<PAGE> 1
================================================================================
As filed with the Securities and Exchange Commission on June 24, 1996
Registration No. ____-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
BANCFIRST OHIO CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------
OHIO 31-1294136
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
----------
422 MAIN STREET
ZANESVILLE, OHIO 43701
(614) 452-8444
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------
JAMES H. NICHOLSON, SECRETARY
422 MAIN STREET
ZANESVILLE, OHIO 43701
(614) 452-8444
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------
WITH COPIES TO:
John R. Thomas Terri R. Abare
Emens, Kegler, Brown, Hill & Ritter Vorys, Sater, Seymour and Pease
Co., L.P.A. Atrium 2, Suite 2100
65 East State Street, Suite 1800 221 East Fourth Street
Columbus, Ohio 43215 Cincinnati, OH 43202-410
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Share Aggregate Offering Amount of
Registered Registered(1) Price(2) Registration Fee
===================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value, 1,035,000 $30.50 $31,567,500 $10,886
$10.00 per share
</TABLE>
(1) Includes 135,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any. See
"Underwriting."
(2) Estimated, pursuant to Rule 457(a) and (c), solely for the purpose of
calculating the registration fee based on the last sale reported on
Nasdaq National Market on June 19, 1996 of $30.50.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION
DATED JUNE 24, 1996
900,000 SHARES
BANCFIRST OHIO CORP.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
BancFirst Ohio Corp., an Ohio corporation (the "Company"). The Company's Common
Stock is quoted on the Nasdaq National Market under the symbol "BFOH." On June
21, 1996, the closing price for the Company Common Stock as reported on the
Nasdaq National Market was $31.50 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OF COMMON STOCK OFFERED HEREBY.
----------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
(THE "FDIC") OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public Underwriting Discount(1) Proceeds to Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $300,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to an additional 135,000 shares of Common Stock on the same terms and
conditions as set forth above to cover over-allotments. If such option
is exercised in full, the total Price to Public, Underwriting Discount
and Proceeds to Company will be $__________, $___________ and
$______________, respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters
named herein, subject to receipt and acceptance by them, and subject to their
right to reject any order in whole or in part and to withdraw, cancel or modify
the offer without notice. It is expected that certificates for the shares of
Common Stock will be available for delivery on or about ____________, 1996.
MCDONALD & COMPANY
SECURITIES, INC.
The date of this Prospectus is _____________, 1996.
<PAGE> 4
[ M A P ]
[MAP OF THE STATE OF OHIO SHOWING EXISTING BANKING
LOCATIONS OF BANCFIRST OHIO CORP. AND COUNTY SAVINGS BANK.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN OF THE UNDERWRITERS MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated in this Prospectus, all information assumes no
exercise of the Underwriters' over-allotment option.
THE COMPANY
BancFirst Ohio Corp. (the "Company"), a registered bank holding company
organized under the laws of the State of Ohio, conducts a full-service
commercial and retail banking business through two wholly-owned subsidiary
banks, The First National Bank of Zanesville ("FNB") and Bellbrook Community
Bank ("Bellbrook") (collectively the "Bank Subsidiaries"). At March 31, 1996,
the Company had total assets of $481.5 million, total deposits of $356.2 million
and shareholders' equity of $50.2 million. The Company has entered into a Stock
Purchase Agreement to acquire all of the outstanding capital stock of County
Savings Bank ("County") for an aggregate purchase price of $47.8 million,
subject to certain adjustments, including payments for certain non-competition
agreements (the "Acquisition"). On a pro forma basis, at March 31, 1996, the
Company would have had total assets of $958.6 million, total deposits of $721.2
million and shareholders' equity of $76.4 million.
The Company is headquartered in Zanesville, Ohio, the county seat of
Muskingum County. Through the Bank Subsidiaries, the Company operates fourteen
full-service banking facilities which serve Muskingum, Licking, Franklin and
Greene Counties, Ohio. The Company's primary market extends along Interstate 70
in central Ohio and includes the markets of Zanesville, Newark, Columbus, and
Dayton. The Company focuses on providing personalized, high quality and
comprehensive service in order to develop and maintain long-term relationships
with customers. The Bank Subsidiaries offer a wide range of banking services,
including commercial loans, residential and commercial real estate loans,
consumer loans, personal and business checking accounts, savings accounts,
demand and time deposits, safe deposit services, trust, private banking and
investment services. FNB was founded in 1863. As of June 30, 1995, FNB had 39.3%
of all federally insured deposits in Muskingum County, which represented the
leading market share.
The Company has a history of consistent profitability, most recently
returning 1.52% on average assets for the three month period ended March 31,
1996. This compares to 1.26% for the same period in 1995 and 1.38%, 1.48%, 1.51%
for the years ended December 31, 1995, 1994 and 1993, respectively. Annual
returns on average equity since 1993 have ranged from 13.05% to 13.28%. For the
three months ended March 31, 1996, the Company's return on average equity was
14.93%.
The Company believes its success in recent years is in part
attributable to a growth strategy that it began implementing in 1992. At
December 31, 1991, the Company had nine branch offices with assets of $298.2
million (as originally reported), an equity to assets ratio of 11.82% (as
originally reported), and operations heavily concentrated in Muskingum County.
Management believed that increased size would allow the Company to (i) take
advantage of increased operating efficiencies associated with the attendant
economies of scale; (ii) achieve greater diversification of its markets and
products; (iii) enhance shareholder value by more effectively leveraging its
equity capital; and (iv) more effectively position itself to take advantage of
acquisition opportunities in the rapidly changing financial services industry.
Given the Company's dominant share in its primary market area, management
recognized that the desired growth would have to come primarily from expansion
into new markets.
In recognition of these factors, management undertook a growth strategy
which emphasized (i) acquiring existing branch locations from competing
institutions as well as de novo branching; (ii) increasing lending to small
businesses through the formation of small business lending centers outside
Muskingum County; (iii) acquiring bank and thrift holding companies; (iv)
expanding trust, private banking and investment services; (v) offering
responsive decision making and personalized customer service; and (vi) improving
technology to enhance services and manage the cost of operations.
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<PAGE> 6
Management believes it has been successful in implementing its
strategy. In 1992, FNB acquired a $30.6 million branch of a savings and loan
association in Dresden, Ohio. Also in 1992, FNB opened the first of four small
business financial centers which serve small businesses and specialize in loans
guaranteed by the U.S. Department of Commerce, Small Business Administration
("SBA"). During 1995, FNB was the largest originator of SBA 7(a) loans in Ohio
and was awarded the designation of Preferred Lender by the SBA. Currently, FNB
has small business financial centers located in Akron, Cleveland, Columbus, and
Dayton (expected to open in July 1996), Ohio. In 1994, FNB opened two de novo
full-service branch offices in Licking County, Ohio. The Company's 1995
acquisition of Bellbrook provided access to the Dayton metropolitan market. In
March 1996, FNB filed a branch application to open its first supermarket office
in Reynoldsburg, Ohio. The Company's strategic direction has culminated in over
$183 million of asset growth since December 31, 1991, an increase of 61.5%. This
rate of growth has been accomplished without sacrifice to earnings as the
Company's return on average assets and return on average equity have exceeded
1.38% and 12.9%, respectively, over the past four and a half years.
THE ACQUISITION
The Company has entered into a Stock Purchase Agreement dated March 27,
1996 (the "Purchase Agreement") with First Financial Group, Inc., the sole
shareholder of County ("FFG"), pursuant to which the Company will acquire all of
the outstanding capital stock of County for an aggregate purchase price of $47.8
million, subject to certain adjustments. The purchase price includes an
aggregate of $3.0 million to be paid to certain shareholders of FFG pursuant to
non-competition agreements entered into with the Company. The Company expects to
fund the purchase price with the proceeds from this offering (the "Offering"),
proceeds from a $15.0 million loan from a financial institution and from
existing cash. See "Use of Proceeds." As a result of the Acquisition, the
Company's consolidated assets are expected to nearly double, from approximately
$481.5 million as of March 31, 1996 to approximately $958.6 million upon
consummation of the Acquisition on a pro forma basis. See "Pending Acquisition."
County is a state-chartered savings and loan association headquartered
in Columbus, Ohio, and is a wholly-owned subsidiary of FFG. As of March 31,
1996, County had assets of $468.4 million, total deposits of $364.7 million and
shareholder's equity of $34.4 million.
County is a community-oriented savings institution that conducts its
operations through 10 full-service offices, six of which are located in Licking
County and four of which are located in Franklin County, Ohio. At March 31,
1996, approximately $188.2 million, or 51.6% of County's total deposits, were
located in Licking County. As of June 30, 1995, County had 14.1% of federally
insured deposits in Licking County, which was the second largest market share.
Columbus, which is the largest city in Ohio and the state capital, is the county
seat of Franklin County. At March 31, 1996, approximately $176.5 million, or
48.4% of County's total deposits, were located in Franklin County. As of June
30, 1995, County had 1.0% of federally insured deposits in Franklin County,
which was the tenth largest market share. Although all of central Ohio has
experienced notable economic growth over the past twenty years, eastern Franklin
County and western Licking County have recently experienced a significant
increase in housing construction and new business activity.
The Acquisition will expand the Company's presence in Licking County as
well as provide further penetration of the Franklin County banking market. The
Company's management believes it can achieve revenue enhancements, operating
efficiencies and additional growth opportunities as a result of the Acquisition.
Revenue enhancements are anticipated from, among other things, the expansion of
the Company's small business lending, trust, private banking, and automated
teller machine ("ATM") services through County's Franklin County branch network.
Additionally, the Company's management anticipates that County's active
participation in multi-family residential lending and secondary mortgage
activities will support increased loan originations in the Company's current
markets. Operating efficiencies are anticipated from the integration of the
operations of County into the Company's holding company structure. This will
involve, but is not limited to, the consolidation of County's data processing,
human resources, marketing, investment management, accounting and internal audit
functions with those of the Company. Furthermore, the consolidation of FNB's
residential mortgage loan operations with those of
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<PAGE> 7
County will provide additional post-acquisition synergies. The Company also
believes that additional growth opportunities may result from the Company's
increased presence in a larger market for financial services.
Consummation of the Acquisition is subject to various conditions,
including obtaining requisite and satisfactory regulatory approvals and the
receipt of certain opinions and certificates. County and the Company are in
compliance with all conditions and other requirements required to have been
satisfied prior to the date hereof. None of the shares of the Company's Common
Stock offered hereby will be sold unless the Company and McDonald & Company
Securities, Inc., as representative of the Underwriters (the "Representative"),
determine that all of the material conditions precedent to the consummation of
the Acquisition have been or will be fulfilled, or waived to the satisfaction of
the Representative, concurrently with the sale of the shares of the Company's
Common Stock offered hereby. Completion of the Acquisition is conditioned upon
receipt of all necessary regulatory approvals, consummation of the Offering and
receipt of the Loan proceeds. It is expected that the Acquisition will be
consummated simultaneously with the closing of this Offering. See "Pending
Acquisition" and "Underwriting."
THE OFFERING
Common Stock offered by the Company.. 900,000 shares
Common Stock to be outstanding
after the Offering................ 3,873,813 shares(1)
Use of Proceeds...................... To apply toward the purchase price
payable by the Company upon consummation
of the Acquisition.
Risk Factors......................... Investment in the Common Stock involves
risk. Potential investors should
carefully review the "Risk Factors"
section of this Prospectus.
Nasdaq National Market symbol........ BFOH
- -----------
(1) 4,008,813 shares assuming exercise of the Underwriters' over-allotment
option.
5
<PAGE> 8
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA OF
THE COMPANY
The following summary condensed consolidated historical financial and
operating data should be read in conjunction with the consolidated financial
statements of the Company, including the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company," which appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
-------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income .................. $ 9,141 $ 7,849 $ 34,063 $ 27,652 $ 24,863 $ 25,087 $ 25,927
Interest expense ................. 4,408 3,638 16,357 11,259 9,321 10,310 13,576
-------- -------- -------- -------- -------- -------- --------
Net interest income .............. 4,733 4,211 17,706 16,393 15,542 14,777 12,351
Provision for possible loan
losses ........................ 292 201 967 338 799 1,044 849
Non-interest income .............. 1,564 1,114 4,984 3,801 3,569 2,873 2,197
Non-interest expense ............. 3,387 3,209 12,805 11,410 10,568 9,702 8,620
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ....... 2,618 1,915 8,918 8,446 7,744 6,904 5,079
Provision for federal
income tax .................... 763 582 2,706 2,572 2,323 1,986 1,341
-------- -------- -------- -------- -------- -------- --------
Net income ....................... $ 1,855 $ 1,333 $ 6,212 $ 5,874 $ 5,421 $ 4,918 $ 3,738
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA: (1)
Net income ....................... $ 0.62 $ 0.45 $ 2.09 $ 1.98 $ 1.82 $ 1.65 $ 1.25
Dividends ........................ 0.25 0.23 0.94 0.89 0.82 0.73 0.73
Book value ....................... 16.89 15.51 16.82 14.76 14.23 13.19 12.25
Tangible book value .............. 16.86 15.48 16.80 14.72 14.17 13.12 12.20
BALANCE SHEET DATA:
Total assets ..................... $481,490 $434,233 $476,429 $429,384 $387,202 $355,923 $317,385
Loans ............................ 277,715 254,735 268,818 247,943 212,083 183,334 156,807
Allowance for possible
loan losses ................... 3,406 3,199 3,307 3,095 3,007 2,384 1,731
Securities ....................... 178,195 156,351 178,252 153,595 148,724 147,916 137,242
Deposits ......................... 356,236 328,516 348,545 320,836 310,586 310,118 276,232
Borrowings ....................... 71,531 57,839 74,135 63,525 32,986 4,900 3,000
Shareholders' equity ............. 50,205 46,090 50,010 43,844 42,295 39,350 36,569
PERFORMANCE RATIOS:(2)
Return on average assets ......... 1.52% 1.26% 1.38% 1.48% 1.51% 1.47% 1.20%
Return on average
equity ........................ 14.93 13.11 13.05 13.28 13.19 12.85 10.41
Net interest margin .............. 4.28 4.31 4.27 4.49 4.78 4.88 4.41
Interest rate spread ............. 3.97 4.09 3.55 3.89 4.22 4.26 3.53
Non-interest income to
average assets ................ 1.30 1.05 1.11 0.95 0.99 0.83 0.68
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Non-interest expense to
average assets ................ 2.83 3.03 2.84 2.87 2.94 2.81 2.65
Efficiency ratio(3) .............. 53.69 60.11 56.63 56.10 56.09 55.08 59.11
ASSET QUALITY RATIOS:
Non-performing loans to
total loans ................... 0.48% 0.22% 0.38% 0.21% 0.19% 0.46% 0.70%
Non-performing assets to
total assets .................. 0.28 0.13 0.22 0.12 0.11 0.24 0.34
Allowance for possible loan
losses to total loans ......... 1.23 1.26 1.23 1.25 1.42 1.30 1.10
Allowance for possible loan
losses to non-performing ...... 254.4 575.4 323.0 608.1 731.6 284.8 158.7
loans
Net charge-offs to
average loans (2) ............. 0.28 0.16 0.29 0.11 0.09 0.23 0.27
CAPITAL RATIOS(4)(5):
Shareholders' equity to total
assets ........................ 10.43% 10.61% 10.50% 10.21% 10.92% 11.06% 11.52%
Tier 1 capital to total assets ... 10.41 10.59 10.49 10.18 10.89 11.01 11.52
Tier 1 capital to risk-weighted .. 16.96 19.01 17.70 20.32 20.90 19.90 21.70
assets
</TABLE>
- --------------
(1) Per share data has been restated to reflect all stock dividends and
stock splits.
(2) Ratios for the three months ended March 31, 1996 and 1995 are stated on
an annualized basis.
(3) The efficiency ratio is equal to non-interest expense less amortization
of intangible assets divided by net interest income plus non-interest
income less gains or losses on securities transactions.
(4) For definitions and further information relating to the Company's
regulatory capital requirements see "Supervision and Regulation."
(5) Ratios are calculated based on period-end balances.
7
<PAGE> 10
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND
OPERATING DATA OF COUNTY
The following summary condensed consolidated historical financial and
operating data should be read in conjunction with the consolidated financial
statements of County, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of County," which
appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
-------------------- ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income ....................... $ 9,596 $ 8,395 $ 36,853 $ 29,707 $ 28,509 $ 32,791 $ 44,338
Interest expense ...................... 6,050 5,105 23,446 18,141 18,290 23,836 33,572
-------- -------- -------- -------- -------- -------- --------
Net interest income ................... 3,546 3,290 13,407 11,566 10,219 8,955 10,766
Provision for possible loan losses .... 125 93 250 500 326 0 30
Non-interest income ................... 515 339 1,670 2,165 4,695 3,796 2,828
Non-interest expense .................. 2,460 2,393 9,831 10,398 11,279 10,968 9,359
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ............ 1,476 1,143 4,996 2,833 3,309 1,783 4,205
Provision for income tax
(benefit)(1) ........................ 491 258 984 (791) 288 (1,725) 913
-------- -------- -------- -------- -------- -------- --------
Net income ............................ $ 985 $ 885 $ 4,012 $ 3,624 $ 3,021 $ 3,508 $ 3,292
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets .......................... $468,373 $435,444 $520,480 $424,735 $401,590 $391,451 $419,785
Loans ................................. 348,734 284,731 364,211 267,610 271,313 293,488 339,691
Allowance for loan losses ............. 2,093 2,291 2,022 2,326 3,007 3,997 6,896
Securities ............................ 111,827 137,744 145,286 137,411 106,470 65,430 39,270
Deposits .............................. 364,707 321,913 362,798 317,354 330,895 301,660 324,012
Borrowings ............................ 66,040 80,204 119,935 74,829 40,000 62,250 72,250
Shareholder's equity .................. 34,433 30,904 33,952 29,746 27,579 24,583 21,075
PERFORMANCE RATIOS:(2)
Return on average assets ............. 0.79% 0.81% 0.84% 0.79% 0.71% 0.84% 0.70%
Return on average equity .............. 11.57 11.84 12.60 12.81 11.66 15.45 17.14
Net interest margin ................... 2.90 3.13 2.89 2.82 2.82 2.44 2.45
Interest rate spread .................. 2.58 2.90 2.61 2.69 2.73 2.53 2.61
Non-interest income to average
assets .............................. 0.41 0.31 0.35 0.47 1.10 0.91 0.60
Non-interest expense to average
assets .............................. 1.97 2.20 2.07 2.27 2.64 2.64 1.99
Efficiency ratio(3) ................... 64.26 66.69 65.91 74.00 85.12 93.61 72.03
ASSET QUALITY RATIOS:
Non-performing loans to total loans ... 0.06% 0.12% 0.02% 0.33% 2.11% 5.00% 5.89%
Non-performing assets to total
assets .............................. 0.20 0.29 0.16 0.81 2.36 7.20 9.33
Allowance for loan losses to total
loans ............................... 0.60 0.80 0.56 0.87 1.11 1.36 2.03
Allowance for loan losses to
non-performing loans ................ 938.5 662.1 2,246.7 261.9 52.4 27.3 34.5
Net charge-offs to average loans(2) .. 0.10 0.00 0.03 0.45 0.38 0.31 0.04
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
-------------------- ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL RATIOS:(4)(5)
Shareholder's equity to total assets .. 7.35% 7.10% 6.52% 7.00% 6.87% 6.28% 5.02%
Tangible capital to adjusted total
assets .............................. 7.33 7.12 6.44 7.09 6.68 6.11 5.03
Core capital to adjusted total
assets .............................. 7.33 7.12 6.44 7.09 6.68 6.11 5.03
Risk-based capital to risk-weighted
assets .............................. 12.47 12.36 11.56 12.10 10.45 9.10 7.32
</TABLE>
- -----------------
(1) Includes benefit of $1,967 in 1992 related to cumulative effect of
change in accounting for deferred income taxes.
(2) Ratios for the three months ended March 31, 1996 and 1995 are stated on
an annualized basis.
(3) The efficiency ratio is equal to non-interest expense less amortization
of intangible assets divided by net interest income plus non-interest
income less gains or losses on securities transactions.
(4) For definitions and further information relating to County's regulatory
capital requirements see "Supervision and Regulation."
(5) Ratios are calculated based on period-end balances.
9
<PAGE> 12
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND
OPERATING DATA OF THE COMPANY
The following table presents certain unaudited pro forma condensed
consolidated financial and operating data of the Company giving effect to the
Acquisition as if it had occurred as of the beginning of the earliest period
indicated herein and after giving effect to the pro forma adjustments described
in the notes to the Unaudited Pro Forma Consolidated Financial Statements of the
Company. The Acquisition will be accounted for as a purchase, and the County
assets acquired and liabilities assumed will be recorded at their estimated fair
values, with the excess of the purchase price over the net fair value recorded
as goodwill. This information should be read in conjunction with (i) the pro
forma financial information, including the notes thereto, which appear elsewhere
in this Prospectus, and (ii) the historical consolidated financial statements of
the Company and County, including the respective notes thereto, which appear
elsewhere in this Prospectus. See "Unaudited Pro Forma Consolidated Financial
Statements," and "Consolidated Financial Statements--BancFirst Ohio Corp." and
"-- County Savings Bank." The pro forma financial data do not give effect to any
revenue enhancements or operating efficiencies that the Company's management
believes may occur as a result of the Acquisition. See "Pending Acquisition" for
a discussion of the purchase price adjustments. The pro forma adjustments
reflect (a) the aggregate amount of cash to be paid to FFG and certain of its
shareholders by the Company as a result of the Acquisition, and (b) the
consummation of the Offering, assuming an offering price per share of $31.50.
The pro forma financial data are not necessarily indicative of the results that
actually would have occurred had the Acquisition been consummated on the dates
indicated or that may occur in the future.
<TABLE>
<CAPTION>
At or for the Three At or for the
Months Ended Year Ended
March 31, 1996 December 31, 1995
------------------- -----------------
(Dollars in thousands, except per share data)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Interest income ..................................... $ 18,598 $ 70,362
Interest expense .................................... 10,680 40,696
-------- --------
Net interest income ............................... 7,918 29,666
Provision for possible loan losses .................. 417 1,217
Non-interest income ................................. 2,079 6,654
Non-interest expense ................................ 6,154 23,997
-------- --------
Income before income taxes .......................... 3,426 11,106
Provision for federal income tax .................... 1,076 2,976
-------- --------
Net income ........................................ $ 2,350 $ 8,130
======== ========
PER SHARE DATA:
Net income .......................................... $ 0.61 $ 2.10
Dividends ........................................... 0.25 0.94
Book value .......................................... 19.73 N/A
Tangible book value ................................. 16.41 N/A
PERFORMANCE RATIOS:(1)
Return on average assets ............................ 0.94% 0.87%
Return on average equity ............................ 12.39 11.39
Net interest margin ................................. 3.40 3.37
Interest rate spread ................................ 2.74 2.92
Non-interest income to average assets ............... 0.83 0.71
Non-interest expense to average assets .............. 2.47 2.57
Efficiency ratio(2) ................................. 62.27 66.61
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, 1996
-------------------
(Dollars in thousands)
<S> <C>
BALANCE SHEET DATA:
Total assets ........................................ $958,602
Loans ............................................... 629,859
Allowance for possible loan losses .................. 5,499
Securities .......................................... 228,998
Deposits ............................................ 721,235
Borrowings ......................................... 152,562
Shareholders' equity ................................ 76,412
ASSET QUALITY RATIOS:
Non-performing loans to total loans ................. 0.25%
Non-performing assets to total assets ............... 0.23
Allowance for possible loan losses to total loans.... 0.87
Allowance for possible loan losses to
non-performing loans ............................. 352.05
Net charge-offs to average loans(1) ................. 0.31
CAPITAL RATIOS:(3)(4)
Shareholders' equity to total assets ................ 7.97%
Tier 1 capital to total assets ...................... 6.62
Tier 1 capital to risk-weighted assets .............. 10.96
</TABLE>
- ---------------
(1) Ratios for the three months ended March 31, 1996 are stated on an
annualized basis.
(2) The efficiency ratio is equal to non-interest expense less amortization
of intangible assets divided by net interest income plus non-interest
income less gains or losses on securities transactions.
(3) For definitions and further information relating to the Company's and
County's regulatory capital requirements see "Supervision and
Regulation."
(4) Ratios are calculated based on period-end balances.
11
<PAGE> 14
RISK FACTORS
An investment in the securities offered pursuant to this Prospectus may
involve a high degree of risk. The several risk factors discussed below, along
with general investment risks and the other matters discussed in this
Prospectus, should be considered in making an investment decision and in
evaluating the Company's Common Stock.
NO ASSURANCE OF SUCCESSFUL ACQUISITION. The Acquisition is expected to
increase the Company's consolidated assets by approximately 99.1% to $958.6
million, based on pro forma financial information at March 31, 1996. The
Acquisition is subject to certain risks that could adversely affect the
Company's financial condition and profitability. These risks may include, among
others, incorrectly assessing County's future earnings potential or encountering
difficulty in integrating County's operations into the Company's holding company
structure. The Company's acquisitions to date have been limited to the
acquisition of a $30.6 million branch and the acquisition of Bellbrook, which
had $23.6 million of assets. There can be no assurance that the Company will be
able to successfully integrate County into its holding company structure.
GROWTH STRATEGY. The Company has pursued and will continue to pursue a
strategy of growth. The success of the Company's growth strategy will depend
largely upon its ability to manage its credit risk and control its costs while
providing competitive products and services. This growth strategy may present
special risks, such as the risk that the Company will not efficiently handle
growth with its present operations, the risk of dilution of book value and
earnings per share as a result of an acquisition, the risk that earnings will be
adversely affected by the start-up costs associated with establishing new
products and services, the risk that the Company will not be able to attract and
retain qualified personnel needed for expanded operations, and the risk that its
internal monitoring and control systems may prove inadequate. On a pro forma
basis at March 31, 1996, the Acquisition would have reduced the Company's Tier 1
capital to total assets from 10.41% to 6.62%. Consequently, the Company's
ability to complete acquisitions for consideration other than stock will be
limited in the near future.
RISK OF CHANGES IN THE SBA PROGRAM. The Company's strategic plan
includes an emphasis on continued growth of its SBA lending program. Loans
generated through this program contain portions (typically 75%) which are
government guaranteed. These guaranteed portions have been sold on the secondary
market at gains. The non-interest income from this area is a growing source of
revenue and continues to play a larger role in the earnings of the Company. For
the quarter ended March 31, 1996, non-interest income from the sale of these
loans was $596,000 compared to $1.3 million, $668,000, and $416,000 for the
years ended 1995, 1994 and 1993, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company."
Future non-interest income from these activities depends on the Company's
ability to generate and sell loans under the SBA lending program. The SBA
lending program is a federal government program, instituted through legislation.
Uncertainties exist surrounding government programs, including the SBA, due to
scrutiny by the Congress. There can be no assurance that the SBA lending program
will continue in its present manner. Changes in the SBA program and/or increased
competition for such loans can have an adverse affect on the Company's
profitability, and require changes in the Company's SBA lending strategy.
Furthermore, secondary market gains are difficult to forecast and the impact of
such gains will affect the predictability of the Company's net income.
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS. The Company's
operating results may be materially and adversely affected by factors beyond its
control, such as changes in prevailing national and local economic conditions,
including declines in real estate market values, rapid changes in interest rates
and the monetary and fiscal policies of the Federal government. See "Supervision
and Regulation." The Company's profitability is significantly affected by the
difference between the interest rates earned on loans, securities and other
assets and the interest rates paid on deposits and other interest-bearing
liabilities. Like most banking institutions, the Company's net interest margin
will continue to be affected by general economic conditions and other factors
that influence market interest rates and the Company's ability to respond to
changes in such rates. An increase or decrease in rates could have a positive or
negative effect on the Company's net income, capital and
12
<PAGE> 15
liquidity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of County."
The Acquisition will be accounted for using the purchase method of
accounting. Under the purchase method of accounting, all of the assets and
liabilities of County acquired by the Company will be adjusted to their
estimated fair values as of the acquisition date, and the resultant discounts
and premiums will be accreted into or amortized against income over the expected
economic lives of the related assets and liabilities. Additionally, the Company
expects to record a core deposit intangible asset of approximately $3.4 million,
to be amortized over its estimated life of 15 years on an accelerated basis and
an asset of approximately $3.0 million for non-competition agreements to be
amortized over their five year lives. It is expected that the purchase price for
County will exceed the net fair value of the assets acquired and the liabilities
assumed in the Acquisition. The difference will be recorded as goodwill on the
Company's consolidated financial statements and will be amortized over 25 years
using the straight-line method.
Significant increases in market interest rates prior to the
consummation of the Acquisition would result in declines in the fair value of
County's held-to-maturity portfolio of investment securities and loan portfolio.
Such a decline in fair value would result in a corresponding increase in the
amount of goodwill recorded on the Company's consolidated financial statements
as a result of the Acquisition and a lower tangible book value of the
consolidated entity.
PROPOSED LEGISLATION. Various bills have been introduced in Congress
that, if adopted, would result in, among other things, the merger of the Savings
Association Insurance Fund (the "SAIF") of the FDIC into the Bank Insurance Fund
(the "BIF") of the FDIC and a one-time charge assessed against financial
institutions with SAIF deposits equal to approximately 0.85% to 0.90% of their
deposits subject to the SAIF assessments. At March 31, 1996, County had
approximately $364.7 million of deposits insured by the SAIF and the Company had
approximately $34.7 million of previously acquired thrift deposits that are
subject to SAIF assessments. Consequently, the imposition of such a one-time
charge would have a material adverse impact during the period incurred on the
profitability of the Company, unless such charge is imposed within one year of
closing of the Acquisition, in which case it would be accounted for as a
purchase price adjustment and would increase the amount of goodwill recorded on
the Company's consolidated financial statements as a result of the Acquisition.
See "Supervision and Regulation -- Recent Developments." Based upon the 0.90%
estimated assessment and deposits at March 31, 1996, the Company's pro forma
one-time charge would be $3.6 million before taxes.
ALLOWANCE FOR LOAN LOSSES. The inability of borrowers to repay loans
can erode earnings and capital of the Company. The Company maintains an
allowance for possible loan losses to provide for loan defaults and
nonperformance. The allowance is based on the Company's prior experience with
loan losses as well as an evaluation of the risks in the Company's current
portfolio, including current and anticipated economic conditions, and is
maintained at a level considered adequate by management to absorb anticipated
losses. See "Business of the Company -- Lending Practices" and "Business of
County -- Lending Practices." The amount of any future losses is susceptible to
changes in economic, operating and other conditions, including changes in
interest rates, that may be beyond the control of the Company. A significant
amount of the Company's existing loans are to businesses and individuals
located in its primary market areas and any periodic fluctuations in the
economic conditions of those areas could have a materially adverse impact on the
Company. There can be no assurance that the Company's allowance for possible
loan losses will be adequate to cover actual losses. Future additions to the
Company's allowance for possible loan losses could result in a material decrease
in the Company's net income.
HOLDING COMPANY STRUCTURE; GOVERNMENT REGULATION AND POLICIES. The
Company is a bank holding company, the profitability of which is dependent on
the profitability of its Bank Subsidiaries and the upstream payment of dividends
from the Bank Subsidiaries to the Company. Under state and federal banking law,
the payment of dividends by the Company and the Bank Subsidiaries is subject to
capital adequacy requirements. The inability of the Bank Subsidiaries to
generate profits and pay such dividends to the Company, or regulatory
restrictions on the payment of such dividends to the Company even if earned,
would have an adverse effect on the
13
<PAGE> 16
financial condition and results of operations of the Company. See "Price Range
of Common Stock and Dividends" and "Supervision and Regulation."
As a bank holding company, the Company is subject to regulation,
examination and supervision by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). FNB is a national bank and Bellbrook is an
Ohio-chartered, federally insured bank. FNB is subject to regulation,
examination and supervision by the Office of the Comptroller of the Currency
(the "OCC"). Bellbrook is subject to regulation by the Ohio Division of
Financial Institutions and by the FDIC. These regulations are primarily intended
to protect depositors and may impose limitations on the Company which may not be
in the best interest of its shareholders.
County is subject to regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS"). Upon consummation of the Acquisition,
the Company will become a savings and loan holding company in addition to being
a bank holding company. Consequently, the Company must register with the OTS as
a savings and loan holding company within 90 days after the consummation of the
Acquisition. Thereafter, the Company will be subject to regulation, periodic
reporting requirements, and examination by the OTS and such OTS regulation will
be in addition to continuing regulation by the Federal Reserve Board. See
"Supervision and Regulation."
Regulations now affecting the Company, the Bank Subsidiaries and County
may be changed at any time, and the interpretation of those regulations by
examining authorities also is subject to change. Legislative proposals are made
from time to time which, if enacted, could adversely affect financial
institutions generally, including the Company. There can be no assurance that
future changes in the regulations or in the interpretation thereof will not
adversely affect the business of the Company, the Bank Subsidiaries or County.
Changes in the government's monetary, fiscal, housing finance or tax policies
may also adversely affect the business of the Company, the Bank Subsidiaries or
County. See "Supervision and Regulation."
COMPETITION. Depository institutions operate in a highly competitive
environment. The Company competes with other depository institution holding
companies and with commercial banks, savings institutions, credit unions,
finance companies, mortgage companies, mutual funds, and other financial
institutions, many of which have substantially greater financial resources than
the Company. Certain of these competitors offer products and services that are
not offered by the Company and certain competitors are not subject to the same
extensive laws and regulations as the Company. Recent and proposed regulatory
changes may further intensify competition in the Company's market area. See
"Supervision and Regulation - Recent Legislation" and " - Recent Developments."
ANTI-TAKEOVER PROVISIONS. Provisions of the Company's Articles of
Incorporation and Code of Regulations, as well as Ohio law, may have the effect
of delaying or preventing a change in control of the Company and may make more
difficult the removal of incumbent management even if such transactions could be
beneficial to the shareholders of the Company. See "Description of the Company's
Capital Stock."
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Company's Common Stock offered hereby are expected to be approximately $26.2
million ($30.2 million if the Underwriters' over-allotment option is exercised).
The net proceeds of the Offering will be used to pay a substantial part
of the purchase price payable by the Company on consummation of the Acquisition.
A portion of the purchase price will be obtained from borrowings under a loan
agreement to be entered into with LaSalle National Bank (the "Loan"). Pursuant
to the loan agreement, the Company may borrow up to $15.0 million in the form of
a seven-year term loan expiring September 1, 2003, with annual interest payable
at a floating rate equal to LaSalle National Bank's prime rate (8.25% at June
12, 1996) or the London Interbank Offered Rate ("LIBOR") plus 1.35%. The Company
will be required to make quarterly interest payments beginning 90 days from the
date of funding of the Loan. The Company will be required to make annual
principal payments beginning 18 months from funding, based upon a 10-year
amortization. The Company will pledge all of the outstanding shares of FNB as
security for the Loan. The loan agreement will contain financial covenants,
which are to be determined. In addition, the loan agreement will restrict
incurrence of new debt. There is no prepayment penalty associated with the
Loan. See "Pending Acquisition."
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company and
County (i) on a historical basis and (ii) on a pro forma basis as adjusted to
give effect to the Offering (assuming no exercise of the Underwriters'
over-allotment option and net proceeds of $26.2 million after deduction of all
estimated expenses of the Offering), borrowings of $15.0 million from the Loan
and the Acquisition. The information set forth below should be read in
conjunction with the historical consolidated financial statements of the Company
and County, including the notes thereto, which appear elsewhere in this
Prospectus, and in conjunction with the pro forma consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
See "Unaudited Pro Forma Consolidated Financial Information" and "Consolidated
Financial Statements -- BancFirst Ohio Corp." and "-- County Savings Bank."
<TABLE>
<CAPTION>
March 31, 1996
-----------------------------------
Company County Pro Forma
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Borrowings:
Short-term debt ........................... $ 4,900 $ 66,040 $ 70,931
Long-term debt ............................ 66,631 -- 81,631
--------- -------- ---------
Total borrowings ........................ 71,531 66,040 152,562
--------- -------- ---------
Shareholders' equity:
Common Stock of the Company, $10.00 par
value per share; 7,500,000 shares
authorized, 3,033,919 shares issued
at March 31, 1996 and 3,933,919
shares issued as adjusted ............... 30,340 600 39,340
Additional paid-in capital ................ 6,905 -- 24,112
Retained earnings ......................... 14,134 33,822 14,134
Treasury stock, 61,447 shares at cost ..... (1,155) -- (1,155)
Net unrealized gain (loss) on securities
available-for-sale ...................... (19) 11 (19)
--------- -------- ---------
Total shareholders' equity ................... 50,205 34,433 76,412
========= ======== =========
Total capitalization ......................... $ 121,736 $100,473 $ 228,974
========= ======== =========
</TABLE>
16
<PAGE> 19
PRICE RANGE OF THE COMPANY'S COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed for quotation on the Nasdaq
National Market under the symbol "BFOH." Although transactions in the Company's
Common Stock have been, and are expected to continue to be, facilitated by
market-makers, the average weekly trading volume during the year ended December
31, 1995 was approximately 5,856 shares. There can be no assurance that an
active or liquid trading market in the Company's Common Stock will develop or
continue.
