1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 May 8, 1997
----- -----------------------------
Common Stock, No Par Value 3,980,647
1
2
INDEX
BANCFIRST OHIO CORP.
PART I. FINANCIAL INFORMATION PAGE NO.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheet.................................................. 3
Consolidated Statement of Income............................................ 4
Consolidated Statement of Cash Flows........................................ 5
Notes to Consolidated Financial Statements.................................. 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 9-20
PART II. OTHER INFORMATION
Other Information.................................................................... 21
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) Exhibit 27: Financial Data Schedule
(c) Reports on Form 8-K
Signatures ................................................................... 22
2
3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BANCFIRST OHIO CORP.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31 DEC. 31
1997 1996
----------- -----------
ASSETS:
Cash and due from banks $ 19,950 $ 18,856
Federal funds sold 2,450 2,193
Securities held-to-maturity, at amortized cost (approximate
fair value of $46,240 and $47,652 in 1997 and 1996,
respectively) 46,000 46,799
Securities available-for-sale, at fair value 248,658 237,777
----------- -----------
Total securities 294,658 284,576
----------- -----------
Loans, net of unearned income 723,667 721,855
Allowance for possible loan losses (6,691) (6,599)
----------- -----------
Net loans 716,976 715,256
----------- -----------
Bank premises and equipment, net 8,084 7,962
Accrued interest receivable 7,200 6,696
Intangible assets 13,799 14,187
Other assets 5,571 7,194
----------- -----------
Total assets $ 1,068,688 $ 1,056,920
=========== ===========
LIABILITIES:
Deposits:
Non-interest-bearing deposits $ 48,847 $ 56,179
Interest-bearing deposits 684,351 676,510
----------- -----------
Total deposits 733,198 732,689
Short-term borrowings 4,500 11,650
Long-term borrowings 245,473 224,959
Accrued interest payable 2,851 2,255
Other liabilities 4,238 7,473
----------- -----------
Total liabilities 990,260 979,026
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $10 par value, 7,500,000 shares authorized,
4,033,919 shares issued in 1997 and 1996, respectively 40,340 40,340
Capital in excess of par value 22,834 22,807
Retained earnings 17,063 15,466
Unrealized holdings gains (losses) on securities
available-for-sale, net (761) 304
Treasury stock, 54,165 and 54,420 shares, at cost, in 1997
and 1996, respectively (1,048) (1,023)
----------- -----------
Total shareholders' equity 78,428 77,894
----------- -----------
Total liabilities and shareholders' equity $ 1,068,688 $ 1,056,920
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
4
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATE)
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
------- -------
Interest income:
Interest and fees on loans $15,512 $ 6,187
Interest and dividends on securities:
Taxable 4,618 2,537
Tax-exempt 332 329
Other interest income 189 88
------- -------
Total interest income 20,651 9,141
------- -------
Interest expense:
Time deposits, $100 and over 1,873 710
Other deposits 6,059 2,668
Long-term borrowings 3,589 838
Short-term borrowings 37 192
------- -------
Total interest expense 11,558 4,408
------- -------
Net interest income 9,093 4,733
Provision for possible loan losses 298 292
------- -------
Net interest income after
provision for possible loan losses 8,795 4,441
------- -------
Other income:
Trust and custodian fees 422 375
Customer service fees 463 411
Gain on sale of loans 491 596
Other 164 180
Investment securities gains, net 22 2
------- -------
Total other income 1,562 1,564
------- -------
Other expense:
Salaries and employee benefits 3,523 1,887
Net occupancy expense 531 205
Amortization of intangibles 396 7
Other 1,936 1,288
------- -------
Total other expense 6,386 3,387
------- -------
Income before income taxes 3,971 2,618
Provision for Federal income taxes 1,339 763
------- -------
Net income $ 2,632 $ 1,855
======= =======
Net income per common share $ 0.66 $ 0.62
======= =======
Weighted average common shares outstanding 3,981 2,972
======= =======
Cash dividends per common share $ 0.26 $ 0.25
======= =======
Total cash dividends paid $ 1,035 $ 743
======= =======
The accompanying notes are an integral part of the financial statements.
