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, 1998
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 11, 1998
----- ------------------------------
Common Stock, No Par Value 3,986,374
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
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 7-17
PART II. OTHER INFORMATION
Other Information......................................................... 18
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 ........................................................ 19
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
1998 1997
---------- ----------
ASSETS:
Cash and due from banks $ 22,851 $ 21,650
Federal funds sold 23 49
Securities held-to-maturity, at amortized cost (approximate
fair value of $33,931 and $36,645 in 1998 and 1997,
respectively) 32,783 35,223
Securities available-for-sale, at fair value 239,810 236,298
---------- ----------
Total securities 272,593 271,521
---------- ----------
Loans, net of unearned income 776,213 761,027
Allowance for possible loan losses (6,719) (6,617)
---------- ----------
Net loans 769,494 754,410
---------- ----------
Bank premises and equipment, net 9,442 8,856
Accrued interest receivable 7,185 6,946
Intangible assets 12,339 12,687
Other assets 21,053 5,499
---------- ----------
Total assets $1,114,980 $1,081,618
========== ==========
LIABILITIES:
Deposits:
Non-interest-bearing deposits $ 56,351 $ 63,846
Interest-bearing deposits 703,824 683,201
---------- ----------
Total deposits 760,175 747,047
Federal funds purchased 2,300 12,300
Federal Home Loan Bank advances and other borrowings 257,214 227,149
Accrued interest payable 2,885 2,426
Other liabilities 5,325 7,363
---------- ----------
Total liabilities 1,027,899 996,285
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
4,038,244 and 4,033,919 shares issued in 1998 and 1997, respectively 63,633 63,343
Retained earnings 23,789 22,057
Accumulated other comprehensive income - unrealized
holding gains on securities available-for-sale, net 928 1,140
Treasury stock, 53,227 and 53,830 shares, at cost, in 1998
and 1997, respectively (1,269) (1,207)
---------- ----------
Total shareholders' equity 87,081 85,333
---------- ----------
Total liabilities and shareholders' equity $1,114,980 $1,081,618
========== ==========
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,
---------
1998 1997
---- ----
Interest income:
Interest and fees on loans $16,492 $15,534
Interest and dividends on securities:
Taxable 4,260 4,618
Tax-exempt 306 332
Other interest income 177 189
------- -------
Total interest income 21,235 20,673
------- -------
Interest expense:
Deposits 8,480 7,932
Borrowings 3,620 3,626
------- -------
Total interest expense 12,100 11,558
------- -------
Net interest income 9,135 9,115
Provision for possible loan losses 307 298
------- -------
Net interest income after
provision for possible loan losses 8,828 8,817
------- -------
Other income:
Trust and custodian fees 453 422
Customer service fees 483 479
Gain on sale of loans 1,114 491
Other 260 120
Investment securities gains, net 24 22
------- -------
Total other income 2,334 1,534
------- -------
Other expense:
Salaries and employee benefits 3,834 3,581
Net occupancy expense 385 402
Amortization of intangibles 354 396
Other 2,421 2,001
------- -------
Total other expense 6,994 6,380
------- -------
Income before income taxes 4,168 3,971
Provision for Federal income taxes 1,360 1,339
------- -------
Net income $ 2,808 $ 2.632
======= =======
Basic and diluted earnings per share $ 0.35 $ 0.33
======= =======
Weighted average common shares outstanding:
Basic 7,964 7,963
======= =======
Diluted 7,969 7,963
======= =======
Cash dividends per common share $ 0.14 $ 0.13
======= =======
Total cash dividends paid $ 1,076 $ 1,035
======= =======
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
--------
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 2,808 $ 2,632
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization 685 1,017
Provision for possible loan losses 307 298
Gain on sale of assets (1,138) (513)
