-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JZZvtULmEb75lnuiR21bCMuGQXAZxvix+2sDHj1vWI0rIKRxcDhuPM7xs5CWKe3O JtRmCk0oTs5r+CjnW4kbCg== 0000950152-97-005910.txt : 19970814 0000950152-97-005910.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950152-97-005910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCFIRST OHIO CORP CENTRAL INDEX KEY: 0000868572 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311294136 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18840 FILM NUMBER: 97658543 BUSINESS ADDRESS: STREET 1: 422 MAIN ST CITY: ZANESVILLE STATE: OH ZIP: 43702 BUSINESS PHONE: 6144528444 MAIL ADDRESS: STREET 1: 422 MAIN STREET CITY: ZANESVILLE STATE: OH ZIP: 43701 FORMER COMPANY: FORMER CONFORMED NAME: BANCFIRST CORP /OH/ DATE OF NAME CHANGE: 19600201 10-Q 1 BANCFIRST OHIO CORP. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 August 11, 1997 ----- --------------------------------- Common Stock, No Par Value 3,983,112 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................... 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 10-23 PART II. OTHER INFORMATION Other Information ............................................... 24-25 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 ............................................... 26 2 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BANCFIRST OHIO CORP. CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DEC. 31, 1997 1996 --------------------------------- ASSETS: Cash and due from banks $ 18,976 $ 18,856 Federal funds sold 3,486 2,193 Securities held-to-maturity, at amortized cost (approximate fair value of $44,226 and $47,652 in 1997 and 1996, respectively) 43,056 46,799 Securities available-for-sale, at fair value 234,982 237,777 ----------- ----------- Total securities 278,038 284,576 ----------- ----------- Loans, net of unearned income 769,356 721,855 Allowance for possible loan losses (6,937) (6,599) ----------- ----------- Net loans 762,419 715,256 ----------- ----------- Bank premises and equipment, net 8,400 7,962 Accrued interest receivable 7,392 6,696 Intangible assets 13,410 14,187 Other assets 6,545 7,194 ----------- ----------- Total assets $ 1,098,666 $ 1,056,920 =========== =========== LIABILITIES: Deposits: Non-interest-bearing deposits $ 49,523 $ 56,179 Interest-bearing deposits 705,949 676,510 ----------- ----------- Total deposits 755,472 732,689 ----------- ----------- Short-term borrowings -- 11,650 Long-term borrowings 255,404 224,959 Accrued interest payable 3,034 2,255 Other liabilities 4,302 7,473 ----------- ----------- Total liabilities 1,018,212 979,026 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock, No par or stated value, 20,000,000 shares authorized, 63,218 -- 4,033,919 shares issued Common stock, $10 par value, 7,500,000 shares authorized, 4,033,919 shares issued -- 40,340 Capital in excess of par value -- 22,807 Retained earnings 18,706 15,466 Unrealized holding gains (losses) on securities available-for-sale, net (366) 304 Treasury stock, 54,073 and 54,420 shares, at cost, in 1997 and 1996, respectively (1,104) (1,023) ----------- ----------- Total shareholders' equity 80,454 77,894 ----------- ----------- Total liabilities and shareholders' equity $ 1,098,666 $ 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 DATA) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- ------- 1997 1996 1997 1996 --------------------- ---------------------- Interest income: Interest and fees on loans $16,208 $ 6,176 $31,720 $12,363 Interest and dividends on securities: Taxable 4,582 2,429 9,200 4,966 Tax-exempt 337 330 669 659 Other interest income 178 30 367 118 ------- ------- ------- ------- Total interest income 21,305 8,965 41,956 18,106 ------- ------- ------- ------- Interest expense: Time deposits, $100 and over 1,900 790 3,773 1,500 Other deposits 6,352 2,591 12,411 5,259 Long-term borrowings 3,729 856 7,318 1,694 Short-term borrowings 34 211 71 403 ------- ------- ------- ------- Total interest expense 12,015 4,448 23,573 8,856 ------- ------- ------- ------- Net interest income 9,290 4,517 18,383 9,250 Provision for possible loan losses 317 318 615 610 ------- ------- ------- ------- Net interest income after provision for possible loan losses 8,973 4,199 17,768 8,640 ------- ------- ------- ------- Other income: Trust and custodian fees 432 351 854 726 Customer service fees 488 432 951 843 Gain on sale of loans 454 450 945 1,046 Other 420 202 584 384 Investment securities gains, net 78 3 100 3 ------- ------- ------- ------- Total other income 1,872 1,438 3,434 3,002 ------- ------- ------- ------- Other expense: Salaries and employee benefits 3,628 1,856 7,151 3,743 Net occupancy expense 507 182 1,038 387 Amortization of intangibles 396 7 792 14 Other 2,283 1,448 4,219 2,736 ------- ------- ------- ------- Total other expense 6,814 3,493 13,200 6,880 ------- ------- ------- ------- Income before income taxes 4,031 2,144 8,002 4,762 Provision for Federal income taxes 1,353 592 2,692 1,355 ------- ------- ------- ------- Net income $ 2,678 $ 1,552 $ 5,310 $ 3,407 ======= ======= ======= ======= Net income per common share $ 0.67 $ 0.52 $ 1.33 $ 1.15 ======= ======= ======= ======= Weighted average common shares outstanding 3,981 2,973 3,981 2,973 ======= ======= ======= ======= Cash dividends per common share $ 0.26 $ 0.25 $ 0.52 $ 0.50 ======= ======= ======= ======= Total cash dividends paid $ 1,035 $ 743 $ 2,070 $ 1,486 ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements. 4 5
