-----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, CFyDCYFR+3zhTU3bmkjKQqbuKRgepNqOnjZ++P+3GwclHTnle+6OBASAqSKavCsT cPrj/ovQquOS/7pCqXQmHQ== 0000950152-99-004432.txt : 19990517 0000950152-99-004432.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950152-99-004432 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: SEC FILE NUMBER: 000-18840 FILM NUMBER: 99621801 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 CORPORATION 10Q 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, 1999 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) (740) 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, 1999 ----- ------------------------------ Common Stock, No Par Value 7,929,636 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.............. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 8-19 PART II. OTHER INFORMATION Other Information............................................... 20 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............................................................... 21
2 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BANCFIRST OHIO CORP. CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31, 1999 1998 (Unaudited) ----------- ----------- ASSETS: Cash and due from banks $ 21,658 $ 28,731 Federal funds sold 314 469 Securities held-to-maturity, at amortized cost (approximate fair value of $25,023 and $26,809 in 1999 and 1998, respectively) 24,696 26,518 Securities available-for-sale, at fair value 293,520 301,097 ---------- ---------- Total securities 318,216 327,615 ---------- ---------- Loans, net of unearned income 786,985 777,063 Allowance for possible loan losses (6,701) (6,643) ---------- ---------- Net loans 780,284 770,420 ---------- ---------- Bank premises and equipment, net 13,532 12,863 Accrued interest receivable 7,740 7,278 Intangible assets 11,559 11,898 Other assets 22,077 21,737 ========== ========== Total assets $1,175,380 $1,181,011 ========== ========== LIABILITIES: Deposits: Non-interest-bearing deposits $ 58,159 $ 65,588 Interest-bearing deposits 730,425 724,034 ---------- ---------- Total deposits 788,584 789,622 Federal funds purchased -- -- Federal Home Loan Bank advances and other borrowings 290,250 296,750 Accrued interest payable 2,548 2,510 Other liabilities 5,743 4,594 ---------- ---------- Total liabilities 1,087,125 1,093,476 SHAREHOLDERS' EQUITY: Common stock, no par value, 20,000,000 shares authorized, 8,076,488 shares issued in 1999 and 1998 64,113 64,096 Retained earnings 29,631 27,892 Accumulated other comprehensive income - unrealized holding losses on securities available-for-sale, net (449) (440) Treasury stock, 218,157 and 180,458 shares, at cost, in 1999 and 1998, respectively (5,040) (4,013) ---------- ---------- Total shareholders' equity 88,255 87,535 ---------- ---------- Total liabilities and shareholders' equity $1,175,380 $1,181,011 ========== ==========
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, 1999 1998 ------- ------- INTEREST INCOME: Interest and fees on loans $16,192 $16,492 Interest and dividends on securities: Taxable 4,744 4,431 Tax-exempt 412 306 Other interest income 23 6 ------- ------- Total interest income 21,371 21,235 ------- ------- Interest expense: Deposits 8,051 8,480 Borrowings 3,919 3,620 ------- ------- Total interest expense 11,970 12,100 ------- ------- Net interest income 9,401 9,135 Provision for possible loan losses 350 307 ------- ------- Net interest income after provision for possible loan losses 9,051 8,828 ------- ------- Other income: Trust and custodian fees 566 453 Customer service fees 530 483 Gain on sale of loans 604 1,114 Other 459 260 Investment securities gains, net 124 24 ------- ------- Total other income 2,283 2,334 ------- ------- Other expense: Salaries and employee benefits 4,054 3,834 Net occupancy expense 410 385 Amortization of intangibles 339 354 Other 2,374 2,421 ------- ------- Total other expense 7,177 6,994 ------- ------- Income before income taxes 4,157 4,168 Provision for Federal income taxes 1,316 1,360 ------- ------- Net income $ 2,841 $ 2,808 ======= ======= Basic and diluted earnings per share $ 0.36 $ 0.35 ======= ======= Weighted average common shares outstanding: Basic 7,881 7,964 ======= ======= Diluted 7,893 7,969 ======= ======= Cash dividends per common share $ 0.140 $ 0.135 ======= =======
