SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 001-14417
BANKFIRST CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 58-1790903
(State or other jurisdiction of (IRS 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:
(865) 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, 2000:
Title of Class Shares Outstanding
Common Stock, $2.50 par value 11,118,050
<PAGE>
BANKFIRST CORPORATION
INDEX
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS ......................................... 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk....................................................... 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................... 16
Signatures ....................................................... 16
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
The information disclosed in this Quarterly Report on Form 10-Q of BankFirst
Corporation includes various forward- looking statements that are made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 with respect to credit quality (including delinquency trends
and the allowance for credit losses), the ability of BankFirst Corporation (the
"Company") and its vendors to adequately address post-Year 2000 issues,
corporate objectives, and other financial and business matters. The words
"anticipates", "projects", "intends", "estimates", "expects", "believes",
"plans", "may", "will", "should", "could", and other similar expressions are
intended to identify such forward-looking statements. The Company cautions that
these forward-looking statements are necessarily speculative and speak only as
of the date made, and are subject to numerous assumptions, risks and
uncertainties, all of which may change over time. Actual results could differ
materially from such forward-looking statements.
In addition to the factors disclosed by the Company elsewhere in this document,
the following factors, among others, could cause the Company's actual results to
differ materially and adversely from such forward-looking statements: pricing
pressures on loan and deposit products; competition; changes in economic
conditions nationally, regionally and in the Company's markets; the extent and
timing of actions of the Federal Reserve Board; changes in levels of market
interest rates; clients' acceptance of the Company's products and services;
credit risks of lending activities and competitive factors; and the extent and
timing of legislative and regulatory actions and reforms.
The above-listed risk factors are not necessarily exhaustive, particularly as to
possible future events, and new risk factors may emerge from time to time.
Certain events may occur that could cause the Company's actual results to be
materially different than those described in the Company's periodic filings with
the Securities and Exchange Commission ("SEC"). Any statements made by the
Company that are not historical facts should be considered to be forward-looking
statements. The Company is not obligated to update and does not undertake to
update any of its forward-looking statements made herein.
- --------------------------------------------------------------------------------
<PAGE>
BankFirst Corporation
For the Quarter Ended March 31, 2000
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
BankFirst Corporation
Knoxville, Tennessee
We have reviewed the consolidated balance sheet of BankFirst Corporation as of
March 31, 2000, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the year-to-date periods ended March
31, 2000 and 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Louisville, Kentucky
May 8, 2000
BankFirst Corporation | 3
<PAGE>
Part I.-Financial Information
Item 1.- Financial Statements
Consolidated Balance Sheets
BankFirst Corporation
(Dollar amounts in thousands except share data)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
2000 1999
- ---------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks ............................................... $ 34,056 $ 36,039
Federal Funds Sold .................................................... 2,900 0
--------- ---------
Total cash and cash equivalents .................................. 36,956 36,039
Securities available for sale ......................................... 147,813 133,596
Mortgage loans held for sale .......................................... 14,109 12,205
Loans, net of allowance for credit losses of $7,593 and $7,400 ....... 585,966 578,216
Premises and equipment, net ........................................... 27,434 26,814
Mortgage servicing rights ............................................. 8,923 8,896
Federal Home Loan Bank Stock, at cost ................................. 3,480 3,420
Intangible assets ..................................................... 1,806 1,845
Accrued interest receivable and other assets .......................... 13,972 11,868
--------- ---------
Total assets ....................................................... $ 840,459 $ 812,899
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits .......................................... $ 113,752 $ 105,079
Interest-bearing deposits ............................................. 554,604 525,300
--------- ---------
Total deposits ................................................... 668,356 630,379
Securities sold under agreements to repurchase ........................ 28,067 32,103
Federal funds purchased and other borrowings .......................... 1,101 27,500
Advances from the Federal Home Loan Bank .............................. 46,126 29,159
Accrued interest payable and other liabilities ........................ 9,226 7,232
--------- ---------
Total liabilities ................................................ 752,876 726,373
Stockholders' equity
Common stock: $2.50 par value, 30,000,000 shares authorized,
