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 June 30, 1996
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)
(614) 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 August 10, 1996
- ------------------------------------- ------------------------------------
Common Stock, $10.00 Par Value 2,976,642
-1 of - 28
2
INDEX
BANCFIRST OHIO CORP.
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheet ....................................... 3
Consolidated Statement of Income ................................. 4-5
Consolidated Statement of Cash Flows ............................. 6
Notes to Consolidated Financial Statements ....................... 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation ..................................................... 12-25
PART II. OTHER INFORMATION
Other Information ................................................ 26-27
Item 1 Legal Proceedings
Item 2 Changes in Securities
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
(b) Reports on Form 8-K
Signatures ....................................................... 28
2
3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BANCFIRST OHIO CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in thousands, except share data)
June 30 December 31
1996 1995
--------- -----------
ASSETS:
Cash and due from banks $ 19,317 $ 14,102
Federal funds sold 326 2,600
Securities held-to-maturity, at amortized cost
(approximate fair value of
$8,583 and $8,548 in 1996
and 1995, respectively) 8,542 8,392
Securities available-for-sale, at fair value 160,502 169,860
--------- ---------
Total securities 169,044 178,252
--------- ---------
Loans, net of unearned income 282,943 268,818
Allowance for possible loan losses (3,544) (3,307)
--------- ---------
Net loans 279,399 265,511
--------- ---------
Bank premises and equipment, net 4,612 4,120
Accrued interest receivable 3,397 3,458
Other assets 4,187 8,386
--------- ---------
Total assets $ 480,282 $ 476,429
========= =========
LIABILITIES:
Deposits:
Noninterest-bearing deposits $ 42,171 $ 41,835
Interest-bearing deposits 316,568 306,710
--------- ---------
Total deposits 358,739 348,545
Short-term borrowings 1,199 7,400
Long-term borrowings 66,525 66,735
Accrued interest payable 1,547 1,261
Other liabilities 1,780 2,478
--------- ---------
Total liabilities 429,790 426,419
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $10 par value, 7,500,000
shares authorized, and 3,033,919 shares issued 30,340 30,340
Capital in excess of par value 6,922 6,889
Retained earnings 14,943 13,022
Unrealized holdings gains (losses) on securities
available -for-sale, net (580) 942
Treasury stock, 60,465 and 62,923
shares, at cost, in 1996 and 1995, respectively (1,133) (1,183)
--------- ---------
Total shareholders' equity 50,492 50,010
--------- ---------
Total liabilities and shareholders' equity $ 480,282 $ 476,429
========= =========
The accompanying notes are an integral part of the financial statements.
3
4
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
------ ------ ------- -------
Interest income:
Interest and fees on loans $6,176 $5,609 $12,363 $10,943
Interest and dividends on securities:
Taxable 2,429 2,246 4,966 4,438
Tax-exempt 330 282 659 548
Other interest income 30 33 118 90
------ ------ ------- -------
Total interest income 8,965 8,170 18,106 16,019
------ ------ ------- -------
Interest expense:
Time deposits, $100 and over 790 603 1,500 1,140
Other deposits 2,591 2,460 5,259 4,650
Federal Home Loan Bank Advances 856 871 1,694 1,715
Short-term borrowings 211 31 403 98
------ ------ ------- -------
Total interest expense 4,448 3,965 8,856 7,603
------ ------ ------- -------
Net interest income 4,517 4,205 9,250 8,416
Provision for possible loan losses 318 201 610 402
------ ------ ------- -------
Net interest income after provision
for possible loan losses 4,199 4,004 8,640 8,014
------ ------ ------- -------
Other income:
Trust and custodian fees 351 313 726 627
Customer service fees 432 441 843 888
Gain on sale of loans 450 333 1,046 576
Other 202 119 384 229
Investment securities gains, net 3 17 3 17
------ ------ ------- -------
Total other income 1,438 1,223 3,002 2,337
------ ------ ------- -------
Other expense:
Salaries and employee benefits 1,856 1,701 3,743 3,431
Net occupancy expense 182 184 387 367
Other 1,455 1,359 2,750 2,656
------ ------ ------- -------
Total other expense 3,493 3,244 6,880 6,454
------ ------ ------- -------
Income before income taxes 2,144 1,983 4,762 3,987
Provision for federal income taxes 592 581 1,355 1,162
------ ------ ------- -------
Net income $1,552 $1,402 $ 3,407 $ 2,735
====== ====== ======= =======
The accompanying notes are an integral part of the financial statements.
