-----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, Dk3VPWqs+OHdxV+BRXk91LSTYv1IieSquGENy41ALAyE/VJM3fOJkb5rRPZJJdUJ LM09FQSR0/mUFWKIBwRZig== 0000950152-97-008045.txt : 19971117 0000950152-97-008045.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950152-97-008045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANCFIRST OHIO CORP CENTRAL INDEX KEY: 0000868572 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 311294136 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18840 FILM NUMBER: 97719318 BUSINESS ADDRESS: STREET 1: 422 MAIN ST CITY: ZANESVILLE STATE: OH ZIP: 43702 BUSINESS PHONE: 6144528444 MAIL ADDRESS: STREET 1: 422 MAIN STREET CITY: ZANESVILLE STATE: OH ZIP: 43701 FORMER COMPANY: FORMER CONFORMED NAME: BANCFIRST CORP /OH/ DATE OF NAME CHANGE: 19600201 10-Q 1 BANCFIRST OHIO CORP. QUARTERLY REPORT 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, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-18840 BancFirst Ohio Corp. (Exact name of registrant as specified in its charter) Ohio 31-1294136 ---------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 422 Main Street Zanesville, Ohio 43701 (Address of principal executive offices) (Zip Code) (614) 452-8444 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Outstanding as of November 11, 1997 ----- ----------------------------------- Common Stock, No Par Value 3,979,080 1 2 INDEX BANCFIRST OHIO CORP.
PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Consolidated Balance Sheet.............................................................................. 3 Consolidated Statement of Income........................................................................ 4 Consolidated Statement of Cash Flows.................................................................... 5 Notes to Consolidated Financial Statements.............................................................. 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................................... 9-24 PART II. OTHER INFORMATION Other Information ............................................................................................... 25 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits on Item 601 of Regulation S-K (b) Exhibit 27: Financial Data Schedule (c) Reports on Form 8-K Signatures ............................................................................................... 26
2 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS BANCFIRST OHIO CORP. CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DEC. 31, 1997 1996 -------------------------- ASSETS: Cash and due from banks $ 22,230 $ 18,856 Federal funds sold 25,325 2,193 Securities held-to-maturity, at amortized cost (approximate fair value of $43,596 and $47,652 in 1997 and 1996, respectively) 41,774 46,799 Securities available-for-sale, at fair value 230,628 237,777 ----------- ----------- Total securities 272,402 284,576 ----------- ----------- Loans, net of unearned income 772,280 721,855 Allowance for possible loan losses (7,136) (6,599) ----------- ----------- Net loans 765,144 715,256 ----------- ----------- Bank premises and equipment, net 8,483 7,962 Accrued interest receivable 7,379 6,696 Intangible assets 13,035 14,187 Other assets 5,618 7,194 ----------- ----------- Total assets $ 1,119,616 $ 1,056,920 =========== =========== LIABILITIES: Deposits: Non-interest-bearing deposits $ 52,261 $ 56,179 Interest-bearing deposits 723,786 676,510 ----------- ----------- Total deposits 776,047 732,689 ----------- ----------- Borrowings 251,335 236,609 Accrued interest payable 2,868 2,255 Other liabilities 5,890 7,473 ----------- ----------- Total liabilities 1,036,140 979,026 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock, No par or stated value, 20,000,000 shares authorized, 63,287 -- 4,033,919 shares issued Common stock, $10 par value, 7,500,000 shares authorized, 4,033,919 shares issued -- 40,340 Capital in excess of par value -- 22,807 Retained earnings 20,395 15,466 Unrealized holding gains on securities available-for-sale, net 1,064 304 Treasury stock, 56,683 and 54,420 shares, at cost, in 1997 and 1996, respectively (1,270) (1,023) ----------- ----------- Total shareholders' equity 83,476 77,894 ----------- ----------- Total liabilities and shareholders' equity $ 1,119,616 $ 1,056,920 =========== ===========
The accompanying notes are an integral part of the financial statements. 3 4 BANCFIRST OHIO CORP. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------ 1997 1996 1997 1996 -------- -------- -------- -------- Interest income: Interest and fees on loans $ 16,399 $ 10,826 $ 48,119 $ 23,189 Interest and dividends on securities: Taxable 4,263 3,498 13,463 8,464 Tax-exempt 331 344 1,000 1,003 Other interest income 323 97 690 215 -------- -------- -------- -------- Total interest income 21,316 14,765 63,272 32,871 -------- -------- -------- -------- Interest expense: Deposits 8,542 5,923 24,726 12,682 Borrowings 3,763 2,230 11,152 4,327 -------- -------- -------- -------- Total interest expense 12,305 8,153 35,878 17,009 -------- -------- -------- -------- Net interest income 9,011 6,612 27,394 15,862 Provision for possible loan losses 304 316 919 926 -------- -------- -------- -------- Net interest income after provision for possible loan losses 8,707 6,296 26,475 14,936 -------- -------- -------- -------- Other income: Trust and custodian fees 483 334 1,337 1,060 Customer service fees 510 466 1,461 1,309 Gain on sale of loans 872 448 1,817 1,494 Other 308 300 892 684 Investment securities gains, net 3 36 103 39 -------- -------- -------- -------- Total other income 2,176 1,584 5,610 4,586 -------- -------- -------- -------- Other expense: Salaries and employee benefits 3,640 2,768 10,791 6,511 Net occupancy expense 539 339 1,577 726 Amortization of intangibles 381 187 1,173 201 Other 2,191 4,669 6,410 7,405 -------- -------- -------- -------- Total other expense 6,751 7,963 19,951 14,843 -------- -------- -------- -------- Income (loss) before income taxes 4,132 (83) 12,134 4,679 Provision (benefit) for Federal income taxes 1,408 (129) 4,100 1,226 -------- -------- -------- -------- Net income $ 2,724 $ 46 $ 8,034 $ 3,453 ======== ======== ======== ======== Net income per common share $ 0.68 $ 0.01 $ 2.02 $ 1.10 ======== ======== ======== ======== Weighted average common shares outstanding 3,980 3,487 3,981 3,146 ======== ======== ======== ======== Cash dividends per common share $ 0.26 $ 0.25 $ 0.78 $ 0.75 ======== ======== ======== ======== Total cash dividends paid $ 1,035 $ 994 $ 3,105 $ 2,480 ======== ======== ======== ========
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 ------------ 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 8,034 $ 3,453 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 3,022 1,758 Provision for possible loan losses 919 926 Gain on sale of assets (1,920) (1,533) Decrease (increase) in interest receivable (683) 9 Decrease in other assets 241 4,568 Increase in interest payable 613 475 Increase (decrease) in other liabilities (83) 3,412 FHLB stock dividend (792) (154) -------- -------- Net cash provided by operating activities 9,351 12,914 -------- -------- Cash flows from investing activities: Increase in federal funds sold and short term investments (23,209) (351) Proceeds from maturities of securities held-to-maturity 4,952 788 Proceeds from maturities and sales of securities available-for-sale 73,608 47,188 Purchase of securities held-to-maturity (14) (663) Purchase of securities available-for-sale (64,820) (28,422) Increase in loans, net (36,313) (32,324) Acquisition of County Savings Bank, net of cash acquired -- (43,907) Decrease in payable related to acquisition of County Savings Bank (1,500) -- Purchase of loans (71,116) (9,914) Purchases of equipment and other assets (1,357) (1,403) Proceeds from sale of loans 58,496 15,131 -------- -------- Net cash used in investing activities (61,273) (53,877) -------- -------- Cash flows from financing activities: Increase (decrease) in short-term borrowings (11,650) 5,424 Increase (decrease) in other long-term borrowings 26,376 (317) Net increase in deposits 43,782 1,388 Net proceeds from issuance of common stock -- 25,824 Proceeds from acquisition debt -- 15,000 Cash dividends paid (3,105) (2,480) Reissuance (purchase) of treasury stock, net (107) 175 -------- -------- Net cash provided by financing activities 55,296 45,014 -------- -------- Net increase in cash and due from banks 3,374 4,051 Cash and due from banks, beginning of period 18,856 14,102 -------- -------- Cash and due from banks, end of period $ 22,230 $ 18,153 ======== ========
