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 September 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 November 12, 1996
----- -----------------------------------
Common Stock, $10.00 Par Value 3,980,163
-1 of - 24
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 .................... 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation ................................................ 10-21
PART II. OTHER INFORMATION
- ---------------------------
Other Information ............................................. 22-23
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..................................................... 24
2
3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BANCFIRST OHIO CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in thousands, except share data)
September 30 December 31
ASSETS: 1996 1995
----------- ---------
Cash and due from banks $ 18,153 $ 14,102
Federal funds sold 2,951 2,600
Securities held-to-maturity, at amortized cost
(approximate fair value of
$48,280 and $8,548 in 1996
and 1995, respectively) 48,877 8,392
Securities available-for-sale, at fair value 226,734 169,860
----------- ---------
Total securities 275,611 178,252
----------- ---------
Loans, net of unearned income 709,616 268,818
Allowance for possible loan losses (6,532) (3,307)
----------- ---------
Net loans 703,084 265,511
----------- ---------
Bank premises and equipment, net 8,161 4,120
Accrued interest receivable 6,658 3,458
Intangible assets 14,362
Other assets 7,482 8,386
----------- ---------
Total assets $ 1,036,462 $ 476,429
=========== =========
LIABILITIES:
Deposits:
Non-interest-bearing deposits $ 50,735 $ 41,835
Interest-bearing deposits 663,754 306,710
----------- ---------
Total deposits 714,489 348,545
Short-term borrowings 153,631 7,400
Long-term borrowings 81,418 66,735
Accrued interest payable 2,337 1,261
Other liabilities 9,010 2,478
----------- ---------
Total liabilities 960,885 426,419
----------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $10 par value, 7,500,000
shares authorized, 4,033,919 and 3,033,919
shares issued in 1996 and 1995, respectively 40,340 30,340
Capital in excess of par value 22,781 6,889
Retained earnings 13,995 13,022
Unrealized holdings gains (losses) on securities
available-for-sale, net (463) 942
Treasury stock, 57,263 and 62,923
shares, at cost, in 1996 and 1995, respectively (1,076) (1,183)
----------- ---------
Total shareholders' equity 75,577 50,010
----------- ---------
Total liabilities and shareholders' equity $ 1,036,462 $ 476,429
=========== =========
The accompanying notes are an integral part of the financial statements.
3
4
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
Interest income:
Interest and fees on loans $ 10,826 $ 5,879 $ 23,189 $ 16,822
Interest and dividends on securities:
Taxable 3,498 2,583 8,464 7,021
Tax-exempt 344 283 1,003 831
Other interest income 97 55 215 145
------------ ------------ ------------ ------------
Total interest income 14,765 8,800 32,871 24,819
------------ ------------ ------------ ------------
Interest expense:
Time deposits, $100 and over 1,159 649 2,659 1,789
Other deposits 4,764 2,622 10,023 7,272
Federal Home Loan Bank advances 1,817 874 3,511 2,589
Short-term borrowings 413 165 816 263
------------ ------------ ------------ ------------
Total interest expense 8,153 4,310 17,009 11,913
------------ ------------ ------------ ------------
Net interest income 6,612 4,490 15,862 12,906
Provision for possible loan losses 316 206 926 608
------------ ------------ ------------ ------------
Net interest income after provision
for possible loan losses 6,296 4,284 14,936 12,298
------------ ------------ ------------ ------------
Other income:
Trust and custodian fees 334 314 1,060 941
Customer service fees 466 448 1,309 1,336
Gain on sale of loans 448 558 1,494 1,134
Other 330 132 684 361
Investment securities gains, net 36 63 39 80
---------------- ------------ ------------ ------------
Total other income 1,584 1,515 4,586 3,852
------------ ------------ ------------ ------------
Other expense:
Salaries and employee benefits 2,768 1,697 6,511 5,128
Net occupancy expense 339 189 726 556
Other 4,856 1,238 7,606 3,894
------------ ------------ ------------ ------------
Total other expense 7,963 3,124 14,843 9,578
------------ ------------ ------------ ------------
Income (loss) before income taxes (83) 2,675 4,679 6,572
Provision (benefit) for federal income
taxes (129) 837 1,226 1,999
------------ ------------ ------------ ------------
Net income $ 46 $ 1,838 $ 3,453 $ 4,573
============= ============= ============= =============
The accompanying notes are an integral part of the financial statements.