The table below indicates the high and low sale prices, as reported by
the Nasdaq National Market, and the cash dividends declared per share, for the
Company's Common Stock during the periods indicated, in each case adjusted as if
the two-for-one stock split effected in the form of a stock dividend in May 1994
had occurred prior to such periods.
<TABLE>
<CAPTION>
Cash
Dividends
High Low Declared
------ ------ ---------
<S> <C> <C> <C>
1994:
First quarter ............................... $25.50 $22.50 $ 0.22
Second quarter .............................. 25.00 24.00 0.22
Third quarter ............................... 27.00 24.00 0.22
Fourth quarter .............................. 26.00 24.00 0.23
1995:
First quarter ............................... $26.00 $24.00 $ 0.23
Second quarter .............................. 27.00 24.00 0.23
Third quarter ............................... 28.00 26.00 0.23
Fourth quarter .............................. 31.00 26.50 0.25
1996:
First quarter ............................... $35.50 $29.50 $ 0.25
Second quarter (through June 20, 1996) ...... 36.50 30.50 $ 0.25
</TABLE>
On May 31, 1996, there were approximately 1,160 holders of record of
the Company's Common Stock.
The holders of the Company's Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors of the
Company out of funds legally available therefor. The Board of Directors of the
Company considers payment of dividends quarterly. The ability of the Company to
pay dividends is currently dependent upon its receipt of dividends from the Bank
Subsidiaries and, following consummation of the Acquisition, will be dependent
upon its receipt of dividends from the Bank Subsidiaries and County. The ability
of the Bank Subsidiaries and County to pay dividends is subject to regulatory
restrictions. See "Supervision and Regulation."
The Company has paid regular cash dividends on its Common Stock since
it commenced operations in 1990. The Company does not expect that the regulatory
restrictions applicable to the Company, the Bank Subsidiaries or County will
significantly affect the operations of the Company or impair the ability of the
Company to continue to pay dividends, and the Company currently expects to pay
dividends on its Common Stock after the Acquisition at the Company's current
rate. There can be no assurance, however, that any such dividends will be paid
by the Company or that such dividends will not be reduced or eliminated in the
future. The timing and amount of any dividends will depend upon the earnings,
capital requirements and financial conditions of the Company, the Bank
Subsidiaries and County, as well as the general economic conditions and other
relevant factors affecting those entities.
17
<PAGE> 20
PENDING ACQUISITION
The Company has entered into the Purchase Agreement dated March 27,
1996 with FFG, the sole shareholder of County, pursuant to which the Company
will acquire all of the outstanding capital stock of County for an aggregate
purchase price of $47.8 million, subject to certain adjustments. The purchase
price includes an aggregate of $3.0 million to be paid to certain shareholders
of FFG pursuant to non-competition agreements entered into with the Company. The
Company expects to fund the purchase price with the proceeds from this Offering,
from a $15.0 million Loan with a financial institution, and from existing cash.
As a result of the Acquisition, the Company's consolidated assets are expected
to nearly double, from approximately $481.5 million as of March 31, 1996 to
approximately $958.6 million on a pro forma basis upon consummation of the
Acquisition.
County is a state-chartered savings and loan association headquartered
in Columbus, Ohio, and is a wholly-owned subsidiary of FFG. As of March 31,
1996, County had assets of $468.4 million, total deposits of $364.7 million and
shareholder's equity of $34.4 million.
County is a community-oriented savings institution that conducts its
operations through 10 full-service offices, six of which are located in Licking
County and four of which are located in Franklin County, Ohio. At March 31,
1996, approximately $188.2 million, or 51.6% of County's total deposits, were
located in Licking County. As of June 30, 1995, County had 14.1% of federally
insured deposits in Licking County, which was the second largest market share.
Columbus, which is the largest city in Ohio and the state capital, is the county
seat of Franklin County. At March 31, 1996, approximately $176.5 million, or
48.4% of County's total deposits, were located in Franklin County. As of June
30, 1995, County had 1.0% of federally insured deposits in Franklin County,
which was the tenth largest market share. Although all of central Ohio has
experienced notable economic growth over the past twenty years, eastern Franklin
County and western Licking County have recently experienced a significant
increase in housing construction and new business activity.
The Acquisition will expand the Company's presence in Licking County as
well as provide further penetration of the Franklin County banking market. The
Company's management believes it can achieve revenue enhancements, operating
efficiencies and additional growth opportunities as a result of the Acquisition.
Revenue enhancements are anticipated from, among other things, the expansion of
the Company's small business lending, trust, private banking, and ATM services
through County's Franklin County branch network. Additionally, the Company's
management anticipates that County's active participation in multi-family
residential lending and secondary mortgage activities will support increased
loan originations in the Company's current markets. Operating efficiencies are
anticipated from the integration of the operations of County into the Company's
holding company structure. This will involve, but is not limited to, the
consolidation of County's data processing, human resources, marketing,
investment management, accounting and internal audit functions with those of the
Company. Furthermore, the consolidation of FNB's residential mortgage loan
operations with those of County will provide additional post-acquisition
synergies. The Company also believes that additional growth opportunities may
result from the Company's increased presence in a larger market for financial
services.
Consummation of the Acquisition is subject to various conditions,
including obtaining requisite and satisfactory regulatory approvals and the
receipt of certain opinions and certificates. County and the Company are in
compliance with all conditions and other requirements required to have been
satisfied prior to the date hereof. None of the shares of the Company's Common
Stock offered hereby will be sold unless the Company and the Representative
determine that all of the material conditions precedent to the consummation of
the Acquisition have been or will be fulfilled, or waived to the satisfaction of
the Representative, concurrently with or immediately following the sale of the
shares of the Company's Common Stock offered hereby. Completion of the
Acquisition is conditioned upon receipt of all necessary regulatory approvals,
consummation of the Offering and receipt of the Loan proceeds. It is expected
that the Acquisition will be consummated simultaneously with the closing of this
Offering. See "Underwriting."
18
<PAGE> 21
The Purchase Agreement provides that the purchase price is to be
adjusted dollar for dollar to the extent County's total shareholder's equity is
more or less than "Minimum Required Capitalization", as defined in the Purchase
Agreement, on the date of closing of the Acquisition. The Minimum Required
Capitalization is equal to $35.0 million less the amount of any special
assessment for the recapitalization of SAIF, net of tax benefits to FFG. In the
event County's total shareholder's equity is less than $30.0 million, the
Company has no obligation to complete the Acquisition. At March 31, 1996,
County's total shareholder's equity was $34.4 million.
The table below presents certain unaudited condensed and consolidated
historical financial and operating data for the Company and certain unaudited
pro forma condensed consolidated financial and operating data for the Company
after giving effect to (i) the Offering, (ii) the Acquisition as if it had
occurred as of March 31, 1996, except as noted, and (iii) the pro forma
adjustments described in the notes to the Unaudited Pro Forma Consolidated
Financial Statements of the Company which appear elsewhere in this Prospectus.
The amount of pro forma consolidated net income for the three month period ended
March 31, 1996 shown below does not reflect any revenue enhancements or cost
savings anticipated by management of the Company as a consequence of the
Acquisition.
<TABLE>
<CAPTION>
At or for the Three Months
Ended March 31, 1996
--------------------------
Actual Pro Forma
-------- ---------
(Dollars in thousands)
<S> <C> <C>
Loans................. $277,715 $629,859
Deposits.............. 356,236 721,235
Assets................ 481,490 958,602
Shareholders' equity.. 50,205 76,412
Net income............ 1,855 2,350(1)
</TABLE>
-----------
(1) Assuming the Acquisition occurred as of January 1, 1996.
As a condition to the Acquisition, the Company required certain of the
shareholders of FFG to enter into non-competition agreements. These agreements
provide that the shareholders agree not to compete with the Company for 60
months following the closing of the Acquisition within Licking or Muskingum
Counties. The total consideration paid by the Company to the shareholders
pursuant to these agreements is to be $3.0 million.
In connection with the indemnification of the Company by FFG under the
Purchase Agreement, certain of the FFG shareholders entered into an
indemnification agreement whereby the shareholders agreed, under certain
conditions, to indemnify the Company against damages arising out of the breach
of certain representations and warranties by FFG.
In anticipation of the Acquisition, the Company required that County
enter into employment agreements with Edward N. Cohn, Michael S. Kappas, Gary L.
McGlaughlin and Kim Taylor ("Officers") in order to assure continuity of
management of County during the change of control. The contracts provide for two
year terms as officers with provisions for salary for each at least equal to the
respective salaries at closing of the Acquisition, bonuses, as determined by the
Board of Directors, expenses and benefits. The Officers also are entitled to
benefits upon a subsequent change of control of County (other than the
Acquisition) or the Company. The contracts also provide for a two year covenant
not to compete.
19
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following selected financial data should be read in conjunction
with the financial statements of the Company and the notes thereto which appear
elsewhere in this Prospectus and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company" appearing
elsewhere in this Prospectus. The selected consolidated financial data of the
Company has been derived from the consolidated financial statements of the
Company which (other than as of and for the three-month periods ended March 31,
1996 and 1995) have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants. The consolidated financial statements of the
Company at December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995, together with Coopers & Lybrand
L.L.P.'s report thereon, appear elsewhere in this Prospectus. See "Consolidated
Financial Statements -- BancFirst Ohio Corp." The selected consolidated
financial data of the Company as of March 31, 1996 and for the three-month
period then ended is unaudited but reflects, in the opinion of management of the
Company, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three months
ended March 31, 1996 are not necessarily indicative of results that may be
expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
--------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income ................. $ 9,141 $ 7,849 $ 34,063 $ 27,652 $ 24,863 $ 25,087 $ 25,927
Interest expense ................ 4,408 3,638 16,357 11,259 9,321 10,310 13,576
-------- -------- -------- -------- -------- -------- --------
Net interest income ............. 4,733 4,211 17,706 16,393 15,542 14,777 12,351
Provision for possible loan
losses ...................... 292 201 967 338 799 1,044 849
Non-interest income ............. 1,564 1,114 4,984 3,801 3,569 2,873 2,197
Non-interest expense ............ 3,387 3,209 12,805 11,410 10,568 9,702 8,620
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ...... 2,618 1,915 8,918 8,446 7,744 6,904 5,079
Provision for federal income
tax ........................... 763 582 2,706 2,572 2,323 1,986 1,341
-------- -------- -------- -------- -------- -------- --------
Net income ...................... $ 1,855 $ 1,333 $ 6,212 $ 5,874 $ 5,421 $ 4,918 $ 3,738
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA: (1)
Net income ...................... $ 0.62 $ 0.45 $ 2.09 $ 1.98 $ 1.82 $ 1.65 $ 1.25
Dividends ....................... 0.25 0.23 0.94 0.89 0.82 0.73 0.73
Book value ...................... 16.89 15.51 16.82 14.76 14.23 13.19 12.25
Tangible book value ............. 16.86 15.48 16.80 14.72 14.17 13.12 12.20
BALANCE SHEET DATA:
Total assets .................... $481,490 $434,233 $476,429 $429,384 $387,202 $355,923 $317,385
Loans ........................... 277,715 254,735 268,818 247,943 212,083 183,334 156,807
Allowance for possible loan
losses ........................ 3,406 3,199 3,307 3,095 3,007 2,384 1,731
Securities ...................... 178,195 156,351 178,252 153,595 148,724 147,916 137,242
Deposits ........................ 356,236 328,516 348,545 320,836 310,586 310,118 276,232
Borrowings ...................... 71,531 57,839 74,135 63,525 32,986 4,900 3,000
Shareholders' equity ............ 50,205 46,090 50,010 43,844 42,295 39,350 36,569
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
--------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:(2)
Return on average assets ........ 1.52% 1.26% 1.38% 1.48% 1.51% 1.47% 1.20%
Return on average equity ........ 14.93 13.11 13.05 13.28 13.19 12.85 10.41
Net interest margin ............. 4.28 4.31 4.27 4.49 4.78 4.88 4.41
Interest rate spread ............ 3.97 4.09 3.55 3.89 4.22 4.26 3.53
Non-interest income to
average assets ............... 1.30 1.05 1.11 0.95 0.99 0.83 0.68
Non-interest expense to
average assets ............... 2.83 3.03 2.84 2.87 2.94 2.81 2.65
Efficiency ratio(3) ............. 53.69 60.11 56.63 56.10 56.09 55.08 59.11
ASSET QUALITY RATIOS:
Non-performing loans to
total loans .................. 0.48% 0.22% 0.38% 0.21% 0.19% 0.46% 0.70%
Non-performing assets to total
assets ....................... 0.28 0.13 0.22 0.12 0.11 0.24 0.34
Allowance for possible loan
losses to total loans ........ 1.23 1.26 1.23 1.25 1.42 1.30 1.10
Allowance for possible loan
losses to non-performing
loans ........................ 254.4 575.4 323.0 608.1 731.6 284.8 158.7
Net charge-offs to
average loans (2) ............ 0.28 0.16 0.29 0.11 0.09 0.23 0.27
CAPITAL RATIOS (4) (5):
Shareholders' equity to assets .. 10.43% 10.61% 10.50% 10.21% 10.92% 11.06% 11.52%
Tier 1 capital to total
assets ..................... 10.41 10.59 10.49 10.18 10.89 11.01 11.52
Tier 1 capital to risk-weighted
assets...................... 16.96 19.01 17.70 20.32 20.90 19.90 21.70
</TABLE>
- ---------------
(1) Per share data has been restated to reflect all stock dividends and
stock splits.
(2) Ratios for the three months ended March 31, 1996 and 1995 are stated on
an annualized basis.
(3) The efficiency ratio is equal to non-interest expense less amortization
of intangible assets divided by net interest income plus non-interest
income less gains or losses on securities transactions.
(4) For definitions and further information relating to the Company's
regulatory capital requirements see "Supervision and Regulation."
(5) Ratios are calculated based on period-end balances.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
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.
OVERVIEW
The reported results of the Company primarily reflect the operations of
the Bank 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.
On June 30, 1995, the Company acquired Bellbrook Bancorp, Inc. ("BBI")
in a transaction accounted for under the pooling-of-interests method of
accounting for business combinations. Accordingly, the Company's consolidated
financial statements have been restated for the periods prior to the transaction
to include BBI.
Average Balances and Yields. The following table presents, for each of
the periods indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
percentage rates, and the net interest margin. Net interest margin is calculated
on a fully tax equivalent basis ("FTE"), 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.
22
<PAGE> 25
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------
1996 1995
---------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Rate Balance Expenses Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Securities:
Taxable $149,413 $ 2,537 6.81% $133,701 $ 2,192 6.63%
Tax-exempt 27,572 487 7.08 20,239 404 8.07
-------- -------- -------- -------
Total securities 176,985 3,024 6.85 153,940 2,596 6.82
Loans (2):
Commercial 114,108 2,776 9.76% 106,977 2,497 9.47%
Real estate 109,023 2,163 7.96 102,066 1,980 7.87
Consumer 53,451 1,276 9.58 42,901 878 8.30
-------- -------- -------- -------
Total loans 276,582 6,215 9.01 251,944 5,355 8.62
Federal funds sold 6,918 88 5.10% 4,153 57 5.55%
-------- -------- -------- -------
Total earning assets(1) 460,485 9,327 8.15 410,037 8,008 7.90
-------- -------
Non-interest-bearing assets 20,400 20,119
-------- --------
$480,885 $430,156
======== ========
Interest-bearing deposits:
Demand deposits $105,140 $ 771 2.94% $106,003 $ 733 2.80%
Savings deposits 50,572 319 2.53 51,657 351 2.76
Time deposits 163,054 2,288 5.63 128,556 1,643 5.18
-------- -------- -------- -------
Total 318,766 3,378 4.25 286,216 2,727 3.86
Borrowings 69,279 1,030 5.96 60,517 911 6.11
-------- -------- -------- -------
Total interest-bearing liabilities 388,045 4,408 4.56 346,733 3,638 4.26
Non-interest bearing deposits 38,041 39,245
--------
Total interest-bearing liabilities and
non-interest bearing deposits 426,086 $ 4,408 4.15 385,978 $ 3,638 3.81
Accrued expenses and other 4,949 1,287
-------- --------
Total liabilities 431,035 387,265
Shareholders' equity 49,850 42,891
-------- --------
Total liabilities and
shareholders' equity $480,885 $430,156
======== ========
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993
-------------------------- --------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Rate Balance Expenses Rate Balance Expenses Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
Taxable $143,206 $ 9,631 6.73% $125,072 $ 7,846 6.27% $119,303 $ 7,767 6.51%
Tax-exempt 21,931 1,738 7.92 19.019 1,497 7.87 16,919 1,311 7.75
-------- ------- -------- ------- -------- --------
Total securities 165,137 11,369 6.88 144,091 9,343 6.48 136,222 9,078 6.66
Loans (2):
Commercial 108,189 10,836 10.02% 98,606 8,543 8.66% 85,715 7,438 8.68%
Real estate 104,978 8,319 7.92 99,476 7,495 7.53 87,725 6,411 7.31
Consumer 48,539 4,016 8.27 34,200 2,770 8.10 22,953 2,342 10.20
-------- ------- -------- ------- -------- --------
Total loans 261,706 23,171 8.85 232,282 18,808 8.10 196,393 16,191 8.24
Federal funds sold 3,510 193 5.50% 2,711 116 4.28% 5,263 161 3.06%
-------- ------- -------- ------- -------- --------
Total earning assets(1) 430,353 34,733 8.07 379,084 28,267 7.46 337,878 25,430 7.53
------- ------- --------
Non-interest-bearing assets 20,066 18,930 21,238
-------- -------- --------
$450,419 $398,014 $359,116
======== ======== ========
Interest-bearing deposits:
Demand deposits $104,994 $ 3,057 2.91% $114,471 $ 2,992 2.61% $117,053 $ 3,136 2.68%
Savings deposits 50,486 1,360 2.69 54,467 1,428 2.62 51,280 1,407 2.74
Time deposits 142,987 8,008 5.60 111,467 4,964 4.45 108,372 4,534 4.18
-------- ------- -------- ------- -------- --------
Total 298,467 12,425 4.16 280,405 9,384 3.35 276,705 9,077 3.28
Borrowings 63,488 3,932 6.19 35,532 1,875 5.28 5,520 244 4.42
-------- ------- -------- ------- -------- --------
Total interest-bearing liabilities 361,955 16,357 4.52 315,937 11,259 3.56 282,225 9,321 3.30
Non-interest bearing deposits 38,310 35,823 34,208
-------- -------- --------
Total interest-bearing liabilities and
non-interest bearing deposits 400,265 $16,357 4.09 351,760 $11,259 3.20 316,433 $ 9,321 2.95
Accrued expenses and other 2,555 2,017 1,584
-------- -------- --------
Total liabilities 402,820 353,777 318,017
Shareholders' equity 47,599 44,237 41,099
-------- -------- --------
Total liabilities and
shareholders' equity $450,419 $398,014 $395,116
======== ======== ========
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------
1996 1995
---------------------------- ---------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Rate Balance Expenses Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Net interest income and
interest rate spread $ 4,919 3.97% $4,370 4.09%
======= ======
Net interest margin 4.28% 4.31%
Average interest-earning
assets to average
interest-bearing
liabilities 118.7% 118.3%
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- --------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Rate Balance Expenses Rate Balance Expenses Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income and
interest rate spread $18,376 3.55% $17,008 3.89% $16,109 4.22%
======= ======= =======
Net interest margin 4.27% 4.49% 4.78%
Average interest-earning
assets to average
interest-bearing
liabilities 119.9% 120.0% 119.7%
</TABLE>
- ---------------
(1) Computed on an FTE basis utilizing a 34% tax rate. The applicable
adjustments were $186 and $159 for the three months ended March 31, 1996 and
1995, respectively, and $672, $579 and $528 for the years ended December 31,
1995, 1994 and 1993, respectively.
(2) Non-accrual loans are included in the average loan balances.
24
<PAGE> 27
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 (mix). 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.
25
<PAGE> 28
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------------------------
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease) Increase (Decrease)
------------------------------ ----------------------------- -----------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans:
Commercial $ 185 $ 94 $ 280 $ 880 $1,413 $2,293 $1,117 $ (12) $1,105
Real estate 151 32 183 426 398 824 880 204 1,084
Consumer 243 155 398 1,185 61 1,246 982 (554) 428
------ ------ ------ ------ ------ ------ ------ ------ ------
Total loans 580 281 861 2,491 1,872 4,363 2,979 (362) 2,617
Securities:
Taxable 280 65 345 1,192 593 1,785 368 (289) 79
Tax-exempt 361 (278) 83 231 10 241 165 21 186
------ ------ ------ ------ ------ ------ ------ ------ ------
Total securities 641 (213) 428 1,423 603 2,026 533 (268) 265
Federal funds sold 61 (30) 31 39 38 77 (95) 50 (45)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total earning assets(1) 1,282 38 1,320 3,953 2,513 6,466 3,417 (580) 2,837
------ ------ ------ ------ ------ ------ ------ ------ ------
Interest-bearing liabilities
Deposits:
Demand deposits (37) 75 38 (260) 325 65 (68) (76) (144)
Savings deposits (7) (25) (32) (106) 38 (68) 85 (64) 21
Time deposits 485 160 645 1,593 1,451 3,044 132 298 430
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest-bearing
Deposits 441 210 651 1,227 1,814 3,041 149 158 307
Borrowings 237 (118) 119 1,685 372 2,057 1,575 56 1,631
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest-bearing liabilities 678 92 770 2,912 2,186 5,098 1,724 214 1,938
------ ------ ------ ------ ------ ------ ------ ------ ------
Net interest income $ 604 $ (54) $ 550 $1,041 $ 327 $1,368 $1,693 $ (794) $ 899
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ----------------
(1) Computed on a fully tax-equivalent basis, assuming a tax rate of 34%.
26
<PAGE> 29
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
Net Income. Net income for the three months ended March 31, 1996
increased 39.2% to $1.9 million, as compared to $1.3 million for the three
months ended March 31, 1995. Earnings per share in the first quarter of 1996
equaled $0.62, compared to $0.45 for the same period in 1995, a 37.8% increase.
Net interest income and non-interest income increased 12.4% and 40.4%,
respectively, in the three months ended March 31, 1996, as compared to the same
period in 1995; however, in the first three months of 1996 the provision for
possible loan losses and non-interest expense increased 45.3% and 5.6%,
respectively. The Company's net interest margin increased slightly to 4.28% for
the first three months of 1996 as compared to 4.32% for the first three months
of 1995. Non-interest income showed a significant increase due to increased
originations of SBA loans and sales of the guaranteed portion of such loans. The
provision for possible loan losses increased primarily due to an increase in the
size of the loan portfolio and an increase in net charge-offs. Non-interest
expense increased due to the expansion of operations. The Company's return on
average assets and return on average equity were 1.52% and 14.93%, respectively,
in the first quarter of 1996, as compared to 1.26% and 13.11%, respectively, in
the first quarter of 1995.
Interest Income. Total interest income increased 16.5% to $9.1 million
for the first three months of 1996, as compared to $7.8 million for the first
three months of 1995. This increase primarily resulted from a $50.4 million, or
12.3%, increase in average interest-earning assets between the two periods. The
average balance of loans increased $24.6 million, which was primarily a result
of the Company's continuing marketing efforts, its recent expansion into new
markets, as well as favorable economic conditions.
In addition, as a result of the generally higher interest rate
environment, the weighted average yield on interest-earning assets increased to
8.15% during the first three months of 1996, as compared to 7.90% during the
same three month period in 1995. The Company's yield on average loans increased
from 8.62% during the three months ended March 31, 1995 to 9.01% during the
three months ended March 31, 1996. Yields on the investment portfolio remained
more stable, increasing from 6.82% during the first quarter of 1995 to 6.85%
during the first quarter of 1996.
Interest Expense. Total interest expense increased 21.2% to $4.4
million for the three months ended March 31, 1996 as compared to $3.6 million
for the three months ended March 31, 1995. Interest expense increased due to a
higher average balance of interest-bearing liabilities outstanding and due to a
higher cost of funds during the three months ended March 31, 1996, as compared
to the same period in 1995. The average balance of deposit accounts increased
$31.3 million, or 9.4%, from the first quarter in 1995 to the first quarter in
1996. Average interest-bearing liabilities increased 11.9%, from $346.7 million
to $388.0 million.
The Company's cost of funds increased to 4.56% in the three months
ended March 31, 1996 as compared to 4.26% in the same period of 1995, generally
due to the higher level of market interest rates. The cost of funds was also
affected by the continued shift by customers into higher yielding certificates
of deposit.
Provision for Possible Loan Losses. The provision for possible loan
losses increased 45.3% to $292,000 in the first three months of 1996, as
compared to $201,000 in the first three months of 1995. The increase in the
provision for possible loan losses was affected by growth in new markets and
products for which the Company has limited loan loss experience, coupled with a
higher level of net charge offs, $193,000 versus $97,000. Total loans increased
9.0% to $277.7 million at March 31, 1996, from $254.7 million at the same date
in 1995. The allowance for possible losses on loans at March 31, 1996 was $3.4
million, or 1.23% of total loans. Management's estimate of the adequacy of its
allowance for possible loan losses is based upon management's continuing review
of prevailing national and local economic conditions, changes in the size and
compensation 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 increased 40.4% to $1.6
million in the three months ended March 31, 1996, as compared to $1.1 million in
the three months ended March 31, 1995. The increase in 1996 was largely a result
of increased gains on the sale of loans. During the first quarter of 1996, the
Company sold
27
<PAGE> 30
approximately $5.2 million of the guaranteed portion of its SBA portfolio in the
secondary market, realizing a gain of $596,000. See "Business of the Company -
Lending - Small Business Lending." This compared to first quarter 1995 gains of
$243,000 on guaranteed portions of loans sold totaling $2.7 million.
Customer service fees, representing service charges on deposits and
fees from other banking services, decreased 8.1% in the first quarter of 1996,
to $411,000, from $447,000 in the 1995 period. The slight decrease was primarily
volume-related, due to the shift of deposits from demand and savings deposits
into time deposits. Trust income increased 19.4% to $375,000 in the first
quarter of 1996, from $314,000 in the 1995 period. Growth in trust and custodian
fee income resulted primarily from the expansion of the customer base and higher
asset values.
The following table sets forth the Company's non-interest income for
the periods indicated:
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
------------------ ------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Trust and custodian fees ............. $ 375 $ 314 $1,259 $ 1,129 $1,075
Customer service fees ................ 411 447 1,714 1,726 1,448
Investment securities gains (losses) . 2 -- 136 (57) 356
Gain on sale of loans ................ 596 243 1,310 668 416
Other ................................ 180 110 565 335 274
------ ------ ------ ------- ------
Total ........................ $1,564 $1,114 $4,984 $ 3,801 $3,569
====== ====== ====== ======= ======
</TABLE>
Non-Interest Expense. Total non-interest expense increased 5.6% to $3.4
million in the three months ended March 31, 1996, as compared to $3.2 million in
the three months ended March 31, 1995. Salaries and benefits increased $167,000
from period to period, which represented a 9.7% increase. The increase was
primarily a result of the Company's expansion efforts. Net occupancy costs
increased $24,000, or 13.3%, from 1995 to 1996. Other non-interest expenses,
which include miscellaneous general and administrative costs, increased $103,000
from period to period, or 13.3%. Such increases were a result of the overall
increase in business levels. Offsetting such increases was a decrease of
$163,000, or 90.1%, in the Company's federal deposit insurance expense, as
BIF-insured institutions were granted a significant reduction in FDIC
assessments effective during the second quarter of 1995. See "Supervision and
Regulation."
The following table sets forth the Company's non-interest expense for
the periods indicated:
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits .... $1,887 $1,720 $ 6,866 $ 6,071 $ 5,578
Net occupancy expense ............. 205 181 752 643 533
Furniture and equipment expense ... 103 110 408 415 382
Data processing expense ........... 152 113 647 521 453
Taxes other than income taxes ..... 144 129 518 496 529
Federal deposit insurance ......... 18 181 430 717 693
Other ............................. 878 775 3,184 2,547 2,400
------ ------ ------- ------- -------
Total ..................... $3,387 $3,209 $12,805 $11,410 $10,568
====== ====== ======= ======= =======
</TABLE>
28
<PAGE> 31
The efficiency ratio is one method used in the banking industry to
assess profitability. It is defined as non-interest expense divided by the net
revenue stream, which is the sum of net interest income on a tax-equivalent
basis and non-interest income excluding net investment securities gains or
losses. The Company's efficiency ratio was 53.7% for the first quarter of 1996,
as compared to 60.1% for the comparable period in 1995. Controlling costs and
improving productivity, as measured by the efficiency ratio, is considered by
management a primary factor in enhancing performance. It is expected that
operating expenses will continue to increase in 1996 due to the expansion of
markets, increased growth and volume of activities, and overall inflation.
Provision for Income Taxes. The provision for income taxes was $763,000
for the three months ended March 31, 1996, an increase of 31.1% from $582,000 in
the three months ended March 31, 1995. The effective tax rate was 29.1% for the
three months ended March 31, 1996 and 30.4% for the three months ended March 31,
1995. The difference between the effective tax rates and the federal statutory
rate of 34% related principally to tax-exempt income from obligations of states
and political subdivisions and non-taxable loans.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Income. Net income of the Company totaled $6.2 million for the year
ended December 31, 1995, an increase of $338,000, or 5.8%, from 1994. Earnings
per share in 1995 equaled $2.09, compared to $1.98 in 1994, a 5.6% increase. The
higher earnings for 1995 resulted primarily from a $1.3 million, or 8.0%,
increase in net interest income and a $1.2 million, or 31.1%, increase in
non-interest income, which were partially offset by a $629,000, or 186.1%,
increase in the provision for possible loan losses, and a $1.4 million, or
12.2%, increase in non-interest expense. The Company's net interest margin
declined to 4.27% for 1995 as compared to 4.49% for 1994, largely as a result of
market-driven increases in interest rates, the shift in mix of deposits toward
higher cost time deposits and the Company's growth strategy of utilizing
long-term borrowings to more fully leverage its capital to enhance overall
earnings. The spread between the rate on such borrowings and the assets they
funded was more narrow than the Company's existing net interest margin and
spread. Non-interest income showed a significant increase due to increased
originations of SBA loans and sales of the guaranteed portion of such loans. The
provision for possible loan losses increased primarily due to an increase in the
size of the loan portfolio and an increase in net charge-offs. Non-interest
expense increased due to the expansion of operations. The Company's return on
average assets and return on average equity were 1.38% and 13.05%, respectively,
in 1995, as compared to 1.48% and 13.28%, respectively, in 1994.
Interest Income. Total interest income increased 23.2% to $34.1 million
for 1995 as compared to $27.7 million for 1994. This increase primarily resulted
from a $51.3 million, or 13.5%, increase in average interest-earning assets
during 1995. The average balance of loans increased 12.7% from $232.3 million in
1994 to $261.7 million in 1995, as a result of the implementation of the
Company's growth strategy.
The weighted average yield on interest-earning assets increased to
8.07% during 1995, as compared to 7.46% during 1994, as a result of the
generally higher interest rate environment. The Company's yield on average loans
increased from 8.10% during 1994 to 8.85% during 1995. The average yield on
investment securities increased from 6.48% to 6.88% during the same period. The
rate earned on interest-earning assets increased more slowly during the period
than the cost of funds because increases in rates of adjustable rate loans
generally lag the market due to contractual limitations on the timing of
adjustments.
Interest Expense. Total interest expense increased 45.3% to $16.4
million for 1995, as compared to $11.3 million for 1994. Interest expense
increased due to a higher average balance of interest-bearing liabilities
outstanding and due to a higher cost of funds during 1995. Average
interest-bearing liabilities increased $46.0 million, or 14.6%, to $362.0
million during 1995, reflecting the Company's efforts to leverage its capital
position. The average balance of deposit accounts increased $20.5 million, or
6.5%, to $336.8 million in 1995 compared to $316.2 million in 1994 as a result
of the implementation of the Company's growth strategy. Average borrowings
increased $28.0 million, or 78.7%, from $35.5 million to $63.5 million.
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<PAGE> 32
The Company's cost of funds increased to 4.09% in 1995 from 3.20% in
1994, generally due to higher overall levels of interest rates as well as the
relative increase in borrowings and a shift in mix of deposits toward higher
cost time deposits. The Company's average balance of deposits held as
certificates increased 28.3% from 1994 to 1995.
Provision for Possible Loan Losses. The provision for possible loan
losses increased 186.1% to $967,000 in 1995, as compared to $338,000 in 1994.
The increase reflected overall loan growth coupled with a higher level of net
charge-offs, $755,000 versus $250,000. The allowance for possible loan losses on
loans at December 31, 1995 was $3.3 million, or 1.23% of total loans, as
compared to $3.1 million, or 1.25% of total loans, at the same date in 1994.
Non-Interest Income. Total non-interest income increased 31.1% to $5.0
million in 1995, as compared to $3.8 million in 1994 due to a sharp increase in
gain on sale of loans. Gain on sale of loans was $1.3 million in 1995 as
compared to $668,000 in 1994. The increase was associated with the Company's
activities in the SBA lending programs. Customer service fees, representing
service charges on deposits and fees from other banking services, decreased 0.7%
in 1995, to $1.7 million. The slight decrease was volume-related, resulting from
a shift of deposits from demand and savings deposits into time deposits. Trust
income increased 11.5% to $1.3 million in 1995, from $1.1 million. Growth in
trust income resulted primarily from the expansion of the Company's customer
base and higher asset values.
Net investment securities gains amounted to $136,000 in 1995, compared
to net losses of $57,000 in 1994, an increase of $193,000. The gains in 1995
resulted from opportunities presented by falling interest rates to restructure
the available-for-sale investment portfolio to extend maturities, diversify the
portfolio and maintain average yields. The loss in 1994 resulted from the sale
of lower yielding available-for-sale securities and reinvestment of the proceeds
into higher yielding securities in the rising rate environment.
Other sources of income totaled $565,000 in 1995, an increase of 68.7%
from $335,000 in 1994. The increase was principally the result of expanded
fee-based product offerings to businesses and individuals.
Non-Interest Expense. Total non-interest expense increased 12.2% to
$12.8 million in 1995, as compared to $11.4 million in 1994. During 1995, the
Company incurred certain expenses in connection with its acquisition of BBI.
Also, late in 1994, FNB opened two financial centers in Licking County, expanded
operating hours at certain locations, expanded its Columbus small business
lending center and opened a small business lending center in Cleveland.
Salaries and employee benefits accounted for approximately 53.6% of
total non-interest expense in 1995, compared to 53.2% in 1994. The average
full-time equivalent staff level was 196 in 1995, compared to 186 in 1994.
Salaries and employee benefits increased 13.1%, from $6.1 million in 1994 to
$6.9 million in 1995. The higher salaries and employee benefits were principally
due to the Company's market expansion and new product offerings, and merit and
cost of living increases.
In September 1995, FNB received a reimbursement of FDIC assessments of
approximately $171,000 resulting from the retroactive reduction of BIF
assessments following the recapitalization of the BIF. At that time, assessment
levels were adjusted from $0.23 per $100 of deposits to $0.04 per $100 of
deposits.
Net occupancy expense was $752,000, or 17.0%, higher in 1995 than the
net occupancy expense of $643,000 in 1994. The higher net occupancy expense was
primarily the result of costs associated with a full year's cost of operating
the two Licking County financial centers which were opened during 1994, the
Cleveland small business lending center, and the expansion of the Columbus
financial center.
Furniture and equipment expense decreased 1.7% in 1995. The decrease in
furniture and fixture expense in 1995 was due principally to a decrease in
depreciation expense. The additional expense in 1995, associated with the full
year's depreciation for assets related to new locations opened in 1994, was more
than offset by the decrease in 1995 expense associated with items which became
fully depreciated in 1995 or late 1994.
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<PAGE> 33
The Company's information services expense increased 24.2% in 1995, to
$647,000, from $521,000. The higher costs associated with data and information
processing activities were primarily due to the expansion of technology
throughout the Company to enhance customer service, increase efficiencies and
improve information management systems.