The accompanying notes are an integral part of the financial statements 5 6 BANCFIRST OHIO CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (UNAUDITED) The consolidated financial statements for interim periods are unaudited; however, in the opinion of management of BancFirst Ohio Corp. ("Company"), the accompanying consolidated financial statements contain all material adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by generally accepted accounting principles. Reference should be made to the Company's consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996 for additional disclosures, including a summary of the Company's accounting policies. The results of operations for the three month and nine month periods ended September 30, 1997 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 1996 consolidated financial statements to conform to the 1997 presentation. 1) BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and each of its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. On August 14, 1996, the Company acquired County Savings Bank ("County") in a transaction accounted for under the purchase method of accounting for business combinations. Accordingly, the Company's consolidated financial statements include the operating results of County from the date of acquisition. At the time of acquisition, County had approximately $554 million in total assets, $411 million in loans and $365 million in total deposits. The Company also recorded goodwill and other intangible assets of $14.7 million as a result of the application of purchase accounting. Funding for the acquisition was provided by proceeds from the issuance of 1 million shares of common stock, $15 million of bank borrowings and approximately $7 million of available cash. The following summarizes the pro-forma results of operations for the nine months ended September 30, 1996 as if County had been acquired at the beginning of such period:
(In thousands, except per share data) Net Interest income $24,414 Net Income $ 4,604 Net Income per share $ 1.16
6 7 2) INVESTMENT SECURITIES: The amortized cost and estimated fair value of investment securities are as follows:
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------- ----------------- SECURITIES HELD TO MATURITY COST FAIR VALUE COST FAIR VALUE - --------------------------- -------------------- -------------------- (IN THOUSANDS) Other U.S. government agencies $ -- $ -- $ 1,999 $ 2,000 State and political subdivisions 5,970 6,090 6,266 6,375 Mortgage-backed and related securities 33,120 34,821 35,690 36,431 Other 2,684 2,685 2,844 2,846 -------- -------- -------- -------- $ 41,774 $ 43,596 $ 46,799 $ 47,652 ======== ======== ======== ======== SECURITIES AVAILABLE-FOR-SALE - ----------------------------- U.S. treasury securities $ 6,168 $ 6,168 $ 11,775 $ 11,881 Other U.S. government agencies 13,835 13,870 12,446 12,428 State and political subdivisions 16,039 16,276 16,090 16,301 Mortgage-backed and related securities 176,398 177,738 182,509 182,672 Other 16,576 16,576 14,495 14,495 -------- -------- -------- -------- $229,016 $230,628 $237,315 $237,777 ======== ======== ======== ========
3) LOANS AND LEASES BY CATEGORIES:
SEPT. 30, DEC. 31, 1997 1996 ------------------------ (IN THOUSANDS) Commercial, financial and agricultural $310,129 $299,630 Real estate - mortgage 369,916 337,911 Real estate - construction 9,685 7,716 Consumer installment 82,550 76,598 -------- -------- Total $772,280 $721,855 ======== ========
4) LONG-TERM BORROWINGS Long-term borrowings as of September 30, 1997 and December 31, 1996 were as follows:
SEPT. 30, DEC. 31, 1997 1996 ---------------------- (IN THOUSANDS) Federal funds purchased $ -- $ 11,650 Term reverse repurchase agreements 10,000 10,000 Federal Home Loan Bank Advances 226,335 199,959 Term debt with a financial institution (LIBOR + 1.35%) 15,000 15,000 -------- -------- Total $251,335 $236,609 ======== ========
7 8 Federal Home Loan Bank ("FHLB") advances must be secured by eligible collateral as specified by the FHLB. Accordingly, the Company has a blanket pledge of its first mortgage loan portfolio as collateral for the advances outstanding, with a required minimum ratio of collateral to advances of 150%. Additionally, the stock of the FHLB owned by the Company (book value at September 30, 1997 of $15.5 million) is pledged as collateral for these borrowings. The Company obtained a $15 million term loan with a financial institution in order to partially fund the acquisition of County. Under the terms of the loan agreement, the Company is required to make quarterly interest payments and annual principal payments, based on a ten year amortization, commencing in February 1998. The unpaid loan balance is due in full September 1, 2003. The loan agreement also contains certain financial covenants all of which the Company was in compliance with at September 30, 1997. The Company has no commitments to borrow additional funds as of September 30, 1997. 5) NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement provides accounting and reporting standards for loan securitizations based on control of the underlying assets. It also provides accounting and implementation guidance for other transfers, including partial transfers of loans, servicing of financial assets, repurchase agreements, securities lending and extinguishments of liabilities. The effective date of certain provisions has been deferred by the Financial Accounting Standards Board (FASB) until 1998. Adoption of this statement had no impact on the Company's September 30, 1997 financial statements. SFAS No. 128 "Earnings Per Share" was issued in February 1997 and is effective for financial statements issued for periods after December 15, 1997. The statement specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock. The impact of the statement on earnings per share is not expected to be material. SFAS No. 130 "Reporting Comprehensive Income" was issued in June 1997 and is effective for financial statements issued for periods beginning after December 15, 1997. The statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company's comprehensive income, determined in accordance with the provisions of the statement, for the three month and nine month periods ended September 30, 1997 was $4.2 million and $8.8 million, respectively. In June 1996, the FASB issued an Exposure Draft, "Accounting for Derivative and Similar Financial Instruments and for Hedging Activities" (the Exposure Draft), which, if adopted as issued, would significantly change the accounting for derivative and hedging activities. The Exposure Draft would require that all derivative financial instruments be recognized and recorded at fair value. However, key aspects of the Exposure Draft continue to be discussed and are subject to change; accordingly the impact, if any, to the Company is not presently known. 6) COMMON STOCK On April 17, 1997, the Company's shareholders approved amendments to the Company's Articles of Incorporation to increase the number of authorized shares of common stock to 20,000,000 from 7,500,000 and to eliminate par value per share of common stock. These changes to the Company's Articles of Incorporation had no effect on the total capital of the Company. 8 9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BANCFIRST OHIO CORP. For a comprehensive understanding of the Company's financial condition and performance, this discussion should be considered in conjunction with the Company's Consolidated Financial Statements, accompanying notes, and other information contained elsewhere herein. This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involves risks and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its Banking Subsidiaries operate); competition for the Company's customers from other providers of financial services; government legislation and regulation (which changes from time to time and over which the Company has no control); changes in interest rates; material unforeseen changes in the liquidity, results of operations, or other financial position of the Company's customers; delays in, customers' reactions to, and other unforeseen complications with respect to the implementation of the Company's planned integration of County; and other risks detailed in the Company's filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company. 