-----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, NAvIl+RQFLCdSL0iJlPaVxuEGglUspFWehUyEAgUPp0QxR4EkbJQkA+9YSM1vAsX Whv6kqJ9kfpOj2ITpfeBqw== /in/edgar/work/0000950152-00-007923/0000950152-00-007923.txt : 20001115 0000950152-00-007923.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950152-00-007923 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCFIRST OHIO CORP CENTRAL INDEX KEY: 0000868572 STANDARD INDUSTRIAL CLASSIFICATION: [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: 763700 BUSINESS ADDRESS: STREET 1: 422 MAIN ST STREET 2: PO BOX 4658 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 l84648ae10-q.txt 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 September 30, 2000 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 November 11, 2000 ----- ----------------------------------- Common Stock, No Par Value 8,782,000 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.............................................................. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................................... 8-22 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................................... 23 PART II. OTHER INFORMATION Other Information .............................................................................................. 24 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 .............................................................................................. 25
2 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BANCFIRST OHIO CORP. CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS: SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------- Cash and due from banks $ 30,386 $ 32,191 Federal Funds sold 197 183 Securities held-to-maturity, at amortized cost (approximate fair value of $16,190 and $20,601 in 2000 and 1999, respectively) 16,341 20,786 Securities available-for-sale, at fair value 372,278 310,449 ------------- ------------- Total securities 388,619 331,235 ------------- ------------- Loans, net of unearned income 1,067,971 849,767 Allowance for possible loan losses (10,197) (7,431) ------------- ------------- Net loans 1,057,774 842,336 ------------- ------------- Bank premises and equipment, net 18,504 14,789 Accrued interest receivable 10,150 8,260 Intangible assets 22,248 12,606 Other assets 39,832 32,606 ------------- ------------- Total assets $ 1,567,710 $ 1,274,206 ============= ============= LIABILITIES: Deposits: Non-interest-bearing deposits $ 73,658 $ 65,086 Interest-bearing deposits 1,025,083 734,090 ------------- ------------- Total deposits 1,098,741 799,176 ------------- ------------- Federal funds purchased -- 24,100 Federal Home Loan Bank advances and other borrowings 356,760 361,398 Accrued interest payable 5,704 3,618 Other liabilities 7,272 5,806 ------------- ------------- Total liabilities 1,468,477 1,194,098 ------------- ------------- SHAREHOLDERS' EQUITY: Common stock, no par or stated value, 20,000,000 shares authorized, 9,098,918 and 8,164,807 shares issued in 2000 and 1999, respectively 80,713 66,318 Retained earnings 42,494 35,795 Accumulated other comprehensive income - unrealized holding losses on securities available for sale, net (7,106) (8,334) Treasury stock, 734,961 and 569,628 shares, at cost, in 2000 and 1999, respectively (16,868) (13,671) ------------- ------------- Total shareholders' equity 99,233 80,108 ------------- ------------- Total liabilities and shareholders' equity $ 1,567,710 $ 1,274,206 ============= =============
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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------ ------------ 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Interest Income: Interest and fees on loans $ 23,853 $ 16,700 $ 61,435 $ 49,317 Interest and dividends on securities: Taxable 6,521 4,852 18,070 14,487 Tax-exempt 420 493 1,263 1,356 ------------ ------------ ------------ ------------ Total interest income 30,794 22,045 80,768 65,160 ------------ ------------ ------------ ------------ Interest expense: Deposits 13,310 7,961 31,040 23,891 Borrowings 6,660 4,493 19,700 12,538 ------------ ------------ ------------ ------------ Total interest expense 19,970 12,454 50,740 36,429 ------------ ------------ ------------ ------------ Net interest income 10,824 9,591 30,028 28,731 Provision for possible loan losses 450 405 1,350 1,130 ------------ ------------ ------------ ------------ Net interest income after provision for possible loan losses 10,374 9,186 28,678 27,601 ------------ ------------ ------------ ------------ Other income: Trust and custodian fees 645 624 2,002 1,800 Customer service fees 668 576 1,739 1,655 Gain on sale of loans 769 437 1,907 1,694 Other 1,322 927 3,726 2,153 Investment securities gains, net 256 -- 256 296 ------------ ------------ ------------ ------------ Total other income 3,660 2,564 9,630 7,598 ------------ ------------ ------------ ------------ Non-interest expense: Salaries and employee benefits 4,480 4,048 13,140 12,308 Net occupancy expense 545 432 1,553 1,230 Amortization of intangibles 512 358 1,274 1,060 Other 2,768 2,357 7,585 7,358 ------------ ------------ ------------ ------------ Total non-interest expense 8,305 7,195 23,552 21,956 ------------ ------------ ------------ ------------ Income before income taxes 5,729 4,555 14,756 13,243 Provision for Federal income taxes 1,887 1,403 4,693 4,159 ------------ ------------ ------------ ------------ Net income $ 3,842 $ 3,152 $ 10,063 $ 9,084 ============ ============ ============ ============ Basic earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10 ============ ============ ============ ============ Diluted earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10 ============ ============ ============ ============ Weighted average common shares outstanding: Basic 8,789 8,141 8,223 8,232 ============ ============ ============ ============ Diluted 8,804 8,147 8,238 8,241 ============ ============ ============ ============ Cash dividends per common share $ 0.138 $ 0.133 $ 0.414 $ 0.400 ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. 4 5 BANCFIRST OHIO CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 ------------ 2000 1999 --------- --------- Cash flows from operating activities: Net income $ 10,063 $ 9,084 Adjustment to reconcile net income to net cash provided by operations: Depreciation and amortization 4,095 4,267 Provision for possible loan losses 1,350 1,130 Gain on sale of assets (2,274) (1,990) Increase in interest receivable (783) (733) Increase in other assets (2,798) (2,587) Increase in interest payable 711 284 Decrease in other liabilities (5,383) (73) FHLB stock dividend (1,038) (753) --------- --------- Net cash provided by operating activities 3,943 8,629 --------- --------- Cash flows from investing activities: (Increase) decrease in federal funds sold and short term investments (14) 462 Proceeds from maturities of securities held-to-maturity 4,479 4,727 Proceeds from maturities and sales of securities available-for-sale 88,804 80,922 Purchase of securities available-for-sale (28,398) (89,897) Increase in loans, net (134,213) (106,982) Purchases of equipment and other assets (1,504) (2,820) Proceeds from sale of loans 37,405 54,660 Acquisition of Chornyak and Associates, Inc. -- (2,050) Acquisition of Milton Federal Financial Corp., net of cash acquired (23,241) -- --------- --------- Net cash used in investing activities (56,682) (60,978) --------- --------- Cash flows from financing activities: (Decrease) increase in federal funds purchased (24,100) 28,000 (Decrease) increase in Federal Home Loan Bank advances and other borrowings (69,570) 33,500 Net increase (decrease) in deposits 136,770 (348) Cash dividends paid (3,366) (3,292) Issuance (purchase) of stock, net 11,200 (4,850) --------- --------- Net cash provided by financing activities 50,934 53,010 --------- --------- Net (decrease) increase in cash and due from banks (1,805) 661 Cash and due from banks, beginning of period 32,191 28,731 --------- --------- Cash and due from banks, end of period $ 30,386 $ 29,392 ========= =========