Increase in interest receivable (239) (504)
Decrease (increase) in other assets (827) 1,786
Increase in interest payable 459 596
Decrease in other liabilities (2,038) (1,735)
FHLB stock dividend (287) (234)
-------- --------
Net cash provided by (used in) operating activities (270) 3,343
-------- --------
Cash flows from investing activities:
(Increase) decrease in federal funds sold and short term investments 26 (845)
Proceeds from maturities of securities held-to-maturity 1,802 769
Proceeds from maturities and sales of securities available-for-sale 29,239 20,995
Purchase of securities available-for-sale (32,125) (32,801)
Increase in loans, net (31,649) (5,402)
Purchase of loans (18,837) (7,374)
Purchases of equipment and other assets (879) (420)
Proceeds from sale of loans 36,549 11,339
Purchase of bank owned life insurance (15,000) --
Decrease in payable related to acquisition of County Savings Bank -- (1,500)
-------- --------
Net cash used in investing activities (30,874) (15,239)
-------- --------
Cash flows from financing activities:
Decrease in federal funds purchased (10,000) (7,150)
Increase in Federal Home Loan Bank advances and other borrowings 30,065 20,514
Net increase in deposits 13,128 659
Cash dividends paid (1,076) (1,035)
Issuance of stock, net 228 2
-------- --------
Net cash provided by financing activities 32,345 12,990
-------- --------
Net increase in cash and due from banks 1,201 1,094
Cash and due from banks, beginning of period 21,650 18,856
-------- --------
Cash and due from banks, end of period $ 22,851 $ 19,950
======== ========
Supplemental cash flow disclosures:
Income taxes paid $ 1,200 $ --
======== ========
Interest paid $ 11,641 $ 11,112
======== ========
The accompanying notes are an integral part of the financial statements
5
6
BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (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, 1997
for additional disclosures, including a summary of the Company's accounting
policies. The results of operations for the three month period ended March 31,
1998 are not necessarily indicative of the results to be expected for the full
year. Certain reclassifications have been made to the 1997 consolidated
financial statements to conform to the 1998 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.
2) NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company's comprehensive
income, determined in accordance with the provisions of the statement,
was $2,596 and $1,567 for the three months ended March 31,1998 and
1997, respectively.
3) SUBSEQUENT EVENTS
On April 7, 1998, the Company's Board of Directors declared a
two-for-one stock split in the form of a 100% stock dividend, payable
May 19, 1998 to shareholders of record as of April 28, 1998. All per
share information has been adjusted for the retroactive effect of this
stock split.
On April 23, 1998, the Company's shareholders approved the 1997 Omnibus
Stock Incentive Plan which provides for the granting of stock options
and other stock related awards to key employees.
4) COMPUTATION OF EARNINGS PER SHARE
The computation of earnings per share is as follows. All share amounts
are adjusted to give retroactive effect to the stock split disussed in
Note 3 above:
THREE MONTHS ENDED
MARCH 31,
-----------
1998 1997
---- ----
Actual weighted average common
shares outstanding 7,964 7,963
====== ======
Dilutive common stock equivalents:
Stock options 1 --
Bonus shares - Company match 4 --
------ ------
Weighted average common shares outstanding
adjusted for dilutive common stock equivalents 7,969 7,963
====== ======
Net Income $2,808 $2,632
====== ======
Basic earnings per share $ 0.35 $ 0.33
====== ======
Diluted earnings per share $ 0.35 $ 0.33
====== ======
6
7
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;
prepayments of loans and securities; 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 planned merger of the
Company's banking subsidiaries under a single national bank charter;
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.
7
8
BANCFIRST OHIO CORP.