4
5
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
-------------- -------------- -------------- ----------
Net income per common share $ 0.01 $ 0.62 $ 1.10 $ 1.54
============= ============= ============= =============
Weighted average common shares
outstanding 3,487 2,975 3,146 2,973
============ ============ ============ ============
Cash dividends per common share $ 0.25 $ 0.23 $ 0.75 $ 0.69
============= ============= ============= =============
Total cash dividends paid $ 994 $ 679 $ 2,480 $ 1,973
============= ============= ============= =============
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)
Nine Months Ended
September 30
1996 1995
---------------- -------------
Cash flows from operating activities:
Net income $ 3,453 $ 4,573
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 1,758 1,510
Provision for possible loan losses 926 608
Deferred taxes payable (126) 281
Disposal of other assets, gains (1,496) (1,129)
Decrease (increase) in interest receivable 9 (772)
Decrease in other assets 4,531 2,419
Increase in interest payable 475 573
Increase in other liabilities 3,538 989
FHLB stock dividend (154) (235)
---------------- -------------
Net cash provided by operating activities 12,914 8,817
Cash flows from investing activities:
(Increase) decrease in federal funds sold (351) 1,726
Proceeds from maturities of securities held-to-maturity 788 10,693
Proceeds from maturities and sales of securities
available-for-sale 47,188 19,918
Purchase of securities held-to-maturity (663) (5,703)
Purchase of securities available-for-sale (28,422) (45,483)
Increase in loans, net (32,324) (33,188)
Purchase of loans (9,914)
Acquisition of County Savings Bank, net of cash acquired (43,907)
Purchases of equipment and other assets (1,403) (1,048)
Proceeds from sale of loans and assets 15,131 10,124
---------------- ------------
Net cash used in investing activities (53,877) (42,961)
Cash flows from financing activities:
Net proceeds from issuance of common stock 25,824
Increase in short-term borrowings 5,424 2,150
Increase (decrease) in other borrowings (317) 3,962
Proceeds from acquisition debt 15,000
Net increase in deposits 1,388 27,037
Cash dividends paid (2,480) (1,973)
Gain (loss) on Sale (purchase)of treasury stock, net 175 (111)
---------------- -------------
Net cash provided by financing activities 45,014 31,065
---------------- ------------
Net increase (decrease) in cash and due from banks 4,051 (3,079)
Cash and due from banks, beginning of period 14,102 18,831
---------------- ------------
Cash and due from banks, end of period $ 18,153 $ 15,752
================= =============
Supplemental cash flow disclosures:
Income taxes paid $ 2,005 $ 1,597
================= =============
Interest paid $ 14,786 $ 11,340
================= =============
The accompanying notes are an integral part of the financial statements
6
7
BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of the 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, 1995 for additional disclosures, including a summary of the Company's
accounting policies. The results of operations for the nine month period ended
September 30, 1996 are not necessarily indicative of the results to be expected
for the full year. 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 the
Company and each of its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
On August 14, 1996, the Company acquired County Savings Bank ("County")
in a transaction accounted for under the purchase method of accounting
for business combinations. Accordingly, the Company's consolidated
financial statements include the operating results of County from the
date of acquisition. At the time of acquisition, County had
approximately $554 million in total assets, $411 million in loans and
$365 million in total deposits. The Company also recorded goodwill and
other intangible assets of $14.5 million as a result of the application
of purchase accounting. Funding for the acquisition was provided by
proceeds from the issuance of 1 million shares of common stock, $15
million of bank borrowings and approximately $7 million of available
cash.
The following summarizes the pro-forma results of operations for the
nine months ended September 30, 1996 and 1995 as if County had been
acquired at the begining of each period presented:
Nine Months Ended September 30,
1996 1995
---- ----
Net Interest income $24,414 $22,456
Net Income $ 4,604 $ 6,271
Net Income per share 1.16 $1.58
7
8
2) INVESTMENT SECURITIES:
The amortized cost and estimated market value of investment securities
are as follows:
September 30, 1996 December 31, 1995
-------------------------- --------------------------
Securities Held-to-Maturity Book Market Book Market
--------------------------- ------------ ------------ ------------ ------------
(In thousands)
Other U.S. government agencies $ 2,206 $ 2,205 $ 400 $ 407
State and political subdivisions 7,173 7,239 6,751 6,886
Mortgage-backed and related
securities 36,603 36,856 121 135
Other 2,895 1,980 1,120 1,120
---------- ---------- ---------- ----------
$ 48,877 $ 48,280 $ 8,392 $ 8,548
=========== =========== =========== ===========
September 30, 1996 December 31, 1995
-------------------------- --------------------------
Securities Available-for-sale Book Market Book Market
----------------------------- ------------ ------------ ------------ ------------
(In thousands)
U.S. treasury securities $ 13,744 $ 13,870 $ 17,949 $ 18,303
Other U.S. government agencies 15,850 15,688 11,247 11,390
State and political subdivisions 16,444 16,577 17,453 17,848
Mortgage-backed and related
securities 167,597 167,004 116,507 117,043
Other 13,595 13,595 5,276 5,276
---------- ---------- ---------- ----------
$ 227,230 $ 226,734 $ 168,432 $ 169,860
=========== =========== =========== ===========
3) LOANS AND LEASES BY CATEGORIES:
September 30, 1996 December 31, 1995
-------------------------- ----------------------
(In thousands)
Commercial, financial
and agricultural $ 295,961 $ 107,015
Real estate - mortgage 329,925 105,604
Real estate - construction 11,359 2,859
Consumer installment 72,371 53,340
---------------- ----------------
Total $ 709,616 $ 268,818
================= =================
8
9
4) LONG-TERM BORROWINGS
Long-term borrowings as of September 30, 1996 and December 31, 1995
were as follows:
September 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 56,418 56,735
Term debt with a Financial Institution (LIBOR + 1.35%) 15,000
--------------- --------------
$ 81,418 $ 66,735
=============== ==============
Minimum annual retirements on long-term borrowings for the next five
years consisted of the following:
September 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 6.14% $ 6,109 6.17% $ 9,983
1997 5.89% 32,954 5.89% 32,991
1998 5.95% 11,734 5.86% 10,524
1999 6.35% 7,516 5.88% 1,559
2000 6.69% 3,051 6.29% 597
2001 and thereafter 6.81% 20,054 6.61% 11,081
------- ----------
TOTAL 6.22% $81,418 6.08% $ 66,735
======= ==========
Federal Home Loan Bank ("FHLB") advances must be secured by eligible
collateral as specified by the FHLB. Accordingly, the Company has a
blanket pledge of its first mortgage loan portfolio as collateral for
the advances outstanding, with a required minimum ratio of collateral
to advances of 150%. Additionally, the stock of the FHLB owned by the
Company (book value at September 30, 1996 of $12.3 million) is pledged
as collateral for these borrowings.
The Company has no commitments to borrow additional funds from the FHLB
as of September 30, 1996.
9
10
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.