4
5
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995
--------------------------- ---------------------------
Net income per common share $ 0.52 $ 0.47 $ 1.15 $ 0.92
========== ========== ========== ==========
Weighted average common shares outstanding 2,973,486 2,973,127 2,972,883 2,972,264
========== ========== ========== ==========
Cash dividends per common share $ 0.25 $ 0.23 $ 0.50 $ 0.46
========== ========== ========== ==========
Total cash dividends paid $ 743 $ 647 $ 1,486 $ 1,295
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
5
6
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Six Months Ended
June 30
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 3,407 $ 2,735
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 1,106 989
Provision for possible loan losses 610 402
Deferred taxes payable (126) 27
Disposal of other assets, gains (1,046) (576)
Decrease (increase) in interest receivable 61 (34)
Decrease in other assets 4,105 2,615
Increase in interest payable 286 286
Increase in other liabilities 214 959
FHLB stock dividend (154) (380)
-------- --------
Net cash provided by operating activities 8,463 7,023
Cash flows from investing activities:
Decrease in short-term borrowings (6,201) (10,650)
Increase (decrease) in federal funds sold 2,274 (4,777)
Proceeds from maturities of securities held -to-maturity 497 1,913
Proceeds from maturities and sales of securities
available-for-sale 26,778 13,812
Purchase of securities held-to-maturity (652) (3,963)
Purchase of securities available-for-sale (20,061) (15,137)
Increase in loans, net (23,449) (21,314)
Increase (decrease) in other borrowings (210) 4,063
Purchases of equipment and other assets (871) (275)
Proceeds from sale of loans and assets 9,855 6,364
-------- --------
Net cash used in investing activities (12,040) (29,964)
Cash flows from financing activities:
Net increase in deposits 10,194 25,216
Cash dividends paid (1,486) (1,295)
Sale of treasury stock, net 84 84
-------- --------
Net cash provided by financing activities 8,792 24,005
-------- --------
Net decrease in cash and due from banks 12,986 1,064
Cash and due from banks, beginning of period 14,102 18,831
-------- --------
Cash and due from banks, end of period $ 19,317 $ 19,895
======== ========
Supplemental cash flow disclosures:
Income taxes paid $ 1,305 $ 1,085
======== ========
Interest paid $ 8,570 $ 7,317
======== ========
The accompanying notes are an integral part of the financial statements.
6
7
BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of the management of BancFirst Ohio Corp.
("Corporation"), all material adjustments (consisting of only normal recurring
adjustments) necessary to a fair statement of the results of operations and
changes in financial position have been included. Certain reclassifications have
been made to the 1995 consolidated financial statements to conform to the 1996
presentation.
(1) BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of BancFirst
Ohio Corp. and each of its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
Effective June 30, 1995, the Corporation completed its acquisition of
Bellbrook Bancorp., Inc. ("BBI") whereby Bellbrook Bancorp., Inc. was
merged into the Corporation and Bellbrook Community Bank became a
separate, wholly owned subsidiary of the Corporation. In connection with
the transaction, the Corporation issued approximately 159,000 common
shares. The transaction was accounted for under the pooling-of-interests
method of accounting and accordingly all prior financial information has
been restated.
Notes to the financial statements contained in the Corporation's Annual
Report to Shareholders and Form 10-K for the year ended December 31, 1995,
should be read in conjunction with these financial statements. The
accompanying financial statements have been prepared in accordance with
the
7
8
instructions for Form 10-Q and therefore, do not include all information
and footnotes normally required by generally accepted accounting
principles.