4
5
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
--------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 2,632 $ 1,855
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization 1,017 483
Provision for possible loan losses 298 292
Gain on sale of assets (513) (598)
Increase in interest receivable (504) (377)
Decrease in other assets 1,786 3,576
Increase in interest payable 596 176
Decrease in other liabilities (1,735) (397)
FHLB stock dividend (234) (74)
-------- --------
Net cash provided by operating activities 3,343 4,936
-------- --------
Cash flows from investing activities:
(Increase) decrease in federal funds sold and short term investments (845) 487
Proceeds from maturities of securities held-to-maturity 769 94
Proceeds from maturities and sales of securities available-for-sale 20,995 9,550
Purchase of securities held-to-maturity -- (487)
Purchase of securities available-for-sale (32,801) (10,838)
Increase in loans, net (5,402) (14,212)
Decrease in payable related to acquisition of County Savings Bank (1,500) --
Purchase of loans (7,374) --
Purchases of equipment and other assets (420) (329)
Proceeds from sale of loans 11,339 5,673
-------- --------
Net cash used in investing activities (15,239) (10,062)
-------- --------
Cash flows from financing activities:
Decrease in short-term borrowings (7,150) (2,500)
Increase (decrease) in other long-term borrowings 20,514 (104)
Net increase in deposits 659 7,691
Cash dividends paid (1,035) (743)
Reissuance of treasury stock, net 2 44
-------- --------
Net cash provided by financing activities 12,990 4,388
-------- --------
Net increase (decrease) in cash and due from banks 1,094 (738)
Cash and due from banks, beginning of period 18,856 14,102
-------- --------
Cash and due from banks, end of period $ 19,950 $ 13,364
======== ========
Supplemental cash flow disclosures:
Income taxes paid $ -- $ 50
======== ========
Interest paid $ 11,112 $ 4,232
======== ========
The accompanying notes are an integral part of the financial statements
5
6
BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of management of BancFirst Ohio Corp. ("Company"), the
accompanying consolidated financial statements contain all material adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position and results of operations and cash flows for the periods
presented. The unaudited financial statements are presented in accordance with
the requirements of Form 10-Q and do not include all disclosures normally
required by generally accepted accounting principles. Reference should be made
to the Company's consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1996
for additional disclosures, including a summary of the Company's accounting
policies. The results of operations for the three month period ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
year. Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the 1997 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
three months ended March 31, 1997 and 1996 as if County had been
acquired at the beginning of such period:
MARCH 31,
1997 1996
---- ----
Net Interest income $9,093 $8,206
Net Income $2,632 $2,443
Net Income per share $ .66 $ .62
6
7
2) INVESTMENT SECURITIES:
The amortized cost and estimated fair value of investment securities
are as follows:
MARCH 31, 1997 DECEMBER 31,1996
-------------- ----------------
SECURITIES HELD-TO-MATURITY COST FAIR VALUE COST FAIR VALUE
- --------------------------- ---- ---------- ---- ----------
(IN THOUSANDS)
Other U.S. government agencies $ 2,084 $ 2,094 $ 1,999 $ 2,000
State and political subdivisions 6,262 6,295 6,266 6,375
Mortgage-backed and related securities 34,864 35,061 35,690 36,431
Other 2,790 2,790 2,844 2,846
-------- -------- -------- --------
$ 46,000 $ 46,240 $ 46,799 $ 47,652
======== ======== ======== ========
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
U.S. treasury securities $ 11,268 $ 11,315 $ 11,775 $ 11,881
Other U.S. government agencies 14,803 14,566 12,446 12,428
State and political subdivisions 16,113 16,096 16,090 16,301
Mortgage-backed and related securities 191,090 190,153 182,509 182,672
Other 16,537 16,528 14,495 14,495
-------- -------- -------- --------
$249,811 $248,658 $237,315 $237,777
======== ======== ======== ========
3) LOANS AND LEASES BY CATEGORIES:
MARCH 31 DEC. 31
1997 1996
-------- --------
(IN THOUSANDS)
Commercial, financial and agricultural $303,745 $299,630
Real estate - mortgage 332,168 337,911
Real estate - construction 8,901 7,716
Consumer installment 78,853 76,598
-------- --------
Total $723,667 $721,855
======== ========
4) LONG-TERM BORROWINGS
Long-term borrowings as of March 31, 1997 and December 31, 1996 were as
follows:
MARCH 31 DEC. 31
1997 1996
-------- --------
(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 220,473 199,959
Term debt with a financial institution (LIBOR + 1.35%) 15,000 15,000
-------- --------
Total $245,473 $224,959
======== ========
7
8
Minimum annual retirements on long-term borrowings for the next five
years consisted of the following:
MARCH 31,1997 DECEMBER 31, 1996
------------- -----------------
(IN THOUSANDS)
MATURITY (PERIOD AVERAGE AVERAGE
ENDING DECEMBER 31) RATE AMOUNT RATE AMOUNT
- ------------------- ---- ------ ---- ------
1996 5.69% $ 180,365 6.42% $ 169,851
1997 5.93% 19,734 5.93% 17,734
1998 6.20% 17,266 6.24% 14,266
1999 6.50% 5,051 6.76% 3,051
2000 6.47% 6,088 6.75% 3,088
2001 and thereafter 6.87% 16,969 6.64% 16,969
--------- --------
Total 5.86% $ 245,473 6.39% $224,959
========= ========
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 March 31, 1997 of $14.7 million) is pledged as
collateral for these borrowings.
