SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 001-14417
BANKFIRST CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 58-1790903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Market Street
Knoxville, Tennessee 37902
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423)595-1100
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 __
The number of shares outstanding of each of the registrant's classes of common
stock as of April 30, 1999:
Title of Class Shares Outstanding
Common Stock, $2.50 par value 11,375,600
<PAGE>
BANKFIRST CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements .................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk .................................................... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 17
Item 2. Changes in Securities .................................. 17
Item 3. Defaults Upon Senior Securities ........................ 17
Item 4. Submission of Matters to a Vote of Security Holders .... 17
Item 5. Other information ...................................... 17
Item 6. Exhibits and Reports on Form 8-K ....................... 17
SIGNATURES
Note: The accompanying information has not been audited by independent public
accountants; however, in the opinion of management such information reflects all
adjustments necessary for a fair presentation of the results for the interim
period. All such adjustments are of a normal and recurring nature.
The accompanying financial statements are presented in accordance with
the requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles.
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
BANKFIRST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Mar. 31, Dec. 31,
1999 1998
-------- --------
(unaudited)
ASSETS
Cash and due from banks $ 34,151 $ 36,136
Federal Funds Sold 1,800 8,850
Securities available for sale 133,909 127,862
Mortgage loans held for sale 19,425 25,642
Loans, net 517,056 501,950
Premises and equipment, net 25,294 24,927
Mortgage servicing rights 7,775 7,484
Federal Home Loan Bank Stock, at cost 3,244 3,189
Intangible assets 1,963 2,002
Accrued interest receivable and other asset 11,171 10,259
-------- --------
Total assets $755,788 $748,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $103,634 $117,823
Interest-bearing deposits 502,135 500,143
-------- --------
Total deposits 605,769 617,966
Securities sold under agreements to repurchase 25,510 22,208
Federal funds purchased and other borrowings 3,956 4,166
Advances from the Federal Home Loan Bank 27,255 11,884
Accrued interest payable and other liabilities 9,370 9,236
-------- --------
Total liabilities 671,860 665,460
Stockholders' equity
Common stock: $2.50 par value, 15,000,000 shares
authorized, 11,375,600 shares
outstanding 28,439 28,439
Noncumulative convertible preferred stock: $5 par
value, 1,000,000 shares authorized, 181,050
shares outstanding 905 905
Additional paid-in capital 34,093 34,093
Retained earnings 19,197 17,160
Unrealized gain on securities available for sale 1,294 2,244
-------- --------
Total stockholders' equity 83,928 82,841
-------- --------
Total liabilities and stockholders' equity $755,788 $748,301
======== ========
- --------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
3
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BANKFIRST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Three months ended March 31,
(Unaudited)
1999 1998
-------- --------
Interest income
Interest and fees on loans $ 11,896 $ 11,575
Taxable securities 1,379 1,429
Nontaxable securities 413 454
Other 219 92
-------- --------
13,907 13,550
Interest expense
Deposits 5,313 5,339
Short-term borrowings 565 455
Long-term borrowings 77 208
-------- --------
5,955 6,002
-------- --------
Net interest income 7,952 7,548
Provision for credit losses 419 524
-------- --------
Net interest income after provision
for credit losses 7,533 7,024
Noninterest income
Service charges and fees 1,102 957
Net securities gains 36 10
Net gain (loss) on loan sales (332) 203
Loan servicing income, net of
Amortization 807 417
Trust department income 264 184
Other 723 241
-------- --------
2,600 2,012
Noninterest expenses
Salaries and employee benefits 3,985 3,459
Occupancy expense 515 679
Equipment expense 659 496
Office expense 456 309
Data processing fee 393 284
Advertising 132 89
Other 877 1,137
-------- --------
7,017 6,453
-------- --------
Income before income taxes 3,116 2,583
Provision for income taxes 1,047 880
-------- --------
Net Income $ 2,069 $ 1,703
======== ========
Earnings per share:
Basic $ 0.18 $ 0.17
Diluted $ 0.17 $ 0.16
- --------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
4
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BANKFIRST CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months ended March 31, 1999