The accompanying notes are an integral part of the financial statements 5 6 BANCFIRST OHIO CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (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, 1999 for additional disclosures, including a summary of the Company's accounting policies. The results of operations for the three month and nine month periods ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. 1) BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. 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 (as amended by SFAS No. 138), "Accounting for Derivative Instruments and Hedging Activities" was issued. These statements establish accounting and reporting standards for derivative instruments and for hedging activities. The provisions of these statements are to be implemented in the first quarter of 2001 and will primarily impact the accounting for the Company's interest rate swap transactions that had a total notional amount of $49.4 million at September 30, 2000. The Company does not anticipate that these standards will have a significant impact on its financial statements. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral, requires certain disclosures, but carries over most of the provisions of SFAS No. 125 without reconsideration. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 140 is effective for transfers occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not anticipate the adoption of SFAS No. 140 will have a material effect on its earnings or financial condition. 3) ACQUISITION On June 20, 2000, the Company completed the acquisition of Milton Federal Financial Corporation ("Milton"). In connection with the acquisition, the Company issued 918,885 common shares having a total value of approximately $14.2 million and paid cash of $14.1 million to the Milton shareholders. The acquisition is being accounted for as a purchase. Accordingly, Milton's results of operations have been included from the date of acquisition. Total assets added from this acquisition approximated $259.4 million. 6 7 The following summarizes the pro-forma results of operations for the nine-month period ended September 30, 2000 and 1999 as if Milton had been acquired at the beginning of each period presented:
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- (In thousands, except per share amounts) ---------------------------------------- Net interest income $ 33,266 $ 34,150 Net income 10,692 10,170 Basic and diluted earnings per share $ 1.21 $ 1.10
4) COMPUTATION OF EARNINGS PER SHARE The computation of earnings per share is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (In thousands, except per share amounts) Actual weighted average common shares outstanding 8,789 8,141 8,223 8,232 Dilutive common stock equivalents: Stock options -- -- -- 3 Bonus shares - Company match 15 6 15 6 ------------ ------------ ------------ ------------ Weighted average common shares outstanding adjusted for dilutive common stock equivalents 8,804 8,147 8,238 8,241 ------------ ------------ ------------ ------------ Net income $ 3,842 $ 3,152 $ 10,063 $ 9,084 ------------ ------------ ------------ ------------ Basic earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10 ------------ ------------ ------------ ------------ Diluted earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10 ------------ ------------ ------------ ------------
5) COMPREHENSIVE INCOME The Company's comprehensive income, determined in accordance with SFAS No. 130, was $5,533 and $1,552 for the three months ended September 30, 2000 and 1999, respectively, and $11,291 and $4,211 for the nine months ended September 30, 2000 and 1999, respectively. 6) STOCK DIVIDEND On September 21, 2000, the Company's Board of Directors declared a 5% stock dividend payable October 31, 2000 to shareholders of record as of October 10, 2000. All share and per share amounts have been adjusted to give retroactive effect to this stock dividend. 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 bank 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; the integration of Milton Federal Financial Corporation into the Company's operations; and other risks detailed in the Company's Form 10-K for the year ended December 31, 1999 and its other 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 AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- STATEMENT OF INCOME DATA: Interest income $ 30,794 $ 22,045 $ 80,768 $ 65,160 Interest expense 19,970 12,454 50,740 36,429 ------------- ------------- ------------- ------------- Net interest income 10,824 9,591 30,028 28,731 Provision for possible loan losses 450 405 1,350 1,130 Non-interest income 3,660 2,564 9,630 7,598 Non-interest expense 8,305 7,195 23,552 21,956 ------------- ------------- ------------- ------------- Income before income taxes 5,729 4,555 14,756 13,243 Provision for Federal income taxes 1,887 1,403 4,693 4,159 ------------- ------------- ------------- ------------- Net income $ 3,842 $ 3,152 $ 10,063 $ 9,084 ============= ============= ============= ============= PER SHARE DATA: Basic earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10 Diluted earnings per share 0.44 0.39 1.22 1.10 Cash dividends 0.14 0.13 0.41 0.40 Book value 11.30 10.33 N/A N/A Tangible book value 8.77 8.73 N/A N/A BALANCE SHEET DATA: Total assets $ 1,567,710 $ 1,235,885 N/A N/A Loans 1,067,971 830,238 N/A N/A Allowance for possible loan losses 10,197 7,158 N/A N/A Securities 388,619 324,573 N/A N/A Deposits 1,098,741 789,274 N/A N/A Borrowings 356,760 358,250 N/A N/A Shareholders' equity 99,233 83,604 N/A N/A PERFORMANCE RATIOS (1): Return on average assets 0.97% 1.03% 0.95% 1.01% Return on average equity 15.60 14.95 15.59 13.93 Tangible return on average tangible equity 22.77 19.42 21.44 17.89 Net interest margin 3.00 3.44 3.13 3.50 Interest rate spread 2.73 3.12 2.84 3.15 Non-interest income to average assets 0.92 0.84 0.91 0.85 Non-interest expense to average assets 1.96 2.24 2.11 2.33 Efficiency Ratio (2) 53.84 54.97 55.52 56.76 ASSET QUALITY RATIOS: Non-performing loans to total loans 0.75% 0.44% N/A N/A Non-performing assets to total assets 0.53 0.33 N/A N/A Allowance for possible loan losses to total loans 0.95 0.86 N/A N/A Allowance for possible loan losses to non-performing Loans 126.9 196.2 N/A N/A Net charge-offs to average loans (1) 0.06 0.06 0.05% 0.10% CAPITAL RATIOS: Shareholders' equity to total assets 6.33% 6.76% N/A N/A Tier 1 capital to average total assets 6.67 6.33 N/A N/A Tier 1 capital to risk-weighted assets 9.95 9.27% N/A N/A