The Company has no commitments to borrow additional funds from the FHLB
as of March 31, 1997.
5) NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".
This statement provides accounting and reporting standards for loan
securitizations based on control of the underlying assets. It also
provides accounting and implementation guidance for other transfers,
including partial transfers of loans, servicing of financial assets,
repurchase agreements, securities lending and extinguishements of
liabilities. The effective date of certain provisions has been
deferred by the Financial Accounting Standards Board until 1998.
Adoption of this statement had no impact on the Company's March 31,
1997 financial statements.
SFAS No. 128 "Earnings Per Share" was issued in February 1997 and is
effective for financial statements issued for periods after December
15, 1997. The statement specifies the computation, presentation and
disclosure requirements for earning per share for entities with
publcly held common stock. The impact of the statement on earnings
per share is not expected to be material.
6) SUBSEQUENT EVENT
On April 17, 1997, the Company's shareholders approved proposals to
the Company's Articles of Incorporation to increase the number of
authorized shares of common stock to 20,000,000 from 7,500,000 and to
eliminate par value per share of common stock. These changes to the
Company's Articles of Incorporation will have no effect on the
existing capital of the Company.
8
9
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BANCFIRST OHIO CORP.
For a comprehensive understanding of the Company's financial condition and
performance, this discussion should be considered in conjunction with the
Company's Consolidated Financial Statements, accompanying notes, and other
information contained elsewhere herein.
This discussion contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involves risks and uncertainties. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included herein will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the forward-looking
statements include, but are not limited to: economic conditions (both generally
and more specifically in the markets in which the Company and its Banking
Subsidiaries operate); competition for the Company's customers from other
providers of financial services; government legislation and regulation (which
changes from time to time and over which the Company has no control); changes in
interest rates; material unforeseen changes in the liquidity, results of
operations, or other financial position of the Company's customers; delays in,
customers' reactions to, and other unforeseen complications with respect to the
implementation of the Company's planned integration of County; and other risks
detailed in the Company's filings with the Securities and Exchange Commission,
all of which are difficult to predict and many of which are beyond the control
of the Company.
9
10
BANCFIRST OHIO CORP.
SELECTED FINANCIAL DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR THE THREE MONTHS
ENDED MARCH 31,
1997 (1) 1996
------------- -------------
STATEMENT OF INCOME DATA:
Interest income $ 20,651 $ 9,141
Interest expense 11,558 4,408
---------- --------
Net interest income 9,093 4,733
Provision for possible loan losses 298 292
Non-interest income 1,562 1,564
Non-interest expense 6,386 3,387
---------- --------
Income before income taxes 3,971 2,618
Provision for Federal income taxes 1,339 763
---------- --------
Net income $ 2,632 $ 1,855
========== ========
PER SHARE DATA:
Net income $ 0.66 $ 0.62
Dividends 0.26 0.25
Book value 19.71 16.89
Tangible book value 16.24 16.86
BALANCE SHEET DATA:
Total assets $1,068,688 $481,490
Loans 723,667 277,715
Allowance for possible loan losses 6,691 3,406
Securities 294,658 178,195
Deposits 733,198 356,236
Borrowings 249,973 71,531
Shareholders' equity 78,428 50,205
PERFORMANCE RATIOS (3):
Return on average assets 0.99% 1.52%
Return on average equity 13.56 14.93
Net interest margin 3.65 4.28
Interest rate spread 3.21 3.97
Non-interest income to average assets 0.59 1.30
Non-interest expense to average assets 2.26 2.83
Efficiency ratio (2) 55.34 53.69
ASSET QUALITY RATIOS:
Non-performing loans to total loans 0.41% 0.48%
Non-performing assets to total assets 0.32 0.28
Allowance for possible loan losses to total loans 0.92 1.23
Allowance for possible loan losses to non-performing loans 227.4 254.4
Net charge-offs to average loans (3) 0.12 0.28
CAPITAL RATIOS:
Shareholders' equity to total assets 7.34% 10.43%
Tier 1 capital to total assets 6.16% 10.41
Tier 1 capital to risk-weighted assets 11.27% 16.96
(1) The Company's acquisition of County in August 1996 significantly affects
the comparability of the Company's results of operations for prior periods.
(2) The efficiency ratio is equal to non-interest expense (excluding
amortization expense) divided by net interest income on a fully tax
equivalent basis plus non-interest income excluding gains on sales of
securities.
(3) Ratios are stated on an annualized basis.
10
11
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 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 March 31,
.................1997................ ..................1996................