SELECTED FINANCIAL DATA:
For the Three Months At or For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
----------- ---------- ---------- -----------
(Dollars in thousands, except per share data)
Statement of Income Data:
Interest income $ 14,765 $ 8,800 $ 32,871 $ 24,819
Interest expense 8,153 4,310 17,009 11,913
----------- ---------- ---------- -----------
Net interest income 6,612 4,490 15,862 12,906
Provision for possible loan losses 316 206 926 608
Non-interest income 1,584 1,515 4,586 3,852
Non-interest expense 7,963 3,124 14,843 9,578
----------- ---------- ------------ -----------
Income (loss) before income taxes (83) 2,675 4,679 6,572
Provision (benefit)for federal income tax (129) 837 1,226 1,999
---------- ---------- ------------ -----------
Net income $ 46 $ 1,838 $ 3,453 $ 4,573
=========== ========== ========== ===========
Per Share Data:
Net income $ 0.01 $ 0.62 $ 1.10 $ 1.54
Dividends 0.25 0.23 0.75 0.69
Book value 19.02 16.31
Tangible book value 15.40 16.31
Balance Sheet Data:
Total assets $ 1,036,462 $ 469,302
Loans 709,616 271,165
Allowance for possible loan losses 6,532 3,180
Securities 275,611 173,550
Goodwill and other intangible assets 14,362 0
Deposits 714,489 347,873
Borrowings 235,049 69,637
Shareholders' equity 75,577 48,524
Performance Ratios:(2)
Return on average assets 0.02 % 1.57 % 0.80 % 1.37 %
Return on average equity 0.29 % 15.24 % 8.54 % 13.03 %
Net interest margin 3.61 % 4.19 % 3.95 % 4.22 %
Interest rate spread 3.03 % 3.46 % 3.29 % 3.51 %
Non-interest income to average assets 0.81 % 1.30 % 1.06 % 1.16 %
Non-interest expense to average assets 4.09 % 2.67 % 3.43 % 2.88 %
Efficiency ratio(1) 63.13 % 52.57 % 58.95 % 57.43 %
Asset Quality Ratios:
Nonperforming loans to total loans 0.25 % 0.36 %
Nonperforming assets to total assets 0.23 % 0.21 %
Allowance for possible loan losses to
total loans 0.92 % 1.17 %
Allowance for possible loan losses to
nonperforming loans 366 % 324 %
Net charge-offs to average loans(2) 0.15 % 0.32 % 0.21 % 0.27 %
Capital Ratios:
Shareholders' equity to total assets 7.29 % 10.34 %
Tier 1 capital to total assets 6.03 % 10.97 %
Tier 1 capital to risk-weighted assets 10.08 % 18.19 %
10
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(1) THE EFFICIENCY RATIO IS EQUAL TO NON-INTEREST EXPENSE (EXCLUDING NON
RECURRING CHARGES TOTALING $2,632,000 IN THE 1996 PERIODS) LESS
AMORTIZATION OF INTANGIBLE ASSETS DIVIDED BY NET INTEREST INCOME PLUS
NON-INTEREST INCOME LESS GAINS OR LOSSES ON SECURITIES TRANSACTIONS.
(2) RATIOS ARE STATED ON AN ANNUALIZED BASIS.
Overview
- --------
The reported results of the Company primarily reflect the operations of
the Company's bank and thrift subsidiaries. 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, federal deposit insurance
assessments, and other general and administrative expenses.
ACQUISITIONS
On August 14, 1996, the Company acquired County Savings Bank ("County")
in a transaction accounted for under the purchase method of accounting for
business combinations. Accordingly, the Company's consolidated financial
statements include the operating results of County from the date of acquisition.
At the time of acquisition, County had approximately $554 million in total
assets, $411 million in loans and $365 million in total deposits. The Company
also reported goodwill and other intangible assets of $14.5 million as a result
of the application of purchase accounting. Funding for the acquisition was
provided by proceeds from the issuance of 1 million shares of common stock, $15
million of bank borrowings and approximately $7 million of available cash.
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 on a fully tax
equivalent basis ("FTE"), and refers to net interest income divided by total
interest-earning assets and 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.
11
12
Three Months Ended September 30, Nine Months Ended September 30,
...........1996.......... ...........1995........... ...........1996.......... ...........1995...........
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ---- ------- -------------
Securities:
Taxable $209,417 $ 3,567 6.78% $149,818 $ 2,583 6.84% $170,908 $ 8,533 6.67% $ 140,082 $ 7,021 6.70%
Tax-exempt 26,268 484 7.33 22,444 428 7.57 25,593 1,482 7.73 21,314 1,259 7.90
------ --- ------ --- ------ ----- ------ -----
Total securities 235,685 4,051 6.84 172,262 3,011 6.93 196,501 10,015 6.81 161,396 8,280 6.86
Loans :
Commercial 213,295 5,058 9.43 108,190 2,621 9.61 147,512 10,687 9.68 107,983 7,751 9.60
Real estate 227,143 4,172 7.31 111,323 2,165 7.72 148,899 8,467 7.60 105,265 6,198 7.87
Consumer 66,666 1,609 9.60 47,192 1,123 9.44 58,488 4,091 9.34 47,122 2,946 8.36
------ ----- ------ ----- ------ ----- ------ -----
Total loans 507,104 10,839 8.50 266,705 5,909 8.79 354,899 23,245 8.75 260,370 16,895 8.68
Federal funds sold 2,611 34 5.18 4,989 66 5.25 3,824 152 5.31 3,381 145 5.73
----- ---- ---- ----- ---- ---- ----- ---- ---- ------ ---- ----
Total earning
assets 745,400 14,924 7.97% 443,956 8,986 8.03% 555,224 33,412 8.04% 425,147 25,320 7.96%
------- ------ ---- ------- ----- ---- ------- ------ ---- ------- ------ ----
Non-interest-earning
assets 29,031 19,720 23,345 19,697
------ ------ ------ ------
Total assets $774,431 $463,676 $578,569 $ 444,844
======= ======= ======= ========
Interest-bearing
deposits:
Demand and savings
deposits $171,592 $1,147 2.66% $154,594 $1,101 2.83% $157,350 $ 3,189 2.71% $ 155,902 $ 3,300 2.83%
Time deposits 332,079 4,776 5.72 151,142 2,169 5.69 222,402 9,493 5.70 139,570 5,761 5.52
------- ----- ------- ----- ------- ----- ------- -----
Total 503,670 5,923 4.68 305,736 3,270 4.24 379,752 12,682 4.46 295,472 9,061 4.10
Borrowings 153,994 2,231 5.76 67,507 1,029 6.05 98,156 4,328 5.89 62,234 2,851 6.12
------- ----- ---- ------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-
bearing
liabilities 657,665 8,154 4.93% 373,243 4,299 4.57% 477,908 17,010 4.75% 357,706 11,912 4.45%
------- ----- ---- ------- ----- ---- ------- ------ ---- ------- ------ ----
Non-interest-bearing
deposits 45,432 36,698 40,196 37,820
------ ------ ------ ------
Total interest-
bearing
liabilities and
non-interest-
bearing deposits 703,097 409,941 518,104 395,526
Accrued expenses and
other 8,390 5,874 6,485 2,397
----- ------ ----- ------
Total liabilities 711,487 415,815 524,589 397,923
Shareholders' equity 62,944 47,861 53,980 46,921
-------- -------- -------- -------
Total liabilities and
shareholders'
equity $774,431 $ 463,676 $ 578,569 $ 444,844
========= ========= ========= ========
Net interest income
and interest rate
spread $ 6,770 3.03% $4,687 3.46% $16,402 3.29% $ 13,408 3.51%
======== ==== ====== ==== ======= ==== ======== ====
Net interest margin 3.61% 4.19% 3.95 % 4.22%.
