1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-18840
BancFirst Ohio Corp.
(Exact name of registrant as specified in its charter)
Ohio 31-1294136
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
422 Main Street Zanesville, Ohio 43701
(Address of principal executive offices)
(Zip Code)
(740) 452-8444
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of May 11, 2001
----- ------------------------------
Common Stock, No Par Value 8,769,000
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INDEX
BANCFIRST OHIO CORP.
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheet.................................... 3
Consolidated Statement of Income.............................. 4
Consolidated Statement of Cash Flows.......................... 5
Notes to Consolidated Financial Statements.................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 8-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 20
PART II. OTHER INFORMATION
Other Information ..................................................... 21
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits on Item 601 of Regulation S-K
Signatures ..................................................................... 22
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BANCFIRST OHIO CORP.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
2001 2000
(Unaudited)
------------ ----------------
ASSETS:
Cash and due from banks $ 28,895 $ 32,511
Federal funds sold 33,044 30,159
Securities held-to-maturity, at amortized cost (approximate fair
value of $12,923 and $13,496 in 2001 and 2000, respectively) 12,766 13,453
Securities available-for-sale, at fair value 312,751 316,793
----------- -----------
Total securities 325,517 330,246
----------- -----------
Loans, net of unearned income 1,091,442 1,089,651
Allowance for possible loan losses (10,169) (10,150)
----------- -----------
Net loans 1,081,273 1,079,501
----------- -----------
Bank premises and equipment, net 18,357 18,385
Accrued interest receivable 10,142 10,503
Intangible assets 21,390 21,889
Other assets 36,413 36,407
----------- -----------
Total assets $ 1,555,031 $ 1,559,601
=========== ===========
LIABILITIES:
Deposits:
Non-interest-bearing deposits $ 74,998 $ 76,833
Interest-bearing deposits 1,054,934 1,036,722
----------- -----------
Total deposits 1,129,932 1,113,555
Federal funds purchased -- --
Federal Home Loan Bank advances and other borrowings 299,863 325,368
Accrued interest payable 7,027 6,343
Other liabilities 8,427 7,193
----------- -----------
Total liabilities 1,445,249 1,452,459
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
9,534,261 and 9,517,612 shares issued in 2001 and 2000,
respectively 87,059 86,855
Retained earnings 41,469 38,898
Accumulated other comprehensive income - unrealized
holding losses on securities available-for-sale, net (154) (1,782)
Unrealized holding losses on derivatives (1,218) --
Treasury stock, 766,310 and 734,629 shares, at cost,
in 2001 and 2000, respectively (17,374) (16,829)
----------- -----------
Total shareholders' equity 109,782 107,142
----------- -----------
Total liabilities and shareholders' equity $ 1,555,031 $ 1,559,601
=========== ===========
The accompanying notes are an integral part of the financial statements.
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BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATE)
THREE MONTHS ENDED
MARCH 31,
2001 2000
------- -------
Interest Income:
Interest and fees on loans $23,684 $18,025
Interest and dividends on securities:
Taxable 5,728 5,606
Tax-exempt 336 421
Other interest income 536 3
------- -------
Total interest income 30,284 24,055
------- -------
Interest expense:
Deposits 14,244 8,256
Borrowings 4,967 6,188
------- -------
Total interest expense 19,211 14,444
------- -------
Net interest income 11,073 9,611
Provision for possible loan losses 465 450
------- -------
Net interest income after
provision for possible loan losses 10,608 9,161
------- -------
Other income:
Trust and custodian fees 592 650
Financial planning fees 299 347
Customer service fees 604 528
Gain on sale of loans 708 615
Other 1,110 833
Investment securities gains, net 103 --
------- -------
Total other income 3,416 2,973
------- -------
Other expense:
Salaries and employee benefits 4,470 4,417
Net occupancy expense 559 527
Amortization of intangibles 501 351
Other 2,779 2,390
------- -------
Total other expense 8,309 7,685
------- -------
Income before income taxes 5,715 4,449
Provision for Federal income taxes 1,867 1,375
------- -------
Net income $ 3,848 $ 3,074
======= =======
Basic and diluted earnings per share $ 0.44 $ 0.39
======= =======
Weighted average common shares outstanding:
Basic 8,789 7,938
======= =======
Diluted 8,822 7,953
======= =======
Cash dividends per common share $ 0.145 $ 0.138
======= =======
The accompanying notes are an integral part of the financial statements.