9 10 BANCFIRST OHIO CORP. SELECTED FINANCIAL DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR THE THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 (1) 1996 1997 (1) 1996 --------------------------- ------------------------- STATEMENT OF INCOME DATA: Interest income $ 21,316 $ 14,765 $ 63,272 32,871 Interest expense 12,305 8,153 35,878 17,009 ------------- ------------- ------------- ------------- Net interest income 9,011 6,612 27,394 15,862 Provision for possible loan losses 304 316 919 926 Non-interest income 2,176 1,584 5,610 4,586 Non-interest expense 6,751 7,963 19,951 14,843 ------------- ------------- ------------- ------------- Income before income taxes 4,132 (83) 12,134 4,679 Provision for Federal income taxes 1,408 (129) 4,100 1,226 ------------- ------------- ------------- ------------- Net income $ 2,724 $ 46 $ 8,034 $ 3,453 ============= ============= ============= ============= PER SHARE DATA: Net income $ 0.68 $ 0.01 $ 2.02 $ 1.10 Dividends 0.26 0.25 0.78 0.75 Book value 20.99 19.02 N/A N/A Tangible book value 17.71 15.40 N/A N/A BALANCE SHEET DATA: Total assets $ 1,119,616 $ 1,036,462 N/A N/A Loans 772,280 709,616 N/A N/A Allowance for possible loan losses 7,136 6,532 N/A N/A Securities 272,402 275,611 N/A N/A Deposits 776,047 714,489 N/A N/A Borrowings 251,335 235,049 N/A N/A Shareholders' equity 83,476 75,577 N/A N/A PERFORMANCE RATIOS (3): Return on average assets 0.98% 0.02% 0.98% .80% Return on average equity 13.07 0.29 13.34 8.54 Net interest margin 3.45 3.61 3.58 3.95 Interest rate spread 2.98 3.04 3.12 3.29 Non-interest income to average assets 0.78 0.81 0.69 1.06 Non-interest expense to average assets 2.28 4.09 2.30 3.43 Efficiency ratio (2) 55.99 61.84 56.06 57.33 ASSET QUALITY RATIOS: Non-performing loans to total loans 0.37% 0.25% N/A N/A Non-performing assets to total assets 0.31 0.23 N/A N/A Allowance for possible loan losses to total loans 0.92 .92 N/A N/A Allowance for possible loan losses to non-performing loans 248.9 366.4 N/A N/A Net charge-offs to average loans (3) 0.05 0.15 0.07% 0.21% CAPITAL RATIOS: Shareholders' equity to total assets 7.46% 7.29% N/A N/A Tier 1 capital to total assets 6.33 6.03 N/A N/A Tier 1 capital to risk-weighted assets 10.14 10.08 N/A N/A
(1) The Company's acquisition of County in August 1996 significantly affects the comparability of the Company's results of operations for prior periods. (2) The efficiency ratio is equal to non-interest expense (excluding amortization expense and non-recurring charges) divided by net interest income on a fully tax equivalent basis plus non-interest income excluding gains on sales of securities. (3) Ratios are stated on an annualized basis. 10 11 OVERVIEW The reported results of the Company primarily reflect the operations of the Company's bank and thrift subsidiaries. The Company's results of operations are dependent on a variety of factors, including the general interest rate environment, competitive conditions in the industry, governmental policies and regulations and conditions in the markets for financial assets. Like most financial institutions, the primary contributor to the Company's income is net interest income, which is defined as the difference between the interest the Company earns on interest-earning assets, such as loans and securities, and the interest the Company pays on interest-bearing liabilities, such as deposits and borrowings. The Company's operations are also affected by non-interest income, such as checking account and trust fees and gains from sales of loans. The Company's principal operating expenses, aside from interest expense, consist of salaries and employee benefits, occupancy costs, federal deposit insurance assessments, and other general and administrative expenses. ACQUISITIONS On August 14, 1996, the Company acquired County in a transaction accounted for under the purchase method of accounting for business combinations. Accordingly, the Company's consolidated financial statements include the operating results of County from the date of acquisition. At the time of acquisition, County had approximately $554 million in total assets, $411 million in loans and $365 million in total deposits. The Company also reported goodwill and other intangible assets of $14.5 million as a result of the application of purchase accounting. Funding for the acquisition was provided by proceeds from the issuance of 1 million shares of common stock, $15 million of bank borrowings and approximately $7 million of available cash. AVERAGE BALANCES AND YIELDS The following tables present, for each of the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and percentage rates, and the net interest margin. Net interest margin is calculated on a fully tax equivalent basis ("FTE"), and refers to net interest income divided by total interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. FTE income includes tax exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. All average balances are daily average balances. Non-accruing loans are included in average loan balances. 11 12
Three Months Ended September 30, ...........1997.......... ...........1996........... (Dollars in Thousands) Average Income/ Yield / Average Income / Yield / Balance Expense Rate(1) Balance Expense Rate(1) -------- ------- ---- -------- ------- ---- Securities: Taxable $261,233 $ 4,465 6.78 % $209,417 $ 3,567 6.78 % Tax-exempt 25,067 502 7.95% 26,268 484 7.33% --------- ------- -------- ------- Total securities 286,300 4,967 6.88 % 235,685 4,051 6.84 % Loans : Commercial 318,651 7,467 9.30 % 213,295 5,058 9.43 % Real estate 367,192 7,154 7.73 % 227,143 4,172 7.31 % Consumer 78,402 1,798 9.10 % 66,666 1,609 9.60 % --------- ------- -------- ------- Total loans 764,245 16,419 8.52 % 507,104 10,839 8.50 % Federal funds sold 8,952 123 5.45 % 2,611 34 5.18 % --------- ------- -------- ------- Total earning assets (1) 1,059,497 21,509 8.05 % 745,400 14,924 7.97 % --------- ------- ---- -------- ------- ---- Non-interest-earning assets 47,893 29,031 ---------- -------- Total assets $1,107,390 $774,431 ========== ======== Interest-bearing deposits: Demand and savings deposits $ 205,310 $ 1,386 2.68 % $171,592 $ 1,147 2.66 % Time deposits 506,018 7,154 5.61 % 332,079 4,776 5.72 % --------- ------- -------- ------- Total deposits 711,328 8,540 4.76 % 503,671 5,923 4.68 % Borrowings 252,295 3,765 5.92 % 153,994 2,231 5.76 % --------- ------- -------- ------- Total interest-bearing liabilities 963,623 12,305 5.07 % 657,665 8,154 4.93 % ------- ---- ------- ---- Non-interest-bearing deposits 49,676 45,432 ---------- -------- Subtotal 1,013,299 703,097 Accrued expenses and other liabilities 11,381 8,390 ---------- -------- Total liabilities 1,024,680 711,487 Shareholders' equity 82,710 62,944 ---------- -------- Total liabilities and shareholders' equity $1,107,390 $774,431 ========== ======== Net interest income and interest rate spread $9,204 2.98 % $ 6,770 3.04 % ------ ---- ------- ---- Net interest margin (5) 3.45 % 3.61 % ---- ---- Average interest-earning assets to average interest-bearing liabilities 109.9 % 113.3 % Nine Months Ended September 30, ...........1997.......... ...........1996.......... (Dollars in Thousands) Average Income / Yield / Average Income/ Yield / Balance Expense Rate(1) Balance Expense Rate(1) -------- -------- ---- --------- ------- ---- Securities: Taxable $269,587 $ 13,970 6.93 % $ 170,908 $ 8,533 6.67 % Tax-exempt 25,262 1,515 8.02 % 25,593 1,482 7.73 % --------- ------- ------- ------- Total securities 294,849 15,485 7.02 % 196,501 10,015 6.81 % Loans : Commercial 314,854 22,284 9.46 % 147,512 10,687 9.68 % Real estate 356,029 20,661 7.76 % 148,899 8,467 7.60 % Consumer 75,838 5,253 9.26 % 58,488 4,091 9.34 % --------- ------- ------- ------- Total loans 746,721 48,198 8.63 % 354,899 23,245 8.75 % Federal funds sold 4,718 183 5.19 % 3,824 152 5.31 % --------- ------- ------- ------- Total earning assets (1) 1,046,288 63,866 8.16 % 555,224 33,412 8.04 % --------- ------- ------- ------- Non-interest-earning assets 46,170 23,345 ---------- -------- Total assets $1,092,458 $578,569 ========== ======== Interest-bearing deposits: Demand and savings deposits $ 204,287 $ 4,086 2.67 % $157,350 $ 3,189 2.71 % Time deposits 495,343 20,641 5.57 % 222,402 9,493 5.70 % --------- ------- ------- ------- Total deposits 699,630 24,727 4.73 % 379,752 12,682 4.46 % Borrowings 253,074 11,152 5.89 % 98,156 4,328 5.89 % --------- ------- ------- ------- Total interest-bearing liabilities 952,704 35,879 5.04 % 477,908 17,010 4.75 % ------ ---- ------- ---- Non-interest-bearing deposits 48,759 40,196 ---------- --------- Subtotal 1,001,463 518,104 Accrued expenses and other liabilities 10,500 6,485 ---------- -------- Total liabilities 1,011,963 524,589 Shareholders' equity 80,495 53,980 ---------- -------- Total liabilities and shareholders' equity $1,092,458 $578,569 ========== ======== Net interest income and interest rate spread $27,987 3.12 % $16,402 3.29 % ------- ---- ------- ---- Net interest margin (5) 3.58 % 3.95 % ---- ---- Average interest-earning assets to average interest-bearing liabilities 109.8 % 116.2 %
