, and the resultant gain or loss is recognized.
Maintenance and repairs are charged to operating expense while additions and
betterments are capitalized.
Other Real Estate Owned:
Other real estate owned represents properties acquired through
customers' loan defaults. Other real estate owned is stated at an amount equal
to the loan balance prior to foreclosure plus cost incurred for improvements to
the property, but not more than fair market value of the property. As of
December 31, 2000 and 1999, other real estate owned was $466 and $222,
respectively, and is included on the balance sheet in other assets.
Investment in Subsidiaries (Parent Company Only):
The Company's investment in subsidiaries represents the total equity of
the Parent Company's wholly-owned subsidiaries, and its proportionate ownership
in the total equity of Bankers Title, using the equity method of accounting for
investments.
41
42
Common Stock:
On September 21, 2000, the Company's Board of Directors declared a 5%
stock dividend, payable October 31, 2000, to shareholders of record on October
10, 2000. All share and per share amounts have been retroactively adjusted to
reflect this dividend.
Earnings Per Common Share:
Basic earnings per common share is computed on the basis of the
weighted average number of shares outstanding during the period. Diluted
earnings per common share is computed on the basis of the weighted average
number of common shares adjusted for the dilutive effect of outstanding stock
options or other common stock equivalents utilizing the treasury stock method.
The weighted average number of shares outstanding for all periods has been
adjusted to reflect the 5% stock dividend discussed above.
Stock Incentive Plans:
The Company follows SFAS No. 123 "Accounting for Stock-Based
Compensation" which encourages but does not require use of a fair value based
accounting method for employee stock-based compensation arrangements. As
permitted by the statement, the Company has elected to account for its stock
incentive plan under APB Opinion No. 25 pursuant to which no compensation cost
has been recognized related to stock options that have been granted.
Statement of Cash Flows:
For the purposes of presenting the statement of cash flows, the Company
has defined cash and cash equivalents as those amounts included in the balance
sheet caption "cash and due from banks."
Use of Estimates in Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
used in the preparation of the financial statements are based on various factors
including the current interest rate environment and the general strength of the
local economy. Changes in the overall interest rate environment can
significantly affect the Company's net interest income and the value of its
recorded assets and liabilities.
Comprehensive Income:
Comprehensive income is the total of net income and all other
non-owner changes in equity. The only component of comprehensive income that the
Company is required to report is unrealized holding gains (losses) on
available-for-sale securities.
Reclassification:
Certain reclassifications have been made to prior period amounts to
conform to the 2000 presentation.
42
43
2. MERGERS AND ACQUISITIONS:
On April 5, 1999, the Company acquired Chornyak & Associates, Inc.
("Chornyak"), a full service financial planning company, in a transaction
accounted for under the purchase method of accounting for business combinations.
Accordingly, the Company's consolidated financial statements include the
operating results of Chornyak from the date of acquisition. In connection with
this acquisition the Company issued 82,000 common shares having a total market
value of $2,050 in exchange for all of the outstanding shares of Chornyak.
On June 20, 2000, the Company completed the acquisition of Milton
Federal Financial Corporation ("Milton"). In connection with the acquisition,
the Company issued 964,829 common shares having a total value of approximately
$14,243 and paid cash of $14,073 to the Milton shareholders. The acquisition is
being accounted for as a purchase. Accordingly, Milton's results of operations
have been included from the date of acquisition. Total assets added from this
acquisition approximated $259,194. The following summarizes the pro-forma
results of operations for the years ended December 31, 2000, 1999 and 1998 as if
Milton had been acquired at the beginning of each period presented:
YEAR ENDED DECEMBER 31 (UNAUDITED),
2000 1999 1998
---- ---- ----
Net interest income $44,017 $45,742 $43,098
Net income 14,575 13,807 11,852
Basic earnings per share 1.65 1.51 1.27
Diluted earnings per share 1.65 1.51 1.27
3. CASH AND DUE FROM BANKS:
The Company is required to maintain average reserve balances with the
Federal Reserve Bank. The average required reserve amounted to $6,799 and $2,500
at December 31, 2000 and 1999, respectively.
4. INVESTMENT SECURITIES:
The amortized cost and estimated fair value of investment securities
are as follows:
DECEMBER 31, 2000
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
Securities Available-for-Sale:
U.S. Treasury securities $ 250 $ 4 $ -- $ 254
Securities of other government agencies 1,566 56 -- 1,622
Obligations of states and political subdivisions 24,489 128 (471) 24,146
Corporate obligations 61,444 35 (4,613) 56,866
Mortgage-backed and related securities 203,156 2,909 (794) 205,271
Other securities 28,628 6 -- 28,634
--------- --------- --------- ---------
$ 319,533 $ 3,138 $ (5,878) $ 316,793
========= ========= ========= =========
Securities Held-to-Maturity:
Obligations of states and political subdivisions $ 1,380 $ 11 $ -- $ 1,391
Industrial revenue bonds and other 414 -- -- 414
Mortgage-backed securities 11,659 114 (82) 11,691
--------- --------- --------- ---------
$ 13,453 $ 125 $ (82) $ 13,496
========= ========= ========= =========
43
44
DECEMBER 31, 1999
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
Securities Available-for-Sale:
U.S. Treasury securities $ 250 $ 2 $ -- $ 252
Securities of other government agencies 5,592 -- (313) 5,279
Obligations of states and political subdivisions 25,771 1 (2,757) 23,015
Corporate obligations 58,460 20 (3,999) 54,481
Mortgage-backed and related securities 217,916 246 (6,020) 212,142
Other securities 15,280 -- -- 15,280
--------- --------- --------- ---------
$ 323,269 $ 269 $ (13,089) $ 310,449
========= ========= ========= =========
Securities Held-to-Maturity:
Obligations of states and political subdivisions $ 4,786 $ 63 $ (10) $ 4,839
Industrial revenue bonds and other 2,182 -- -- 2,182
Mortgage-backed securities 13,818 30 (268) 13,580
--------- --------- --------- ---------
$ 20,786 $ 93 $ (278) $ 20,601
========= ========= ========= =========
The amortized cost and estimated fair value of debt securities at
December 31, 2000, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
DECEMBER 31, 2000
-----------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---- ----------
Securities Available-for Sale
Within one year $ 142 $ 142
After one through five years 43,047 42,385
After five through ten years 12,302 11,633
After ten years 60,886 57,362
-------- --------
116,377 111,522
Mortgage-backed and related securities 203,156 205,271
-------- --------
$319,533 $316,793
======== ========
Securities Held-to-Maturity
Within one year $ 521 $ 524
After one through five years 1,172 1,179
After five through ten years 101 102
After ten years -- --
-------- --------
1,794 1,805
Mortgage-backed and related securities 11,659 11,691
-------- --------
$ 13,453 $ 13,496
======== ========
Proceeds from sales of securities during 2000, 1999 and 1998 were
$128,024, $33,003 and $8,777, respectively. Gross gains of $1,969, $376 and $48
and gross losses of $1,729, $58 and $14 were realized on sales in 2000, 1999 and
1998, respectively. Proceeds from sales of securities during 2000 include $2,425
from the sale of held-to-maturity securities that were sold in connection with
investment portfolio restructuring activities following the Milton acquisition.