Other increases in non-interest expense were primarily related to the
expanded volume of business activities. Analyzed on a relative basis,
non-interest expense improved in 1995, with total non-interest expense expressed
as a percentage of average assets of 2.84% in 1995, as compared to 2.87% in
1994. The Company's efficiency ratio was 56.7% for 1995, slightly higher than
the ratio for 1994 of 57.2%.
Provision for Income Taxes. The provision for federal income taxes
increased to $2.7 million in 1995, for an effective tax rate of 30.3%. This
compared to federal income tax expense of $2.6 million in 1994, which
represented an effective tax rate of 30.5%. The increase in expense in 1995
resulted from an overall increase in the level of taxable earnings. The
difference between the effective rates and the federal statutory rate of 34%
related principally to tax-exempt income from obligations of states and
political subdivisions and non-taxable loans.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net Income. Net income of the Company totaled $5.9 million for the year
ended December 31, 1994, an increase of $453,000, or 8.4%, from 1993. Earnings
per share in 1994 equaled $1.98, compared to $1.82 in 1993, an increase of 8.8%.
The higher earnings for 1994 resulted primarily from an $851,000, or 5.5%,
increase in net interest income, a $232,000, or 6.5%, increase in non-interest
income, and a $461,000, or 57.7%, decrease in the provision for possible loan
losses, which were partially offset by an $842,000, or 8.0%, increase in
non-interest expense. The Company's net interest margin decreased to 4.49% for
1994 as compared to 4.78% for 1993. The lower net interest margin in 1994 was
primarily a result of the rising level of overall interest rates during the year
which increased the Company's cost of funds. Also contributing to the lower net
interest margin were the effects of the Company's growth strategies implemented
through the use of FHLB advances to more fully utilize its capital and increase
earnings. These borrowings were at higher interest rates than the Company's 1993
cost of funds. The Company's return on average assets and return on average
equity were 1.48% and 13.28%, respectively, in 1994, as compared to 1.51% and
13.19%, respectively, in 1993.
Interest Income. Total interest income increased 11.2% to $28.3 million
(FTE) for 1994, as compared to $25.4 million (FTE) for 1993. This increase
primarily resulted from a 12.2% increase in average interest-earning assets
between the years, which was only partially offset by a decline in the weighted
average yield on interest-earning assets during 1994. The weighted average yield
on interest-earning assets declined to 7.46% during 1994 as compared to 7.53%
during 1993. The average balance of loans increased $35.9 million, which was a
result of the Company's growth strategy.
Interest Expense. Total interest expense increased 20.8% to $11.3
million for 1994, as compared to $9.3 million for 1993. Interest expense was
affected by a higher average balance of interest-bearing liabilities outstanding
as well as a higher cost of funds during 1994. The Company's cost of funds
increased to 3.56% in 1994 as compared to 3.30% in 1993, generally due to the
increased level of market interest rates and the increased use of borrowings by
the Company.
Provision for Possible Loan Losses. The provision for possible loan
losses decreased 57.7% to $338,000 in 1994, compared to $799,000 in 1993.
Despite continued strong growth in the loan portfolio, the lower provision
reflected strong asset quality and low levels of net charge-offs. Net
charge-offs represented 0.11% of the average outstanding loan balances during
1994. The allowance for possible loan losses at December 31, 1994 was $3.1
million, or 1.25% of total loans, as compared to $3.0 million, or 1.42% of total
loans, at the same date in 1993.
Non-Interest Income. Total non-interest income increased 6.5% to $3.8
million in 1994, as compared to $3.6 million in 1993, largely due to an increase
in gain on sale of loans and an increase in customer service fees. Gain on sale
of loans was $668,000 in 1994 as compared to $416,000 in 1993, an increase of
60.6%. The increase was primarily associated with the Company's activities in
the SBA lending programs. The guaranteed portion of the
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<PAGE> 34
Company's SBA loans sold on the secondary market was $7.2 million during 1994 as
compared to $3.5 million in 1993.
Trust and custodian fees increased $54,000, from $1.0 million in 1993
to $1.1 million in 1994, an increase of 5.0%. The increase was due to expansion
of the Company's customer base and higher asset values. Customer service fees,
representing service charges on deposits and fees from other banking services,
increased 19.2% to $1.7 million in 1994. The increase reflected the Company's
ongoing pricing strategy, which resulted in an upward revision of fee schedules,
combined with volume related increases associated with deposit growth.
Net investment securities losses amounted to $57,000 in 1994, compared
to net gains of $356,000 in 1993. The losses were in connection with the
management and restructuring of the investment portfolio as well as a reflection
of the increase in market interest rates and the resulting decline in the value
of fixed income securities during the rising rate environment in 1994. Other
non-interest income increased $61,000, or 22.3%, from $274,000 in 1993 to
$335,000 in 1994.
Non-Interest Expense. Total non-interest expense increased 8.0% to
$11.4 million in 1994 as compared to $10.6 million in 1993. Salaries and
employee benefits increased $493,000 or 8.8%, from $5.6 million in 1993 to $6.1
million in 1994. The increase was largely due to the opening of two branch
offices in Licking County, expanded operating hours at certain locations,
expansion of the Columbus small business lending center and the opening of the
Cleveland small business lending center.
Net occupancy expense increased 20.6%, from $533,000 in 1993 to
$643,000 in 1994, as a result of the Company's expanded operations discussed
above. Other non-interest expenses, which include miscellaneous general and
administrative costs in addition to certain loan servicing and loan processing
costs, increased $171,000, as a result of the overall increase in business
levels. Total non-interest expense expressed as a percentage of average assets
declined to 2.87% in 1994, as compared to 2.94% in 1993. The Company's
efficiency ratio was 56.1% for both 1994 and 1993.
Provision for Federal Income Taxes. The provision for federal income
taxes increased 10.7% to $2.6 million in 1994 as compared to $2.3 million in
1993, primarily as the result of an increase in income before taxes. The
effective tax rate was 30.5% for 1994 and 30.0% for 1993. The increase in the
effective rate was due to tax-exempt securities and loans representing a smaller
percentage of total earning assets and, accordingly, the income from these
sources representing a smaller percentage of taxable income.
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 Bank 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 their
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. No such property was owned at March 31, 1996. At
December 31, 1995, the Company held $24,000 of property classified as "other
real estate owned."
Non-performing loans totaled $1.3 million, or 0.48% of total loans, at
March 31, 1996, compared to $1.0 million, or 0.38% of total loans, at year-end
1995. Non-performing assets totaled $1.3 million, or 0.28% of total
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<PAGE> 35
assets at March 31, 1996, compared to $1.0 million, or 0.22% of total assets, at
December 31, 1995. The following is an analysis of the composition of
non-performing assets:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans ............... $ 846 $ 440 $237 $181 $772 $ 459
Accruing loans 90 days or more
past due ..................... 493 584 272 230 65 632
------ ------ ---- ---- ---- ------
Total non-performing loans 1,339 1,024 509 411 837 1,091
Other real estate owned ......... -- 24 -- -- -- --
------ ------ ---- ---- ---- ------
Total non-performing assets .. $1,339 $1,048 $509 $411 $837 $1,091
====== ====== ==== ==== ==== ======
Non-performing loans to
total loans ................ 0.48% 0.38% 0.21% 0.19% 0.46% 0.70%
Non-performing assets to
total assets ............... 0.28% 0.22% 0.12% 0.11% 0.24% 0.34%
</TABLE>
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
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.
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<PAGE> 36
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.
<TABLE>
<CAPTION>
Three
Months Ended Year Ended December 31,
March 31, ---------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period ......... $ 3,307 $ 3,095 $ 3,007 $ 2,384 $ 1,731 $ 1,296
Charge-offs:
Residential mortgage ................ (4) (10) (3) -- (8) (46)
Construction mortgage ............... -- -- -- -- -- --
Commercial .......................... (1) (373) (15) (21) (17) (128)
Consumer ............................ (250) (479) (300) (242) (498) (366)
--------- --------- --------- --------- --------- ---------
Total charge-offs ................ (255) (862) (318) (263) (523) (540)
--------- --------- --------- --------- --------- ---------
Recoveries:
Residential mortgage ................ 1 2 -- -- -- --
Construction mortgage ............... -- -- -- -- -- --
Commercial .......................... 38 12 1 3 7 61
Consumer ............................ 23 93 67 84 125 65
--------- --------- --------- --------- --------- ---------
Total recoveries .................. 62 107 68 87 132 126
--------- --------- --------- --------- --------- ---------
Net charge-offs ........................ (193) (755) (250) (176) (391) (414)
Provision charged to operations ........ 292 967 338 799 1,044 849
--------- --------- --------- --------- --------- ---------
Balance at end of period ............... $ 3,406 $ 3,307 $ 3,095 $ 3,007 $ 2,384 $ 1,731
========= ========= ========= ========= ========= =========
Loans outstanding at end of
period ................................. $ 277,715 $ 268,818 $ 247,943 $ 212,083 $ 183,334 $ 156,807
Average loans outstanding .............. $ 276,582 $ 261,706 $ 232,282 $ 196,393 $ 170,142 $ 150,984
Allowance as a percent of loans
outstanding ......................... 1.23% 1.23% 1.25% 1.42% 1.30% 1.10%
Ratio of net charge-offs to
average loans ....................... 0.28% 0.29% 0.11% 0.09% 0.23% 0.27%
Allowance for possible loan losses to
non-performing loans ................ 254.4% 323.0% 608.1% 731.6% 284.8% 158.7%
</TABLE>
The allowance for possible loan losses totaled $3.4 million at March
31, 1996, representing 1.23% of total loans, compared to a December 31, 1995
allowance of $3.3 million, or 1.23% of total loans. Charge-offs represent the
amount of loans actually removed as earning assets from the balance sheet due to
uncollectibility. Amounts recovered on previously charged-off assets are netted
against charge-offs, resulting in net charge-offs for the period. Net loan
charge-offs for the three months ended March 31, 1996 were $193,000, compared to
net charge-offs of $97,000 for the same period in 1995 and net charge-offs of
$755,000 for the year ended December 31, 1995. Charge-offs have been
34
<PAGE> 37
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 254.4% at March 31, 1996, compared
to 323.0% at the end of 1995. 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 somewhat lower coverage ratio at March 31, 1996
than at December 31, 1995 was primarily due to a 27.8% increase in
non-performing loans. Total non-performing loans as a percentage of total loans
remained a relatively low 0.48% of total loans. The increase in non-performing
loans was due mainly to increases in the volume of consumer and small business
loans, which generally have a higher risk of non-performance than loans secured
by real estate.
COMPARISON OF MARCH 31, 1996 AND DECEMBER 31, 1995 FINANCIAL CONDITION
Total assets amounted to $481.5 million at March 31, 1996, as compared
to $476.4 million at December 31, 1995, an increase of $5.1 million, or 1.1%.
The increase in assets was funded with deposit growth of $7.7 million and an
increase in shareholders' equity of $195,000, and was partially offset by a
decrease in FHLB advances and other borrowings of $2.6 million.
Total investment securities decreased by $57,000, or 0.03%, to $178.2
million. The Company's 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 heavy loan demand and possible
deposit withdrawals, the Company has chosen to classify the majority of its
investment securities as available-for-sale. At March 31, 1996, 95.1% of the
total investment portfolio was classified as available-for-sale, while those
which the Company intends to hold to maturity represented the remaining 4.9%.
This compares to 95.3% and 4.7% classified as available-for-sale and held to
maturity, respectively, at December 31, 1995. See "--Liquidity and Capital
Resources" and "Business of the Company - Investment Securities."
Total loans increased $8.9 million, or 3.3%, to $277.7 million at March
31, 1996. This increase was primarily a result of an increase of $6.8 million in
the commercial loan portfolio. The increase in commercial loans was due to the
Company's continued emphasis on small business lending. Residential mortgage
loans decreased $1.7 million while real estate construction loans increased $4.1
million and consumer loans decreased $243,000. The overall increase in the loan
portfolio was consistent with the Company's strategy of increasing assets while
adhering to prudent underwriting standards.
Premises and equipment increased $162,000, or 3.9%, to $4.3 million at
March 31, 1996. This increase was directly a result of the Company's continued
expansion of markets and services.
Deposits totaled $356.2 million at March 31, 1996, an increase of $7.7
million, or 2.2%, over the balance at December 31, 1995. The increase resulted
from management's marketing efforts and continued growth at newer branch
offices. Total interest-bearing deposits accounted for 88.6% of total deposits
at March 31, 1996 as compared to 88.0% at December 31, 1995.
Total borrowings decreased $2.6 million to $71.5 million at March 31,
1996, as compared to $74.1 million at December 31, 1995. The majority of this
decline resulted from a $2.5 million decrease in short-term borrowings. Based on
the lower cost of deposits, management chose to fund a larger portion of its
asset growth with deposits as opposed to borrowings.
COMPARISON OF DECEMBER 31, 1995 AND DECEMBER 31, 1994 FINANCIAL CONDITION
Total assets amounted to $476.4 million at December 31, 1995, as
compared to $429.4 million at December 31, 1994, an increase of $47.0 million,
or 11.0%. The increase in assets was primarily funded with deposit growth of
$27.7 million and increased borrowings of $10.6 million. Shareholders' equity
increased $6.2 million, primarily as a result of the retention of net income
after the payment of dividends, less net treasury stock transactions,
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<PAGE> 38
plus the $2.7 million adjustment to equity to reflect the net unrealized holding
gains of the available-for-sale securities portfolio under SFAS No. 115.
Cash and cash equivalents decreased $4.7 million, or 25.1%, to $14.1
million at December 31, 1995, as compared to $18.8 million at December 31, 1994.
The Company is required to maintain average balances with the FRB. The average
required reserve was $4.7 million and $4.4 million for 1995 and 1994,
respectively. The decline in cash and cash equivalents was due to a shift of
assets into investment securities during the year.
Total investment securities increased $24.7 million, or 16.1%, to
$178.3 million at December 31, 1995, as compared to $153.6 million at December
31, 1994. The increase in the portfolio was part of management's strategy to
effectively use retail deposit growth, borrowings and other funding sources to
fund increases in interest earning assets, including the Company's securities
portfolio. Securities classified as available-for-sale represented 95.3% of the
total securities portfolio at December 31, 1995, as compared to 57.9% at
December 31, 1994. The Company transferred securities during the year from the
held-to-maturity category to increase flexibility with respect to liquidity and
asset/liability management.
Loans increased $20.9 million, or 8.4%, from $247.9 million at December
31, 1994 to $268.8 million at December 31, 1995. The increase in the loan
portfolio was the result of the Company's growth strategy, including the opening
of new offices. The growth in the loan portfolio was concentrated in consumer
lending, which increased $11.0 million, followed by real estate mortgage loans,
which increased $4.6 million, commercial loans, which increased $3.6 million,
and construction loans, which increased $1.6 million.
Premises and equipment decreased $193,000, or 4.5%, to $4.1 million
from December 31, 1994 to December 31, 1995. This decrease was primarily a
result of limited additions to premises and equipment during the year, which
were more than offset by depreciation.
Deposits totaled $348.5 million at December 31, 1995, an increase of
$27.7 million, or 8.6%, over the balance of $320.8 million at December 31, 1994.
The increase resulted from management's marketing efforts and growth at new
branch offices.
Total borrowings increased $10.6 million, or 16.7%, from $63.5 million
at December 31, 1994 to $74.1 million at December 31, 1995. The Company utilized
borrowings as well as deposits to fund its interest-earning asset growth.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
funds to accommodate customer loan demand as well as deposit withdrawals while
continuously seeking higher yields from longer term lending and investing
opportunities. This is accomplished principally by maintaining sufficient cash
flows and liquid assets along with consistent stable core deposits and the
capacity to maintain immediate access to funds. These immediately accessible
funds may include federal funds sold, unpledged marketable securities, reverse
repurchase agreements or available lines of credit from the Federal Reserve
Bank, 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 and federal funds sold. These sources
constituted 4.3% of average total assets for the first quarter of 1996,
unchanged from the same period of 1995. 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. At March 31, 1996, held-to-maturity securities with a
book value of $942,000, and available-for-sale securities with a market value of
$17.0 million were scheduled to mature within one year. In total, this
represented 9.5% of the investment portfolio and 3.5% of quarter-end total
assets. Securities with a market value of $169.4 million were classified as
"available-for-sale" as of March 31, 1996. This equaled 95.1% of the total
investment portfolio. These securities were carried at fair market value and
were
36
<PAGE> 39
classified as available-for-sale to provide for flexibility in managing net
interest margin, interest rate risk, and liquidity. Cash flows from operating
activities amounted to $5.0 million and $4.3 million for the quarters ended
March 31, 1996 and 1995, respectively.
The Bank Subsidiaries are members of FHLB. Membership provides an
opportunity to enhance shareholder value through the utilization of FHLB
advances 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 March 31, 1996, was $50.2 million, compared to
prior year-end shareholders' equity of $50.0 million, an increase of $195,000,
or 0.4%. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that certain debt and equity instruments held as
available-for-sale must be marked to their market value. This standard had a
negative effect on equity for the first quarter of 1996, but had a positive
effect on equity for the fourth quarter of 1995. This change in the effect on
equity is attributable to changes in interest rates. At March 31, 1996, the
unrealized holding losses, after taxes, on securities available-for-sale was
$19,000.
Under the risk-based capital guidelines, a minimum capital to
risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must
consist of Tier 1 capital (equity capital net of goodwill). Additionally, a
minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be
maintained. At March 31, 1996, the Company had a total risk-based capital ratio
of 19.15%, of which 16.96% consisted of Tier 1 capital. The leverage ratio for
the Company at March 31, 1996 , was 10.41%. Consummation of the Acquisition will
significantly reduce the capital ratios of the Company.
Cash dividends declared to shareholders of the Company totaled
$743,000, or $0.25 per share, during the first quarter of 1996. This compares to
dividends of $647,000, or $0.23 per share, for the same period of the prior
year. Cash dividends paid as a percentage of net income amounted to 40.1% and
48.5% for the first quarter of 1996 and 1995, respectively.
Considering the Company's capital adequacy, profitability, available
liquidity sources and the anticipated funding sources for the Acquisition, the
Company's liquidity is considered by management to be adequate to meet current
and projected needs. However, there can be no assurance that the Company will be
able to obtain financing for future acquisitions on terms acceptable to the
Company. The proceeds from this Offering, with the anticipated loan financing,
will be sufficient to fund the Acquisition. The Company will close this Offering
only if all conditions precedent to the consummation of the Acquisition have
been or will be fulfilled or waived. See "Underwriting." The Company is not
aware of any current specific recommendations by regulatory authorities which,
if implemented, would have a material effect on its liquidity.
Negotiations. The Company is in negotiations to acquire a financial
institution with total assets of approximately $60 million. If these
negotiations result in a definitive agreement, it is anticipated that it will be
structured as a merger with the shareholders of the institution receiving shares
of the Company's Common Stock, and will be subject to the approval of certain
regulatory agencies and the shareholders of the institution. It is not presently
known whether, or on what terms these negotiations will result in an acquisition
of such entity by the Company.
INTEREST RATE RISK MANAGEMENT
The objectives of the Company's interest rate risk management are to
minimize the adverse effects of changing interest rates on earnings of the
Company while maintaining adequate liquidity and optimizing net interest margin.
Interest rate risk is managed by maintaining an acceptable matching of the
Company's asset and liability maturity and repricing periods, thus controlling
and limiting the level of earnings volatility arising from rate movements.
Modeling simulations to project the potential effect of various rate scenarios
on net interest income are the primary tools utilized by management to measure
and manage interest rate exposure within established policy limits. The
Company's Asset/Liability Management Committee ("ALCO") monitors rate sensitive
assets and liabilities and develops appropriate strategies and pricing policies.
Interest rate sensitivity measures the exposure of net interest income to
changes in interest
37
<PAGE> 40
rates. In its simulations, management estimates the effect on net interest
income from changes in the overall level of interest rates. ALCO policy
guidelines provide that a 200 basis point increase or decrease over a twelve
month period should not result in more than an 8% negative impact on net
interest income. Simulations as of December 31, 1995 indicated that the Company
was positioned within these guidelines.
Interest rate sensitivity gap ("gap") analysis measures the difference
between assets and liabilities repricing or maturing within specified time
periods. Although a useful tool, gap analysis has several limitations. Gap
analysis assumes a consistent reaction in the rates of all rate-sensitive assets
and liabilities to changes in overall rates. Additionally, it does not consider
changes to the overall slope of the yield curve or other factors which affect
the timing and pricing of the balance sheet. A positive gap, or asset sensitive
position, indicates a higher level of rate-sensitive assets than rate-sensitive
liabilities repricing or maturing within specified time horizons and would
generally imply a favorable effect on net interest income in periods of rising
interest rates. Conversely, a negative gap, or liability sensitive position,
results when rate-sensitive liabilities exceed the amount of rate-sensitive
assets repricing or maturing within applicable time frames and would generally
imply a favorable impact on net interest income in periods of declining interest
rates.
The following table reflects the Company's gap position at December 31,
1995. Savings and interest-bearing demand deposits are essentially subject to
immediate withdrawal and rate change and, accordingly, are classified in the
zero to ninety days time period. However, historical experience indicates, and
it is expected, that a portion of these deposits represent long-term core
deposits and, accordingly, are less than 100% rate sensitive. Mortgage-backed
securities included in investments are included at the earlier of repricing or
maturity. As a result of these assumptions, management believes that the gap
analysis overstates the liability-sensitive nature of the Company's balance
sheet.
<TABLE>
<CAPTION>
0-90 91-180 181-270 271-365 1 to 5 Over 5
As of December 31, 1995 Days Days Days Days Years Years Total
--------- --------- --------- --------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans ........................... $ 43,859 $ 21,097 $ 20,541 $ 21,270 $ 118,387 $ 43,664 $268,818
Investment securities ........... 2,718 6,245 3,301 6,045 99,022 60,921 178,252
--------- --------- --------- --------- --------- -------- --------
Total ........................... $ 46,577 $ 27,342 $ 23,842 $ 27,315 $ 217,409 $104,585 $447,070
========= ========= ========= ========= ========= ======== ========
INTEREST-BEARING LIABILITIES:
Demand, interest-bearing ........ $ 98,795 $ -- $ -- $ -- $ -- $ -- $ 98,795
Savings ......................... 50,414 -- -- -- -- -- 50,414
Time, $100 and over ............. 21,521 7,870 6,436 3,205 5,295 44,327
Time, other ..................... 12,109 19,762 25,768 8,777 45,281 1,477 113,174
Short-term borrowings ........... 7,400 -- -- -- -- -- 7,400
Advances from FHLB .............. 6,150 111 111 3,611 45,671 11,081 66,735
--------- --------- --------- --------- --------- -------- --------
Total ........................... 196,389 27,743 32,315 15,593 96,247 12,558 380,845
--------- --------- --------- --------- --------- -------- --------
Total gap ....................... (149,812) (401) (8,473) 11,722 121,162 92,027 $ 66,225
--------- --------- --------- --------- --------- -------- ========
Cumulative gap .................. $(149,812) $(150,213) $(158,686) $(146,964) $ (25,802) $ 66,225
========= ========= ========= ========= ========= ========
Cumulative gap as a
percentage of total assets ... (31.4)% (31.5)% (33.3)% (30.8)% (5.4)% 13.9%
</TABLE>
Although derivatives may be useful if adequate expertise and control
are present, the Company's management has not used off-balance sheet derivative
financial instruments, such as futures, forwards, swaps, option contracts or
other financial instruments with similar characteristics to manage its interest
rate risk. Instead, management has approached interest rate risk management
through pricing and maturity terms of its traditional earning assets and funding
sources.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
38
<PAGE> 41
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or magnitude as the prices of goods and services.
39
<PAGE> 42
BUSINESS OF THE COMPANY
GENERAL
The Company, a registered bank holding company organized under the laws
of the State of Ohio, conducts a full-service commercial and retail banking
business through two wholly-owned subsidiary banks, FNB and Bellbrook. At March
31, 1996, the Company had total assets of $481.5 million, total deposits of
$356.2 million and shareholders' equity of $50.2 million. The Company has
entered into the Purchase Agreement to acquire all of the outstanding capital
stock of County for an aggregate purchase price of $47.8 million, subject to
certain adjustments, including payments for certain non-competition agreements.
On a pro forma basis, at March 31, 1996, the Company would have had total assets
of $958.6 million, total deposits of $721.2 million and shareholders' equity of
$76.4 million.
The Company is headquartered in Zanesville, Ohio, the county seat of
Muskingum County. Through the Bank Subsidiaries, the Company operates fourteen
full-service banking facilities which serve Muskingum, Licking, Franklin and
Greene Counties, Ohio. The Company's primary market extends along Interstate 70
in central Ohio and includes the markets of Zanesville, Newark, Columbus, and
Dayton. The Company focuses on providing personalized, high quality and
comprehensive service in order to develop and maintain long-term relationships
with customers. The Bank Subsidiaries offer a wide range of banking services,
including commercial loans, residential and commercial real estate loans,
consumer loans, personal and business checking accounts, savings accounts,
demand and time deposits, safe deposit services, trust, private banking and
investment services. FNB was founded in 1863. As of June 30, 1995, FNB had 39.3%
of all federally insured deposits in Muskingum County, which represented the
leading market share.
The Company has a history of consistent profitability, most recently
returning 1.52% on average assets for the three month period ended March 31,
1996. This compares to 1.26% for the same period in 1995 and 1.38%, 1.48%, 1.51%
for the years ended December 31, 1995, 1994 and 1993, respectively. Annual
returns on average equity since 1993 have ranged from 13.05% to 13.28%. For the
three months ended March 31, 1996, the Company's return on average equity was
14.93%.
The Company believes its success in recent years is in part
attributable to a growth strategy that it began implementing in 1992. At
December 31, 1991, the Company had nine branch offices with assets of $298.2
million (as originally reported), an equity to assets ratio of 11.82% (as
originally reported), and operations heavily concentrated in Muskingum County.
Management believed that increased size would allow the Company to (i) take
advantage of increased operating efficiencies associated with the attendant
economies of scale; (ii) achieve greater diversification of its markets and
products; (iii) enhance shareholder value by more effectively leveraging its
equity capital; and (iv) more effectively position itself to take advantage of
acquisition opportunities in the rapidly changing financial services industry.
Given the Company's dominant share in its primary market area, management
recognized that the desired growth would have to come primarily from expansion
into new markets.
In recognition of these factors, management undertook a growth strategy
which emphasized (i) acquiring existing branch locations from competing
institutions as well as de novo branching; (ii) increasing lending to small
businesses through the formation of small business lending centers outside
Muskingum County; (iii) acquiring bank and thrift holding companies; (iv)
expanding trust, private banking and investment services; (v) offering
responsive decision making and personalized customer service; and (vi) improving
technology to enhance services and manage the cost of operations.
Management believes it has been successful in implementing its
strategy. In 1992, FNB acquired a $30.6 million branch of a savings and loan
association in Dresden, Ohio. Also in 1992, FNB opened the first of four small
business financial centers which serve small businesses and specialize in loans
guaranteed by the SBA. During 1995, FNB was the largest originator of SBA 7(a)
loans in Ohio and was awarded the designation of
40
<PAGE> 43
Preferred Lender by the SBA. Currently, FNB has small business financial centers
located in Akron, Cleveland, Columbus, and Dayton (expected to open in July
1996), Ohio. In 1994, FNB opened two de novo full-service branch offices in
Licking County, Ohio. The Company's 1995 acquisition of Bellbrook provided
access to the Dayton metropolitan market. In March 1996, FNB filed a branch
application to open its first supermarket office in Reynoldsburg, Ohio. The
Company's strategic direction has culminated in over $183 million of asset
growth since December 31, 1991, an increase of 61.5%. This rate of growth has
been accomplished without sacrifice to earnings as the Company's return on
average assets and return on average equity have exceeded 1.38% and 12.9%,
respectively, over the past four and a half years.
The Company's Board of Directors and management intend to seek
continued growth of the organization through the acquisition 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 objective of growth,
diversification and market expansion and which provide the potential for
enhanced shareholder value.
MARKET AREA AND COMPETITION
The financial services industry in the Company's primary market area is
highly competitive. FNB is the largest financial institution headquartered in
Muskingum County and competes actively with regional and super-regional bank
holding companies, community banks, savings institutions, mortgage bankers,
brokerage firms, insurance companies and loan production offices. As of June 30,
1995, FNB had a 39.3% market share of federally insured deposits in Muskingum
County. The primary means of competition are through interest rates, pricing and
service.
Changes in the financial services industry resulting from fluctuating
interest rates, technological changes and deregulation have resulted in an
increase in competition, cost of funds, merger activity and customer awareness
of product and service differences among competitors.
Management believes that the deposit mix coupled with the legal lending
limit regulations of each of the Bank Subsidiaries is such that no material
portion of deposits has been obtained from a single customer; and consequently,
the loss of any one customer would not have a materially adverse effect on the
business of either of the Bank Subsidiaries. The business of the Company and the
Bank Subsidiaries is not seasonal to any material degree.
41
<PAGE> 44
LENDING PRACTICES
Loan Portfolio. In accordance with its lending policies, the Company
strives to maintain a diversified loan portfolio. The following table sets forth
in dollar amounts the composition of the Company's loan portfolio for the past
five years:
<TABLE>
<CAPTION>
At March 31, At December, 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage ......... $ 103,891 $ 105,604 $ 100,963 $ 92,036 $ 79,958 $ 63,169
Construction mortgage ........ 6,949 2,859 1,232 1,695 4,308 4,408
Commercial ................... 113,778 107,015 103,415 90,268 77,499 62,471
Consumer ..................... 53,097 53,340 42,333 28,084 21,569 26,759
--------- --------- --------- --------- --------- ---------
Total loans ................ 277,715 268,818 247,943 212,083 183,334 156,807
Allowance for possible loan
losses ....................... (3,406) (3,307) (3,095) (3,007) (2,384) (1,731)
--------- --------- --------- --------- --------- ---------
Net loans .................... $ 274,309 $ 265,511 $ 244,848 $ 209,076 $ 180,950 $ 155,076
========= ========= ========= ========= ========= =========
</TABLE>
The Company's loan portfolio totaled $274.3 million at March 31, 1996,
representing 57.0% of total assets. At December 31, 1995, 1994 and 1993, the
Company's loan portfolio represented 55.7%, 57.0% and 54.0% of total assets,
respectively. Residential mortgages outstanding at March 31, 1996 represented
37.4% of the Company's total loans. As of March 31, 1996, the Company's
outstanding commercial loans represented 43.5% of total loans and the Company's
outstanding consumer loans constituted 19.1% of total loans.
Residential mortgage. The Company originates loans secured by
single-family residences located mainly in its market areas. The Company
principally originates adjustable-rate products with a maturity up to 30 years,
although these loans may be repaid over a shorter period due to prepayments and
other factors. The Company has retained these loans, and the associated
servicing, in its portfolio.
The adjustable rate mortgages currently offered by the Company have
interest rates which adjust, on the applicable anniversary date of the loan, or
on the loan's five-year anniversary, subject to annual and term limitations.
Rates are based upon an index tied to the weekly average yield on U.S. Treasury
securities (adjusted to a constant maturity), as made available by the Federal
Reserve Board, plus a margin. At March 31, 1996, $103.8 million, or 37.4% of the
Company's total loans, consisted of single family residential real estate loans.
During 1996, the Company commenced the establishment of a secondary
marketing function which will provide the Company with the opportunity to offer
fixed-rate mortgage products while limiting the interest rate risk inherent in
maintaining a large portfolio of long-term, fixed-rate assets. The Company
intends to retain the loan servicing associated with any loans sold in the
secondary market. During the first quarter of 1996, the Company did not conduct
any material operations in this area.
Construction mortgage. The Company originates loans to construct
commercial real estate properties and, to a lesser extent, to construct
single-family residences. These construction lending activities generally are
limited to the Company's primary market area. At March 31, 1996, construction
loans amounted to $6.9 million, or 2.5% of total loans.
42
<PAGE> 45
Commercial. The Company originates commercial loans for various
business purposes including the acquisition and refinancing of commercial real
estate. At March 31, 1996, $113.8 million, or 41.0% of total loans consisted of
loans originated for commercial purposes or secured by commercial real estate.
The majority of the Company's commercial real estate loans are secured by first
liens on owner occupied properties, a majority of which is located in the
Company's primary market areas. The Company's underwriting policy for commercial
real estate loans requires that the ratio of the loan amount to the value of the
collateral cannot exceed 66 2/3%.
The Company is active in the SBA Section 7(a) lending program. Under
this program, a portion of qualifying loans (typically 75%) is guaranteed by the
SBA. The SBA guaranteed loans are adjustable-rate loans made at prime rate plus
a margin. The Company sells certain guaranteed portions of originated loans
through the secondary market while retaining the rights to service these loans.
At March 31, 1996 the guaranteed portion of loans that were held-for-sale
totaled $1.9 million. Such amounts are classified as other assets on the balance
sheet of the Company.
Management continues to seek growth opportunities in small business
lending. To date, the Company's small business lending centers in the Columbus
and Cleveland market areas have produced strong results. The Columbus location
is the center for the Company's small business lending operations. A small
business financial center was opened in Akron, Ohio during the second quarter of
1996, and an additional small business financial center which has been
established in Dayton, Ohio and is expected to begin originating loans later in
the year. Many of the guaranteed portions of the credits by the SBA were sold
into the secondary market, with such gains contributing favorably to reported
other income. Possible uncertainties exist surrounding government programs,
including the SBA, due to scrutiny by Congress. This will be evaluated by
management in determining future activities in this area.
At March 31, 1996, the Company's commercial loans, including commercial
real estate, consisted of loans with an average principal balance of $74,000.
The largest commercial loan at that date had a principal balance of $2.1
million.
Consumer. The Company originates consumer loans which are primarily for
personal, family or household purposes, in order to offer a full range of
financial services to its customers. At March 31, 1996, the Company's consumer
loans amounted to $53.1 million, or 19.1% of total loans.
The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
At March 31, 1996, 62.1% of the Company's consumer loans consisted of
direct and indirect loans to finance the purchase of new and used automobiles
and the remainder of the consumer loans consisted of loans for various other
individual purposes.
Loan Loss Experience. The Company records a provision necessary to
maintain the allowance for possible loan losses at a level sufficient to provide
for potential future loan losses. The provision is charged against earnings when
it is established. Allowances for possible loan losses are established based on
management's best judgment, which involves a continuing review of the economic
conditions, changes in the size and composition of the portfolio and review of
individual problem loans. Growth of the loan portfolio, loss experience,
economic conditions, delinquency levels, credit mix, and analysis of selected
loans are factors that affect judgments concerning the adequacy of the
allowance. Actual losses on loans are charged against the allowance for possible
loan losses.
43
<PAGE> 46
The following table sets forth the allocation of the Company's
allowance for possible loan losses for each of the periods presented:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------
March 31, 1996 1995 1994 1993
---------------------- ---------------------------------------------------------------------
Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to
Allowance Total Allowance Total Allowance Total Allowance Total
--------- ---------- --------- ---------- --------- ----- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage ... $ 120 37.4% $ 117 39.3% $ 196 40.7% $ 183 43.4%
Construction mortgage .. -- 2.5 -- 1.1 -- 0.5 -- 0.8
Commercial ............. 3,258 41.0 3,164 39.8 1,822 41.7 2,086 42.6
Consumer ............... 28 14.1 26 19.8 1,077 17.1 738 13.2
------ ----- ------ ----- ------ ----- ------ -----
TOTAL .................. $3,406 100.0% $3,307 100.0% $3,095 100.0% $3,007 100.0%
====== ===== ====== ===== ====== ===== ====== ======
<CAPTION>
December 31
----------------------------------------------
1992 1991
----------------------------------------------
Percent of Percent of
Loans to Loans to
Allowance Total Allowance Total
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Residential mortgage ... $ 507 43.6% $ 212 40.3%
Construction mortgage .. -- 2.4 -- 2.8
Commercial ............. 1,419 42.3 1,000 39.8
Consumer ............... 458 11.7 519 17.1
------ ----- ------ -----
TOTAL .................. $2,384 100.0% $1,731 100.0%
====== ===== ====== =====
</TABLE>
44
<PAGE> 47
Loan maturities and repricing periods of the loan portfolio at December 31,
1995 were as follows:
<TABLE>
<CAPTION>
Within One to
One Five After Five
Year Years Years Total
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Residential mortgage ......... $ 34,864 $ 40,704 $ 30,036 $105,604
Construction mortgage ........ 2,859 -- -- 2,859
Commercial ................... 64,036 36,139 6,840 107,015
Consumer ..................... 5,008 41,544 6,788 53,340
-------- -------- -------- --------
$106,767 $118,387 $ 43,664 $268,818
======== ======== ======== ========
Loans due after one year with:
Floating rates ............ $ 68,909
Predetermined rates ....... $ 93,142
</TABLE>
INVESTMENT SECURITIES
The Company's investment strategy is to manage the portfolio to include
interest rate sensitive assets to reduce interest rate risk against interest
rate sensitive liabilities. The portfolio is also structured to generate cash
flows and, coupled with the readily marketable nature of such assets, it serves
as a secondary source of liquidity to accommodate heavy loan demand, as well as
deposit withdrawals. Subject to various government regulatory restrictions, a
bank may own direct obligations of the U.S. Treasury, federal agency securities,
bank-qualified tax-exempt securities (including those issued by states and
municipalities), certificates of deposits and time deposits, bankers'
acceptances, commercial paper, corporate bonds, and mortgage-backed and
asset-backed securities and related products.