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, ---------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income $ 2,841 $ 2,808 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 1,315 685 Provision for possible loan losses 350 307 Gain on sale of assets (728) (1,138) Increase in interest receivable (462) (239) (Increase) in other assets (698) (827) Increase in interest payable 38 459 Increase (decrease) in other liabilities 1,154 (2,038) FHLB stock dividend (296) (287) -------- -------- Net cash provided by (used in) operating activities 3,514 (270) -------- -------- Cash flows from investing activities: Decrease in federal funds sold and short term investments 155 26 Proceeds from maturities of securities held-to-maturity 1,860 1,802 Proceeds from maturities and sales of securities available-for-sale 25,776 29,239 Purchase of securities available-for-sale (18,179) (32,125) Increase in loans, net (31,241) (31,649) Purchase of loans -- (18,837) Purchases of equipment and other assets (1,066) (879) Proceeds from sale of loans 21,758 36,549 Purchase of bank owned life insurance -- (15,000) -------- -------- Net cash used in investing activities (937) (30,874) -------- -------- Cash flows from financing activities: Decrease in federal funds purchased -- (10,000) Increase (decrease) in Federal Home Loan Bank advances and other borrowings (6,500) 30,065 Net increase (decrease) in deposits (1,038) 13,128 Cash dividends paid (1,102) (1,076) Issuance (purchase) of stock, net (1,010) 228 -------- -------- Net cash provided by (used in) financing activities (9,650) 32,345 -------- -------- Net increase (decrease) in cash and due from banks (7,073) 1,201 Cash and due from banks, beginning of period 28,731 21,650 -------- -------- Cash and due from banks, end of period $ 21,658 $ 22,851 ======== ======== Supplemental cash flow disclosures: Income taxes paid $ -- $ 1,200 ======== ======== Interest paid $ 11,932 $ 11,641 ======== ========
The accompanying notes are an integral part of the financial statements 5 6 BANCFIRST OHIO CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (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, 1998 for additional disclosures, including a summary of the Company's accounting policies. The results of operations for the three month period ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 1998 consolidated financial statements to conform to the 1999 presentation. 1) BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and accounts have been eliminated in consolidation. 2) NEW ACCOUNTING PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 and establishes accounting and reporting standards for derivative instruments and for hedging activities. The provisions of this statement will primarily impact the accounting for the Company's interest rate swap transactions which had a total notional amount of $50.6 million at March 31, 1999. The Company has not determined what impact this standard will have on its financial statements. 3) SUBSEQUENT EVENTS On April 5, 1999, the Company acquired Chornyak & Associates, Inc., a full service financial planning company. In connection with this acquisition, the Company issued 82,000 common shares having a total value of approximately $2.1 million for all of the outstanding shares of Chornyak & Associates, Inc. This acquisition is being accounted for as a purchase transaction. 6 7 4) COMPUTATION OF EARNINGS PER SHARE The computation of earnings per share is as follows:
THREE MONTHS ENDED MARCH 31, ------------------ 1999 1998 ------ ------ (In thousands, expect per share data) Actual weighted average common shares outstanding 7,881 7,964 Dilutive common stock equivalents: Stock options 6 1 Bonus shares - Company match 6 4 ------ ------ Weighted average common shares outstanding adjusted for dilutive common stock equivalents 7,893 7,969 ====== ====== Net income $2,841 $2,808 ====== ====== Basic earnings per share $ 0.36 $ 0.35 ====== ====== Diluted earnings per share $ 0.36 $ 0.35 ====== ======
5) COMPREHENSIVE INCOME The Company's comprehensive income, determined in accordance with SFAS No. 130, was $2,832 and $2,596 for the three months ended March 31, 1999 and 1998, respectively. 7 8 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 Subsidiary 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; 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. 