SELECTED FINANCIAL DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
STATEMENT OF INCOME DATA:
Interest income $ 21,235 $ 20,673
Interest expense 12,100 11,558
---------- ----------
Net interest income 9,135 9,115
Provision for possible loan losses 307 298
Non-interest income 2,334 1,534
Non-interest expense 6,994 6,380
---------- ----------
Income before income taxes 4,168 3,971
Provision for Federal income taxes 1,360 1,339
---------- ----------
Net income $ 2,808 $ 2,632
========== ==========
PER SHARE DATA (1)
Basic earnings per share $ 0.35 $ 0.33
Diluted earnings per share 0.35 0.33
Dividends 0.14 0.13
Book value 10.93 9.86
Tangible book value 9.38 8.12
BALANCE SHEET DATA:
Total assets $1,114,980 $1,068,688
Loans 776,213 723,667
Allowance for possible loan losses 6,719 6,691
Securities 272,593 294,658
Deposits 760,175 733,198
Borrowings 259,514 249,973
Shareholders' equity 87,081 78,428
PERFORMANCE RATIOS (2):
Return on average assets 1.04% 0.99%
Return on average equity 13.23 13.56
Tangible return on average tangible equity 17.11 18.72
Net interest margin 3.64 3.66
Interest rate spread 3.19 3.21
Non-interest income to average assets 0.86 0.58
Non-interest expense to average assets 2.46 2.26
Efficiency ratio (3) 57.14 55.43
ASSET QUALITY RATIOS:
Non-performing loans to total loans 0.36% 0.41%
Non-performing assets to total assets 0.29 0.32
Allowance for possible loan losses to total loans 0.87 0.92
Allowance for possible loan losses to non-performing loans 238.9 227.4
Net charge-offs to average loans (2) 0.11 0.12
CAPITAL RATIOS:
Shareholders' equity to total assets 7.81% 7.34%
Tier 1 capital to total assets 6.80% 6.16%
Tier 1 capital to risk-weighted assets 10.37% 10.21%
(1) Adjusted to give retroactive effect to the two-for-one stock split
declared April 7, 1998.
(2) Ratios are stated on an annualized basis.
(3) 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.
8
9
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.
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.
9
10
Three Months Ended March 31,
..................1998.................. ...................1997..................
(Dollars in thousands)
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(1) Balance Expense Rate(1)
------- ------- ------- ------- ------- -------
Securities:
Taxable $ 245,186 4,431 7.33% $ 276,194 $ 4,766 7.00%
Tax-exempt 23,266 463 8.07 25,286 502 8.05
---------- ------- ---------- -------
Total securities 268,452 4,894 7.39 301,480 5,268 7.09
Loans (2):
Commercial 312,372 7,135 9.26 308,432 7,281 9.57
Real estate 371,332 7,345 8.02 340,769 6,529 7.77
Consumer 85,196 2,031 9.67 76,300 1,746 9.28
---------- ------- ---------- -------
Total loans 768,900 16,511 8.71 725,501 15,556 8.70
Federal funds sold 565 8 5.74 3,598 41 4.62
---------- ------- ---------- -------
Total earning assets (3) 1,037,917 21,413 8.37 1,030,579 20,865 8.21%
Non-interest earning assets 57,508 44,243
---------- ----------
Total assets $1,095,425 $1,074,822
========== ==========
Interest-bearing deposits:
Demand and savings deposits 209,673 1,515 2.93% $ 204,400 $ 1,333 2.64%
Time deposits 494,060 6,966 5.72 482,783 6,601 5.55
---------- ------- ---------- -------
Total deposits 703,733 8,481 4.89 687,183 7,934 4.68
Borrowings 244,640 3,621 6.00 251,108 3,625 5.85
---------- ------- ---------- -------
Total interest-bearing liabilities 948,373 12,102 5.18 938,291 11,559 5.00
Non interest-bearing deposits 49,206 47,383
------ ----------
Subtotal 997,579 985,674
Accrued expenses and other liabilities 11,743 10,427
---------- ----------
Total liabilities 1,009,322 996,101
Shareholders' equity 86,103 78,721
---------- ----------
Total liabilities and shareholders'
equity $1,095,425 $1,074,822
========== ==========
Net interest income and
interest rate spread (4) $ 9,311 3.19% $ 9,306 3.21%
======= ===== ======= =====
Net interest margin (5) 3.64% 3.66%
===== =====
Average interest-earning assets to
average interest-bearing
liabilities 109.4% 109.8%
(1) Calculated on an annualized basis.
(2) Non-accrual loans are included in the average loan balances.