(2) INVESTMENT SECURITIES:
The amortized cost and estimated market value of investment securities are
as follows:
June 30, 1996 December 31, 1995
----------------------- -----------------------
Securities Held-for-Investment Book Market Book Market
------------------------------ -------- -------- -------- --------
(In thousands)
Other U.S. government agencies $ 311 $ 325 $ 400 $ 407
State and political subdivisions 7,177 7,204 6,751 6,886
Mortgage-backed securities 121 135
Other 1,054 1,054 1,120 1,120
-------- -------- -------- --------
$ 8,542 $ 8,583 $ 8,392 $ 8,548
======== ======== ======== ========
June 30, 1996 December 31, 1995
----------------------- -----------------------
Securities Available-for-Sale Book Market Book Market
----------------------------- -------- -------- -------- --------
(In thousands)
U.S. treasury securities $ 13,764 $ 13,914 $ 17,949 $ 18,303
Other U.S. government agencies 16,874 16,718 11,247 11,390
State and political subdivisions 18,367 18,429 17,453 17,848
Mortgage-backed securities 106,634 105,702 116,507 117,043
Other 5,743 5,739 5,276 5,276
-------- -------- -------- --------
$161,382 $160,502 $168,432 $169,860
======== ======== ======== ========
3) LOANS AND LEASES BY CATEGORIES:
June 30, 1996 December 31, 1995
------------- -----------------
(In thousands)
Commercial, financial
and agricultural $ 113,410 $ 107,015
Real estate - mortgage 105,353 105,604
Real estate - construction 7,737 2,859
Consumer installment 56,443 53,340
---------- ----------
Total $ 282,943 $ 268,818
=========== ===========
8
9
(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The level of the allowance for possible loan and lease losses is based on
management's evaluation of the loan portfolio, past loan loss history, and
current, as well as anticipated, economic conditions. An analysis of the
allowance for possible loan and lease losses follows:
Six Months
Ended Year Ended
June 30, 1996 December 31, 1995
------------- -----------------
(In thousands)
Balance at beginning
of period $ 3,307 $ 3,095
Additions:
Provision charged to
operations 610 967
Deductions:
Loans charged off (496) (862)
Loan recoveries 123 107
------- --------
Net charge-offs (373) (755)
------- --------
Balance at end of period $ 3,544 $ 3,307
======= ========
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standard (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures". Under this
standard, 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 loan losses is assigned to such loans. If these
allocations require an increase to the allowance, the increase is reported
as bad debt expense. Adopting this standard during the first quarter of
1995 did not require an adjustment to the provision for possible loan
losses.
9
10
At June 30, 1996, the Corporation's non-performing loans considered to be
impaired under SFAS No. 114 was $122,000 (all of which was on a nonaccrual
basis). The related allocation of the allowance for possible loan losses
for these impaired loans was $3,000. The average recorded investment in
impaired loans for the quarter ended June 30, 1996, was approximately
$122,000. For the quarter ended June 30, 1996, the Corporation recognized
no interest income on these impaired loans. Interest income of
approximately $3,000 would have been recorded on these loans according to
the original terms.
At December 31, 1995, the Corporation had nonperforming loans totaling
$801,000, all of which was considered impaired under SFAS No. 114. The
Corporation recorded $4,000 in interest income on these loans in 1995.
Interest income in the amount of $30,000 would have been recorded on these
loans according to the original terms.
5) LONG-TERM BORROWINGS
Long-term borrowings as of June 30, 1996, and December 31, 1995, were as
follows:
June 30, December 31,
` 1996 1995
------- -------
(In thousands)
Term reverse repurchase agreement (5.95%) due 1997 $ 5,000 $ 5,000
Term reverse repurchase agreement (6.05%) due 1998 5,000 5,000
Federal Home Loan Bank Advances 56,525 56,735
------- -------
$66,525 $66,735
======= =======
10
11
Minimum annual retirements on long-term borrowings for the next five years
consisted of the following:
June 30, 1996 December 31, 1995
--------------------- --------------------
(Dollars in thousands)
Weighted Weighted
Average Average
Maturity (Years Interest Principal Interest Principal
Ending December 31) Rate Repayment Rate Repayment
------------------- -------- --------- -------- ---------
1996 6.17% $ 9,773 6.17% $ 9,983
1997 5.89% 32,991 5.89% 32,991
1998 5.86% 10,524 5.86% 10,524
1999 5.88% 1,559 5.88% 1,559
2000 6.29% 597 6.29% 597
2001 and thereafter 6.81% 11,081 6.61% 11,081
-------- --------
TOTAL 6.10% $ 66,525 6.08% $ 66,735
======== ========
Federal Home Loan Bank ("FHLB") advances must be secured by eligible
collateral as specified by the FHLB. Accordingly, the Corporation has a
blanket pledge of its first mortgage loan portfolio as collateral for the
advances outstanding, with a required minimum ratio of collateral to
advances of 150%. Additionally, the stock of the FHLB owned by the
Corporation (book value at June 30, 1996, of $ 4.5 million) is pledged as
collateral for these borrowings.
The Corporation has no commitments to borrow additional funds from the
FHLB as of June 30, 1996.
11
12
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BANCFIRST OHIO CORP.