8 9 BANCFIRST OHIO CORP. SELECTED FINANCIAL DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998 ---------- ---------- STATEMENT OF INCOME DATA Interest Income $ 21,371 $ 21,235 Interest expense 11,970 12,100 ---------- ---------- Net interest income 9,401 9,135 Provision for possible loan losses 350 307 Non-interest income 2,283 2,334 Non-interest expense 7,177 6,994 ---------- ---------- Income before income taxes 4,157 4,168 Provision for Federal Income taxes 1,316 1,360 ---------- ---------- Net income $ 2,841 $ 2,808 ========== ========== PER SHARE DATA: Basic earnings per share $ 0.36 $ 0.35 Diluted earnings per share 0.36 0.35 Dividends 0.14 0.135 Book value 11.23 10.93 Tangible book value 9.76 9.38 BALANCE SHEET DATA: Total assets $1,175,380 $1,114,980 Loans 786,985 776,213 Allowance for possible loan losses 6,701 6,719 Securities 318,216 272,593 Deposits 788,584 760,175 Borrowings 290,250 259,514 Shareholders' equity 88,255 87,081 PERFORMANCE RATIOS (1): Return on average assets 0.97% 1.04% Return on average equity 13.02 13.23 Tangible return on average tangible equity 16.50 17.11 Net interest margin 3.51 3.64 Interest rate spread 3.14 3.19 Non-interest income to average assets 0.74 0.86 Non-interest expense to average assets 2.35 2.46 Efficiency ratio (2) 57.96 57.14 ASSET QUALITY RATIOS: Non-performing loans to total loans 0.47% 0.36% Non-performing assets to total assets 0.36 0.29 Allowance for possible loan losses to total loans 0.85 0.87 Allowance for possible loan losses to non-performing loans 181.4 238.9 Net charge-offs to average loans (1) 0.15 0.11 CAPITAL RATIOS: Shareholders' equity to total assets 7.51% 7.81% Tier 1 capital to total assets 6.57 6.80% Tier 1 capital to risk-weighted assets 10.06 10.37%
(1) Ratios are stated on an annualized basis. (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. 9 10 OVERVIEW The reported results of the Company primarily reflect the operations of the Company's bank subsidiary. 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, 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") by total interest-earning assets. The net interest margin 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. 10 11
THREE MONTHS ENDED MARCH 31, 1999 1998 --------------------------------- --------------------------------- Average Income/ Yield/ Average Income/ Yield/ Balance Expenses Rate (1) Balance Expenses Rate (1) ---------- -------- -------- ---------- -------- -------- SECURITIES: Taxable $ 294,713 $ 4,744 6.53% $ 245,186 $ 4,431 7.33% Tax-exempt 32,673 633 7.86% 23,266 463 8.07 ---------- ------- ---------- ------- Total securities 327,386 5,377 6.66% 268,452 4,894 7.39 LOANS (2): Commercial 339,845 7,802 9.31% 312,372 7,135 9.26 Real Estate 352,503 6,535 7.52% 371,332 7,345 8.02 Consumer 92,070 1,873 8.25% 85,196 2,031 9.67 ---------- ------- ---------- ------- Total loans 784,418 16,210 8.38% 768,900 16,511 8.71 Federal funds sold 2,065 23 4.52% 565 8 5.74 ---------- ------- ---------- ------- Total earning assets (3) 1,113,869 21,610 7.87% 1,037,917 21,413 8.37 Non-interest earning assets 68,675 57,508 ---------- ---------- Total assets $1,182,544 $1,095,425 ========== ========== INTEREST-BEARING DEPOSITS: Demand and savings deposits 231,884 1,464 2.56% 209,673 1,515 2.93% Time deposits 499,127 6,587 5.35% 494,060 6,965 5.72 ---------- ------- ---------- ------- Total deposits 731,011 8,051 4.47% 703,733 8,480 4.89 Borrowings 294,642 3,919 5.39% 244,640 3,620 6.00 ---------- ------- ---------- ------- Total Interest-bearing liabilities 1,025,653 11,970 4.73% 948,373 12,100 5.18 Non interest-bearing deposits 61,376 49,206 ---------- ---------- Subtotal 1,087,029 997,579 Accrued expenses and other liabilities 7,016 11,743 ---------- ---------- Total liabilities 1,094,045 1,009,322 Shareholders' equity 88,499 86,103 ---------- ---------- Total liabilities and shareholders' equity $1,182,544 1,095,425 ========== ========== Net interest income and interest rate spread (4) $ 9,640 3.14% $ 9,313 3.19% ======= ===== ======= ===== Net interest margin (5) 3.51% 3.64% ===== ===== Average interest-earning assets to average interest-bearing liabilities 108.6% 109.4% ===== =====
(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 1999 and 1998. (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. 11 12 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, 1999 VS. 1998 (IN THOUSANDS) INCREASE (DECREASE) --------------------------------- ------ ------- ----- VOLUME RATE TOTAL ------ ------- ----- Interest-earning assets: Securities: Taxable $ 832 $ (519) $ 313 Non-taxable 183 (13) 170 ------ ------- ----- Total securities 1,015 (532) 483 ------ ------- ----- Loans: Commercial 631 36 667 Real estate (362) (448) (810) Consumer 155 (313) (158) ------ ------- ----- Total loans 424 (725) (301) ------ ------- ----- Federal funds sold 17 (2) 15 ------ ------- ----- Total interest-earning assets (1) 1,456 (1,259) 197 ------ ------- ----- Interest-bearing liabilities: Deposits: Demand and savings deposits 151 (202) (51) Time deposits 71 (449) (378) ------ ------- ----- Total interest-bearing deposits 222 (651) (429) Borrowings 690 (392) 298 ------ ------- ----- Total interest-bearing liabilities 912 (1,043) (131) ------ ------- ----- Net interest income $ 544 $ (216) $ 328 ====== ======= =====