(Unaudited)
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized Total
Additional Gains Stock-
Common Preferred Paid-in Retained (Losses) holders'
Stock Stock Capital Earnings on Securities Equity
-------- --------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $24,989 $ 1,093 $23,777 $10,612 $ 961 $61,432
Sale of common stock, 118
shares -- -- -- 9 -- 9
Conversion of 2,703 shares
of Preferred stock into
1,669 Shares of common
stock 4 (14) 10 -- -- 0
Stock options exercised,
814 shares 2 -- 25 -- -- 27
Cash dividend on preferred
stock -- -- -- (39) -- (39)
Comprehensive income:
Net income -- -- -- 1,703 -- 1,703
Change in unrealized
gains (losses), net of
reclassification -- -- -- -- 330 330
-------
Total comprehensive
income 2,033
-------- -------- ------- -------- -------- -------
Balance, March 31, 1998 $24,995 $1,079 $23,821 $12,276 $1,291 $63,462
======== ======== ======= ======== ======== =======
Net
Unrealized Total
Additional Gains Stock-
Common Preferred Paid-in Retained (Losses) holders'
Stock Stock Capital Earnings on Securities Equity
-------- --------- -------- --------- ------------ -------
Balance, January 1, 1999 $28,439 $ 905 $34,093 $17,160 $2,244 $82,841
Cash dividend on preferred
stock -- -- -- (32) -- (32)
Comprehensive income:
Net income -- -- -- 2,069 -- 2,069
Change in unrealized
gains (losses), net of
reclassification -- -- -- -- (950) (950)
-------
Total comprehensive
income 1,119
-------- ------ ------- -------- -------- -------
Balance, March 31, 1999 $28,439 $ 905 $34,093 $19,197 $1,294 $83,928
======== ====== ======= ======== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
5
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BANKFIRST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Three months ended March 31,
(Unaudited)
1999 1998
-------- --------
Cash flows from operating activities
Net income $ 2,069 $ 1,703
Adjustments to reconcile net income to net cash from
operating activities
Provision for credit losses 419 524
Depreciation 454 413
Amortization and accretion, net 429 255
Net (gains) losses on securities sales (36) (10)
Net (gains) losses on sales of mortgage loans 332 (203)
Proceeds from sales of mortgage loans held for sale 52,824 29,806
Purchases of mortgage loans held for sale (8,957) (11,944)
Originations of mortgage loans held for sale (39,572) (30,963)
Changes in assets and liabilities
Accrued interest receivable and other assets (911) (2,483)
Accrued interest payable and other liabilities 638 (2,590)
-------- --------
Net cash flows from operating activities 7,689 (15,492)
Cash flows from investing activities
Net cash paid for mortgage company -- (7,449)
Purchase of securities (7,000) (4,105)
Proceeds from maturities of securities 1,384 1,633
Proceeds from sale of securities 4,936 14
Net increase in loans (22,066) (14,979)
Purchase of FHLB stock (55) --
Premises and equipment expenditures, net (367) (214)
-------- --------
Net cash from investing activities (23,168) (25,100)
Cash flows from financing activities
Net change in deposits (12,197) 17,524
Net change in securities sold
under agreements to repurchase 3,302 2,873
Net change in federal funds purchased -- 14,291
Advances from the FHLB 15,371 35,229
Repayments to the FHLB -- (20,000)
Repayment of notes payable -- (5,798)
Preferred stock dividends paid (32) (39)
Sales of stock and stock options exercised -- 36
-------- --------
Net cash from financing activities 6,444 44,116
Net change in cash and cash equivalents (9,035) 3,524
Cash and cash equivalents, beginning of period 44,986 31,290
-------- --------
Cash and cash equivalents, end of period $ 35,951 $ 34,814
======== ========
Supplemental disclosures:
Interest paid $ 5,997 $ 6,116
Income taxes paid 254 298
- --------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
6
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BANKFIRST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Principles of Consolidation: The consolidated financial statements include the
accounts of BankFirst Corporation and its wholly-owned subsidiaries, BankFirst,
First National Bank and Trust Company (together referred to as the "Banks"), and
BankFirst Trust Company, and BankFirst's wholly-owned subsidiary, Curtis
Mortgage Company, collectively referred to as the "Company". All significant
inter-company balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, and accordingly they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month periods
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
Borrowings: Repurchase agreements and Federal Funds purchased are generally
overnight borrowings. Federal Home Loan Bank (FHLB) advances consist of
long-term advances which exceed one year, with both fixed rate and variable rate
terms.