==== ==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities 113.3 % 118.9 % 116.2 % 118.9 %
<FN>
(1) Interest income is on a fully tax equivalent (FTE) basis.
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.
12
13
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 VS. 1995 1995 VS. 1994
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
(IN THOUSANDS)
Interest-earning assets:
Securities:
Taxable $ 1,008 $ (24) $ 984 $ 1,546 $ (34) $ 1,512
Non-taxable 70 (14) 56 249 (26) 223
--------- --------- --------- --------- ---------- ---------
Total securities 1,078 (38) 1,040 1,795 (60) 1,735
Loans:
Commercial $ 2,486 $ (49) $ 2,437 $ 2,870 $ 66 $ 2,936
Real estate 2,127 (120) 2,007 2,494 (225) 2,269
Consumer 467 19 486 769 376 1,145
--------- --------- --------- --------- ---------- ---------
Total loans 5,080 (150) 4,930 6,133 217 6,350
Fed funds sold (30) (2) (32) 18 (11) 7
--------- --------- --------- --------- ---------- ---------
Total interest-earning assets 6,128 (190) 5,938 7,946 146 8,092
--------- --------- --------- --------- ---------- ---------
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 114 (68) 46 31 (142) (111)
Time deposits 2,596 11 2,607 3,535 197 3,732
--------- --------- --------- --------- ---------- ---------
Total interest-bearing
deposits 2,710 (57) 2,653 3,566 55 3,621
Borrowings 1,253 (51) 1,202 1,590 (113) 1,477
--------- --------- --------- --------- ----------- ---------
Total interest-bearing
liabilities 3,963 (108) 3,855 5,156 (58) 5,098
--------- --------- --------- --------- ----------- ---------
Net interest income $ 2,165 $ (82) $ 2,083 $ 2,790 $ 204 $ 2,994
=========== =========== =========== =========== ============ ===========
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995
Net Income. Net income for the three months ended September 30, 1996
decreased 97.5% to $46,000, compared to net income of $1.8 million for the three
months ended September 30, 1995. Earnings per share in the third quarter of 1996
equaled $0.01, compared to $0.62 for the same period in 1995. Operating results
in the third quarter of 1996 include after tax charges of $1.5 million for the
one-time special assessment to recapitalize the Savings Association Insurance
Fund (SAIF) and $213,000 after tax for restructuring costs anticipated in
connection with the consolidation of overlapping operations of the Company's
banking and thrift subsidiaries. Net interest income and non-interest income
increased 47.3% and 4.6%, respectively, in the three months ended September 30,
1996, as compared to the same period in 1995 while the provision for possible
loan losses and non-interest expense increased 53.4% and 154.9%, respectively.
The Company's net interest margin decreased to 3.61% for the third quarter of
1996, compared to 4.19% for the same period in 1995, reflecting the lower net
interest margin on County's interest-earning assets. Increases in non-interest
income resulting from the inclusion of County's operating results and higher
levels of fee income were partially offset by lower gains on sales of the
guaranteed portion of SBA loans. The provision for possible loan losses
increased primarily due to an increase in the loan portfolio as well as a slight
increase in loan delinquencies. Non-interest expense increased due to the
nonrecurring charges noted above as well as the inclusion of County's operating
expenses and higher costs associated with the expansion of trust and other
operating activities. The Company's return on average assets and return on
average equity were .02% and .29%, respectively, in the third quarter of 1996,
compared to 1.57% and 15.24%, respectively, in the third quarter of 1995.
Interest Income. Total interest income increased 67.8% to $14.8 million
for the three months ended September 30, 1996, compared to $8.8 million for the
third quarter of 1995. This increase resulted from a $301.4 million, or 67.9%,
increase in average interest-earning assets between the two periods. The average
balance of loans increased $240.4
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million, or 90.1%. These increases resulted primarily from the acquisition of
County which contributed $285.2 million of the increase in average earning
assets and $218.1 million of the increase in average loans.
The weighted average yield on interest-earning assets decreased
slightly to 7.97% during the three months ended September 30, 1996, compared to
8.03% during the same three month period in 1995. The Company's yield on average
loans decreased from 8.79% during the three months ended September 30, 1995 to
8.50% during the three months ended September 30, 1996. This resulted primarily
from a slightly lower yield on County's loan portfolio due to a higher portion
of such loans consisting of lower yielding residential mortgage loans. Yields on
the investment portfolio remained relatively stable, decreasing from 6.93%
during the third quarter of 1995 to 6.84% during the third quarter of 1996.
Interest Expense. Total interest expense increased 89.2% to $8.2
million for the three months ended September 30, 1996, compared to $4.3 million
for the three months ended September 30, 1995. Interest expense increased due to
a higher average balance of interest-bearing liabilities outstanding and due to
a higher cost of funds during the third quarter of 1996, as compared to the same
period in 1995. The average balance of deposit accounts increased $197.9
million, or 64.7%, from the third quarter in 1995 to the third quarter in 1996.