BANCFIRST OHIO CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED JUNE 30 ------- 1997 1996 ----------------------- Cash flows from operating activities: Net income $ 5,310 $ 3,407 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 2,127 1,106 Provision for possible loan losses 615 610 Gain on sale of assets (1,045) (1,046) Decrease (increase) in interest receivable (696) 61 Decrease in other assets 408 3,979 Increase in interest payable 779 286 Increase (decrease) in other liabilities (1,671) 214 FHLB stock dividend (505) (154) -------- -------- Net cash provided by operating activities 5,322 8,463 -------- -------- Cash flows from investing activities: Decrease (increase) in federal funds sold and short term investments (1,370) 2,274 Proceeds from maturities of securities held-to-maturity 3,699 497 Proceeds from maturities and sales of securities available-for-sale 47,188 26,778 Purchase of securities held-to-maturity (14) (652) Purchase of securities available-for-sale (45,052) (20,061) Increase in loans, net (17,103) (23,449) Decrease in payable related to acquisition of County Savings Bank (1,500) -- Purchase of loans (52,132) -- Purchases of equipment and other assets (1,026) (871) Proceeds from sale of loans 22,460 9,855 -------- -------- Net cash used in investing activities (44,850) (5,629) -------- -------- Cash flows from financing activities: Decrease in short-term borrowings (11,650) (6,201) Increase (decrease) in other long-term borrowings 30,445 (210) Net increase in deposits 22,933 10,194 Cash dividends paid (2,070) (1,486) Reissuance (purchase) of treasury stock, net (10) 84 -------- -------- Net cash provided by financing activities 39,648 2,381 -------- -------- Net increase in cash and due from banks 120 5,215 Cash and due from banks, beginning of period 18,856 14,102 -------- -------- Cash and due from banks, end of period $ 18,976 $ 19,317 ======== ========
The accompanying notes are an integral part of the financial statements 5 6 BANCFIRST OHIO CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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 and six month periods ended June 30, 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 $14.7 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 six months ended June 30, 1996 as if County had been acquired at the beginning of such period: (In thousands, except per share data) Net Interest income $16,213 Net Income $ 4,657 Net Income per share $ 1.17 6 7 2) INVESTMENT SECURITIES: The amortized cost and estimated fair value of investment securities are as follows:
JUNE 30, 1997 DECEMBER 31, 1996 ------------- ----------------- SECURITIES HELD TO MATURITY COST FAIR VALUE COST FAIR VALUE - --------------------------- ----------------- ---------------------- (IN THOUSANDS) Other U.S. government agencies $ -- $ -- $ 1,999 $ 2,000 State and political subdivisions 6,073 6,141 6,266 6,375 Mortgage-backed and related securities 34,244 35,346 35,690 36,431 Other 2,739 2,739 2,844 2,846 -------- -------- -------- -------- $ 43,056 $ 44,226 $ 46,799 $ 47,652 ======== ======== ======== ========
SECURITIES AVAILABLE-FOR-SALE - ----------------------------- U.S. treasury securities $ 10,507 $ 10,532 $ 11,775 $ 11,881 Other U.S. government agencies 13,401 13,384 12,446 12,428 State and political subdivisions 18,276 18,371 16,090 16,301 Mortgage-backed and related securities 177,296 176,639 182,509 182,672 Other 16,056 16,056 14,495 14,495 -------- -------- -------- -------- $235,536 $234,982 $237,315 $237,777 ======== ======== ======== ========
3) LOANS AND LEASES BY CATEGORIES: JUNE 30, DEC. 31, 1997 1996 --------------------------- (IN THOUSANDS) Commercial, financial and agricultural $ 313,130 $ 299,630 Real estate - mortgage 370,725 337,911 Real estate - construction 7,908 7,716 Consumer installment 77,593 76,598 --------- --------- Total $ 769,356 $ 721,855 ========= =========
4) LONG-TERM BORROWINGS Long-term borrowings as of June 30, 1997 and December 31, 1996 were as follows:
JUNE 30, 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 230,404 199,959 Term debt with a financial institution (LIBOR + 1.35%) 15,000 15,000 ---------- ----------- Total $ 255,404 $ 224,959 ========= =========
7 8 Minimum annual retirements on long-term borrowings for the next five years consisted of the following:
JUNE 30, 1997 DECEMBER 31, 1996 ------------- ------------------- (DOLLARS IN THOUSANDS) MATURITY (PERIOD AVERAGE AVERAGE ENDING DECEMBER 31) RATE AMOUNT RATE AMOUNT - ------------------- ---- ----- ----- ------ 1996 5.69% $ 190,296 6.42% $ 169,851 1997 5.95% 19,734 5.93% 17,734 1998 6.24% 17,266 6.24% 14,266 1999 6.65% 5,051 6.76% 3,051 2000 6.59% 6,088 6.75% 3,088 2001 and thereafter 6.98% 16,969 6.64% 16,969 -------- -------- Total 5.94% $255,404 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 June 30, 1997 of $15.0 million) is pledged as collateral for these borrowings. 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 June 30, 1997. The Company has no commitments to borrow additional funds as of June 30, 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 (FASB) until 1998. Adoption of this statement had no impact on the Company's June 30, 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 earnings per share for entities with publicly held common stock. The impact of the statement on earnings per share is not expected to be material. SFAS No. 130 "Reporting Comprehensive Income" was issued in June 1997 and is effective for financial statements issued for periods beginning after December 15, 1997. The 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, for the three month and six month periods ended June 30, 1997 was $3.1 million and $4.6 million, respectively. 8 9 In June 1996, the FASB issued an Exposure Draft, "Accounting for Derivative and Similar Financial Instruments and for Hedging Activities" (the Exposure Draft), which, if adopted as issued, would significantly change the accounting for derivative and hedging activities. The Exposure Draft would require that all derivative financial instruments be recognized and recorded at fair value. However, key aspects of the Exposure Draft continue to be discussed and are subject to change; accordingly the impact, if any, to the Company is not presently known. 6) COMMON STOCK On April 17, 1997, the Company's shareholders approved amendments 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 had no effect on the total capital of the Company. 9 10 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BANCFIRST OHIO CORP. For a comprehensive understanding of the Company's financial condition and performance, this discussion should be considered in conjunction with the Company's Consolidated Financial Statements, accompanying notes, and other information contained elsewhere herein. 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. 10 11