(3) Interest income is computed on a fully tax equivalent (FTE) basis, using a
tax rate of 35% in 1998 and 34% in 1997.
(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.
10
11
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,
1998 VS. 1997
(IN THOUSANDS)
INCREASE (DECREASE)
-------------------
VOLUME RATE TOTAL
------ ---- -----
Interest-earning assets:
Securities:
Taxable $(553) $ 218 $(335)
Non-taxable (40) 1 (39)
----- ----- -----
Total securities (593) 219 (374)
----- ----- -----
Loans:
Commercial 92 (238) (146)
Real estate 600 216 816
Consumer 210 75 285
----- ----- -----
Total loans 902 53 955
----- ----- -----
Federal funds sold (41) 8 (33)
----- ----- -----
Total interest-earning assets (1) 267 281 548
----- ----- -----
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 35 147 182
Time deposits 156 209 365
----- ----- -----
Total interest-bearing deposits 191 356 547
Borrowings (95) 91 (4)
----- ----- -----
Total interest-bearing liabilities 96 447 543
----- ----- -----
Net interest income $ 171 $(166) $ 5
===== ===== =====
(1) Computed on a fully tax-equivalent basis, assuming a tax rate of 35%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997
Net Income. Net income for the three months ended March 31, 1998
increased 6.7% to $2.8 million, compared to net income of $2.6 million for the
three months ended March 31, 1997. Basic and diluted earnings per share in the
first quarter of 1998 (adjusted to give retroactive effect to the two-for-one
stock split payable May 19, 1998 to shareholders of record as of April 28, 1998)
equaled $0.35, compared to $0.33 for the same period in 1997. Net interest
income increased .2% in the three months ended March 31, 1998, as compared to
the same period in 1997 while the provision for possible loan losses and
non-interest expense increased 3.0% and 9.6%, respectively. Non-interest income
increased 52.2% from the comparative period. The Company's net interest margin
decreased to 3.64% for the first quarter of 1998, compared to 3.66% for the same
period in 1997. Increases in non-interest income related primarily to higher
levels of gains on sales of loans, that resulted from increased lending activity
due to the favorable interest rate environment.
11
12
Non-interest expense increased primarily due to increased personnel costs
resulting from staff additions. The Company's return on average assets and
return on average equity were 1.04% and 13.23%, respectively, in the first
quarter of 1998, compared to .99% and 13.56%, respectively, in the first quarter
of 1997.
Interest Income. Total interest income increased 2.7% to $21.2 million
for the three months ended March 31, 1998, compared to $20.7 million for the
first quarter of 1997. This increase was primarily attributed to a 16 basis
point increase in the average yield on interest-earning assets which increased
to 8.37% during the three months ended March 31, 1998, compared to 8.21% during
the same three month period in 1996. The Company's yield on average loans
increased from 8.68% during the three months ended March 31, 1997 to 8.71%
during the three months ended March 31, 1998. The average yield in both periods
benefited from approximately $150,000 of additional accretion of discounts on
SBA loans as a result of prepayments. Yields on the investment portfolio
increased from 7.09% during the first quarter of 1997 to 7.39% during the first
quarter of 1998. The yield on investments for the first quarter 1998 benefited
approximately 20 basis points from $135,000 of additional accretion of discounts
on mortgage-backed and other securities that resulted from prepayments. Further
prepayments of loans and securities in the future could have an adverse effect
on the Company's average yield on earning assets as well as the Company's net
interest margin as a result of the prepayment of higher yielding assets that are
replaced with lower yielding assets originated in the current interest rate
environment.
Interest Expense. Total interest expense increased 4.7% to $12.1
million for the three months ended March 31, 1998, compared to $11.6 million for
the three months ended March 31, 1997. 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 1998, as compared to the same
period in 1997. The average balance of interest-bearing liabilities increased
$10.1 million, or 1.1%, from the first quarter in 1997 to the first quarter in
1998. Average interest-bearing deposits increased 2.4%, from $687.2 million to
$703.3 million.