Average interest-bearing liabilities increased 76.2%, from $373.2 million to
$657.7 million. These increases also primarily resulted from the acquisition of
County which contributed $266.4 million to the increase in average
interest-bearing liabilities and $187.4 million to the increase in total
deposits.
The Company's cost of funds increased to 4.93% in the three months
ended September 30, 1996 compared to 4.57% in the same period of 1995, primarily
due to a higher cost of funds associated with County's interest-bearing
liabilities. The cost of funds was also affected by the continued shift by
customers into higher yielding certificates of deposit.
Provision for Possible Loan Losses. The provision for possible loan
losses increased 53.4% to $316,000 for the three months ended September 30,
1996, compared to $206,000 in the third quarter of 1995. The increase in the
provision for possible loan losses was affected by increases in total loans
during the three months ended September 30, 1996 as well as a higher level of
nonperforming loans. Total nonperforming loans increased 81.8% to $1.8 million
at September 30, 1996, from $981,000 at September 30, 1995, with County adding
$540,000 to the 1996 total. The allowance for possible loan losses at September
30, 1996 was $6.5 million, or .92% of total loans and 366.3% of nonperforming
loans compared to $3.2 million, or 1.17% of total loans and 324.2% of
nonperforming loans at September 30, 1995. Management's estimate of the adequacy
of its allowance for possible loan losses is based upon its continuing review of
prevailing national and local economic conditions, changes in the size and
composition of the portfolio and 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.
Non-Interest Income. Total non-interest income increased 4.6% to $1.6
million in the three months ended September 30, 1996, compared to $1.5 million
in the three months ended September 30, 1995. The increase in 1996 was a result
of a $206,000 increase in fee and other income, $88,000 of which was provided by
County. This increase was partially offset by a $137,000 decrease in gains on
sales of loans and investment securities. During the third quarter of 1996, the
Company sold approximately $3.4 million of the guaranteed portion of its SBA
loan originations in the secondary market compared to $4.4 million in the third
quarter of 1995, realizing gains of $440,000 in 1996, compared to gains of
$558,000 1995.
Customer service fees, representing service charges on deposits and
fees from other banking services, increased 4.0% in the third quarter of 1996,
to $466,000, from $448,000 in the third quarter of 1995. This increase resulted
from fee income contributed by County to the 1996 results. Trust income
increased 6.4% to $334,000 in the third quarter of 1996, from $314,000 in the
third quarter of 1995. The slight growth in trust and custodian fees resulted
primarily from the expansion of the customer base and higher asset values. The
$168,000 increase in other income to $300,000 in the third quarter of 1996
compared to $132,000 in the third quarter of 1995 was primarily attributed to
County's loan service fee and related income and an increase in net service fee
income on SBA loans.
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The following table sets forth the Company's non-interest income for
the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------------- ----------------- ----------------- ----------
Trust and custodian fees $ 334 $ 314 $ 1,060 $ 941
Customer service fees 466 448 1,309 1,336
Investment securities gains 36 63 39 80
Gains on sales of loans 448 558 1,494 1,134
Other 300 132 684 361
-------------- -------------- -------------- -----------------
TOTAL $ 1,584 $ 1,515 $ 4,586 $ 3,852
================ ================ ================ ================
Non-Interest Expense. Total non-interest expense increased $4.8 million
to $8.0 million in the three months ended September 30, 1996, compared to $3.1
million in the three months ended September 30, 1995. Included in the third
quarter 1996 totals are pretax charges of $2.3 million for the one time special
SAIF assessment and $323,000 for restructuring costs in connection with the
consolidation of overlapping operations, previously discussed. In addition,
other-non interest expenses provided by or resulting from the acquisition of
County that are included in the third quarter results totaled $1.4 million.
Excluding nonrecurring charges and expenses resulting from the County
acquisition, total non-interest expenses were $3.9 million in the third quarter
of 1996 compared to $3.1 million in the third quarter of 1995, representing an
increase of $793,000 or 25.4%. This increase generally resulted from expansion
of the Company's operating activities over the past year.
The following table sets forth the Company's non-interest expense for
the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------------- ----------------- ----------------- ----------
Salaries and employee benefits $ 2,768 $ 1,697 $ 6,511 $ 5,128
Occupancy expense 339 189 726 556
Furniture, fixtures and equipment 149 75 358 281
Data processing 253 163 567 473
Taxes other than income taxes 200 152 494 418
Federal deposit insurance 2,453 7 2,493 379
Amortization 180 0 180 0
Other 1,621 841 3,514 2,343
-------------- -------------- -------------- --------------
TOTAL $ 7,963 $ 3,124 $ 14,843 $ 9,578
================ ================ ================ ================
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 (excluding
nonrecurring charges) was 63.1% for the third quarter of 1996, compared to 52.6%
for the comparable period in 1995. Controlling costs and improving productivity,
as measured by the efficiency ratio, is considered by management a primary
factor in enhancing performance. As expected, operating expense levels have
increased in 1996 as a result of the Company's expansion into new markets,
increased growth and volume of activities, and overall inflation. Also,
operating results of County contributed to the higher efficiency ratio in the
third quarter of 1996.
Provision for Income Taxes. The Company recorded a benefit for Federal
income taxes of $129,000 for the three months ended September 30, 1996 compared
to a provision of $837,000 for the three months ended September
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30, 1995. The effective tax rate for each period differed from the federal
statutory rate of 34% principally as a result of tax-exempt income from
obligations of states and political subdivisions and non-taxable loans.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
1995
Net Income. Net income of the Company totaled $3.5 million for the nine
months ended September 30, 1996, a decrease of $1.1 million, or 24.5%, from the
same period in 1995. Earnings per share in 1996 equaled $1.10, compared to $1.54
in 1995, a 28.6% decrease. The lower earnings during 1996 resulted from after
tax charges totaling $1.5 million for the special one-time SAIF assessment and
$213,000 for restructuring costs, discussed previously. Excluding these
nonrecurring charges, net income was $5.2 million for the nine months ended
September 30, 1996, an increase of $617,000 from the same period in 1995. This
increase resulted primarily from additional earnings provided by the County
acquisition as well as additional gains from sales of SBA loans. The Company's
net interest margin declined to 3.95% for the nine months ended September 30,
1996 as compared to 4.22% for the same period in 1995, largely as a result of a
lower net interest margin associated with County's interest-earning assets. The
provision for possible loan losses increased primarily due to an increase in the
Company's loan portfolio as well as nonperforming loans. Non-interest expense
increased due to the nonrecurring charges previously discussed, the County
acquisition and the general expansion of operations. The Company's return on
average assets and return on average equity were .80% and 8.54%, respectively,
for the nine months ended September 30, 1996, compared to 1.37% and 13.03%,
respectively, for the nine months ended September 30, 1995.