(UNAUDITED)
Selected Financial Data
1996 1995
------------------------- ----------------------------------------
June 30 March 31 Dec 31 Sept 30 June 30
-------- -------- -------- -------- --------
(Dollars in thousands)
NET EARNINGS $ 1,552 $ 1,855 1,639 $ 1,838 $ 1,402
======== ======== ======== ======== ========
AVERAGE CONSOLIDATED
BALANCE SHEET ITEMS:
Loans Less Unearned
Income $279,338 $276,582 $265,665 $266,705 $260,625
Investment Securities 176,403 176,985 176,240 172,261 159,305
Other Earning Assets 1,956 6,918 3,894 4,989 1,837
-------- -------- -------- -------- --------
TOTAL EARNING ASSETS $457,697 $460,485 $445,799 $443,955 $421,767
Total Assets $478,239 $480,885 $466,962 $463,676 $441,049
Deposits 352,515 356,807 337,242 342,239 343,743
Shareholders' Equity 49,048 49,850 49,608 47,861 46,680
KEY RATIOS:
Average Equity to
Average Total Assets 10.26% 10.43% 10.62% 10.32% 10.58%
Return on Average
Total Assets 1.43% 1.52% 1.39% 1.57% 1.29%
Return on Average Equity 12.69% 14.93% 13.11% 15.24% 12.19%
Net Interest Margin (Fully
Tax Equivalent) 4.13% 4.28% 4.36% 4.21% 4.19%
Overview
The reported results of the Corporation primarily reflect the operations of the
Corporation's wholly-owned bank subsidiaries ("Bank Subsidiaries"). The
Corporation'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 Corporation's income is net interest income, which is defined as the
difference between the interest the Corporation earns on interest-earning
assets, such as loans and securities, and the interest the
12
13
Corporation pays on interest-bearing liabilities, such as deposits and
borrowings. The Corporation's operations are also affected by non-interest
income, such as checking account and trust fees and gains from sales of loans.
The Corporation's principal operating expenses, aside from interest expense,
consist of salaries and employee benefits, occupancy costs, federal deposit
insurance assessments, and other general and administrative expenses.
On June 30, 1995, the Corporation acquired BBI in a transaction accounted for
under the pooling-of-interests method of accounting for business combinations.
Accordingly, the Corporation's consolidated financial statements have been
restated for the periods prior to the transaction to include BBI.
Comparison of June 30, 1996 and December 31, 1995 Financial Condition
Total assets amounted to $480.3 million at June 30, 1996, as compared to $476.4
million at December 31, 1995, an increase of $3.9 million, or .8%. The increase
in assets was funded with deposit growth of $10.2 million and an increase in
shareholders' equity of $482,000, and was partially offset by a decrease in FHLB
advances and other borrowings of $6.4 million.
Total investment securities decrease by $9.2 million or 5.2%, to $169.0 million.
The Corporation's 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 heavy loan demand and possible
deposit withdrawals, the Corporation has chosen to classify the majority of its
investment securities as available-for-sale. At June 30, 1996, 94.9% of the
total investment portfolio was classified as available-for-sale, while those
securities which the Corporation intends to hold to
13
14
maturity represented the remaining 5.1%. This compares to 95.3% and 4.7%
classified as available-for-sale and held to maturity, respectively, at December
31, 1995. See "Liquidity and Capital Resources."
Total loans increased $14.1 million, or 5.2%, to $282.9 million at June 30,
1996. This increase was primarily a result of an increase of $6.4 million in the
commercial loan portfolio. The increase in commercial loans was due to the
Corporation's continued emphasis on small business lending. Residential mortgage
loans decreased $251,000 while real estate construction loans increased $4.8
million and consumer loans increased $3.1 million. The overall increase in the
loan portfolio was consistent with the Corporation's strategy of increasing
assets while adhering to prudent underwriting standards.
Premises and equipment increased $492,000, or 11.9%, to $4.6 million at June 30,
1996. This increase was a direct result of the Corporation's continued expansion
of markets and services.
Deposits totaled $358.7 million at June 30, 1996, an increase of $10.2 million,
or 2.9%, over the balance at December 31, 1995. The increase resulted from
management's marketing efforts and continued growth at newer branch offices.
Total interest-bearing deposits accounted for 88.2% of total deposits at June
30, 1996 as compared to 88.0% at December 31, 1995.
Total borrowings decreased $6.4 million to $67.7 million at March 31, 1996, as
compared to $74.1 million at December 31, 1995. The majority of this decline
resulted from a $6.2 million decrease in short-term borrowings. Based on the
lower cost of deposits, management chose to fund a larger portion of its asset
growth with deposits as opposed to borrowings.
14
15
Asset Quality
The allowance for possible loan losses for the six months ended June 30, 1996,
totaled $3.5 million, which represented 1.25% of total loans. This compares to a
prior year-end allowance of $3.3 million, or 1.23% of total loans. Year-to-date
net loan charge-offs were $373,000, compared to net charge-offs of $309,000 for
the same period of the prior year and net charge-offs of $755,000 for the year
ended December 31, 1995. Charge-offs have been made in accordance with the
Corporation's standard policy and have occurred primarily in the commercial and
consumer loan portfolios.