BANCFIRST OHIO CORP. SELECTED FINANCIAL DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) AT OR FOR THE THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1997 (1) 1996 1997 (1) 1996 ------------------------------- ------------------------ STATEMENT OF INCOME DATA: Interest income $ 21,305 $ 8,965 $ 41,956 $ 18,106 Interest expense 12,015 4,448 23,573 8,856 ------------- ------------- ----------- --------- Net interest income 9,290 4,517 18,383 9,250 Provision for possible loan losses 317 318 615 610 Non-interest income 1,872 1,438 3,434 3,002 Non-interest expense 6,814 3,493 13,200 6,880 ------------- ------------- ----------- --------- Income before income taxes 4,031 2,144 8,002 4,762 Provision for Federal income taxes 1,353 592 2,692 1,355 ------------- ------------- ----------- --------- Net income $ 2,678 $ 1,552 $ 5,310 $ 3,407 ============= ============= =========== ========= PER SHARE DATA: Net income $ 0.67 $ 0.52 $ 1.33 $ 1.15 Dividends 0.26 0.25 0.52 0.50 Book value 20.22 16.98 N/A N/A Tangible book value 16.85 16.95 N/A N/A BALANCE SHEET DATA: Total assets $ 1,098,666 $ 480,282 N/A N/A Loans 769,356 282,943 N/A N/A Allowance for possible loan losses 6,937 3,544 N/A N/A Securities 278,038 169,044 N/A N/A Deposits 755,472 358,739 N/A N/A Borrowings 255,404 67,724 N/A N/A Shareholders' equity 80,454 50,492 N/A N/A PERFORMANCE RATIOS (3): Return on average assets 0.98% 1.30% 0.99% 1.43% Return on average equity 13.43 12.69 13.49 13.89 Net interest margin 3.63 4.14 3.64 4.22 Interest rate spread 3.19 3.42 3.21 3.50 Non-interest income to average assets 0.69 1.21 0.64 1.26 Non-interest expense to average assets 2.35 2.92 2.31 2.89 Efficiency ratio (2) 56.83 56.70 56.10 54.36 ASSET QUALITY RATIOS: Non-performing loans to total loans 0.41% 0.29% N/A N/A Non-performing assets to total assets 0.35 0.18 N/A N/A Allowance for possible loan losses to total loans 0.90 1.25 N/A N/A Allowance for possible loan losses to non-performing loans 218.9 431.7 N/A N/A Net charge-offs to average loans (3) 0.04 0.26 0.08% 0.27% CAPITAL RATIOS: Shareholders' equity to total assets 7.32% 10.51% N/A N/A Tier 1 capital to total assets 6.28 10.62 N/A N/A Tier 1 capital to risk-weighted assets 10.10 17.94 N/A N/A (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.
11 12 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 tables present, 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. 12 13
Three Months Ended June 30, ...........1997.......... ...........1996........... (Dollars in Thousands) Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate(1) Balance Expense Rate(1) -------------------------------------------------------- Securities: Taxable $271,498 $ 4,739 7.00 % $153,471 $ 2,429 6.37 % Tax-exempt 25,435 511 8.06 22,932 511 8.96 ------- ----- ------- ----- Total securities 296,933 5,250 7.09 176,403 2,940 6.70 Loans (2): Commercial 317,367 7,548 9.54 114,410 2,853 10.03 Real estate 359,836 6,985 7.79 109,671 2,132 7.82 Consumer 72,789 1,712 9.43 55,257 1,206 8.78 ------ ------- ------- ------ Total loans 749,992 16,245 8.69 279,338 6,191 8.91 Federal funds sold 1,545 19 4.93 1,956 30 6.17 ----- ---- ---- ----- ---- ---- Total earning assets (3) 1,048,470 21,514 8.23 % 457,697 9,161 8.05 % --------- ------- ---- ------- ------ Non-interest-earning assets 46,333 20,542 ------ ------ Total assets $1,094,804 $ 478,239 ========= ========= Interest-bearing deposits: Demand and savings deposits $203,141 $ 1,367 2.70 % $144,590 $ 952 2.65 % Time deposits 496,973 6,886 5.56 170,868 2,429 5.72 ------- ------- -------- ------- Total deposits 700,114 8,253 4.73 315,458 3,381 4.31 Borrowings 255,806 3,762 5.90 70,581 1,067 6.08 ------- ------- ---- ------ ------ ---- Total interest-bearing liabilities 955,920 12,015 5.04 % 386,039 4,448 4.63 % ------ ---- ----- ---- Non-interest-bearing deposits 49,193 37,057 ------ ------ Subtotal 1,005,113 423,096 Accrued expenses and other liabilities 9,681 6,095 ------- ------ Total liabilities 1,014,794 429,191 Shareholders' equity 80,010 49,048 -------- -------- Total liabilities and shareholders' equity $ 1,094,804 $ 478,239 =========== ========= Net interest income and interest rate spread (4) $ 9,499 3.19 % $ 4,713 3.42 % ======= ==== ====== ==== Net interest margin (5) 3.63 % 4.14 % ==== ==== Average interest-earning assets to average interest-bearing liabilities 109.7 % 118.6 % Six Months Ended June 30, ...........1997.......... ...........1996........... (Dollars in Thousands) Average Income/ Yield/ Average Income/ Yield / Balance Expense Rate(1) Balance Expense Rate(1) --------------------------------------------------------- Securities: Taxable $ $273,833 $ 9,505 7.00 % $ 151,442 $ 4,966 6.59% Tax-exempt 25,361 1,013 8.05 25,252 998 7.95 ------ ----- -------- ------- Total securities 299,194 10,518 7.09 176,694 5,964 6.79 Loans (2): Commercial 312,924 14,817 9.55 114,259 5,629 9.91 Real estate 350,355 13,507 7.77 109,347 4,295 7.90 Consumer 74,535 3,455 9.35 54,354 2,482 9.18 ------ ------ ------- ----- Total loans 737,814 31,779 8.69 277,960 12,406 8.98 Federal funds sold 2,566 60 4.72 4,437 118 5.35 ----- ---- ---- ------ ------ ---- Total earning assets (3) 1,039,574 42,357 8.22 % 459,091 18,488 8.10 % --------- ------ ------- ------ ---- Non-interest-earning assets 45,294 20,471 ------ ------ Total assets $ 1,084,868 $479,562 =========== ========= Interest-bearing deposits: Demand and savings deposits $203,767 $ 2,700 2.67 % $ 150,151 $ 2,042 2.73 % Time deposits 489,917 13,487 5.55 166,961 4,717 5.68 ------- ------ ------- ----- Total deposits 693,684 16,187 4.71 317,112 6,759 4.29 Borrowings 253,470 7,387 5.88 69,930 2,097 6.03 ------- ------ ---- ------- ----- ---- Total interest-bearing liabilities 947,154 23,574 5.02 % 387,042 8,856 4.60 % ------ ---- ----- ---- Non-interest-bearing deposits 48,293 37,549 ------ ------ Subtotal 985,674 424,591 Accrued expenses and other liabilities 10,052 5,522 ------ ------ Total liabilities 1,005,499 430,113 Shareholders' equity 79,369 49,449 -------- ------- Total liabilities and shareholders' equity $ 1,084,868 $ 479,562 =========== ========= Net interest income and interest rate spread (4) $18,783 3.21 % $ 9,632 3.50 % ======= ==== ======= ==== Net interest margin (5) 3.64 % 4.22 % ==== ==== Average interest-earning assets to average interest-bearing liabilities 109.8 % 118.6 % (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.