(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, 1999 AND 1998 Net Income. Net income for both the three months ended March 31, 1999 and 1998 was $2.8 million. Basic and diluted earnings per share in the first quarter of 1999 equaled $0.36, compared to $0.35 for the same period in 1998. Net interest income increased 2.9% in the three months ended March 31, 1999, as compared to the same period in 1998 while the provision for possible loan losses and non-interest expense increased 14.0% and 2.6%, respectively. Non-interest income decreased 2.2% from the comparative period. The Company's net interest margin decreased to 3.51% for the first quarter of 1999, compared to 3.64% for the same period in 1998. The decrease in non-interest income related primarily to lower levels of gains on sales of loans. Non-interest expense increased primarily due to increased personnel costs resulting from staff additions that occurred over the course of 1998. The Company's return on average assets and return on average equity were .97% and 13.02%, respectively, in the first quarter of 1999, compared to 1.04% and 13.23%, respectively, in the first quarter of 1998. 12 13 Interest Income. Total interest income increased .6% to $21.4 million for the three months ended March 31, 1999, compared to $21.2 million for the first quarter of 1998. This increase was primarily attributed to a $76.0 million, or 7.3%, increase in average earning assets which was offset in part by a 50 basis point decrease in the average yield on interest-earning assets. The Company's yield on average loans decreased from 8.71% during the three months ended March 31, 1998 to 8.38% during the three months ended March 31, 1999. The decline in average yields has primarily resulted from the repayment and refinancing of higher yielding loans at lower rates. Yields on the investment portfolio decreased from 7.39% during the first quarter of 1998 to 6.66% during the first quarter of 1999. 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 decreased 1.1% to $12.0 million for the three months ended March 31, 1999, compared to $12.1 million for the three months ended March 31, 1998. Interest expense decreased due to a lower cost of funds balance during the first quarter of 1999, as compared to the same period in 1998. The decrease in interest expense resulting from a lower cost of funds was partially offset by a higher average balance of interest-bearing liabilities in the first quarter in 1999 which increased $77.3 million, or 8.1%, from the first quarter in 1998. The Company's cost of funds increased to 4.73% in the three months ended March 31, 1998 compared to 5.18% in the same period of 1998. The cost of funds benefited from the repricing of maturing certificates of deposit at lower rates, interest rate reductions on demand and savings deposits and the repayment and refinancing of higher rate FHLB advances in December, 1998. Provision for Possible Loan Losses. The provision for possible loan losses was $350,000 for the three months ended March 31, 1999, compared to $307,000 in the first quarter of 1998. The provision for possible loan losses was considered sufficient by management for maintaining an adequate allowance for possible loan losses. 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. See Asset Quality. Non-Interest Income. The following table sets forth the Company's non-interest income for the periods indicated:
THREE MONTHS ENDED MARCH 31, ----------------------- 1999 1998 ------ ------ Trust and custodian fees $ 566 $ 453 Customer service fees 530 483 Investment securities gains 124 24 Gains on sales of loans 604 1,114 Other 459 260 ------ ------ Total $2,283 $2,334 ====== ======
Total non-interest income decreased $51,000 for the three months ended March 31,1999, compared to the same period a year ago. This decrease was attributed to a $510,000 decrease in gains on sales of loans, offset in part by increases in fee income. During the first quarter of 1999, the Company sold approximately $4.4 million of the guaranteed portion of loans originated under the SBA and other government guarantee programs compared to $6.0 million in the first quarter of 1998, realizing gains of $342,000 in 1999, compared to gains of $613,000 in 1998. In addition, the Company sold $16.7 million of residential mortgage loans during the first quarter of 1999, realizing gains of $262,000 compared to gains of $501,000 in the first quarter of 1998 on sales of loans totaling $29.4 million. Customer service fees, representing service charges on deposits and fees from other banking