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BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 3,848 $ 3,074
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization 1,274 1,407
Provision for possible loan losses 465 450
Gain on sale of assets (819) (694)
Increase (decrease) in interest receivable 361 (305)
Increase in other assets (584) (1,820)
Increase in interest payable 684 342
Increase (decrease) in other liabilities (639) 1,719
FHLB stock dividend (384) (279)
-------- --------
Net cash provided by operating activities 4,206 3,894
-------- --------
Cash flows from investing activities:
Increase in federal funds sold and short term investments (2,885) (10)
Proceeds from maturities of securities held-to-maturity 678 757
Proceeds from maturities and sales of securities available-for-sale 11,468 4,359
Purchase of securities available-for-sale (4,462) (24,067)
Increase in loans, net (14,280) (42,022)
Purchases of equipment and other assets (491) (535)
Proceeds from sale of loans 12,896 10,263
-------- --------
Net cash provided by (used in) investing activities 2,924 (51,255)
-------- --------
Cash flows from financing activities:
Increase in federal funds purchased -- 2,100
Increase (decrease) in Federal Home Loan Bank advances and other
borrowings (25,505) 35,500
Net increase in deposits 16,377 8,191
Cash dividends paid (1,278) (1,071)
Purchase of stock, net (340) (2,893)
-------- --------
Net cash provided by (used in) financing activities (10,746) 41,827
-------- --------
Net decrease in cash and due from banks (3,616) (5,534)
Cash and due from banks, beginning of period 32,511 32,191
-------- --------
Cash and due from banks, end of period $ 28,895 $ 26,657
======== ========
Supplemental cash flow disclosures:
Income taxes paid $ -- $ --
======== ========
Interest paid $ 18,527 $ 14,102
======== ========
The accompanying notes are an integral part of the financial statements
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BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of management of BancFirst Ohio Corp. ("Company"), the
accompanying consolidated financial statements contain all material adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position and results of operations and cash flows for the periods
presented. The unaudited financial statements are presented in accordance with
the requirements of Form 10-Q and do not include all disclosures normally
required by generally accepted accounting principles. Reference should be made
to the Company's consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 2000
for additional disclosures, including a summary of the Company's accounting
policies. The results of operations for the three-month period ended March 31,
2001 are not necessarily indicative of the results to be expected for the full
year.
1) BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
2) 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 were implemented in the first quarter of
2001 and impacted the accounting for the Company's interest rate swap
transactions that had a total notional amount of $63,125 and $64,375 at
March 31, 2001 and December 31, 2000, respectively. The impact on the
Company's consolidated financial statements from the adoption of SFAS No.
133 as of March 31, 2001 and for the period then ended was to decrease net
income by $20, decrease accumulated other comprehensive income by $1,218,
increase other liabilities by $1,904 and increase other assets by $666.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SAFS
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.
3) ACQUISITION
On June 20, 2000, the Company completed the acquisition of Milton Federal
Financial Corporation ("Milton"). In connection with the acquisition, the
Company issued 965 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 three
months ended March 31, 2000 as if Milton had been acquired as of the
beginning of such period:
(in thousands, expect per share amounts)
-------------------------------------------
Net interest income $ 11,433
Net income 3,415
Basic earnings per share .41
Diluted earnings per share .41
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4) COMPUTATION OF EARNINGS PER SHARE
The computation of earnings per share is as follows. All share and per
share amounts for the three months ended March 31, 2000 have been adjusted
to give retroactive effect to the 5% stock dividend paid October 31, 2000.
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
--------- ----------
Actual weighted average common
shares outstanding 8,789 7,938
Dilutive common stock equivalents:
Stock options 13 --
Bonus shares - Company match 20 15
------ ------
Weighted average common shares
outstanding adjusted for dilutive common
stock equivalents 8,822 7,953
====== ======
Net income $3,848 $3,074
====== ======
Basic earnings per share $ 0.44 $ 0.39
====== ======
Diluted earnings per share $ 0.44 $ 0.39
====== ======
5) COMPREHENSIVE INCOME
The Company's comprehensive income, determined in accordance with SFAS No.