Gross gains of $10 and gross losses of $10 were realized on such sales.
Investment securities with a fair value of $228,985 at December 31,
2000 were pledged to secure public deposits and Federal Home Loan Bank advances
and for other purposes required by law.
44
45
5. LOANS:
The composition of the loan portfolio is as follows:
DECEMBER 31,
2000 1999
---- ----
Commercial, financial and industrial $ 487,541 $ 411,489
Real estate--mortgage 465,745 327,294
Real estate--construction 5,112 9,484
Consumer 131,253 101,500
---------- ----------
$1,089,651 $ 849,767
========== ==========
Loans held for sale totaling $3,331 and $3,911 at December 31, 2000 and
1999, respectively, are included in the above totals. Also, at December 31, 2000
and 1999, loans serviced for others totaled $341,568 and $251,096, respectively.
The Company has made loans to certain directors, executive officers,
and their affiliates in the ordinary course of business. An analysis of the year
ended December 31, 2000 activity with respect to these related party loans is as
follows:
Beginning balance $2,462
New loans 509
Repayments (282)
Loans no longer classified as related party loans (436)
-------
Ending balance $2,253
=======
At December 31, 2000 and 1999, and for the years then ended, the
recorded investment in loans considered to be impaired and interest income
recognized related thereto was not material. Also, at December 31, 2000,
restructured loans consisted of one loan with an outstanding principal balance
of $2,925 that was restructured in May 1999. This loan is performing in
accordance with its restructured terms.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An analysis of activity in the allowance for possible loan losses is as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
---- ---- ----
Balance at beginning of period $ 7,431 $ 6,643 $ 6,617
Acquired allowance for loan losses 1,773 -- --
Provision charged to operations 1,800 1,580 1,225
Loans charged off (1,344) (1,570) (1,802)
Loan recoveries 490 778 603
-------- -------- --------
Net charge-offs (854) (792) (1,199)
-------- -------- --------
Balance at end of period $ 10,150 $ 7,431 $ 6,643
======== ======== ========
45
46
7. PREMISES AND EQUIPMENT:
Premises and equipment are summarized below:
DECEMBER 31,
-----------------------
2000 1999
---- ----
Land $ 2,896 $ 2,619
Buildings and improvements 16,831 12,656
Furniture, fixture and equipment 12,611 10,395
------- -------
32,338 25,670
Less accumulated depreciation and amortization 13,953 10,881
------- -------
Premises and equipment, net $18,385 $14,789
======= =======
Total depreciation expense was $1,838, $1,589 and $1,329 for the years
ended December 31, 2000, 1999 and 1998, respectively.
8. DEPOSITS:
A summary of deposits is as follows:
DECEMBER 31,
--------------------------------
2000 1999
---- ----
Demand, non-interest bearing $ 76,833 $ 65,086
Demand, interest bearing 130,870 110,659
Savings 116,427 116,438
Time, $100 and over 208,107 157,841
Time, other 581,318 349,152
---------- ----------
$1,113,555 $ 799,176
========== ==========
9. FEDERAL FUNDS PURCHASED:
Federal funds purchased generally have one to four day maturities. The
following table reflects the maximum month-end outstanding balance, average
daily outstanding balances, average rates paid during the year, and the average
rates paid at year-end for federal funds purchased:
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---- ---- ----
Federal funds purchased:
Average balance $ 8,409 $ 7,341 $ 3,204
Average rate 6.23% 5.48% 6.17%
Maximum month-end balance $31,500 $28,000 $13,800
Balance at year-end -- $24,100 $ --
Average rate on balance at year-end --% 5.41% --%
46
47
10. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS:
Federal Home Loan Bank (FHLB) advances and other borrowings are as
follows:
DECEMBER 31,
-------------------------
2000 1999
---- ----
Term reverse repurchase agreements (average rate 5.48% in 2000 and 1999) $ 50,000 $ 50,000
FHLB advances (average rate 6.40% in 2000; 5.76% in 1999) 247,368 285,148
Term debt with a financial institution (8.06% in 2000; 7.47% in 1999), due 2007 8,000 6,250
-------- --------
$305,368 $341,398
======== ========
Minimum annual retirements on borrowings for the next five years
consisted of the following at December 31, 2000:
MATURITY WEIGHTED AVERAGE PRINCIPAL
(PERIOD ENDING) INTEREST RATE REPAYMENT
--------------- ------------- ---------
2001 6.27% $ 23,897
2002 6.79 104,315
2003 5.94 40,445
2004 6.51 25,969
2005 7.63 5,967
2006 and thereafter 5.82 104,775
---- -------
Total 6.29% $305,368
==== ========
In December 1998, the Company prepaid $34,465 of FHLB advances that had
a weighted average interest rate of 6.19%. In connection with this early
repayment of debt, the Company paid prepayment penalties totaling $613 which
have been recorded, net of taxes of $213, as an extraordinary item in the 1998
consolidated statement of income.