15
16
Allowance for Possible Loan Losses
1996 1995
--------------------------- ---------------------------------------------
June 30 March 31 Dec 31 Sept 30 June 30
--------- --------- --------- --------- ---------
(Dollars in thousands)
Balance at Beginning
of Period $ 3,406 $ 3,307 $ 3,180 $ 3,188 $ 3,199
Provision for Possible
Loan Losses 318 292 359 206 201
Loans Charged Off (241) (255) (270) (237) (242)
Recoveries of Loans
Previously Charged Off 61 62 38 23 30
--------- --------- --------- --------- ---------
Net Charge Offs (180) (193) (232) (214) (212)
--------- --------- --------- --------- ---------
Balance at End
of Period $ 3,544 $ 3,406 $ 3,307 $ 3,180 $ 3,188
========= ========= ========= ========= =========
Loans Outstanding $ 282,943 $ 277,715 $ 268,818 $ 271,165 $ 262,857
Allowance as a Percentage
of Loans Outstanding 1.25% 1.23% 1.23% 1.17% 1.21%
Net Charge Offs to
Average Loans 0.06% 0.07% 0.08% 0.08% 0.08%
Recoveries to Charge
Offs 25.31% 24.31% 14.07% 9.70% 12.40%
Allowance as a Multiple
of Net Charge Offs 19.69x 17.55x 14.25x 14.86x 15.04x
Non-performing loans totaled $841,000, or 0.3% of total loans, at June 30, 1996,
compared to $1.0 million or, 0.4%, at year-end 1995. The following is an
analysis of the composition of non-performing loans:
1996 1995
------------------------ ----------------------------------------
June 30 March 31 Dec 31 Sept 30 June 30
-------- -------- -------- -------- --------
(Dollars in thousands)
Nonaccrual Loans $ 348 $ 846 $ 440 $ 505 $ 177
Accruing Loans 90 Days
or More Past Due 473 493 584 476 247
-------- -------- -------- -------- --------
Total Non-performing
Loans 821 1,339 1,000 981 424
Other Real Estate Owned 20 24
-------- -------- -------- -------- --------
Total Non-performing
Assets $ 841 $ 1,339 $ 1,024 $ 981 $ 424
======== ======== ======== ======== ========
Total Loans Outstanding $282,943 $277,715 $268,818 $271,165 $262,857
======== ======== ======== ======== ========
Non-performing Loans
to Total Loans 0.29% 0.48% 0.37% 0.36% 0.16%
Allowance for possible
Loan Losses to
Non-performing Loans 431.67% 254.37% 330.70% 324.16% 751.89%
Non-performing Assets to
Total Assets 0.18% 0.28% 0.22% 0.21% 0.09%
16
17
As a percentage of non-performing loans, the allowance for possible loan losses
was 431.7% at June 30, 1996, compared to 330.7% at December 31, 1995, and 751.9%
at June 30, 1995. Although used as a general indicator, this percentage is not a
primary factor in the determination of the adequacy of the allowance by
management. This percentage is somewhat higher than at December 31, 1995,
primarily due to a 37.2% decrease in non-performing loans. Total non-performing
loans as a percentage of total loans remained relatively low at 0.3% of total
loans.
Comparison of Operating Results for the Six Months Ended June 30, 1996 and 1995
NET INCOME
Consolidated net income for the six month period ended June 30, 1996 totaled
$3.4 million, or $1.15 per share, compared to consolidated net income of $2.7
million, or $.92 per share, for the same period of 1995. This represents an
earnings increase of $700,000, or 25.9%, and $.23, or 25.0%, on a per share
basis. On an annualized basis, net income produced a return on average assets
of 1.42% and 1.26% for 1996 and 1995, respectively. Increases in net interest
income of $834,000 and non-interest income of $665,000 more than offset a
$208,000 higher provision for possible loan losses and increases in
non-interest expense totaling $426,000.
NET INTEREST INCOME
Net interest income for the first half of 1996 was $9.3 million ($9.6 million on
a fully taxed equivalent (FTE) basis), which was an increase of $834,000 or 9.9%
($891,000, or 10.3% on an FTE basis) over the first half of 1995. Net interest
income increased as the result of a higher volume in average earning assets.
Year-to-date average earning assets totaled $459.1 million compared to 1995
year-to-date average earning assets of $415.9 million, a difference of $43.2
million, or 10.4%. The Corporation has continued to utilize FHLB advances as a
means of achieving growth to effectively deploy and utilize its capital. In
addition, the Corporation's growth in earning assets was partially funded by
strong deposit growth by remaining competitive in its markets.