130, was $4,258 and $2,942 for the three months ended March 31, 2001 and
2000, respectively.
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BANCFIRST OHIO CORP.
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 involves 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 its Banking
Subsidiary 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; prepayments of loans and securities; material unforeseen changes
in the liquidity, results of operations, or other financial position of the
Company's customers; and other risks detailed in the Company's Form 10-K for the
year ended December 31, 2000 and its other 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.
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BANCFIRST OHIO CORP.
SELECTED FINANCIAL DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR THE THREE MONTHS
ENDED MARCH 31,
2001 2000
------------- ------------
STATEMENT OF INCOME DATA
Interest Income $ 30,284 $ 24,055
Interest expense 19,211 14,444
------------- -------------
Net interest income 11,073 9,611
Provision for possible loan losses 465 450
Non-interest income 3,416 2,973
Non-interest expense 8,309 7,685
------------- -------------
Income before income taxes 5,715 4,449
Provision for Federal Income taxes 1,867 1,375
------------- -------------
Net income $ 3,848 $ 3,074
============= =============
PER SHARE DATA:
Basic earnings per share $ 0.44 $ 0.39
Diluted earnings per share 0.44 0.39
Dividends 0.15 0.14
Book value 12.52 10.09
Tangible book value 10.08 8.52
BALANCE SHEET DATA:
Total assets $ 1,555,031 $ 1,321,036
Loans 1,091,442 881,911
Allowance for possible loan losses 10,169 7,761
Securities 325,517 350,050
Deposits 1,129,932 807,367
Borrowings 299,863 423,098
Shareholders' equity 109,782 79,086
PERFORMANCE RATIOS (1):
Return on average assets 1.00% 0.96%
Return on average equity 14.24 15.52
Tangible return on average tangible equity 19.79 20.14
Net interest margin 3.13 3.30
Interest rate spread 2.76 3.01
Non-interest income to average assets 0.89 0.93
Non-interest expense to average assets 2.03 2.30
Efficiency ratio (2) 53.55 57.19
ASSET QUALITY RATIOS:
Non-performing loans to total loans 1.03% 0.73%
Non-performing assets to total assets 0.78 0.51
Allowance for possible loan losses to total loans 0.93 0.88
Allowance for possible loan losses to
non-performing loans 90.88 119.9
Net charge-offs to average loans (1) 0.17 0.06
CAPITAL RATIOS:
Shareholders' equity to total assets 7.06% 5.99%
Tier 1 capital to average assets 7.12 7.48
Tier 1 capital to risk-weighted assets 10.29 10.74
(1) Ratios are stated on an annualized basis.
(2) The efficiency ratio is equal to non-interest expense (excluding
amortization expense) divided by net interest income on a fully tax
equivalent basis plus non-interest income excluding gains on sales of
securities.
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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 primary contributor to the Company's income is net interest
income, which 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.
AVERAGE BALANCES AND YIELDS
The following table presents, 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, 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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THREE MONTHS ENDED MARCH 31,
2001 2000
--------------------------------------------- ----------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Cost (1) Balance Expenses Cost (1)
----------- ----------- ------------ ----------- ----------- ------------
(Dollars in thousands)
SECURITIES:
Taxable $ 303,880 $ 5,728 7.64% $ 303,849 $ 5,605 7.42%
Tax-exempt (3) 26,299 519 8.00 29,869 647 8.71
--------- --------- --------- ---------
Total securities 330,179 6,247 7.67 333,718 6,252 7.53
LOANS (2):
Commercial 491,488 11,144 9.20 425,356 9,466 8.95
Real estate 471,176 9,548 8.22 336,158 6,362 7.61
Consumer 129,026 3,004 9.44 104,302 2,212 8.53
--------- --------- --------- ---------
Total loans 1,091,690 23,696 8.80 865,816 18,040 8.38
Federal funds sold 38,334 536 5.67 163 3 7.40
--------- --------- --------- ---------
Total earning assets (3) 1,460,203 $ 30,479 8.47% 1,199,697 $ 24,295 8.14%
--------- ---------
Non-interest earning assets 101,132 85,005