(1) Ratios are stated on an annualized basis. (2) The efficiency ratio is equal to non-interest expense (excluding amortization and non-recurring expenses) 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, federal deposit insurance assessments, and other general and administrative expenses. AVERAGE BALANCES AND YIELDS The following table presents, for each of the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and percentage rates, and the net interest margin. Net interest margin is calculated by dividing net interest income 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 amount, 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 September 30, 2000 1999 ------------------------------------------ ------------------------------------- (Dollars in Thousands) Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate (1) Balance Expense Rate (1) --------------- ------------ ------------- -------------- ------------ ----------- Securities: Taxable $ 339,265 $ 6,503 7.63% $ 288,082 $ 4,853 6.68% Tax exempt 30,492 646 8.43 32,252 758 9.32 --------------- ------------ ------------- -------------- ------------ ----------- Total securities 369,757 7,149 7.69 320,334 5,611 6.95 Loans (2): Commercial 459,634 10,727 9.28 392,700 8,722 8.81 Real Estate 510,032 10,252 8.00 327,907 6,030 7.30 Consumer 125,307 2,890 9.18 97,117 1,965 8.03 --------------- ------------ ------------- -------------- ------------ ----------- Total loans 1,094,973 23,869 8.67 817,724 16,717 8.11 Federal funds sold 1,110 17 6.09 4 -- 0.00 --------------- ------------ ------------- -------------- ------------ ----------- Total earning assets (3) 1,465,840 31,035 8.42% 1,138,062 22,328 7.78% --------------- ------------ ------------- -------------- ------------ ----------- Non-interest earning assets 113,722 73,042 --------------- -------------- Total assets $1,579,562 $1,211,104 =============== ============== Interest-bearing deposits: Demand and savings deposits $ 260,137 $ 2,006 3.07% $ 241,338 $ 1,584 2.60% Time deposits 733,772 11,305 6.13 488,933 6,377 5.17 --------------- ------------ ------------- -------------- ------------ ----------- Total deposits 993,909 13,311 5.33 730,271 7,961 4.33 Borrowings 403,324 6,659 6.57 328,783 4,493 5.42 --------------- ------------- ----------- Total interest- bearing liabilities 1,397,233 19,970 5.69% 1,059,054 12,454 4.67% ------------ ------------- ------------ ----------- Non-interest- bearing deposits 72,417 61,921 --------------- -------------- Subtotal 1,469,650 1,120,975 Accrued expenses and other liabilities 11,873 6,466 --------------- -------------- Total liabilities 1,481,523 1,127,441 Shareholders' equity 98,039 83,663 --------------- -------------- Total liabilities and shareholders' equity $1,579,562 $1,211,104 =============== ============== Net interest income and interest rate spread (4) $11,065 2.73% $ 9,874 3.12% ============= ============ ============= =========== Net interest margin (5) 3.00% 3.44% ============ =========== Average interest- earning assets to average interest- bearing liabilities 104.9% 107.5%
Nine Months Ended September 30, 2000 1999 --------------------------------------- -------------------------------------- (Dollars in Thousands) Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate (1) Balance Expense Rate (1) -------------- ------------ ----------- --------------- ---------- ----------- Securities: Taxable $ 321,083 $ 18,043 7.51% $ 293,679 $ 14,461 6.58 % Tax exempt 30,199 1,944 8.60 33,104 2,086 8.42 -------------- ------------ ----------- --------------- ---------- ----------- Total securities 351,282 19,987 7.60 326,783 16,547 6.77 Loans (2): Commercial 441,606 30,104 9.11 367,510 24,747 9.00 Real Estate 404,953 23,812 7.85 338,464 18,904 7.47 Consumer 113,968 7,564 8.87 94,843 5,718 8.06 -------------- ------------ ----------- --------------- ---------- ----------- Total loans 960,527 61,480 8.55 800,817 49,369 8.24 Federal funds sold 534 25 6.25 777 27 4.65 -------------- ------------ ----------- --------------- ---------- ----------- Total earning assets (3) 1,312,343 81,492 8.29% 1,128,377 65,943 7.81% -------------- ------------ ----------- ---------- ----------- Non-interest earning assets 96,339 70,120 -------------- --------------- Total assets $1,408,682 $1,198,497 ============== =============== Interest-bearing deposits: Demand and savings deposits $ 238,433 $ 5,249 2.94% $ 232,933 $ 4,370 2.51 % Time deposits 593,684 25,791 5.80 497,289 19,521 5.25 -------------- ------------ ----------- --------------- ---------- ----------- Total deposits 832,117 31,040 4.98 730,222 23,891 4.37 Borrowings 412,179 19,700 6.38 312,888 12,538 5.36 -------------- ----------- --------------- ----------- Total interest- bearing liabilities 1,244,296 50,740 5.45 % 1,043,110 36,429 4.67% ------------ ----------- ------------ ----------- Non-interest- bearing deposits 67,287 61,358 -------------- --------------- Subtotal 1,311,583 1,104,468 Accrued expenses and other liabilities 10,860 6,850 -------------- --------------- Total liabilities 1,322,443 1,111,318 Shareholders' equity 86,239 87,179 -------------- --------------- Total liabilities and shareholders' equity $1,408,682 $1,198,497 ============== =============== Net interest income and interest rate spread (4) $ 30,752 2.84% $ 29,514 3.15% ============== =========== ============ =========== Net interest margin (5) 3.13% 3.50% =========== ========== Average interest- earning assets to average interest- bearing liabilities 105.5% 108.2%
(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%. (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 SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. 1999 2000 VS. 1999 INCREASE (DECREASE) INCREASE (DECREASE) ------------------- ------------------- (Dollars in thousands) VOLUME RATE TOTAL VOLUME RATE TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Interest-earning assets: Securities: Taxable $ 920 $ 730 $ 1,650 $ 1,432 $ 2,150 $ 3,582 Non-taxable (41) (71) (112) (185) 43 (142) ------------ ------------ ------------ ------------ ------------ ------------ Total securities 879 659 1,538 1,247 2,193 3,440 ------------ ------------ ------------ ------------ ------------ ------------ Loans: Commercial 1,525 480 2,005 5,070 287 5,357 Real estate 3,599 623 4,222 3,883 1,025 4,908 Consumer 620 305 925 1,235 611 1,846 ------------ ------------ ------------ ------------ ------------ ------------ Total loans 5,744 1,408 7,152 10,188 1,923 12,111 Fed funds sold -- 17 17 (10) 8 (2) ------------ ------------ ------------ ------------ ------------ ------------ Total interest-earning assets (1) 6,623 2,084 8,707 11,425 4,124 15,549 ------------ ------------ ------------ ------------ ------------ ------------ Interest-bearing liabilities: Deposits: Demand and savings deposits 128 294 422 106 773 879 Time deposits 3,601 1,327 4,928 4,058 2,213 6,271 ------------ ------------ ------------ ------------ ------------ ------------ Total interest-bearing deposits 3,729 1,621 5,350 4,164 2,986 7,150 Borrowings 1,121 1,045 2,166 4,465 2,696 7,161 ------------ ------------ ------------ ------------ ------------ ------------ Total interest-bearing liabilities 4,850 2,666 7,516 8,629 5,682 14,311 ------------ ------------ ------------ ------------ ------------ ------------ Net interest income $ 1,773 $ (582) $ 1,191 $ 2,796 $ (1,558) $ 1,238 ============ ============ ============ ============ ============ ============