Reclassifications: Certain items in the 1998 financial statements have been
reclassified to conform with the 1999 presentation.
7
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar
amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Earnings Per Share: Basic earnings per share is based on weighted average common
shares outstanding. Diluted earnings per share further assumes issuance of any
dilutive potential common shares. Earnings per share are restated for all
subsequent stock dividends and splits.
A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations are presented
below:
Three Months Ended
March 31,
(Unaudited)
1999 1998
------- -------
Earnings Per Share
Net income $ 2,069 $ 1,703
Less: Dividends declared
on preferred stock (32) (39)
-------- -------
Net income available to common
stockholders $ 2,037 $ 1,664
======== =======
Weighted average common
shares outstanding 11,375,600 9,988,427
========== =========
Earnings per share $ 0.18 $ 0.17
======== =======
8
<PAGE>
BANKFIRST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollar
amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
Earnings Per Share (Continued):
Three Months Ended
March 31,
(Unaudited)
1999 1998
------- -------
Earnings Per Share Assuming
Dilution
Net income available to common
stockholders $ 2,037 $ 1,664
Add back dividends upon assumed
Conversion of preferred stock 32 39
------- -------
Net income available to common
stockholders assuming conversion $ 2,069 $ 1,703
======= =======
Weighted average common shares
outstanding 11,375,600 9,988,427
Add: Dilutive effects of assumed
Conversions and exercises:
Convertible preferred stock 558,992 666,298
Stock options 373,976 249,531
------- -------
Weighted average common and
dilutive potential common
shares outstanding 12,308,568 10,904,256
---------- ----------
Earnings per share
assuming dilution $ 0.17 $ 0.16
s====== =======
9
<PAGE>
Part I - Financial Information
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the consolidated financial position and results of operations
of BankFirst Corporation. The consolidated financial information discussed
herein primarily reflects the activities of the Company's wholly-owned community
bank subsidiaries, BankFirst ("BankFirst") and The First National Bank and Trust
Company ("Athens"). The discussion identifies trends and material changes that
occurred during the reported periods and should be read in conjunction with the
consolidated financial statements and accompanying notes appearing elsewhere
herein. The periods included within this document are the three months ending
March 31, 1999 and 1998.
All statements other than statements of historical facts included in this
discussion regarding capital expenditures, the Company's financial position,
business strategies and other plans and objectives for future operations, are
forward-looking statements. The Company cautions readers that all
forward-looking statements are necessarily speculative and not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made, and to advise readers that various risks and uncertainties, including
without limitation, regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities and competitive and
regulatory factors, could affect financial performance and could cause actual
results for future periods to differ materially from those anticipated or
projected.
Overview
BankFirst Corporation, a Tennessee corporation, is a bank holding company
headquartered in Knoxville, Tennessee that focuses on meeting the banking needs
of East Tennessee businesses and residents through a relationship oriented,
community bank business strategy. The Company conducts its banking business
through BankFirst, a Tennessee banking corporation, which has 24 offices in
Knox, Sevier, Blount, Loudon and Jefferson Counties, and through The First
National Bank and Trust Company, a national banking association acquired on July
2, 1998, with eight offices in McMinn County. The Company's operations
principally involve commercial and residential real estate lending, commercial
business lending, consumer lending, mortgage servicing, construction lending and
other financial services, including trust operations, credit cards services and
brokerage services.
Financial Condition
Total assets grew from $748.3 million at year-end 1998 to $755.8 million at
March 31, 1999, a $7.5 million increase. The primary changes in assets included
a $15.1 million increase in net loans, offset partially by a $6.2 million
reduction in mortgage loans held for sale. For the three months ended March 31,
1999, the mortgage banking subsidiary of BankFirst purchased and originated
$48.5 million of loans and sold $52.8 million of loans purchased and originated.