---------- ----------
Total assets $1,561,335 $1,284,702
========== ==========
INTEREST-BEARING DEPOSITS:
Demand and savings deposits $ 253,052 $ 1,921 3.08% $ 230,144 $ 1,614 2.82%
Time deposits 798,555 12,323 6.26 492,702 6,642 5.42
---------- --------- ---------- ---------
Total deposits 1,051,607 14,244 5.49 722,846 8,256 4.59
Borrowings 313,709 4,967 6.42 409,548 6,188 6.08
---------- --------- ---------- ---------
Total interest-bearing liabilities 1,365,316 19,211 5.71 1,132,394 14,444 5.13
--------- ---------
Non interest-bearing deposits 72,112 63,743
--------- ----------
Subtotal 1,437,428 1,196,137
Accrued expenses and other 14,340 8,881
liabilities --------- ----------
Total liabilities 1,451,768 1,205,018
Shareholders' equity 109,567 79,684
--------- ----------
Total liabilities and shareholders' $ 1,561,335 $1,284,702
equity =========== ==========
Net interest income and interest
rate spread (4) $ 11,268 2.76% $ 9,851 3.01%
========= ===== =========
Net interest margin (5) 3.13% 3.30%
===== ====
Average interest-earning assets
to average interest-bearing 106.9% 105.9%
liabilities ====== =====
(1) Calculated on an annualized basis.
(2) Non-accrual loans are included in the average loan balances.
(3) Interest income is computed on a fully tax equivalent (FTE) basis, using a
tax rate of 35%.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
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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.
THREE MONTHS ENDED MARCH 31,
2001 VS. 2000
(IN THOUSANDS)
INCREASE (DECREASE)
----------- ---------- ----------
VOLUME RATE TOTAL
----------- ---------- ---------
Interest-earning assets:
Securities:
Taxable $ -- $ 123 $ 123
Non-taxable (76) (52) (128)
------- ------- -------
Total securities (76) 71 (5)
------- ------- -------
Loans:
Commercial 1,427 251 1,678
Real estate 2,659 527 3,186
Consumer 546 246 792
------- ------- -------
Total loans 4,632 1,024 5,656
------- ------- -------
Federal funds sold 534 (1) 533
------- ------- -------
Total interest-earning assets (1) 5,090 1,094 6,184
------- ------- -------
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 160 147 307
Time deposits 4,550 1,131 5,681
------- ------- -------
Total interest-bearing deposits 4,710 1,278 5,988
Borrowings (1,543) 322 (1,221)
------- ------- -------
Total interest-bearing liabilities 3,167 1,600 4,767
------- ------- -------
Net interest income $ 1,923 $ (506) $ 1,417
======= ======= =======
(1) Computed on a fully tax-equivalent basis, assuming a tax rate of 35%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND
2000
Net Income. Net income for the three months ended March 31, 2001 increased
25.2% to $3.8 million compared to net income of $3.1 million for the three
months ended March 31, 2000. Basic and diluted earnings per share in the first
quarter of 2001 equaled $0.44, compared to $0.39 for the same period in 2000.
Net interest income increased 15.2% in the three months ended March 31, 2001 as
compared to the same period in 2000, while non-interest income increased 14.9%.
Non-interest expense increased 8.1%, while the provision for possible loan
losses increased 3.3% from the comparative year ago period. The Company's net
interest margin decreased to 3.13% for the first quarter of 2001, compared to
3.30% for the same period in 2000. The Company experienced a steady decline in
its net interest margin throughout 2000, primarily due to increases in
short-term market interest rates, increases in borrowing spreads, inversion of
the yield curve and competitive pricing pressures for deposits. Recent as well
as potential future declines in interest rates are expected to have a
stabilizing effect on the net interest margin over the course of 2001. The
increase in non-interest income related primarily to increases in other fee
income that were offset in part by decreases in trust and custodian and
financial planning fees. Non-interest expense increased primarily due to
expenses added by Milton. The
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Company's return on average assets and return on average equity were 1.00% and
14.24%, respectively, in the first quarter of 2001, compared to 0.96% and
15.52%, respectively, in the first quarter of 2000.