(1) Computed on a fully tax equivalent basis, assuming a tax rate of 35%. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Net Income. Net income for the three months ended September 30, 2000 increased 22.0% to $3.8 million, compared to net income of $3.2 million for the three months ended September 30, 1999. Basic and diluted earnings per share in the third quarter of 2000 equaled $0.44, compared to $0.39 for the same period in 1999. Net income for the third quarter of 2000 includes approximately $480,000 of earnings contributed by Milton, which was acquired on June 20, 2000 in a purchase transaction. Net interest income increased 12.9% while non-interest income increased 42.7% in the three months ended September 30, 2000, as compared to the same period in 1999, and non-interest expense increased 15.4%. Excluding Milton's contribution to the 2000 results, net interest income decreased 1.6%, non-interest income increased 39.2% and non-interest expense increased 6.4% compared to the year ago period. The provision for possible loan losses was $450,000 in 2000 compared to $405,000 in the prior year period. The Company's net interest margin decreased to 3.00% for the third quarter of 2000, compared to 3.44% for the same period in 1999. The Company has experienced a steady decline in its net interest margin during 2000 due primarily to increases in market interest rates and competitive pricing pressures for deposits. The Company expects this trend to reverse with the stabilization of market interest rates and the repricing of assets that have not yet benefited from higher market interest rates more than offsetting upward pricing pressures on maturing certificates of deposit. The Company's return on average assets and return on average 12 13 equity were .97% and 15.60%, respectively, in the third quarter of 2000, compared to 1.03% and 14.95%, respectively, in the third quarter of 1999. The Company's tangible earnings (net income excluding amortization of intangibles) for the three months ended September 30, 2000 were $4.3 million, or $.49 per diluted share, representing an annualized return on tangible equity of 22.77%. Interest Income. Total interest income increased 39.7% to $30.8 million for the three months ended September 30, 2000, compared to $22.0 million for the third quarter of 1999. This increase resulted from a 64 basis point increase in the average yield on earning assets and a $327.8 million increase in average earning assets. Milton contributed $4.2 million of interest income and $196.5 million of average earning assets to the results for the third quarter of 2000. Excluding Milton's contribution of $168.3 million, the average balance of loans increased $108.9 million, or 13.3%, a result of the Company's emphasis on increasing the loan portfolio. The weighted average yield on interest-earning assets increased to 8.42% during the three months ended September 30, 2000, compared to 7.78% during the same three month period in 1999. The Company's yield on average loans increased from 8.11% during the three months ended September 30, 1999 to 8.67% during the three months ended September 30, 2000, primarily as a result of increases in yields resulting from higher market interest rates. Yields on the investment portfolio increased from 6.95% during the third quarter of 1999 to 7.69% during the third quarter of 2000, also benefiting from increased market rates. Interest Expense. Total interest expense increased 60.4% to $20.0 million for the three months ended September 30, 2000, compared to $12.5 million for the three months ended September 30, 1999. Interest expense increased due to a 102 basis point increase in the cost of funds and a $338.2 million, or 31.9%, increase in the average balance of interest-bearing liabilities. Milton contributed $2.8 million of interest expense and $199.9 million of average interest-bearing liabilities to the results for the third quarter 2000. The Company's cost of funds increased to 5.69% for the three months ended September 30, 2000 compared to 4.67% for the same period of 1999. The increase in cost of funds resulted primarily from increases in market interest rates which have resulted in higher rates being paid on short-term repricing borrowings as well as renewals of maturing certificates of deposit. The Company expects upward pricing pressure to continue in the near term with respect to maturing certificates of deposits as $166.4 million of such deposits with an average rate of 5.77% are scheduled to mature through the end of January 2001. Thereafter in 2001, certificates of deposit that are scheduled to mature have an average rate of approximately 6.33%. Provision for Possible Loan Losses. The provision for possible loan losses was $450,000 for the three months ended September 30, 2000, compared to $405,000 for the third quarter of 1999. Total non-performing loans were $8.0 million at September 30, 2000 compared to $3.6 million at September 30, 1999. The allowance for possible loan losses at September 30, 2000 was $10.2 million, or .95% of total loans and 126.9% of non-performing loans compared to $7.2 million, or .86% of total loans and 196.2% of non-performing loans at September 30, 1999. 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 $3.7 million for the three months ended September 30, 2000, compared to $2.6 million for the three months ended September 30, 1999. The following table sets forth the Company's non-interest income for the periods indicated: 13 14
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------- ------------- 2000 1999 2000 1999 -------------- ------------- -------------- -------------- (In thousands) Trust and custodian fees $ 645 $ 624 $ 2,002 $ 1,800 Customer service fees 668 576 1,739 1,655 Financial planning fees 403 196 1,159 440 Investment securities gains 256 -- 256 296 Gains on sales of loans 769 437 1,907 1,694 Other 919 731 2,567 1,713 -------------- ------------- -------------- -------------- TOTAL $ 3,660 $ 2,564 $ 9,630 $ 7,598 ============== ============= ============== ==============
Trust and custodian fees increased 3.4% to $645,000 in the third quarter of 2000 from $624,000 in the third quarter of 1999. Growth in trust income continued to result primarily from the expansion of the customer base, higher asset values and increased sales of retail investment products. Customer service fees, representing service charges on deposits and fees for other banking services, increased 16.0% in the third quarter of 2000 to $668,000 from $576,000 in the third quarter of 1999. The increase in fee income resulted primarily from $75,000 of fee income contributed by Milton to the results for the third quarter 2000 as well as increased levels of overdraft related fees. Financial planning fee income increased 105.6% to $403,000 for the third quarter of 2000 compared to $196,000 in 1999 due to higher levels of fee income on new investment activity as well as fees received on assets under management. Gains on sales of loans totaled $769,000 for the three months ended September 30, 2000 compared to $437,000 for the three months ended September 30, 1999. During the third quarter of 2000, the Company sold $6.2 million of the guaranteed portion of its SBA and other government guarantee loan originations in the