FHLB advances must be secured by eligible collateral as specified by
the FHLB. Accordingly, the Company has a blanket pledge of its first mortgage
loan portfolio as collateral for the advances outstanding at December 31, 2000
with a required minimum ratio of collateral to advances of 135%. Also, the
Company's investment in FHLB stock of $21,069 at December 31, 2000 is pledged as
collateral for outstanding advances.
The term reverse repurchase agreements are with Salomon Brothers, Inc.
under which the Company sold mortgage-backed securities classified as
available-for-sale and with a current carrying and fair value of $49,977 and
$54,544 and accrued interest of $301 and $332 at December 31, 2000 and 1999,
respectively. The reverse repurchase agreements have a weighted average maturity
of 6.8 years at December 31, 2000 and 7.7 years at December 31, 1999. Also,
$45,000 of such reverse repurchase agreements at December 31, 2000 become
callable commencing in 2001.
The term debt with a financial institution was obtained by the Company
to partially fund the acquisition of County. Under terms of the loan agreement,
as amended in 2000, the Company is required to make quarterly interest payments
and annual principal payments of $1,000 commencing September 30, 2001. The
unpaid loan balance is due in full September 30, 2007. The loan agreement
contains certain financial covenants which requires that (i) the Company
maintain a minimum ratio of total capital to risk-weighted assets of 10%; (ii)
each of the Company's banking subsidiaries, which represent greater than 10% of
the Company's consolidated capital, maintain a minimum ratio of Tier 1 capital
to risk-weighted assets of 6.0%, Tier 1 capital to average assets of 5.0% and
total capital to risk-weighted assets of 10.0%; (iii) the Company maintain, on a
consolidated basis, a minimum annualized return on average assets of not less
than 0.75% ; and (iv) the Company maintain, on a consolidated basis, a ratio of
non-performing loans to equity capital of less than 25.0% and a minimum ratio of
allowance for possible loan losses to non-performing loans of 75.0%. The Company
was in compliance with each of these covenants at December 31, 2000. Also, 67%
of the stock of FNB collateralizes this borrowing at December 31, 2000.
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11. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF
THE PARENT:
On October 18, 1999, the Trust, a statutory business trust created
under Delaware law, issued $20,000 of 9.875% Capital Securities, Series A
("Capital Securities") with a stated value and liquidation preference of $1 per
share. The Trust's obligations under the Capital Securities issued are fully and
unconditionally guaranteed by the Company. The proceeds from the sale of the
Capital Securities of the Trust, as well as the proceeds from the issuance of
common securities to the Company, were utilized by the Trust to invest in
$20,619 of 9.875% Junior Subordinated Debentures (the "Debentures") of the
Company. The Debentures are unsecured obligations and rank subordinate and
junior to the right of payment to all indebtedness, liabilities and obligations
of the Company. The Debentures represent the sole assets of the Trust. Interest
on the Capital Securities is cumulative and payable semi-annually in arrears.
The Company has the right to optionally redeem the Debentures prior to the
maturity date of October 15, 2029, on or after October 15, 2009 at 104.938%
(declining annually thereafter to 100% after October 15, 2019) of the stated
liquidation amount, plus accrued and unpaid distributions, if any, to the
redemption date. Under the occurrence of certain events, specifically a Tax
Event, Investment Company Event or Capital Treatment Event as more fully defined
in the BFOH Capital Trust I Prospectus dated October 13, 1999, the Company may
redeem in whole, but not in part, the Debentures prior to October 15, 2009.
Proceeds from any redemption of the Debentures would cause a mandatory
redemption of the Capital Securities and the common securities having an
aggregate liquidation amount equal to the principal amount of the Debentures
redeemed.
The Trust is a wholly owned subsidiary of the Company, has no
independent operations and has issued securities that contain a full and
unconditional guarantee of its parent, the Company. The Trust is exempt from the
reporting requirements of the Securities Exchange Act of 1934.
12. RETIREMENT PLANS:
The Company has a defined contribution plan which covers substantially
all full-time employees. Contributions to the plan are based upon a
predetermined percentage of the employees' base compensation. Expenses related
to the plan for the years ended December 31, 2000, 1999 and 1998 were
approximately $144, $174 and $128, respectively.
The Company also has a 401(k) Retirement Plan which covers
substantially all employees with more than one year of service. The Company
makes contributions to the plan pursuant to salary savings elections and
discretionary contributions as set forth by the provisions of the plan.
Employees direct the investment of account balances from plan alternatives.
Operations have been charged $633, $561 and $499 for contributions to the plan
for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company maintains an employee stock purchase plan whereby eligible
employees and directors, through their plan contributions, may purchase shares
of the Company's stock. Such shares are purchased from treasury stock at fair
market value. Minimal expenses were incurred by the Company for the years ended
December 31, 2000 and 1999, and 1998, in connection with the plan.