Total liabilities grew from $665.5 million at year-end 1998 to $671.9 million at
March 31, 1999, an increase of $6.4 million. Deposits declined $12.2 million
during this period, most significantly in noninterest-bearing deposits. This
decline is attributable to the Banks' temporary seasonal commercial deposit
fluctuations. To accommodate the Banks' increased loan demand, Federal Home Loan
Bank advances were increased by $15.4 million, which accounted for the increase
in total liabilities.
10
<PAGE>
From year-end 1998 to March 31, 1999, equity grew by a net of $1.1 million,
consisting of net earnings of $2.1 million less a $950,000 change in unrealized
losses on securities held for sale.
The leverage capital ratio increased from 10.7% at year-end 1998 to 10.8% at
March 31, 1999 due to the increase in net income. This ratio maintains the
Company in the "well capitalized" category.
Management expects growth to continue through expansion of retail locations,
expansion of products and services, including mortgage servicing opportunities
by Curtis Mortgage and trust services through BankFirst Trust Company, and
possible future mergers or acquisitions. At the present time, the Company has no
present agreements, arrangements or commitments with respect to any other
acquisition.
Results of Operations
Three Months Ended March 31, 1999 compared to Three Months Ended March 31, 1998
- -------------------------------------------------------------------------------
Net interest income increased $404,000, or 5.4%, to $7.9 million for the three
months ended March 31, 1999, from $7.5 million for the three months ended March
31, 1998. The increase in net interest income was due primarily to an increase
in average earning assets and an increase in the percentage of average earning
assets invested in loans, the Company's highest yielding assets.
The Company's net interest spread and net interest margin were 3.99% and 4.71%,
respectively, for the three months ended March 31, 1999, as compared to 4.14%
and 4.90% for the three months ended March 31, 1998. The decrease in the net
interest spread and the net interest margin were primarily the result of
increased competitive pressures on loan rates, coupled with higher borrowing
costs associated with short-term liabilities such as fed funds borrowed and
Federal Home Loan Advances.
The provision for credit losses was $419,000 for the three months ended March
31, 1999, compared to $524,000 for the same period in 1998. The decrease in the
provision was attributable to generally stable delinquency percentages on the
loan portfolio. The Company experienced net charge-offs of $62,000 for the three
months ended March 31, 1999 resulting in a ratio of net charge-offs to average
loans of less than 0.1%.
Noninterest income increased $588,000 to $2.6 million for the three months ended
March 31, 1999 from $2.0 million for the three months ended March 31, 1998,
primarily attributable to mortgage banking operations.
Loan servicing income increased to $807,000 for the three months ended March 31,
1999, as compared to $417,000 for the same three month period in 1998. The
mortgage company sells loans while retaining the servicing rights, which has the
overall effect of producing less immediate gains at time of sale, while
providing longer-term income streams from the servicing rights of those loans
sold on the secondary market. Net losses on the sale of mortgage loans were
$332,000 for the three months ended March 31, 1999 compared to net gains of
$203,000 for the same period in 1998. Resulting gains or losses for such periods
correspond to the interest rate environment within the secondary market at the
time of sale.
11
<PAGE>
Noninterest expense increased $564,000, to $7.0 million for the three months
ended March 31, 1999, from $6.5 million for the three months ended March 31,
1998. The primary component of noninterest expense is salaries and benefits,
which increased $526,000, or 15.2%, to $4.0 million for the three months ended
March 31, 1999, from $3.5 million for the three months ended March 31, 1998.
Salaries and benefits as well as other noninterest expense categories increased
primarily due to increases in personnel.
Net income increased $366,000, or 21.5%, to $2.1 million for the three months
ended March 31, 1999 from $1.7 million for the three months ended March 31,
1998.