(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 34%. (4) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (5) The net interest margin represents net interest income as a percentage of average interest earning assets. 12 13 RATE AND VOLUME VARIANCES Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. The following table discloses the dollar changes in the Company's net interest income attributable to changes in levels of interest-earning assets or interest-bearing liabilities (volume), changes in average yields on interest-earning assets and average rates on interest-bearing liabilities (rate) and the combined volume and rate effects (total). For the purposes of this table, the change in interest due to both rate and volume has been allocated to volume and rate change in proportion to the relationship of the dollar amounts of the change in each. In general, this table provides an analysis of the effect on income of balance sheet changes which occurred during the periods and the changes in interest rate levels. 13 14
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. 1996 1997 VS. 1996 INCREASE (DECREASE) INCREASE (DECREASE) VOLUME RATE TOTAL VOLUME RATE TOTAL ------- ----- ------ -------- ------- -------- (IN THOUSANDS) Interest-earning assets: Securities: Taxable $ 895 $ 3 $ 898 $ 4,915 $ 522 $ 5,437 Non-taxable (22) 40 18 (20) 53 33 ------- ----- ------ -------- ------- -------- Total securities 873 43 916 4,895 575 5,470 ======= ===== ====== ======== ======= ======== Loans: Commercial $ 2,518 $(109) $2,409 12,103 (506) 11,597 Real estate 2,589 393 2,982 11,760 434 12,194 Consumer 287 (98) 189 1,209 (47) 1,162 ------ -------- ------- -------- Total loans 5,394 186 5,580 25,072 (119) 24,953 ------- ----- ------ -------- ------- -------- Fed funds sold 82 7 89 35 (4) 31 ------- ----- ------ -------- ------- -------- Total interest- earning assets 6,349 236 6,585 30,002 452 30,454 ------- ----- ------ -------- ------- -------- Interest-bearing liabilities: Deposits: Demand and savings deposits 229 10 239 948 (51) 897 Time deposits 2,521 (143) 2,378 11,631 (483) 11,148 ------- ----- ------ -------- ------- -------- Total interest-bearing deposits 2,750 (133) 2,617 12,579 (534) 12,045 Borrowings 1,434 100 1,534 6,821 3 6,824 ------- ----- ------ -------- ------- -------- Total interest-bearing liabilities 4,184 (33) 4,151 19,400 (531) 18,869 ------- ----- ------ -------- ------- -------- Net interest income $ 2,165 $ 269 $2,434 $ 10,602 $ 983 $ 11,585 ======= ===== ====== ======== ======= ========
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Net Income. Net income for the three months ended September 30, 1997 was $2.7 million, compared to net income of $46,000 for the three months ended September 30, 1996. Earnings per share in the third quarter of 1997 equaled $0.68, compared to $0.01 for the same period in 1996. Operating results in the third quarter of 1996 include after tax charges of $1.5 million for the special Savings Association Insurance Fund (SAIF) assessment and $213,000 for restructuring costs. Third quarter 1996 earnings adjusted for these non-recurring charges were $1.8 million, or $.51 per share. Net interest income increased 36.3%, and non-interest income increased 37.4% in the three months ended September 30, 1997, as compared to the same period in 1996 while non-interest expense, excluding non-recurring charges, increased 26.6%. The provision for possible loan losses was comparable to the prior year period. The Company's net interest margin decreased to 3.45% for the third quarter of 1997, compared to 3.61% for the same period in 1996, reflecting the lower net interest margin on County's interest-earning assets. Increases in non-interest income resulted primarily from the inclusion of County's operating results and higher levels of fee income. Non-interest expense increased primarily due to the inclusion of County's operating expenses and amortization of intangibles resulting from the County acquisition. The Company's return on average assets and return on average equity were .98% and 13.07%, respectively, in the third quarter of 1997. The Company's tangible earnings (net income excluding amortization of intangibles) for the three months ended September 30, 1997 were $3.1 million, or $0.77 per share, representing an annualized return on tangible equity of 17.42%. Interest Income. Total interest income increased 44.4% to $21.3 million for the three months ended September 30, 1997, compared to $14.8 million for the third quarter of 1996. This increase resulted from a $314.1 million, or 42.1%, increase in average interest-earning assets between the two periods. The average balance of loans increased $257.1 14 15 million, or 50.7%. These increases resulted primarily from the acquisition of County which contributed $275.6 million of the increase in average earning assets and $227.9 million of the increase in average loans. The increase in average assets of $38.5 million from internal growth was consistent with the Company's growth strategies to maximize returns on shareholders' equity. The weighted average yield on interest-earning assets increased slightly to 8.05% during the three months ended September 30, 1997, compared to 7.97% during the same three month period in 1996. The Company's yield on average loans increased from 8.50% during the three months ended September 30, 1996 to 8.52% during the three months ended September 30, 1997. Additional accretion of discounts on SBA loans totaling $125,000 resulting from prepayments had a positive impact on the 1997 results. Yields on the investment portfolio increased slightly from 6.84% during the third quarter of 1996 to 6.88% during the third quarter of 1997. Interest Expense. Total interest expense increased 50.9% to $12.3 million for the three months ended September 30, 1997, compared to $8.2 million for the three months ended September 30, 1996. Interest expense increased due to a higher average balance of interest-bearing liabilities outstanding and due to a higher cost of funds during the third quarter of 1997, as compared to the same period in 1996. The average balance of interest-bearing deposit accounts increased $207.7 million, or 41.2%, from the third quarter in 1996 to the third quarter in 1997. Average interest-bearing liabilities increased 46.5%, from $657.7 million to $963.6 million. These increases also primarily resulted from the acquisition of County which contributed $262.8 million (including acquisition related debt) to the increase in average interest-bearing liabilities and $180.7 million to the increase in total interest-bearing deposits. The Company's cost of funds increased to 5.07% in the three months ended September 30, 1997 compared to 4.93% in the same period of 1996, primarily due to a higher cost of funds associated with County's interest-bearing liabilities. The cost of funds was also affected by higher borrowing levels relative to total interest-bearing liabilities as well as the continued shift by customers into higher yielding certificates of deposit. Provision for Possible Loan Losses. The provision for possible loan losses was $304,000 for the three months ended September 30, 1997, compared to $316,000 in the third quarter of 1996. Total non-performing loans increased to $2.9 million, or .37% of total loans at September 30, 1997, from $1.8 million, or .25% of total loans at September 30, 1996. The increase in non-performing loans primarily consisted of loans collateralized by first mortgages on residential real estate. The allowance for possible loan losses at September 30, 1997 was $7.1 million, or .92% of total loans and 248.9% of non-performing loans compared to $6.5 million, or .92% of total loans and 366.4% of non-performing loans at September 30, 1996. Management's estimate of the adequacy of its allowance for possible loan losses is based upon its continuing review of prevailing national and local economic conditions, changes in the size and composition of the portfolio and individual problem credits. Growth of the loan portfolio, loss experience, economic conditions, delinquency levels, credit mix and selected credits are factors that affect judgments concerning the adequacy of the allowance. Non-Interest Income. Total non-interest income was $2.2 million for the three months ended September 30,1997, compared to $1.6 million for the three months ended September 30, 1996. The following table sets forth the Company's non-interest income for the periods indicated: 15 16
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- (In Thousands) Trust and custodian fees $ 483 $ 334 $ 1,337 1,060 Customer service fees 510 466 1,461 1,309 Investment securities gains 3 36 103 39 Gains on sales of loans 872 448 1,817 1,494 Other 308 300 892 684 ------- ------- ------- ------- TOTAL $2,176 $1,584 $5,610 $4,586 ====== ====== ====== ======