13 14 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 JUNE 30, SIX MONTHS ENDED JUNE 30, 1997 VS. 1996 1997 VS. 1996 INCREASE (DECREASE) INCREASE (DECREASE) ------------------- ------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------ ---- ----- ------ ---- ----- (IN THOUSANDS) Interest-earning assets: Securities: Taxable $ 1,879 $ 431 $ 2,310 $ 3,990 $ 549 $ 4,539 Non-taxable (57) (57) -- 4 11 15 -------- -------- -------- -------- -------- -------- Total securities 1,936 374 2,310 3,994 560 4,554 ======== ======== ======== ======== ======== ======== Loans: Commercial $ 5,082 $ (387) $ 4,695 9,745 (557) 9,188 Real estate 4,882 (29) 4,853 9,429 (217) 9,212 Consumer 386 120 506 913 60 973 -------- -------- -------- -------- -------- -------- Total loans 10,350 (296) 10,054 20,087 (714) 19,373 -------- -------- -------- -------- -------- -------- Fed funds sold (10) (1) (11) (50) (8) (58) -------- -------- -------- -------- -------- -------- Total interest- earning assets 12,276 77 12,353 24,031 (162) 23,869 -------- -------- -------- -------- -------- -------- Interest-bearing liabilities: Deposits: Demand and savings deposits 389 26 415 722 (64) 658 Time deposits 4,655 (198) 4,457 9,086 (316) 8,770 -------- -------- -------- -------- -------- -------- Total interest-bearing deposits 5,044 (172) 4,872 9,808 (380) 9,428 Borrowings 2,811 (116) 2,695 5,483 (193) 5,290 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 7,855 (288) 7,567 15,291 (573) 14,718 -------- -------- -------- -------- -------- -------- Net interest income $ 4,421 $ 365 $ 4,786 $ 8,740 $ 411 $ 9,151 ======== ======== ======== ======== ======== ========
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 Net Income. Net income for the three months ended June 30, 1997 increased 72.6% to $2.7 million, compared to net income of $1.6 million for the three months ended June 30, 1996. Earnings per share in the second quarter of 1997 equaled $0.67, compared to $0.52 for the same period in 1996. Net interest income increased 105.7%, and non-interest income increased 30.2% in the three months ended June 30, 1997, as compared to the same period in 1996 while non-interest expense increased 88.0%. The provision for possible loan losses was comparable to the prior year period. The Company's net interest margin decreased to 3.63% for the second quarter of 1997, compared to 4.14% for the same period in 1996, reflecting the lower net interest margin on County's interest-earning assets. Increases in non-interest income resulted from the inclusion of County's operating results and higher levels of fee income. Non-interest expense increased due to the inclusion of County's operating expenses, amortization of intangibles resulting from the County 14 15 acquisition and higher costs associated with the expansion of trust services, small business lending, and other operating activities. The Company's return on average assets and return on average equity were .98% and 13.43%, respectively, in the second quarter of 1997, compared to 1.30% and 12.69%, respectively, in the second quarter of 1996. Interest Income. Total interest income increased 137.6% to $21.3 million for the three months ended June 30, 1997, compared to $9.0 million for the second quarter of 1996. This increase resulted from a $590.8 million, or 129.1%, increase in average interest-earning assets between the two periods. The average balance of loans increased $470.7 million, or 168.5%. These increases resulted primarily from the acquisition of County which contributed $564.7 million of the increase in average earning assets and $450.1 million of the increase in average loans. The increase in average assets of $26.1 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 8.23% during the three months ended June 30, 1997, compared to 8.05% during the same three month period in 1996. The Company's yield on average loans decreased from 8.91% during the three months ended June 30, 1996 to 8.69% during the three months ended June 30, 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 6.70% during the second quarter of 1996 to 7.09% during the second 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 170.1% to $12.0 million for the three months ended June 30, 1997, compared to $4.4 million for the three months ended June 30, 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 $384.7 million, or 121.9%, from the second quarter in 1996 to the second quarter in 1997. Average interest-bearing liabilities increased 147.6%, from $386.0 million to $955.9 million. These increases also primarily resulted from the acquisition of County which contributed $541.3 million (including $15.0 million of acquisition related debt) to the increase in average interest-bearing liabilities and $370.8 million to the increase in total interest-bearing deposits. The Company's cost of funds increased to 5.04% in the three months ended June 30, 1997 compared to 4.63% 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 higher borrowing levels relative to total interest-bearing liabilities as well as the continued shift by customers into higher yielding certificates of deposit. Provision for Possible Loan Losses. The provision for possible loan losses was $317,000 for the three months ended June 30, 1997, compared to $318,000 in the second quarter of 1996. Total non-performing loans increased to $3.2 million, or .41% of total loans at June 30, 1997, from $821,000, or .29% of total loans at June 30, 1996, with County adding $1.2 million to the 1997 total. The increase in non-performing loans primarily consisted of loans collateralized by first mortgages on residential real estate. The allowance for possible loan losses at June 30, 1997 was $6.9 million, or .90% of total loans and 218.9% of non-performing loans compared to $3.5 million, or 1.25% of total loans and 431.7% of non-performing loans at June 30, 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 $1.9 million for the three months ended June 30,1997, compared to $1.4 million for the three months ended June 30, 1996. The following table sets forth the Company's non-interest income for the periods indicated: 15 16