17
18
Net interest margin (NIM) on earning assets is net interest income earned on a
fully tax-equivalent basis as a percentage of average earning assets. NIM for
the six month period ended June 30, 1996 was 4.21% compared to 4.23% for the six
months ended June 30, 1995. During the last year, the Corporation has
experienced a migration of deposits from lower cost demand and savings deposits
into higher cost time deposits. This resulted in an increase in cost of funds
that more than offset increased yields of the loan portfolio.
This negatively impacted net interest margin.
PROVISION FOR POSSIBLE LOAN LOSSES
The Corporation provides as an operating expense an amount necessary to maintain
the allowance for possible loan losses at a level sufficient to provide for
potential future credit losses. Growth of the loan portfolio, loss experience,
economic conditions, delinquency levels, credit mix and analysis of selected
credits are factors that affect judgments concerning the adequacy of the
allowance. Actual losses on loans are charged against the allowance provided on
the consolidated balance sheet through the provision for possible loan losses.
During the first six months of 1996, the provision for possible loan losses was
$610,000, compared to a prior year six month provision of $402,000, an increase
of $208,000, or 51.7%. The higher provision was a result of strong loan growth
in new markets and products for which the Corporation has limited loan loss
experience, coupled with a higher level of net charge-offs.
NON-INTEREST INCOME
Non-interest income, excluding net investment securities gains, increased
$679,000, or 29.3% over the same period of the prior year. During the first six
months of 1996, the Corporation sold approximately $12.4 million of the
guaranteed portion of its SBA portfolio into the secondary market, realizing a
gain of $1.0 million. This compares to gains of $576,000 on loans sold totaling
$7.5 million for the six months ended June 30, 1995.
18
19
NON-INTEREST EXPENSE
Non-interest expense for the six months ended June 30, 1996 was $6.9 million
compared to $6.5 million for the prior year, which was an increase of
approximately $426,000 or 6.6%. Federal Deposit Insurance Corporation ("FDIC")
assessment decreased approximately $327,000 or 89.1%. This FDIC expense savings
was more than offset by the costs associated with the Corporation's expanded
volume of business activities.
The effective federal income tax rate for the first six months of 1996 was
28.5%, compared to a prior year rate of 29.1%.
Comparison of Operating Results for the Three Months Ended June 30, 1996 and
1995
NET INCOME
Consolidated net income for the three months ended June 30, 1996 was $1.6
million, or $.52 on a per share basis, compared to consolidated net income of
$1.4 million, or $.47 on a per share basis, for the same period of 1995. This
represented an earnings increase of $150,000, or 10.7%, and $.05, or 10.6% on a
per share basis. Increases in net interest income of $312,000 and non-interest
income of $215,000 were partially offset by a higher provision for possible loan
losses of $117,000 and increases in non-interest expense of $249,000.
NET INTEREST INCOME
Net interest income for the second quarter of 1996 was $4.5 million ($4.7
million on a fully tax-equivalent (FTE) basis), which was an increase of
$312,000 or 7.4% ($337,000, or 7.8% on an FTE basis) over the same period in
1995. Net interest income increased as a result of a higher volume in average
earning assets. Average earning assets for the second quarter totaled $457.7
million compared to 1995 second quarter average earning assets of
19
20
$421.8 million, an increase of $35.9 million, or 8.5%. The Corporation's growth
in earning assets was partially funded by strong deposit growth.
NIM for the quarter ended June 30, 1996, was 4.13% compared to 4.14% for the
second quarter of 1995. While the annualized yield on the loan portfolio has
increased approximately 0.17%, the Corporation's cost of deposit funds has
increased at a slightly faster rate than interest earning assets. Yields on the
investment portfolio have remained relatively stable.
PROVISION FOR POSSIBLE LOAN LOSSES
For the second quarter of 1996, the provision for possible loan losses was
$318,000, compared to a prior year second quarter provision of $201,000, an
increase of $117,000, or 58.2%. The higher provision was a result of strong loan
growth in new markets and products for which the Corporation has limited loan
loss experience.
NON-INTEREST INCOME
Non-interest income, excluding net investment securities gains, increased
$231,000, or 19.2%, over the same period of the prior year. During the second
quarter of 1996, the Corporation sold approximately $3.8 million of the
guaranteed portion of its SBA portfolio into the secondary market, realizing a
gain of $450,000. This compared to 1995 quarterly gains of $333,000 on loans
sold totaling $3.1 million.
NON-INTEREST EXPENSE
Non-interest expense for the quarter ended June 30, 1996 was $3.5 million
compared to $3.2 million for the corresponding period of the prior year, which
was an increase of approximately $300,000 or 9.4%. FDIC assessments decreased
approximately $145,000. This FDIC expense savings was more than offset by the
cost associated with the Corporation's expanded volume of business activities.