Trust and custodian fees increased 44.6% to $483,000 in the third quarter of 1997 from $334,000 in the third quarter of 1996. Growth in trust income resulted primarily from the expansion of the customer base and product offerings as well as higher asset values. Customer service fees, representing service charges on deposits and fees for other banking services, increased 9.4% in the third quarter of 1997 to $510,000 from $466,000 in the third quarter of 1996. This increase resulted from fee income of $62,000 contributed by County to the 1997 results compared to $17,000 in 1996. Gains on sales of loans totaled $872,000 for the three months ended September 30, 1997 compared to $448,000 for the three months ended September 30, 1996. This increase resulted primarily from increased gains on sales of residential loans which totaled $383,000 in 1997 compared to $13,000 in 1996. Also, gains on sales of commercial loans, primarily consisting of SBA loans, totaled $489,000 in 1997 compared to $435,000 in 1996. The Company intends to continue to place emphasis on its small business lending activities, including the evaluation of expansion into new markets. The change in the political climate in Washington, D.C. to one of less government combined with growing budget constraints, may subject many existing government programs to much scrutiny and possible cutbacks. It is not currently known whether the SBA program will be impacted. Management believes that any such cutbacks could negatively affect the Company's activities in the SBA lending programs as well as the planned expansion of such activities. Other income was $308,000 for the third quarter of 1997 compared to $300,000 for the third quarter of 1996. Increases in other fee income added by County and higher levels of ATM and credit card fees were offset by lower levels of SBA servicing fee income which resulted from additional amortization of excess servicing fee assets due to prepayments. Non-Interest Expense. Total non-interest expense decreased $1.2 million to $6.8 million for the three months ended September 30, 1997, compared to $8.0 million for the three months ended September 30, 1996. Excluding non-recurring expenses of $2.6 million resulting from the special SAIF assessment and restructuring charges, non-interest expenses increased $1.4 million, or 26.6%, during the third quarter of 1997 compared to the same period in 1996. This increase primarily resulted from expenses added by or resulting from the County acquisition which totaled $2.7 million in 1997 compared to $1.4 million in 1996. The following table sets forth the Company's non-interest expense for the periods indicated: 16 17
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- (In Thousands) Salaries and employee benefits $3,640 $2,768 $10,791 $6,511 Occupancy expense 539 339 1,577 726 Furniture, fixtures and equipment 161 149 512 358 Data processing 262 253 792 567 Taxes other than income taxes 237 200 761 494 Federal deposit insurance 108 2,453 282 2,493 Amortization of goodwill and other intangibles 381 187 1,173 201 Other 1,423 1,614 4,063 3,493 ------ ----- ----- ----- TOTAL $6,751 $7,963 $19,951 $14,843 ====== ====== ======= =======
Salaries and employee benefits accounted for approximately 53.9% of total non-interest expense (excluding non-recurring charges) in the three months ended September 30, 1997 compared to 51.9% in the third quarter of 1996. The average full time equivalent staff was 362 in 1997 compared to 295 in 1996. Excluding salary and employee benefits expense of $1.3 million added by County in 1997 compared to $706,000 in 1996, such expenses increased $264,000, or 12.8% as a result of market expansion and new product offerings. Net occupancy expense increased 59.0% to $539,000 in the third quarter of 1997 from $339,000 in the third quarter of 1996. This increase resulted from $336,000 of expenses added by County in 1997 compared to $131,000 in 1996. Furniture, fixtures and equipment expense increased $12,000, or 8.1% in the third quarter of 1997. Expenses added by County in 1997 totaled $53,000 compared to $38,000 in 1996. Data processing expense increased $9,000, or 3.6%, in the third quarter of 1997. The increase in expenses added by County of $41,000 was partially offset by lower computer equipment depreciation and maintenance costs in 1997 compared to 1996. Taxes other than income taxes increased $37,000, or 18.5%, in the third quarter of 1997 compared to the third quarter of 1996. This increase resulted from a $62,000 increase in expenses added by County offset in part by benefits realized related to taxes paid in a prior year. Federal deposit insurance expense decreased $2.3 million to $108,000 in 1997 from $2.5 million in the third quarter of 1996 as a result of the special SAIF assessment in 1996 which totaled $2.3 million. Amortization of goodwill and other intangible assets resulting from the application of purchase accounting in connection with the County acquisition totaled $375,000 during the third quarter of 1997 compared to $180,000 in the third quarter of 1996. Excluding expenses added by County of $368,000 in 1997 compared to $150,000 in 1996 and restructuring charges of $323,000 in 1996, other non-interest expenses decreased $86,000 from the third quarter of 1996, reflecting management's efforts to control costs and improve the Company's efficiency ratio. The efficiency ratio is one method used in the banking industry to assess profitability. It is defined as non-interest expense less amortization expense and non-recurring charges divided by the net revenue stream, which is the sum of net interest income on a tax-equivalent basis and non-interest income excluding net investment securities gains or losses. The Company's efficiency ratio was 56.0% for the third quarter of 1997, compared to 61.8% for the comparable period in 1996. Controlling costs and improving productivity, as measured by the efficiency ratio, is considered by management a primary factor in enhancing performance. Provision for Income Taxes. The Company's provision for Federal income taxes was $1.4 million, or 34.1% of pretax income, for the three months 17 18 ended September 30, 1997 compared to a benefit of $129,000, for the three months ended September 30, 1996. The effective tax rate for each period differed from the federal statutory rate principally as a result of tax-exempt income from obligations of states and political subdivisions and non-taxable loans and the non-deductibility, for tax purposes, of goodwill and core deposit intangible amortization expense. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996. Net Income. Net income for the nine months ended September 30, 1997 increased 132.7% to $8.0 million, or $2.02 per share, compared to net income of $3.5 million, or $1.10 per share, for the nine months ended September 30, 1996. Net interest income increased 72.7% and non-interest income increased 22.3% in the nine months ended September 30, 1997, as compared to the same period in 1996 while non-interest expense, excluding non-recurring charges in 1996, increased 63.4%. The provision for possible loan losses was basically unchanged from the comparative period. The Company's net interest margin decreased to 3.58% for the nine months ended September 30, 1997 compared to 3.95% for the same period in 1996, reflecting the lower net interest margin on County's interest-earning assets. Increases in non-interest income resulting from the inclusion of County's operating results and higher levels of fee income were offset by lower gains on sales of the guaranteed portion of SBA loans and lower net servicing fee income associated with such loans due to increased amortization of capitalized servicing fee assets. Non-interest expense increased due to the inclusion of County's operating expenses, amortization of intangibles resulting from the County acquisition and higher costs associated with the expansion of trust and other operating activities. The Company's return on average assets and return on average equity were .98% and 13.34%, respectively, for the nine months ended September 30, 1997, compared to .80% and 8.54%, respectively, for the nine months ended September 30, 1996. The Company's tangible earnings were $9.0 million, or $2.27 per share, representing an annualized return on tangible equity of 18.10% for the nine months ended September 30, 1997. Interest Income. Total interest income increased 92.5% to $63.3 million for the nine months ended September 30, 1997, compared to $32.9 million for the comparable