services, increased 9.7% in the first quarter of 1999, to $530,000, from $483,000 in the first quarter of 1998. Trust income increased 24.9% to $566,000 in the first quarter of 1999, from $453,000 in the first quarter of 1998. Growth in trust and custodian fees resulted primarily from higher asset values. The $199,000 increase in other income to $459,000 in the first quarter of 1999 compared to $260,000 in the first quarter of 1998 resulted from higher earnings on bank owned life 13 14 insurance (purchased in January 1998) and higher servicing income due to increased levels of serviced loans as well as a lower level of amortization of servicing assets. Non-Interest Expense. The following table sets forth the Company's non-interest expense for the periods indicated:
THREE MONTHS ENDED MARCH 31, ------------------- 1999 1998 ------ ------ (IN THOUSANDS) Salaries and employee benefits $4,054 $3,834 Net occupancy expense 410 385 Furniture, fixtures and equipment 223 207 Data processing 312 341 Taxes other than income taxes 244 217 Federal deposit insurance 69 71 Amortization of goodwill and other intangibles 339 354 Other 1,526 1,585 ------ ------ Total $7,177 $6,994 ====== ======
Total non-interest expense increased $183,000 to $7.2 million in the three months ended March 31, 1999, compared to $7.0 million in the three months ended March 31, 1998. This increase generally resulted from expansion of the Company's operating activities and addition of loan production personnel, which was partially offset by efficiencies achieved from the merger of the Company's banking subsidiaries under a single bank charter in May 1998. Salaries and employee benefits increased 5.7% to $4.1 million and represented approximately 59.3% of total operating expenses (non-interest expense less amortization of intangibles) in the three months ended March 31, 1999 compared to 57.7% in the first quarter of 1998. The average full time equivalent staff increased 1.8% from 379 in 1998 to 386 in 1998. Net occupancy expense increased to $410,000 in the first quarter of 1999 from $385,000 in the first quarter of 1998. This increase resulted from higher costs associated with new branch facilities opened and acquired in the fourth quarter of 1998. Furniture, fixtures and equipment expense increased $16,000, for the first quarter of 1999. The increase in furniture and equipment expense was due principally to higher depreciation and maintenance costs. Data processing expense decreased $29,000, or 8.5%, for the first quarter of 1999. Lower costs in 1999 resulted from efficiencies and cost reductions achieved from data processing systems conversions in 1998. Taxes other than income taxes increased $27,000, for the first quarter of 1999 compared to the first quarter of 1998. The 1998 results included the recognition of credits for overpayment of taxes in prior years. Federal deposit insurance expense decreased $2,000 to $69,000 in 1999 from $71,000 in the first quarter of 1998. Amortization of goodwill and other intangible assets resulting from the application of purchase accounting in connection with the County Savings Bank acquisition totaled $318,000 during the first quarter of 1999 compared to $348,000 in the first quarter of 1998. Other non-interest expenses decreased 3.7% to $1.5 million during the first quarter of 1999 compared to $1.6 million in the first quarter of 1998. Other operating costs decreased during the first quarter of 1999 primarily as a result of efficiencies achieved from the May 16, 1998 merger of the Company's banking subsidiaries under a single bank charter. 14 15 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 58.0% for the first quarter of 1999, compared to 57.1% for the comparable period in 1998. Controlling costs and improving productivity, as measured by the efficiency ratio, is considered by management a primary factor in enhancing performance. While increases in operating expense levels have been modest in 1999, increases in net interest income and other fee income have also been modest and continue to be affected by the relatively low interest rate environment, flat yield curve and competitive pressures. Provision for Income Taxes. The Company's provision for Federal income taxes was $1.3 million, or 31.7% of pretax income, for the three months ended March 31, 1999 compared to $1.4 million, or 32.6% of pretax income, for the three months ended March 31, 1998. 