(Dollars in thousands)
Average Income / Yield / Average Income / Yield /
Balance Expense Rate (1) Balance Expense Rate (1)
------- ------- -------- ------- ------- --------
Securities:
Taxable $ 276,194 $ 4,766 7.00% $ 149,413 $ 2,537 6.81%
Tax-exempt 25,286 502 8.05 27,572 487 7.08
---------- ---------- ---------- ----------
Total securities 301,480 5,268 7.09 176,985 3,024 6.85
Loans (2):
Commercial 308,432 7,269 9.56 114,108 2,776 9.76
Real estate 340,769 6,522 7.76 109,023 2,163 7.96
Consumer 76,300 1,743 9.26 53,451 1,276 9.58
---------- ---------- ---------- ----------
Total loans 725,501 15,534 8.68 276,582 6,215 9.01
Federal funds sold 3,598 41 4.62 6,918 88 5.10
---------- ---------- ---------- ----------
Total earning assets (3) 1,030,579 20,843 8.20% 460,485 9,327 8.15%
---------- ---- ---------- ----
Non-interest earning assets 44,243 20,400
---------- ----------
Total assets $1,074,822 $ 480,885
========== ==========
Interest-bearing deposits:
Demand and savings deposits $ 204,400 $ 1,333 2.64% $ 155,712 $ 1,090 2.81%
Time deposits 482,783 6,601 5.55 163,054 2,288 5.63
---------- ---------- ---------- ----------
Total deposits 687,183 7,934 4.68 318,766 3,378 4.25
Borrowings 251,108 3,625 5.85 69,279 1,030 5.96
---------- ---------- ---------- ----------
Total interest-bearing liabilities 938,291 11,559 5.00 388,045 4,408 4.56
---------- ---- ---------- ----
Non interest-bearing deposits 47,383 38,041
---------- ----------
Subtotal 985,674 426,086
Accrued expenses and other liabilities 10,427 4,949
---------- ----------
Total liabilities 996,101 431,035
Shareholders' equity 78,721 49,850
---------- --------
Total liabilities and shareholders' equity 1,074,822 $480.885
========== ========
Net interest income and
interest rate spread (4) $ 9,284 3.21% $ 4,919 3.59%
========== ==== ========== ====
Net interest margin (5) 3.65% 4.28%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 109.8% 118.7%
(1) Calculated on an annualized basis.
(2) Non-accrual loans are included in the average loan balances.
(3) Interest income is computed on a fully tax equivalent (FTE) basis, using a
tax rate of 34%.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
12
13
RATE AND VOLUME VARIANCES
Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table
discloses the dollar changes in the Company's net interest income attributable
to changes in levels of interest-earning assets or interest-bearing liabilities
(volume), changes in average yields on interest-earning assets and average rates
on interest-bearing liabilities (rate) and the combined volume and rate effects
(total). For the purposes of this table, the change in interest due to both rate
and volume has been allocated to volume and rate change in proportion to the
relationship of the dollar amounts of the change in each. In general, this table
provides an analysis of the effect on income of balance sheet changes which
occurred during the periods and the changes in interest rate levels.
THREE MONTHS ENDED MARCH 31,
1997 VS. 1996
(IN THOUSANDS)
INCREASE (DECREASE)
-------------------
VOLUME RATE TOTAL
-------- -------- --------
Interest-earning assets:
Securities:
Taxable $ 2,115 $ 114 $ 2,229
Non-taxable (42) 57 15
-------- -------- --------
Total securities 2,073 171 2,244
-------- -------- --------
Loans:
Commercial 4,666 (173) 4,493
Real estate 4,543 (184) 4,359
Consumer 531 (64) 467
-------- -------- --------
Total loans 9,740 (421) 9,319
-------- -------- --------
Federal funds sold (43) (4) (47)
-------- -------- --------
Total interest-earning assets (1) 11,770 (254) 11,516
-------- -------- --------
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 331 (88) 243
Time deposits 4,431 (118) 4,313
-------- -------- --------
Total interest-bearing deposits 4,762 (206) 4,556
Borrowings 2,673 (78) 2,595
-------- -------- --------
Total interest-bearing liabilities 7,435 (284) 7,151
-------- -------- --------
Net interest income $ 4,335 $ 30 $ 4,365
======== ======== ========
(1) Computed on a fully tax-equivalent basis, assuming a tax rate of 34%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996
Net Income. Net income for the three months ended March 31, 1997
increased 41.9% to $2.6 million, compared to net income of $1.9 million for the
three months ended March 31, 1996. Earnings per share in the first quarter of
1997 equaled $0.66, compared to $0.62 for the same period in 1996. Net interest
income increased 92.1% in the three months ended March 31, 1997, as compared to
the same period in 1996 while the provision for possible loan losses and
non-interest expense increased 2.1% and 88.5%, respectively. Non-interest income
was basically unchanged from the comparative period. The Company's net interest
margin decreased to 3.65% for the first quarter of 1997, compared to 4.28% for
the same period in 1996, reflecting the lower net interest margin on County's
interest-earning assets. Increases in non-interest income resulting
13
14
from the inclusion of County's operating results and higher levels of fee income
were offset by lower gains on sales of the guaranteed portion of SBA loans and
lower net servicing fee income associated with such loans due to increased
amortization of capitalized servicing fee assets. Non-interest expense increased
due to the inclusion of County's operating expenses, amortization of intangibles
resulting from the County acquisition 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 .99% and 13.56%, respectively,
in the first quarter of 1997, compared to 1.52% and 14.93%, respectively, in the
first quarter of 1996.