The Company has not utilized off-balance sheet financial derivative
products or "hedges" in the management of its interest rate risk, net interest
margin and earnings.
The following table sets forth certain information relating to the
Company's investment securities portfolio.
<TABLE>
<CAPTION>
Obligations of
Other U.S. State and Mortgage-
Government Political Backed Yield
U.S. Treasury Agencies Subdivisions Securities Other Total (FTE)
------------- -------- -------------- ---------- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, 1996
Securities Available-for-Sale
Maturity:
Within One Year .............................. $ 8,983 $ 5,266 $ 1,844 $ 886 $ -- $ 16,979 6.77%
After One Through Five Years ................. 11,136 991 6,370 82,350 -- 100,847 6.71%
After Five Through Ten Years ................. -- 4,944 8,101 16,589 4,394 34,028 6.83%
After Ten Years .............................. -- 2,919 1,562 12,121 956 17,558 7.21%
------- ------- ------- -------- ------ --------
Total Carrying Value ........................... $20,119 $14,120 $17,877 $111,946 $5,350 $169,412
======= ======= ======= ======== ====== ========
Yield (FTE) .................................... 6.74% 6.90% 6.83% 6.78% 6.90% 6.79%
Average Maturity (in years) .................... 0.99 6.55 5.45 5.40 21.40 5.48
Securities Held-to-Maturity
Maturity:
Within One Year .............................. $ -- $ -- $ 935 $ 7 $ -- $ 942 8.29%
After One Through Five Years ................. -- 400 2,433 35 -- 2,868 7.48%
After Five Through Ten Years ................. -- -- 4,799 41 -- 4,840 7.59%
After Ten Years .............................. -- -- 101 32 -- 133 6.91%
------- ------- ------- -------- ------ --------
</TABLE>
45
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Total Carrying Value ........................... $ -- $ 400 $ 8,268 $ 115 $ -- $ 8,783
======= ======= ======= ======== ====== ========
Fair Value ..................................... -- 404 8,332 130 -- 8,866
Tax-Equivalent Yield ........................... -- 7.76% 7.63% 6.90% 0.00% 7.62%
Average Maturity (in years) .................... -- 3.17 4.97 4.71 -- 4.89
DECEMBER 31, 1995
Securities available-for-sale:
Maturity:
Within one year ............................. $ 8,526 $ 7,323 $ 597 $ 861 $ -- $ 17,307 6.96%
After one through five years ................ 9,777 1,025 6,773 79,059 -- 96,634 6.72
After five through ten years ................ -- 3,042 8,023 22,346 4,320 37,731 6.78
After ten years ............................. -- -- 2,455 14,777 956 18,188 7.09
------- ------- ------- -------- ------ --------
Total carrying value ........................... $18,303 $11,390 $17,848 $117,043 $5,276 $169,860
======= ======= ======= ======== ====== ========
Yield (FTE) .................................... 7.20% 7.15% 7.59% 6.66% 5.02% 6.80%
Average maturity (in years) .................... 1.09 5.80 5.96 5.41 21.80 5.54
Securities held to maturity:
Maturity:
Within one year ............................. $ -- $ -- $ 991 $ 11 $ -- $ 1,002 8.27%
After one through five years ................ -- 400 1,954 35 -- 2,389 7.55
After five through ten years ................ -- -- 4,926 43 -- 4,969 7.64
After ten years ............................. -- -- 32 -- 32 6.81
------- ------- ------- -------- ------ --------
Total carrying value ........................... $ -- $ 400 $ 7,871 $ 121 $ -- $ 8,392
======= ======= ======= ======== ====== ========
Fair value ..................................... $ -- $ 407 $ 8,006 $ 135 $ -- $ 8,548
Yield (FTE) .................................... -- 7.76% 7.70% 6.81% -- 7.69%
Average maturity (in years) .................... -- 4.75 5.05 4.90 -- 5.03
DECEMBER 31, 1994
Securities available-for-sale:
Fair value ..................................... $30,415 $15,457 $ 294 $ 37,145 $5,653 $ 88,964
Yield (FTE) .................................... 6.65% 7.36% 6.23% 7.24% 4.96% 6.92%
Average maturity (in years) .................... 2.23 2.10 5.36 6.66 9.99 4.57
Securities held to maturity:
Total book value ............................... $ 250 $ 7,430 $19,811 $ 35,889 $1,251 $ 64,631
Fair value ..................................... $ 250 $ 7,181 $19,221 $ 33,257 $1,251 $ 61,160
Yield (FTE) .................................... 6.50% 7.23% 7.86% 7.00% 7.32% 7.30%
Average maturity (in years) .................... 5.34 5.70 5.23 5.98 7.72 5.75
DECEMBER 31, 1993
Total book value ............................... $39,373 $33,950 $16,175 $ 53,772 $5,454 $148,724
Fair value ..................................... $41,153 $35,129 $16,752 $ 53,460 $5,454 $151,948
Yield (FTE) .................................... 6.64% 7.27% 4.98% 5.26% 5.47% 6.06%
Average maturity (in years) .................... 2.49 1.36 4.71 3.58 5.78 2.99
</TABLE>
DEPOSITS
Deposits from local markets serve as the Company's major source of
funds for investments and lending. The Company offers a wide variety of retail
and commercial deposit accounts designed to attract both short-term and
long-term funds. Certificates of deposit, regular savings, money market
deposits, and NOW checking accounts have been the primary sources of new funds
for the Company. The Company does not solicit deposits outside of its market
area nor does it accept deposits through deposit brokers.
46
<PAGE> 49
Maturities of the Company's time certificates of deposit of $100,000 or
more outstanding at March 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
Amount
------
(In thousands)
<S> <C>
3 months or less........ $23,270
3 through 6 months...... 20,623
6 through 12 months..... 6,528
Over 12 months.......... 4,564
-------
Total ............. $54,985
=======
</TABLE>
BORROWINGS
The Company has historically funded its earning assets principally
through customer deposits within its primary market area. In its attempt to
manage its cost of funding sources, management has pursued a strategy which
includes a mix of the traditional retail funding sources, combined with the
utilization of wholesale funding sources. These funding sources were utilized by
management to grow the Company in its efforts to leverage its existing strong
capital base. Additionally, management used such funding sources to manage the
Company's interest rate risk by match funding and maintaining certain assets on
its balance sheet and structuring various other funding sources which
traditionally are not available to the Company in the retail market.
During 1993, FNB elected to become a member of the FHLB system.
Membership was pursued to enhance shareholder value through the utilization of
FHLB advances to aid in the management of FNB's cost of funds by providing
alternative funding sources. FHLB advances provide flexibility in the management
of interest rate risk through the wide range of available loan products with
characteristics not necessarily present in the existing deposit base, as well as
the ability to manage liquidity. Bellbrook became a member of FHLB in 1995.
EMPLOYEES
At March 31, 1996, the Company had 247 employees, 174 of whom were
full-time and 73 of whom were part-time. Full-time employees receive a
comprehensive range of employee benefit programs and salaries that management
considers to be generally competitive with those provided by other major
employers in its market areas. None of the Company's employees is represented by
any union or other labor organization, and management believes that its employee
relations are good. The Company has never experienced a work stoppage.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company,
other than ordinary litigation incidental to its business. In the opinion of
management, the ultimate resolution of these proceedings will not have a
material effect on the financial position of the Company.
47
<PAGE> 50
SELECTED CONSOLIDATED FINANCIAL DATA OF COUNTY
The following selected financial data should be read in conjunction
with the financial statements of County and the notes thereto which appear
elsewhere in this Prospectus and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of County" appearing elsewhere in
this Prospectus. The selected consolidated financial data of County has been
derived from the consolidated financial statements of County which (other than
as of and for the three-month periods ended March 31, 1996 and 1995) have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
The consolidated financial statements of County at December 31, 1995 and 1994
and for each of the years in the three-year period ended December 31, 1995,
together with Coopers & Lybrand L.L.P.'s report thereon, appear elsewhere in
this Prospectus. See "Consolidated Financial Statements -- County Savings Bank."
The selected consolidated financial data of County as of March 31, 1996 and for
the three-month period then ended is unaudited but reflects, in the opinion of
management of County, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
three-months ended March 31, 1996 are not necessarily indicative of results that
may be expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
-------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income ........................ $ 9,596 $ 8,395 $ 36,853 $ 29,707 $ 28,509 $ 32,791 $ 44,338
Interest expense ....................... 6,050 5,105 23,446 18,141 18,290 23,836 33,572
-------- -------- -------- --------- -------- --------- --------
Net interest income .................... 3,546 3,290 13,407 11,566 10,219 8,955 10,766
Provision for possible loan losses ..... 125 93 250 500 326 0 30
Non-interest income .................... 515 339 1,670 2,165 4,695 3,796 2,828
Non-interest expense ................... 2,460 2,393 9,831 10,398 11,279 10,968 9,359
-------- -------- -------- --------- -------- --------- --------
Income before income taxes ............. 1,476 1,143 4,996 2,833 3,309 1,783 4,205
Provision for income tax (benefit)(1) .. 491 258 984 (791) 288 (1,725) 913
-------- -------- -------- --------- -------- --------- --------
Net income ............................. $ 985 $ 885 $ 4,012 $ 3,624 $ 3,021 $ 3,508 $ 3,292
======== ======== ======== ========= ======== ========= ========
BALANCE SHEET DATA:
Total assets ........................... $468,373 $435,444 $520,480 $ 424,735 $401,590 $ 391,451 $419,785
Loans .................................. 348,734 284,731 364,211 267,610 271,313 293,488 339,691
Allowance for loan losses .............. 2,093 2,291 2,022 2,326 3,007 3,997 6,896
Securities ............................. 111,827 137,744 145,286 137,411 106,470 65,430 39,270
Deposits ............................... 364,707 321,913 362,798 317,354 330,895 301,660 324,012
Borrowings ............................. 66,040 80,204 119,935 74,829 40,000 62,250 72,250
Shareholder's equity ................... 34,433 30,904 33,952 29,746 27,579 24,583 21,075
PERFORMANCE RATIOS:(2)
Return on average assets .............. 0.79% 0.81% 0.84% 0.79% 0.71% 0.84% 0.70%
Return on average equity ............... 11.57 11.84 12.60 12.81 11.66 15.45 17.14
Net interest margin .................... 2.90 3.13 2.89 2.82 2.82 2.44 2.45
Interest rate spread ................... 2.58 2.90 2.61 2.69 2.73 2.53 2.61
Non-interest income to average assets .. 0.41 0.31 0.35 0.47 1.10 0.91 0.60
Non-interest expense to average assets . 1.97 2.20 2.07 2.27 2.64 2.64 1.99
Efficiency ratio(3) .................... 64.26 66.69 65.91 74.00 85.12 93.61 72.03
ASSET QUALITY RATIOS:
Non-performing loans to total loans .... 0.06% 0.12% 0.02% 0.33% 2.11% 5.00% 5.89%
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31, At or for the Year Ended December 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-performing assets to total assets .... 0.20 0.29 0.16 0.81 2.36 7.20 9.33
Allowance for loan losses to total loans . 0.60 0.80 0.56 0.87 1.11 1.36 2.03
Allowance for loan losses to
non-performing loans .................. 938.5 662.1 2,246.7 261.9 52.4 27.3 34.5
Net charge-offs to average loans(2) ..... 0.10 0.00 0.03 0.45 0.38 0.31 0.04
CAPITAL RATIOS:(4)(5)
Shareholder's equity to total assets ..... 7.35% 7.10% 6.52% 7.00% 6.87% 6.28% 5.02%
Tangible capital to adjusted total assets 7.33 7.12 6.44 7.09 6.68 6.11 5.03
Core capital to adjusted total assets .... 7.33 7.12 6.44 7.09 6.68 6.11 5.03
Risk-based capital to risk-weighted assets 12.47 12.36 11.56 12.10 10.45 9.10 7.32
</TABLE>
- ---------------
(1) Includes benefit of $1,967 in 1992 related to cumulative effect of
change in accounting for deferred income taxes.
(2) Ratios for the three months ended March 31, 1996 and 1995 are stated on
an annualized basis.
(3) The efficiency ratio is equal to non-interest expense less amortization
of intangible assets divided by net interest income plus non-interest
income less gains or losses on securities transactions.
(4) For definitions and further information relating to County's regulatory
capital requirements see "Supervision and Regulation."
(5) Ratios are calculated based on period-end balances.
49
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COUNTY
For a comprehensive understanding of County's financial condition and
performance, this discussion should be considered in conjunction with the
Consolidated Financial Statements, accompanying notes, and other information
contained herein.
OVERVIEW
The following discussion provides information regarding the financial
condition and the results of operations for County for the three months ended
March 31, 1996 and 1995 and for each of the years ended December 31, 1995, 1994
and 1993. This discussion should be read in conjunction with the Consolidated
Financial Statements of County and the notes thereto appearing elsewhere in this
Prospectus. See "Consolidated Financial Statements--County Savings Bank."
The principal business of County has historically consisted of
attracting deposits from the general public and making loans secured by
residential real estate. County's earnings are primarily dependent on net
interest income, which is the difference between interest income and interest
expense. Interest income is a function of the balances of loans, mortgage-backed
securities and investments outstanding during the period and the yield earned on
such assets. Interest expense is a function of the balances of deposits and
borrowings outstanding during the same period and the rates paid on such
deposits and borrowings. County's earnings are also affected by provisions for
loan losses, non-interest income, non-interest expense and income taxes.
Non-interest expense consists primarily of employee compensation and benefits,
occupancy and equipment expenses, federal deposit insurance assessments and
other general and administrative expenses.
County is significantly affected by prevailing economic conditions as
well as federal regulations relating to monetary and fiscal policies and to
financial institutions generally. Deposit balances are influenced by a number of
factors including interest rates paid on competing personal investments and the
level of personal income and savings within County's market area. Lending
activities are influenced by the demand for housing as well as competition from
other lending institutions. The primary sources of funds for lending activities
include deposits, loan payments, proceeds from the sales of loans, maturing
securities, borrowings, and funds provided from operations.
Average Balances and Yields. The following table presents, for each of
the periods indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates, and the net interest margin. Net interest margin 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.
Average balances for interest-earning assets and interest-bearing liabilities
are daily average balances. Other balances are monthly averages. Non-accruing
loans are included in average loan balances.
50
<PAGE> 53
<TABLE>
<CAPTION>
Three Months ended March 31,
-------------------------------------------------------------------------
1996 1995
---- ----
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(1) Balance Expense Rate(1)
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $339,010 $ 7,057 8.37% $257,847 $ 5,453 8.58%
Consumer, commercial and other 18,397 458 10.01 20,237 465 9.32
Investments Securities(2) 95,711 1,435 6.03 94,381 1,600 6.88
Mortgage-backed securities 33,905 554 6.57 49,526 803 6.58
FHLB 5,277 92 7.01 4,543 74 6.61
-------- -------- ----- -------- -------- ----
Total earning assets 492,300 9,596 7.84% 426,534 8,395 7.98%
-------- ----- -------- ----
Non-earning Assets 8,845 14,027
-------- --------
Total assets $501,145 $440,561
======== ========
Interest-bearing
liabilities:
Deposits $369,330 $ 4,772 5.20% $314,585 $ 3,765 4.85%
FHLB advances 79,229 1,074 5.45% 72,448 1,034 5.79
Other borrowings 14,113 204 5.81% 20,217 306 6.14
-------- -------- ----- -------- -------- ----
Total interest-bearing liabilities 462,672 6,050 5.26% 407,250 5,105 5.08%
-------- ----- -------- ----
Non-interest bearing liabilities 4,228 2,997
Shareholder's equity 34,245 30,314
-------- --------
Total liabilities and
shareholder's equity $501,145 $440,561
======== ========
Net interest income and
interest rate spread(3) $ 3,546 2.58% $ 3,290 2.90%
======== ===== ======== ====
Net interest margin(4) 2.90% 3.13%
===== ====
Average interest earning
assets interest-bearing liabilities 106.4% 104.7%
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- ------- ------ -------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $292,401 $25,013 8.55% $239,956 $19,164 7.99% $258,591 $ 22,222 8.59%
Consumer, commercial and other 19,632 1,927 9.82 21,608 1,903 8.81 27,712 1,957 7.06
Investments Securities(2) 99,741 6,446 6.46 119,576 5,881 4.92 82,198 3,025 3.68
Mortgage-backed securities 47,928 3,158 6.59 51,531 3,228 6.26 32,310 2,333 7.22
FHLB 4,542 309 6.80 5,106 295 5.78 3,295 148 4.49
-------- ------- ---- -------- ------- ---- -------- -------- -----
Total earning assets 464,244 36,853 7.94% 437,777 30,471 6.96% 404,106 29,685 7.35%
------- ---- ------- ---- -------- -----
Non-earning Assets 11,605 19,581 22,776
-------- -------- --------
Total assets $475,849 $457,358 $426,882
======== ======== ========
Interest-bearing
liabilities:
Deposits $333,294 $17,190 5.16% $323,858 $13,595 4.20% $315,882 $ 13,440 4.25%
FHLB advances 81,073 4,701 5.80 95,496 4,246 4.45 57,940 2,347 4.05
Other borrowings 25,714 1,555 6.05 5,882 300 5.10 22,408 2,503 11.17
-------- ------- ---- -------- ------- ---- -------- -------- -----
Total interest-bearing liabilities 440,081 23,446 5.33% 425,236 18,141 4.27% 396,230 18,290 4.62%
------- ---- ------- ---- -------- -----
Non-interest bearing liabilities 3,937 3,836 4,738
Shareholder's equity 31,831 28,286 25,914
-------- -------- --------
Total liabilities and
shareholder's equity $475,849 $457,358 $426,882
======== ======== ========
Net interest income and
interest rate spread(3) $13,407 2.61% $12,330 2.69% $ 11,395 2.73%
======= ==== ======= ==== ======== =====
Net interest margin(4) 2.89% 2.82% 2.82%
==== ==== =====
Average interest earning
assets interest-bearing liabilities 105.5% 102.9% 102.0%
</TABLE>
- ---------------
(1) Calculated on an annualized basis.
(2) Interest income in 1994 and 1993 includes $764 and $1,176,
respectively, of gains on sales of investments in mutual funds. The
average balance of such investments were $32,586 and $43,836 in 1994
and 1993, respectively.
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percentage
of average interest-earning assets.
51
<PAGE> 54
Rate and Volume Variances. Net income interest 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 (mix). 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.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996 vs. Year Ended December 31, 1995 vs.
1995 1994
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans .................... $ 2,471 $ (867) $ 1,604 $ 4,413 $ 1,436 $ 5,849
Consumer and other loans .......... (158) 151 (7) (183) 207 24
Mortgage-backed securities ........ (249) (0) (249) (232) 162 (70)
Investment securities ............. 147 (312) (165) (1,081) 1,646 565
FHLB stock ........................ 13 5 18 (35) 49 14
------- ------- ------- ------- ------- -------
Total earning assets ................ 2,224 (1,023) 1,201 2,882 3,500 6,382
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Deposits .......................... 716 291 1,007 406 3,189 3,595
FHLB Advances ..................... 325 (285) 40 (706) 1,161 455
Other borrowings .................. (87) (15) (102) 1,189 66 1,255
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities .. 954 (9) 945 889 4,416 5,305
------- ------- ------- ------- ------- -------
Net interest income ................. $ 1,270 $(1,014) $ 256 $ 1,993 $ (916) $ 1,077
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 vs.
1993
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest-earning assets:
Mortgage loans .................... $(1,544) $(1,514) $(3,058)
Consumer and other loans .......... (481) 427 (54)
Mortgage-backed securities ........ 1,238 (343) 895
Investment securities ............. 1,642 1,214 2,856
FHLB stock ........................ 97 50 147
------- ------- -------
Total earning assets ................ 952 (166) 786
------- ------- -------
Interest-bearing liabilities:
Deposits .......................... 336 (181) 155
FHLB Advances ..................... 1,650 249 1,899
Other borrowings .................. (1,268) (935) (2,203)
------- ------- -------
Total interest-bearing liabilities .. 718 (867) (149)
------- ------- -------
Net interest income ................. $ 234 $ 701 $ 935
======= ======= =======
</TABLE>
52
<PAGE> 55
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
Net Income. Net income for the three months ended March 31, 1996 was
$985,000, as compared to $885,000 for the three months ended March 31, 1995, an
increase of 11.3%. The increase was primarily due to increases in net interest
income and non-interest income, offset in part by increases in non-interest
expense and the provision for federal income taxes. Net interest income and
non-interest income increased 7.8% and 51.9%, respectively, in the three months
ended March 31, 1996, as compared to the same period in 1995; however, in the
first three months of 1996 the provision for loan losses and non-interest
expense increased 34.4% and 2.8%, respectively. County's net interest margin for
the first three months of 1996 was 2.90%, as compared to 3.13% for the first
three months of 1995. Non-interest income increased significantly due to
increased gains on the sale of investment securities, as well as gains on sales
of loans and real estate owned. The increase in non-interest expense related
primarily to adjustments in connection with the adoption of SFAS No.122,
"Accounting for Mortgage Servicing Rights". County's return on average assets
and return on average equity were 0.79% and 11.57%, respectively, in the first
quarter of 1996, as compared to 0.81% and 11.84%, respectively, in the first
quarter of 1995.
Interest Income. Total interest income increased 14.3% to $9.6 million
for the first three months of 1996, as compared to $8.4 million for the first
three months of 1995. This increase primarily resulted from a 15.4% increase in
average interest-earning assets between the two periods, from $426.5 million in
the first quarter of 1995 to $492.3 million in the first quarter of 1996. The
average balance of loans increased $79.3 million, as a result of County's
marketing efforts and purchased loan activity as well as favorable economic
conditions.
Partially offsetting the increase in interest income from higher
earning assets was a decrease in the yield on interest-earning assets from 7.98%
during the first three months of 1995 to 7.84% during the first quarter of 1996.
County's yield on average loans decreased from 8.63% during the three months
ended March 31, 1995 to 8.46% during the three months ended March 31, 1996.
Yields on the investment portfolio decreased from 6.88% during the first quarter
of 1995 to 6.03% during the first quarter of 1996, primarily due to a shift to
securities with shorter average maturities and due to the repricing
characteristics of County's investment portfolio.
Interest Expense. Total interest expense increased 18.5% to $6.1
million for the three months ended March 31, 1996, as compared to $5.1 million
for the three months ended March 31, 1995. Interest expense increased due to a
higher average balance of interest-bearing liabilities outstanding and due to a
higher cost of funds during the three months ended March 31, 1996, as compared
to the same period in 1995, reflecting a shift in deposit accounts during 1995
from lower cost transaction accounts to certificate accounts. County's cost of
funds increased to 5.26% in the three months ended March 31, 1996, as compared
to 5.08% in the same period of 1995. The average balance of deposit accounts
increased $54.7 million, or 17.4%, from the first quarter in 1995 to the first
quarter in 1996. Average interest-bearing liabilities increased 13.6%, from
$407.3 million to $462.7 million.
Provision for Loan Losses. The provision for loan losses increased
34.4% to $125,000 in the first three months of 1996, as compared to $93,000 in
the first three months of 1995. The increase was related to the increase in
total loans. Total loans increased 22.5% to $348.7 million at March 31, 1996,
from $284.7 million at the same date in 1995. The increase in the provision for
loan losses was also affected by a higher level of net charge offs, $93,000
versus $2,000. The allowance for losses on loans at March 31, 1996 was $2.1
million, or 0.60% of total loans, as compared to $2.3 million, or 0.80% of total
loans at the same date in 1995. Management's estimate of the adequacy of its
allowance for losses on loans is based upon management's continuing review of
prevailing national and local economic conditions, changes in the size and
compensation 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 increased 51.9% to
$515,000 in the three months ended March 31, 1996, as compared to $339,000 in
the three months ended March 31, 1995. This increase resulted primarily from an
increase of $192,000 in gains on sales of securities which resulted from the
planned sale of $30 million of available-for-sale securities in January 1996.
Also, gains on sales of loans and real estate owned were $66,000 higher in the
1996 period compared to 1995. These increases were partially offset by an
$82,000 decline in fee and other income. Other income in 1995 included $40,000
of net rental income on assets held subject to operating leases. No such income
occurred in 1996 as the underlying properties were sold in 1995.
53
<PAGE> 56
The following table sets forth County's non-interest income for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
---------------- ------------------------------------
1996 1995 1995 1994 1993
---- ---- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Investment gains (losses) $233 $ 41 $ 162 $ (321) $1,664
Gain on sale of loans ... 34 11 122 311 967
Gain on sale of REO ..... 43 -- 333 346 74
Fee income .............. 142 168 588 1,004 651
Other income ............ 63 119 465 825 1,339
---- ---- ------ ------- ------
Total ........... $515 $339 $1,670 $ 2,165 $4,695
==== ==== ====== ======= ======
</TABLE>
Non-Interest Expense. Total non-interest expense increased 2.8% to
$2.5 million in the three months ended March 31, 1996, as compared to $2.4
million in the three months ended March 31, 1995. This increase was primarily a
result of a $100,000 provision for loss for the excess of amortized cost over
the estimated fair value of purchased mortgage servicing rights recorded in
connection with the adoption of SFAS No. 122, "Accounting for Mortgage Servicing
Rights."
The following table sets forth County's non-interest expense for the
periods indicated:
<TABLE>
<CAPTION>
Three months ended Year ended
March 31, December 31,
-------------------- ------------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Compensation and benefits ........... $1,343 $1,282 $5,456 $ 5,460 $ 5,098
Occupancy and equipment ............. 273 287 1,080 1,256 1,356
Federal deposit insurance assessments 219 231 885 1,011 999
Advertising ......................... 45 86 215 225 212
Legal fees .......................... 60 75 322 485 740
Data processing ..................... 74 77 302 308 324
Taxes other than incomes taxes ...... 90 84 295 340 307
Provision for loss on REO ........... -- -- -- -- 518
Provision for loss on purchased
mortgage servicing rights ...... 100 -- -- -- --
Other ............................... 256 271 1,276 1,313 1,725
------ ------ ------ ------- -------
Total ....................... $2,460 $2,393 $9,831 $10,398 $11,279
====== ====== ====== ======= =======
</TABLE>
The efficiency ratio is one method used in the banking industry
to assess profitability. It is defined as non-interest expense divided by the
net revenue stream, which is the sum of net interest income on a tax-equivalent
basis and non-interest income excluding net investment securities gains or
losses. County's efficiency ratio was 64.3% for the first quarter of 1996, as
compared to 66.7% for the comparable period in 1995. Controlling costs and
improving productivity, as measured by the efficiency ratio, is considered by
management a primary factor in enhancing performance.
Federal Income Taxes. Federal income tax expense was $491,000 for the
three months ended March 31, 1996, an increase of 90.3% from $258,000 in the
three months ended March 31, 1995. The effective tax rate was 33.3% for the
three months ended March 31, 1996 and 22.6% for the three months ended March 31,
1995. The lower rate in 1995 was due in part to bad debt deductions that
resulted from growth in mortgage loans.
54
<PAGE> 57
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Income. Net income for the year ended December 31, 1995 was $4.0
million, an increase of $388,000 or 10.7%, as compared to $3.6 million in 1994.
This increase was attributed to a $1.8 million increase in net interest income,
a $567,000 reduction in non-interest expense and a $250,000 decrease in the
provision for loan losses. These increases were offset by a $495,000 decrease in
non-interest income and a $1.8 million increase in federal income taxes.
County's net interest margin increased seven basis points to 2.89% for 1995, as
compared to 2.82% for 1994. County's return on average assets and return on
average equity were 0.84% and 12.60%, respectively, for 1995, as compared to
0.79% and 12.81%, respectively, for 1995.
Interest Income. Total interest income increased 24.1% to $36.9
million for 1995, as compared to $29.7 million for 1994. This increase primarily
resulted from an increase in average interest-earning assets between the years.
Contributing to the increase in interest-earning assets was the sale of $6.9
million of assets held under operating leases and $1.4 million from the sale of
real estate owned in January 1995. The average balance of loans increased 19.3%
from $261.6 million in 1994 to $312.0 million in 1995.
Net interest income increased $1.1 million to $13.4 million in 1995,
an increase of 8.7% from $12.3 million in 1994 (including gains on sales of
mutual funds). The increases in net interest income and net interest margin
largely resulted from an increase in average interest-earning assets and net
earning assets (the difference between interest-earning assets and
interest-bearing liabilities), as well as an increase in the average yield on
interest-earning assets. Average interest-earning assets increased 6.0% to
$464.2 million in 1995, as compared to $437.8 million in 1994. Net earning
assets increased from $12.5 million in 1994 to $24.2 million in 1995, an
increase of 92.7%. The average yield on interest-earning assets increased in
1995 to 7.94%, compared to 6.96% in 1994, as a result of the general rise in
interest rates during 1994 and the first quarter of 1995. Offsetting this
overall increase was a shift in County's loan portfolio to lower yielding
residential mortgage loans. At December 31, 1995, 73.2% of the loan portfolio
consisted of residential mortgage loans, compared to 63.3% at December 31, 1994.
Interest Expense. Total interest expense increased 29.2% to $23.4
million for 1995 as compared to $18.1 million for 1994. Interest expense
increased due to a higher average balance of interest-bearing liabilities
outstanding and due to a higher cost of funds during 1995. Total deposit
accounts increased $45.4 million in 1995 while the average balance of deposits
increased $9.4 million in 1995 compared to 1994. Deposits were used to fund loan
purchases and originations.
County's cost of funds increased to 5.33% in 1995 as compared to
4.27% in 1994, generally due to the higher overall level of interest rates as
well as a shift in mix of deposits toward higher cost time deposits. Transaction
accounts decreased 20.1% in 1995 from $91.0 million to $72.7 million, while
certificate accounts increased 28.1% from $226.4 million to $290.1 million.
Provision for Loan Losses. The provision for loan losses decreased to
$250,000 for the year ended December 31, 1995 from $500,000 for the year ended
December 31, 1994. The decrease in the provision during the year ended December
31, 1995 resulted primarily from decreases in the levels of non-performing and
classified assets. The allowance for loan losses at December 31, 1995 was $2.0
million, or 0.56% of total loans, as compared to $2.3 million, or 0.87% of total
loans at December 31, 1994. The allowance for loan losses as a percentage of
non-performing loans was 2,246.7% at December 31, 1995, as compared to 261.9% at
December 31, 1994.
Non-Interest Income. Non-interest income decreased 22.9% to $1.7
million in the year ended December 31, 1995, from $2.2 million in 1994. This
decrease primarily resulted from a $416,000 decrease in fee income and a
$360,000 decrease in other income. Fee income in 1994 included $282,000 of
prepayment charges received in connection with the prepayment of several
commercial real estate loans, compared to prepayment charges of $4,000 in 1995.
Also, loan servicing fee income declined $52,000 as a result of a decrease in
the loans serviced for others portfolio which was $245.7 million at the end of
1994 compared to $219.6 million at the end of 1995. The decline in other income
was attributable primarily to net rental income of $333,000 in 1994 on assets
held under operating leases, compared to $47,000 in 1995, the year in which the
underlying properties were sold.
Non-Interest Expense. Non-interest expense decreased $567,000 to $9.8
million for the year ended December 31, 1995, from $10.4 million for the year
ended December 31, 1994. Occupancy expense decreased $176,000 as a result of the
relocation of County's leased corporate and downtown Columbus branch offices in
August 1994. This move resulted in an annualized cost savings of over $200,000.
Legal fees decreased $163,000 as a result of the continued reduction in loan
workout and foreclosure activity. Federal deposit insurance assessments
decreased $126,000 as County's average assessment rate was lower in 1995 than in
55
<PAGE> 58
1994. On a relative basis, non-interest expense improved in 1995, with total
non-interest expense expressed as a percentage of average assets of 2.07% in
1995, as compared to 2.27% in 1994. County's efficiency ratio improved to 65.91%
in 1995 from 74.00% in 1994.
Income Tax Expense. Income tax expense for the year ended December 31,
1995, was $984,000, or 19.7% of pre-tax income, compared to a benefit of
$791,000 in 1994. The provision in 1995 was less than the 34% statutory rate
primarily as a result of additional tax bad debt deductions realized as a result
of an increase in mortgage loan assets. During 1994, County's 1990 federal
income tax return was examined by the IRS. As a result of this examination,
approximately $4.0 million of unrealized capital losses were converted to
ordinary losses which were carried back to recover previously paid taxes, and an
established valuation allowance of $991,000 for capital loss carryforwards that
were not previously anticipated to be realized was eliminated. Also eliminated
(and recorded as a reduction of income tax expense) was a $353,000 liability for
potential examination adjustments.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net Income. Net income for 1994 was $3.6 million as compared to $3.0
million for 1993, an increase of 20.0%. The increase in net income was
attributable to a $1.3 million, or 13.2% increase in net interest income, an
$881,000, or 7.8% decrease in non-interest expense, and the recording of an
income tax benefit of $791,000 in 1994 compared to an expense of $288,000 in
1993. Such items were partially offset by a $174,000, or 53.4%, increase in the
provision for loan losses, and $2.5 million, or 53.9%, decrease in non-interest
income. County's net interest margin was 2.82% in 1994, unchanged from 1993. The
net interest margin was affected by an increase in average interest-earning
assets related to increased investments in adjustable rate securities in the
latter part of 1993 and the first half of 1994, and a shift in funding from
lower cost deposits to borrowings. Pre-tax income in 1994 was $2.8 million, a
decrease of $476,000, or 14.4% from 1993. County's return on average assets and
return on average equity were 0.79% and 12.81%, respectively, for 1994 as
compared to 0.71% and 11.66%, respectively, for 1993.
Interest Income. Total interest income (including gains on the sale
of mutual funds, as discussed below) increased $786,000, or 2.6% to $30.5
million for 1994 as compared to $29.7 million for 1993. Net interest income
increased $935,000, or 8.2%, to $12.3 million in 1994 compared to $11.4 million
in 1993. This increase primarily resulted from an 8.3% increase in average
interest-earning assets during 1994 which was only partially offset by a decline
in the weighted average yield on interest-earning assets during 1994.
The weighted average yield on interest-earning assets declined to
6.96% during 1994 from 7.35% during 1993. This decrease resulted in part from
County's investing in certain mutual funds for the purpose of generating capital
gain income in order to realize tax benefits from capital loss carryforwards
that originated in 1990 and would expire in 1995. Income was earned on these
funds via the purchase and subsequent sale of shares prior to the distribution
of earnings by the funds. Given the nature of these assets and the earnings
derived therefrom, they are considered interest-earning assets for purposes of
the discussion herein.
Interest Expense. Total interest expense decreased 0.8% to $18.1
million for 1994, as compared to $18.3 million for 1993. Interest expense was
affected by a higher average balance of interest-bearing liabilities. Average
interest-bearing liabilities increased $29.0 million, or 7.3%, from $396.2
million in 1993 to $425.2 million in 1994. Average deposits increased $8.0
million, or 2.5%, from $315.9 million in 1993 to $323.9 million in 1994. FHLB
advances and other borrowings increased $21.0 million, or 26.2%, from $80.3
million in 1993 to $101.4 million in 1994. County's cost of funds decreased to
4.27% in 1994 as compared to 4.62% in 1993.
The average cost of deposits decreased from 4.25% in 1993 to 4.20% in
1994, which was partially offset by an increase in the average cost of FHLB
advances from 4.05% in 1993 to 4.45% in 1994. The most significant factor in the
overall cost of funds reduction was the repayment of certain other borrowings.
In 1993, County had an average balance of $22.4 million in other borrowings,
which represented a 10.15% surety-backed collateralized bond that had an average
cost of 11.17%. This borrowing was repaid in June 1993. In 1994, County had
average other borrowings, which represented reverse repurchase agreements, of
$5.9 million at an average cost of 5.10%.