The Company's cost of funds increased to 5.18% in the three months
ended March 31, 1998 compared to 5.00% in the same period of 1997. The cost of
funds was affected by the continued shift by customers into higher yielding
certificates of deposit and higher borrowing costs associated with interest rate
swap transactions which have been utilized to extend the repricing terms of a
portion of the Company's borrowings that reprice on a short term basis. At March
31, 1998 the Company had interest rate swap transactions outstanding with a
total notional amount of $51.9 million compared to $27.5 million at March 31,
1997. All swap contracts require the Company to pay a fixed rate of interest in
return for receiving a variable rate of interest.
Provision for Possible Loan Losses. The provision for possible loan
losses was $307,000 for the three months ended March 31, 1998, compared to
$298,000 in the first quarter of 1997. Total non-performing loans decreased 4.5%
to $2.8 million at March 31, 1998, from $2.9 million at March 31, 1997. The
allowance for possible loan losses at March 31, 1998 was $6.7 million, or .87%
of total loans and 238.9% of non-performing loans compared to $6.7 million, or
.92% of total loans and 227.4% of non-performing loans at March 31, 1997.
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. The following table sets forth the Company's
non-interest income for the periods indicated:
THREE MONTHS ENDED
MARCH 31,
------------
1998 1997
---- ----
(IN THOUSANDS)
Trust and custodian fees $ 453 $ 422
Customer service fees 483 479
Investment securities gains 24 22
Gains on sales of loans 1,114 491
Other 260 120
------ ------
Total $2,334 $1,534
====== ======
Total non-interest income was $2.3 million for the three months ended
March 31,1998, compared to $1.5 million for the same period a year ago. This
increase was primarily attributed to a $623,000 increase in gains on sales of
loans. During the first quarter of 1998, the Company sold approximately $6.0
million of the guaranteed portion of loans originated under
12
13
the SBA and other government guarantee programs compared to $6.4 million in the
first quarter of 1997, realizing gains of $613,000 in 1998, compared to gains of
$435,000 in 1997. In addition, the Company sold $29.4 million of residential
mortgage loans during the first quarter of 1998, realizing gains of $501,000
compared to gains of $56,000 in the first quarter of 1997 on sales of loans
totaling $4.5 million. Also, in the first quarter of 1998, servicing fee income
associated with SBA loans was reduced $244,000 for additional amortization of
capitalized servicing assets due to prepayments of the underlying loans (see
also Interest Income above regarding additional accretion of related discounts)
compared to $274,000 in the first quarter of 1997. At March 31, 1998,
unamortized capitalized servicing assets related to SBA loans totaled $2.1
million while discounts associated with the retained portion of SBA loans
totaled $1.8 million. While management cannot predict, with certainty, the
timing of future prepayments, further prepayments of SBA loans are not expected
to have a materially adverse affect on the Company's results of operations.
Customer service fees, representing service charges on deposits and
fees from other banking services, increased .8% in the first quarter of 1998, to
$483,000, from $479,000 in the first quarter of 1997. Trust income increased
7.4% to $453,000 in the first quarter of 1998, from $422,000 in the first
quarter of 1997. Growth in trust and custodian fees resulted primarily from
higher asset values. The $140,000 increase in other income to $260,000 in the
first quarter of 1998 compared to $120,000 in the first quarter of 1997 resulted
from earnings on bank owned life insurance that the Company purchased in January
1998.
Non-Interest Expense. The following table sets forth the Company's
non-interest expense for the periods indicated:
THREE MONTHS ENDED
MARCH 31,
------------
1998 1997
---- ----
(IN THOUSANDS)
Salaries and employee benefits $3,834 $3,581
Net occupancy expense 385 402
Furniture, fixtures and equipment 207 194
Data processing 341 264
Taxes other than income taxes 217 271
Federal deposit insurance 71 33
Amortization of goodwill and other intangibles 354 396
Other 1,585 1,239
------ ------
Total $6,994 $6,380
====== ======
Total non-interest expense increased $614,000 to $7.0 million in the
three months ended March 31, 1998, compared to $6.4 million in the three months
ended March 31, 1997. This increase generally resulted from expansion of the
Company's operating activities and addition of loan production personnel.