secondary market compared to $3.8 million during the third quarter of 1999, realizing gains of $441,000 in 2000 compared to $305,000 in 1999. Also, the Company recorded gains of $328,000 from the sales of residential loans during the third quarter of 2000 compared to $132,000 in 1999. Loan origination and sale activity during the third quarter of 2000 improved as a result of the stabilization of interest rates. The Company intends to continue to place emphasis on its small business lending activities, including the evaluation of expansion into new markets. The nature of the political climate in Washington, D.C. may subject 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. Investment securities gains of $256,000 were realized during the third quarter of 2000 in connection with the sale of approximately $46.8 million of securities acquired in the Milton acquisition and $24.1 million of lower yielding securities held in the Company's investment portfolio. Proceeds from the sale of securities were used primarily to reduce short-term borrowings. No securities were sold in the year ago period. Other income increased $188,000 to $919,000 in the third quarter of 2000 compared to $731,000 in the third quarter of 1999, primarily as a result of a $116,000 increase in earnings on bank-owned life insurance and a $27,000 increase in electronic banking fee income. Non-Interest Expense. Total non-interest expense increased $1.1 million to $8.3 million for the three months ended September 30, 2000, compared to $7.2 million for the three months ended September 30, 1999. Excluding non-interest expense attributed to Milton, total non-interest expense increased $464,000 or 6.4%. The following table sets forth the Company's non-interest expense for the periods indicated: 14 15
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2000 1999 2000 1999 -------------- -------------- ------------- -------------- (In thousands) Salaries and employee benefits $ 4,480 $ 4,048 $ 13,140 $ 12,308 Occupancy expense 545 432 1,553 1,230 Furniture, fixtures and equipment 291 214 761 690 Data processing 369 284 1,016 906 Taxes other than income taxes 211 173 642 684 Federal deposit insurance 63 69 147 207 Amortization of goodwill and other intangibles 512 358 1,274 1,060 Other 1,834 1,617 5,019 4,871 -------------- -------------- ------------- -------------- TOTAL $ 8,305 $ 7,195 $ 23,552 $ 21,956 ============== ============== ============= ==============
Salaries and employee benefits increased $432,000, or 10.7%, and accounted for approximately 54.0% of total non-interest expense in the three months ended September 30, 2000 compared to 56.3% in the third quarter of 1999. The average full time equivalent staff was 404 in 2000 compared to 383 in 1999. Of the increase in expense, $265,000 was added by Milton, as well as normal salary increases. Net occupancy expense increased 26.2% to $545,000 in the third quarter of 2000 from $432,000 in the third quarter of 1999. Excluding $73,000 of expense added by Milton, this increase resulted primarily from rent expense associated with the Company's training and technology center which commenced operations in November 1999. Furniture, fixtures and equipment expense increased $77,000, or 36.0% in the third quarter of 2000 from the comparable period of 1999. The increase is primarily attributed to higher repairs and maintenance costs as well as to $21,000 of expenses added by Milton. Data processing expense increased $85,000, or 29.9%, in the third quarter of 2000 from the comparable period of 1999. Increased costs in 2000 resulted from higher software and maintenance costs related to continued technological enhancements to the Company's data processing systems as well as to $8,000 of expenses added by Milton. Taxes other than income taxes increased $38,000, or 22.0%, in the third quarter of 2000 compared to the third quarter of 1999. The prior year expense benefited from refunds received for prior year taxes as a result of the favorable outcome of a pending tax case. Federal deposit insurance expense decreased $6,000 to $63,000 in 2000 from $69,000 in the third quarter of 1999, reflecting lower premium rates offset in part by $21,000 of expense added by Milton. Amortization of goodwill and other intangible assets increased $154,000 in the third quarter of 2000 compared to the third quarter of 1999 due to $168,000 of amortization related to goodwill resulting from the Milton acquisition. Other non-interest expenses increased $217,000, or 13.4%, to $1.8 million during the third quarter of 2000 compared to $1.6 million in the third quarter of 1999. Excluding Milton's contribution to the 2000 results, other non-interest expenses increased $127,000, or 7.9%. This increase was primarily attributed to a $64,000 increase in advertising and marketing expenses. 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 53.8% for the third quarter of 2000, compared to 55.0% for the comparable period in 1999. Controlling costs and improving productivity, as measured by the efficiency ratio, is considered by management a primary factor in enhancing performance. 15 16 Provision for Income Taxes. The Company's provision for Federal income taxes was $1.9 million, or 32.9% of pretax income, for the three months ended September 30, 2000 compared to $1.4 million, or 30.8% of pretax income, for the three months ended September 30, 1999. 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, earnings on bank-owned life insurance, and the non-deductibility, for tax purposes, of goodwill and core deposit intangible amortization expense. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Net Income. Net income for the nine months ended September 30, 2000 was $10.1 million, or $1.22 per basic and diluted share, compared to net income of $9.1 million, or $1.10 per basic and diluted share, for the nine months ended September 30, 1999. Net income for the nine months ended September 30, 2000 includes approximately $600,000 of earnings contributed by Milton. Net interest income increased 4.5% and non-interest income increased 26.7% in the nine months ended September 30, 2000, as compared to the same period in 1999 while non-interest expense increased 7.3%. Excluding Milton's contribution to the 2000 results, net interest income decreased 1.3%, non-interest income increased 25.4% and non-interest expense increased 3.9% compared to the comparable period of 1999. The provision for possible loan losses increased 19.5% from the comparative period. The Company's net interest margin decreased to 3.13% for the nine months ended September 30, 2000, compared to 3.50% for the same period in 1999. The Company's return on average assets and return on average equity were .95% and 15.59%, respectively, for the nine months ended September 30, 2000, compared to 1.01% and 13.93%, respectively, for the nine months ended September 30, 1999. Interest Income. Total interest income increased 24.0% to $80.8 million for the nine months ended September 30, 2000, compared to $65.2 million for the comparable period in 1999. This increase resulted from a $184.0 million increase in average earning assets for the nine months ended September 30, 2000 compared to 1999, and a 48 basis point increase in the average yield on interest-earning assets. Milton contributed $5.0 million of interest income and $74.7 