Interest Income. Total interest income increased 125.9% to $20.7
million for the three months ended March 31, 1997, compared to $9.1 million for
the first quarter of 1996. This increase resulted from a $570.1 million, or
123.8%, increase in average interest-earning assets between the two periods. The
average balance of loans increased $448.9 million, or 162.3%. These increases
resulted primarily from the acquisition of County which contributed $544.4
million of the increase in average earning assets and $427.9 million of the
increase in average loans. The increase in average assets of $25.7 million from
internal growth was consistent with the Company's growth strategies to maximize
returns on shareholders' equity.
The weighted average yield on interest-earning assets increased
slightly to 8.20% during the three months ended March 31, 1997, compared to
8.15% during the same three month period in 1996. The Company's yield on average
loans decreased from 9.01% during the three months ended March 31, 1996 to 8.68%
during the three months ended March 31, 1997. 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. The impact of
this decrease in yield was partially offset by additional accretion of discounts
on SBA loans totaling $155,000 resulting from prepayments. Yields on the
investment portfolio increased from 6.85% during the first quarter of 1996 to
7.09% during the first quarter of 1997 primarily as a result of increased yields
on adjustable rate securities and purchases of higher yielding mortgage-backed
securities during the fourth quarter of 1996 and first quarter of 1997.
Interest Expense. Total interest expense increased 162.2% to $11.6
million for the three months ended March 31, 1997, compared to $4.4 million for
the three months ended March 31, 1996. Interest expense increased due to a
higher average balance of interest-bearing liabilities outstanding and due to a
higher cost of funds during the first quarter of 1997, as compared to the same
period in 1996. The average balance of interest-bearing deposit accounts
increased $368.4 million, or 115.6%, from the first quarter in 1996 to the first
quarter in 1997. Average interest-bearing liabilities increased 141.8%, from
$388.0 million to $938.3 million. These increases also primarily resulted from
the acquisition of County which contributed $520.2 million (including $15.0
million of acquisition related debt) to the increase in average interest-bearing
liabilities and $354.0 million to the increase in total interest-bearing
deposits.
The Company's cost of funds increased to 5.00% in the three months
ended March 31, 1997 compared to 4.56% in the same period of 1996, 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 and higher borrowing levels relative to
total interest-bearing liabilities.
Provision for Possible Loan Losses. The provision for possible loan
losses was $298,000 for the three months ended March 31, 1997, compared to
$292,000 in the first quarter of 1996. Total non-performing loans increased
119.8% to $2.9 million at March 31, 1997, from $1.3 million at March 31, 1996,
with County adding $1.3 million to the 1997 total. The allowance for possible
loan losses at March 31, 1997 was $6.7 million, or .92% of total loans and
227.4% of non-performing loans compared to $3.4 million, or 1.23% of total loans
and 254.4% of non-performing loans at March 31, 1996. 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 was $1.6 million for the
three months ended March 31,1997 and 1996. Fee and other income contributed by
County to the 1997 results totaled $250,000. This increase was offset by a
$161,000 decrease in gains on sales of SBA loans. During the first quarter of
1997, the Company sold approximately $3.1 million of the guaranteed portion of
its SBA loan originations in the secondary market compared to $5.2 million in
the first quarter of 1996, realizing gains of $320,000 in 1997, compared to
gains of $596,000 in 1996. In addition, the Company sold $3.2 million of the
guaranteed portion of a commercial real estate loan originated under the Farmers
B&I program, realizing a gain of $115,000
14
15
in the first quarter of 1997. Also, in the first quarter of 1997, servicing fee
income associated with SBA loans was reduced $274,000 for additional
amortization of capitalized servicing assets due to prepayments of the
underlying loans (see also Interest Income above regarding additional acretion
of related discounts). At March 31, 1997, unamortized capitalized servicing
assets related to SBA loans totaled $2.0 million while discounts associated with
the retained portion of SBA loans totaled $1.4 million. While management cannot
predict, with certainty, the timing of future prepayments, further prepayments
of SBA loans are considered less likely as a result of recent increases in
interest rates.