Salaries and employee benefits increased 7.1% to $3.8 million and
represented approximately 57.7% of total operating expenses (non-interest
expense less amortization of intangibles) in the three months ended March 31,
1998 compared to 59.8% in the first quarter of 1997. The average full time
equivalent staff increased 5.8% from 358 in 1997 to 379 in 1998.
Net occupancy expense decreased to $385,000 in the first quarter of
1998 from $402,000 in the first quarter of 1997. This decrease resulted from
lower rent and depreciation expenses.
Furniture, fixtures and equipment expense increased $13,000, for the
first quarter of 1998. The increase in furniture and equipment expense was due
principally to higher depreciation costs.
Data processing expense increased $79,000, or 72.4%, for the first
quarter of 1998. Higher costs in 1998 resulted from continued enhancement of
technology throughout the Company. Costs associated with the conversion of
County Savings Bank's (County) data processing systems also contributed to the
higher expense levels in the first quarter of 1998.
Taxes other than income taxes decreased $54,000, for the first quarter
of 1998 compared to the first quarter of 1997. This decrease resulted from
credits for overpayment of taxes in prior years being recognized in the first
quarter of 1998.
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Federal deposit insurance expense increased $38,000 to $71,000 in 1998
from $33,000 in the first quarter of 1997 primarily as a result of 1997's
expense being reduced $44,000 for a credit received as a result of changes to
the Savings Association Insurance Fund assessment rates in the fourth quarter of
1996.
Amortization of goodwill and other intangible assets resulting from the
application of purchase accounting in connection with the County acquisition
totaled $348,000 during the first quarter of 1998 compared to $389,000 in the
first quarter of 1997.
Other non-interest expenses increased 27.9% to $1.6 million during the
first quarter of 1998 compared to $1.2 million in the first quarter of 1997.
Other operating costs increased during the first quarter of 1998 as a result of
increased lending activities, expansion of the Company's product lines and in
preparation of the May 16, 1998 merger of the Company's banking subsidiaries
under a single bank charter.
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 57.1%
for the first quarter of 1998, compared to 55.4% for the comparable period in
1997. Controlling costs and improving productivity, as measured by the
efficiency ratio, is considered by management a primary factor in enhancing
performance. Operating expense levels have increased in 1998 as a result of the
Company's continued expansion into new markets, addition of loan production
personnel in existing markets as well as increased volume of lending activities,
and overall inflation.
Provision for Income Taxes. The Company's provision for Federal income
taxes was $1.4 million, or 32.6% of pretax income, for the three months ended
March 31, 1998 compared to $1.3 million, or 33.7% of pretax income, for the
three months ended March 31, 1997. The effective tax rate for each period
differed from the federal statutory rate principally as a result of tax-exempt
income from obligations of states and political subdivisions and non-taxable
loans, the non-deductibility, for tax purposes, of goodwill and core deposit
intangible amortization expense, and earnings on bank owned life insurance.
ASSET QUALITY
Non-performing Assets. To maintain the level of credit risk of the loan
portfolio at an appropriate level, management sets underwriting standards and
internal lending limits and provides for proper diversification of the portfolio
by placing constraints on the concentration of credits within the portfolio. In
monitoring the level of credit risk within the loan portfolio, management
utilizes a formal loan review process to monitor, review, and consider relevant
factors in evaluating specific credits in determining the adequacy of the
allowance for possible loan losses. The Company's banking 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.
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 $457,000 of such property at
March 31, 1998 compared to $785,000 at December 31, 1997 and $523,000 at March
31, 1997.
Non-performing loans totaled $2.8 million, or 0.36% of total loans, at
March 31, 1998, compared to $2.2 million, or .29% of total loans at year end
1997 and $2.9 million, or 0.41% of total loans, at March 31, 1997.