Interest Income. Total interest income increased 32.4% to $32.9 million
for the first nine months of 1996, compared to $24.8 million for the first nine
months of 1995. Average interest-earning assets increased $130.1 million, or
30.6%, while the average balance of loans increased $94.5 million, or 36.3% in
1996. These increases resulted primarily from additional interest-earning assets
provided by the County acquisition.
The weighted average yield on interest-earning assets increased to
8.04% during the nine months ended September 30, 1996, compared to 7.96% during
the comparable period in 1995. The Company's yield on average loans increased
from 8.68% during 1995 to 8.75% during 1996. The average yield on investment
securities decreased slightly from 6.86% in 1995 to 6.81% during 1996. The
improved overall yield on the loan portfolio primarily resulted from higher
yields on consumer loans.
Interest Expense. Total interest expense increased 42.8% to $17.0
million for the nine months ended September 30, 1996, compared to $11.9 million
for the nine months ended September 30, 1995. Interest expense increased due to
a higher average balance of interest-bearing liabilities outstanding and due to
a higher cost of funds during 1996. Average interest-bearing liabilities
increased $120.2 million, or 33.6%, to $477.9 million during 1996. The average
balance of deposit accounts increased $84.3 million, or 28.5%, to $379.8 million
in 1996 compared to $295.5 million in 1995. Average borrowings increased $35.9
million, or 57.7%, from $62.2 million to $98.2 million. The foregoing increases
reflect the Company's continued efforts to leverage its capital position which,
during 1996, resulted primarily from the County acquisition as well as growth
initiatives by the Company.
The Company's cost of funds increased to 4.75% in 1996 from 4.45% in
1995, generally due the relative increases in higher cost borrowings and time
deposits as a percentage of total interest-bearing liabilities. During the nine
months ended September 30, 1996, borrowings and time deposits represented 67.1%
of total interest bearing liabilities compared to 56.4% in 1995. This change in
the composition of interest-bearing liabilities resulted from the County
acquisition and the nature of its funding sources as well as from a slight shift
in the Company's deposit accounts from transaction accounts to certificates of
deposit.
Provision for Possible Loan Losses. The provision for possible loan
losses increased 52.3% to $926,000 for the nine months ended September 30, 1996
compared to $608,000 for the comparable period in 1995. The increase reflected
overall loan growth coupled with higher levels of nonperforming loans, discussed
previously.
Non-Interest Income. Total non-interest income increased 19.1% to $4.6
million for the nine months ended September 30, 1996, compared to $3.9 million
for the nine months ended September 30, 1995 primarily due to an increase in
gains on sales of loans from $1.1 million in 1995 to $1.5 million in 1996. The
increase was primarily due to
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the Company's activities in SBA lending programs. Customer service fees,
representing service charges on deposits and fees from other banking services
remained virtually unchanged, approximating $1.3 million in both periods. Trust
income increased 12.6% to $1.1 million in 1996, from $941,000 in 1995. Growth in
trust income resulted primarily from the continued expansion of the Company's
customer base and higher asset values.
Net investment securities gains amounted to $39,000 in 1996, compared
to $80,000 in 1995, a decrease of $41,000.
Other sources of income totaled $684,000 in 1996, an increase of 89.5%
from $361,000 in 1995. The increase was principally the result of expanded
fee-based product offerings to businesses and individuals and increased net
servicing fee income on SBA loans. The acquisition of County also contributed
$71,000 of other income, which primarily represented loan servicing fees and
related income.
Non-Interest Expense. Total non-interest expense increased 55.0% to
$14.8 million for the nine months ended September 30, 1996, compared to $9.6
million in 1995. As discussed previously, nonrecurring charges totaling $2.6
million were recorded during the third quarter of 1996. Excluding these charges,
year to date non-interest expense increased $2.6 million, or 27.5%, with $1.2
million of this increase relating to County's operating costs included in the
year to date results and $180,000 resulting from goodwill and other intangible
amortization. Increases in general and administrative expenses have occurred in
1996 as a result of the Company's expansion of operating hours at certain
locations, small business lending operations, trust services and other consumer
products and services. The Company's efficiency ratio, excluding nonrecurring
charges, was 58.9% for the nine months ended September 30, 1996 compared to
57.4% for the comparable period in 1995.
Salaries and employee benefits represented approximately 54.1% of total
non-interest expense in 1996 (excluding nonrecurring charges and amortization
expense), compared to 53.5% in 1995. Salaries and employee benefits increased
27.0%, from $5.1 million in 1995 to $6.5 million in 1996. County's salary and
employee benefits represented $706,000 of the total increase of $1.4 million
with the remainder resulting from the Company's market expansion, new product
offerings and salary increases.
Net occupancy expense increased $170,000, or 30.6%, from $556,000 in
1995 to $726,000 in 1996. In addition to occupancy costs of $131,000 incurred by
County, higher net occupancy expenses were primarily the result of costs
associated with expansion of the Company's small business lending centers and
the opening of a supermarket branch location in July 1996.
Furniture and equipment expense increased $77,000, or 27.4% in 1996. In
addition to expenses of $38,000 added by County, the increase in furniture and
fixture expense in 1996 was due principally to higher depreciation expense.