Customer service fees, representing service charges on deposits and
fees from other banking services, increased 12.7% in the first quarter of 1997,
to $463,000, from $411,000 in the first quarter of 1996. This increase resulted
from fee income contributed by County to the 1997 results as well as from higher
fee structures. Trust income increased 12.5% to $422,000 in the first quarter of
1997, from $375,000 in the first quarter of 1996. Growth in trust and custodian
fees resulted primarily from the expansion of the customer base and higher asset
values. The $16,000 decrease in other income to $164,000 in the first quarter of
1997 compared to $180,000 in the first quarter of 1996 resulted from the
additional amortization of servicing fee assets more than offsetting other fee
income added by County, as previously discussed.
The following table sets forth the Company's non-interest income for
the periods indicated:
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
---- ----
(IN THOUSANDS)
Trust and custodian fees $ 422 $ 375
Customer service fees 463 411
Investment securities gains 22 2
Gains on sales of loans 491 596
Other 164 180
------ ------
Total $1,562 $1,564
====== ======
Non-Interest Expense. Total non-interest expense increased $3.0 million
to $6.4 million in the three months ended March 31, 1997, compared to $3.4
million in the three months ended March 31, 1996. Excluding expenses of $2.6
million that were added by or resulted from the acquisition of County,
non-interest expenses increased $373,000, or 11.0%, during the first quarter of
1997 compared to the same period in 1996. 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
MARCH 31,
1997 1996
---- ----
(IN THOUSANDS)
Salaries and employee benefits $3,523 $1,887
Net occupancy expense 531 205
Furniture, fixtures and equipment 173 103
Data processing 262 152
Taxes other than income taxes 271 144
Federal deposit insurance 64 18
Amortization of goodwill and other intangibles 396 7
Other 1,166 871
------ ------
Total $6,386 $3,387
====== ======
Salaries and employee benefits accounted for approximately 55.2% of
total non-interest expense in the three months
15
16
ended March 31, 1997 compared to 55.7% in the first quarter of 1996. The average
full time equivalent staff was 358 in 1997 compared to 214 in 1996. Excluding
salary and employee benefits expense of $1.4 million added by County, such
expenses increased $268,000, or 14.2% as a result of market expansion and new
product offerings during 1996.
Net occupancy expense increased 159.0% to $531,000 in the first quarter
of 1997 from $205,000 in the first quarter of 1996. This increase resulted from
$300,000 of expenses added by County with the remainder attributed primarily to
the expansion of the Company's small business lending centers and opening of a
supermarket branch in July 1996.
Furniture, fixtures and equipment expense increased $70,000, or 70.0%
for the first quarter of 1997. In addition to $54,000 of expenses added by
County, the increase in furniture and equipment expense was due principally to
higher depreciation costs.
Data processing expense increased $110,000, or 72.4%, for the first
quarter of 1997. In addition to $76,000 of expenses added by County, higher
costs in 1997 resulted from the expansion of technology throughout the Company
during 1996 to enhance customer service, increase efficiencies and improve
information management systems.
Taxes other than income taxes increased $127,000, or 88.2%, for the
first quarter of 1997 compared to the first quarter of 1996. This increase
resulted from $107,000 of expenses added by County as well as from higher equity
levels of the Company's subsidiaries.
Federal deposit insurance expense increased $46,000 to $64,000 in 1997
from $18,000 in the first quarter of 1996 primarily as a result of $43,000 of
expense added by County.
Amortization of goodwill and other intangible assets resulting from the
application of purchase accounting in connection with the County acquisition
totaled $389,000 during the first quarter of 1997 with no comparable amount in
the first quarter of 1996.
Excluding $289,000 of expenses added by County, other non-interest
expenses were $877,000 during the first quarter of 1997 compared to $871,000 in
the first quarter of 1996.
The efficiency ratio is one method used in the banking industry to
assess profitability. It is defined as non-interest expense less amortization
expense divided by the net revenue stream, which is the sum of net interest
income on a tax-equivalent basis and non-interest income excluding net
investment securities gains or losses. The Company's efficiency ratio was 55.3%
for the first quarter of 1997, compared to 53.7% for the comparable period in
1996. 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 1997 as a
result of the Company's expansion into new markets, increased growth and volume
of activities, and overall inflation.
Provision for Income Taxes. The Company's provision for Federal income
taxes was $1.3 million, or 33.7% of pretax income, for the three months ended
March 31, 1997 compared to $763,000, or 29.1% of pretax income, for the three
months ended March 31, 1996. The effective tax rate for each period differed
from the federal statutory rate principally as a result of tax-exempt income
from obligations of states and political subdivisions and non-taxable loans and
the non-deductibility, for tax purposes, of goodwill and core deposit intangible
amortization expense.
ASSET QUALITY
Non-performing Assets. To maintain the level of credit risk of the loan
portfolio at an appropriate level, management sets underwriting standards and
internal lending limits and provides for proper diversification of the portfolio
by placing constraints on the concentration of credits within the portfolio. In
monitoring the level of credit risk within the loan portfolio, management
utilizes a formal loan review process to monitor, review, and consider relevant
factors in evaluating specific credits in determining the adequacy of the
allowance for possible loan losses. 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 the respective boards of directors.