Non-performing assets totaled $3.3 million, or 0.29% of total assets at March
31, 1998, compared to $3.0 million, or 0.28% of total assets, at December 31,
1997 and $3.5 million, or .32% of total assets at March 31, 1997. 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:
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MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
---- ---- ------
(DOLLARS IN THOUSANDS)
Non-accrual loans $1,295 $ 832 $1,682
Accruing loans 90 days or more past due 1,517 1,386 1,261
------ ------ ------
Total non-performing loans 2,812 2,218 2,943
Other real estate owned 457 785 523
------ ------ ------
Total non-performing assets $3,269 $3,003 $3,466
====== ====== ======
Non-performing loans to total loans 0.36% 0.29% 0.41%
Non-performing assets to total assets 0.29% 0.28% 0.32%
Non-performing loans considered to be impaired under Statement of
Financial Accounting Standards No. 114 at March 31, 1998 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.
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,
------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 6,617 $ 6,599
Provision charged to expense 307 298
Loans charged-off (384) (331)
Recoveries of loans previously
charged-off 179 125
-------- --------
Balance at end of period $ 6,719 $ 6,691
======== ========
Loans outstanding at end of period $776,213 $723,667
Average loans outstanding $768,900 $725,501
Allowance as a percent of loans outstanding 0.87% 0.92%
Net charge-offs to average loans (annualized) 0.11% 0.12%
Allowance for possible loan losses
to non-performing loans 238.9% 227.4%
The allowance for possible loan losses totaled $6.7 million at March
31, 1998, representing .87% of total loans, compared to $6.7 million at March
31, 1997, or .92% of total loans. Charge-offs represent the amount of loans
actually removed as earning assets from the balance sheet due to
uncollectibility. Amounts recovered on previously charged-off assets are netted
against charge-offs, resulting in net charge-offs for the period. Net loan
charge-offs for the three months ended March 31, 1998 were $205,000, compared to
net charge-offs of $206,000 for the same period in 1997. 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 238.9% at March 31, 1998, compared
to 227.4% at March 31, 1997. 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 0.36% of total loans at March 31, 1998.
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COMPARISON OF MARCH 31, 1998 AND DECEMBER 31, 1997 FINANCIAL CONDITION
Total assets amounted to $1.11 billion at March 31, 1998, compared to
$1.08 billion at December 31, 1997, an increase of $33.4 million, or 3.1%.
Total investment securities increased by $1.1 million to $272.6
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, 1998, 88.0% 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 12.0%. This compares to 87.0% and 13.0% classified as
available-for-sale and held to maturity, respectively, at December 31, 1997.
Total loans increased $15.2 million to $776.2 million at March 31,
1998. This increase reflects the Company's continued emphasis on increasing the
loan portfolio in order to improve overall earning asset yields.
Premises and equipment increased from $8.9 million at December 31, 1997
to $9.4 million at March 31, 1998, relating primarily to data processing
equipment purchases associated with the conversion of County's data processing
systems and enhancement of technology throughout the Company.
Other assets increased from $5.5 million at December 31, 1997 to $21.1
million at March 31, 1998 primarily as a result of the Company's purchase of
$15.0 million of bank owned life insurance.
Total deposits increased to $760.2 million at March 31, 1998 from
$747.0 million at December 31, 1997. 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 92.6% of total deposits at March 31, 1998, compared to
91.5% at December 31, 1997.
Total borrowings increased $20.1 million to $259.5 million at March 31,
1998, compared to $239.4 million at December 31, 1997. This increase resulted
primarily from funding needs associated with increases in loans and other
assets.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
funds to accommodate customer loan demand as well as deposit withdrawals while
continuously seeking higher yields from longer term lending and investing
opportunities. This is accomplished principally by maintaining sufficient cash
flows and liquid assets along with consistent stable core deposits and the
capacity to maintain immediate access to funds. These immediately accessible
funds may include federal funds sold, unpledged marketable securities, reverse
repurchase agreements or available lines of credit from the Federal Reserve
Bank, Federal Home Loan Bank (FHLB), or other financial institutions. An
important factor in the preservation of liquidity is the maintenance of public
confidence, as this facilitates the retention and growth of a large, stable
supply of core deposits in funds.