million in average earning assets to the year to date 2000 results. Excluding Milton's contribution of $65.6 million, the average balance of loans increased $94.1 million, or 11.7%. The increase in loan balances was a result of the Company's emphasis on loan growth to increase overall yields on earning assets. The weighted average yield on interest-earning assets increased to 8.29% during the nine months ended September 30, 2000, compared to 7.81% during the comparable period in 1999. The Company's yield on average loans increased from 8.24% during the nine months ended September 30, 1999 to 8.55% during the nine months ended September 30, 2000. The increase in yield has resulted primarily from increases in market interest rates. Yields on the investment portfolio increased from 6.77% during 1999 to 7.60% during 2000, also due primarily to increases in market interest rates. Interest Expense. Total interest expense increased 39.3% to $50.7 million for the nine months ended September 30, 2000, compared to $36.4 million for the nine months ended September 30, 1999. Interest expense increased due to a higher cost of funds and a higher balance of interest-bearing liabilities during the first nine months of 2000, as compared to the same period in 1999. The average balance of interest-bearing deposit accounts increased $101.9 million, or 14.0%, during the nine months ended September 30, 2000 compared to 1999 while the average balance of borrowings increased 31.7%, from $312.9 million to $412.2 million. Milton contributed $3.3 million of interest expense and $75.4 million of average interest-bearing liabilities to the year to date 2000 results. The Company's cost of funds increased to 5.45% for the nine months ended September 30, 2000 compared to 4.67% for the same period of 1999, primarily due to increases in market interest rates which have resulted in higher rates being paid on short-term repricing borrowings as well as renewals of maturing certificates of deposits. Provision for Possible Loan Losses. The provision for possible loan losses was $1.4 million for the nine months ended September 30, 2000, compared to $1.1 million for the nine months ended September 30, 1999 and was considered sufficient to maintain the Company's allowance for possible loan losses at an adequate level. The increased provision in 2000 resulted primarily from increases in, as well as a change in the mix of, the loan portfolio. Non-Interest Income. Total non-interest income increased $2.0 million, or 26.7%, to $9.6 million for the nine months ended September 30, 2000 from $7.6 million for the nine months ended September 30, 1999. 16 17 Customer service fees, representing service charges on deposits and fees from other banking services, increased 5.1% for the nine months ended September 30, 2000 to $1.7 million. Milton contributed $85,000 of such income to the year to date 2000 results. Trust income increased 11.2% to $2.0 million in 2000, from $1.8 million in 1999. Growth in trust and custodian fees resulted primarily from the expansion of the customer base, higher asset values, and increased sales of retail investment products. Financial planning fee income increased $719,000 to approximately $1.2 million due to the results in 2000 including nine months of activity compared to six months in 1999. Also, higher levels of fee income on new investment activity and increases in assets under management contributed to the improved results in 2000. The $854,000 increase in other income to $2.6 million in 2000 compared to $1.7 million in 1999 resulted primarily from higher levels of electronic banking fee income, SBA net servicing fee income and increased earnings from bank-owned life insurance. Gains on sales of loans increased from $1.7 million for the nine months ended September 30, 1999 to $1.9 million for the comparable period in 2000. During the nine months ended September 30, 2000, the Company sold approximately $21.7 million of the guaranteed portion of its SBA and other government guaranteed loan originations in the secondary market compared to $16.6 million during the first nine months of 1999, realizing gains of $1.5 million in 2000, compared to gains of $1.1 million in 1999. In addition, the Company sold $13.7 million of residential real estate loans realizing gains of $374,000 in the first nine months of 2000, compared to $610,000 of gains on sales of loans totaling $36.4 million in 1999. Non-Interest Expense. Total non-interest expenses increased $1.6 million, or 7.3%, during the first nine months of 2000 compared to the same period in 1999. Excluding expenses totaling $736,000 added by Milton, total non-interest expense increased 3.9%. For the nine months ended September 30, 2000, the Company's efficiency ratio was 55.5%, compared to 56.8% for the nine months ended September 30, 1999. Salary and employee benefits expense increased $832,000, or 6.8% primarily as a result of staff additions associated with increased loan production and other fee income generating activities. Milton contributed $301,000 to the increase reflected in the year to date 2000 results. Salaries and employee benefits accounted for 55.8% of total non-interest expense for the nine months ended September 30, 2000 compared to 56.1% in 1999. The average full-time equivalent staff was 391 in 2000 compared to 385 in 1999. Net occupancy expense increased 26.3%, or $323,000 for the first nine months of 2000 compared to the first nine months of 1999. This increase resulted primarily from rent associated with the Company's training and technology facility that opened in November 1999, as well as from expenses associated with the New Albany branch that opened in May 1999. Also, Milton added $75,000 of expense to the year to date 2000 results. Furniture, fixtures and equipment expense increased $71,000, or 10.3% for the nine months ended September 30, 2000 compared to the same period in 1999. The increase in furniture and equipment expense was due principally to higher depreciation and repairs and maintenance costs. Also, Milton added $21,000 of expense to the year to date 2000 results. Data processing expense totaled $1.0 million for the nine months ended September 30, 2000, compared to $906,000 in 1999. Higher costs in 2000 have resulted primarily from higher depreciation and amortization of equipment and software enhancements due to technological advancements. Taxes other than income taxes decreased $42,000, or 6.1%, for the first nine months in 2000 compared to the same period in 1999. This decrease resulted primarily from lower tax rates. Federal deposit insurance expense decreased $60,000 to $147,000 in 2000 from $207,000 in 1999, reflecting lower premium rates in effect in 2000, offset in part by $21,000 of expense added by Milton. Amortization of goodwill and other intangible assets approximated $1.3 million for the nine months ended September 30, 2000 compared to $1.1 million in 1999. This increase was primarily due to $228,000 of amortization related to goodwill resulting from the Milton acquisition. 17 18 Other non-interest expenses increased to $5.0 million during the nine months ended September 30, 2000 from $4.9 million during the same period in 1999. Excluding $82,000 of expenses added by Milton, other non-interest expenses increased $66,000, or 1.4%, due primarily to higher levels of advertising and marketing expenses. Provision for Income Taxes. The Company's provision for Federal income taxes was $4.7 million, or 31.8% of pretax income, for the nine months ended September 30, 2000 compared to $4.2 million, or 31.4% of pretax income, for the nine months ended September 30, 1999. 