11,161,650 and 11,275,600 shares outstanding, respectively ......... 27,904 28,189
Noncumulative convertible preferred stock: $5 par value,
1,000,000 shares authorized, 181,050 shares outstanding ............ 905 905
Additional paid-in capital ............................................ 32,792 33,448
Retained earnings ..................................................... 28,116 25,914
Accumulated other comprehensive income (loss) ......................... (2,134) (1,930)
--------- ---------
Total stockholders' equity ......................................... 87,583 86,526
--------- ---------
Total liabilities and stockholders' equity ......................... $ 840,459 $ 812,899
========= =========
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
BankFirst Corporation | 4
<PAGE>
Consolidated Statements of Income
BankFirst Corporation
(Dollar amounts in thousands except share data)
(Unaudited)
Three months ended
March 31,
2000 1999
- --------------------------------------------------------------------------------
Interest income
Interest and fees on loans ...................... $ 13,580 $ 11,896
Taxable securities .............................. 1,618 1,379
Nontaxable securities ........................... 477 413
Other ........................................... 94 219
-------- --------
15,769 13,907
Interest expense
Deposits ........................................ 6,120 5,313
Federal funds purchased and repurchase agreements 550 565
Federal Home Loan Bank advances and other debt .. 540 77
-------- --------
7,210 5,955
-------- --------
Net interest income ................................. 8,559 7,952
Provision for credit losses ......................... 573 419
-------- --------
Net interest income after provision for credit losses 7,986 7,533
Noninterest income
Service charges and fees ........................ 1,117 1,102
Net securities gains (losses) ................... -- 36
Net gain (loss) on loan sales ................... 524 890
Loan servicing income, net of amortization ...... 279 120
Trust department income ......................... 415 264
Other ........................................... 208 188
-------- --------
2,543 2,600
Noninterest expense
Salaries and employee benefits .................. 3,945 3,985
Occupancy expense ............................... 501 515
Equipment expense ............................... 633 659
Office expense .................................. 463 456
Data processing ................................. 448 393
Advertising ..................................... 121 132
Other ........................................... 1,107 877
-------- --------
7,218 7,017
-------- --------
Income before income taxes .......................... 3,311 3,116
Provision for income taxes .......................... 1,076 1,047
-------- --------
Net Income .......................................... $ 2,235 $ 2,069
======== ========
Earnings per share:
Basic ........................................... $ 0.20 $ 0.18
Diluted ......................................... $ 0.19 $ 0.17
- --------------------------------------------------------------------------------
See accompanying notes.
BankFirst Corporation | 5
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
BankFirst Corporation
(Dollar amounts in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Preferred Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Income Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PERIOD ENDED MARCH 31, 1999
Balance, January 1, 1999 $ 28,439 $ 905 $ 34,093 $ 17,160 $ 2,244 $ 82,841
Cash dividend on preferred stock -- -- -- (32) -- (32)
Comprehensive income (loss):
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>
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Preferred Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Income Equity
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PERIOD ENDED MARCH 31, 2000
Balance, January 1, 2000 $ 28,189 $ 905 $ 33,448 $ 25,914 $ (1,930) $ 86,526
Cash dividend on preferred stock -- -- -- (33) -- (33)
Repurchase of common stock,
113,950 shares (285) -- (656) -- -- (941)
Comprehensive income:
Net income -- -- -- 2,235 -- 2,235
Change in unrealized gains
(losses), net of reclassification -- -- -- -- (204) (204)
--------
Total comprehensive income 2,031
-------- -------- -------- -------- -------- --------
Balance, March 31, 2000 $ 27,904 $ 905 $ 32,792 $ 28,116 $ (2,134) $ 87,583
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
BankFirst Corporation | 6
<PAGE>
Consolidated Statements of Cash Flows
BankFirst Corporation
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from Operating Activities
Net income ............................................................... $ 2,235 $ 2,069
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses ............................................ 573 419
Depreciation ........................................................... 590 454
Amortization of mortgage servicing rights .............................. 309 435
Amortization and accretion of securities, net .......................... (33) (6)
Net (gains) losses on securities sales ................................. -- (36)
Net (gains) losses on sales of mortgage loans .......................... (524) (890)
Proceeds from sales of mortgage loans held for sale .................... 23,265 54,046
Purchases of mortgage loans held for sale .............................. (2,831) (8,957)
Originations of mortgage loans held for sale ........................... (22,081) (39,572)
Changes in assets and liabilities
Accrued interest receivable and other assets ......................... (2,104) (620)
Accrued interest payable and other liabilities ....................... 1,994 347
-------- --------
Net cash flows from operating activities .................................... 1,393 7,689