The Company currently provides certain health care benefits for
eligible retirees, using the accrual method of accounting for the projected
costs of providing post retirement benefits during the period of employee
service. At December 31, 2000 and 1999, the recorded liability for post
retirement benefits was $351 and $501, respectively. For the years ended
December 31, 2000, 1999, and 1998, health care benefit costs for eligible
retirees was $26, $34 and $43, respectively.
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13. STOCK INCENTIVE PLAN:
The Company has adopted the 1997 Omnibus Stock Incentive Plan (the
Plan) which provides for the granting of stock options and other stock related
awards to key employees. Under the Plan, 840,000 authorized but unissued or
reacquired common shares are reserved for issuance. All options granted were at
a price that equaled or exceeded the market value of the Company's common stock
at the date of grant. The options vest ratably over four years and expire 20
years from the date of grant. No compensation expense was recognized in 2000,
1999 or 1998 related to the Plan. The summary of stock option activity is as
follows:
WEIGHTED WEIGHTED
OPTIONS AVERAGE EXERCISE OPTIONS AVERAGE EXERCISE
OUTSTANDING PRICE EXERCISABLE PRICE
----------- ----- ----------- -----
December 31, 1997 96,726 $24.52 -- $ --
======= ======
Options granted 89,250 31.43
Less:
Stock options forfeited 3,024 24.52
------- ------
December 31, 1998 182,952 27.90 23,426 $22.38
======= ======
Options granted 127,155 24.88
Less:
Stock options exercised 2,457 22.38
Stock options forfeited 21,750 27.78
------- ------
December 31, 1999 285,900 26.61 59,437 $24.93
======= ======
Options granted 205,600 16.29
Less:
Stock options forfeited 32,779 26.77
------- ------
December 31, 2000 458,721 $21.97 116,097 $25.63
======= ====== ======= ======
The following table summarizes information about stock options outstanding at
December 31, 2000:
REMAINING AVERAGE EXERCISE AVERAGE EXERCISE
OPTIONS CONTRACTUAL LIFE PRICE-OPTIONS OPTIONS PRICE-OPTIONS
EXERCISE PRICE RANGE OUTSTANDING (YEARS) OUTSTANDING EXERCISABLE EXERCISABLE
- -------------------- ----------- ------- ----------- ----------- -----------
$13.00 to $20.00 203,185 20.0 $16.21 -- $ --
$20.01 to $25.00 86,751 18.2 23.27 63,021 23.10
$25.01 to $30.00 109,386 18.1 26.19 35,902 27.76
$30.01 to $35.00 59,399 18.0 32.00 17,174 30.48
------- ---- ------ ------- ------
Total 458,721 18.9 $21.97 116,097 $25.63
======= ==== ====== ======= ======
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For purposes of providing the pro forma disclosures required under SFAS
No. 123, the fair value of the stock options granted in 2000, 1999 and 1998 was
estimated at the date of grant using a Black-Scholes option pricing model. The
weighted average assumptions used in the option pricing model were as follows:
2000 1999 1998
---- ---- ----
Risk-free interest rate 5.03% 5.33% to 6.18% 4.75%
Expected dividend yield 3.54% 3.09% 2.00%
Expected option life (years) 7.0 7.0 7.0
Expected volatility 32.18% 30.39% 31.37%
For purposes of the pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. Had
compensation cost for the Company been determined consistent with SFAS No. 123,
income before extraordinary items, net income and basic and diluted earnings per
share for the years ended December 31, 2000, 1999 and 1998 would have been as
follows:
2000 1999 1998
---- ---- ----
Net income, as reported $13,931 $12,304 $10,168
Pro forma net income 13,545 11,927 9,974
Earnings per share, as reported:
Basic 1.67 1.50 1.22
Diluted 1.66 1.50 1.22
Pro forma earnings per share:
Basic 1.62 1.46 1.13
Diluted 1.62 1.46 1.13
Also under the Plan, the Company adopted the 1997 Bonus Shares Program
whereby eligible employees receiving annual bonus awards may elect to receive up
to 50% of such awards in common shares of the Company ("bonus shares").
Employees who elect to receive bonus shares in lieu of cash will receive
additional matching shares from the Company equal to 50% of the bonus shares,
provided that the employee is continuously employed by the Company and
continuously owns the bonus shares for five years from the date of issuance of
the bonus shares. Eligible employees elected to receive $250, $287 and $115 of
their 2000, 1999 and 1998 bonuses, respectively, in bonus shares which resulted
in the issuance of 16,649 shares in 2000, 15,988 shares in 1999 and 4,178 shares
in 1998.
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14. INCOME TAXES:
The provision for income taxes is summarized below:
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
---- ---- ----
Current $ 4,354 $ 5,825 $ 4,939
Deferred 2,198 (140) (104)
------- ------- -------
Provision for income taxes $ 6,552 $ 5,685 $ 4,835
======= ======= =======
The following is a reconciliation of income tax at the federal
statutory rate to the effective rate of tax on the financial statements:
YEAR ENDED DECEMBER 31,
2000 1999 1998
Tax at federal statutory rate 35% 35% 35%
Permanent differences:
Tax-exempt interest, net of allowed interest expense (3) (3) (3)
Increase in cash surrender value of life insurance (2) (2) (2)
Amortization of intangibles and other 2 2 1
--- --- ---
Effective tax rate 32% 32% 31%
=== === ===
Deferred income taxes are recognized at prevailing income tax rates for
temporary differences between financial statement and income tax bases of assets
and liabilities. The components of the net deferred tax asset (liability) were
as follows:
DECEMBER 31,
----------------------
2000 1999
---- ----
Deferred tax assets arising from:
Allowance for possible loan losses $3,338 $2,645
Reserve for health insurance 235 246
Amortization of intangibles 647 505
Unrealized holding losses on securities 957 4,486
Purchase accounting adjustments 977 --
Other 343 302
------ ------
Total deferred tax assets 6,497 8,184
------ ------
Deferred tax liabilities arising from:
Gain on sale of loans 1,846 1,514
Deferred loan fees and costs 225 271
FHLB stock dividends 2,231 1,286
Purchase accounting adjustments -- 241
Depreciation 337 180
Other, net 508 454
------ ------
Total deferred tax liabilities 5,147 3,946
------ ------
Net deferred tax asset $1,350 $4,238
====== ======
The Company did not record a valuation allowance at December 31, 2000
and 1999 as the net deferred tax asset was considered to be realizable based on
the level of historical and anticipated future taxable income. Net deferred tax
assets and liabilities and federal income tax expense in future years can be
significantly affected by changes in enacted tax rates.