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, earnings on bank-owned life insurance, 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 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 $349,000 of such property at September 30, 2000 and $476,000 at September 30, 1999. Non-performing loans totaled $8.0 million, or 0.75% of total loans, at September 30, 2000, compared to $3.6 million, or .44% of total loans, at September 30, 1999. Non-performing assets totaled $8.4 million, or a .53% of total assets at September 30, 2000, compared to $4.1 million, or a .33% of total assets at September 30, 1999. The increase in non-performing loans from September 30, 1999 resulted equally from increases in non-performing single-family residential mortgage loans and commercial loans. Management of the Company is not aware of any material amounts of loans outstanding, not disclosed in the tables 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 and restructured loans:
SEPTEMBER 30, 2000 1999 ----------------- ----------------- (DOLLARS IN THOUSANDS) Non-accrual loans $ 4,107 $ 2,368 Accruing loans 90 days or more past due 3,931 1,280 ----------------- ----------------- Total non-performing loans 8,038 3,648 Other real estate owned 349 476 ----------------- ----------------- Total non-performing assets $ 8,387 $ 4,124 ================= ================= Restructured loans $ 2,952 $ 2,986 ================= ================= Non-performing loans to total loans 0.75% 0.44% Non-performing assets to total assets 0.53% 0.33% Non-performing loans plus restructured loans to total loans 1.03% 0.80%
Restructured loans consist of one loan that was restructured in May 1999 and has been performing in accordance with its restructured terms since such time. 18 19 The aggregate amounts of the Company's classified assets as of September 30, 2000 and 1999 were as follows: SEPTEMBER 30, 2000 1999 ---- ---- Substandard $ 15,192 $ 8,093 Doubtful 279 20 ------------- ------------- Total $ 15,471 $ 8,113 ============= ============= The increase in classified assets was attributable primarily to an increase in the classification of residential real estate mortgage loans past due greater than 90 days from $843,000 at September 30, 1999 to $5.3 million at September 30, 2000. 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 --------------- --------------- --------------- -------------- (DOLLARS IN THOUSANDS) Balance at beginning of period $ 9,908 $ 6,873 $ 7,431 $ 6,643 Provision charged to expense 450 405 1,350 1,130 Loans charged-off (248) (384) (736) (1,168) Recoveries of loans previously charged off 87 264 379 553 Acquired allowance for loan losses -- -- 1,773 -- --------------- --------------- --------------- -------------- Balance at end of period $ 10,197 $ 7,158 $ 10,197 $ 7,158 =============== =============== =============== ============== Loans outstanding at end of period $1,067,971 $830,238 N/A N/A Average loans outstanding $1,094,973 $817,724 $960,527 $800,817 Allowance as a percentage of loans outstanding 0.95% 0.86% N/A N/A Net charge-offs to average loans (annualized) 0.06% 0.06% 0.05% 0.10% Allowance for possible loan losses to non-performing loans 126.9% 196.2% N/A N/A Allowance for possible loan losses to non-performing loans plus restructured loans 92.8% 107.9% N/A N/A
The allowance for possible loan losses totaled $10.2 million at September 30, 2000, representing .95% of total loans, compared to $7.2 million at September 30, 1999, or .86% 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 and nine months ended September 30, 2000 were $161,000 and $357,000, respectively, compared to net charge-offs of $120,000 and $615,000, respectively, for the same periods in 1999. 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 126.9% at September 30, 2000, compared to 196.2% at September 30, 1999. Although used as a general indicator, the coverage 19 20 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 .75% of total loans at September 30, 2000. COMPARISON OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 FINANCIAL CONDITION Total assets were $1.57 billion at September 30, 2000, compared to $1.27 billion at December 31, 1999, an increase of $293.5 million, or 23.0%. Total assets added from the Milton acquisition approximated $259.4 million. Total investment securities increased by $57.4 million to $388.6 million at September 30, 2000 compared to December 31, 1999. This increase was attributed primarily to the securitization of approximately $71.3 million of single-family residential mortgage loans and $47.1 million of securities added by the Milton acquisition, offset in part by the sale of $70.9 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 September 30, 2000, 95.8% of the total investment portfolio was classified as available-for-sale, while those securities that the Company intends to hold to maturity represented the remaining 4.2%. This compares to 93.7% and 6.3% classified as available-for-sale and held to maturity, respectively, at December 31, 1999. Total loans increased $218.2 million to $1.07 billion at September 30, 2000 compared to December 31, 1999. At September 30, 2000, commercial and commercial real estate loans totaled $473.6 million, residential real estate loans totaled $467.7 million and consumer loans totaled $126.7 million. Excluding $192.2 million of loans added by the Milton acquisition, less $71.3 million of securitized loans, discussed previously, total loans have increased $97.3 million. Management continues to emphasize increasing earning assets and earning asset yields. Premises and equipment increased from $14.8 million at December 31, 1999 to $18.5 million at September 30, 2000. This increase has resulted primarily from $3.5 million of fixed assets added by the Milton acquisition. Other assets increased from $32.6 million at December 31, 1999 to $39.8 million at September 30, 2000 primarily as a result of the Milton acquisition that contributed $6.2 million to the September 30, 2000 total. Total deposits increased $299.6 million to $1.10 billion at September 30, 2000 from $799.2 million at December 31, 1999, with $162.8 million of this increase attributable to the Milton acquisition. The Company continues to emphasize growth in its existing retail deposit base, provided incremental deposit growth is cost effective compared to alternative funding sources. Excluding deposits added by Milton, total deposits have increased $136.8 million since year-end 1999, with $100.1 million of this increase attributable to retail and other deposits and $36.7 million attributable to brokered deposits. Total interest-bearing deposits accounted for 93.3% of total deposits at September 30, 2000, compared to 91.9% at December 31, 1999. Total borrowings, including federal funds purchased, decreased $28.7 million to $356.8 million at September 30, 2000, compared to $385.5 million at December 31, 1999. This decrease resulted primarily from the use of funding provided by increases in deposits to reduce short-term borrowings. 