Provision for Credit Losses and Asset Quality
The provision for credit losses represents charges made to earnings to maintain
an adequate allowance for loan losses. The allowance is maintained at an amount
believed to be sufficient to absorb losses in the loan portfolio. Factors
considered in establishing an appropriate allowance include a careful assessment
of the financial condition of the borrower; a realistic determination of the
value and adequacy of underlying collateral; the condition of the local economy
and the condition of the specific industry of the borrower; a comprehensive
analysis of the levels and trends of loan categories; and a review of delinquent
and classified loans. The Company applies a systematic process for determining
the adequacy of the allowance for loan losses including an internal loan review
function and a monthly analysis of the adequacy of the allowance. The monthly
analysis includes determination of specific potential loss factors on individual
classified loans, historical potential loss factors derived from actual net
charge-off experience and trends in nonperforming loans, and potential loss
factors for other loan portfolio risks such as loan concentrations, local
economy, and the nature and volume of loans.
The recorded values of loans actually removed from the consolidated balance
sheets are referred to as charge-offs and, after netting out recoveries on
previously charged-off assets, become net charge-offs. The Company's policy is
to charge off loans, when, in management's opinion, the loan is deemed
uncollectible, although concerted efforts are made to maximize recovery.
Liquidity and Capital Adequacy
Liquidity management is both a daily and long-term responsibility of management.
The Company adjusts its investments in liquid assets and long and short term
borrowings, based upon management's consideration of expected loan demand,
expected deposit flows and securities sold under repurchase agreements. The
Company believes it has the ability to raise deposits quickly within its market
area by slightly raising interest rates, but has typically been able to achieve
deposit growth without paying above market interest rates. The current strategy
calls for the subsidiary banks to be no higher than second highest in their
pricing as compared to their primary competitors. Deposit growth has funded most
of the significant asset growth in the past several years, but has decreased
modestly as a percent of total funding.
12
<PAGE>
The Company actively solicits customer cash management relationships which often
includes a securities repurchase agreement feature. Under these agreements,
commercial customers are able to generate earnings on otherwise idle funds on
deposits with the subsidiary banks. These accounts are considered volatile under
regulatory requirements, although the Company has found them to be a steady
source of funding. The Company has been able to increase customer relationships
because of its strong business lending program. While more costly than deposit
funding, these deposit-related accounts are typically the lowest cost borrowed
funds available to the Company.
The primary source of capital for the Company is retained earnings. The Company
paid cash dividends of $32,000 with respect to its noncumulative convertible
preferred stock, for the first three months of 1999. The Company retained $2.0
million of earnings for the first three months of 1999.
The Company and its bank subsidiaries are subject to regulatory capital
requirements administered by federal and state banking agencies. Capital
adequacy guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items calculated under regulatory accounting practices. The prompt corrective
action regulations provide five classifications, including well capitalized,
adequately capitalized, under capitalized, significantly under capitalized, and
critically under capitalized, although these terms are not used to represent
overall financial condition. If under capitalized, capital distributions are
limited, as is asset growth and expansion, and plans for capital restoration are
required.
Under guidelines issued by banking regulators, the Company and its bank
subsidiaries are required to maintain a minimum Tier 1 risk-based capital ratio
of 4% and a minimum total risk-based ratio of 8%. Risk-based capital ratios
weight the relative risk factors of all assets and consider the risk associated
with off-balance sheet items.
The Company's Tier 1 risk-based and total risk-based ratios were 13.80% and
15.00% respectively, as of March 31, 1999. Both bank subsidiaries also
individually met the definition of "well capitalized" as of March 31, 1999.
Market Risk
The Company uses an earnings simulation model (summarized below) to analyze the
net interest income sensitivity. Potential changes in market interest rates and
their subsequent effect on interest income is then evaluated. The model projects
the effect of instantaneous movements in interest rates of 100 and 200 bp.
Assumptions based on the historical behavior of the Company's deposit rates and
balances in relation to interest rates are also incorporated in the model. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely measure net interest income or precisely predict the impact of
fluctuations in market interest rates on net interest income. Actual results
will differ from the model's simulated results due to timing, magnitude and
frequency of interest rate changes, as well as changes in market conditions and
the application of various management strategies.
Even though the Company's cumulative GAP at one year is negative, the earnings
simulation model indicates that an increase in interest rates of 100 bp and 200
bp would result in increased net interest income. This occurs because management
believes that if overall market interest rates increase modestly, the market
would not require an immediate, corresponding repricing of non-term deposit
liabilities.