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15. EARNINGS PER SHARE:
The computation of earnings per share for the years ended December 31,
2000, 1999 and 1998 is as follows. All share amounts have been adjusted to give
retroactive effect to the two for one stock split in 1998 and 5% stock dividend
in 2000:
2000 1999 1998
---- ---- ----
Income before extraordinary item $ 13,931 $ 12,304 $ 10,568
Extraordinary item -- -- (400)
----------- ----------- -----------
Net income $ 13,931 $ 12,304 $ 10,168
=========== =========== ===========
Weighted average shares outstanding 8,363,494 8,183,912 8,357,330
Basic earnings per share:
Before extraordinary item $ 1.67 $ 1.50 $ 1.26
Extraordinary item -- -- (0.04)
----------- ----------- -----------
After extraordinary item $ 1.67 $ 1.50 $ 1.22
=========== =========== ===========
Weighted average shares outstanding 8,363,494 8,183,912 8,357,330
Diluted effect due to stock incentive plans 14,624 8,461 11,783
----------- ----------- -----------
Weighted average shares outstanding, as adjusted 8,378,118 8,192,373 8,369,113
Diluted earnings per share:
Before extraordinary item $ 1.66 $ 1.50 $ 1.26
Extraordinary item -- -- (0.04)
----------- ----------- -----------
After extraordinary item $ 1.66 $ 1.50 $ 1.22
=========== =========== ===========
16. LEASE COMMITMENTS:
The Company leases equipment, land at two branch locations, and certain
office space. One land lease has five renewal options for five years each and
the other has a lease term until 2073.
A summary of non-cancelable future operating lease commitments at
December 31, 2000 follows:
2001 $ 647
2002 581
2003 535
2004 368
2005 5
2006 and thereafter 362
------
$2,498
======
Rent expense under all lease obligations, including month-to-month
agreements, aggregated approximately $760, $539 and $573 for the years ended
December 31, 2000, 1999 and 1998, respectively.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
In the normal course of business, the Company is party to financial
instruments with off-balance-sheet risk, necessary to meet the financing needs
of its customers. These financial instruments include loan commitments, and
standby letters of credit. The instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
financial statements.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those instruments.
The
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Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. The total amounts of
financial instruments with off-balance-sheet risk are as follows:
DECEMBER 31,
2000 1999
---- ----
Financial instruments whose contract
amounts represent credit risk:
Loan commitments $123,795 $119,789
Standby letters of credit 1,652 643
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan commitments to
customers.
Interest rate swaps generally involve the exchange of fixed and
floating rate interest payments without the exchange of the underlying notional
amount and are used by the Company to manage its interest rate risk. Notional
amounts represent agreed upon amounts on which calculations of interest payments
to be exchanged are based. Notional amounts do not represent direct credit
exposures. The actual market or credit exposure of this type of financial
instrument is significantly less than the notional amount. Direct credit
exposure is limited to the net difference between the calculated pay and receive
amounts on each transaction, which is generally netted and paid or received
monthly, and the inability of the counter-party to meet the terms of the
contract. This risk is normally a small percentage of the notional amount and
fluctuates as interest rates move up and down. Market risk is more directly
measured by the fair values of the interest rate swap agreements. The Company
had $64,375 and $40,625, respectively, of notional swap principal contracts
outstanding at December 31, 2000 and 1999 related to asset-liability management
activities. These swap contracts have maturity dates ranging from February 2001
to December 2010 and require the Company to pay a fixed rate of interest ranging
from 6.05% to 7.23% in return for receiving a variable rate of interest based on
the three month London Inter Bank Offered Rate (LIBOR). For the years ended
December 31, 2000, 1999 and 1998, interest expense on swap contracts was $58,
$500 and $344, respectively, and is included with interest expense on
borrowings.
The Company offers credit cards in an agency capacity for another
institution. Under certain circumstances, the credit cards are issued with
recourse to the Company. The total of these credit lines with recourse to the
Company was not material at December 31, 2000.
In addition to the financial instruments with off-balance sheet risks,
the Company has commitments to lend money which have been approved by the Small
Business Administration's (SBA) 7(a) program. Such commitments carry SBA
guarantees on individual credits ranging from 75% to 80% of principal balances.
The total of such commitments at December 31, 2000 and 1999, were $8,064 and
$14,192, respectively, with guaranteed principal by the SBA totaling $6,235 and
$8,910, respectively.
The Company has no significant concentrations of credit risk with any
individual counter-party. The Company's lending is concentrated primarily in the
State of Ohio market area.
18. SHAREHOLDERS' EQUITY:
The payment of dividends by FNB is subject to regulatory restrictions
by regulatory authorities. These restrictions for national banks provide that
dividends in any calendar year generally shall not exceed the total net profits
of that year plus the retained net profits of the preceding two years. In
addition, dividend payments may not reduce capital levels below minimum
regulatory guidelines. At December 31, 2000, $7,830 of the retained earnings of
FNB is available for the payment of dividends to the Company without regulatory
agency approval.