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 subsidiary formally documents its evaluation of the adequacy of the allowance for possible loan losses on a quarterly basis and the evaluation is reviewed and discussed with its board 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 $545,000 of such property at March 31, 1999 compared to $607,000 at December 31, 1998 and $457,000 at March 31, 1998. Non-performing loans totaled $3.7 million, or 0.47% of total loans, at March 31, 1999, compared to $3.7 million, or .48% of total loans at year end 1998 and $2.8 million, or 0.36% of total loans, at March 31, 1998. Non-performing assets totaled $4.2 million, or 0.36% of total assets at March 31, 1999, compared to $4.3 million, or 0.37% of total assets, at December 31, 1998 and $3.3 million, or .29% of total assets at March 31, 1998. The increase in non-performing loans from March 31, 1998 resulted equally from increases in non-performing single family residential mortgage loans and commercial loans. The following is an analysis of the composition of non-performing assets: 15 16
MARCH 31, DECEMBER 31, MARCH 31, 1999 1998 1998 --------- ------------ --------- (DOLLARS IN THOUSANDS) Non-accrual $1,195 $1,294 $1,295 Accruing loans 90 days or more past due 2,500 2,432 1,517 ------ ------ ------ Total non-performing loans 3,695 3,726 2,812 Other real estate owned 545 607 457 ------ ------ ------ Total non-performing assets $4,240 $4,333 $3,269 ====== ====== ====== Non-performing loans to total loans 0.47% 0.48% 0.36% Non-performing assets to total assets 0.36% 0.37% 0.29%
One loan with an outstanding principal balance of $2.9 million at March 31, 1999 and collateralized by a first mortgage on a nursing home facility is not included in the totals in the table above. This loan was 30 days delinquent at March 31, 1999 and 60 days delinquent at April 30, 1999. Management is in the process of working out arrangements with a third party who will operate the facility and assume the existing first mortgage indebtedness. Management believes that any loss that may result from the ultimate resolution of this credit is adequately covered by the specific allocation of the Company's allowance for possible loan losses to this loan at March 31, 1999. 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 charge-off, recovery and other activity for the periods indicated.
THREE MONTHS ENDED MARCH 31, ---------------------- 1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Balance at beginning of period $ 6,643 $ 6,617 Provision charged to expense 350 307 Loans charged-off (441) (384) Recoveries of loans previously charged-off 149 179 -------- -------- Balance at end of period $ 6,701 $ 6,719 ======== ======== Loans outstanding at end of period $786,985 $776,213 Average loans outstanding 784,418 768,900 Allowance as a percent of loans outstanding 0.85% 0.87% Net charge-offs to average loans (annualized) 0.15% 0.11% Allowance for possible loans losses to non- performing loans 181.4% 238.9%
The allowance for possible loan losses totaled $6.7 million at March 31, 1999, representing .85% of total loans, compared to $6.7 million at March 31, 1998, or .87% 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, 1999 were $292,000, compared to net charge-offs of $205,000 for the same period in 1998. 16 17 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 181.4% at March 31, 1999, compared to 238.9% at March 31, 1998. 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 0.47% of total loans at March 31, 1999. COMPARISON OF MARCH 31, 1999 AND DECEMBER 31, 1998 FINANCIAL CONDITION Total assets amounted to $1.18 billion at March 31, 1999, a decrease of $5.6 million, or .5%, from December 31, 1998. Total investment securities decreased by $9.4 million to $318.2 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, 1999, 92.2% 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 7.8%. This compares to 91.9% and 8.1% classified as available-for-sale and held to maturity, respectively, at December 31, 1998. Total loans increased $9.9 million to $787.0 million at March 31, 1999. 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 $12.9 million at December 31, 1998 to $13.5 million at March 31, 1999, the increase relating primarily to the construction of a new branch facility located in New Albany, Ohio. Other assets increased from $21.7 million at December 31, 1998 to $22.1 million at March 31, 1999 primarily as a result of increases in the cash surrender value of bank owned life insurance. Total deposits decreased to $788.6 million at March 31, 1999 from $789.6 million at December 31, 1998. 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, 1999, compared to 91.7% at December 31, 1998. Total borrowings decreased $6.5 million to $290.3 million at March 31, 1999, compared to $296.8 million at December 31, 1998. 