period in 1996. This increase resulted from a $491.1 million, or 88.4%, increase in average interest-earning assets between the two periods. The average balance of loans increased $391.8 million, or 110.4%. These increases resulted primarily from the acquisition of County which contributed $463.6 million of the increase in average earning assets and $371.7 million of the increase in average loans. The increase in average assets of $27.5 million from internal growth was consistent with the Company's growth strategies to maximize returns on shareholders' equity. The weighted average yield on interest-earning assets increased slightly to 8.16% during the nine months ended September 30, 1997, compared to 8.04% during the same nine month period in 1996. The Company's yield on average loans decreased from 8.75% during the nine months ended September 30, 1996 to 8.63% during the nine months ended September 30, 1997. This resulted primarily from a slightly lower yield on County's loan portfolio as previously discussed. The impact of this decrease in yield was partially offset by additional accretion of discounts on SBA loans totaling $312,000 resulting from prepayments. Yields on the investment portfolio increased from 6.81% during 1996 to 7.02% during 1997 primarily as a result of increased yields on adjustable rate securities and purchases of higher yielding mortgage-backed securities during the fourth quarter of 1996 and first quarter of 1997. Interest Expense. Total interest expense increased 110.9% to $35.9 million for the nine months ended September 30, 1997, compared to $17.0 million for the nine months ended September 30, 1996. Interest expense increased due to a higher average balance of interest-bearing liabilities outstanding and due to a higher cost of funds during the first nine months of 1997, as compared to the same period in 1996. The average balance of interest-bearing deposit accounts increased $319.9 million, or 84.2%, during the nine months ended September 30, 1997 compared to 1996. Average interest-bearing liabilities increased 99.3%, from $477.9 million to $952.7 million. These increases also primarily resulted from the acquisition of County which contributed $443.8 million (including acquisition related debt) to the increase in average interest-bearing liabilities and $303.4 million to the increase in total interest-bearing deposits. The Company's cost of funds increased to 5.04% for the nine months ended September 30, 1997 compared to 4.75% for the same period of 1996, primarily due to a higher cost of funds associated with County's interest-bearing liabilities. The cost of funds was also affected by higher borrowing levels relative to total interest-bearing liabilities, as well as the continued shift by customers into higher yielding certificates of deposit. 18 19 Provision for Possible Loan Losses. The provision for possible loan losses was $919,000 for the nine months ended September 30, 1997, compared to $926,000 for the nine months ended September 30, 1996 and was considered sufficient to maintain the Company's allowance for possible loan losses at an adequate level. Non-Interest Income. Total non-interest income was $5.6 million for the nine months ended September 30, 1997, compared to $4.6 million for the nine months ended September 30, 1996. Fee and other income contributed by County to the 1997 results totaled $1.2 million, compared to $101,000 in 1996. This increase was offset by a $430,000 decrease in gains on sales of SBA loans. During the nine months ended September 30, 1997, the Company sold approximately $11.2 million of the guaranteed portion of its SBA loan originations in the secondary market compared to $12.3 million in the first nine months of 1996, realizing gains of $1.1 million in 1997, compared to gains of $1.5 million in 1996. In addition, the Company sold $6.7 million of the guaranteed portion of commercial real estate loans originated under the Farmers B&I program, realizing gains of $299,000 in the first nine months of 1997. Also, in 1997, servicing fee income associated with SBA loans was reduced $546,000 for additional amortization of capitalized servicing assets due to prepayments of the underlying loans (see also Interest Income above regarding additional accretion of related discounts). At September 30, 1997, unamortized capitalized servicing assets related to SBA loans totaled $2.1 million while discounts associated with the retained portion of SBA loans totaled $1.6 million. Customer service fees, representing service charges on deposits and fees from other banking services, increased 11.6% for the nine months ended September 30, 1997, to $1.5 million, from $1.3 million for the comparable period of 1996. This increase resulted from fee income of $129,000 contributed by County to the 1997 results, compared to $17,000 in 1996, as well as from higher fee structures. Trust income increased 26.1% to $1.3 million in 1997, from $1.1 million in 1996. Growth in trust and custodian fees resulted primarily from the expansion of the customer base, product offerings, and higher asset values. The $208,000 increase in other income to $892,000 in 1997 compared to $684,000 in 1996 resulted from other fee income of $519,000 added by County in 1997 compared to $71,000 in 1996 and increases in ATM and credit card fee income, offset in part by a $523,000 decrease in SBA service fee income caused by the additional amortization of servicing fee assets, previously discussed. Non-Interest Expense. Total non-interest expense, excluding non-recurring charges totaling $2.6 million, increased $7.8 million to $20.0 million for the nine months ended September 30, 1997, compared to $12.2 million for the nine months ended September 30, 1996. Excluding expenses of $8.1 million that were added by or resulted from the acquisition of County in 1997 compared to $1.4 million in 1996, non-interest expenses increased $1.1 million, or 10.0%, during the first nine months of 1997 compared to the same period in 1996. This increase generally resulted from expansion of the Company's operating activities over the past year. For the nine months ended September 30, 1997, the Company's efficiency ratio was 56.1%, compared to 59.0% for the nine months ended September 30, 1996. Salaries and employee benefits accounted for approximately 54.1% of total non-interest expense, for the nine months ended September 30, 1997 compared to 53.3% in 1996. The average full time equivalent staff was 360 in 1997 compared to 254 in 1996. Excluding salary and employee benefits expense of $3.3 million added by County, such expenses increased $971,000, or 16.7% as a result of market expansion and new product offerings. Net occupancy expense increased 168.2% to $1.6 million for the first nine months of 1997 from $726,000 for the first nine months of 1996. This increase resulted primarily from $956,000 of expenses added by County in 1997 compared to $131,000 in 1996. Furniture, fixtures and equipment expense increased $154,000, or 43.0% for the nine months ended September 30, 1997. In addition to $163,000 of expenses added by County in 1997 compared to $38,000 in 1996, the increase in furniture and equipment expense was due principally to higher depreciation and repairs and maintenance costs. Data processing expense increased $225,000, or 39.7%, for the nine months ended September 30, of 1997. In addition to $235,000 of expenses added by County in 1997 compared to $37,000 in 1996, higher costs in 1997 resulted from the expansion of technology throughout the Company to enhance customer service, increase efficiencies and improve information management systems. 