16
17
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 $523,000 of such property at
March 31, 1997 and $539,000 at December 31, 1996. No such property was owned at
March 31, 1996.
Non-performing loans totaled $2.9 million, or 0.41% of total loans, at
March 31, 1997, compared to $1.3 million, or 0.48% of total loans, at March 31,
1996. The increase in non-performing loans of $1.6 million from March 31, 1996
was primarily attributed to County's non-performing loans of $1.3 million.
Non-performing assets totaled $3.5 million, or 0.32% of total assets at March
31, 1997, compared to $1.3 million, or .28% of total assets at March 31, 1996.
Management of the Company is not aware of any material amounts of loans
outstanding, not disclosed in the table below, for which there is significant
uncertainty as to the ability of the borrower to comply with present payment
terms. The following is an analysis of the composition of non-performing assets:
MARCH 31,
1997 1996
------ ------
(DOLLARS IN THOUSANDS)
Non-accrual loans $1,682 $ 846
Accruing loans 90 days or more past due 1,261 493
------ ------
Total non-performing loans 2,943 1,339
Other real estate owned 523 --
------ ------
Total non-performing assets $3,466 $1,339
====== ======
Non-performing loans to total loans 0.41% 0.48%
Non-performing assets to total assets 0.32% 0.28%
Non-performing loans considered to be impaired under Statement of
Financial Accounting Standards No. 114 at March 31, 1997 and the related effects
on earnings during the periods presented were not material.
Allowance for Possible Loan Losses. The Company records a provision
necessary to maintain the allowance for possible loan losses at a level
sufficient to provide for potential future credit losses. The provision is
charged against earnings when it is established. An allowance for possible loan
losses is established based on management's best judgment, which involves a
continuing review of prevailing national and local economic conditions, changes
in the size and composition of the portfolio and review of individual problem
credits. Growth of the loan portfolio, loss experience, economic conditions,
delinquency levels, credit mix, and selected credits are factors that affect
judgments concerning the adequacy of the allowance. Actual losses on loans are
charged against the allowance.
17
18
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
MARCH 31,
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 6,599 $ 3,307
Provision charged to expense 298 292
Loans charged-off (331) (255)
Recoveries of loans previously
charged-off 125 62
--------- ---------
Balance at end of period $ 6,691 $ 3,406
========= =========
Loans outstanding at end of period $ 723,667 $ 277,715
Average loans outstanding $ 725,501 $ 276,582
Allowance as a percent of loans outstanding 0.92% 1.23%
Net charge-offs to average loans (annualized) 0.12% 0.28%
Allowance for possible loan losses
to nonperforming loans 227.4% 254.4%
The allowance for possible loan losses totaled $6.7 million at March
31, 1997, representing .92% of total loans, compared to $3.4 million at March
31, 1996, or 1.23% of total loans. County's allowance for possible loan losses
represented $2.9 million of the $3.3 million increase in such allowances at
March 31, 1997 from March 31, 1996. Charge-offs represent the amount of loans
actually removed as earning assets from the balance sheet due to
uncollectibility. Amounts recovered on previously charged-off assets are netted
against charge-offs, resulting in net charge-offs for the period. Net loan
charge-offs for the three months ended March 31, 1997 were $206,000, compared to
net charge-offs of $193,000 for the same period in 1996. Charge-offs have been
made in accordance with the Company's standard policy and have occurred
primarily in the commercial and consumer loan portfolios.
The allowance for possible loan losses as a percentage of
non-performing loans ("coverage ratio"), was 227.4% at March 31, 1997, compared
to 254.4% at March 31, 1996. Although used as a general indicator, the coverage
ratio is not a primary factor in the determination of the adequacy of the
allowance by management. Total non-performing loans as a percentage of total
loans remained a relatively low 0.41% of total loans at March 31, 1997.
COMPARISON OF MARCH 31, 1997 AND DECEMBER 31, 1996 FINANCIAL CONDITION
Total assets amounted to $1.07 billion at March 31, 1997, compared to
$1.06 billion at December 31, 1996, an increase of $11.8 million, or 1.1%.
Total investment securities increased by $10.1 million to $294.7
million. The Company's general investment strategy is to manage the portfolio to
include rate sensitive assets, matched against interest sensitive liabilities to
reduce interest rate risk. In recognition of this strategy, as well as to
provide a secondary source of liquidity to accommodate loan demand and possible
deposit withdrawals, the Company has chosen to classify the majority of its
investment securities as available-for-sale. At March 31, 1997, 84.4% 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 15.6%. This compares to 83.6% and 16.4% classified as
available-for-sale and held to maturity, respectively, at December 31, 1996.