20
21
The effective federal income tax rate for the second quarter of 1996 was 27.6%,
compared to a prior year rate of 29.3%.
Liquidity and Capital
The Corporation's principal source of satisfying short-term liquidity needs
comes from cash, due from banks and federal funds sold. These sources
constituted 3.9% of average total assets for the first six months of 1996,
compared to 3.6% for the same period of 1995. 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 Corporation. At June 30, 1996, held-to-maturity securities
with a book value of $1.1 million, and available-for-sale securities with a
market value of $10.8 million, were scheduled to mature within one year. In
total, this represented 7.0% of the investment portfolio and 2.5% of quarter-end
total assets. Securities with a market value of $160.5 million were classified
as available-for-sale as of June 30, 1996. This represents 95.0% of the total
investment portfolio. These securities were carried at fair market value and
were classified as available-for-sale to provide for flexibility in managing net
interest margin, interest rate risk, and liquidity. Cash flows from operating
activities amounted to $8.5 million and $7.0 million for the six months ended
June 30, 1996 and 1995, respectively.
The Corporation's subsidiary banks are members of the FHLB. Membership provides
an opportunity to enhance shareholder value through the utilization of FHLB
advances 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.
21
22
Shareholders' equity at June 30, 1996 was $50.5 million, compared to
shareholders' equity of $50.0 million at December 31, 1995, an increase of
$482,000, or 1.0%. Statement of Financial Accounting Standards No. 115 requires
that certain debt and equity instruments held as available-for-sale must be
marked to their market value. This standard had a negative impact on equity for
the first half of 1996, but had a positive impact on equity at December 31,
1995. This change in the impact on equity is attributable to changes in interest
rates. At June 30, 1996, securities with a book value of $161.4 million were
recorded at their fair value of $160.5 million, which resulted in a negative
after-tax equity adjustment of $580,000, a decline of $1.5 million since
December 31, 1995. 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 June 30, 1996, the Company had a total risk capital ratio of
17.94%, of which 17.91% consisted of Tier 1 capital. The leverage ratio for the
Corporation at June 30, 1996, was 10.62%. These ratios were 18.89%, 17.70%, and
10.49%, respectively at December 31, 1995. Consummation of the pending
acquisition discussed below will significantly reduce the capital ratios of the
Corporation.
Cash dividends declared to shareholders of the Corporation totaled $1,486,000,
or $.50 per share, during the first half of 1996. This compared to dividends of
$1,294,000, or $.46 per share, for the same period of the prior year. Cash
dividends paid as a percentage of net income amounted to 43.6% and 47.3% for the
first six months of 1996 and 1995, respectively.
Considering the Corporation's capital adequacy, profitability, and reputation,
the available liquidity sources and the anticipated funding sources for the
currently contemplated acquisition are considered by management to be
22
23
adequate to meet current and projected needs. The Corporation is not aware of
any current specific recommendations by regulatory authorities which, if
implemented, would have a material effect on its liquidity.
BancFirst's Board of Directors and management have identified various corporate,
business and financial objectives. One such objective is growth of the
organization through the acquisition of banks and/or savings and loan
associations to, among others: 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; and improve the potential profits from its combined
operations through economies of scale. In furtherance of such objectives,
BancFirst intends to continue its pursuit of business combinations which fit its
strategic objective of growth, diversification and market expansion.
BancFirst continues to explore opportunities to acquire banks and holding
companies permitted by the Bank Holding Company Act of 1956. Discussions are
on-going related to the acquisition of certain banks and/or bank holding
companies. As of the date of this report, except for the agreement to acquire
the stock of County Savings Bank, such discussions have not resulted in an
agreement for acquisition. It is not presently known whether, or on what terms,
such discussions will result in further acquisitions. BancFirst's acquisition
strategy is flexible in that it does not require BancFirst to effect specific
acquisitions so as to enter certain markets or to attain specified growth
levels. Rather than being market driven or size motivated, BancFirst's
acquisition and growth strategy, which is focused on financial institutions
located within the State of Ohio and surrounding area, reflects BancFirst's
willingness to consider potential acquisitions wherever and whenever such
opportunities arise based on the then-existing market conditions and other
circumstances. Financial institutions to be acquired should be of sufficient
size to support and justify having management of a caliber capable of making
lending and other management decisions at the local level under the BancFirst
operating philosophy. Following the consummation of the pending acquisition of
County Savings Bank, the Corporation expects any acquisition in the foreseeable
future would need to be structured as a stock exchange.