Cash flows from investing activities
Purchase of securities ................................................... (16,786) (7,000)
Proceeds from maturities of securities ................................... 1,795 1,384
Proceeds from sales of securities ........................................ -- 4,936
Net increase in loans .................................................... (7,750) (22,066)
Purchase of FHLB stock ................................................... (60) (55)
Premises and equipment expenditures, net ................................. (1,210) (367)
-------- --------
Net cash flows from investing activities .................................... (24,011) (23,168)
Cash flows from financing activities
Net change in deposits ................................................... 37,977 (12,197)
Net change in repurchase agreements and other borrowings ................. (30,435) 3,302
Advances from the FHLB ................................................... 17,000 15,371
Repayments of advances to the FHLB ....................................... (33) --
Dividends paid .............................................................. (33) (32)
Repurchase of common stock .................................................. (941) --
-------- --------
Net cash flows from financing activities .................................... 23,535 6,444
Net change in cash and cash equivalents ..................................... 917 (9,035)
Cash and cash equivalents, beginning of period .............................. 36,039 44,986
-------- --------
Cash and cash equivalents, end of period .................................... $ 36,956 $ 35,951
======== ========
Supplemental disclosures:
Interest paid ............................................................ $ 6,740 $ 5,997
Income taxes paid ........................................................ 532 254
- -----------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
BankFirst Corporation | 7
<PAGE>
Notes to Consolidated Financial Statements
BankFirst Corporation
Basis of Presentation of the Consolidated Financial Statements
- --------------------------------------------------------------------------------
Principles of Consolidation: The consolidated financial statements include the
accounts of BankFirst Corporation and its principal wholly-owned subsidiaries,
BankFirst, The First National Bank and Trust Company (together referred to as
the "Banks"), 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 period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
Borrowings: Repurchase agreements and Federal Funds purchased are generally
overnight borrowings. Federal Home Loan Bank ("FHLB") advances consist of both
fixed and variable rate long-term advances, which exceed one year.
Reclassifications: Certain items in the 1999 financial statements have been
reclassified to conform to the 2000 presentation.
Computation of 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 (in thousands, except share data):
<TABLE>
<CAPTION>
Three months ended March 31,
(Unaudited)
2000 1999
------------ -------------
<S> <C> <C>
BASIC
Net income ............................................................. $ 2,235 $ 2,069
Less: dividends declared on preferred stock ........................... (33) (32)
------------ ------------
Net income available to common stockholders ............................ $ 2,202 $ 2,037
============ ============
Average common shares outstanding ...................................... 11,228,710 11,375,600
Earnings per share...................................................... $ 0.20 $ 0.18
DILUTED
Net income available to common stockholders ............................ $ 2,202 $ 2,037
Add: dividends upon assumed conversion of preferred stock ............. 33 32
------------ ------------
Net income available to common
stockholders assuming conversion ..................................... $ 2,235 $ 2,069
============ ============
Weighted average common shares outstanding ............................. 11,228,710 11,375,600
Weighted average dilutive convertible preferred stock .................. 558,992 558,992
Dilutive common stock options at average market price .................. 236,171 373,976
------------ ------------
Weighted average diluted shares outstanding ............................ 12,023,873 12,308,568
============ ============
Earnings per share assuming dilution ................................... $ 0.19 $ 0.17
</TABLE>
BankFirst Corporation | 8
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
Overview 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 ("FNB"),
as well as the Company's BankFirst Trust Company subsidiary and
BankFirst's mortgage subsidiary, Curtis Mortgage Company. 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 month periods ended March 31, 2000 and March
31, 1999.
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, which
has 25 offices in Knox, Sevier, Blount, Loudon and Jefferson
Counties, and through FNB, with six 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 card services and
brokerage services.
Financial Total assets grew from $813 million at year-end 1999 to $840 million
Condition at March 31, 2000, a $27 million increase. The Company's first
quarter 2000 balance sheet reflects a growth of $38 million in
deposits prompted by competitive product pricing. The Company
redirected this deposit increase by funding an $8 million growth in
loan demand and purchasing an additional $14 million in securities.
The Company also reduced its overall short-term borrowings of
repurchase agreements and federal funds by $14 million, and replaced
another $17 million of overnight federal funds with a corresponding
$17 million in short-term fixed rate FHLB advances.