18
19
Total loans increased $1.8 million to $723.7 million at March 31, 1997.
This slight increase reflects the relatively lower level of origination volume
that generally occurs during the first quarter. Also, first quarter 1997
origination volume as compared to 1996 was affected by increasing interest
rates.
Premises and equipment increased slightly from $8.0 million to $8.1
million at March 31, 1997, relating primarily to ATM installations at County's
branches.
Total deposits increased slightly to $733.2 million at March 31, 1997
from $732.7 million at December 31, 1996. The Company continues to emphasize
growth in its existing retail deposit base provided incremental deposit growth
is cost effective compared to alternative funding sources. Total
interest-bearing deposits accounted for 93.3% of total deposits at March 31,
1997, compared to 92.3% at December 31, 1996.
Total borrowings increased $13.4 million to $250.0 million at March 31,
1997, compared to $236.6 million at December 31, 1996. This increase resulted
primarily from funding needs associated with increases in the investment
portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
funds to accommodate customer loan demand as well as deposit withdrawals while
continuously seeking higher yields from longer term lending and investing
opportunities. This is accomplished principally by maintaining sufficient cash
flows and liquid assets along with consistent stable core deposits and the
capacity to maintain immediate access to funds. These immediately accessible
funds may include federal funds sold, unpledged marketable securities, reverse
repurchase agreements or available lines of credit from the Federal Reserve
Bank, FHLB, or other financial institutions. An important factor in the
preservation of liquidity is the maintenance of public confidence, as this
facilitates the retention and growth of a large, stable supply of core deposits
in funds.
The Company's principal source of funds to satisfy short-term liquidity
needs comes from cash, due from banks, federal funds sold and borrowing
capabilities through the FHLB as well as other sources. Changes in the balance
of cash and due from banks are due to changes in volumes of federal funds sold,
and the float and reserves related to deposit accounts, which may fluctuate
significantly on a day-to-day basis. The investment portfolio serves as an
additional source of liquidity for the Company. Securities with a market value
of $248.7 million were classified as available-for-sale as of March 31, 1997,
representing 84.4% of the total investment portfolio. Classification of
securities as available-for-sale provides for flexibility in managing net
interest margin, interest rate risk, and liquidity.
The Company's bank 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 $15 million term loan with a financial
institution in order to partially fund the acquisition of County. Under the
terms of the loan agreement, the Company is required to make quarterly interest
payments and annual principal payments, based on a ten year amortization,
commencing in February 1998. 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 March 31, 1997.
Shareholders' equity at March 31, 1997 was $78.4 million, compared to
prior year-end shareholders' equity of $77.9 million, an increase of $534,000.
This increase resulted from the retention of earnings, net of dividends paid of
$1.0 million, offset by the change in unrealized gains (loses) on
available-for-sale securities from a net gain of $304,000 at December 31, 1996
compared to a net loss of $761,000 at March 31, 1997. This change in the effect
on equity was attributable to increases in interest rates during the first
quarter of 1997.
Under the risk-based capital guidelines, a minimum capital to
risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must
consist of Tier 1 capital (equity capital net of goodwill). Additionally, a
minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be
maintained. At March 31, 1997, the Company had a total risk-based capital ratio
of 11.27%,
19
20
of which 10.23% consisted of Tier 1 capital. The leverage ratio for the Company
at March 31, 1997, was 6.16%.
Cash dividends declared to shareholders of the Company totaled $1.0
million, or $0.26 per share, during the first three months of 1997. This
compares to dividends of $743,000, or $0.25 per share, for the same period in
1996. Cash dividends paid as a percentage of net income amounted to 39.3% and
40.1% for the three months ended March 31, 1997 and 1996, 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.
20
21
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
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 3(a) - Articles of Incorporation, as amended
Exhibit 3(b) - Code of Regulations, as amended
Exhibit 11: Computation of Per Share Earnings
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
---------- ----------
Gross Weighted Average Common
Shares Outstanding 4,033,919 3,033,919
Weighted Average Treasury
Shares Outstanding 52,558 61,625
---------- ----------
Net Weighted Average Common
Shares Outstanding 3,981,361 2,972,294
========== ==========
Net Income $2,632,000 $1,855,000
========== ==========
Net Income Per Common Share $ 0.66 $ 0.62
========== ==========
(b) Exhibit 27: Financial Data Schedule
(c) Reports on Form 8-K - None -
21
22
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BancFirst Ohio Corp.
(Registrant)
Date May 13, 1997 (Signed) /s/ Gary N. Fields
----------------------- ---------------------------------------------
Gary N. Fields
President and
Chief Executive Officer
Date May 13, 1997 (Signed) /s/Kim M. Taylor
----------------------- ---------------------------------------------
Kim M. Taylor
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
22