Interest Income. Total interest income increased 25.9% to $30.3 million for
the three months ended March 31, 2001, compared to $24.1 million for the first
quarter of 2000. This increase was attributed to a $260.5 million, or 21.7%,
increase in average earning assets as well as a 33 basis point increase in the
average yield on interest-earning assets. The increase in average earning assets
was due primarily to assets added from the Milton acquisition. The Company's
yield on average loans was 8.80% for the three months ended March 31, 2001 and
8.38% for the comparable year ago period. This increase resulted primarily from
higher market interest rates throughout 2000, while decreases in market interest
rates during the first quarter of 2001 have not yet fully impacted loan yields.
Yields on the investment portfolio increased from 7.53% during the first quarter
of 2000 to 7.67% during the first quarter of 2001, also benefiting primarily
from increased market interest rates during 2000.
Interest Expense. Total interest expense increased 33.0% to $19.2 million
for the three months ended March 31, 2001, compared to $14.4 million for the
three months ended March 31, 2000. Interest expense increased due to a 20.6%
increase in the average balance of interest-bearing liabilities as well as a 58
basis point increase in the Company's cost of funds.
The Company's cost of funds increased to 5.71% in the three months ended
March 31, 2001 compared to 5.13% in the same period of 2000. As with loan yields
discussed above, the increase in the cost of funds resulted primarily from
increases in short-term interest rates during 2000. With the decline in
short-term market interest rates during the first quarter of 2001, the Company
has experienced a reduction in its average cost of funds as compared to the
fourth quarter of 2000 as a result of the maturity of higher costing
certificates of deposit that are being renewed at lower current rates.
Provision for Possible Loan Losses. The provision for possible loan losses
was $465,000 for the three months ended March 31, 2001, compared to $450,000 in
the first quarter of 2000. The provision for possible loan losses was considered
sufficient by management for maintaining an adequate allowance for possible loan
losses. The increased provision in 2001 resulted primarily from continued
increases in, as well as a change in the mix of, the loan portfolio.
Non-Interest Income. Total non-interest income increased $443,000 for the
three months ended March 31, 2001, compared to the same period a year ago. The
following table sets forth the Company's non-interest income for the periods
indicated:
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS)
------------------------------
2001 2000
------------- -------------
Trust and custodian fees $ 592 $ 650
Financial planning fees 299 347
Customer service fees 604 528
Gains on sales of loans 708 615
Investment securities gains, net 103 --
Other 1,110 833
-------- --------
Total $ 3,416 $ 2,973
======== ========
Trust and custodian fees decreased 8.9% to $592,000 in the first quarter of
2001 from $650,000 in the first quarter of 2000 while financial planning fees
decreased 13.8% to $299,000 in the first quarter of 2001 from $347,000 in the
first quarter of 2000. These decreases are primarily due to market conditions
that have adversely affected sales of retail investment products, as well as,
the market value of assets under management.
Customer service fees, representing service charges on deposits and fees
for other banking services, increased $76,000 to $604,000 in the first quarter
of 2001 from $528,000 in the first quarter of 2000. Milton contributed $56,000
to the 2001 results.
Gains on sales of loans totaled $708,000 for the three months ended March
31, 2001 compared to $615,000 for the three months ended March 31, 2000. During
the first quarter of 2001, the Company sold $6.2 million of the guaranteed
portion of its SBA and other government guarantee loan originations in the
secondary market compared to $8.6 million
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during the first quarter of 2000, realizing gains of $600,000 in both periods.
Also, the Company recorded gains of $108,000 from the sales of residential loans
during the first quarter of 2001 compared to $15,000 in 2000. Residential loan
sale activity increased in the first quarter of 2001 compared to the year ago
period as a result of lower market interest rates.
The Company intends to continue to place emphasis on 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 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.
Investment securities gains of $103,000 were realized during the first
quarter of 2001 as a result of improved market conditions.
Other income increased $277,000 to $1.1 million in the first quarter of
2001 compared to $833,000 in the first quarter of 2000. This increase was
primarily attributable to SBA net servicing income which increased $164,000
primarily due to a decrease in the amortization of servicing assets caused by
lower prepayment levels, a $43,000 increase in residential mortgage loan
servicing income and a $37,000 increase in earnings on bank owned life
insurance.