The Company's principal source of funds to satisfy short-term liquidity
needs comes from cash, due from banks, federal funds sold and borrowing
capabilities through the FHLB as well as other sources. Changes in the balance
of cash and due from banks are due to changes in volumes of federal funds sold,
and the float and reserves related to deposit accounts, which may fluctuate
significantly on a day-to-day basis. The investment portfolio serves as an
additional source of liquidity for the Company. Securities with a market value
of $239.8 million were classified as available-for-sale as of March 31, 1998,
representing 88.0% 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
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principal payments, based on a ten year amortization, which commenced 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, 1998.
Shareholders' equity at March 31, 1998 was $87.1 million, compared to
prior year-end shareholders' equity of $85.3 million, an increase of $1.7
million. This increase resulted from the retention of earnings, net of dividends
paid of $1.1 million, offset by the change in unrealized gains on
available-for-sale securities from $1.1 million at December 31, 1997 compared to
$928,000 at March 31, 1998
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, 1998, the Company had a total risk-based capital ratio
of 11.3%, of which 10.4% consisted of Tier 1 capital. The leverage ratio for the
Company at March 31, 1998, was 6.8%.
Cash dividends declared to shareholders of the Company totaled $1.1
million, or $0.14 per share, during the first three months of 1998. This
compares to dividends of $1.0 million, or $0.13 per share, for the same period
in 1997. Cash dividends paid as a percentage of net income amounted to 38.3% and
39.3% for the three months ended March 31, 1998 and 1997, 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.
CONTINGENCIES AND UNCERTAINITIES - YEAR 2000
The Company has conducted a review of its data processing systems to
identify the applications that could be affected by the start of a new century
(the "Year 2000 Issue"). During 1996, The First National Bank of Zanesville
(FNB) converted to a new core data processing software system. County converted
to this system in February, 1998 and the Company currently plans to convert the
Bellbrook Community Bank (Bellbrook) to this system later in 1998. Based upon
these conversions as well as the Company's aforementioned review of system
applications, the Year 2000 Issue is not expected to pose significant
operational problems for the Company. The Company has also reviewed its
ancillary systems for potential problems that could occur as a result of the
Year 2000 Issue and intends to test all critical systems for Year 2000
compliance later in 1998. In addition, the Company is developing procedures for
identifying potential problems that the Company's borrowers may experience.
Consideration is also being given to providing assistance to such borrowers in
addressing the Year 2000 Issue. Management does not expect the additional costs
of bringing the Company's systems into Year 2000 compliance to have a materially
adverse effect on the Company's financial condition, results of operations or
liquidity, and does not anticipate any disruption in its operations as a result
of Year 2000 compliance.
RECENT DEVELOPMENTS
On March 20, 1998, FNB received approval from the Office of the
Comptroller of the Currency to merge County and Bellbrook under the national
bank charter of FNB. This merger is expected to be consummated on May 16, 1998.
Following the merger, County and Bellbrook branches will operate under the name
of Bank First National, a division of the First National Bank of Zanesville
while FNB branches will continue to operate under the name First National Bank.
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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. 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 (incorporated by
reference to Exhibit 3.1 to Company's Form 10- K for year ended December
31, 1991, Exhibit 3.3 to the Company's Form 10-K for the year ended
December 31, 1992 and Exhibit 3.6 to the Company's Form 10-K for the
year ended December 31, 1994).
Exhibit 3(b) - Code of Regulations, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the year ended
December 3,1, 1991, Exhibit 3.4 to the Company's Form 10-K for the year
ended December 31, 1992 and Exhibit 3.5 to the Company's Form 10-K for
the year ended December 31, 1993).
(b) Exhibit 27: Financial Data Schedule
(c) Reports on Form 8-K - None -
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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)
19