13
<PAGE>
Market Risk Analysis
At March 31, 1999
Decrease in Rates Increase in Rates
200 100 100 200
Basis Basis Level Basis Basis
Points Points Rates Points Points
Projected Interest Income
Loans 45,840 47,689 49,537 51,386 53,217
Investments 7,740 7,874 8,019 8,141 8,273
Federal Funds Sold 122 143 163 184 205
Total Interest Income 53,702 55,706 57,719 59,711 61,695
Projected Interest Expense
Deposits 19,707 20,152 21,276 22,411 23,312
FHLB Term Advances 784 1,024 1,265 1,505 1,703
Fed Funds Purchased
& Other Borrowings 1,608 1,758 1,909 2,055 2,173
Total Interest Expense 22,099 22,934 24,450 25,971 27,188
Net Interest Income 31,603 32,772 33,269 33,740 34,507
Change from Level Rates (1,666) (497) -- 471 1,238
% Change From Level Rates (5.01%) (1.49%) -- 1.42% 3.72%
Summarized Market Risk Analysis
At December 31, 1998
Decrease in Rates Increase in Rates
200 100 100 200
Basis Basis Level Basis Basis
Points Points Rates Points Points
Projected Total
Interest Income $49,667 $51,888 $54,085 $56,333 $58,546
Projected Total
Interest Expense 20,824 22,594 23,524 25,032 26,394
Net Interest Income 28,843 29,294 30,561 31,301 32,152
Change from Level Rates (1,738) (1,287) -- 720 1,571
% Change From Level Rates (5.68%) (4.21%) -- 2.35% 5.14%
14
<PAGE>
Year 2000
The Company has implemented plans to address Year 2000 compliance. The issue
arises from the fact that many existing computer programs use only a two-digit
field to identify the year. These programs were designed without considering the
impact once the calendar year rolls over to "00". If not corrected, computer
applications could fail or create inaccurate results by or at the Year 2000.
The Company initiated a comprehensive Year 2000 compliance program in mid-1997,
including an Awareness and Assessment phase, and a Remediation phase, and began
a comprehensive Testing phase during 1998. BankFirst's data processing service
bureau implemented new software, which has been Year 2000 certified, and
BankFirst completed its conversion to this new software in April 1998.
Conversion to the new host system necessitated an upgrade of BankFirst's
personal computers and their operating systems, which have been tested for Year
2000 compliance. A new servicing system for Curtis Mortgage that is Year 2000
compliant is scheduled for implementation by June 30, 1999. Management believes
the Year 2000 program is on schedule with the goals established by its
regulators, in that it is has 100% of its mission-critical testing complete in
out-sourced , host-based services and 85% of its internal and third-party
supported, mission-critical software testing complete. Facilities, office
equipment, supplies, security equipment, HVAC and elevator systems have all been
assessed and, where possible, tested. All testing of both internal and external
systems is expected to be completed by June 30, 1999.
The Company has evaluated its Year 2000 compliance-related credit risk; since a
high concentration of the Company's customer base consists of larger Commercial
Loan customers maintaining total credit relationships of $500,000 or more which
have been aggressively evaluated by their relationship manager regarding their
possible Y2K credit risk, management believes that its Year 2000
compliance-related credit risk has been proactively addressed. Year 2000 credit
risk analysis is an ongoing monitoring and evaluation effort within the Company,
and although it has taken prudent steps to address the Year 2000 issue, there is
no absolute assurance that there can be no problems relating to this issue.
Management believes that the total costs of becoming Year 2000 compliant will
not be material. During 1998, the Company projected Year 2000 project costs to
be approximately $295,700 and incurred approximately $163,750 in costs relative
to the Year 2000 effort. Several vendor charges relating to Year 2000 compliance
testing and software modifications incurred during 1998 are expected to be
incurred by the first half of 1999. Year 2000 project costs for 1999 are
projected to be approximately $150,000.