23
24
On August 9, 1996, the Corporation received notification that the Securities
Exchange Commission ordered effective the Corporation's registration statement
for the sale of 1,000,000 shares (1,150,000 if the underwriters over-allotment
is exercised) of its common stock at an initial offering price of $28.00 per
share, with estimated net proceeds of $25.9 million ($29.8 million if the
underwriters' over-allotment option is exercised). The offering is expected to
close on August 14, 1996. The Corporation anticipates closing the acquisition of
County Savings Bank as soon as practicable after the close of the offering.
Although the registration is effective, the necessary approvals have been
attained, all material conditions have been satisfied and an underwriting
agreement has been signed, there can be no assurance that either the offering or
the acquisition of County Savings Bank will close.
Pending Acquisition and Negotiations
As previously disclosed, on March 27, 1996, the Corporation entered into a Stock
Purchase Agreement to acquire all of the outstanding capital stock of County
Savings Bank. The Corporation has agreed to a purchase price, payable in cash,
of approximately $47.8 million, subject to adjustment. The acquisition has
received the necessary regulatory approvals. The Corporation intends to fund the
purchase price with cash from operations, proceeds from the sale of an equity
offering discussed above and the proceeds from a $15.0 million loan. If the
acquisition is consummated, the Corporation believes that its capitalization
and/or liquidity could be significantly changed; however, the Corporation cannot
predict the extent of any such change. In addition, the acquisition could
significantly change the future results of operations of the Corporation, but
the extent and manner of any such change cannot be predicted.
The Corporation is in negotiations to acquire a financial institution with total
assets of approximately $60 million. If these negotiations result in a
definitive agreement, it is anticipated that it will be structured as a merger
with the shareholders of the institution receiving shares of the Corporation's
Common Stock, and will be subject to the
24
25
approval of certain regulatory agencies and the shareholders of the institution.
It is not presently known whether, or on what terms, these negotiations will
result in an acquisition of such institution by the Corporation.
New Accounting Pronouncements and Regulatory Matters
The Financial Accounting Standards Board (FASB) recently released Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights". SFAS No. 122 statement provides guidance on accounting for originated
mortgage servicing rights and purchased mortgage servicing rights related to
normal servicing (this statement does not change the accounting guidance
relative to excess servicing). This statement must be applied prospectively for
fiscal years beginning after December 15, 1995, to transactions in which an
enterprise sells or securities mortgage loans with servicing rights retained.
The Corporation adopted SFAS No. 122 January 1, 1996. The impact of the
Corporation implementing SFAS No. 122 was not significant.
25
26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 7, 1996, the Corporation held its Annual Meeting of
Shareholders, the results of which follows:
1. Election of three Class III directors:
Votes Against,
Abstaining,
Withheld, or
Name Term Votes For Broker Non-Votes
---- ---- --------- ----------------
Milman H. Linn 3 Years 1,622,621 2,273
John W. Straker, Jr. 3 Years 1,622,621 2,273
Lynn H. Willett 3 Years 1,622,621 2,273
Election of one Class I director:
Votes Against,
Abstaining,
Withheld, or
Name Term Votes For Broker Non-Votes
---- ---- --------- ----------------
Philip E. Burke 1 Year 1,622,621 2,273
26
27
2. To approve and ratify the appointment of Coopers & Lybrand,
L.L.P. as independent auditors for the fiscal year ending
December 31, 1996:
(Approved)
Abstaining/
Votes for Withheld Broker Non-Votes
1,595,842 1,306 27,586
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits on Item 601 of Regulation S-K
Exhibit 11: Computation of Per Share Earnings
Six Months Ended
June 30
------------------------------
1996 1995
---------- ----------
Gross Weighted Average Common
Shares Outstanding 3,034,092 3,034,092
Weighted Average Treasury
Shares Outstanding 61,209 61,828
---------- ----------
Net Weighted Average Common
Shares Outstanding 2,972,883 2,972,264
========== ==========
Net Income $3,407,000 $2,735,000
========== ==========
Net Income Per Common Share $ 1.15 $ .92
========== ==========
(b) Reports on Form 8-K
A current report on Form 8-K dated May 1, 1996, reporting "Item
5. Other Events." was filed during the quarter in which this
quarterly report is filed, in connection with Gary N. Fields'
election as President and Chief Executive Officer of the
Corporation.
27
28
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 ____________________________ (Signed) /s/ Gary N. Fields
-------------------------------------------
Gary N. Fields
President and
Chief Executive Officer
Date ____________________________ (Signed) /s/ James H. Nicholson
-------------------------------------------
James H. Nicholson
Secretary and Treasurer
(Principal Financial and Accounting
officer)
28