19 20 Taxes other than income taxes increased $267,000, or 54.0%, for the first nine months 1997 compared to the same period in 1996. This increase resulted primarily from $323,000 of expenses added by County in 1997 compared to $48,000 in 1996. Excluding the special SAIF assessment in 1996, Federal deposit insurance expense increased $98,000 to $282,000 in 1997 from $184,000 in 1996 as a result of $221,000 of expense added by County in 1997 compared to $124,000 in 1996. Amortization of goodwill and other intangible assets resulting from the application of purchase accounting in connection with the County acquisition totaled $1.2 million during the first nine months of 1997 compared to $180,000 in 1996. Excluding $1.0 million of expenses added by County in 1997 compared to $150,000 in 1996, other non-interest expenses were $3.1 million during the nine months ended September 30, 1997 compared to $3.3 million during the same period in 1996, reflecting management's efforts to control costs. Provision for Income Taxes. The Company's provision for Federal income taxes was $4.1 million, or 33.8% of pretax income, for the nine months ended September 30, 1997 compared to $2.0 million, or 42.7% of pretax income, for the nine months ended September 30, 1996. The effective tax rate for each period differed from the federal statutory rate principally as a result of tax-exempt income from obligations of states and political subdivisions and non-taxable loans and the non-deductibility, for tax purposes, of goodwill and core deposit intangible amortization expense. ASSET QUALITY Non-performing Assets. To maintain the level of credit risk of the loan portfolio at an appropriate level, management sets underwriting standards and internal lending limits and provides for proper diversification of the portfolio by placing constraints on the concentration of credits within the portfolio. In monitoring the level of credit risk within the loan portfolio, management utilizes a formal loan review process to monitor, review, and consider relevant factors in evaluating specific credits in determining the adequacy of the allowance for possible loan losses. The Company's banking and thrift subsidiaries formally document their evaluation of the adequacy of the allowance for possible loan losses on a quarterly basis and the evaluations are reviewed and discussed with the respective boards of directors. Failure to receive principal and interest payments when due on any loan results in efforts to restore such loan to current status. Loans are classified as non-accrual when, in the opinion of management, full collection of principal and accrued interest is in doubt. Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings. Property acquired by the Company as a result of foreclosure or by deed in lieu of foreclosure is classified as "other real estate owned" until such time as it is sold or otherwise disposed of. The Company owned $640,000 of such property at September 30, 1997 and $554,000 at September 30, 1996. All other real estate owned at September 30, 1997 and 1996 was held by County. Non-performing loans totaled $2.9 million, or 0.37% of total loans, at September 30, 1997, compared to $1.8 million, or 0.25% of total loans, at September 30, 1996. The increase in non-performing loans of $1.1 million from September 30, 1996 was attributed to general increases in the levels of non-performing loans in all loan categories when compared to the relatively lower levels that existed at September 30, 1996. At September 30, 1997, $2.1 million of non-performing loans were collateralized by real estate compared to $926,000 at September 30, 1996. Non-performing assets totaled $3.5 million, or 0.31% of total assets at September 30, 1997, compared to $2.3 million, or .23% of total assets at September 30, 1996. Management of the Company is aware of three commercial loans to one borrower with an aggregate outstanding balance totaling $513,000, not disclosed in the table below, for which there is significant uncertainty as to the ability of the borrower to comply with present payment terms. Management believes that adequate reserves have been allocated to these loans to cover any potential charge-off that may result from the borrower's inability to repay the loans. The following is an analysis of the composition of non-performing assets: 20 21
SEPTEMBER 30, 1997 1996 ----------------------- (DOLLARS IN THOUSANDS) Non-accrual loans $ 1,208 $ 1,077 Accruing loans 90 days or more past due 1,659 704 ------- ------- Total non-performing loans 2,867 1,781 Other real estate owned 640 554 ------- ------- Total non-performing assets $ 3,507 $ 2,335 ======= ======== Non-performing loans to total loans 0.37% 0.25% Non-performing assets to total assets 0.31% 0.23%
Non-performing loans considered to be impaired under Statement of Financial Accounting Standards No. 114 at September 30, 1997 and the related effects on earnings during the periods presented were not material. Allowance for Possible Loan Losses. The Company records a provision necessary to maintain the allowance for possible loan losses at a level sufficient to provide for potential future credit losses. The provision is charged against earnings when it is established. An allowance for possible loan losses is established based on management's best judgment, which involves a continuing review of prevailing national and local economic conditions, changes in the size and composition of the portfolio and review of individual problem credits. Growth of the loan portfolio, loss experience, economic conditions, delinquency levels, credit mix, and selected credits are factors that affect judgments concerning the adequacy of the allowance. Actual losses on loans are charged against the allowance. The following table summarizes the Company's loan loss experience, and provides a breakdown of the allowance for possible loan losses at the dates indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------- ------------- 1997 1996 1997 1996 --------- --------- --------- --------- (In Thousands) Balance at beginning of period $ 6,937 $ 3,544 $ 6,599 $ 3,307 Provision charged to expense 304 316 919 926 Addition from acquisition -- 2,861 -- 2,861 Loans charged-off (271) (267) (853) (763) Recoveries of loans previously charged off 166 78 471 201 --------- --------- --------- --------- Balance at end of period $ 7,136 $ 6,532 $ 7,136 $ 6,532 ========= ========= ========= ========= Loans outstanding at end of period $ 772,280 $ 709,616 N/A N/A Average loans outstanding $ 764,245 $ 507,104 $ 746,721 $ 354,899 Allowance as a percentage of loans outstanding 0.92% .92% N/A N/A Net charge-offs to average loans (annualized) 0.05% 0.15% 0.07% 0.21% Allowance for possible loan losses to nonperforming loans 248.9% 366.8% N/A N/A
21 22 The allowance for possible loan losses totaled $7.1 million at September 30, 1997, representing .92% of total loans, compared to $3.6 million at September 30, 1996, or .92% of total loans. Charge-offs represent the amount of loans actually removed as earning assets from the balance sheet due to uncollectibility. Amounts recovered on previously charged-off assets are netted against charge-offs, resulting in net charge-offs for the period. Net loan charge-offs for the three months and nine months ended September 30, 1997 were $105,000 and $382,000, respectively, compared to net charge-offs of $189,000 and $562,000, respectively, for the same periods in 1996. Charge-offs have been made in accordance with the Company's standard policy and have occurred primarily in the commercial and consumer loan portfolios. The allowance for possible loan losses as a percentage of non-performing loans ("coverage ratio"), was 248.9% at September 30, 1997, compared to 366.8% at September 30, 1996. Although used as a general indicator, the coverage ratio is not a primary factor in the determination of the adequacy of the allowance by management. The decrease in the coverage ratio at September 30, 1997 compared to September 30, 1996 primarily reflects the relatively lower level of non-performing loans at September 30, 1996. Also, the increase in non-performing loans primarily consisted of loans collateralized by real estate. Total non-performing loans as a percentage of total loans remained a relatively low 0.37% of total loans at September 30, 1997. COMPARISON OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 FINANCIAL CONDITION Total assets amounted to $1.12 billion at September 30, 1997, compared to $1.06 billion at December 31, 1996, an increase of $62.7 million, or 5.9%. Total investment securities decreased by $12.2 million to $272.4 million, primarily as a result of the sale of approximately $11.2 million of securities during the second quarter of 1997. 