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------- -------- 1997 1996 1997 1996 ---- ---- ---- ---- (In Thousands) Trust and custodian fees $ 432 $ 351 $ 854 $ 726 Customer service fees 488 432 951 843 Investment securities gains 78 3 100 3 Gains on sales of loans 454 450 945 1,046 Other 420 202 584 384 ------- ------- ------- ------- TOTAL $1,872 $1,438 $3,434 $3,002 ====== ====== ====== ======
Trust and custodian fees increased 23.1% to $432,000 in the second quarter of 1997 from $351,000 in the second quarter of 1996. Growth in trust income resulted primarily from the expansion of the customer base as well as higher asset values. Customer service fees, representing service charges on deposits and fees for other banking services, increased 13.0% in the second quarter of 1997 to $488,000 from $432,000 in the second quarter of 1996. This increase resulted from fee income of $36,000 contributed by County to the 1997 results as well as from higher fee structures. During the second quarter of 1997, the Company sold approximately $11.2 million of investment securities, realizing gains of $78,000. Proceeds from these sales were used to fund increases in the loan portfolio. Gains on sales of loans totaled $454,000 for the three months ended June 30, 1997 compared to $450,000 for the three months ended June 30, 1996. Increases resulting from $150,000 of gains realized from the sale of loans originated under the Farmers B&I program and $29,000 of gains added by County were offset by a $219,000 decrease in gains from sales of SBA loans. During the second quarter of 1997, the Company sold $2.4 million of the guaranteed portion of its SBA loan originations in the secondary market compared to $3.8 million during the second quarter of 1996, realizing gains of $231,000 in 1997 compared to gains of $450,000 in 1996. The Company intends to continue to place emphasis on its small business lending activities, including the evaluation of expansion into new markets. The change in the political climate in Washington, D.C. to one of less government combined with growing budget constraints, may subject many existing government programs to much scrutiny and possible cutbacks. It is not currently known whether the SBA program will be impacted. Management believes that any such cutbacks could negatively affect the Company's activities in the SBA lending programs as well as the planned expansion of such activities. Other income increased $218,000 to $420,000 in the second quarter of 1997 compared to $202,000 in the second quarter of 1996 as a result of other fee income of $170,000 added by County along with increases in credit card and ATM fee income. Non-Interest Expense. Total non-interest expense increased $3.3 million to $6.8 million for the three months ended June 30, 1997, compared to $3.5 million for the three months ended June 30, 1996. Excluding expenses of $2.7 million that were added by or resulted from the acquisition of County, non-interest expenses increased $597,000, or 17.0%, during the second 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: 16 17
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 1997 1996 1997 1996 ---- ---- ---- ---- (In Thousands) Salaries and employee benefits $3,628 $1,856 $7,151 $3,743 Occupancy expense 507 182 1,038 387 Furniture, fixtures and equipment 178 106 351 209 Data processing 268 162 530 314 Taxes other than income taxes 253 150 524 294 Federal deposit insurance 110 22 174 40 Amortization of goodwill and other intangibles 396 7 792 14 Other 1,474 1,008 2,640 1,879 ------ ----- ----- ----- TOTAL $6,814 $3,493 $13,200 $6,880 ====== ====== ======= ======
Salaries and employee benefits accounted for approximately 53.2% of total non-interest expense in the three months ended June 30, 1997 compared to 53.1% in the second quarter of 1996. The average full time equivalent staff was 364 in 1997 compared to 212 in 1996. Excluding salary and employee benefits expense of $1.3 million added by County, such expenses increased $438,000, or 23.6% as a result of market expansion and new product offerings during 1996. Net occupancy expense increased 178.6% to $507,000 in the second quarter of 1997 from $182,000 in the second quarter of 1996. This increase resulted from $319,000 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 $72,000, or 67.9% in the second quarter of 1997. In addition to $55,000 of expenses added by County, the increase in furniture and equipment expense was due principally to higher repairs and maintenance expenditures. Data processing expense increased $106,000, or 65.4%, in the second quarter of 1997. In addition to $81,000 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 $103,000, or 68.9%, in the second quarter of 1997 compared to the second 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, offset in part by a benefit realized related to taxes paid in a prior year. Federal deposit insurance expense increased $88,000 to $110,000 in 1997 from $22,000 in the second quarter of 1996 as a result of $90,000 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 second quarter of 1997 with no comparable amount in the second quarter of 1996. Excluding $349,000 of expenses added by County, other non-interest expenses were $1.1 million during the second quarter of 1997 compared to $1.0 million in the second quarter of 1996, resulting primarily from higher training and shareholder related costs. 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 56.9% for the second quarter of 1997, compared to 56.7% 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. 17 18 Provision for Income Taxes. The Company's provision for Federal income taxes was $1.4 million, or 33.6% of pretax income, for the three months ended June 30, 1997 compared to $592,000, or 27.6% of pretax income, for the three months ended June 30, 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. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996. Net Income. Net income for the six months ended June 30, 1997 increased 55.9% to $5.3 million, or $1.33 per share, compared to net income of $3.4 million, or $1.15 per share, for the six months ended June 30, 1996. Net interest income increased 98.7% and non-interest income increased 14.4% in the six months ended June 30, 1997, as compared to the same period in 1996 while non-interest expense increased 91.9%. The provision for possible loan losses was basically unchanged from the comparative period. The Company's net interest margin decreased to 3.64% for the six months ended June 30, compared to 4.22% for the same period in 1996, reflecting the lower net interest margin on County's interest-earning assets. Increases in non-interest income resulting from the inclusion of County's operating results and higher levels of fee income were 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 13.49%, respectively, for the six months ended June 30, 1997, compared to 1.43% and 13.89%, respectively, for the six months ended June 30, 1996. Interest Income. Total interest income increased 131.7% to $42.0 million for the six months ended June 30, 1997, compared to $18.1 million for the comparable period in 1996. This increase resulted from a $580.5 million, or 126.4%, increase in average interest-earning assets between the two periods. The average balance of loans increased $459.9 million, or 165.4%. These increases resulted primarily from the acquisition of County which contributed $554.6 million of the increase in average earning assets and $439.1 million of the increase in average loans. The increase in average assets of $25.9 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 8.22% during the six months ended June 30, 1997, compared to 8.10% during the same six month period in 1996. The Company's yield on average loans decreased from 8.98% during the six months ended June 30, 1996 to 8.69% during the six months ended June 30, 1997. This resulted primarily from a slightly lower yield on County's loan portfolio as previously discussed. 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 6.79% during 1996 to 7.09% during 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 166.2% to $23.6 million for the six months ended June 30, 1997, compared to $8.9 million for the six months ended June 30, 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 six months of 1997, as compared to the same period in 1996. The average balance of interest-bearing deposit accounts increased $376.6 million, or 118.8%, during the six months ended June 30, 1997 compared to 1996. Average interest-bearing liabilities increased 144.7%, from $387.0 million to $947.2 million. These increases also primarily resulted from the acquisition of County which contributed $530.8 million (including $15.0 million of acquisition related debt) to the increase in average interest-bearing liabilities and $362.5 million to the increase in total interest-bearing deposits. The Company's cost of funds increased to 5.02% for the six months ended June 30, 1997 compared to 4.60% for 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 higher borrowing levels relative to total interest-bearing liabilities, as well as the continued shift by customers into higher yielding certificates of deposit. 18 19 Provision for Possible Loan Losses. The provision for possible loan losses was $615,000 for the six months ended June 30, 1997, compared to $610,000 for the six months ended June 30, 1996 and was considered sufficient to maintain the Company's allowance for possible loan losses at an adequate level. Non-Interest Income. Total non-interest income was $3.4 million for the six months ended June 30, 1997, compared to $3.0 million for the six months ended June 30, 1996. Fee and other income contributed by County to the 1997 results totaled $564,000. This increase was offset by a $495,000 decrease in gains on sales of SBA loans. During the six months ended June 30, 1997, the Company sold approximately $5.5 million of the guaranteed portion of its SBA loan originations in the secondary market compared to $9.0 million in the first six months of 1996, realizing gains of $551,000 in 1997, compared to gains of $1.0 million in 1996. In addition, the Company sold $6.2 million of the guaranteed portion of commercial real estate loans originated under the Farmers B&I program, realizing gains of $266,000 in the first six months of 1997. Also, in 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 accretion of related discounts). At June 30, 1997, unamortized capitalized servicing assets related to SBA loans totaled $2.1 million while discounts associated with the retained portion of SBA loans totaled $1.5 million. Customer service fees, representing service charges on deposits and fees from other banking services, increased 12.8% for the six months ended June 30, 1997, to $951,000, from $843,000 for the comparable period of 1996. This increase resulted from fee income of $67,000 contributed by County to the 1997 results as well as from higher fee structures. Trust income increased 17.6% to $854,000 in 1997, from $726,000 in 1996. Growth in trust and custodian fees resulted primarily from the expansion of the customer base and higher asset values. The $200,000 increase in other income to $584,000 in 1997 compared to $384,000 in 1996 resulted from other fee income of $334,000 added by County, offset in part by the additional amortization of servicing fee assets which was recorded as a reduction of service fee income, as previously discussed. Non-Interest Expense. Total non-interest expense increased $6.3 million to $13.2 million for the six months ended June 30, 1997, compared to $6.9 million for the six months ended June 30, 1996. Excluding expenses of $5.3 million that were added by or resulted from the acquisition of County, non-interest expenses increased $971,000, or 14.1%, during the first six months 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. For the six months ended June 30, 1997, the Company's efficiency ratio was 56.1%, compared to 54.4% for the six months ended June 30, 1996. Salaries and employee benefits accounted for approximately 54.2% of total non-interest expense for the six months ended June 30, 1997 compared to 54.4% in 1996. The average full time equivalent staff was 361 in 1997 compared to 212 in 1996. Excluding salary and employee benefits expense of $2.7 million added by County, such expenses increased $707,000, or 18.9% as a result of market expansion and new product offerings during 1996. Net occupancy expense increased 168.2% to $1.0 million for the first six months of 1997 from $387,000 for the first six months of 1996. This increase resulted from $619,000 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 $142,000, or 67.9% for the six months ended June 30, 1997. In addition to $110,000 of expenses added by County, the increase in furniture and equipment expense was due principally to higher depreciation and repairs and maintenance costs. Data processing expense increased $216,000, or 68.9%, for the six months ended June 30, of 1997. In addition to $157,000 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 $230,000, or 78.2%, for the first six months 1997 compared to the same period in 1996. This increase resulted primarily from $213,000 of expenses added by County. 