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19. REGULATORY CAPITAL REQUIREMENTS:
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by the regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain off
balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulators to ensure capital
adequacy require the Company to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the applicable
regulations) to risk-weighted assets (as defined) and Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2000, that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 2000, the most recent notifications from the various
primary regulators of the Company and its subsidiary categorized each entity as
well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, an institution must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the institution's category.
Actual capital amounts and ratios of the Company and FNB are as
follows:
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2000:
Total Capital (to Risk-Weighted Assets):
Consolidated $116,998 11.09% $ 84,416 8.00% $105,520 10.00%
FNB 119,309 11.30 84,478 8.00% 105,598 10.00
Tier 1 Capital (to Risk-Weighted Assets):
Consolidated 106,848 10.13 42,208 4.00 63,312 6.00
FNB 99,150 9.39 42,239 4.00 63,359 6.00
Tier 1 Capital (to Average Assets):
Consolidated 106,848 6.88 62,128 4.00 77,659 5.00
FNB 99,150 6.41 61,848 4.00 77,310 5.00
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The amounts provided below represent estimates of fair values at a
particular point in time. Significant estimates regarding economic conditions,
loss experience, risk characteristics associated with particular financial
instruments and other factors were used for the purposes of this disclosure.
These estimates are subjective in nature and involve matters of judgment.
Therefore, they cannot be determined with precision. Changes in the assumptions
could have a material impact on the estimates shown.
While the estimated fair value amounts are designed to represent
estimates of the amounts at which these instruments could be exchanged in a
current transaction between willing parties, many of the Company's financial
instruments lack an available trading market as characterized by willing parties
engaging in an exchange transaction. In addition, with the
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exception of its available-for-sale securities portfolio, it is the Company's
intent to hold its financial instruments to maturity and, therefore, it is not
probable that the fair values shown will be realized.
The value of long-term relationships with depositors (core deposit
intangible) and other customers are not reflected in the estimated fair values.
In addition, the estimated fair values disclosed do not reflect the value of
assets and liabilities that are not considered financial instruments.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical to make
that value:
Cash and Due From Banks, Federal Funds Sold and
Federal Funds Purchased --The carrying amount approximates fair value.
Investment Securities--Estimated fair values are
based on quoted market prices, when available. If a quoted market price
is not available, fair value is estimated using quoted market prices
for similar securities.
Loans--In order to determine the fair values for
loans, the loan portfolio was segmented based on loan type, credit
quality and repricing characteristics. For residential mortgages, fair
value is estimated using the quoted market prices for securities backed
by similar loans, adjusted for differences in loan characteristics. For
certain variable rate loans with no significant credit concerns and
frequent repricings, estimated fair values are based on the carrying
values. The fair values of other loans are estimated using discounted
cash flow analyses. The discount rates used in these analyses are based
on origination rates for similar loans. Where appropriate, adjustments
have been made for credit and other costs so as to more accurately
reflect market rates. The estimate of maturity is based on historical
experience with repayments and current economic and lending conditions.
Deposits--The fair value of demand deposits, savings
accounts and certain money market deposits with no stated maturity is
equal to the amount payable on demand. The estimated fair value of
fixed maturity certificates of deposit is based on discounted cash flow
analyses using market rates currently offered for deposits of similar
remaining maturities.
Federal Home Loan Bank advances and other borrowings
-- The estimated fair value of Federal Home Loan Bank advances and
other borrowings are based on discounted cash flow analyses using
current rates for the same advances.
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior Subordinated
Deferrable Interest Debentures of the Parent -- The estimated fair
value is based on discounted cash flow analyses using current rates for
similar borrowings.
Interest Rate Swaps -- Estimated fair values are
based on quoted market prices.
Commitments to Extend Credit and Stand-by Letters of
Credit -- The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present credit worthiness
of the counter-parties. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with
counter-parties at the reporting date.