Management understands the broad scope of the Year 2000 issue and has developed
a plan which includes monitoring of those other entities with which it routinely
interacts including suppliers, creditors, borrowers, customers and other
financial service organizations. While monitoring of these entities allows the
Company to assess its possible Year 2000-related risks, the Company also has
been developing a broad-spectrum contingency plan designed to minimize adverse
impact to mission critical systems. The plan includes analysis of customer
demand for currency and funds availability. The plan also consists of developing
and testing alternative methods and locations for core service delivery and
operations support. Additionally, the Company's service bureaus maintain a
contingency plan for data processing. The service bureaus house a second,
tested, Year 2000 compliant system in the event of system
15
<PAGE>
failure. The service bureaus also maintain an off-site data processing system
with a third-party data processor in the event of critical power failure. Both
contingency systems have been certified Year 2000 compliant and have been tested
by the Company using post-January 2000 dates.
Management believes that the Company and its affiliates are currently in
compliance with each applicable directive issued by Regulatory Authorities.
New Accounting and Reporting Requirements
SFAS No. 133, "Accounting for Derivative Financial Instruments and Hedging
Activities". SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities at fair value. Depending on the use of
the derivative and whether it qualifies for hedge accounting, gains or losses
from changes in the value of those derivatives would either be recorded as a
component of net income or as a change in stockholders' equity. BankFirst is
required to adopt the new standard January 1, 2000. Management has not yet
determined the impact of this standard.
In October 1998, the Financial Accounting Standards Board issued SFAS No. 134
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise". The standard is
effective for the first fiscal quarter beginning after December 15, 1998. This
statement amends SFAS No. 65 on mortgage banking, which required that after
securitization of mortgage loans held for sale, all retained mortgage backed
securities be classified as trading. This new standard allows after
securitization of mortgage loans held for sale, any retained mortgage backed
securities to be classified as described under SFAS No. 115. Current mortgage
banking activities for BankFirst do not include the securitization of any
mortgage loans held for sale.
FDIC Improvement Act (FDICIA) of 1991. The FDICIA stipulates many
responsibilities of financial institutions, its boards of directors and
accountants. Many of the provisions have already been effective for the Company;
however there are certain filing requirements which are only applicable to banks
with assets over $500 million. This threshold is measured on an individual bank
basis, not on consolidated assets. BankFirst, taken alone, is already subject to
this Act. As a result, BankFirst will be required to comply with the FDICIA
reporting requirements during 1999. Athens had total year-end 1998 assets of
$196 million, and will not be subject to the FDICIA reporting requirements for
the foreseeable future.
Part I - Financial Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information is disclosed in Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
16
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a vote None
of Security Holders
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANKFIRST CORPORATION
by
Date: May 14, 1999 /s/ C. David Allen
-----------------------------
C. David Allen
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
Financial Data Schedule
These schedules contain summary financial information extracted from the
consolidated balance sheets, the consolidated statements of income, and Company
records, and are qualified in their entirety by reference to such financial
statements. All dollar amounts are in thousands, except per share data.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 27,014
<INT-BEARING-DEPOSITS> 7,137
<FED-FUNDS-SOLD> 1,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 133,909
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 524,016
<ALLOWANCE> 6,959
<TOTAL-ASSETS> 755,788
<DEPOSITS> 605,769
<SHORT-TERM> 25,510
<LIABILITIES-OTHER> 9,370
<LONG-TERM> 0
0
905
<COMMON> 28,439
<OTHER-SE> 54,584
<TOTAL-LIABILITIES-AND-EQUITY> 755,788
<INTEREST-LOAN> 11,896
<INTEREST-INVEST> 1,792
<INTEREST-OTHER> 219
<INTEREST-TOTAL> 13,907
<INTEREST-DEPOSIT> 5,313
<INTEREST-EXPENSE> 5,955
<INTEREST-INCOME-NET> 7,952
<LOAN-LOSSES> 419
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 877
<INCOME-PRETAX> 3,116
<INCOME-PRE-EXTRAORDINARY> 3,116
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,069
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
<YIELD-ACTUAL> 8.32
<LOANS-NON> 888
<LOANS-PAST> 2,309
<LOANS-TROUBLED> 106
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,602
<CHARGE-OFFS> 144
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 6,959
<ALLOWANCE-DOMESTIC> 6,959
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 696
</TABLE>