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, 1997, 84.7% of the total investment portfolio was classified as available-for-sale, while those securities which the Company intends to hold to maturity represented the remaining 15.3%. This compares to 83.6% and 16.4% classified as available-for-sale and held to maturity, respectively, at December 31, 1996. Total loans increased $50.4 million to $772.3 million at September 30, 1997. This increase reflects management's emphasis on increasing earning assets and earning asset yields with the loan portfolio. Increases in purchased loans (secured primarily by first mortgages on residential property) represented $42.8 million of the increase in total loans. Premises and equipment increased slightly from $8.0 million to $8.5 million at September 30, 1997, relating primarily to ATM installations and other improvements at County's branches. Total deposits increased to $776.0 million at September 30, 1997 from $732.7 million at December 31, 1996. The Company continues to emphasize growth in its existing retail deposit base provided incremental deposit growth is cost effective compared to alternative funding sources. Also, the Company has obtained $30.0 million of public funds deposits at an effective cost of approximately 25 basis points less than alternative short term borrowing costs. Total interest-bearing deposits accounted for 93.3% of total deposits at September 30, 1997, compared to 92.3% at December 31, 1996. Total borrowings increased $14.7 million to $251.3 million at September 30, 1997, compared to $236.6 million at December 31, 1996. This increase resulted primarily from funding needs associated with increases in the loan portfolio. LIQUIDITY AND CAPITAL RESOURCES The objective of liquidity management is to ensure the availability of funds to accommodate customer loan demand as well as deposit withdrawals while continuously seeking higher yields from longer term lending and investing opportunities. This is accomplished principally by maintaining sufficient cash flows and liquid assets along with consistent 22 23 stable core deposits and the capacity to maintain immediate access to funds. These immediately accessible funds may include federal funds sold, unpledged marketable securities, reverse repurchase agreements or available lines of credit from the Federal Reserve Bank, FHLB, or other financial institutions. An important factor in the preservation of liquidity is the maintenance of public confidence, as this facilitates the retention and growth of a large, stable supply of core deposits in funds. The Company's principal source of funds to satisfy short-term liquidity needs comes from cash, due from banks, federal funds sold and borrowing capabilities through the FHLB as well as other sources. Changes in the balance of cash and due from banks are due to changes in volumes of federal funds sold, and the float and reserves related to deposit accounts, which may fluctuate significantly on a day-to-day basis. The investment portfolio serves as an additional source of liquidity for the Company. Securities with a market value of $230.6 million were classified as available-for-sale as of September 30, 1997, representing 84.7% of the total investment portfolio. Classification of securities as available-for-sale provides for flexibility in managing net interest margin, interest rate risk, and liquidity. The Company's bank and thrift subsidiaries are members of FHLB. Membership provides an opportunity to control the bank's cost of funds by providing alternative funding sources, to provide flexibility in the management of interest rate risk through the wide range of available funding sources, to manage liquidity via immediate access to such funds, and to provide flexibility through utilization of customized funding products to fund various loan and investment products and strategies. Shareholders' equity at September 30, 1997 was $83.5 million, compared to prior year-end shareholders' equity of $77.9 million, an increase of $5.6 million. This increase resulted from the retention of earnings, net of dividends paid of $3.1 million, and the change in unrealized gains on available-for-sale securities from a net gain of $304,000 at December 31, 1996 compared to a net gain of $1.1 million at September 30, 1997. This change in the effect on equity was attributed to decreases in interest rates from year end 1996. Following receipt of shareholder approval on April 17, 1997, the Company amended its Articles of Incorporation to increase the number of authorized shares of common stock from 7,500,000 to 20,000,000 and to eliminate par value per share of common stock. Management believes that these amendments will provide the Company with greater financial flexibility and enable it to more effectively utilize and manages its equity capital. Under the risk-based capital guidelines, a minimum capital to risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must consist of Tier 1 capital (equity capital net of goodwill). Additionally, a minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be maintained. At September 30, 1997, the Company had a total risk-based capital ratio of 11.18% of which 10.14% consisted of Tier 1 capital. The leverage ratio for the Company at September 30, 1997, was 6.33%. Cash dividends declared to shareholders of the Company totaled $3.1 million, or $0.78 per share, during the first nine months of 1997. This compares to dividends of $2.5 million, or $0.75 per share, for the same period in 1996. Cash dividends paid as a percentage of net income amounted to 38.6% and 71.8% for the nine months ended September 30, 1997 and 1996, respectively. Considering the Company's capital adequacy, profitability, available liquidity sources and funding sources, the Company's liquidity is considered by management to be adequate to meet current and projected needs. The Company's Board of Directors and management intend to seek continued controlled growth of the organization through selective acquisitions of banks and/or savings and loan associations. The objective of such acquisitions will be to: increase the opportunity for quality earning asset growth, deposit generation and fee-based income opportunities; diversify the earning assets portfolio and core deposit base through expansion into new geographic markets; and improve the potential profits from its combined operations through economies of scale. In furtherance of such objectives, the Company intends to continue its pursuit of business combinations which fit its strategic objectives of growth, diversification and market expansion and which provide the potential for enhanced shareholder value. At the present time, the Company does not have any understanding or agreements for any acquisition or combination. 23 24 The Company has conducted a review of its more significant data processing systems to identify the applications that could be affected by the start of a new century (the Year 2000 Issue). During 1996, the Company's subsidiary, the First National Bank of Zanesville, converted to a new core data processing software system. The Company currently plans to convert County to this system during 1998 and Bellbrook Community Bank during 1998 or 1999. Based upon these conversions as well as the Company's aforementioned review of system applications, the Year 2000 Issue is not expected to pose significant operational problems for the Company. In addition, the Company is in the process of reviewing its ancillary systems for potential problems that could occur as a result of the Year 2000 Issue as well as developing procedures for identifying potential problems that the Company's borrowers may experience. Consideration is also being given to providing assistance to such borrowers in addressing the Year 2000 Issue. 24 25 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(a) of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997) Exhibit 3(b) - Code of Regulations, as amended (incorporated by reference to Exhibit 3(b) of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997) Exhibit 11: Computation of Per Share Earnings
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------- -------------- 1997 1996 1997 1996 -------------------------------------------------------------------- Gross Weighted Average Common Shares Outstanding 4,033,919 3,544,676 4,033,919 3,205,436 Weighted Average Treasury Shares Outstanding 53,604 57,726 52,930 59,948 --------- --------- ----------- ----------- Net Weighted Average Common Shares Outstanding 3,980,315 3,486,950 3,980,989 3,145,488 ========= ========= =========== =========== Net Income 2,724,000 $ 46,000 $ 8,034,000 $ 3,453,000 ========= ========= =========== =========== Net Income Per Common Share $ 0.68 $ 0.01 $ 2.02 $ 1.10 ========= ========= =========== ===========
(b) Exhibit 27: Financial Data Schedule (c) Reports on Form 8-K - None - 25 26 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BancFirst Ohio Corp. (Registrant) Date: November 12, 1997 (Signed) /s/ Gary N. Fields ---------------------------------------------------- Gary N. Fields President and Chief Executive Officer Date: November 12, 1997 (Signed) /s/ Kim M. Taylor ----------------------------------------------------- Kim M. Taylor Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
26 EX-27 2 EXHIBIT 27
9 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 22,230 0 25,325 0 230,628 41,774 43,596 772,280 (7,136) 1,119,616 776,047 0 8,758 251,335 0 0 0 83,476 1,119,616 48,119 14,463 690 63,272 24,726 35,878 27,394 919 103 19,951 12,134 8,034 0 0 8,034 2.02 2.02 8.05 1,659 1,208 0 0 6,599 (853) 471 7,136 7,136 0 0
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