Non-Interest Expense. Total non-interest expense increased $624,000 to $8.3
million in the three months ended March 31, 2001, compared to $7.7 million in
the three months ended March 31, 2000. Excluding non-interest expense attributed
to Milton, total non-interest expense increased $54,000 or .7%. The following
table sets forth the Company's non-interest expense for the periods indicated:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
------------ -------------
(IN THOUSANDS)
Salaries and employee benefits $ 4,470 $ 4,417
Net occupancy expense 559 527
Furniture, fixtures and equipment 291 242
Data processing 399 314
Taxes other than income taxes 243 238
Federal deposit insurance 54 42
Amortization of goodwill and other intangibles 501 351
Other 1,792 1,554
----------- ------------
Total $ 8,309 $ 7,685
=========== ============
Salaries and employee benefits increased 1.2% to $4.5 million and
represented approximately 57.2% of total operating expenses (non-interest
expense less amortization of intangibles) in the three months ended March 31,
2001 compared to 60.2% in the first quarter of 2000. The average full time
equivalent staff increased 6.6% from 378 in 2000 to 403 in 2001 primarily due to
employees added by Milton.
Net occupancy expense increased to $559,000 in the first quarter of 2001
from $527,000 in the first quarter of 2000 primarily due to additional expenses
attributed to Milton.
Furniture, fixtures and equipment expense increased $49,000, for the first
quarter of 2001. The increase was primarily due to depreciation expense
attributed to fixed assets added by the Milton acquisition.
Data processing expense increased $85,000, or 27.1%, in the first quarter
of 2001 from the comparable period of 2000. Increased costs in 2001 resulted
from higher software and maintenance costs related to technological enhancements
to the Company's data processing systems.
Taxes other than income taxes for the quarter ended March 31, 2001 were
comparable to the expense for the year ago period.
Federal deposit insurance expense increased $12,000 to $54,000 in 2001 from
$42,000 in the first quarter of
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2000, reflecting higher levels of deposits in 2001.
Amortization of goodwill and other intangible assets increased $150,000 in
the first quarter of 2001 compared to the year ago period primarily as a result
of amortization of goodwill resulting from the acquisition of Milton in June
2000.
Other non-interest expenses increased $238,000, or 15.3%, to $1.8 million
during the first quarter of 2001 compared to $1.6 million in the first quarter
of 2000. This increase was primarily attributed to costs associated with fee
income generating activities as well as higher levels of legal expense
associated with loan collection activities.
The efficiency ratio is one method used in the banking industry to assess
profitability. It is defined as non-interest expense less amortization expense
divided by the net revenue stream, which is the sum of net interest income on a
tax-equivalent basis and non-interest income excluding net investment securities
gains or losses. The Company's efficiency ratio was 53.5% for the first quarter
of 2001, compared to 57.2% for the comparable period in 1999. 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 $1.9 million, or 32.7% of pretax income, for the three months ended
March 31, 2001 compared to $1.4 million, or 30.9% of pretax income, for the
three months ended March 31, 2000. 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, the non-deductibility, for tax purposes, of goodwill and core deposit
intangible amortization expense, and earnings on bank- owned life insurance.
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. The Company's banking subsidiary formally
documents its evaluation of the adequacy of the allowance for possible loan
losses on a quarterly basis and the evaluation is 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 $910,000 of such property at
March 31, 2001 compared to $240,000 at March 31, 2000. Other real estate owned
at March 31, 2001 consisted of $695,000 of single-family residential property
and $215,000 of land.
Non-performing loans totaled $11.2 million, or 1.03% of total loans, at
March 31, 2001, compared to $6.5 million, or 0.73% of total loans, at March 31,
2000. Non-performing assets totaled $12.1 million, or 0.78% of total assets at
March 31, 2001, compared to $6.7 million, or 0.51% of total assets at March 31,
2000. The increase in non-performing loans from March 31, 2000 resulted
primarily from increases in non-performing single-family residential mortgage
loans that totaled $8.0 million at March 31, 2001 compared to $3.8 million at
March 31, 2000. The increase has resulted primarily from delinquency trends in
general as well as loans added by Milton. Management of the Company is not aware
of any material amounts of loans outstanding, not disclosed in the tables 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 and restructured loans:
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MARCH 31, MARCH 31,
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
Non-accrual $ 5,859 $ 3,234
Accruing loans 90 days or more past due 5,331 3,240
------- -------
Total non-performing loans 11,190 6,474
Other real estate owned 910 240
------- -------
Total non-performing assets $12,100 $ 6,714
======= =======
Restructured loans $ 2,898 $ 2,988
======= =======
Non-performing loans to total loans 1.03% 0.73%
Non-performing assets to total assets 0.78% 0.51%
Non-performing loans plus restructured loans
to total loans 1.29% 1.07%
Restructured loans consist of one loan that was restructured in May 1999
and has been performing in accordance with its restructured terms since such
time.