The $38 million increase in deposits during the three months ended
March 31 2000 includes a $9 million increase in demand deposits and
a $29 million in interest-bearing deposits, which includes
certificates of deposit. Jumbo certificates of deposit (over $100
thousand) represent $15 million of the $29 million increase in
interest-bearing deposits. The jumbo certificates of deposit were
primarily municipality funds that have a duration of less than six
months; these deposits are secured or "pledged" with government
securities owned by the Company's bank subsidiaries. It is
anticipated that a large portion of these jumbo certificates of
deposit will not be renewed by the municipalities.
From year-end 1999 to March 31, 2000, total stockholders' equity
increased by a net of $1 million, consisting of net earnings of over
$2 million, less a preferred stock cash dividend of $33 thousand,
and less $941 thousand for the repurchase of 113,950 shares of the
Company's common stock, $2.50 par value per share (the "Common
Stock") as described in the next paragraph.
On January 11, 2000 the Company approved a stock repurchase plan to
acquire up to 500 thousand shares of its Common Stock, which follows
a previous stock repurchase plan announced in June, 1999 and
completed during the second half of 1999 for the repurchase of 100
thousand shares of Common Stock. Management repurchased 113,950
shares of the approved 500 thousand share buyback by the end of the
first quarter 2000 and is authorized to repurchase the remaining
386,050 shares of Common Stock on the open market from time to time,
and will continue to monitor market conditions of its Common Stock
to assess the most logical deployment of the Company's capital.
Management expects the Company's growth to continue through
expansion of retail locations, expansion of products and services,
including mortgage servicing opportunities by Curtis Mortgage
Company and trust services through BankFirst Trust Company, and
possible future mergers or acquisitions, although no mergers or
acquisitions are currently pending. Although the Company's growth
rate in total assets during the last twelve months was approximately
11%, the Company's growth rate over the remainder of 2000 may very
likely slow, due to possible future short-term interest rate
increases by the Federal Reserve Bank.
BankFirst Corporation | 9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
Results of Net income increased 5% to $2.2 million for the first quarter of
Operations 2000 as compared to $2.1 million for the same period last year. Net
interest income on a tax equivalent basis was $8.7 million,
representing a $500 thousand or 6% increase for the first quarter of
2000 from the comparable 1999 period. The increase in net interest
income for the comparative quarter was due primarily to an increase
in total average earning assets and a proportionate increase of
earning assets invested in loans, which represent the Company's
highest yielding assets.
The Company's net interest spread and net interest margin for the
first quarter of 2000 were 3.86% and 4.55%, respectively, as
compared to 3.99% and 4.71% for the same quarter last year. The
trend over the last twelve months has been that the Company's margin
and spread have declined slightly due to competitive pressures on
loan rates and higher costs associated with borrowing costs of
funds, such as interest-bearing deposits, federal funds, and FHLB
advances. This trend of competitive pressures is expected to
continue into the foreseeable future.
Although the Company's net interest spread and net interest margin
have declined, actual dollars of net interest income have increased
from a higher volume of earning assets. The growth in earning assets
(which are mostly comprised of loans) may very likely slow from
historical growth patterns due to possible short-term Federal
Reserve Bank interest rate hikes. In addition, during the first
quarter of 2000 the Company maintained an aggressive loan pricing
strategy to combat intense competition; this strategy was successful
in keeping existing customers and attracting new customers, although
the yields on the respective loans were below historical levels. The
Company does not expect to continue this aggressive loan pricing
strategy during the remainder of the year.
Noninterest Noninterest income of $2.5 million for the first quarter of 2000
Income compared almost evenly with $2.6 million for the same quarter last
year. Some major subgroups of noninterest income include service
charges and fees generated by the two bank affiliates, income from
sales of mortgage loans and loan servicing through Curtis Mortgage
Company, and trust fee income produced through BankFirst Trust
Company. Quarter-to-quarter comparisons of these major subgroups of
noninterest income are described in more detail below.
An analysis of noninterest income reflects virtually no change in
earnings on service charges and related fees, which were $1.1
million for each of the first quarters of 1999 and 2000. Intense
market competition from other financial institutions, as well as
nonbank competition such as brokerage firms, are causing pressure on
this component of noninterest income.