19 20 Federal deposit insurance expense increased $134,000 to $174,000 in 1997 from $40,000 in 1996 as a result of $133,000 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 $778,000 during the first six months of 1997 with no comparable amount in 1996. Excluding $638,000 of expenses added by County, other non-interest expenses were $2.0 million during the six months ended June 30, 1997 compared to $1.9 million during the same period in 1996. Provision for Income Taxes. The Company's provision for Federal income taxes was $2.7 million, or 33.6% of pretax income, for the six months ended June 30, 1997 compared to $1.4 million, or 28.5% of pretax income, for the six months ended June 30, 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. 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 $677,000 of such property at June 30, 1997 and $20,000 at June 30, 1996. All other real estate owned at June 30, 1997 was held by County. Non-performing loans totaled $3.2 million, or 0.41% of total loans, at June 30, 1997, compared to $821,000, or 0.29% of total loans, at June 30, 1996. The increase in non-performing loans of $2.3 million from June 30, 1996 was attributed to County's non-performing loans of $1.2 million, as well as general increases in the levels of non-performing loans in all loan categories when compared to the relatively lower levels that existed at June 30, 1996. At June 30, 1997, $2.6 million of non-performing loans were collateralized by real estate compared to $672,000 at June 30, 1996. Non-performing assets totaled $3.8 million, or 0.35% of total assets at June 30, 1997, compared to $841,000, or .18% of total assets at June 30, 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: 20 21
JUNE 30, 1997 1996 ----------------------- (DOLLARS IN THOUSANDS) Non-accrual loans $1,410 $ 348 Accruing loans 90 days or more past due 1,759 473 ------ ------ Total non-performing loans 3,169 821 Other real estate owned 677 20 ------ ------ Total non-performing assets $3,846 $ 841 ====== ====== Non-performing loans to total loans 0.41% 0.29% Non-performing assets to total assets 0.35% 0.18%
Non-performing loans considered to be impaired under Statement of Financial Accounting Standards No. 114 at June 30, 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. 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 SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 1997 1996 1997 1996 ---- ---- ---- ---- (In Thousands) Balance at beginning of period $ 6,691 $ 3,406 $ 6,599 $ 3,307 Provision charged to expense 317 318 615 610 Loans charged-off (251) (241) (582) (496) Recoveries of loans previously charged off 180 61 305 123 --------- --------- --------- --------- Balance at end of period $ 6,937 $ 3,544 $ 6,937 $ 3,544 ========= ========= ========= ========= Loans outstanding at end of period $ 769,356 $ 282,943 N/A N/A Average loans outstanding $ 749,992 $ 279,338 $ 737,814 $ 277,960 Allowance as a percentage of loans outstanding 0.90% 1.25% N/A N/A Net charge-offs to average loans (annualized) 0.04% 0.26% 0.08% 0.27% Allowance for possible loan losses to nonperforming loans 218.9% 431.7% N/A N/A
The allowance for possible loan losses totaled $6.9 million at June 30, 1997, representing .90% of total loans, compared to $3.5 million at June 30, 1996, or 1.25% of total loans. County's allowance for possible loan losses represented $3.0 million of the $3.4 million increase in such allowances at June 30, 1997 from June 30, 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 and six months ended June 30, 1997 were $71,000 and $277,000, respectively, compared to net charge-offs of $180,000 and $373,000, respectively, for the same periods 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. 21 22 The allowance for possible loan losses as a percentage of non-performing loans ("coverage ratio"), was 218.9% at June 30, 1997, compared to 431.7% at June 30, 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. The decrease in the coverage ratio at June 30, 1997 compared to June 30, 1996 primarily reflects the relatively lower level of non-performing loans at June 30, 1996. Also, the increase in non-performing loans primarily consisted of loans collateralized by real estate. Total non-performing loans as a percentage of total loans remained a relatively low 0.41% of total loans at June 30, 1997. COMPARISON OF JUNE 30, 1997 AND DECEMBER 31, 1996 FINANCIAL CONDITION Total assets amounted to $1.10 billion at June 30, 1997, compared to $1.06 billion at December 31, 1996, an increase of $41.7 million, or 3.9%. Total investment securities decreased by $6.5 million to $278.0 million, primarily as a result of the sale of approximately $11.2 million of securities, previously discussed. 