The aggregate amounts of the Company's classified assets as of March 31,
2001 and 2000 were as follows:
MARCH 31,
(IN THOUSANDS)
2001 2000
------------ ----------
Substandard $ 21,383 $ 9,820
Doubtful 107 50
----------- ----------
Total $ 21,490 $ 9,870
=========== ==========
The increase in classified assets at March 31, 2001 compared to March 31,
2000 was attributed to a $3.2 million increase in residential real estate
mortgage loans past due greater than 90 days that are classified as substandard,
a $2.1 million increase in commercial real estate loans, a $3.2 million increase
in commercial loans (principally SBA loans) and the classification of
approximately $3.1 million of corporate debt securities. The largest classified
asset at March 31, 2001 was the restructured loan, discussed previously.
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 provision is
charged against earnings when it is established. An allowance for possible loan
losses is established based on management's best judgment, which involves a
continuing review of prevailing national and local economic conditions, changes
in the size and composition of the portfolio and review of individual problem
credits. Growth of the loan portfolio, loss experience, economic conditions,
delinquency levels, credit mix, and selected credits are factors that affect
judgments concerning the adequacy of the allowance. Actual losses on loans are
charged against the allowance.
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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.
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
------------ -----------
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 10,150 $ 7,431
Provision charged to expense 465 450
Loans charged-off (505) (252)
Recoveries of loans previously charged-off 59 132
----------- -----------
Balance at end of period $ 10,169 $ 7,761
=========== ===========
Loans outstanding at end of period $ 1,091,442 $ 881,911
Average loans outstanding 1,091,690 865,816
Allowance as a percent of loans outstanding 0.93% 0.88%
Net charge-offs to average loans (annualized) 0.17% 0.06%
Allowance for possible loan losses to non-
performing loans 90.9% 119.9%
The allowance for possible loan losses totaled $10.2 million at March 31,
2001, representing 0.93% of total loans, compared to $7.8 million at March 31,
2000, or 0.88% of total loans. 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 three months ended March 31, 2001 were $446,000, compared to
net charge-offs of $120,000 for the same period in 2000. The increase in net
charge-offs for the 2001 period compared to 2000 is partially attributed to the
historically low levels of charge-offs in the prior year as well as increases in
delinquency trends in general.
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 90.9% at March 31, 2001, compared to 119.9% at
March 31, 2000. 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, particularly given the extent to which the Company's non-performing
loans consist of single-family residential mortgage loans.
COMPARISON OF MARCH 31, 2001 AND DECEMBER 31, 2000 FINANCIAL CONDITION
Total assets amounted to $1.56 billion at March 31, 2001, a decrease of
$4.6 million, or 0.3%, from December 31, 2000. Total investment securities
decreased by $4.7 million to $325.5 million primarily as a result of sales of
securities during the first quarter of 2001. The Company's general investment
strategy is to manage the 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 March 31, 2001, 96.1% of the total investment portfolio
was classified as available-for-sale, while those securities that the Company
intends to hold to maturity represented the remaining 3.9%. This compares to
95.9% and 4.1% classified as available-for-sale and held to maturity,
respectively, at December 31, 2000.
Total loans increased $1.8 million to $1.09 billion at March 31, 2001. This
increase consisted of a $7.7 million increase in commercial and commercial real
estate loans, offset in part by a $4.7 million decrease in residential mortgage
loans and a $1.1 million decrease in consumer loans.
All other assets at March 31, 2001 were generally consistent with December
31, 2000 levels.