Gains on loan sales decreased from $890 thousand for the three
months ending March 31, 1999 to $524 thousand for the three months
ending March 31, 2000. The interest rate increases initiated by the
Federal Reserve Board during 1999 and 2000 caused some volatility in
the secondary market interest rate environment, influencing a
reduction in the volume of purchases and originations of secondary
market loans. However, loan servicing fees net of amortization
increased from $120 thousand at March 31, 1999 to $279 thousand for
the same period in 2000, reflecting higher servicing fees on a
larger loan servicing portfolio, coupled with a comparatively slower
amortization speed on the loan portfolio due to fewer loan
refinances. Given the expected continued increase in interest rates,
management believes the secondary market loan volumes over the next
several months will decline from existing levels.
Noninterest income from trust fees increased 57% from $264 thousand
to $415 thousand when comparing the first quarter of 1999 to the
first quarter of 2000. The BankFirst Trust Company is managing $352
million of trust assets as of March 31, 2000 compared to $314
million as of March 31, 1999.
BankFirst Corporation | 10
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
Noninterest Noninterest expense increased $200 thousand to $7.2 million for the
Expense first quarter of 2000 over the comparable 1999 period. The primary
components of noninterest expense are salaries and benefits,
occupancy and equipment, data processing, and an "other" noninterest
expense category that captures various expenses not normally
itemized on condensed financial statements.
Salaries and benefits represent the Company's largest noninterest
expense component. The cost to hire, train, and maintain a workforce
of over 400 full-time and part-time employees is substantial. The
Company's personnel costs through the first quarter of 2000 are $3.9
million compared to $4.0 million during the same period last year.
Although this comparison reflects favorably from quarter to quarter,
the Company expects to hire additional personnel to staff three new
branch locations currently under development. This branch expansion
strategy, coupled with a tight labor market, inflationary pressures,
and competitive pressures, will most likely cause an upward trend in
this noninterest expense category throughout the remainder of the
year.
Occupancy expense, office and equipment expense, and data processing
fees, collectively accounted for $2.0 million of noninterest expense
during each of the first quarters in 1999 and 2000. Again, it is
anticipated that inflationary pressures, expansion into new markets,
and a planned computer system conversion at FNB, will put upward
pressure on these expenses.
The "Other Noninterest Expense" category reflects an increase of
$200 thousand in period-over-period first quarter expenses. First
quarter 2000 other noninterest expense ended at $1.1 million
compared to $900 thousand for the first quarter 1999. This category
includes expenses for loan and deposit processing fees, travel,
professional fees, charitable contributions, check losses, and other
miscellaneous expenses. The increase in other noninterest expense
from year to year was due to normal, recurring expense activity.
Provision The provision for credit losses was $573 thousand for the first
for Credit quarter of this year, compared to $419 thousand for the same quarter
Losses and in 1999. The higher provision expense on a period-over-period
Asset comparative basis was mainly due to providing an adequate allowance
Quality for loan losses on a larger loan portfolio. The Company experienced
net charge-offs of $379 thousand during the first quarter of 2000,
compared to $61 thousand for the same period last year. The ratio of
net charge-offs to average loans for both first quarters of 1999 and
2000 is less than 1%.
The provision for credit losses represents charges made to earnings
to maintain an adequate allowance for loan losses and other credit
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.
BankFirst Corporation | 11
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
With the escalation of concern about credit quality throughout the
industry, the Company has taken a proactive stance regarding its
loan quality. During the third quarter of 1999, the Company placed
two larger credits totaling $2.6 million on a nonperforming status;
these credits are still classified as nonaccrual.
Total nonperforming loans as of March 31, 2000 were $6.7 million
compared to $6.2 million as of December 31, 1999. Other real estate
owned for the first quarter of this year was $2.0 million as
compared to $1.9 million for the first quarter of last year.
Management will continue to monitor its markets and take a
conservative position regarding credit quality. Refer to the
Company's 1999 Annual Report on Form 10-K, under the "Nonperforming
Assets" section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations, for further analysis.
<TABLE>
<CAPTION>
Nonperforming Assets
(in thousands)
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2000 1999 1999 1999 1999
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Principal balance
- -----------------
Nonaccrual ....................................... $ 3,946 3,981 $ 3,017 $ 534 $ 888
90 days or more past due and still accruing ...... 2,800 2,261 1,173 2,535 2,308
------- ------- ------- ------- -------
Total nonperforming loans .................... $ 6,746 $ 6,242 $ 4,190 $ 3,069 $ 3,196
======= ======= ======= ======= =======
Nonperforming loans as a percent of loans ........ 1.14% 1.07% 0.73% 0.56% 0.61%
Other real estate owned ("OREO") ................ $ 1,963 $ 1,893 $ 814 $ 1,039 $ 1,442
OREO as a percent of loans ....................... 0.33% 0.32% 0.14% 0.19% 0.28%
Allowance as a percent of
nonperforming loans .............................. 112.56% 118.55% 176.13% 231.44% 217.77%
</TABLE>
BankFirst Corporation | 12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
Liquidity Liquidity management is both a daily and long-term responsibility of
and Capital management. The Company adjusts its investments in liquid assets and
Adequacy 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.