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 June 30, 1997, 84.5% 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 15.5%. This compares to 83.6% and 16.4% classified as available-for-sale and held to maturity, respectively, at December 31, 1996. Total loans increased $47.5 million to $769.4 million at June 30, 1997. This increase reflects management's emphasis on increasing earning assets and earning asset yields with the loan portfolio. Increases in purchased loans (secured by first mortgages on residential property) represented $34.9 million of the increase in total loans. Premises and equipment increased slightly from $8.0 million to $8.4 million at June 30, 1997, relating primarily to ATM installations and other improvements at County's branches. Total deposits increased to $755.5 million at June 30, 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. Also, the Company obtained $15.0 million of public funds deposits at an effective cost of approximately 25 basis points less than alternative short term borrowing costs. Total interest-bearing deposits accounted for 93.4% of total deposits at June 30, 1997, compared to 92.3% at December 31, 1996. Total borrowings increased $18.8 million to $255.4 million at June 30, 1997, compared to $236.6 million at December 31, 1996. This increase resulted primarily from funding needs associated with increases in the loan 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 $235.0 million were classified as available-for-sale 22 23 as of June 30, 1997, representing 84.5% 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. Shareholders' equity at June 30, 1997 was $80.5 million, compared to prior year-end shareholders' equity of $77.9 million, an increase of $2.6 million. This increase resulted from the retention of earnings, net of dividends paid of $2.1 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 $366,000 at June 30, 1997. This change in the effect on equity was attributed to increases in interest rates during 1997. Following receipt of shareholder approval on April 17, 1997, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 7,500,000 to 20,000,000 and to eliminate par value per share of common stock. Management believes that these amendments will provide the Company with greater financial flexibility and enable it to more effectively utilize and manages its equity capital. Under the risk-based capital guidelines, a minimum capital to risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must consist of Tier 1 capital (equity capital net of goodwill). Additionally, a minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be maintained. At June 30, 1997, the Company had a total risk-based capital ratio of 11.10%, of which 10.10% consisted of Tier 1 capital. The leverage ratio for the Company at June 30, 1997, was 6.28%. Cash dividends declared to shareholders of the Company totaled $2.1 million, or $0.52 per share, during the first six months of 1997. This compares to dividends of $1.5 million, or $0.50 per share, for the same period in 1996. Cash dividends paid as a percentage of net income amounted to 39.0% and 43.6% for the six months ended June 30, 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. 23 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES In April 1997, the Company's shareholders approved an amendment to the Company's Articles of Incorporation which eliminates par value per share for the Company's common stock. This amendment will have no effect on the rights of holders of the common stock. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 17, 1997, the Company held its Annual Meeting of Shareholders, the results of which follows: 1. To approve and ratify the appointment of Coopers & Lybrand L.L.P. as independent auditors for the year ended December 31, 1997:
Abstaining/ ----------- Votes For Votes Against Broker Non-Votes --------- ------------- ---------------- 3,058,881 2,805 22,334 2. Election of Class I directors: Votes Against/ -------------- Votes For Withheld --------- -------- Richard O. Johnson 3,050,474 33,745 William F. Randles 3,059,121 25,098 Karl C. Saunders 3,061,907 22,312 3. Election of Class II directors: Votes Against/ -------------- Votes For Withheld --------- -------- Philip E. Burke 3,058,526 18,902 Gary N. Fields 3,065,191 19,028 James L. Nichols 3,058,525 18,901 4. To amend the Company's Articles of Incorporation and Code of Regulations to provide for a Board of Directors consisting of not less than seven or more than fifteen members, as fixed by the Board of Directors: Abstaining/ ----------- Votes For Votes Against Broker Non-votes --------- ------------- ---------------- 2,603,141 52,164 35,988
24 25 5. To amend the Company's Articles of Incorporation to increase the number of authorized shares of the Company's Common Stock to 20,000,000:
Abstaining ---------- Votes For Votes Against Broker Non-Votes --------- ------------- ---------------- 2,733,707 313,238 37,075
6. To amend the Company's Articles of Incorporation to eliminate par value per share of the Company's Common Stock:
Abstaining/ ----------- Votes For Votes Against Broker Non-Votes --------- ------------- ---------------- 2,881,805 118,938 54,712
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(a) to the Company's Quarterly Report on form 10-Q for the Quarter ended March 31, 1997) Exhibit 3(b) - Code of Regulations, as amended (incorporated by reference to exhibit 3(b) to the Company's Quarterly Report on form 10-Q for the Quarter ended March 31, 1997) Exhibit 11: Computation of Per Share Earnings
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 1997 1996 1997 1996 ---------------------------------------------------------------------- Gross Weighted Average Common Shares Outstanding 4,033,919 3,033,919 4,033,919 3,033,919 Weighted Average Treasury Shares Outstanding 52,617 60,433 52,588 61,036 ---------- ---------- ---------- ---------- Net Weighted Average Common Shares Outstanding 3,981,302 2,973,486 3,981,331 2,972,883 ========== ========== ========== ========== Net Income 2,678,000 $1,552,000 $5,310,000 $3,407,000 ========== ========== ========== ========== Net Income Per Common Share $ 0.67 $ 0.52 $ 1.33 $ 1.15 ========== ========== ========== ==========
(b) Exhibit 27: Financial Data Schedule (c) Reports on Form 8-K - None - 25 26 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) /s/ Gary N. Fields Date: August 12, 1997 -------------------------------- Gary N. Fields President and Chief Executive Officer /s/ Kim M. Taylor Date: August 12, 1997 -------------------------------- Kim M. Taylor Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 26 EX-27 2 EXHIBIT 27
9 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 18,976 0 3,486 0 234,982 43,056 44,226 769,356 (6,937) 1,098,666 755,472 0 7,465 255,404 0 0 0 80,454 1,098,666 31,720 9,869 367 41,956 16,184 23,573 18,383 615 100 13,200 8,002 5,310 0 0 5,310 1.33 1.33 8.22 1,410 1,759 0 0 6,599 (582) 305 6,937 6,937 0 0
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