Total deposits increased to $16.4 million from December 31, 2000 to March
31, 2001. The Company continues to emphasize growth in its existing retail
deposit base, provided incremental deposit growth is cost effective compared to
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alternative funding sources. Total interest-bearing deposits accounted for 93.4%
of total deposits at March 31, 2001, compared to 93.1% at December 31, 2000.
Total borrowings, including federal funds purchased, decreased $25.5
million to $299.9 million at March 31, 2001, compared to $325.4 million at
December 31, 2000. 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 Federal Reserve
Bank, Federal Home Loan Bank (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.
The Company's principal source of funds to satisfy short-term liquidity
needs comes from cash, due from banks, federal funds sold and borrowing
capabilities through the FHLB as well as other sources. Changes in the balance
of cash and due from banks are due to changes in volumes of federal funds sold,
and the float and reserves related to deposit accounts, which may fluctuate
significantly on a day-to-day basis. The investment portfolio serves as an
additional source of liquidity for the Company. Securities with a market value
of $312.8 million were classified as available-for-sale as of March 31, 2001,
representing 96.1% 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.
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.
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.
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, beginning on April 15, 2000. The Company has fully
and 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.
The Company obtained a $15 million term loan with a financial institution
in order to partially fund the 1996 acquisition of County Savings Bank. This
loan, which was amended September 29, 2000, had an outstanding balance of $8.0
million at March 31, 2001. Under the terms of the 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 September 1, 2007. Also, the Company has 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
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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 March 31, 2001, 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 March 31, 2001 was $109.8 million, compared to
shareholders' equity at December 31, 2000 of $107.1 million, an increase of $2.6
million. This increase resulted primarily from the retention of earnings (net of
dividends paid). The Company's Board of Directors has authorized a 350,000
common share repurchase program under which the Company has purchased 339,000
common shares. Additional repurchase authorizations are expected to be evaluated
on an ongoing basis as an effective capital management tool.
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 3.0% must be maintained. At March 31, 2001,
the Company had a total risk-based capital ratio of 11.3%, of which 10.3%
consisted of Tier 1 capital. The leverage ratio for the Company at March 31,
2001, was 7.1%.
Cash dividends declared and paid to shareholders of the Company totaled
$1.3 million, or $0.145 per share, during the first three months of 2001. This
compares to dividends of $1.1 million, or $0.14 per share, for the same period
in 2000. Cash dividends paid as a percentage of net income amounted to 33.0% and
35.4% for the three months ended March 31, 2001 and 2000, respectively.
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 understanding or agreements for any
acquisition 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.
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ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies
as well as the potential impact of interest rate changes upon the market value
of the Company's portfolio equity, see "Management's Discussion and Analysis -
Interest Rate Risk Management" in the Company's Form 10-K for the year ended
December 31, 2000. The following summarizes the Company's simulations of net
interest income and net present value (NPV) as of December 31, 2000, the most
recent period for which this information is available:
PROJECTED CHANGE FROM % CHANGE FROM
CHANGE IN INTEREST RATES AMOUNT BASE BASE
- ------------------------ --------- ----------- -------------
Net Interest Income:
200 basis point increase $ 45,638 $ (637) (1.4)%
Base scenario-no change 46,275 N/A N/A
200 basis point decrease 45,715 (559) (1.2)
NPV:
200 basis point increase 89,898 (21,320) (19.2)
Base scenario 111,218 N/A N/A
200 basis point decrease 106,902 (4,316) 3.9
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The proxy holders for the 2002 annual meeting of shareholders will use
their discretion in voting on any and all matters brought before the
2002 annual meeting that were not provided to the Company in an
advance notice on or prior to February 3, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits on Item 601 of Regulation S-K
Exhibit 3(a) - Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to Company's Form 10-K for 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).
Exhibit 3(b) - Code of Regulations, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the year ended
December 3,1, 1991, Exhibit 3.4 to the Company's Form 10-K for the year
ended December 31, 1992 and Exhibit 3.5 to the Company's Form 10-K for
the year ended December 31, 1993).
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BancFirst Ohio Corp.
(Registrant)
Date May 14, 2001 (Signed) /s/ Gary N. Fields
------------ ---------------------------
Gary N. Fields
President and
Chief Executive Officer
Date May 14, 2001 (Signed) /s/ Kim M. Taylor
------------ --------------------------
Kim M. Taylor
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
22