Provision for Loan Losses. The provision for loan losses increased
53.4% to $500,000 in 1994, as compared to $326,000 in 1993. The higher provision
was related to the increase in net charge-offs and management's assessment of
the adequacy of the allowance for loan losses. Net charge-offs represented 0.45%
of the average loans during 1994, as compared to 0.38% of average loans in 1993.
The allowance for possible loan losses at December 31, 1994 was $2.3 million, or
0.87% of total loans, as compared
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<PAGE> 59
to $3.0 million, or 1.11%, at the same date in 1993. The ratio of allowance for
loan losses to non-performing loans increased from 52.4% at December 31, 1993 to
261.9% at December 31, 1994.
Non-Interest Income. Non-interest income decreased to $2.2 million in
1994 from $4.7 million in 1993. This decrease of $2.5 million was primarily a
result of a $2.0 million decrease in net gains on sales of securities. Included
in the 1993 results were $1.2 million in gains on sales of mutual funds compared
to $764,000 in 1994. As discussed previously, mutual fund investments were
utilized as a means for generating capital gain income in order to obtain tax
benefits from capital loss carryforwards. Also, the 1994 results included $1.2
million of losses on the sale of available-for-sale securities compared to
$467,000 in gains in 1993. Market values of securities were adversely affected
in 1994 by the general increase in interest rates.
Non-Interest Expense. Non-interest expense decreased from $11.3
million in 1993 to $10.4 million in 1994. Legal fees decreased $255,000 in 1994
compared to 1993, as loan workouts and foreclosure activity declined in 1994.
Occupancy expense declined $100,000 primarily as a result of a partial year's
cost savings associated with the corporate office relocation in 1994 discussed
above. Non-interest expense in 1993 also included a non-recurring loss of
$327,000 incurred in connection with the early extinguishment of a 10.15% bond
obligation. Other reductions in operating expenses generally resulted from
management's efforts to reduce and control expenses. Total non-interest expense
expressed as a percentage of average assets declined to 2.27% in 1994, as
compared to 2.64% in 1993. County's efficiency ratio improved from 85.1% in 1993
to 74.0% in 1994.
Income Tax Expense. County recorded a benefit from income taxes in
1994 of $791,000 as compared to an expense of $288,000 or 8.7% of pre-tax
income, in 1993. The rate in 1993 was lower than the statutory rate primarily
because of the recognition of previously unrecorded tax benefits associated with
capital loss carryforwards. The benefit in 1994 resulted from the IRS
examination described above.
ASSET QUALITY
Non-Performing Assets. County's overall loan quality is enhanced by its
sound underwriting, approval and ongoing loan review procedures. Single family
loans are originated or purchased using secondary market agency guidelines as
underwriting standards. Multi-family loans are underwritten to ensure an
appropriate loan to value and adequate debt service coverage. Loans are subject
to a quality control process which includes executive management and Board of
Directors involvement, when necessary. County's loan review process annually
encompasses approximately 75% of outstanding non-single family loans. This
process involves an inspection of the collateral, analysis of current financial
information on the borrowers and/or guarantors and the collateral property and
other considerations. Findings from the foregoing are reported to the loan
review committee which rates each loan accordingly.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. County normally does not accrue
interest on loans past due 90 days or more.
Real estate acquired by County as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until it is sold.
When a property is acquired, it is recorded at the lower of cost or fair value
less estimated costs to sell the property. Any write-downs resulting at
acquisition are charged to the allowance for loan losses. Costs incurred in
maintaining County's interest in the property between the date the loan becomes
delinquent and the date of acquisition are capitalized. After the date of
acquisition, all costs incurred in maintaining the property are expensed and
costs incurred for the improvement or development of such property are
capitalized.
The following table sets forth the amounts and categories of County's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
----------------------------------
1996 1995 1994 1993
---- ---- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Non-accrual loans(1) ................ $223 $ 90 $ 888 $5,734
Real estate owned ................... 720 736 2,563 3,760
---- ---- ------ ------
Total non-performing assets ......... $943 $826 $3,451 $9,494
==== ==== ====== ======
</TABLE>
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<PAGE> 60
<TABLE>
<S> <C> <C> <C> <C>
Non-performing loans to total loans . 0.06% 0.02% 0.33% 2.11%
Non-performing assets to total assets 0.20% 0.16% 0.81% 2.36%
</TABLE>
_________
(1) County had no accruing loans 90 days or more past due at any of the dates
presented.
The net reduction to interest income related to non-accrual loans for
the three months ended March 31, 1996, and for the year ended December 31, 1995,
1994 and 1993 was $9,000, $5,000, $75,000 and $985,000, respectively. County
knows of no significant loan concentration which might pose a risk to its
portfolio other than the fact that a majority of its loans are secured by
properties located in Ohio. Of the $5.7 million of non-performing loans at
December 31, 1993, three loans totaling $1.2 million were outstanding at March
31, 1996. All such loans have been performing loans since June 1994.
Allowance for Loan Losses. An allowance for loan losses is maintained
at a level that County's management considers adequate to provide for potential
losses based upon an evaluation of known and inherent risks in the loan
portfolio. County's internal loan review committee evaluates the allowance on a
continuous basis. While management uses the best information available to make
its evaluation, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluations.
While specific allowances are recorded by County when potential loan
losses are known, other losses may exist in the loan portfolio which have not
become apparent. The "unallocated" portion of the allowance for loan losses is
recorded by County to reflect historical charge-off and delinquency experience
as well as changes in the components of the loan portfolio. Net charge-offs
totaled $87,000 for the year ended December 31, 1995 and have averaged $782,000
over the last three years. Charge-offs for the quarter ended March 31, 1996 were
$93,000. Additionally, the composition of the loan portfolio has changed, with
one -to four-family residential loans aggregating approximately $173.0 million
at March 31, 1996 compared to $69.8 million at December 31, 1993. These types of
loans, in the opinion of management of County, entail less risk and accordingly,
County's allowance for loan losses as a percentage of loans receivable has
declined from 1.11% at December 31, 1993 to 0.60% at March 31, 1996.
The following table summarizes changes in the allowance for loan
losses and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993
-------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period ... $ 2,022 $ 2,326 $ 3,007 $ 3,997
Loans charged-off:
Real estate ................... 90 25 889 535
Commercial and other .......... 11 93 308 635
-------- --------- --------- ---------
Total charge-offs ............. 101 118 1,197 1,170
-------- --------- --------- ---------
Recoveries ....................... 8 31 25 83
-------- --------- --------- ---------
Net charge-offs .................. 93 87 1,172 1,087
Provision for loan losses ........ 125 250 500 326
Transfer (to) from REO ........... 39 (467) (9) (229)
-------- --------- --------- ---------
Balance at end of period ......... $ 2,093 $ 2,022 $ 2,326 $ 3,007
-------- --------- --------- ---------
Allowance as a percent of loans
outstanding ...................... 0.60% 0.56% 0.87% 1.11%
</TABLE>
58
<PAGE> 61
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993
-------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net charge-offs to average loans . 0.10% 0.03% 0.45% 0.38%
Allowance for loan losses to
non-performing loans .......... 938.5% 2,246.7% 261.9% 52.4%
Average loans outstanding ........ $357,407 $ 312,033 $ 261,564 $ 286,303
Loans outstanding at end of period $348,734 $ 364,211 $ 267,610 $ 271,313
</TABLE>
The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------------------------------------------
1996 1995 1994 1993
--------------------- ----------------------- ----------------------- --------------------------
Percent Percent Percent Percent of
of Loans of Loans of Loans Loans to
Allowance to Total Allowance to Total Allowance to Total Allowance Total
--------- -------- --------- -------- --------- -------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
mortgage .. $1,953 93.2% $1,885 93.6% $1,935 90.3% $2,127 90.1%
Construction
mortgage .. 11 1.2 9 0.9 14 2.1 8 1.1
Consumer,
commercial
and other . 129 5.6 128 5.5 377 7.6 872 8.8
------ ----- ------ ----- ------ ----- ------ -----
Total ........ $2,093 100.0% $2,022 100.0% $2,326 100.0% $3,007 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
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<PAGE> 62
COMPARISON OF MARCH 31, 1996 AND DECEMBER 31, 1995 FINANCIAL CONDITION
Total assets amounted to $468.4 million at March 31, 1996, as compared
to $520.5 million at December 31, 1995, a decrease of $52.1 million, or 10.0%.
At December 31, 1995, County had increased its total loans and assets as part of
its tax planning strategy. The $52.1 million decrease from December 31, 1995 to
March 31, 1996 resulted from the planned sale of approximately $30.0 million of
available-for-sale securities in January 1996 along with reductions in the loan
and investment securities portfolios resulting from principal amortizations and
repayments. Funds generated from the reduction in assets were used to repay FHLB
advances which were $52.3 million at March 31, 1996 compared to $105.5 million
at December 31, 1995.
Total securities decreased by $33.5 million, or 23.0%, to $111.8
million at March 31, 1996. County's investment portfolio provides a relatively
stable source of interest income and is utilized as a source of liquidity and a
means of managing interest rate risk. At March 31, 1996, 49.1% of County's
investment securities were classified as available-for-sale. This compares to
59.7% at December 31, 1995. The decrease in the percentage classified as
available-for-sale, as well as the decrease in the portfolio as a whole, was a
result of the planned sale of securities in January 1996 discussed above.
Loans decreased $15.5 million, or 4.2%, to $348.7 million at March 31,
1996. The decrease was primarily a result of decreases of $7.8 million and $7.4
million in County's commercial real estate and one- to four-family loan
portfolios. The decrease in the loan portfolios resulted from principal
amortizations and repayments.
Deposits totaled $364.7 million at March 31, 1996, an increase of $1.9
million, or 0.5%, over the balance at December 31, 1995. Total interest-bearing
deposits accounted for 97.6% of total deposits at March 31, 1996 as compared to
97.8% at December 31, 1995.
Total borrowings decreased $53.9 million, or 44.9%, to $66.0 million at
March 31, 1996, as compared to $119.9 million at December 31, 1995. The majority
of this decline was a result of a $53.2 million decrease in FHLB advances. This
decrease was due to the planned reduction in assets in January 1996 discussed
above.
COMPARISON OF DECEMBER 31, 1995 AND DECEMBER 31, 1994 FINANCIAL CONDITION
Total assets amounted to $520.5 million at December 31, 1995, as
compared to $424.7 million at December 31, 1994, an increase of $95.7 million,
or 22.5%. The increase in assets was funded with deposit growth of $45.4
million, or 14.3%, increased borrowings of $45.1 million, or 60.3%, and changes
in shareholder's equity of $4.2 million, or 14.1%.
Total investment securities increased $7.9 million, or 5.7%. Securities
classified as available-for-sale represented 59.7% of the total securities
portfolio at December 31, 1995, as compared to 12.3% at December 31, 1994. The
greater allocation of the securities portfolio to the available-for-sale
category was a result of County's efforts to provide readily marketable assets
to serve as secondary sources of liquidity to accommodate heavier loan demand as
well as provide an additional vehicle from which to manage interest rate risk.
Total loans increased $96.6 million, or 36.1%, from $267.6 million at
December 31, 1994 to $364.2 million at December 31, 1995. Much of the loan
growth resulted from $88.6 million of loan purchases during the year. The
increase in loans contributed significantly to County's financial performance.
Most of the loan growth occurred in the one - to four-family mortgage loan
portfolio, which increased $92.1 million or 104.2%. The growth in single-family
lending was consistent with County's emphasizing the origination and purchase of
permanent conventional loans secured by one - to four-family residences.
Deposits totaled $362.8 million at December 31, 1995, an increase of
$45.4 million, or 14.3%, over the balance at December 31, 1994. The increase
resulted from competitive pricing, as County sought balance sheet growth during
the year.
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<PAGE> 63
LIQUIDITY AND CAPITAL RESOURCES
County's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, proceeds from the
sale of loans in the secondary mortgage market, FHLB advances and other
borrowings, funds provided from operations and maturing investment securities.
While maturities of investment securities and scheduled amortization of loans
and mortgage-backed securities are a predictable source of funds, deposit flows
and mortgage prepayments are significantly influenced by general interest rates,
economic conditions and competition.
The standard measure of liquidity for thrift institutions is the ratio
of cash and eligible investments to a certain percentage of net withdrawable
savings and borrowings due within one year. The minimum required ratio is
currently set by OTS regulations at 5%, of which 1% must be comprised of
short-term investments (i.e., generally with a term of less than one year). For
the month ended March 31, 1996 and December 31, 1995, County's liquidity ratio
for regulatory purposes was 6.43% and 5.90%, respectively.
Cash and cash equivalents decreased $2.1 million in the three months
ended March 31, 1996, compared to a $358,000 increase during the first quarter
of 1995. The primary sources of funds in the first quarter of 1996 were $30.2
million of proceeds from the sale of available-for-sale securities and $18.0
million from a net decrease in the loan portfolio. Funds provided by the
foregoing sources were utilized primarily to repay borrowings, which declined by
$53.2 million during the three months ended March 31, 1996.
During the year ended December 31, 1995, County had a net increase of
$2.6 million in cash and cash equivalents. Major sources of funds were proceeds
of $57.4 million from the sale of investment securities, $25.3 million in
proceeds from the maturity of investment securities and net increases in FHLB
advances of $40.4 million and deposits of $45.4 million. The major uses of cash
during the year included the funding of a $96.8 million increase in County's
loan portfolio and purchases of securities totaling $89.2 million.
During the year ended December 31, 1994, there was a net decrease of
$4.5 million in cash and cash equivalents. Sources of cash during the year
included funds provided from the maturity of investment securities of $30.9
million, an increase of $25.1 million in FHLB advances, and the sale of $37.2
million available-for-sale securities. Major uses of cash during the year which
offset the sources of cash included the purchase of $102.8 million in
investments and mortgage-backed securities, an increase in loans receivable of
$10.9 million and a reduction in deposits of $13.5 million.
Borrowings by County from the FHLB and other sources may be used to
offset reductions in other sources of funds such as deposits and to assist in
asset/liability management. There were borrowings of $66.0 million outstanding
at March 31, 1996 and $119.9 million at December 31, 1995. Based on collateral
pledged to the FHLB, County had a total borrowing capacity of approximately
$137.0 million at March 31, 1996. Other unpledged securities that could be used
as collateral would support an additional $49.0 million in FHLB advances, other
borrowings or public funds deposits. Also, County had commitments to fund loan
originations and unused lines of credit with borrowers of $17.5 million at March
31, 1996. In the opinion of County's management, County has sufficient cash flow
and borrowing capacity to meet current and anticipated funding requirements.
At March 31, 1996, certificates of deposit scheduled to mature in one
year or less totaled $248.2 million. Management of County believes, based upon
its current plan to remain competitive on the basis of rates paid, that a
significant portion of such deposits will remain with County.
At March 31, 1996, County's tangible regulatory capital totaled $34.4
million, or 7.3% of adjusted assets, compared to $33.5 million, or 6.4% of
adjusted assets, at December 31, 1995.
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<PAGE> 64
ASSET/LIABILITY MANAGEMENT
An asset/liability management committee consisting of senior and
executive officers meets regularly and reviews County's interest rate risk
position and makes adjustments to the position within the parameters established
by County's Board of Directors. In addition, the Board of Directors of County
reviews County's asset/liability position on a quarterly basis, including
simulations of the effect on County's earnings and capital of various interest
rate scenarios.
In managing its asset/liability mix, and depending on the relationship
between long- and short-term interest rates, market conditions and consumer
preference, County may place somewhat greater emphasis on maximizing its net
interest income than on matching the interest rate sensitivity of its assets and
liabilities in an effort to increase its net income. Management believes that
the increased net income resulting from a mismatch in the maturity of its asset
and liability portfolios can, during periods of declining or stable interest
rates, provide high enough returns to justify the increased exposure to sudden
and unexpected increases in interest rates which can result from such mismatch.
As a result, County may have relatively more exposure to rapid increases in
interest rates than some institutions which concentrate principally on matching
the duration of their assets and liabilities. See "Risk Factors -- Interest Rate
Sensitivity."
Net Portfolio Value Analysis. County uses net portfolio value ("NPV")
analysis as a tool to measure the effectiveness of its asset/liability
management program. NPV measures the change in the net present value of incoming
and outgoing cash flows from assets, liabilities and off-balance-sheet contracts
resulting from instantaneous and sustained changes in interest rates of 100,
200, 300 and 400 basis points. County measures its interest rate risk as the
change that occurs to its NPV as the result of an increase or decrease in market
interest rates.
The following table shows the projected change in the NPV of County at
December 31, 1995 compared to December 31, 1994 assuming an instantaneous and
sustained change in market interest rates of 100, 200, 300 and 400 basis points.
<TABLE>
<CAPTION>
Change in
Interest Rate December 31, 1995 December 31, 1994
----------------- -----------------
(Basis Points) Dollar Change Percent Change Dollar Change Percent Change
-------------- ------------- -------------- ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+400 $(14,097) (35)% $(18,735) (53)%
+300 (9,163) (23) (13,814) (39)
+200 (4,900) (12) (8,856) (25)
+100 (1,773) (4) (4,213) (12)
0 0 0 0 0
-100 1,021 3 3,701 10
-200 2,065 5 6,769 19
-300 3,694 9 9,298 26
-400 6,130 15 13,268 38
</TABLE>
As shown above, County's projected decline in NPV decreased from
December 31, 1994 to December 31, 1995 due primarily to lower levels of interest
rates. This information illustrates that County will generally benefit from
decreasing interest rates.
Gap Analysis. Another method for measuring the effectiveness of an
asset/liability management program is known as a "gap analysis." This
methodology measures the difference between rate-sensitive assets and
liabilities which, under the current interest rate environment, management
estimates will mature or reprice in the same period. The following table sets
forth an estimate by County's management of the projected maturities and
repricing of County's assets and liabilities as of March 31, 1996 and December
31, 1995. In preparing the table, management of County has assumed that loans
prepay to varying degrees based on type, maturity and rate.
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<PAGE> 65
Certificates of deposit have been entered into the analysis based on contractual
maturity and transaction accounts (passbook, MMDA and NOW) are projected to
reprice based on estimated decay rates.
<TABLE>
<CAPTION>
0 - 90 91 - 180 181 - 365 1 - 5 Over 5
As of March 31, 1996: Days Days Days Years Years Total
---- ---- ---- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans ........................................ $ 89,765 $ 57,975 $ 78,354 $ 89,828 $32,812 $348,734
Investment securities ........................ 53,059 22,156 5,395 8,742 22,475 111,827
--------- -------- --------- --------- ------- --------
Total interest-earning assets ................ 142,824 80,131 83,749 98,570 55,287 460,561
--------- -------- --------- --------- ------- --------
Interest-bearing liabilities:
Demand, interest bearing .................. 1,866 1,866 3,732 8,292 20,864 36,620
Passbook savings .......................... 1,562 1,562 3,125 11,545 15,788 33,582
Certificates of deposit ................... 80,064 66,819 101,329 45,373 920 294,505
FHLB advances ............................. 52,300 52,300
Other borrowings .......................... 13,740 13,740
--------- -------- --------- --------- ------- --------
Total interest-bearing liabilities............ 149,532 70,247 108,186 65,210 37,572 430,747
--------- -------- --------- --------- ------- --------
Total gap .................................... (6,708) 9,884 (24,437) 33,360 17,715 $ 29,814
--------- -------- --------- --------- ------- ========
Cumulative gap ............................... $ (6,708) $ 3,176 $ (21,261) $ 12,099 $29,814
========= ======== ========= ========= =======
Cumulative gap as a percentage of total
assets ..................................... (1.4) 0.7% (4.5)% 2.6% 6.4%
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995:
0 - 90 91 - 180 181 - 365 1 - 5 Over 5
Days Days Days Years Years Total
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (Dollars in thousands)
Loans ..................................... $ 75,358 $ 49,169 $ 109,559 $ 94,343 $35,782 $364,211
Investment securities ..................... 69,887 29,938 12,888 9,053 23,520 145,286
--------- -------- --------- --------- ------- --------
Total interest-earning assets ............. 145,245 79,107 122,447 103,396 59,302 509,497
--------- -------- --------- --------- ------- --------
Interest-bearing liabilities:
Demand, interest bearing .................. 1,845 1,846 3,693 8,246 21,276 36,906
Passbook savings .......................... 1,814 1,815 3,629 12,551 16,015 35,824
Certificates of deposit ................... 68,222 57,262 63,814 99,864 906 290,068
FHLB advances ............................. 90,500 15,000 -- -- -- 105,500
Other borrowings .......................... -- 14,435 -- -- -- 14,435
--------- -------- --------- --------- ------- --------
Total interest-bearing liabilities ........... 162,381 90,358 71,136 120,661 38,197 482,733
--------- -------- --------- --------- ------- --------
Total gap .................................... (17,136) (11,251) 51,311 (17,265) 21,105 $ 26,764
--------- -------- --------- --------- ------- ========
Cumulative gap ............................... $ (17,136) $(28,387) $ 22,924 $ 5,659 $26,764
========= ======== ========= ========= =======
Cumulative gap as a percentage
</TABLE>
63
<PAGE> 66
<TABLE>
0 - 90 91 - 180 181 - 365 1 - 5 Over 5
As of March 31, 1996: Days Days Days Years Years Total
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
of total assets .............................. (3.3)% (5.5)% 4.4% 1.1% 5.1% --
</TABLE>
Certain shortcomings are inherent in each of the above analyses. For
example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Also, interest rates on certain types of assets and liabilities
may fluctuate in advance of, or lag behind, changes in market rates. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in calculating the analyses.
Finally, in the event of rising interest rates, management may choose to
increase the rates paid on deposit accounts in order to retain those accounts.
ACCOUNTING DEVELOPMENTS
In May 1995, the FASB released SFAS No. 122, "Accounting for Mortgage
Servicing Rights." SFAS No. 122 requires mortgage banking enterprises to
recognize the rights to service mortgage loans for others as a separate asset,
regardless of the manner in which such rights are acquired. SFAS No. 122 applies
to fiscal years beginning after December 15, 1995. County adopted the provisions
of this statement on January 1, 1996. As a result, an allowance of $100,000 was
recorded for the excess of amortized cost over the estimated fair value of
capitalized purchased mortgage servicing rights during the three months ended
March 31, 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary assets and liabilities of
County are monetary in nature. As a result, interest rates have a more
significant impact on County's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or
magnitude as the prices of goods and services.
POTENTIAL ADVERSE EFFECTS OF PROPOSED LEGISLATION
Legislation has been introduced in Congress that, if adopted, would
result in, among other things, the merger of the SAIF of the FDIC into the BIF
of the FDIC. If such legislation were adopted in its present form, a financial
institution with deposits insured by the SAIF would be expected to pay a
one-time charge equal to approximately 0.85% to 0.90% of its deposits subject to
the SAIF assessments. Consequently, the imposition of such a charge could have a
material adverse impact on the financial condition and results of operations of
County in the year such legislation is adopted. However, future deposit
assessments would be expected to decrease to approximately 0.04% from the 0.23%
of deposits currently paid by County.
64
<PAGE> 67
BUSINESS OF COUNTY
GENERAL
County is a state-chartered savings and loan association headquartered
in Columbus, Ohio, and is a wholly-owned subsidiary of FFG. As of March 31,
1996, County had assets of $468.4 million, total deposits of $364.7 million and
shareholder's equity of $34.4 million.
County is a community-oriented savings institution that conducts its
operations through 10 full-service offices, six of which are located in Licking
County and four of which are located in Franklin County, Ohio. At March 31,
1996, approximately $188.2 million, or 51.6% of County's total deposits, were
located in Licking County. As of June 30, 1995, County had 14.1% of federally
insured deposits in Licking County, which was the second largest market share.
Columbus, which is the largest city in Ohio and the state capital, is the county
seat of Franklin County. At March 31, 1996, approximately $176.5 million, or
48.4% of County's total deposits, were located in Franklin County. As of June
30, 1995, County had 1.0% of federally insured deposits in Franklin County,
which was the tenth largest market share among banks and thrifts. Although all
of central Ohio has experienced notable economic growth over the past twenty
years, eastern Franklin County and western Licking County have recently
experienced a significant increase in housing construction and new business
activity.
County has traditionally offered a variety of savings products and loan
products to its retail customers. County also has been a purchaser of fixed- and
adjustable-rate residential mortgages from unrelated third parties.
LENDING ACTIVITIES
County's lending operations primarily emphasize the origination of
single family adjustable-rate and fixed-rate residential mortgage loans,
commercial real estate loans, construction loans on residential properties and
consumer loans, consisting principally of home equity loans.
65
<PAGE> 68
Loan Portfolio Composition. The following table sets forth the
composition of County's loan portfolio by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
At March 31, 1996 1995 1994
--------------------------- --------------------------- ---------------------------
Percent Percent Percent
of total of total of total
Amount loans Amount loans Amount loans
------------ ----------- ------------ ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family .......... $ 173,037 49.5% $ 180,438 49.5% $ 88,378 32.8%
Multi-family residential ..... 86,038 24.6 86,485 23.7 82,053 30.5
Construction, net ............ 4,207 1.2 3,454 0.9 5,788 2.2
Commercial real estate ....... 66,481 19.0 74,289 20.4 72,132 26.8
Other ........................ 167 0.1 187 0.1 406 0.2
Consumer and commercial loans:
Line of credit ............... 5,928 1.7 6,537 1.8 8,422 3.1
Secured by deposits .......... 2,248 0.7 2,268 0.6 2,300 0.8
Home equity .................. 7,329 2.1 7,519 2.0 7,235 2.7
Other ........................ 3,892 1.1 3,572 1.0 2,458 0.9
--------- ----- --------- ----- --------- -----
Subtotal ........................ 349,327 100.0% 364,749 100.0% 269,172 100.0%
===== ===== =====
Less:
Unearned fees and discounts .. (593) (538) (1,562)
--------- --------- ---------
Total loans .................. 348,734 364,211 267,610
Allowance for losses on loans (2,093) (2,022) (2,326)
--------- --------- ---------
Net loans ....................... $ 346,641 $ 362,189 $ 265,284
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------
1993
---------------------------
Percent
of total
Amount loans
------------ ----------
<S> <C> <C>
Mortgage loans:
One- to four-family .......... $ 69,787 25.5%
Multi-family residential ..... 89,054 32.6
Construction, net ............ 3,124 1.2
Commercial real estate ....... 87,070 31.8
Other ........................ 351 0.1
Consumer and commercial loans:
Line of credit ............... 11,036 4.1%
Secured by deposits .......... 2,278 0.8
Home equity .................. 7,463 2.7
Other ........................ 3,262 1.2
--------- -----
Subtotal ........................ 273,425 100.0%
=====
Less:
Unearned fees and discounts .. (2,112)
---------
Total loans .................. 271,313
Allowance for losses on loans (3,007)
---------
Net loans ....................... $ 268,306
=========
</TABLE>
66
<PAGE> 69
Contractual Maturities. The following table sets forth the scheduled
contractual maturities of County's loan portfolio at March 31, 1996. Demand
loans, loans having no stated schedule of repayments and no stated maturity and
overdraft loans are reported as due in one year or less. The amounts shown for
each period do not take into account loan prepayments and normal amortization of
County's loan portfolio.
<TABLE>
<CAPTION>
Consumer
Real estate and other
mortgage loans Total
----------- --------- -----
(In thousands)
<S> <C> <C> <C>
Amounts due in:
1 year or less................... $ 20,653 $ 8,490 $ 29,143
After 1 year through 3 years..... 54,086 3,105 57,191
After 3 years through 5 years.... 15,769 4,012 19,781
After 5 years through 10 years... 62,084 3,302 65,386
After 10 years through 20 years.. 47,171 488 47,659
More than 20 years............... 130,167 -- 130,167
-------- ------- --------
Total (1)..................... $329,930 $19,397 $349,327
======== ======= ========
</TABLE>
- -----------------------
(1) Does not include adjustments relating to the allowance for loan losses,
deferred loan fees and unearned interest and discounts.
One- to four-family. County originates loans secured by first lien
mortgages on completed one- to four-family residences in its primary market
area. Adjustable-rate one- to four-family loans are held for retention in
County's portfolio while fixed-rate loans are primarily held for sale in the
secondary market. County originates residential mortgage loans with terms of 15
and 30 years, although a large number of the loans held in its portfolio are
outstanding over a shorter period due to prepayments. At March 31, 1996,
County's one- to four-family residential real estate loan portfolio was $173.0
million, or 49.5% of total loans. The majority of such loans were underwritten
in accordance with FHLMC/FNMA guidelines and are eligible for sale in the
secondary market.
County also purchases loans secured by first lien mortgages on
completed one- to four-family residences located outside its primary market
area. Before purchasing a loan portfolio, County undertakes extensive due
diligence on the portfolio and requires all loans to meet the same underwriting
standards as loans originated directly by County.
The adjustable-rate mortgages currently offered by County have interest
rates which adjust annually on the applicable anniversary of the loan,
commencing on the first, third, fifth or seventh anniversary, and are based upon
an index tied to the weekly average yield on U.S. Treasury securities (adjusted
to a constant comparable maturity), as made available by the Federal Reserve
Board, plus a margin.
Due to the interest rate risk inherent in maintaining a large portfolio
of long-term, fixed-rate assets, County has generally sold fixed-rate mortgage
loans originated by it to secondary market investors. By obtaining a purchase
commitment from the secondary market investor before it makes a commitment to
making a loan intended for sale, County substantially reduces its "pipeline
risk," i.e., the risk that market rates of interest will rise in the period
between the time of commitment and the time of funding the loan.
All loans sold in the secondary market are sold with limited recourse
to County. When County sells the residential loans it has originated or
purchased, it may either retain or sell the rights to service those loans and
receive the related fee. At March 31, 1996, County serviced $213.3 million of
loans for third parties.
67
<PAGE> 70
Multi-family Residential. In addition to loans on one- to four-family
properties, County originates loans secured by existing, multi-family real
estate containing between four and 100 units. A substantial majority of County's
multi-family loans are secured by real estate located in its primary market
area. At March 31, 1996, loans secured by multi-family properties totaled $86.0
million, or 24.6% of the total loan portfolio. Multi-family loans are offered
with adjustable rates for terms up to 30 years and have a maximum loan-to-value
ratio of 80%.
Multi-family lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower. County attempts to reduce the risk associated with multi-family
lending by evaluating the creditworthiness of the borrower and the projected
income stream from the project and by obtaining personal guarantees on loans
made to corporations and partnerships. County requests that borrowers submit
rent rolls and that all borrowers submit financial statements annually to enable
County to monitor the loan.
Commercial Real Estate. County originates mortgage loans for the
acquisition and refinancing of commercial real estate properties. At March 31,
1996, $66.5 million, or 19.0%, of total loans consisted of loans secured by
commercial real estate properties. Of such amount, $25.9 million or 7.4%, of
total loans at March 31, 1996 were secured by commercial real estate properties
located outside of the state of Ohio.
At March 31, 1996, County's commercial real estate loan portfolio
consisted of loans with an average principal balance of $519,000. The largest
commercial real estate loan at that date had a principal balance of $6.9
million.
Construction. County originates loans to construct single-family and
multi-family residential properties. These construction lending activities
generally are limited to County's primary market area. At March 31, 1996, County
had $4.2 million in construction loans which constituted 1.2% of total loans.
Consumer and Commercial. County originates consumer loans, which are
primarily for personal, family or household purposes, and commercial loans in
order to provide a wide range of financial services to its customers. At March
31, 1996, consumer and commercial loans totaled $19.4 million and constituted
5.6% of total loans.
At March 31, 1996, 37.8% of County's consumer and commercial loans
consisted of home equity lines of credit. Home equity lines of credit have
interest rates which are based on a regional national bank's prime rate plus a
margin and adjust quarterly. These loans are secured by a first or second lien
mortgage on the borrower's principal residence.
County also makes other traditional consumer loans, including home
improvement loans, loans to finance the purchase of new and used automobiles and
boats, and share loans (i.e., loans to depositors that are secured by their
deposits). County makes commercial and unsecured consumer loans on a
case-by-case basis after a detailed review of the applicant's credit history.
INVESTMENT SECURITIES
County's investment portfolio provides a relatively stable source of
interest income and is utilized as a source of liquidity and a means for
managing interest rate risk. County also maintains a portfolio of
mortgage-backed and related securities as a means of investing in housing
related mortgage instruments without the costs associated with originating
mortgage loans for retention in its loan portfolio.
The following table sets forth certain information relating to County's
investment securities portfolio:
68
<PAGE> 71
<TABLE>
<CAPTION>
At December 31,
--------------------------------
March 31, 1996 1995 1994 1993
---------------------------------------------------
Available-for-sale: (Dollars In thousands)
<S> <C> <C> <C> <C>
United States government
agency securities....... $ 984 $ 979 $ 3,553 $ 9,944
Collateralized mortgage
obligations and real
estate mortgage
investment conduits...... 42,344 65,868 2,855 --
Mortgage-backed
securities............... 578 14,612 7,183 --
Mutual funds.............. 5,616 -- -- 2,370
FHLB stock................. 5,369 5,277 3,338 2,163
-------- -------- -------- ---------
Total available-for-sale... 54,891 86,736 16,929 14,477
-------- -------- -------- ---------
Held to Maturity:
United States government
agency securities........ -- -- 1,997 --
Collateralized mortgage
obligations and real
estate mortgage
investment conduits...... 26,073 26,325 73,615 47,572
Mortgage-backed
securities............... 28,952 30,297 42,855 42,287
Industrial development
bonds and other.......... 1,911 1,928 2,015 2,134
-------- -------- -------- ---------
Total held to maturity..... 56,936 58,550 120,482 91,993
-------- -------- -------- ---------
Total...................... $111,827 $145,286 $137,411 $106,470
======== ======== ======== ========
</TABLE>
=============================
Mortgage-backed securities, collateralized mortgage obligations and
real estate mortgage investment conduits ("Remics") are issued and guaranteed by
the Government National Mortgage Association ("GNMA"), Federal Home Loan
Mortgage Corporation ("FHLMC") or Federal National Mortgage Association
("FNMA"). The collateralized mortgage obligations and Remics in County's
portfolio are considered "non high risk" as that term is defined by the Federal
Financial Institutions Examination Council.
69
<PAGE> 72
SOURCES OF FUNDS
General. County's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through County's branch offices. County also derives funds from the proceeds
from the sale of residential mortgage loans in the secondary market, the
amortization and prepayments of outstanding loans and mortgage-related
securities, income from operations and maturities of investment portfolio
securities. County has also borrowed from the FHLB of Cincinnati to cover its
cash needs. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions.
Deposits. County's current deposit products include passbook accounts,
negotiable order of withdrawal accounts, money market deposit accounts,
commercial checking accounts and certificates of deposit ranging in terms up to
10 years. County's deposit products also include individual retirement accounts
and statement savings accounts.
County's deposits are obtained primarily from residents in its primary
market area of Franklin and Licking Counties, Ohio. County attracts deposit
accounts by offering a variety of accounts, competitive interest rates, and
convenient branch office locations and service hours. County customers are not
currently offered access to ATMs. County primarily utilizes direct solicitation
and newspaper advertising to attract new deposits. County had no brokered
deposits at March 31, 1996. To a limited extent, County accepts large deposits
of public funds when requested to bid for such funds. County offers annuities
and mutual funds to its customers through a non-affiliated third party that
operates in County's branches.
County performs a weekly deposit rate survey of the competitors in its
market area. It prices its deposit products weekly after evaluating deposit
surveys, deposit activity for prior periods and product pricing/profitability
analyses. County has been competitive in the types of accounts and in interest
rates it has offered on its deposit products but does not necessarily seek to
match the highest or the lowest rates paid by competing institutions. County
conducts a continual survey of its withdrawing depositors and has found that the
search for higher interest rates, debt payments and relocation represent the
three most frequent reasons given for deposit withdrawals.
The following table presents the amount of certificates of deposit and
related average interest rates at March 31, 1996 and December 31, 1995 which
mature during the periods indicated.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
----------------------------- -------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Maturing within:
One year....................... $248,212 5.75% $189,297 5.58%
One to two years............... 37,344 6.13 89,350 6.61
Two to three years............. 1,719 5.58 4,614 5.91
Three to four years............ 3,984 7.38 4,129 7.23
Four to five years............. 2,326 5.84 1,772 5.98
Thereafter..................... 920 6.22 906 6.21
-------- ---- -------- ----
Total.......................... $294,505 5.82% $290,068 5.93%
======== ==== ======== ====
</TABLE>
The following table presents the average balance of each deposit type
and the average rate paid on each deposit type for the periods indicated.