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 $293.5 million were classified as available-for-sale as of March 31, 1999, representing 92.2% 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. 17 18 The Company's bank subsidiary is a member of the 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 Savings Bank. This loan had an outstanding balance of $6.3 million at March 31, 1999. 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, 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, 1999. Shareholders' equity at March 31, 1999 was $88.3 million, compared to prior year-end shareholders' equity of $87.5 million, an increase of $720,000. This increase resulted primarily from the retention of earnings (net of dividends paid) offset by purchases of treasury stock (net) totaling $1.0 million. 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, 1999, the Company had a total risk-based capital ratio of 10.94%, of which 10.06% consisted of Tier 1 capital. The leverage ratio for the Company at March 31, 1999, was 6.57%. Cash dividends declared to shareholders of the Company totaled $1.1 million, or $0.14 per share, during the first three months of 1999. This compares to dividends of $1.1 million, or $0.135 per share, for the same period in 1998. Cash dividends paid as a percentage of net income amounted to 38.8% and 38.3% for the three months ended March 31, 1999 and 1998, respectively. In April 1999 the Company issued 82,000 common shares in connection with the acquisition of a full service financial planning company. The Company also entered into a five year employment agreement with the sole shareholder of the acquired company. Under the terms of such agreement, the Company granted this individual an option to purchase up to 30,000 common shares, subject to a four year vesting schedule. 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 UNCERTAINTIES - YEAR 2000 The Year 2000 Issue concerns the inability of information systems to properly recognize and process date-sensitive information beyond December 31, 1999. This could cause a system failure or other computer errors, leading to a disruption in the operation of such systems. All of the Company's banking operations have been converted to a core data processing system that the Company began utilizing in 1996. Substantially all of the software utilized by the Company is purchased or licensed from external providers. The Company has conducted a review of its data processing systems to ensure that all data processing applications are Year 2000 compliant. This review project has seven phases: 1) identify applications; 2) assign primary responsibility; 3) contact vendors for certification; 4) determine testing plan and perform test procedures; 5) determine impact of non compliance; 6) correct non compliance situations; and 7) develop contingency plan. Testing of all critical systems has been substantially completed. Contingency plans are being developed and are expected to be completed by the end of June 1999. Based on its assessment at this time, management does not anticipate any disruption in the Company's operations as a result of the Year 2000 Issue. In addition, the Company has implemented procedures for identifying potential problems that the Company's borrowers may experience. The Company has also held seminars for borrowers and other customers to assist them in addressing the Year 2000 Issue. 18 19 To date, costs associated with required modifications necessary to become Year 2000 compliant have not been significant. The Company estimates that it will incur additional costs of approximately $250,000 to $300,000 primarily for equipment and software purchases relating to Year 2000 compliance. These cost estimates are based on currently available information and may change as the Company continues its Year 2000 project. 19 20 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 - 20 21 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BancFirst Ohio Corp. (Registrant) Date May 14, 1999 (Signed) /s/ Gary N. Fields ------------------- ----------------------------------------- Gary N. Fields President and Chief Executive Officer Date May 14, 1999 (Signed) /s/ Kim M. Taylor ------------------- ----------------------------------------- Kim M. Taylor Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 21 EX-27 2 EXHIBIT 27
9 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 21,658 0 314 0 293,520 24,696 25,023 786,985 (6,701) 1,175,380 788,584 0 8,291 290,250 0 0 64,113 24,142 1,175,380 16,192 5,156 23 21,371 8,051 11,970 9,401 350 124 7,177 4,157 2,841 0 0 2,841 .36 .36 7.87 1,195 2,500 0 0 6,643 (441) 149 6,701 6,701 0 0
-----END PRIVACY-ENHANCED MESSAGE-----