The Company's data processing expenses increased $94,000, or 19.9%, in
1996 to $567,000 from $473,000. In addition to expenses of $37,000 added by
County, higher costs resulted from the expansion of technology throughout the
Company to enhance customer service, increase efficiencies and improve
information management systems.
Excluding the special one time SAIF assessment of $2.3 million, Federal
deposit insurance expense decreased $195,000 to $184,000 during the nine months
ended September 30, 1996 compared to $379,000 during the nine months ended
September 30, 1995, reflecting lower Bank Insurance Fund premium assessment
rates that took effect during the second quarter of 1995.
Amortization of goodwill and other intangibles resulting from the
application of purchase accounting in connection with the County acquisition
totaled $180,000 during the period from August 14, 1996 to September 30, 1996.
Increases in other non-interest expenses, excluding nonrecurring
charges of $323,000 and expenses of $150,000 added by County, were primarily
related to the expanded volume of business activities.
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Provision for Income Taxes. The provision for federal income taxes for
the nine months ended September 30, 1996 was $1.2 million, or 26.2% of pretax
earnings, compared to $2.0 million, or 30.4% of pretax earnings for the nine
months ended September 30, 1995. The decrease in expense in 1996 relative to
pretax earnings resulted from a higher portion of such earnings consisting of
tax-exempt income from obligations of states and political subdivisions and
non-taxable loans.
ASSET QUALITY
NonPerforming 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 and thrift
subsidiaries formally document their evaluation of the adequacy of the allowance
for possible loan losses on a quarterly basis and the evaluations are reviewed
and discussed with their respective boards 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 $554,000 of such property at
September 30, 1996 and $24,000 at December 31, 1995. No such property was owned
at September 30, 1995.
Nonperforming loans totaled $1.8 million, or 0.25% of total loans, at
September 30, 1996, compared to $1.0 million, or .37% of total loans at year end
1995 and $981,000, or 0.36% of total loans, at September 30, 1995. Nonperforming
assets totaled $2.3 million, or 0.23% of total assets at September 30, 1996,
compared to $1.0 million, or 0.22% of total assets, at December 31, 1995 and
$981,000, or .21% of total assets at September 30, 1995. Management of the
Company is not aware of any material amounts of loans outstanding, not disclosed
in the table below, for which there is significant uncertainty as to the ability
of the borrower to comply with present payment terms. The following is an
analysis of the composition of nonperforming assets:
September 30 December 31 September 30
1996 1995 1995
--------------------- --------------------- -------------
Non-accrual loans $ 1,077 $ 440 $ 505
Accruing loans 90 days or more past due 704 584 476
--------------- -------------- ---------------
Total nonperforming loans 1,781 1,024 981
Other real estate owned 554 24 0
--------------- -------------- ---------------
Total nonperforming assets $ 2,335 $ 1,048 $ 981
================= ================ =================
Nonperforming loans to total loans 0.25 % 0.38 % 0.36 %
Nonperforming assets to total assets 0.23 % 0.22 % 0.21 %
Nonperforming loans considered to be impaired under Statement of
Financial Accounting Standards No. 114 totaled $118,000 and $801,000 at
September 30, 1996 and December 1995, respectively, The Company recorded no
interest income on these loans in 1996 and $4,000 in interest income on these
loans in 1995. Interest income that would have been recorded on these loans
according to their original terms was $9,000 in 1996 and $30,000 in 1995. The
related allocation of the allowance for possible loan losses for these impaired
loans is $2,000 at September 30, 1996.
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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
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.
The following table summarizes the Company's loan loss experience, and
provides a breakdown of the allowance for possible loan losses at the dates
indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------------- -------------------- ----------------- ----------
Balance at beginning of period $ 3,544 $ 3,188 $ 3,307 $ 3,095
Provision charged to expense 316 206 926 608
Addition due to acquisition 2,861 2,861
Loans charged-off (267) (237) (763) (592)
Recoveries of loans previously
charged off 78 23 201 69
-------------- -------------- ---------- ----------
Balance at end of period $ 6,532 $ 3,180 $ 6,532 $ 3,180
================ ================ ============ ============
Loans outstanding at end of period 709,616 271,165
Allowance as a percentage of loans
outstanding 0.92% 1.17%
Allowance for possible loan losses
to nonperforming loans 366.35% 324.16%
Average loans outstanding 507,104 266,705 354,899 260,370
NET CHARGE-OFFS TO AVERAGE LOANS
(ANNUALIZED) 0.15% 0.32% 0.21% 0.27%
============== ============== =============== ===============
The allowance for possible loan losses totaled $6.5 million at
September 30, 1996, representing .92% of total loans, compared to $3.3 million
at December 31, 1995, or 1.23% of total loans and $3.2 million at September 30,
1995, or 1.17% of total loans. The acquisition of County provided for
substantially all of the $2.9 million increase in such allowances. 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 nine months ended September 30,
1996 were $562,000, compared to net charge-offs of $523,000 for the same period
in 1995 and net charge-offs of $755,000 for the year ended December 31, 1995.
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 nonperforming
loans ("coverage ratio"), was 366.4% at September 30, 1996, compared to 323.0%
at the end of 1995 and 324.2% at September 30, 1995. Although used as a general
indicator, the coverage ratio is not a primary factor in the determination of
the adequacy of the allowance by management. Total nonperforming loans as a
percentage of total loans remained a relatively low 0.25% of total loans at
September 30, 1996. The increase in total nonperforming loans resulted from
County's nonperforming loans of $540,000 as well as from increases in the volume
of consumer installment and single family residential real estate loans.
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COMPARISON OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 FINANCIAL CONDITION
Total assets amounted to $1.0 billion at September 30, 1996, compared
to $476.4 million at December 31, 1995, an increase of $560 million, or 117.5%.
The acquisition of County provided $554.9 million of asset growth while internal
growth amounted to $5.1 million, or 1.1%.