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 maintain 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 $33 thousand with respect to its
shares of noncumulative convertible preferred stock, for the first
three months of 2000. The Company retained $2.2 million of earnings
for the first three months of 2000.
On April 17, 2000 the Company declared a cash dividend of $0.08 per
share of Common Stock, payable on June 1, 2000 to its shareholders
of record as of May 15, 2000. This cash dividend will reduce the
Company's capital in June 2000.
The Company and its 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
13.48% and 14.60%, respectively, as of March 31, 2000. Both bank
subsidiaries also individually met the definition of "well
capitalized" as of March 31, 2000.
BankFirst Corporation | 13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
Market The Company uses an earnings simulation model (summarized below) to
Risk analyze net interest income sensitivity. Potential changes in market
interest rates and their subsequent effect on interest income is
then evaluated. The model projects the effects of instantaneous
movements in interest rates of 100 and 200 basis points.
The assumptions used in the market risk simulation model 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. See the previous discussion concerning
interest rate margin and interest rate spread in the "Results of
Operations" section of this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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 and 200 basis points would result in increased net
interest income of $431 thousand (a 1.26% increase from a flat rate
scenario) and $863 thousand (a 2.52% increase from flat rates),
respectively This occurs because management believes that if overall
market interest rates increase, the market would not require an
immediate, corresponding repricing of non-term deposit liabilities.
A decrease in interest rates of 100 and 200 basis points would
result in decreased net interest income of $418 thousand (a 1.22%
decrease from flat rates) and $759 thousand (a 2.22% decrease from
flat rates), respectively.
The Company's cumulative gap at one year as of December 31, 1999
indicated that an increase in interest rates of 100 and 200 basis
points would result in increased net interest income of $306
thousand (a 0.85% increase from a flat rate scenario) and $594
thousand (a 1.66% increase from flat rates), respectively. A
decrease in interest rates of 100 and 200 basis points as of
December 31, 1999 would result in decreased net interest income of
$251 thousand (a 0.70% decrease from flat rates) and $439 thousand
(a 1.22% decrease from flat rates), respectively.
<TABLE>
<CAPTION>
Market Risk Analysis
At March 31, 2000
Decrease in Rates Increase in Rates
------------------------------- -------------------------
200 100 100 200
Basis Basis Level Basis Basis
Points Points Rates Points Points
<S> <C> <C> <C> <C> <C>
Projected Interest Income
Loans $50,695 $53,176 $55,658 $58,139 $60,622
Investments 9,885 10,041 10,195 10,352 10,506
Federal Funds Sold 369 423 480 537 596
-----------------------------------------------------------------------
Total Interest Income 60,949 63,640 66,333 69,028 71,724
Projected Interest Expense
Deposits $23,654 $25,580 $20,617 $29,276 $31,120
FHLB Term Advances 2,424 2,686 9,579 3,210 3,471
Fed Funds Purchased & Other Borrowings 1,420 1,582 1,927 1,901 2,060
-----------------------------------------------------------------------
Total Interest Expense 27,498 29,848 32,123 34,387 36,651
Net Interest Income $33,451 $33,792 $34,210 $34,641 $35,073
$ Change from Level Rates (759) (418) -- 431 863
% Change from Level Rates (2.22)% (1.22)% 1.26% 2.52%
</TABLE>
BankFirst Corporation | 14
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
BankFirst Corporation
Summarized Market Risk Analysis
At December 31, 1999
<TABLE>
<CAPTION>
Decrease in Rates Increase in Rates
------------------------- --------------------------
200 100 100 200
Basis Basis Level Basis Basis
Points Points Rates Points Points
<S> <C> <C> <C> <C> <C>
Projected Total Interest Income $60,986 $62,468 $64,713 $66,959 $68,438
Projected Interest Expense 25,539 26,833 28,827 30,767 31,958
Net Interest Income 35,447 35,635 35,886 36,192 36,480
$ Change from Level Rates (439) (251) 306 594
% Change from Level Rates (1.22)% (0.70)% 0.85% 1.66%
</TABLE>
Year 2000 The Company undertook a project (the "Year 2000 Project") to
identify and assess the readiness of its computer systems, programs
and other infrastructure that could be affected by the Year 2000
issue and to remedy the problems identified. The Year 2000 Project
also included an assessment of Year 2000 readiness of key third
parties on whom the Company's operations depended. The Company also
developed contingency plans to permit it to continue operations,
consistent with the highest quality standards, in the event Year
2000 problems arose. If problems are encountered in the future
related to in-house systems or to those of key third parties, it is
possible that costs could be incurred that might adversely affect
the Company's financial condition.