70
<PAGE> 73
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------
1996 1995
--------------------------- ---------------------------
Average Average Average Average
Balance Rate Paid Balance Rate Paid
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Transaction accounts
(passbook, money market
and NOW)........... $68,748 2.26% $84,465 2.53%
Retail certificates of
deposit............ 266,770 5.89 214,333 5.63
Negotiated rate
certificates of deposit 33,812 5.61 15,787 5.60
-------- ---- -------- ----
Total................. $369,330 5.19% $314,585 4.80%
======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1995 1994 1993
-------------------------- --------------------------- --------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
----------- ----------- ----------- ----------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts
(passbook, money market
and NOW)........... $ 76,725 2.44% $105,129 2.59% $125,762 2.84%
Retail certificates of
deposit............ 236,283 5.91 206,227 4.87 179,881 4.89
Negotiated rate
certificates of deposit 20,286 5.87 12,502 4.84 10,239 5.39
-------- ---- -------- ---- -------- ----
Total................. $333,294 5.11% $323,858 4.13% $315,882 4.09%
======== ==== ======== ==== ======== ====
</TABLE>
71
<PAGE> 74
Maturities of time certificates of deposit of greater than $100,000
outstanding at March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Amount
--------------
(In thousands)
<S> <C>
Three months or less........................ $12,086
Three through six months.................... 6,504
Six through twelve months................... 8,780
Over twelve months.......................... 4,424
-----
Total................................... $31,794
=======
</TABLE>
County may obtain advances from the FHLB of Cincinnati upon the
security of certain of its residential mortgage loans and investment securities,
provided certain standards related to creditworthiness have been met. Such
advances are made pursuant to several credit programs, each of which has its own
interest rate and range of maturities, and are generally available as needed. In
1995, such advances were primarily used to fund County's lending activities. At
March 31, 1996, County had $52.3 million of FHLB advances. County also utilizes
reverse repurchase agreements as an alternative funding source.
The following table sets forth certain information regarding borrowed
funds of County at or for the dates indicated.
<TABLE>
<CAPTION>
At or for the Three Months
Ended March 31, At or for the Years Ended December 31,
------------------------------- -----------------------------------------------
1996 1995 1995 1994 1993
------------ ------------- ------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average balance outstanding........ $79,229 $72,448 $81,073 $95,496 $57,940
Balance outstanding at end of
period............................ 52,300 77,200 105,500 65,100 40,000
Weighted average interest rate
paid.............................. 5.46% 5.79% 5.80% 4.45% 4.05%
Average rate at end of period...... 5.26% 6.18% 5.80% 5.91% 3.30%
Reverse repurchase agreements:
Average balance outstanding........ $14,112 $20,217 $25,701 $5,825 $276
Balance outstanding at end of
period............................ 13,740 3,004 14,435 9,729 0
Weighted average interest rate
paid 5.73% 6.14% 6.03% 5.07% 3.58%
Average rate at end of period...... 5.66% 6.22% 5.66% 7.00% N/A
</TABLE>
OFFICES AND PROPERTIES
County conducts its business from its corporate office in Columbus,
Ohio, 10 full-service branch offices and one loan production office. County's
leased facilities are leased from unaffiliated third parties.
72
<PAGE> 75
COMPETITION
The banking business is highly competitive. County competes with other
savings and loan associations, commercial banks, credit unions, mortgage banking
companies, securities brokerage companies, insurance companies, and money market
mutual funds operating in Franklin and Licking Counties. Many of these
competitors have substantially greater resources and lending limits than County
and offer certain services that County does not currently provide. In addition,
non-depository institution competitors are generally not subject to the
extensive regulation applicable to County.
Federal legislation in recent years has eliminated many of the
distinctions between commercial banks and savings institutions and holding
companies and has allowed bank holding companies to acquire savings
institutions. Such legislation has generally resulted in an increase in the
competition encountered by savings institutions and has resulted in a decrease
in both the number of savings institutions and the aggregate size of the savings
institutions.
EMPLOYEES
County had approximately 135 full-time employees and 5 part-time
employees as of March 31, 1996. None of these employees is represented by a
collective bargaining agreement. County believes that it enjoys good relations
with its personnel.
LEGAL PROCEEDINGS
County is a party to various legal actions and complaints arising in
the ordinary course of business. It is of the opinion of management that such
matters will not materially affect County's financial condition or results of
operations.
73
<PAGE> 76
SUPERVISION AND REGULATION
The following discussion addresses the regulatory framework applicable
to bank holding companies, thrift holding companies, and their respective
subsidiaries and provides certain specific information relevant to the Company
and County. Regulation of financial institutions such as the Company and County
is intended primarily for the protection of depositors, the deposit insurance
funds of the FDIC, and the banking system as a whole, and generally is not
intended for the protection of shareholders or other investors.
The following is a summary of certain statutes and regulations that
apply to the operation of federally insured depository institutions and their
holding companies. Changes in the applicable laws, and in their application by
regulatory agencies, cannot necessarily be predicted, but they may have a
material effect on the business and results of banking organizations, including
the Company.
REGULATION AND SUPERVISION. As a bank holding company, the Company is
subject to regulation, supervision and examination by the Federal Reserve Board
under the Bank Holding Company Act ("BHCA"). Under the BHCA, bank holding
companies may not, in general, directly or indirectly acquire ownership or
control of more than 5% of the voting shares of any company, including a bank or
bank holding company, without the prior approval of the Federal Reserve Board.
In addition, bank holding companies are generally prohibited from engaging in
nonbanking (i.e., commercial or industrial) activities, subject to certain
exceptions under the BHCA.
Upon acquisition of County, the Company will also be required to
register as a savings and loan holding company. As a savings and loan holding
company, the Company will be subject to regulation under the Home Owners Loan
Act of 1933, as amended ("HOLA") and its examination and reporting requirements,
and will be subject to the supervision of the OTS except with respect to bank
subsidiaries. The OTS has broad power to impose restrictions on savings and loan
holding company activities if the OTS determines there is reasonable cause to
believe that the continuation by the holding company constitutes a serious risk
to the financial safety, soundness or stability of a subsidiary thrift. A
restriction, issued in the form of a directive, may limit (i) the payment of
dividends by subsidiary thrifts; (ii) transactions between the thrift, the
savings and loan holding company, and the subsidiaries or affiliates of either;
and (iii) any activities of the thrift that might create a serious risk that the
liabilities of the savings and loan holding company or its other affiliates may
be imposed on the thrift.
With certain exceptions, a savings and loan holding company must obtain
the prior written approval of the OTS before acquiring control of a thrift or
savings and loan holding company through the acquisition of stock or through a
merger or some other business combination. HOLA prohibits the OTS from approving
an acquisition by a savings and loan holding company which would result in the
holding company controlling thrifts in more than one state unless (i) the
holding company is authorized to do so by the FDIC as an emergency acquisition,
(ii) the holding company controls a thrift which operated an office in the
additional state or states on March 5, 1987, or (iii) the statutes of the state
in which the thrift to be acquired is located specifically permit a thrift
chartered by such state to be acquired by an out-of-state thrift or savings and
loan holding company.
The Company's banking subsidiaries are also subject to regulation,
supervision, and examination by the OCC. FNB is subject to regulation,
supervision, and examination by the OCC. Bellbrook is subject to regulation,
supervision, and examination by the FDIC and the Ohio Division of Financial
Institutions. County is and will continue to be subject to regulation,
supervision, and examination by the OTS and the Ohio Division of Financial
Institutions.
Depository institutions are also affected by various state and federal
laws, including those relating to consumer protection and similar matters, as
well as by the fiscal and monetary policies of the federal government and its
agencies, including the Federal Reserve Board. An important purpose of these
policies is to curb inflation and control recessions through control of the
supply of money and credit. The Federal Reserve Board uses its powers to
establish reserve requirements of depository institutions and to conduct open
market operations in United States government securities so as to influence the
supply of money and credit. These policies have a direct effect on the
availability of loans and deposits and on interest rates charged on loans and
paid on deposits, with the result that federal policies have a material effect
on the earnings of depository institutions, and hence, the Company.
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ACQUISITIONS OF CONTROL. The Change in Bank Control Act prohibits a
person or group of persons from acquiring "control" of a bank holding company
unless the Federal Reserve Board has been given 60 days' prior written notice of
such proposed acquisition and within that time period the Federal Reserve has
not issued a notice disapproving the proposed acquisition or extending for up to
another 30 days the period during which such a disapproval may be issued, or
unless the acquisition is subject to Federal Reserve Board approval under the
BHCA. An acquisition may be made prior to the expiration of the disapproval
period if the Federal Reserve Board issues written notice of its intent not to
disapprove the action. Under a rebuttable presumption established by the Federal
Reserve Board, the acquisition of more than 10% of a class of voting stock of a
bank holding company with a class of securities registered under Section 12 of
the Exchange Act, such as the Company, would under the circumstances set forth
in the presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of
the Federal Reserve Board under the BHCA before acquiring 25% (5% in the case of
an acquirer that is a bank holding company) or more the outstanding shares of
any class of voting stock of the Company, or otherwise obtaining "control" over
the Company. Under the BHCA, "control" generally means (i) the ownership or
control of 25% or more of any class of voting securities of the bank holding
company, (ii) the ability to elect a majority of the bank holding company's
directors, or (iii) the ability otherwise to exercise a controlling influence
over the management and policies of the bank holding company. Following the
acquisition of County, the Change in Bank Control Act will also be administered
by the OTS with respect to the Company.
REGULATORY DIVIDEND RESTRICTIONS. the Company is a legal entity
separate and distinct from its subsidiaries. The principal source of cash flow
of the Company, including cash flow to pay dividends on the Company's common
stock and debt service on its debt, is dividends from its subsidiaries. Various
federal and state statutes and regulations limit the amount of dividends that
may be paid to the Company by its banking and thrift subsidiaries without
regulatory approval. These regulatory limitations on dividends, coupled with
other regulatory provisions discussed below, may have the effect of exacerbating
any future financial difficulties by further reducing the availability of
funding sources.
The approval of the OCC is required for the payment of any dividend by
a national bank if the total of all dividends declared by the board of directors
of such bank in any calendar year would exceed the total of (i) the bank's
retained net profits (as defined and interpreted by regulation) for the current
year plus (ii) the retained net profits (as defined and interpreted by
regulation) for the preceding two years, less any required transfer to surplus
or a fund for the retirement of any preferred stock. In addition, a national
bank can pay dividends only to the extent that retained net profits (including
the portion transferred to surplus) exceed bad debts (as defined and interpreted
by regulation).
Under the Federal Deposit Insurance Act (the "FDI Act"), an insured
depository institution may not pay any dividend if it is undercapitalized or if
said payment would cause it to become undercapitalized. Also, the federal bank
regulatory agencies have issued policy statements providing depository
institutions and their holding companies should generally pay dividends only out
of current operating earnings.
Regulations promulgated by the OTS limit the amount of dividends that
may be paid by a thrift. In general, these limitations depend upon whether or
not the thrift's capital equals or exceeds its fully-phased-in capital
requirement immediately prior to, and on a pro forma basis after giving effect
to, a proposed dividend. A thrift that meets or exceeds its fully phased-in
capital requirements is categorized as a "Tier 1 association" and may not,
without the prior approval of the OTS, pay annual dividends in an amount in
excess of (i) its net income (as defined and interpreted by regulation) for that
year, plus (ii) the amount that would reduce by one-half the thrift's "surplus
capital ratio" at the beginning of the year or 75% of its net income over the
most recent four-quarter period. For purposes of determining the amount of
dividends which may be paid by a thrift, the term "surplus capital ratio" means
the percentage by which the thrift's capital-to-assets ratio exceeds the ratio
of its fully phased-in capital requirement to its assets. A thrift with capital
equal to or in excess of its minimum capital requirement, but less than its
fully phased-in capital requirement, is subject to more stringent limitations on
the amount of dividends that it may pay in any year without the prior approval
of the OTS, while a thrift that does not have capital in an amount equal to its
minimum capital requirements may not pay any dividends without the prior
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approval of the OTS. A thrift which meets the fully phased-in capital
requirements but which has received notice from the OTS that it is in need of
more than normal supervision will be treated as a thrift in one of the other two
classes noted above, at the discretion of the OTS, unless the OTS determines
that such treatment is not necessary to ensure the thrift's safe and sound
operation. The OTS also may prohibit any dividend otherwise permitted upon a
determination that the dividend would constitute an unsafe or unsound practice.
Among the circumstances posing such a risk would be a dividend by tier 1 thrift
whose capital is decreasing because of substantial losses.
HOLDING COMPANY STRUCTURE. Transactions involving banking subsidiaries.
The Bank Subsidiaries are subject to Federal Reserve Act restrictions that limit
the transfer of funds or other items of value from the Bank Subsidiaries to the
Company or the Company's subsidiaries ("affiliates") in "covered transactions."
In general, covered transactions include loans and other extensions of credit,
investments and asset purchases, as well as other transactions involving the
transfer of value from a banking subsidiary to an affiliate or for the benefit
of an affiliate. Unless an exemption applies, covered transactions by a banking
subsidiary with any of its affiliates it limited in amount to 10% of that
banking subsidiary's capital and surplus (as defined and interpreted by
regulation) and, with respect to covered transactions by a banking subsidiary
with any one of its affiliates is limited in amount to 10% of the banking
subsidiary's capital and surplus (as defined and interpreted by regulation) and,
with respect to covered transactions with all affiliates, in the aggregate, to
20% of that banking subsidiary's capital and surplus. Furthermore, loans and
extensions of credit to affiliates generally are required to be secured in
specified amounts.
Transactions involving thrift subsidiaries. OTS regulations impose
restrictions on "covered transactions" similar to those applicable to banks.
Such regulations prohibit a thrift and its subsidiaries from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. In addition, a thrift is generally
prohibited from making any loan or extension of credit to any affiliate unless
the affiliate is engaged solely in activities permissible to affiliates of
thrifts under HOLA, and is generally prohibited from purchasing any securities
of any affiliate, other than a subsidiary. A thrift and its subsidiaries may
generally not purchase a low quality asset from an affiliate unless the thrift,
pursuant to an independent credit evaluation, committed itself to purchase the
asset prior to the time the asset was acquired by the affiliate. Covered
transactions are required to be on terms consistent with safe and sound
practices.
LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS. Under the FDI Act, an
insured depository institution that is under common control with another insured
depository institution is generally liable for any loss incurred, or reasonably
anticipated to be incurred, by the FDIC in connection with the default of such
commonly controlled institution, or any assistance provided by the FDIC to any
such commonly controlled institution that is in danger of default. The term
"default" is defined generally to mean the appointment of a conservator or
receiver and the term "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. The effect of this provision is to
diminish the protection previously available to holding companies through
operation of separate depository institution subsidiaries.
SOURCE OF STRENGTH DOCTRINE. Under a policy asserted by Federal Reserve
Board, a bank holding company is expected to serve as a source of financial and
managerial strength to each of its subsidiary banks and, under appropriate
circumstances, to commit resources to support each such subsidiary bank. This
support may be sought by the Federal Reserve Board at times when a bank holding
company may not have the resources to provide it or, for other reasons, would
not otherwise be inclined to provide it.
REGULATORY CAPITAL STANDARDS AND RELATED MATTERS. The Federal Reserve
Board, the OCC, the FDIC, and the OTS have adopted substantially similar
risk-based and leverage capital guidelines for United States banking
organizations. The guidelines establish a systematic, analytical framework that
makes regulatory capital requirements sensitive to differences in risk profiles
among depository institutions, takes off-balance sheet exposure into account in
assessing capital adequacy and reduces disincentives to holding liquid, low-risk
assets. Risk-based capital ratios are determined by classifying assets and
specified off-balance sheet financial instruments into weighted categories with
higher levels of capital being required for categories perceived as representing
greater risk. Federal Reserve Board policy also provides that banking
organizations generally, and, in particular, those that are experiencing
internal growth or actively making acquisitions, are expected to maintain
capital positions that are substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
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Under the risk-based capital standard, the minimum consolidated ratio
or total capital to risk-adjusted assets (including certain off-balance sheet
items, such as standby letters of credit) required by the Federal Reserve Board
for bank holding companies, such as the Company, is currently 8%. At least
one-half of the total capital must be composed of common equity, retained
earnings, qualifying noncumulative perpetual preferred stock, a limited amount
of qualifying cumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less certain items such as
goodwill and certain other intangible assets ("Tier 1 capital"). The remainder
may consist of qualifying hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, preferred
stock that does not qualify as Tier 1 capital and a limited amount of loan and
lease loss reserves ("Tier 2 capital"). As of March 31, 1996, the Company's Tier
1 and total capital to risk-adjusted assets ratios were 17.93% and 19.15%,
respectively. At March 31, 1996, on a pro forma combined basis after giving
effect to the acquisition of County on a purchase accounting basis, financed as
described herein, the Company's estimated consolidated Tier 1 capital and total
capital to risk-adjusted assets ratios would be 11.23% and 12.28%, respectively.
In addition to the risk-based standard, the Company is subject to
minimum leverage ratio guidelines. The leverage ratio is defined to be the ratio
of a bank holding company's Tier 1 capital to its total consolidated quarterly
average assets less, goodwill and certain other intangible assets (the "Leverage
Ratio"). These guidelines provide for a minimum Leverage Ratio of 3% for bank
holding companies that have the highest supervisory rating. All other bank
holding companies must maintain a minimum Leverage Ratio of at least 4% to 5%.
Neither the Company nor either of its banking subsidiaries has been advised by
the appropriate Federal banking regulator of any specific Leverage Ratio
applicable to it. As of March 31, 1996, the Company's Leverage Ratio was 10.43%.
At March 31, 1996, on a pro forma combined basis after giving effect to the
acquisition of County on a purchase accounting basis, financed as described
herein, the Company's estimated consolidated Leverage Ratio would be 6.77%.
The Company's banking subsidiaries are also subject to capital
requirements substantially similar to those imposed by the Federal Reserve Board
on bank holding companies. As of March 31, 1996, each of the Company's banking
subsidiaries had capital in excess of the foregoing minimum regulatory capital
requirements.
Under FIRREA, the OTS is required to establish capital requirements for
thrifts no less stringent than those established by the Comptroller with respect
to banks subject to its jurisdiction. The Comptroller has established capital
requirements for banks under its jurisdiction that are substantially similar to
bank holding company capital requirements adopted by the Federal Reserve and
described above.
FIRREA and the regulations promulgated by the OTS thereunder require
thrifts to have minimum regulatory "Tangible Capital" equal to at least 1.5% of
adjusted total assets. In addition, thrifts are required to maintain minimum
regulatory "Core Capital" equal to 3% of adjusted total assets, which, as
discussed below, may be increased on a case by case basis, and to comply with
risk-based capital requirements comparable to those applicable to banks, which
currently require minimum risk-based capital equal to 8% of total risk-adjusted
assets. For purposes of determining compliance with Core Capital and risk-based
capital standards, thrifts may not include supervisory goodwill in the Core
Capital calculation.
The term "Tangible Capital" includes common stockholders' equity,
non-cumulative perpetual preferred stock and related surplus, minority interests
in equity accounts of consolidated subsidiaries and certain non-withdrawal
accounts and pledged deposits of mutual associations, minus goodwill and other
intangible assets and investments in non-includable subsidiaries. The term "Core
Capital" means Tangible Capital plus qualifying supervisory goodwill and certain
intangible assets.
At least 50% of a thrift's risk-based capital requirement must be met
with Core Capital, or "Tier 1," while the remainder may be met with
supplementary, or "Tier 2 Capital." "Tier 2 Capital" generally includes the
allowance for loan and lease losses, certain cumulative perpetual preferred
stock, certain hybrid debt-equity instruments and qualifying subordinated debt.
The risk-based capital regulations require the inclusion of 100% of the
principal amount of mortgage loans sold with recourse ("recourse servicing") for
purposes of calculating risk-weighted assets. The assets are then to be included
in the appropriate risk-weighted category based on the
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requirements of the regulation for mortgage loans. At March 31, 1996, County had
Tangible Capital and Core Capital equal to 7.3% of adjusted total assets, and
risk-based capital equal to 12.5% of total risk-adjusted assets.
PROMPT CORRECTIVE ACTION. The FDI Act requires the federal bank
regulatory agencies to take "prompt corrective action" in respect of
FDIC-insured depository institutions that do not meet minimum capital
requirements. A depository institution's treatment for purposes of the prompt
corrective action provisions will depend upon how its capital levels compare to
various relevant capital measures and certain other factors, as established by
regulation.
The federal financial institution regulatory agencies have adopted
regulations establishing relevant capital measures and relevant capital levels.
The relevant capital measures are the total capital ratio, Tier 1 capital ratio
and the Leverage Ratio. Under the regulations, a national bank will be: (i)
"well capitalized" if it has a total capital ratio or 10% or greater, a Tier 1
capital ratio of 6% or greater and a Leverage Ratio of 5% or greater and is not
subject to any order or written directive by any such regulatory authority to
meet and maintain a specific capital level for any capital measure; (ii)
"adequately capitalized" if it has a total capital ratio of 8% or greater, a
Tier 1 capital ratio of 4% or greater and a Leverage Ratio of 4% or greater (3%
in certain circumstances) and is not "well capitalized," (iii)
"undercapitalized" if it has a total capital ratio of less than 8%, a Tier 1
capital ratio of less than 4% or a Leverage Ratio of less than 4% (3% in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a Leverage
Ratio of less than 3%; and (v) "critically undercapitalized" if its tangible
equity is equal to or less than 2% of average quarterly tangible assets. In
addition, a depository institution's primary federal regulatory agency is
authorized to downgrade the depository institution's capital category to the
next lower category upon a determination that the depository institution is an
unsafe or unsound condition or is engaged in an unsafe or unsound practice. An
unsafe or unsound practice can include receipt by the institution of a less than
satisfactory rating on its most recent examination with respect to its asset
quality, management, earnings, or liquidity. As of March 31, 1996, both of the
Company's Bank Subsidiaries had capital levels that qualify them as "well
capitalized" under such regulations. County is also "well capitalized" under OTS
standards.
The banking agencies are permitted to establish, on an institution by
institution basis, individualized minimum capital requirements exceeding the
general requirements described above. Failure to meet the capital guidelines
described above could subject an insured bank to a variety of sanctions,
including asset growth restrictions and termination of deposit insurance by the
FDIC.
The FDI Act generally prohibits a depository institution from making
any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
therefore be "undercapitalized." "Undercapitalized" depository institutions are
subject to limitations on, among other things, asset growth; acquisition;
branching; new business lines; acceptance of brokered deposits; and borrowings
from the Federal Reserve System and are required to submit a capital restoration
plan. The federal bank regulatory agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lessor of (i) an amount equal to 5% of the
depository institution's total assets at the time it became "undercapitalized,"
and (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards applicable with
respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." "Significantly undercapitalized"
depository institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to become
"adequately capitalized," requirements to reduce total assets, and cessation of
receipt of deposits from correspondent banks. "Critically undercapitalized"
institutions are subject to the appointment of a receiver or conservator.
The OTS is permitted to establish, on an institution by institution
basis, individualized minimum capital requirements exceeding the general
requirements described above. Failure to meet the capital guidelines described
above could subject an insured thrift to a variety of sanctions, including asset
growth restrictions and termination of deposit insurance by the FDIC.
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FDIC INSURANCE. On May 14, 1996, the Board of Directors of the FDIC
announced an assessment schedule for BIF deposits that ranged from $0.00 to
$0.27 per $100 of insured deposits subject to assessment by the BIF, with a
statutory minimum of $2,000 per year, and $0.23 to $0.31 per $100 of insured
deposits subject to assessment by the SAIF. All of the Company's insured
deposits are BIF deposits (except $34.7 million of Oakar deposits), while all of
County's deposits are SAIF deposits.
A depository institution's risk classification is based on an
assignment of the institution by the FDIC to one of three capital groups and to
one of three supervisory subgroups. The capital groups are "well capitalized,"
adequately capitalized," and "undercapitalized." The three supervisory subgroups
are Group "A" (for financially solid institutions with only a few minor
weaknesses), Group "B" (for those institutions with weaknesses which, if
uncorrected, could cause substantial deterioration of the institution and
increase the risk to the deposit insurance fund) and Group "C" (for those
institutions with a substantial probability of loss to the fund absent effective
correction action).
QUALIFIED THRIFT LENDER ("QTL") TEST
Except in certain cases, HOLA requires savings associations to meet a
QTL test to avoid certain restrictions on their operations. Most savings
associations are required to maintain 65% of their "portfolio assets" (total
assets minus goodwill, intangibles, property used to conduct business and liquid
assets up to 20% of assets), in "qualified thrift investments" (primarily loans
and other investments related to residential real estate together with certain
other assets). A savings institution's failure to remain a QTL may result in:
(i) limitations on new investments and activities; (ii) imposition of branching
restrictions; (iii) loss of FHLB borrowing privileges; and (iv) limitations on
the payments of dividends.
RECENT DEVELOPMENTS
The deposits of County are presently insured by the SAIF, which
together with the BIF are the two insurance funds administered by the FDIC. As a
result of the BIF's reaching its statutory reserve ratio, the FDIC revised the
premium schedule for BIF insured institutions to provide a range of 0.04% to
0.31% of deposits. The revisions became effective in the third quarter of 1995.
The BIF premium schedule was further revised, effective January 1996, to provide
a range of 0% to 0.27% with an annual minimum assessment of $2,000. As a result
of these adjustments, BIF insured institutions now generally pay lower premiums
than SAIF insured institutions.
The FDIC has noted that the SAIF is not expected to attain its
designated reserve ratio until the year 2002. As a result, SAIF insured members
will generally be subject to higher deposit insurance premiums than BIF insured
institutions until, all things being equal, the SAIF attains its required
reserve ratio.
The effect of this disparity on County and other SAIF members is
uncertain at this time. It may have the effect of permitting BIF member banks to
offer loan and deposit products on more attractive terms than SAIF members due
to the cost savings achieved through lower premiums, thereby placing SAIF
members at a competitive disadvantage. In order to eliminate this disparity, a
number of proposals to recapitalize the SAIF have been considered by the United
States Congress in 1995 and 1996. One proposal under current consideration
provides for a one-time assessment to be imposed on all deposits assessed at the
SAIF rates, as of March 31, 1995, in order to recapitalize the SAIF and
eliminate the premium disparity. The BIF and SAIF would be merged into one fund
as soon as practicable, but no later than January 1, 1998. The special
assessment rate is anticipated to range from 0.85% to 0.90%. Based on County's
level of SAIF deposits at March 31, 1996 and assuming a special assessment of
0.90%, County's assessment would be approximately $3.3 million on a pre-tax
basis. If the legislation is enacted, it is anticipated the assessment would be
payable in 1996. Accordingly, this special assessment would adversely affect
County's results of operations, unless such assessment is made within one year
of closing of the Acquisition, in which case it may be accounted for as a
purchase price adjustment, thereby increasing the amount of goodwill recorded by
the Company. Conversely, depending on County's capital level and supervisory
rating, and assuming, although there can be no assurance, that the insurance
premium levels for BIF and SAIF members are again equalized, deposit insurance
assessments could decrease significantly to as low as 0.04% for future periods.
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As part of the currently pending Budget Reconciliation Act for fiscal
year 1996, the House-Senate Conference Committee has proposed an assessment on
all FDIC-insured depository institutions to provide funds for payment of
interest on Financing Corporation debt when due. If enacted, this proposal would
result in minimum BIF insurance premiums which are expected to be approximately
$0.025 on each $100 in deposits subject to BIF assessments.
As part of the legislation, Congress is considering requiring all
federal thrift institutions, such as County, to convert either to a national
bank or to a state chartered financial institution by January 1, 1998. In
addition, the Company would no longer be regulated as a thrift holding company,
but rather only as a bank holding company. The OTS would also be abolished and
its functions transferred among the other federal banking regulators. Certain
aspects of the legislation remain to be resolved and therefore no assurance can
be given as to whether or in what form the legislation will be enacted or its
effect on the Company or County.
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MANAGEMENT OF THE COMPANY
CURRENT DIRECTORS AND EXECUTIVE OFFICERS. The current directors and
executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Gary N. Fields 55 President and Chief Executive Officer of the
Company
David A. Arnold 58 Vice President of the Company and President and
Chief Executive Officer of FNB
James H. Nicholson 33 Secretary and Treasurer of the Company and Chief
Financial Officer and Executive Vice President of
FNB
Frederick A. O'Dell 48 Senior Vice President of FNB
Robert M. Butler 49 Senior Vice President of FNB
Charles E. White 56 Senior Vice President of FNB
Theresa L. Barnhart 41 Senior Vice President of FNB
William A. Dougherty 37 President and Chief Executive Officer of Bellbrook
William F. Randles 62 Director, Chairman of the Board of the Company
and FNB
Philip E. Burke 58 Director
Frank J. Dosch 37 Director
Richard O. Johnson 67 Director
Milman H. Linn, III 65 Director
Karl C. Saunders 44 Director
William T. Stewart 48 Director
John W. Straker, Jr. 40 Director
Lynn H. Willett 54 Director
</TABLE>
GARY N. FIELDS was appointed President and Chief Executive Officer in
April 1996. He had served as Vice President of the Company since February 1994.
From September 1991 to February 1994, he was employed by Bank One, Columbus,
where he coordinated the merger of The Central Trust Company of Central Ohio
into Bank One. In addition, he performed various special projects for BancOne
Ohio Corp. From September 1986 to September 1991, he served as president of The
Central Trust Company of Central Ohio.
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DAVID A. ARNOLD served as Executive Vice President of FNB from April
1991 to February 1996 and has served as President and Chief Executive Officer of
FNB since February 1996. From April 1988 to April 1991, Mr. Arnold served as
Executive Vice President and Chief Administrative Officer of Bay Bank & Trust
Co., Panama City, Florida. From November 1980 to April 1988, Mr. Arnold served
as Executive Vice President of Commercial National Bank, Tiffin, Ohio.
JAMES H. NICHOLSON has served as Chief Financial Officer of FNB since
April 1994 and served as Controller of FNB from June 1990 to April 1994. Mr.
Nicholson has served as Secretary/Treasurer of the Company since April 1991 and
was elected Executive Vice President of FNB in May 1996. From June 1988 to June
1990, he served as Manager of Accounting and Finance for Rickenbacker
Development Corp. From September 1984 to June 1988, Mr. Nicholson was an audit
supervisor for Coopers & Lybrand.
FREDERICK A. O'DELL has served as Senior Vice President of FNB since
March 1992 in the capacity of senior lender and credit administrator. From June
1991 to March 1992, Mr. O'Dell served as Vice President-Business Development for
FNB. From August 1983 to May 1991, Mr. O'Dell served as Area President for
BancOhio National Bank.
ROBERT M. BUTLER has served as Senior Vice President of FNB since
February 1995. Mr. Butler currently serves as President and Chief Executive
Officer of First Financial Services Group, NA (FFSG) which focuses on investment
and trust services and services all holding company affiliates. From August 1993
to February 1995, Mr. Butler served as Senior Vice President of the Trust
Company of Kentucky, Ashland, Kentucky. From July 1989 to July 1993, he served
as Vice President and Senior Trust Officer of United Southern Bank, Estis,
Florida.
CHARLES E. WHITE has served as Senior Vice President of FNB since
November 1987. Mr. White is currently responsible for managing the Retail
Customer Banking division of FNB, which encompasses the branch network, in-store
banking and electronic banking. Mr. White has served in numerous capacities
during his 38 years with FNB.
THERESA L. BARNHART has served as Senior Vice President of FNB since
April 1994. Ms. Barnhart currently serves as FNB's Senior Operations Officer.
Ms. Barnhart joined FNB in 1971 and has held numerous positions within FNB's
operations area.
WILLIAM A. DOUGHERTY has served as President and Chief Executive
Officer of Bellbrook since July 1995. From May 1986 to July 1995, he was an
employee of various affiliates of FirstMerit Corporation. From June 1992 to July
1995, Mr. Dougherty served as Vice President and Senior Retail Lending Officer,
Elyria Savings & Trust National Bank, Elyria, Ohio. From October 1990 to June
1992, Mr. Dougherty served as Assistant Vice President and Manager of Indirect
Lending, First National Bank of Ohio, Akron, Ohio. From May 1986 to October
1990, he served as Installment Loan Officer & Assistant Manager Installment Loan
Department, Old Phoenix National Bank, Medina, Ohio.
WILLIAM F. RANDLES has served as a director of FNB since 1984 and a
director of the Company since 1990. Since January 1996, Mr. Randles has served
as Chairman of the Board of the Company and FNB. Since 1967, Mr. Randles has
been General Manager of T.C.I., Inc. He also serves as a director of G-Pax, Inc.
PHILIP E. BURKE was elected as a director of the Company in May 1996.
Mr. Burke has served as a director of Bellbrook since 1982. Mr. Burke has served
as President and Chief Executive Officer of Burke Products, Inc. since 1966.
FRANK J. DOSCH, CLU, CHFC has served as a director of FNB and the
Company since 1994. Since 1988, Mr. Dosch has served as a president of The
Forker Company and is a district agent for Northwestern Mutual Life.
RICHARD O. JOHNSON, D.H.L. has served as a director of FNB since 1982
and a director of the Company since 1990. Since 1991, Mr. Johnson has been
President of J. J. Agro, Inc. From 1952 to 1991, Mr. Johnson served as President
and Manager of the Clay City Beverage Company. Mr. Johnson is a director of
National Gas and Oil Company.
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MILMAN H. LINN, III has served as a director of FNB since 1981 and a
director of the Company since 1990. Mr. Linn serves as President of Zanesville
Stoneware Co., first elected to that position in June 1957.
KARL C. SAUNDERS, M.D., F.A.C.S. has served as a director of FNB since
1989 and a director of the Company since 1990. Dr. Saunders is an orthopedic
surgeon with Orthopedic Associates of Zanesville.
WILLIAM T. STEWART, PHD., P.E. has served as a director of FNB and the
Company since 1991. Dr. Stewart is President of Stewart Glapat Corp., first
elected to that position in June 1985.
JOHN W. STRAKER, JR. began serving as a director of FNB and the Company
in 1993. Since 1984, Mr. Straker has served as President of Oxford Oil Company.
LYNN H. WILLETT, PH.D. has served as a director of FNB and the Company
since 1992. Since 1986, Dr. Willett has served as President of Muskingum Area
Technical College.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Several directors of the Company and/or FNB and/or Bellbrook are
affiliated with entities engaged in various levels of business activity with FNB
and/or Bellbrook. These and other transactions of FNB and/or Bellbrook with
officers, directors, employees, principal shareholders or affiliates have been
or will be (i) made in the ordinary course of business; (ii) on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transaction with other persons; and (iii) such that did
not or do not involve more than the normal risk of collectibility or present
other unfavorable features.
83
<PAGE> 86
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to each person
known to the Company to be the beneficial owner of more than 5% of the issued
and outstanding common stock of the Company as of June 1, 1996, the directors,
and shares held by certain of the executive officers, and the officers and
directors as a group. There are currently no options or other convertible
securities outstanding. Certain of the directors and executive officers may
purchase shares of Common Stock in the Offering. Any such purchases are not
reflected in the following table:
<TABLE>
<CAPTION>
Percent Owned (1)
------------------------------------
Number of
Shares
Name and Address of Beneficially After
Beneficial Owner Owned Before Offering Offering
- ------------------------------- ------------ --------------- --------
<S> <C> <C> <C>
FNB, Trustee 381,557(2) 12.83% 9.85%
422 Main Street
Zanesville, Ohio 43702-2668
J.W. Straker, Sr. 160,911 5.41% 4.15%
4120 Harbor Oaks Court
Bonita Springs, Florida 33923
Milman H. Linn, III 80,464 2.71% 2.08%
Richard O. Johnson 58,726 1.97% 1.52%
John W. Straker, Jr. 131,276 4.41% 3.39%
Lynn H. Willett 1,288 * *
Frank J. Dosch 9,524 * *
William F. Randles 14,352 * *
Karl C. Saunders 8,648 * *
William T. Stewart 9,617 * *
Philip E. Burke 5,550 * *
David A. Arnold 4,315 * *
Frederick A. O'Dell 1,206 * *
James H. Nicholson 1,987 * *
Gary N. Fields 1,100 * *
All officers and directors as 339,295 11.41% 8.76%
a group (17 persons)
</TABLE>
* Less than one percent.
(1) Percentages are based upon 2,973,813 shares of Common Stock outstanding on
June 20, 1996 and 3,873,813 shares to be outstanding after the Offering.
(2) Of these shares, FNB has no investment power in 33,495 shares (shared
investment power in 350,710 shares) and sole voting power in 100,306 shares
(shared voting power in 283,899 shares).