Total investment securities increased by $97.3 million to $275.6
million. The acquisition of County added $111.3 million of investment securities
while the remainder of the Company's securities portfolio decreased $14.0
million primarily to fund the County acquisition as well as loan growth. 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 September 30, 1996, 82.3% of the total
investment portfolio was classified as available-for-sale, while those
securities which the Company intends to hold to maturity represented the
remaining 17.3%. This compares to 95.3% and 4.7% classified as
available-for-sale and held to maturity, respectively, at December 31, 1995.
Total loans increased $437.6 million, or 265.2%, to $704.1 million at
September 30, 1996. The acquisition of County provided $419.4 million of growth
while internal growth totaled $18.2 million, or 6.8% from year end 1995. This
increase was consistent with the Company's continued strategy of increasing the
loan portfolio while adhering to prudent underwriting standards in order to
improve the overall yield on earning assets.
Premises and equipment increased $4.0 million to $8.2 million at
September 30, 1996 with $3.3 million of this increase provided by County. Also,
increases occurred as a result of the Company's continued expansion of markets
and services.
Deposits totaled $714.4 million at September 30, 1996, an increase of
$365.9 million over the balance at December 31, 1995. The acquisition of County
provided $352.3 million of deposit growth while internal growth amounted to
$13.6 million, or 3.9%. The internal growth increase resulted from marketing
efforts and continued growth at newer branch offices. Total interest-bearing
deposits accounted for 92.9% of total deposits at September 30, 1996, compared
to 88.0% at December 31, 1995.
Total borrowings increased $160.9 million to $235.0 million at
September 30, 1996, compared to $74.1 million at December 31, 1995. This
increase resulted from County's total borrowings of $153.0 million at September
30, 1996 as well as $15.0 million of new borrowings obtained by the Company to
partially fund the acquisition of County.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
funds to accommodate customer loan demand as well as deposit withdrawals while
continuously seeking higher yields from longer term lending and investing
opportunities. This is accomplished principally by maintaining sufficient cash
flows and liquid assets along with consistent stable core deposits and the
capacity to maintain immediate access to funds. These immediately accessible
funds may include federal funds sold, unpledged marketable securities, reverse
repurchase agreements or available lines of credit from the FRB, FHLB, or other
financial institutions. An important factor in the preservation of liquidity is
the maintenance of public confidence, as this facilitates the retention and
growth of a large, stable supply of core deposits in funds.
The Company's principal source of funds to satisfy short-term liquidity
needs comes from cash, due from banks and federal funds sold. These sources
constituted 4.3% of average total assets for the third quarter of 1996,
unchanged from 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 Company. Securities with a market value of $227.0 million were
classified as available-for-sale as of September 30, 1996, representing 82.7% of
the total investment portfolio. Classification of securities as
available-for-sale provides for flexibility in managing net interest
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margin, interest rate risk, and liquidity. Cash flows from operating activities
amounted to $12.9 million and $8.8 million for the nine months ended September
30, 1996 and 1995, respectively.
The Company's bank and thrift subsidiaries are members of FHLB.
Membership provides an opportunity to control the bank's cost of funds by
providing alternative funding sources, to provide flexibility in the management
of interest rate risk through the wide range of available funding sources, to
manage liquidity via immediate access to such funds, and to provide flexibility
through utilization of customized funding products to fund various loan and
investment products and strategies.
The Company obtained a term loan with a financial institution in order
to partially fund the acquisition of County. Under terms of the loan agreement,
the Company is required to make quarterly interest payments commencing 90 days
from the funding date and annual principal payments, based on a ten year
amortization, commencing 18 months from the funding date. The unpaid loan
balance is due in full September 1, 2003. The loan agreement also contains
certain financial covenants all of which the Company was in compliance with at
September 30, 1996.
Shareholders' equity at September 30, 1996 was $75.6 million, compared
to prior year-end shareholders' equity of $50.0 million, an increase of $25.6
million, or 51.1%. This increase resulted from the Company's 1,000,000 common
share offering that was completed in connection with the acquisition of County
and netted the Company proceeds of $25.8 million. Partially offsetting this
increase were unrealized losses on available-for-sale securities of $463,000 at
September 30, 1996 compared to net gains of $942,000 at December 31, 1995. This
change in the effect on equity was attributable to changes in interest rates.
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 September 30, 1996, the Company had a total risk-based capital
ratio of 12.44%, of which 10.08% consisted of Tier 1 capital. The leverage ratio
for the Company at September 30, 1996, was 6.03%.
Cash dividends declared to shareholders of the Company totaled $2.5
million, or $0.75 per share, during the first three quarters of 1996. This
compares to dividends of $2.0 million, or $0.69 per share, for the same period
in 1995. Cash dividends paid as a percentage of net income amounted to 71.8% and
43.1% for the nine months ended September 30, 1996 and 1995, respectively.
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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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. NONE
----
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
---------------------------------------------
Nine Months Ended
September 30
--------------------------
1996 1995
--------------- ---------------
Gross Weighted Average Common
Shares Outstanding 3,206,000 3,034,000
Weighted Average Treasury
Shares Outstanding 60,000 61,000
---------------- ----------------
Net Weighted Average Common
Shares Outstanding 3,146,000 2,973,000
================ ================
Net Income $ 3,453,000 $ 4,573,000
================ ================
Net Income Per Common Share $ 1.10 $ 1.54
================ ================
(b) Exhibit 27: Financial Data Schedule
(c) Reports on Form 8-K
A current report on Form 8-K dated August 29, 1996,
reporting "Item 5. Other Events." was filed during the
quarter in which this quarterly report is filed, in
connection with the August 14, 1996 purchase of all of the
issued and
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outstanding stock of County Savings Bank ("County) pursuant
to a Stock Purchase Agreement between BancFirst Ohio Corp.
and First Financial Group, Inc. ("FFG) dated March 27, 1996.
The acquisition was partially funded with proceeds from a
1,000,000 secondary common share offering that was also
completed on August 14, 1996.
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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 (Signed) /s/ Gary N. Fields
--------------------- ---------------------------------
Gary N. Fields
President and
Chief Executive Officer
Date (Signed) /s/Kim M. Taylor
--------------------- ---------------------------------
Kim M. Taylor
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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