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. 20 21 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 $372.3 million were classified as available-for-sale as of September 30, 2000, representing 95.8% 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 subsidiary is a member 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. On June 20, 2000, the Company completed the acquisition of Milton Federal Financial Corporation. In connection with the acquisition, the Company issued 918,885 common shares having a total value of approximately $14.2 million and paid cash of $14.1 million to the Milton shareholders. The acquisition is being accounted for as a purchase. Accordingly, Milton's results of operations have been included from the date of acquisition. Total assets added from this acquisition approximated $259.4 million. The Company obtained a $15 million term loan with a financial institution in order to partially fund the acquisition of County Savings Bank in August 1996. This loan, which was amended September 29, 2000, has an outstanding balance of $8.0 million at September 30, 2000. Under the terms of the amended loan agreement, the Company is required to make quarterly interest payments and annual principal payments, based on a seven-year amortization, which commences in September 2001. The unpaid loan balance is due in full September 30, 2007. The loan agreement also contains certain financial covenants, all of which the Company was in compliance with at September 30, 2000. Also, the Company has pledged 67% of the stock of the First National Bank of Zanesville as security for the loan. On October 18, 1999, the Company completed an offering of $20.0 million aggregate liquidation amount of 9.875% Capital Securities, Series A, due 2029. These securities represent preferred beneficial interests in BFOH Capital Trust 1, a special purpose trust formed for the purpose of the offering. The proceeds from the offering were used by the Trust to purchase Junior Subordinated Deferrable Interest Debentures ("Debentures") from the Company. Under Federal Reserve Board regulations, these Capital Securities may represent up to 25% of a bank holding company's Tier 1 capital. The holders of the Capital Securities are entitled to receive cumulative cash distributions at the annual rate of 9.875% of the liquidation amount. Distributions are payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2000. The Company has fully and unconditionally guaranteed the payment of the Capital Securities, and payment of distributions on the Capital Securities. The Trust is required to redeem the Capital Securities on or, in certain circumstances, prior to October 15, 2029. There are no significant covenants or limitations with respect to the business of the Company that is contained in the instruments that govern the Capital Securities and Debentures. 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. Shareholders' equity at September 30, 2000 was $99.2 million, compared to prior year-end shareholders' equity of $80.1 million, an increase of $19.1 million. This increase resulted primarily from the issuance of common shares in connection with the Milton acquisition, discussed above. Under the risk-based capital guidelines, a minimum capital to risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must consist of Tier 1 capital (equity capital net of goodwill). Additionally, a minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be maintained. At September 30, 2000, the Company had a total risk-based capital ratio of 10.9%, of which 10.0% consisted of Tier 1 capital. The leverage ratio for the Company at September 30, 2000, was 6.7%. Cash dividends paid to shareholders of the Company totaled $3.4 million, or $0.41 per share, during the first nine months of 2000. This compares to dividends of $3.3 million, or $0.40 per share, for the same period in 1999. Cash 21 22 dividends paid as a percentage of net income amounted to 34.0% and 36.2% for the nine months ended September 30, 2000 and 1999, respectively. CONTINGENCIES AND UNCERTAINTIES - YEAR 2000 During the periods leading up to January 1, 2000, the Company addressed the potential problems associated with the possibility that the computers that control or operate the Company's information technology system and infrastructure may not have been programmed to read four digit date codes and, upon arrival of the year 2000, may have recognized the two-digit code "00" as the year 1900, causing systems to fail to function or generate erroneous data. The Company experienced no significant problems related to its information technology systems upon arrival of the Year 2000, nor was there any interruption in service to its customers of any kind. The Company could incur losses if Year 2000 issues adversely affect its depositors or borrowers or impairing the payroll systems of large employers in the Company's primary market areas. Because the Company's loan portfolio is highly diversified with regard to individual borrowers and types of businesses, the Company does not expect, and to date has not realized, any significant prolonged difficulties that will affect net earnings or cash flow. 22 23 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a discussion of the Company's asset and liability management policies as well as the potential impact of interest rate changes upon the market value of the Company's portfolio equity, see "Management's Discussion and Analysis - Interest Rate Risk Management" in the Company's Form 10-K for the year ended December 31, 1999. The following summarizes the Company's simulations of net interest income and net present value (NPV) as of June 30, 2000, the most recent period for which this information is available:
PROJECTED CHANGE % CHANGE CHANGE IN INTEREST RATES AMOUNT FROM BASE FROM BASE - ------------------------------------- ----------------- ----------------- ----------------- Net interest income: 200 basis point increase $ 42,008 $ (1,005) (2.34)% Base scenario-no change 43,013 N/A N/A 200 basis point decrease 44,615 1,602 3.72 NPV: 200 basis point increase $ 67,089 (26,815) (28.56)% Base scenario 93,904 N/A N/A 200 basis point decrease 92,914 (990) (1.05)
23 24 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 The proxy holders for the 2001 annual meeting of shareholders will use their discretion in voting on any and all matters brought before the 2001 annual meeting which were not provided to the Company in an advance notice on or prior to February 3, 2001. 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 - 24 25 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: November 13, 2000 (SIGNED) /S/ GARY N. FIELDS -------------------------------------------- Gary N. Fields President and Chief Executive Officer Date: November 13, 2000 (SIGNED) /S/ KIM M. TAYLOR -------------------------------------------- Kim M. Taylor Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 25 EX-27 2 l84648aex27.txt EXHIBIT 27
9 1,000 U.S. DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 30,386 0 197 0 372,278 16,341 16,190 1,067,971 (10,197) 1,567,710 1,098,741 0 12,976 356,760 0 0 80,713 18,520 1,567,710 61,436 19,333 0 80,768 31,040 50,740 30,028 1,350 256 23,552 14,756 10,063 0 0 10,063 0 0 8.29 4,107 3,931 0 0 7,431 (736) 379 10,197 10,197 0 0
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