84
<PAGE> 87
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL. The Company is authorized to issue 7,500,000 shares of Common
Stock, $10.00 par value. The Company is not authorized to issue preferred stock.
At June 17, 1996, a total of 3,033,919 shares of Common Stock were issued, of
which 2,973,813 shares were outstanding and held of record by approximately
1,160 shareholders.
The holders of Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of the shareholders,
unless a shareholder exercises cumulative voting rights for the election of
directors, as discussed below and are entitled to receive ratably such dividends
as are declared by the Company's Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock have the right to a ratable portion of the
assets remaining after payment of liabilities to creditors. The holders of
Common Stock have no preemptive right or rights to convert their Common Stock
into other securities and are not subject to future calls or assessments by the
Company. All outstanding shares of Common Stock are validly issued, fully paid
and non-assessable.
The holders of Common Stock are entitled to invoke their rights under
Ohio law to vote cumulatively their shares of Common Stock in the election of
directors. When shares are voted cumulatively, the shareholder multiplies the
number of his votes by the number of directors to be elected and may give any
one or more candidates any portion of his total votes as so computed.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Articles
of Incorporation and Code of Regulations and Ohio law may delay or prevent a
change of control of the Company and may make more difficult the removal of
incumbent management, even if such transactions could be beneficial to the
shareholders of the Company. The Company's Articles of Incorporation provide for
three classes of directors, with each director's term of office continuing for
three years. Consequently, only a portion of the Company's Board of Directors is
elected in any one year.
In addition, the Company's Articles of Incorporation require the
approval of a majority of the outstanding shares of Common Stock for approval of
an amendment, alteration or repeal of the Articles of Incorporation, provided,
however, that the affirmative vote of the holders of 75% of the outstanding
shares is required to amend the provisions of the Articles of Incorporation
related to indemnification of officers and directors, voting requirements in
mergers, consolidations and sales and amendment of the Articles of
Incorporation. The Company's Articles of Incorporation also require the approval
of 75% of the outstanding shares entitled to vote in order to consolidate or
merge; to sell, exchange, transfer or dispose of all or substantially all of the
Company's assets; or to cause a combination or majority shares acquisition
involving the issuance of shares of the Company; provided, however, that the 75%
requirement does not apply if two-thirds of the Company's directors have
approved the transaction.
Ohio law contains a "control share acquisition" statute designed to
prevent an acquiring person from gaining the voting rights of an Ohio
corporation without the approval of the corporation's shareholders. The "control
share acquisition" statute applies to any corporation with 50 or more
shareholders that has its principal place of business in Ohio. This statute
provides that the acquiring person must obtain authorization of the holders of a
majority of the outstanding capital stock of the corporation (excluding shares
owned by the acquiring person) prior to making the proposed control share
acquisition. The acquiring person must deliver an "acquiring person statement"
to the corporation which includes information related to the terms of the
proposed control share acquisition. Within ten days of the corporation's
receiving the acquiring person statement, the corporation must call a special
shareholders' meeting to vote upon the proposed control share acquisition.
Ohio also has a form of business combination statute that applies to
Ohio corporations that have a class of shares registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The statute
prohibits certain business combinations with "interested shareholders" unless
such combinations are approved by the directors of the issuing corporation. A
business combination with the interested shareholder can also take place so long
as two-thirds of the non-interested shareholders approve such combination three
years after
85
<PAGE> 88
the interested shareholder first became an "interested shareholder" or if the
holders of common stock receive the highest of (i) the fair market value on the
date of the announcement of the business combination; (ii) the fair market value
on the interested shareholder's acquisition date; or (iii) the highest price per
share paid by the interested shareholder within three years immediately
preceding the announcement date or the acquisition date.
Ohio also has a control bid statute applicable to any corporation with
its principal place of business in Ohio and more than 10% of its record equity
security holders being residents of the State of Ohio. The control bid statute
requires the filing of a control bid statement, which includes a statement by
the acquiring person of any plans or proposals to liquidate, sell the assets of,
or merge or consolidate the subject company.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Common Stock is Chase Mellon Shareholder Services, 85 Challenger Road,
Ridgefield Park, New Jersey 07660.
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below (the "Underwriters"), through
the Representative, have severally agreed to purchase and the Company has agreed
to sell to them, severally, the respective number of shares of Common Stock set
forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
McDonald & Company Securities, Inc....................
-------
Total............................................ 900,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions as stated therein, and that none
of the shares of the Company's Common Stock offered hereby can be sold unless
the Company and the Representative determine that all of the material conditions
precedent to the consummation of the Acquisition have been or will be fulfilled,
or waived to the satisfaction of the Representative, concurrently with or
immediately following the sale of the shares of the Company's Common Stock
offered hereby. The Underwriters will be obligated to purchase all of the
foregoing shares of the Company's Common Stock, if any such shares are
purchased.
The Company has been advised by the Underwriters that the Underwriters
propose initially to offer the Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $_____ per share. The Underwriters
may allow, and such dealers may re-allow, a concession not in excess of $_____
per share to certain other dealers. After the shares are released for sale to
the public, the offering price and such concessions may be changed.
The offering of the shares of the Company's Common Stock is made for
delivery when, as and if, accepted by the Underwriters and subject to prior sale
and to withdrawal, cancellation or modification of the offer without notice. The
Underwriters reserve the right to reject any order for the purchase of the
shares.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days from the date of this Prospectus, to purchase up to an
additional 135,000 shares of Common Stock to cover over-allotments. To the
extent that the Underwriters exercise this option, the Underwriters will have a
firm commitment to purchase approximately the same percentage thereof that the
number of shares of the Company's Common Stock to be purchased by it as shown in
the table above bears to 900,000 and the Company will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby. If purchased, the
86
<PAGE> 89
Underwriter will sell such additional shares on the same terms as those on which
the 900,000 shares are being offered.
The Company and its directors, executive officers and five percent
shareholders, will agree that they will not, without the prior written consent
of the Representative, sell, transfer, assign or otherwise dispose of any shares
of Common Stock owned by them prior to the expiration of 180 days from the date
of the Underwriting Agreement.
In connection with this Offering, certain of the Underwriters,
including the Representative, which are qualified registered market makers on
the Nasdaq National Market, may engage in passive market making transactions in
the Company's Common Stock on the Nasdaq National Market in accordance with Rule
10b-6A under the Exchange Act during the two business day period before
commencement of offers or sales of the Company's Common Stock. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for the Company's
Common Stock; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
which the Underwriters or any such controlling persons may be required to make
in respect thereof. Pursuant to the Underwriting Agreement, contribution to the
aggregate losses shall be in such proportions as are applicable to reflect the
relative benefits received by the parties to the agreement.
The Representative has from time to time performed various investment
banking and other services for the Company for which customary compensation has
been received. In connection with the Acquisition, the Representative provided
services to the Company for which it has been paid $70,000 and will receive an
additional $155,000 at Closing.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon
for the Company by Emens, Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus,
Ohio. Certain legal matters will be passed upon for the Underwriters by Vorys,
Sater, Seymour and Pease, Cincinnati, Ohio.
EXPERTS
The consolidated financial statements of the Company and County as of
December 31, 1995, and for each of the three years in the period ended December
31, 1995 included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Copies of reports, proxy statements
and other information concerning the Company also may be obtained from the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
87
<PAGE> 90
The Company has filed with the Commission a Registration Statement on
Form S-3 (Registration No. ________________) (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Company's Common Stock to be
issued in the offering contemplated hereby (the "Offering"). This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits thereto. Such additional information may be inspected and copied as
set forth above. Statements contained in this Prospectus or in any document
incorporated in this Prospectus by reference as to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1995; (ii) the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996; (iii) the Company's Current
Report on Form 8-K filed on March 28, 1996; (iv) the description of the
Company's Common Stock contained in the Registration Statement on Form 8-A.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and shall be part hereof from the date of filing of such
document. Any statement contained in the documents incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Prospectus. The Company will provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any document described above (other than exhibits). Requests for such
copies should be directed to James H. Nicholson, BancFirst Ohio Corp., 422 Main
Street, P.O. Box 4638, Zanesville, Ohio 43702-4658, telephone (614) 452-7000.
88
<PAGE> 91
BANCFIRST OHIO CORP.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial Statements of
the Company include the historical Consolidated Financial Statements of the
Company and County and give effect to the transactions and events described in
the Notes to the Pro Forma Consolidated Financial Statements as if the
transactions and events referred to therein were initiated at the beginning of
1995 in the case of the unaudited Pro Forma Consolidated Statements of Income
and as of March 31, 1996, in the case of the unaudited Pro Forma Consolidated
Balance Sheet.
The unaudited Pro Forma Consolidated Financial Statements give effect
to the following transactions and events: (i) the sale and issuance of 900,000
shares of Common Stock in the Offering, (ii) borrowings of $15.0 million under a
loan agreement to be entered into with LaSalle National Bank, and (iii) the
aggregate amount of cash to be paid to FFG and its shareholders as a result of
the proposed Acquisition. The proposed Acquisition will be accounted for as a
purchase and County's assets and liabilities will be restated at their fair
values and identifiable intangible assets will be recorded. The excess of the
purchase price over the assets acquired and liabilities assumed will be recorded
as goodwill. The unaudited Pro Forma Consolidated Financial Statements do not
give effect to any revenue enhancements or operating efficiencies that
management believes may result from the Acquisition.
Management believes the assumptions used provide a reasonable basis on
which to present the unaudited Pro Forma Consolidated Financial Statements. This
information should be read in conjunction with the historical Consolidated
Financial Statements and Notes thereto of both the Company and County included
elsewhere in this Prospectus. See "Consolidated Financial Statements--BancFirst
Ohio Corp." and "Consolidated Financial Statements--County Savings Bank." The
Pro Forma Consolidated Financial Statements are not necessarily indicative of
the Company's results of operations or financial position had the transactions
above been consummated on the dates assumed and do not project the Company's
results of operations or the Company's financial position for any future date or
period.
89
<PAGE> 92
BANCFIRST OHIO CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME SUMMARY
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1996 December 31, 1995
-------------- -----------------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Interest and fees on loans ........................... $ 13,531 $ 49,346
Interest and dividends on securities:
Taxable ............................................ 4,650 19,652
Tax exempt ......................................... 329 1,148
Other interest income (fed funds) ...................... 88 216
---------- ----------
Total interest income .......................... 18,598 70,362
---------- ----------
Interest expense:
Time deposits over $100 .............................. 710 2,498
Other deposits ....................................... 7,403 26,971
FHLB Advances ........................................ 1,914 8,475
Other borrowings ..................................... 653 2,752
---------- ----------
Total interest expense ......................... 10,680 40,696
---------- ----------
Net interest income ............................ 7,918 29,666
Provision for possible loan losses ..................... 417 1,217
---------- ----------
Net interest income after provision for loan losses .... 7,501 28,449
---------- ----------
Non-interest income:
Trust and custodian fees ............................. 375 1,259
Customer service fees ................................ 553 2,302
Investment securities gains .......................... 235 298
Gain on sale of loans ................................ 630 1,432
Other ................................................ 286 1,363
---------- ----------
Total non-interest income ...................... 2,079 6,654
---------- ----------
Non-interest expenses:
Salaries and employee benefits ....................... 3,230 12,322
Net occupancy expense ................................ 491 1,884
Other ................................................ 2,433 9,791
---------- ----------
Total non-interest expenses ............................ 6,154 23,997
---------- ----------
Income before income taxes ........................... 3,426 11,106
Provision for federal income taxes ..................... 1,076 2,976
---------- ----------
Net income ......................................... $ 2,350 $ 8,130
---------- ----------
Net income per share ................................... $ 0.61 $ 2.10
---------- ----------
Weighted average shares outstanding .................... 3,872,294 3,873,694
========== ==========
</TABLE>
90
<PAGE> 93
BANCFIRST OHIO CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------------------------
BancFirst County Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
---------- ---------- ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans................ $ 23,088 $26,940 $ (682) (1) $ 49,346
Interest and dividends on securities:
Taxable................................. 9,611 9,913 128 (1) 19,652
Tax exempt.............................. 1,148 1,148
Other interest income..................... 216 -- -- 216
---------- ------- -------- ----------
Total interest income............... 34,063 36,853 (554) 70,362
---------- ------- -------- ----------
Interest expense:
Time deposits over $100................... 2,498 2,498
Other deposits............................ 9,927 17,190 (146) (1) 26,971
Federal Home Loan Bank Advances........... 3,765 4,701 9 (1) 8,475
Other borrowings.......................... 167 1,555 1,030 (2) 2,752
---------- ------- -------- ----------
Total interest expense.............. 16,357 23,446 893 40,696
---------- ------- -------- ----------
Net interest income................. 17,706 13,407 (1,447) 29,666
Provision for possible loan losses.......... 967 250 1,217
---------- ------- -------- ----------
Net interest income after provision for loan
losses ..................................... 16,739 13,157 (1,447) 28,449
---------- ------- -------- ----------
Non-interest income:
Trust and custodian fees................... 1,259 1,259
Customer service fees...................... 1,714 588 2,302
Investment securities gains/losses......... 136 162 298
Gain on sale of loans...................... 1,310 122 1,432
Other...................................... 565 798 -- 1,363
---------- ------- -------- ----------
Total non-interest income............ 4,984 1,670 -- 6,654
Non-interest expenses:
Salaries and employee benefits............. 6,866 5,456 12,322
Net occupancy expense...................... 752 1,080 52 (1) 1,884
Other...................................... 5,187 3,295 709 (1) 9,791
600 (3)
---------- ------- -------- ----------
Total non-interest expenses.................. 12,805 9,831 1,361 23,997
---------- ------- -------- ----------
Income before income taxes................. 8,918 4,996 (2,808) 11,106
Provision for federal income taxes........... 2,706 984 (714) (5) 2,976
---------- ------- -------- ----------
Net income............................... $ 6,212 $ 4,012 $ (2,094) $ 8,130
========== ======= ======== ==========
Net income per share......................... $ 2.09 $ 2.10
========== ==========
Weighted average shares outstanding.......... 2,973,694 900,000 3,873,694
========== ======== ==========
</TABLE>
91
<PAGE> 94
BANCFIRST OHIO CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1996
--------------------------------------------------------------------
BancFirst County Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
---------- ---------- ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans................ $ 6,187 $7,515 (171) (1) $ 13,531
Interest and dividends on securities:
Taxable................................. 2,537 2,081 32 (1) 4,650
Tax exempt.............................. 329 -- 329
Other interest income ...................... 88 -- -- 88
---------- ------ -------- ---------
Total interest income............... 9,141 9,596 (139) 18,598
---------- ------ -------- ---------
Interest expense:
Time deposits over $100................... 710 -- -- 710
Other deposits............................ 2,668 4,772 (37) (1) 7,403
Federal Home Loan Bank Advances........... 838 1,074 2 (1) 1,914
Other borrowings.......................... 192 204 257 (2) 653
---------- ------ -------- ---------
Total interest expense.............. 4,408 6,050 222 10,680
---------- ------ -------- ---------
Net interest income................. 4,733 3,546 (361) 7,918
Provision for possible loan losses.......... 292 125 -- 417
---------- ------ -------- ---------
Net interest income after provision for loan
losses ..................................... 4,441 3,421 (361) 7,501
---------- ------ -------- ---------
Non-interest income:
Trust and custodian fees................... 375 -- -- 375
Customer service fees...................... 411 142 -- 553
Investment securities gains/losses......... 2 233 -- 235
Gain on sale of loans...................... 596 34 -- 630
Other...................................... 180 106 -- 286
---------- ------ -------- ---------
Total non-interest income............ 1,564 515 -- 2,079
Non-interest expenses:
Salaries and employee benefits............. 1,887 1,343 3,230
Net occupancy expense...................... 205 273 13 (1) 491
Other 1,295 844 144 (1) 2,433
150 (3)
---------- ------ -------- ---------
Total non-interest expenses.................. 3,387 2,460 307 6,154
---------- ------ -------- ---------
Income before income taxes................. 2,618 1,476 (668) 3,426
Provision for federal income taxes........... 763 491 (178) (5) 1,076
---------- ------ -------- ---------
Net income............................... $ 1,855 $ 985 $ (490) $ 2,350
========== ====== ======== =========
Net income per share......................... $ 0.62 $ 0.61
========== =========
Weighted average shares outstanding.......... 2,972,294 900,000 3,872,294
========== ======== =========
</TABLE>
92
<PAGE> 95
BANCFIRST OHIO CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------------------------
BANCFIRST COUNTY PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks .................... $ 13,364 $ 2,772 $ (6,401)(4)(5) $ 9,735
Federal funds sold ......................... 3,087 -- -- 3,087
Securities held to maturity, at amortized
cost (approximate fair value of $8,783
and $55,914 for the Company and County,
respectively) ............................ 8,783 56,936 (1,024)(3) 64,695
Securities available-for-sale, at fair value 169,412 54,891 -- 224,303
--------- --------- --------- ---------
Total investment securities .............. 178,195 111,827 (1,024) 288,998
--------- --------- --------- ---------
Loans, net of unearned income .............. 277,715 348,734 3,410 (3) 629,859
Allowance for possible loan losses ......... (3,406) (2,093) -- (5,499)
--------- --------- --------- ---------
Net loans ................................ 274,309 346,641 3,410 624,360
--------- --------- --------- ---------
Premises and equipment, net ................ 4,282 2,008 1,290 (3) 7,580
Accrued interest receivable ................ 3,835 2,801 -- 6,636
Other assets ............................... 4,418 2,324 -- 6,742
Noncompete agreement ....................... -- -- 3,000 (5) 3,000
Core deposit intangibles ................... -- -- 3,400 (3) 3,400
Goodwill ................................... -- -- 5,064 (4) 5,064
--------- --------- --------- ---------
Total assets ....................... $ 481,490 $ 468,373 $ 8,739 $ 958,602
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Non-interest-bearing deposits ............ $ 40,545 $ 8,639 $ 49,184
Interest-bearing deposits ................ 315,691 356,068 $ 292 (3) 672,051
--------- --------- --------- ---------
Total deposits ......................... 356,236 364,707 292 721,235
Short-term borrowings ...................... 4,900 66,040 9 (3) 70,931
Long-term borrowings ....................... 66,631 -- 15,000 (1) 81,631
Accrued interest payable ................... 1,437 635 2,072
Other liabilities .......................... 2,081 2,558 1,682 (3) 6,321
--------- --------- --------- ---------
Total liabilities .................. 431,285 433,940 16,965 882,190
--------- --------- --------- ---------
Shareholders' equity:
Common stock ............................. 30,340 600 8,400 (2)(4) 39,340
Capital in excess of par value ........... 6,905 -- 17,207 (2)(4) 24,112
Retained earnings ........................ 14,134 33,822 (33,822)(4) 14,134
Unrealized holdings gains (losses) on
securities available-for-sale, net .... (19) 11 (11)(4) (19)
Treasury stock ........................... (1,155) -- -- (1,155)
--------- --------- --------- ---------
Total shareholders' equity ......... 50,205 34,433 (8,226) 76,412
--------- --------- --------- ---------
Total liabilities and
shareholders' equity .............. $ 481,490 $ 468,373 $ 8,739 $ 958,602
========= ========= ========= =========
</TABLE>
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<PAGE> 96
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
BASIS OF PRESENTATION
The following pro forma adjustments are based on available information
and certain estimates and assumptions. Therefore, it is likely that the actual
adjustments will differ from the pro forma adjustments. The Company believes
that such assumption provide a reasonable basis for presenting all of the
significant effects of the following transactions and events that the pro forma
adjustments give appropriate effect to those assumptions and are properly
applied in the unaudited pro forma consolidated financial statements.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents long-term borrowings of $15,000 under a loan agreement
to be entered into with LaSalle National Bank to fund a portion of the proposed
Acquisition.
(2) Represents the issuance and sale of 900,000 shares of Common Stock
in the Offering, at an assumed price of $31.50.
(3) Represents the impact of the purchase accounting adjustments as
follows:
<TABLE>
<CAPTION>
Debit Credit
----- ------
<S> <C> <C>
Core deposit intangibles................. $3,400
Bank premises and equipment, net......... 1,290
Loans.................................... 3,410
Short-term borrowings.................... 9
Securities held-to-maturity........... $1,024
Other liabilities..................... 1,682
Interest-bearing deposits............. 292
</TABLE>
Deferred taxes have been provided on the difference between the tax
basis and the new book basis of assets acquired and liabilities assumed at the
statutory federal rate of 34% and recorded as other liabilities.
(4) Represents the proposed Acquisition for a purchase price of
$44,775, subject to adjustment by the amount by which County's shareholder's
equity is greater than or less than $35,000 at the date of closing. The pro
forma consolidated balance sheet reflects a downward adjustment of $567 to the
purchase price based upon County's shareholder's equity at March 31, 1996.
Approximately $400 of direct acquisition costs to be paid in cash are
capitalized. The proposed Acquisition will be funded by the net proceeds from
the Offering, $15,000 of long-term borrowings and utilization of approximately
$6,401 of existing Company assets.
<TABLE>
<S> <C>
Purchase price $ 44,775
Capitalized acquisition costs 440
--------
Total acquisition costs 45,175
County Savings shareholder's equity at March 31, 1996 34,433
Shareholder's equity at March 31, 1996 below agreed
upon capital level at closing (567)
--------
Excess value over book value $ 10,175
========
Adjustments to reflect fair value:
Securities $ (1,024)
Loans 3,410
Bank premises and equipment 1,290
</TABLE>
94
<PAGE> 97
<TABLE>
<S> <C>
Core deposit asset 3,400
Interest bearing deposits (292)
Short-term borrowings 9
Other liabilities (1,682)
--------
Total fair value adjustments $ 5,111
--------
Total goodwill $ 5,064
========
</TABLE>
(5) Represents payment of approximately $3,000 to shareholders of
FFG pursuant to non-competition agreements.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(1) Represents the amortization of the purchase accounting adjustments
over the following periods:
Amortization for the purchase accounting adjustment is as follows:
<TABLE>
<CAPTION>
Amortization Amortization
Period method
------ ------
<S> <C> <C>
Bank premises and equipment, net......... 25 years Straight-line
Loans.................................... 5 years Straight-line
Securities held to maturity.............. 8 years Level yield
Core deposit intangibles................. 15 years Accelerated
Goodwill................................. 25 years Straight-line
Interest-bearing deposits................ 2 years Straight-line
Short-term borrowings.................... 1 year Level yield
</TABLE>
(2) Represents interest expense on $15,000 of long-term borrowings.
(3) Represents amortization of the non-competition agreements on a
straight-line basis over five years.
(4) Represents estimated income tax effects of the pro forma
adjustments at an effective tax rate of 34%.
95
<PAGE> 98
INDEX TO COMPANY CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.............................................................................. F-2
Consolidated Balance Sheet, March 31, 1996 (unaudited) and December 31, 1995 and 1994.......................... F-3
Consolidated Statement of Income for the three months ended March 31, 1996 and 1995 (unaudited)
and years ended December 31, 1995, 1994 and 1993.......................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity for the three months ended March 31, 1996
and 1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993................................. F-6
Consolidated Statement of Cash Flow for the three months ended March 31, 1996 and 1995 (unaudited)
and for the years ended December 31, 1995, 1994 and 1993.................................................. F-8
Notes to Consolidated Financial Statements..................................................................... F-10
</TABLE>
F-1
<PAGE> 99
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
BancFirst Ohio Corp.
We have audited the accompanying consolidated balance sheets of BancFirst Ohio
Corp. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BancFirst Ohio
Corp. and Subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As disclosed in Note 1, effective January 1, 1994, the Corporation changed its
method of accounting for certain investment securities. As discussed in Note 12,
effective January 1, 1993, the Corporation changed its method of accounting for
income taxes.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 24, 1996, except for Note 20
as to which the date is
March 27, 1996
F-2
<PAGE> 100
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, March 31, 1996 (unaudited) and
December 31, 1995 and 1994
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
--------- --------------------------
ASSETS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash and due from banks (Note 3) $ 13,364 $ 14,102 $ 18,831
Federal Funds sold 3,087 2,600 300
Securities held to maturity
(approximate fair value of $8,866,
$8,548 and $61,160 at March 31, 1996,
December 31,1995 and 1994,
respectively, (Note 4)) 8,783 8,392 64,631
Securities available for sale, at fair value 169,412 169,860 88,964
--------- --------- ---------
Total investment securities 178,195 178,252 153,595
Loans (Notes 5 and 6) 277,715 268,818 247,943
Allowance for possible loan losses (3,406) (3,307) (3,095)
--------- --------- ---------
Net loans 274,309 265,511 244,848
--------- --------- ---------
Premises and equipment, net (Note 7) 4,282 4,120 4,313
Accrued interest receivable 3,835 3,458 3,066
Other assets 4,418 8,386 4,431
--------- --------- ---------
Total assets $ 481,490 $ 476,429 $ 429,384
========= ========= =========
LIABILITIES
Deposits (Note 8):
Noninterest-bearing deposits $ 40,545 $ 41,835 $ 42,078
Interest-bearing deposits 315,691 306,710 278,758
--------- --------- ---------
Total deposits 356,236 348,545 320,836
Short-term borrowings (Note 9) 4,900 7,400 10,650
Long-term borrowings (Note 10) 66,631 66,735 52,875
Accrued interest payable 1,437 1,261 585
Other liabilities 2,081 2,478 594
--------- --------- ---------
Total liabilities 431,285 426,419 385,540
--------- --------- ---------
Commitments and contingencies (Notes 13, 14 and 18)
SHAREHOLDERS' EQUITY (Note 15)
Common stock, $10 par value, 7,500,000 shares
authorized; 3,033,919 shares issued 30,340 30,340 30,340
Capital in excess of par value 6,905 6,889 6,845
Retained earnings 14,134 13,022 9,525
Unrealized holding gains (losses) on
securities available for sale, net (19) 942 (1,711)
Less: 61,447, 62,923 and 64,143 shares of
common stock in treasury, at cost, at March 31, 1996,
December 31, 1995 and 1994, respectively (1,155) (1,183) (1,155)
--------- --------- ---------
Total shareholders' equity 50,205 50,010 43,844
--------- --------- ---------
Total liabilities and shareholders' equity $ 481,490 $ 476,429 $ 429,384
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 101
CONSOLIDATED STATEMENT OF INCOME
for the three months ended March 31, 1996 and 1995
(unaudited) and the years ended December 31, 1995, 1994 and 1993
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- -------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $6,187 $ 5,334 $ 23,088 $18,738 $16,143
Interest and dividends on securities:
Taxable 2,537 2,192 9,611 7,846 7,669
Tax exempt 329 266 1,148 988 930
Other interest income 88 57 216 80 121
------ ------- -------- ------- -------
Total interest income 9,141 7,849 34,063 27,652 24,863
------ ------- -------- ------- -------
Interest expense:
Time deposits, $100 and over 710 537 2,498 1,578 940
Other deposits 2,668 2,190 9,927 7,806 8,137
Long-term borrowings 838 844 3,765 1,787 209
Short-term borrowings 192 67 167 88 35
------ ------- -------- ------- -------
Total interest expense 4,408 3,638 16,357 11,259 9,321
------ ------- -------- ------- -------
Net interest income 4,733 4,211 17,706 16,393 15,542
Provision for possible loan losses (Note 6) 292 201 967 338 799
------ ------- -------- ------- -------
Net interest income after provision
for possible loan losses
4,441 4,010 16,739 16,055 14,743
------ ------- -------- ------- -------
Other income:
Trust and custodian fees 375 314 1,259 1,129 1,075
Customer service fees 411 447 1,714 1,726 1,448
Investment securities gains (losses), net 2 136 (57) 356
Gain on sale of loans 596 243 1,310 668 416
Other 180 110 565 335 274
------ ------- -------- ------- -------
Total other income 1,564 1,114 4,984 3,801 3,569
------ ------- -------- ------- -------
Other expenses:
Salaries and employee benefits 1,887 1,720 6,866 6,071 5,578
Net occupancy expense 205 181 752 643 533
Furniture and equipment expense 103 110 408 415 382
Data processing expense 152 113 647 521 453
Taxes other than income taxes 144 129 518 496 529
Other 896 956 3,614 3,264 3,093
------ ------- -------- ------- -------
Total other expenses 3,387 3,209 12,805 11,410 10,568
------ ------- -------- ------- -------
</TABLE>
Continued
F-4
<PAGE> 102
CONSOLIDATED STATEMENT OF INCOME, Continued
for the three months ended March 31, 1996 and 1995 (unaudited) and
years ended December 31, 1995, 1994, and 1993
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------- --------------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before income taxes $ 2,618 $ 1,915 $ 8,918 $ 8,446 $ 7,744
Provision for federal income
taxes (Note 12) 763 582 2,706 2,572 2,323
---------- ---------- ---------- ---------- ----------
Net income $ 1,855 $ 1,333 $ 6,212 $ 5,874 $ 5,421
========== ========== ========== ========== ==========
Net income per share $ 0.62 $ 0.45 $ 2.09 $ 1.98 $ 1.82
========== ========== ========== ========== ==========
Weighted average number of
shares outstanding 2,972,294 2,971,392 2,973,694 2,971,358 2,971,958
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-5
<PAGE> 103
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the three months ended March 31, 1996 (unaudited) and the
years ended December 31, 1995, 1994 and 1993
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED HOLDING
CAPITAL GAINS (LOSSES) ON
COMMON STOCK IN EXCESS RETAINED SECURITIES AVAILABLE
--------------------
SHARES AMOUNT OF PAR VALUE EARNINGS FOR SALE, NET
---------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 1,516,960 $15,170 $ 21,964 $ 3,087
Purchase of 8,145 shares common
stock, at cost
Treasury stock, 3,849 shares issued 14
Cash dividend ($.82 per share) (2,291)
Pooled affiliate cash dividend (39)
Net income 5,421
--------- ------- -------- -------
Balance at December 31, 1993 1,516,960 15,170 21,978 6,178
Adjustment to reflect unrealized holding
January 1, 1994 - net of income taxes
of $808 $ 1,567
Purchase of 10,482 shares common
stock, at cost
Treasury stock, 6,635 shares issued 37
Cash dividend ($.89 per share) (2,487)
Pooled affiliate cash dividend (40)
Stock split in the form of a
100% stock dividend 1,516,959 15,170 (15,170)
Change in unrealized gains (losses),
net of income taxes of $(1,689) (3,278)
Net income 5,874
--------- ------- -------- -------
Balance at December 31, 1994 3,033,919 30,340 6,845 9,525 (1,711)
Purchase of 5,000 shares common
stock, at cost
Treasury stock, 6,220 shares issued 44
Pooled affiliate stock activity
Cash dividend ($.94 per share) (2,715)
Change in unrealized gains (losses),
net of income taxes of $1,367 2,653
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
-------- ------------
<S> <C> <C>
Balance at December 31, 1992 $ (871) $ 39,350
Purchase of 8,145 shares common
stock, at cost (291) (291)
Treasury stock, 3,849 shares issued 131 145
Cash dividend ($.82 per share) (2,291)
Pooled affiliate cash dividend (39)
Net income 5,421
------- --------
Balance at December 31, 1993 (1,031) 42,295
Adjustment to reflect unrealized holding
January 1, 1994 - net of income taxes
of $808 1,567
Purchase of 10,482 shares common
stock, at cost (240) (240)
Treasury stock, 6,635 shares issued 116 153
Cash dividend ($.89 per share) (2,487)
Pooled affiliate cash dividend (40)
Stock split in the form of a
100% stock dividend --
Change in unrealized gains (losses),
net of income taxes of $(1,689) (3,278)
Net income 5,874
------- --------
Balance at December 31, 1994 (1,155) 43,844
Purchase of 5,000 shares common
stock, at cost (139) (139)
Treasury stock, 6,220 shares issued 105 149
Pooled affiliate stock activity 6 6
Cash dividend ($.94 per share) (2,715)
Change in unrealized gains (losses),
net of income taxes of $1,367 2,653
</TABLE>
F-6
<PAGE> 104
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY, CONTINUED
for the three months ended March 31, 1996 (unaudited) and the
years ended December 31, 1995, 1994 and 1993
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS RETAINED
SHARES AMOUNT OF PAR VALUE EARNINGS
---------- ------- ------ --------
<S> <C> <C> <C> <C>
Net income 6,212
---------- ------- ------ --------
Balance at December 31, 1995 3,033,919 30,340 6,889 13,022
---------- ------- ------ --------
Treasury stock, 1,476 shares issued 16
Cash dividend ($0.25 per share) (743)
Change in unrealized gains (losses),
net of income taxes of $(495)
Net income 1,855
---------- ------- ------ --------
Balance at March 31, 1996 $3,033,919 $30,340 $6,905 $ 14,134
---------- ------- ------ --------
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED HOLDING
GAINS (LOSSES) ON TOTAL
SECURITIES AVAILABLE TREASURY SHAREHOLDERS'
FOR SALE, NET STOCK EQUITY
------ ------- --------
<S> <C> <C> <C>
Net income 6,212
------ ------- --------
Balance at December 31, 1995 942 (1,183) 50,010
------ ------- --------
Treasury stock, 1,476 shares issued 28 44
Cash dividend ($0.25 per share) (743)
Change in unrealized gains (losses),
net of income taxes of $(495) (961) (961)
Net income 1,855
------ ------- --------
Balance at March 31, 1996 $ (19) $ 1,155 $ 50,205
------ ------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
<PAGE> 105
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995 (unaudited)
and the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
------------------------ ------------------------------------------
1996 1995 1995 1994 1993
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,855 $ 1,333 $ 6,212 $ 5,874 $ 5,421
Adjustments to reconcile net income
to net cash provided by
operations:
Depreciation and amortization 483 489 849 2,065 2,301
Provision for possible credit
losses 292 201 967 338 799
Deferred taxes payable (495) 27 (14) 424 (310)
Gains on sale of assets (598) (243) (1,446) (600) (774)
(Increase) decrease in interest
receivable (377) (278) (392) (34) 462
Decrease (increase) in other assets 3,576 2,723 (3,775) (271) (128)
Increase in interest payable 176 101 676 148 14
Increase (decrease) in other liabilities 98 35 658 94 (53)
FHLB stock dividend (74) (95) (293) (181) (40)
-------- ------- -------- -------- --------
Net cash provided by operating
activities 4,936 4,293 3,442 7,857 7,692
-------- ------- -------- -------- --------
Cash flows from investing activities:
Decrease (increase) in federal funds sold 487 -- (2,300) 1,418 (715)
Proceeds from maturities of securities
held-to-maturity 94 913 12,427 31,885 --
Proceeds from maturities and sales of
securities available-for-sale 9,550 7,149 38,707 12,022 --
Proceeds from maturities and sales of
securities -- -- -- -- 59,600
Purchase of securities -- -- -- -- (61,485)
Purchase of securities held-to-maturity (487) (1,992) (5,846) (21,922) --
Purchase of securities available-for-sale (10,838) (6,609) (66,511) (30,372) --
Increase in loans, net (14,212) (9,912) (32,173) (46,840) (32,564)
Purchases of equipment and other assets (329) (139) (600) (932) (475)
Proceeds from sale of assets 5,673 2,984 12,505 7,803 3,839
-------- ------- -------- -------- --------
Net cash used in investing activities (10,062) (7,606) (43,791) (46,938) (31,800)
-------- ------- -------- -------- --------
</TABLE>
Continued
F-8
<PAGE> 106
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
for the three months ended March 31, 1996 and 1995 (unaudited) and the
years ended December 31, 1995, 1994, and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
------------------------- ------------------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 7,691 $ 7,423 $ 27,709 $ 10,251 $ 597
(Decrease) increase in short-term
borrowings (2,500) (9,150) (3,250) 4,650 1,100
(Decrease) increase in other borrowings (104) 3,462 13,860 25,889 26,986
Cash dividends paid (743) (647) (2,715) (2,527) (2,330)
Purchase of treasury stock (139) (240) (291)
Reissuance of treasury stock 44 39 155 153 145
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 4,388 1,127 35,620 38,176 (26,207)
-------- -------- -------- -------- --------
Net (decrease) increase in
cash and due from banks (738) (2,186) (4,729) (905) 2,099
Cash and due from banks, beginning
of period 14,102 18,831 18,831 19,736 17,637
-------- -------- -------- -------- --------
Cash and due from banks,
end of period $ 13,364 $ 16,645 $ 14,102 $ 18,831 $ 19,736
======== ======== ======== ======== ========
Supplemental cash flow disclosures:
Income taxes paid $ 50 $ 4 $ 2,360 $ 2,226 $ 2,940
======== ======== ======== ======== ========
Interest paid $ 4,232 $ 3,538 $ 15,681 $ 11,116 $ 9,322
======== ======== ======== ======== ========
Noncash transfers:
Reclassification of investment securities
upon adoption of SFAS No. 115, at cost $ 69,689
========
Transfer of securities from held-to-maturity
to available-for-sale $ 51,759
========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-9
<PAGE> 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Information at March 31, 1996 and 1995 is unaudited
(DOLLARS IN THOUSANDS)
1. Summary of Significant Accounting and Reporting Policies:
The following is a summary of the significant accounting policies
followed in the preparation of the consolidated financial
statements.