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The fair values of financial instruments were as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Cash and due from banks $ 32,511 $ 32,511 $ 32,191 $ 32,191
Federal funds sold 30,159 30,159 183 183
Securities available-for-sale 316,793 316,793 310,449 310,449
Securities held-to-maturity 13,453 13,496 20,786 20,601
Loans, net of allowance for loan losses 1,079,501 1,077,256 842,336 842,635
Demand and savings deposits 324,130 324,130 292,183 292,183
Time deposits 789,425 791,920 506,993 505,195
Federal funds purchased -- -- 24,100 24,100
Federal Home Loan Bank advances and
other borrowings 305,368 307,249 341,298 340,183
Company obligated manditorily
redeemable preferred securities of
subsidiary trust holding solely junior
subordinated deferrable interest
debentures of the parent 20,000 21,926 20,000 19,541
Interest rate swaps - asset (liability) -- (989) -- 336
21. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION:
Parent Company only condensed financial information is as follows:
CONDENSED BALANCE SHEET
DECEMBER 31,
------------
2000 1999
---- ----
Assets:
Cash $ 3,069 $ 14,260
Investment in subordinated debt and repurchase
agreement with subsidiary 10,000 10,000
Investment in subsidiaries 119,720 80,141
Intangible assets 400 1,000
Other assets 3,244 2,132
-------- --------
Total assets $136,433 $107,533
======== ========
Liabilities and equity:
Long-term borrowings $ 8,000 $ 6,250
Junior subordinated debentures due subsidiary 20,619 20,619
Other liabilities 672 556
-------- --------
Total liabilities 29,291 27,425
Shareholders' equity 107,142 80,108
-------- --------
Total liabilities and equity $136,433 $107,533
======== ========
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CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
Dividends from subsidiaries $ 6,061 $ 13,000 $ 14,750
Interest income 1,072 133 3
Interest expense (2,444) (981) (1,044)
Operating expenses (1,668) (1,477) (1,695)
-------- -------- --------
Income before income tax and equity in
earnings of subsidiaries 3,021 10,675 12,014
Federal income tax benefit 1,076 817 959
-------- -------- --------
Income before equity in earnings of subsidiaries 4,097 11,492 12,973
Earnings of subsidiaries in excess of (less than) dividends 9,834 812 (2,805)
-------- -------- --------
Net income $ 13,931 $ 12,304 $ 10,168
======== ======== ========
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 13,931 $ 12,304 $ 10,168
Adjustments to reconcile net income to net cash provided by operations:
Amortization and depreciation 669 633 621
(Increase) decrease in other assets (244) (1,636) 1,009
Increase (decrease) in other liabilities (5,482) 495 (304)
Earnings less than (in excess of) dividends (9,832) (812) 2,805
-------- -------- --------
Net cash provided by operating activities (958) 10,984 14,299
-------- -------- --------
Cash flows from investing activities:
Acquisition of Milton Federal Financial Corp. 4,661 -- --
Investment in subsidiaries (23,195) (2,669) --
Decrease (increase) in subordinated debt and repurchase
agreement with subsidiary -- 4,000 (6,000)
-------- -------- --------
Net cash provided by (used for) investing activities (18,534) 1,331 (6,000)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock 14,530 2,220 203
Increase (decrease) in long-term debt 1,750 (7,500) (1,250)
Issuance of junior subordinated debentures to subsidiary -- 20,619 --
Cash dividends paid (4,652) (4,401) (4,333)
Purchase of treasury stock (3,716) (9,942) (3,394)
Treasury shares issued and other 389 286 1,138
-------- -------- --------
Net cash provided by (used in) financing activities 8,301 1,282 (7,636)
-------- -------- --------
Net increase (decrease) in cash (11,191) 13,597 663
Cash, beginning of period 14,260 663 --
-------- -------- --------
Cash, end of period $ 3,069 $ 14,260 $ 663
======== ======== ========
The Parent Company paid $5,700, $5,700 and $6,100 for income taxes in
2000, 1999 and 1998, respectively, and $2,494, $623 and $1,064 for interest in
2000, 1999 and 1998, respectively.
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22. COMPREHENSIVE INCOME:
Other comprehensive income for the years ended December 31, 2000, 1999
and 1998 consists of the following:
2000 1999 1998
---- ---- ----
Unrealized holding gains (losses) on available-
for-sale securities arising during period $ 10,320 $(11,826) $ (2,370)
Tax (expense) or benefit (3,612) 4,139 812
-------- -------- --------
Net of tax amount 6,708 (7,687) (1,558)
-------- -------- --------
Less: Reclassification adjustment for
gains included in net income (240) (318) (34)
Tax expense 84 111 12
-------- -------- --------
Net of tax amount (156) (207) (22)
-------- -------- --------
Net unrealized gains (losses) on available-for-
sale securities $ 6,552 $ (7,894) $ (1,580)
======== ======== ========
23. SEGMENT REPORTING:
The Company manages and operates two major lines of businesses:
community banking and investment and funds management. Community banking
includes lending and related services to businesses and consumers, mortgage
banking, and deposit gathering. Investment and funds management includes trust
services, financial planning services and retail sales of investment products.
These business lines are identified by the entities through which the product or
service is delivered.
The reported line of business results reflect the underlying core
operating performance within the business units. Parent and Other includes
activities that are not directly attributed to the identified lines of business
and is comprised of the parent company, its special purpose trust subsidiary,
inter-company eliminations and significant non-recurring items of income and
expense company-wide. Substantially all of the Company's assets are part of the
community banking line of business. Selected segment information is included in
the following table:
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59
INVESTMENT
COMMUNITY AND FUNDS PARENT AND
BANKING MANAGEMENT OTHER TOTAL
------- ---------- ----- -----
2000:
Net interest income $42,080 $ 10 $(1,311) $40,779
Provision for possible loan losses 1,800 -- -- 1,800
------- ------- ------- -------
Net interest income after provision for
possible loan losses 40,280 10 (1,311) 38,979
Non-interest income 9,033 4,088 -- 13,121
Non-interest expense 27,164 2,761 1,692 31,617
------- ------- ------- -------
Income (loss) before income taxes 22,149 1,337 (3,003) 20,483
Income tax expense (benefit) 7,127 504 (1,079) 6,552
------- ------- ------- -------
Net income (loss) $15,022 $ 833 $(1,924) $13,931
======= ======= ======= =======
1999:
Net interest income $39,293 $ 11 $ (837) $38,467
Provision for possible loan losses 1,580 -- -- 1,580
------- ------- ------- -------
Net interest income after provision for
possible loan losses 37,713 11 (837) 36,887
Non-interest income 7,550 3,203 -- 10,753
Non-interest expense 25,728 2,446 1,477 29,651
------- ------- ------- -------
Income (loss) before income taxes 19,535 768 (2,314) 17,989
Income tax expense (benefit) 6,201 298 (814) 5,685
------- ------- ------- -------
Net income (loss) $13,334 $ 470 $(1,500) $12,304
======= ======= ======= =======
24. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, Statement of Financial Accounting Standards (SFAS) No.
133 (as amended by SFAS No. 138), "Accounting for Derivative Instruments and
Hedging Activities" was issued. These statements establish accounting and
reporting standards for derivative instruments and for hedging activities. The
provisions of these statements are to be implemented in the first quarter of
2001 and will impact the accounting for the Company's interest rate swap
transactions that had a total notional amount of $64,375 at December 31, 2000.