During 1999, the Company incurred costs of approximately $250,000
attributable to Year 2000 remediation. Although management does not
expect to incur any additional related expenses in 2000, unforeseen
circumstances may arise; therefore, monitoring will continue at
least through the first quarter of 2000. Corrective action will be
taken if management encounters any previously unidentified Year 2000
problems internally or in interfacing with third parties, and the
Company's contingency plans remain available. Management has
determined that if a business interruption as a result of the Year
2000 issue occurred, such an interruption could be material to the
Company's overall financial performance.
BankFirst Corporation | 15
<PAGE>
BankFirst Corporation
New SFAS No. 133, "Accounting for Derivative Financial Instruments
Accounting and Hedging Activities". SFAS No. 133 requires companies to
and Reporting record derivatives on the balance sheet as assets or liabilities
Requirements at fair value. Depending on the use of the derivatives and
whether they qualify for hedge accounting, gains or losses from
changes in the value of such derivatives would either be recorded
as a component of net income or as a change in stockholders'
equity. BankFirst Corporation is required to adopt the new
standard as of January 1, 2001. Management has not yet determined
the impact of this standard.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
This information is disclosed in Item 2, "Management's Discussion and Analysis
of Financial Condition and Results of Operations- Liquidity and Capital
Adequacy".
Part II.- Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
27 Financial Data Schedule (filed electronically with the Securities and
Exchange Commission)
(b) Reports on Form 8-K:
The Company filed two reports on Form 8-K during the reporting period. Both of
these reports on Form 8-K, as referred to below, are specifically incorporated
herein by reference:
1) The Company filed one report on Form 8-K, dated January 11, 2000, announcing
that the Company's Board of Directors had authorized the Company to acquire up
to 500,000 shares of its Common Stock. A press release was issued on January 11,
2000 to describe the event and the press release was included as an exhibit to
the report on Form 8-K.
2) The Company filed one report on Form 8-K, dated March 21, 2000, describing
various material risk factors that may affect the Company's business, financial
condition, and operations.
SIGNATURES
- --------------------------------------------------------------------------------
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.
BANKFIRST CORPORATION
May 12, 2000 /s/ C. David Allen
-------------------------------------
C. David Allen
Chief Financial Officer and Secretary
BankFirst Corporation | 16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 33,018
<INT-BEARING-DEPOSITS> 1,038
<FED-FUNDS-SOLD> 2,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 147,813
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 593,559
<ALLOWANCE> 7,593
<TOTAL-ASSETS> 840,459
<DEPOSITS> 668,356
<SHORT-TERM> 28,067
<LIABILITIES-OTHER> 9,226
<LONG-TERM> 0
0
905
<COMMON> 27,904
<OTHER-SE> 58,774
<TOTAL-LIABILITIES-AND-EQUITY> 840,459
<INTEREST-LOAN> 13,580
<INTEREST-INVEST> 2,095
<INTEREST-OTHER> 94
<INTEREST-TOTAL> 15,769
<INTEREST-DEPOSIT> 6,120
<INTEREST-EXPENSE> 7,210
<INTEREST-INCOME-NET> 8,559
<LOAN-LOSSES> 573
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,107
<INCOME-PRETAX> 3,311
<INCOME-PRE-EXTRAORDINARY> 3,311
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,235
<EPS-BASIC> .20
<EPS-DILUTED> .19
<YIELD-ACTUAL> 8.55
<LOANS-NON> 3,946
<LOANS-PAST> 2,800
<LOANS-TROUBLED> 402
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,400
<CHARGE-OFFS> 440
<RECOVERIES> 61
<ALLOWANCE-CLOSE> 7,593
<ALLOWANCE-DOMESTIC> 7,593
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,092
</TABLE>