The impact on the Company's consolidated financial statements from the adoption
of SFAS No. 133 as of January 1, 2001 was to decrease accumulated other
comprehensive income by $643, increase other liabilities by $989 and increase
other assets by $346.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 140 revises the standards for accounting for securitizations and other
transfers of financial assets and collateral, requires certain disclosures, but
carries over most of the provisions of SFAS No. 125 without reconsideration.
This statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No. 140 is effective for transfers occurring after March 31, 2001. This
statement is effective for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. This statement is not expected to
have a material effect on the Company's earnings or financial condition.
59
60
25. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 2000 and 1999:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
2000:
Interest income $24,055 $25,919 $30,794 $30,957
Net interest income 9,611 9,593 10,824 10,751
Provision for possible loan losses 450 450 450 450
Income before income taxes 4,449 4,578 5,729 5,727
Net income 3,074 3,147 3,842 3,868
Basic and diluted earnings per share $ .39 $ .40 $ .44 $ .44
1999:
Interest income $21,371 $21,744 $22,045 $22,954
Net interest income 9,401 9,739 9,591 9,736
Provision for possible loan losses 350 375 405 450
Income before income taxes 4,157 4,531 4,555 4,746
Net income 2,841 3,091 3,152 3,220
Basic and diluted earnings per share $ .34 $ .37 $ .39 $ .40
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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its independent
auditors on accounting and financial disclosure matters during the periods
covered by this report.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
*
ITEM 11: EXECUTIVE COMPENSATION
*
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
*
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
*
* Reference is made to the information under the captions "Election of
Directors," "Executive Officers," "Executive Compensation, "Security
Ownership of Certain Beneficial Owners and Management," and "Certain
Relationships and Related Transactions" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held April 19, 2001, which is
incorporated by this reference into this annual report.
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62
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
BancFirst Ohio Corp. and Subsidiaries:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the Years Ended December
31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
Other schedules to the financial statements for which provision is
made in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(a) (3) Exhibits
List and Index on page 64.
(b) None
(c) The exhibits required by Item 601 of Regulation S-K are filed as a
separate part of this report.
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63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BANCFIRST OHIO CORP.
By: (Signed)/s/William F. Randles
------------------------------
William F. Randles
Director and Chairman of the Board
Dated: Zanesville, Ohio
March 8, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
(Signed)/s/Philip E. Burke Director March 8, 2001
- ------------------------------------
Philip E. Burke
(Signed)/s/Gary N. Fields Director and Chief March 8, 2001
- ------------------------------------ Executive Officer
Gary N. Fields
(Signed)/s/James L. Nichols Director March 8, 2001
- ------------------------------------
James L. Nichols
(Signed)/s/James H. Nicholson Director March 8, 2001
- ------------------------------------
James H. Nicholson
(Signed)/s/Karl C. Saunders Director March 8, 2001
- ------------------------------------
Karl C. Saunders
(Signed)/s/William T. Stewart Director March 8, 2001
- ------------------------------------
William T. Stewart
(Signed)/s/J.W. Straker, Jr.. Director March 8, 2001
- ------------------------------------
J. W. Straker, Jr.
(Signed)/s/William F. Randles Director and Chairman March 8, 2001
- ------------------------------------ of the Board
William F. Randles
(Signed)/s/Kim M. Taylor Chief Financial Officer and March 8, 2001
- ------------------------------------ Chief Accounting Officer
Kim M. Taylor
63
64
Exhibit List and Index
BancFirst Ohio Corp. Form 10-K
for the year ended December 31, 2000
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
3.1 Articles of Incorporation of the Company, as amended (incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 1991, Exhibit
3.3 to the Company's form 10-K for the year ended December 31, 1992 and Exhibit 3.6 to ---
the Company's Form 10-K for the year ended December 31, 1994).
3.2 Code of Regulations of the Company, as amended (incorporated by reference to Exhibit
3.2 to the Company's form 10-K for the year ended December 31, 1991, Exhibit 3.4 to the
Company's Form 10-K for the year ended December 31, 1992 an Exhibit 3.5 to the ---
Company's Form 10-K for the ended December 31, 1993).
10.1 Loan Agreement by and between the Company and LaSalle National Bank dated August 14,
1996 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement ---
on Form S-3, Registration No. 333-06707).
10.2 Indenture of the Company relating to the Junior Subordinated Debentures (incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4, ---
Registration Statement No. 333-30570).
10.3 Amended and Restated Trust Agreement of BFOH Capital Trust I (incorporated by reference
to the Company's Registration Statement on Form S-4, Registration Statement No. ---
333-30570).
10.4 Agreement and Plan of Reorganization dated January 13, 2000 by and among the Company,
FNB, Milton Federal Financial Corporation and Milton Federal Savings Bank (incorporated
by reference to the exhibit to the Company's Current Report on Form 8-K filed January ---
21, 2000).
*10.5 Second Amendment to Loan Agreement by and between the Company and LaSalle National Bank
dated September 29, 2000. ---
10.6 Form of Executive Retention Plan entered into and between the Company and certain of
its executive offices (incorporated by reference to the Company's Form 10-Q for the ---
quarter ended March 31, 2000).
10.7 1997 Omnibus Stock Incentive Plan filed as Exhibit A to the Company's proxy statement
on Schedule 14A related to the Company's Annual Meeting held on April 23, 1998. ---
*21.1 Subsidiaries of the Company ---
*23.1 Consent of PricewaterhouseCoopers LLP ---
- -------------------
*Filed herewith.
64