Principles of Consolidation:
The consolidated financial statements include the accounts of
BancFirst Ohio Corp. (Corporation) and its wholly-owned
subsidiaries, The First National Bank of Zanesville (First National)
and Bellbrook Community Bank (Bellbrook). All significant
intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements and related
notes have been restated to include Bellbrook Bancorp, Inc.,
acquired June 30, 1995, in a transaction accounted for as a
pooling-of-interests.
Interim Financial Statements:
The consolidated financial statements as of and for the periods
ended March 31, 1996 and 1995 are unaudited and are presented
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (which are
of a normal recurring nature) necessary to present fairly the
financial position and results of operations and cash flows for the
interim periods, but are not necessarily indicative of the results
of operations for a full year.
Investment Securities:
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115). Under the
provisions of SFAS No. 115, investment securities should be
classified upon acquisition into one of three categories:
held-to-maturity, available-for-sale, or trading.
Held-to-maturity securities are those securities that the
Corporation has the positive intent and ability to hold to maturity
and are recorded at amortized cost. Available-for-sale securities
are those securities that would be available to be sold in the
future in response to the Corporation's liquidity needs, changes in
market interest rates, and asset-liability management strategies,
among others. Available-for-sale securities are reported at fair
value, with unrealized holding gains and losses excluded from
earnings and reported as a separate component of shareholders'
equity, net of applicable income taxes. At March 31, 1996, December
31, 1995, and 1994, the Corporation did not hold any trading
securities.
Prior to adoption of SFAS No. 115, securities purchased, where the
Corporation had both the intent and ability to hold for the
foreseeable future, were recorded at cost adjusted for accumulated
amortization of premium and accretion of discount.
Gains and losses on the disposition of investment securities are
accounted for on the completed transaction basis using the specific
identification method.
Income Recognition:
Income earned by the Corporation and its Subsidiaries is recognized
on the accrual basis of accounting. The Corporation suspends the
accrual of interest on loans when, in management's opinion, the
collection of all or a portion of the interest has become doubtful.
When a loan is placed on non-accrual, all previously accrued and
unpaid interest deemed uncollectible is charged against either the
loan loss reserve or the current period interest income depending on
the period the interest was recorded. In future periods, interest
will be included in income to the extent received only if complete
principal recovery is reasonably assured.
F-10
<PAGE> 108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
Loans Held for Sale:
Loans held for sale are carried at the lower of aggregate cost or
market value and included with other assets on the balance sheet.
Gains and losses on loans held for sale are included in noninterest
income.
Provision for Possible Loan Losses:
The provision for possible loan losses charged to operating expense
is based upon management's evaluation of potential losses in the
current loan portfolio and past loss experience. In management's
opinion, the provision is sufficient to maintain the allowance for
possible loan losses at a level that adequately provides for
potential loan losses.
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standard (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" and amended with SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures". Under this standard, loans considered to be impaired
are reduced to the present value of expected future cash flows, and
secured loans that are in foreclosure are recorded at the fair value
of the underlying collateral securing the loan. The difference
between the recorded investment in the loan and the impaired
valuation is the amount of impairment. A specific allocation of the
allowance for loan losses is assigned to such loans. If these
allocations require an increase to the allowance, the increase is
reported as bad debt expense. Adopting this standard did not require
an adjustment to the provision for possible loan losses.
Premises and Equipment:
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation expense is computed
principally on the straight-line method over the estimated useful
lives of the assets generally ranging from 3 to 35 years. Upon the
sale or other disposition of assets, cost and related accumulated
depreciation are removed from the accounts, and the resultant gain
or loss is recognized. Maintenance and repairs are charged to
operating expense while additions and betterment's are capitalized.
Other Real Estate:
Other real estate owned represents properties acquired through
customers' loan defaults. Other real estate is stated at an amount
equal to the loan balance prior to foreclosure plus cost incurred
for improvements to the property, but not more than fair market
value of the property. As of December 31, 1995, other real estate
owned was $24,000, and is included on the balance sheet in other
assets. As of March 31, 1996 and December 31, 1994, no other real
estate was held.
Investment in Subsidiaries (Parent Company Only):
The Corporation's investment in subsidiaries represents the total
equity of the Parent Company's wholly-owned subsidiaries, using the
equity method of accounting for investments.
F-11
<PAGE> 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
Earnings Per Common Share:
Earnings per common share are computed on the basis of the weighted
average number of shares outstanding during the period. The weighted
average number of shares outstanding, for all periods, has been
adjusted to reflect the acquisition accounted for as a
pooling-of-interest.
Statement of Cash Flows:
For the purposes of presenting the statement of cash flows, the
Corporation has defined cash and cash equivalents as those amounts
included in the balance sheet caption "cash and due from banks."
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Estimates used in the preparation
of the financial statements are based on various factors including
the current interest rate environment and the general strength of
the local economy. Changes in the overall interest rate environment
can significantly effect the Corporation's net interest income and
the value of its recorded assets and liabilities.
Reclassification:
Certain reclassifications have been made to prior period amounts to
conform to the 1995 presentation.
2. Mergers and Acquisitions:
On June 30, 1995, the Corporation completed its merger with
Bellbrook Bancorp, Inc. (BBI), a bank holding company in Bellbrook,
Ohio, a suburb of Dayton, with total assets of approximately
$23,000. The transaction was accounted for under the
pooling-of-interests method of accounting for business combinations
and accordingly, the consolidated financial statements have been
restated for the periods prior to the merger to include BBI. In
connection with the transaction, the Corporation issued 158,959 of
its common shares to BBI's shareholders.
The 1995 results of operations of the Corporation include the
per-merger results of operations for BBI for the period January 1,
1995, through June 30, 1995. Summarized operating activity for BBI
for the 1995 pre-merger period was as follows:
<TABLE>
<S> <C>
Net interest income $ 510
Non-interest income 147
Net income 109
</TABLE>
F-12
<PAGE> 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
Separate results of operations of the combined entities for December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Net interest income
BancFirst Ohio $15,331 $14,555
BBI 1,062 987
------- -------
Combined $16,393 $15,542
------- -------
Non-interest income
BancFirst Ohio $ 3,527 $ 3,308
BBI 274 261
BBI 274 261
------- -------
Combined $ 3,801 $ 3,569
------- -------
Net income
BancFirst Ohio $ 5,657 $ 5,204
BBI 217 217
------- -------
Combined $ 5,874 $ 5,421
======= =======
</TABLE>
3. Cash and Due from Banks:
The Corporation is required to maintain average reserve balances
with the Federal Reserve Bank. The average required reserve amounted
to $3,506, $4,713 and $4,426 for March 31, 1996, December 31, 1995
and 1994, respectively.
4. Investment Securities:
Effective January 1, 1994, the Corporation adopted SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Under the new standard, investment securities are carried at
amortized cost and securities available for sale are carried at
estimated market value with the after-tax net unrealized gain or
loss recorded in shareholders' equity. At adoption, $69,689 of
investment securities were classified as available-for-sale based on
the Corporation's current intent, resulting in an increase in the
carrying value of investments by $2,375 and a net increase to
shareholders' equity of $1,567 to reflect the net unrealized holding
gains at January 1, 1994.
During 1995, the Financial Accounting Standards Board released a
special report entitled, A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities.
This report provided for a one-time opportunity from November 15 to
December 31, 1995, to reclassify securities between held-to-maturity
and available-for-sale classifications. At December 31, 1995, First
National reclassified certain securities from held-to-maturity to
available-for-sale. These securities had an amortized cost of
$51,759 and a market value of $52,067 at the date of transfer,
resulting in an increase in the carrying value of investments by
$308 and a net increase to shareholders' equity of $203 to reflect
the unrealized holding gains, net of federal income taxes.
F-13
<PAGE> 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
The amortized cost and estimated market value of investment
securities are as follows:
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities $ 19,890 $ 231 $ 2 $ 20,119
Securities of other
government agencies 14,199 60 139 14,120
Obligations of states and
political subdivisions 17,731 264 118 17,877
Other securities 5,350 5,350
Mortgage-backed securities 112,271 812 1,137 111,946
-------- ------ -------- --------
$169,441 $1,367 $ 1,396 $169,412
-------- ------ -------- --------
Securities Held to Maturity:
Securities of other
government agencies $ 400 $ 4 $ 404
Obligations of states and
political subdivisions 7,181 94 $ 30 7,245
Industrial Revenue Bonds 1,087 1,087
Mortgage-backed securities 115 15 130
-------- ------ -------- --------
$ 8,783 $ 113 $ 30 $ 8,866
-------- ------ -------- --------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities $ 17,949 $ 355 $ 1 $ 18,303
Securities of other
government agencies 11,247 143 11,390
Obligations of states and
political subdivisions 17,453 417 22 17,848
Other securities 5,276 5,276
Mortgage-backed securities 116,507 1,078 542 117,043
-------- ------ -------- --------
$168,432 $1,993 $ 565 $169,860
-------- ------ -------- --------
Securities Held to Maturity:
Securities of other
government agencies $ 400 $ 7 $ 407
Obligations of states and
political subdivisions 6,751 148 $ 13 6,886
Industrial revenue bonds 1,120 1,120
Mortgage-backed securities 121 14 135
-------- ------ -------- --------
$ 8,392 $ 169 $ 13 $ 8,548
-------- ------ -------- --------
</TABLE>
F-14
<PAGE> 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------- ------ ------- -------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities $30,913 $ 111 $ 609 $30,415
Securities of other
government agencies 15,556 69 168 15,457
Obligations of states and
political subdivisions 308 14 294
Other securities 5,653 5,653
Mortgage-backed securities 39,124 18 1,997 37,145
------- ------ ------- -------
$91,554 $ 198 $ 2,788 $88,964
------- ------ ------- -------
Securities Held to Maturity:
U.S. Treasury securities $ 250 $ 250
Securities of other
government agencies 7,430 $ 249 7,181
Obligations of states and
political subdivisions 19,811 $ 67 657 19,221
Industrial revenue bonds 1,251 1,251
Mortgage-backed securities 35,889 11 2,643 33,257
------- ------ ------- -------
$64,631 $ 78 $ 3,549 $61,160
------- ------ ------- -------
</TABLE>
The amortized cost and estimated market value of debt securities at
March 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without
call prepayment penalties.
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------
Estimated
Securities Available For Sale Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Within 1 year $ 16,051 $16,093
After 1 through 5 years 18,168 18,497
After 5 through 10 years 17,419 17,439
After 10 years 5,532 5,437
57,170 57,466
Mortgage-backed securities 112,271 111,946
$169,441 $169,412
</TABLE>
<TABLE>
<CAPTION>
Estimated
Securities Held to Maturity Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Within 1 year $ 936 $ 944
After 1 through 5 years 2,832 2,864
After 5 through 10 years 4,799 4,832
After 10 years 101 96
------ ------
8,668 8,736
Mortgage-backed securities 115 130
------ ------
$8,783 $8,866
------ ------
</TABLE>
F-15
<PAGE> 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
Proceeds from sales of securities available for sale during the
three months ended March 31, 1996 and 1995 were $9,350.
Gross gains of $2 were recognized during the three months ended
March 31, 1996.
Proceeds from sales of securities available for sale during 1995 and
1994 were $12,098 and $4,060, respectively. Gross gains of $144 and
$1 and gross losses of $8 and $58 were realized on sales in 1995 and
1994, respectively. Proceeds from sales of investment securities
during 1993 were $15,700. Gross gains of $386 and gross losses of
$30 were realized in 1993.
Securities held to maturity with a carrying amount of $200, $200 and
$19,062 and securities available-for-sale with a market value of
$64,960, $61,829 and $45,509 at March 31, 1996, December 31, 1995
and December 31, 1994, respectively, were pledged to secure public
deposits and for other purposes required by law.
5. Loans:
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Commercial, financial and industrial $113,778 $107,015 $103,415
Real estate - mortgage 103,891 105,604 100,963
Real estate - construction 6,949 2,859 1,232
Consumer 53,097 53,340 42,333
-------- -------- --------
$277,715 $268,818 $247,943
======== ======== ========
</TABLE>
The Corporation has made loans to certain directors, executive
officers, and their affiliates in the ordinary course of business.
An analysis of the three months ended March 31, 1996 and the year
ended December 31, 1995 activity with respect to these related party
loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------- -------
<S> <C> <C>
Beginning balance $ 3,517 $ 3,441
New loans 113 849
Repayments (396) (773)
------- -------
Ending balance $ 3,234 $ 3,517
======= =======
</TABLE>
At March 31, 1996, the recorded investment in loans considered to be
impaired under SFAS No. 114 was $531 (all of which was on a
nonaccrual basis). The related allocation of the allowance for
possible loan losses for these impaired loans is $79. The average
recorded investment in impaired loans for the quarter ended March
31, 1996 was approximately $666. For the quarter ended March 31,
1996, the Corporation recognized no interest income on these
impaired loans. Interest income of approximately $15 would have been
recorded on these loans according to the original terms.
F-16
<PAGE> 114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
At December 31, 1995, the recorded investment in loans considered to
be impaired under SFAS No. 114 was $669 (of which $568 was on a
non-accrual basis). The related allocation of the allowance for
possible loan losses for these impaired loans is $68. The average
recorded investment in impaired loans for the year ended December
31, 1995 was approximately $535. The Corporation would have
recognized $30 of interest income under the original terms of these
loans, however, actual interest income of approximately $4 was
recognized during 1995.
6. Allowance for Possible Loan Losses:
An analysis of activity in the allowance for possible loan losses is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
---------------------------------------
March 31, 1996 1995 1994 1993
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at beginning
of period $ 3,307 $ 3,095 $ 3,007 $ 2,384
Provision charged to
operations 292 967 338 799
Deductions:
Loans charged off (255) (862) (320) (263)
Loan recoveries 62 107 70 87
------- ------- ------- -------
Net charge-offs (193) (755) (250) (176)
------- ------- ------- -------
Balance at end of period $ 3,406 $ 3,307 $ 3,095 $ 3,007
======= ======= ======= =======
</TABLE>
7. Premises and Equipment:
Premises and equipment are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Land $ 924 $ 924 $ 924
Buildings 3,542 3,531 3,458
Furniture, fixture and equipment 5,180 5,009 4,354
Construction in progress 172 80 227
------ ------ ------
9,818 9,544 8,963
Less accumulated depreciation
and amortization 5,536 5,424 4,650
------ ------ ------
Premises and equipment, net $4,282 $4,120 $4,313
====== ====== ======
</TABLE>
Total depreciation expense was $185 and $176 for the three months
ended March 31, 1996 and 1995, respectively.
Total depreciation expense was $793, $707 and $593 for the years
ended December 31, 1995, 1994 and 1993, respectively.
F-17
<PAGE> 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
8. Deposits:
A summary of deposits is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Demand, noninterest-bearing $ 40,545 $ 41,835 $ 42,078
Demand, interest-bearing 96,013 98,795 103,884
Savings 51,431 50,414 53,086
Time, $100 and over 54,985 44,327 26,212
Time, other 113,262 113,174 95,576
-------- -------- --------
$356,236 $348,545 $320,836
-------- -------- --------
</TABLE>
9. Short-Term Borrowings:
Short-term borrowings consist of federal funds purchased. Federal
funds purchased generally have one- to four-day maturities.
The following table reflects the maximum month-end outstandings,
average daily outstandings, average rates paid during the quarter
and year, and the average rates paid at quarter-end and year-end for
the various categories of short-term borrowings:
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31
----------------------
March 31,
1996 1995 1994 1993
------ ------- ------- ------
<S> <C> <C> <C> <C>
Federal funds purchased:
Average balance $2,188 $ 2,532 $ 1,490 $ 726
Average rate 6.11% 6.30% 5.84% 3.58%
Maximum month-end balance $4,900 $12,600 $10,650 $6,000
Balance at quarter-end
or year-end $4,900 $ 7,400 $10,650 $6,000
Average rate on balance at
quarter-end or year-end 5.50% 5.75% 6.50% 3.38%
</TABLE>
10. Long-Term Borrowings:
Long-term borrowings are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Term reverse repurchase agreement (5.95%)
due 1997 $ 5,000 $ 5,000
Term reverse repurchase agreement (6.05%)
due 1998 5,000 5,000
Federal Home Loan Bank Advances 56,631 56,735 $52,875
------- ------- -------
$66,631 $66,735 $52,875
======= ======= =======
</TABLE>
F-18
<PAGE> 116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
Minimum annual retirements on long-term borrowings for the next five
years consisted of the following at March 31, 1996:
<TABLE>
<CAPTION>
Weighted
Maturity Average Principal
(Period Ending) Interest Rate Repayment
--------------- ------------- ---------
<S> <C> <C>
1996 6.24% $ 9,879
1997 5.89% 32,991
1998 5.86% 10,524
1999 5.88% 1,559
2000 6.29% 597
2001 and thereafter 6.81% 11,081
--------
Total 6.10% $ 66,631
==== ========
</TABLE>
FHLB advances must be secured by eligible collateral as specified by
the FHLB. Accordingly, the Corporation has a blanket pledge of its
first mortgage loan portfolio as collateral for the advances
outstanding at March 31, 1996, December 31, 1995 and 1994, with a
required minimum ratio of collateral to advances of 150%.
The term reverse repurchase agreements are with Salomon Brothers,
Inc. under which the Corporation sold mortgage-backed securities
classified as available-for-sale and with a current carrying and
market value of $10,560 and $12,416 and accrued interest of $24 and
$124 at March 31, 1996 and December 31, 1995, respectively. The
reverse repurchase agreements have a weighted average maturity of
1.79 years and 2.04 years, at March 31, 1996 and December 31, 1995,
respectively.
11. Retirement Plans:
The Corporation has a defined contribution plan which covers
substantially all full-time employees. Contributions to the plan are
based upon 10% of the employees' base compensation.
Expenses related to the plans for the three months ended March 31,
1996 and 1995 were approximately $36 and $33, respectively.
Expenses related to the plans for the years ended December 31, 1995,
1994 and 1993 were approximately $333, $349, and $290 respectively.
The Corporation also has 401(k) Retirement Plans which cover
substantially all employees with more than one year of service. The
Corporation makes contributions to the Plans pursuant to salary
savings elections and discretionary contributions as set forth by
the provisions of the Plans. Employees direct the investment of
account balances from Plan alternatives. Operations have been
charged $1 and $0 for contributions to the Plans for the three
months ended March 31, 1996 and 1995, respectively. Operations have
been charged $111, $104 and $99 for contributions to the Plans for
the years ended December 31, 1995, 1994 and 1993, respectively.
During 1993, the Corporation adopted an employee stock purchase plan
whereby eligible employees and directors, through their plan
contributions, may purchase shares of the Corporation's stock. Such
shares, up to a maximum of 18,000 shares, are purchased from
treasury stock at fair market value. Expenses of
F-19
<PAGE> 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
$2 were incurred by the Corporation for the year ended December 31,
1995 in connection with the Plan. There were no related expenses for
the years ended December 31, 1994 or 1993, respectively.
The Corporation currently provides certain health care benefits for
eligible retirees. On January 1, 1993, the Corporation adopted
Statement of Financial Accounting Standards (SFAS) No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions. SFAS 106 requires the use of the accrual method of
accounting for the projected costs of providing postretirement
benefits during the period of employee service. The Corporation
previously accounted for such benefits on a cash basis. Such amounts
did not differ significantly from those calculated under the accrual
method of accounting. The Corporation will continue to fund these
benefit costs as claims are incurred.
For the three months ended March 31, 1996 and 1995, health care
benefit costs for eligible retirees were $43 and $10, respectively.
For the years ended December 31, 1995, 1994, and 1993, health care
benefit costs for eligible retirees was $39, $26, and $38,
respectively.
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standard (SFAS) No. 112, Employer's Accounting for
Postemployment Benefits, which requires accrual accounting for
benefits provided to former or inactive employees after employment,
but before retirement. The Corporation previously accounted for such
benefits on a cash basis. Such amounts did not differ significantly
from those calculated under the accrual method of accounting. The
Corporation will continue to fund these benefit costs as incurred.
12. Income Taxes:
The provision for income taxes is summarized below:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -------------------------------------
1996 1995 1995 1994 1993
---- ----- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Current $600 $ 586 $ 2,720 $2,148 $ 2,633
Deferred 163 (4) (14) 424 (310)
---- ----- ------- ------ -------
Provision for income taxes $763 $ 582 $ 2,706 $2,572 $ 2,323
==== ===== ======= ====== =======
</TABLE>
The following is a reconciliation of income tax at the federal statutory rate to
the effective rate of tax on the financial statements:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tax at federal statutory rate 34% 34% 34% 34% 34%
Permanent differences:
Tax-exempt interest, net of
allowed interest expense (5) (6) (4) (5) (4)
Other 2 1
---- ---- ---- ---- ----
Effective tax rate 29% 30% 30% 30% 30%
---- ---- ---- ---- ----
</TABLE>
F-20
<PAGE> 118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
On January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred income
taxes are recognized at prevailing income tax rates for temporary
differences between financial statement and income tax bases of
assets and liabilities. The cumulative effect of this change in
accounting for income taxes was not significant.
The components of the net deferred tax asset (liability) were as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
-------- ----------------------
1996 1995 1994
----- ------- ------
<S> <C> <C> <C>
Deferred tax assets (liabilities)arising from:
Loan loss reserve $ 816 $ 782 $ 721
Reserve for health insurance 47 47 33
Depreciation 8 8 --
Deferred Compensation 28 33 --
Other 38 38 --
Unrealized holding losses on securities 10 -- 882
----- ------- ------
Total deferred tax assets 947 908 1,636
----- ------- ------
Deferred tax liabilities arising from:
Gain on sale of loans 742 574 292
Deferred loan fees and costs 65 53 44
Depreciation -- -- 77
FHLB Stock Dividends 186 160 75
Unrealized holding gains on securities -- 485 --
Other, net -- -- 56
----- ------- ------
Total deferred tax liabilities 993 1,272 544
----- ------- ------
Net deferred tax (liability) asset $ (46) $ (364) $1,092
===== ======= ======
</TABLE>
The Corporation did not record a valuation allowance at December 31,
1994, as the deferred tax asset was considered to be realizable
based on the level of anticipated future taxable income. Net
deferred tax assets and liabilities and federal income tax expense
in future years can be significantly affected by changes in enacted
tax rates.
13. Lease Commitments:
The Corporation leases equipment, land at one branch location, and
certain office space. The land lease has five renewal options for
five years each.
A summary of noncancelable future operating lease commitments at
December 31, 1995 follows:
<TABLE>
<S> <C>
1996 $ 164
1997 132
1998 117
1999 58
2000 48
-------
$ 519
</TABLE>
<PAGE> 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
Rent expense under all lease obligations, including month-to-month
agreements, aggregated approximately $44 and $33, for the three
months ended March 31, 1996 and 1995, respectively.
Rent expense under all lease obligations, including month-to-month
agreements, aggregated approximately $155, $132, and $136 for the
years ended December 31, 1995, 1994 and 1993, respectively.
14. Financial Instruments with Off-Balance-Sheet Risk:
In the normal course of business, the Corporation is party to
financial instruments with off-balance-sheet risk, necessary to meet
the financing needs of its customers. These financial instruments
include loan commitments, and standby letters of credit. The
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
financial statements.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
loan commitments and standby letters of credit is represented by the
contractual amount of those instruments. The Corporation uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. The total
amounts of financial instruments with off-balance-sheet risk are as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
-------- ----------------------
1996 1995 1996
------- ------- -------
<S> <C> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Loan commitments $18,375 $20,113 $15,969
Standby letters of credit 1,997 2,017 1,899
</TABLE>
Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent
future cash requirements. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of
credit, is based on management's credit evaluation of the
counter-party. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and
income-producing commercial properties. The credit risk involved in
issuing letters of credit is essentially the same as that involved
in extending loan commitments to customers.
The Corporation does not hold, nor did it issue, any derivative
financial instruments.
The Corporation offers credit cards in an agency capacity for
another institution. Under certain circumstances, the credit cards
are issued with recourse to the Corporation. The total of these
credit lines with recourse to the Corporation is approximately
$3,103 and $2,442 of which $305 and $251 represent outstanding
balances at March 31, 1996 and December 31, 1995, respectively.
In addition to the financial instruments with off-balance sheet
risks, the Corporation has commitments to lend money which have been
approved by the Small Business Administration's (SBA) 7(a) program.
Such commitments carry SBA guarantees on individual credits ranging
from 71% to 90% of principal balances. The total of such commitments
at March 31, 1996, December 31, 1995, and 1994 were
F-22
<PAGE> 120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
$2,631, $358 and $117, respectively, with guaranteed principal by
the SBA totaling $1,824, $287 and $100, respectively.
The Corporation has no significant concentrations of credit risk
with any individual counter-party. The Corporation's lending is
concentrated in the Muskingum County, Ohio market area, and those
loans are principally in single-family residential mortgages.
15. Shareholders' Equity:
The payment of dividends by banking subsidiaries is subject to
regulatory restrictions by various regulatory authorities. These
restrictions provide for national banks that dividends in any
calendar year generally shall not exceed the total net profits of
that year plus the retained net profits of the preceding two years.
In addition, for all banks, dividend payments may not reduce capital
levels below minimum regulatory guidelines. At March 31, 1996 and
December 31, 1995, the Corporation has $14,134 and $13,022,
respectively, in retained earnings. At these dates, $7,090 and
$6,476, respectively, of the retained earnings of the banking
subsidiaries is available for the payment of dividends to the
Corporation without regulatory agency approval.
The Corporation is also required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking
regulators. At March 31, 1996 and December 31, 1995, the Corporation
is required to have minimum Tier 1 and total capital ratios of 4.0%
and 8.0%, respectively. The Corporation's actual ratios at that date
were 16.96% and 18.11% at March 31, 1996 and 17.70% and 18.89% at
December 31, 1995. The Corporation's leverage ratio at March 31,
1996 and December 31, 1995 were 10.49%, respectively. The regulatory
minimum leverage ratio required was 3.0%.
On April 19, 1994, the Corporation declared a stock split in the
form of a 100% stock dividend. All per share data has been restated
to reflect this dividend.
16. Fair Value of Financial Instruments:
Provided below is the information required by Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments (SFAS 107). The amounts provided represent
estimates of fair values at a particular point in time. Significant
estimates regarding economic conditions, loss experience, risk
characteristics associated with particular financial instruments and
other factors were used for the purposes of this disclosure. These
estimates are subjective in nature and involve matters of judgment.
Therefore, they cannot be determined with precision. Changes in the
assumptions could have a material impact on the estimates shown.
While the estimated fair value amounts are designed to represent
estimates of the amounts at which these instruments could be
exchanged in a current transaction between willing parties, many of
the Corporation's financial instruments lack an available trading
market as characterized by willing parties engaging in an exchange
transaction. In addition, with the exception of its
available-for-sale securities portfolio, it is the Corporation's
intent to hold its financial instruments to maturity and, therefore,
it is not probable that the fair values shown will be realized.
The value of long-term relationships with depositors (core deposit
intangible) and other customers are not reflected in the estimated
fair values. In addition, the estimated fair values disclosed do not
reflect the value of assets and liabilities that are not considered
financial instruments.
F-23
<PAGE> 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practical to make that value:
Cash and Due From Banks - The carrying amount approximates
fair value.
Investment Securities - Estimated fair values are based on
quoted market prices, when available. If a quoted market
price is not available, fair value is estimated using quoted
market prices for similar securities.
Loans - In order to determine the fair values for loans, the
loan portfolio was segmented based on loan type, credit
quality and repricing characteristics. For residential
mortgages, fair value is estimated using the quoted market
prices for securities backed by similar loans, adjusted for
differences in loan characteristics. For certain variable
rate loans with no significant credit concerns and frequent
repricings, estimated fair values are based on the carrying
values. The fair values of other loans are estimated using
discounted cash flow analyses. The discount rates used in
these analyses are based on origination rates for similar
loans. Where appropriate, adjustments have been made for
credit and other costs so as to more accurately reflect
market rates. The estimate of maturity is based on
historical experience with repayments and current economic
and lending conditions.
Deposits - Under SFAS 107, the fair value of demand
deposits, savings accounts and certain money market deposits
with no stated maturity is equal to the amount payable on
demand. The estimated fair value of fixed maturity
certificates of deposit is based on discounted cash flow
analyses using market rates currently offered for deposits
of similar remaining maturities.
Long-term borrowings - Estimated fair value of long-term
borrowings were based on discounted cash flow analyses using
current rates for the same advances.
Commitments to Extend Credit and Stand-by Letters of Credit
- The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
present credit worthiness of the counter- parties. The fair
value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with
counter-parties at the reporting date.
F-24
<PAGE> 122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
The fair values of financial instruments were as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and due from banks $ 13,364 $ 13,364 $ 14,102 $ 14,102
Securities available-for-sale 169,441 169,412 169,860 169,860
Securities held-to-maturity 8,783 8,866 8,392 8,548
Loans, net of allowance
for loan losses 274,309 * 265,511 267,094
Short-term borrowings 4,900 4,900 7,400 7,400
Time deposits 168,247 * 157,501 158,683
Long-term borrowings 66,631 * 66,735 67,048
</TABLE>
*Fair value for this information is calculated on an annual basis only.
Under the provisions of SFAS 107, Bellbrook was not required to adopt the
statement until 1995. Accordingly, the following reflects the carrying value and
fair value of financial instruments for First National only at December 31,
1994:
<TABLE>
<CAPTION>
1994
---------------------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash and due from banks $ 16,330 $ 16,330
Securities available-for-sale 84,883 84,883
Securities held-to-maturity 62,732 59,287
Loans, net of allowance
for loan losses 231,272 230,271
Short-term borrowings 10,650 10,650
Time deposits 118,211 116,152
Advances from Federal
Home Loan Bank 52,875 50,180
</TABLE>
17. Parent Company Only Condensed Financial Information:
Parent Company only condensed financial information are as follows:
CONDENSED BALANCE SHEET
March 31, 1996 (Unaudited)
December 31, 1995 and 1994
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Assets:
Cash $ 65 $ 7 $ 27
Investment in repurchase
agreement with subsidiary 9,000 8,530 11,100
</TABLE>
F-25
<PAGE> 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Investment in subsidiaries 40,906 39,882 32,721
Other assets 235 1,609 64
------- ------- -------
Total assets $50,206 $50,028 $43,912
======= ======= =======
Liabilities and equity:
Other liabilities $ 1 $ 18 $ 68
------- ------- -------
Shareholders' equity 50,205 50,010 43,844
------- ------- -------
Total liabilities and equity $50,206 $50,028 $43,912
======= ======= =======
</TABLE>
F-26
<PAGE> 124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
CONDENSED STATEMENT OF INCOME
for the three months ended March 31, 1996 and 1995 (unaudited) and the
years ended December 31, 1995 and 1994 and 1993
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Dividends from subsidiary $ 2,000 $ 5,000 $ 5,000
Interest income $ 6 $ 5 16 10 6
Operating expenses (206) (125) (477) (271) (162)
------- ------- ------- ------- -------
Income (loss) before income tax
and equity in earnings
of subsidiaries (200) (120) 1,539 4,739 4,844
Federal income tax benefit 70 27 128 88 45
------- ------- ------- ------- -------
Income (loss) before equity in
earnings of subsidiaries (130) (93) 1,667 4,827 4,889
Earnings in excess of
dividends 1,985 1,426 4,545 1,047 532
------- ------- ------- ------- -------
Net income $ 1,855 $ 1,333 $ 6,212 $ 5,874 $ 5,421
======= ======= ======= ======= =======
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995 (unaudited) and the
years ended December 31, 1995 and 1994 and 1993
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,855 $ 1,333 $ 6,212 $ 5,874 $ 5,421
Adjustments to reconcile
net income to net cash
provided by operations:
Amortization and depreciation 3 2 9 23 22
(Increase) decrease in
other assets 1,374 14 (1,539) 6 (20)
(Decrease) increase in other
liabilities (17) (67) (15) 32
Decrease in dividend
receivable from subsidiary 1,898
Earnings in excess of
dividends (1,988) (1,428) (4,545) (1,047) (532)
------- ------- ------- ------- -------
Net cash provided by
operating activities 1,227 (146) 122 4,888 6,789
------- ------- ------- ------- -------
</TABLE>
F-27
<PAGE> 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
CONDENSED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995 (unaudited) and the
years ended December 31, 1995 and 1994 and 1993
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Cash dividends paid $ (743) $ (647) $(2,715) $(2,487) $(2,291)
Purchase of treasury stock (139) (240) (285)
Treasury shares issued 44 39 155 153 145
------- ------- ------- ------- -------
Net cash used in
investing activities (699) (608) (2,699) (2,574) (2,431)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Purchase of equipment and
other assets (13) (20)
Decrease (increase) in repurchase
agreement with subsidiary (470) 750 2,570 (2,300) (4,358)
------- ------- ------- ------- -------
Net cash provided by (used for)
investing activities (470) 750 2,557 (2,320) (4,358)
------- ------- ------- ------- -------
Net decrease in cash 58 (4) (20) (6) (0)
Cash, beginning of period 7 27 27 33 33
------- ------- ------- ------- -------
Cash, end of period $ 65 $ 23 $ 7 $ 27 $ 33
======= ======= ======= ======= =======
</TABLE>
The Parent Company did not pay cash for interest or income taxes during
any of the periods.
18. Savings Association Insurance Fund Recapitalization:
In September 1995, Congress began consideration of a recapitalization
plan for Savings Association Insurance Fund (SAIF). Congress' plan, as
proposed, provides for a special assessment of as much as .85% to .90%
of deposits to be imposed on all SAIF-insured institutions to enable
the SAIF to achieve its reserve level. First National, through the
acquisition of certain deposits in 1992, has deposits which are
referred to as "Oakar" deposits that are subject to SAIF premiums and,
accordingly, any special assessments levied. Under the current plan,
80% of Oakar deposits would be subject to the special assessment. Such
assessment, as proposed, would amount to approximately $218 to $231
before taxes to the Corporation, based on deposits at December 31,
1995, and would be recorded as an expense. Future deposit insurance
premiums are expected to decrease to .04% from the .23% of deposits
currently paid by the First National.
19. New Accounting Pronouncements:
In March, 1995, the FASB released SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill
F-28
<PAGE> 126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of.
SFAS No. 121 requires that certain assets covered under the standard be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable
and requires adjustment to the carrying value of those assets in the
case of impairment. It is anticipated that the adoption of this
statement will not materially impact the reported financial statements
or condition of the Corporation.
20. Pending Acquisition:
On March 27, 1996, the Corporation entered into a Stock Purchase
Agreement to acquire all of the outstanding capital stock of County
Savings Bank, ("County") a wholly-owned subsidiary of First Financial
Group, Inc., ("FFGI"). County is a savings and loan institution with
total assets of approximately $500,000. County reported net income of
$4,012 for 1995. The purchase price, payable in cash, approximates
$47,750, subject to adjustment. The acquisition has been approved by
the shareholders of FFGI, and is subject to regulatory approval. The
Corporation intends to fund the purchase price with cash from
operations, proceeds from the sale of equity or debt securities, and/or
borrowings.
F-29
<PAGE> 127
INDEX TO COUNTY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.............................................................................. F-31
----
Consolidated Statements of Income and Retained Earnings for the Three Months Ended March 31, 1996
and 1995 (unaudited) and for the years ended December 31, 1995, 1994 and 1993............................. F-32
----
Consolidated Statements of Financial Condition at March 31, 1995 (unaudited), and
December 31, 1995 and 1994................................................................................ F-34
----
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993...................................... F-36
----
Notes to Consolidated Financial Statements..................................................................... F-39
----
</TABLE>
F-30
<PAGE> 128
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of County Savings Bank
We have audited the accompanying consolidated statements of financial condition
of County Savings Bank (a wholly-owned subsidiary of First Financial Group,
Inc.) as of December 31, 1995 and 1994, and the related consolidated statements
of income and retained earnings, and cash flows for each of the three years in
the period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of County
Savings Bank as of December 31, 1995 and 1994 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As disclosed in Note 1 to the financial statements, effective January 1, 1994,
County Savings Bank changed its method of accounting for certain investment
securities.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 26, 1996
F-31
<PAGE> 129
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1996 (unaudited) and December 31, 1995 and 1994 (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ---------------------
ASSETS 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,772 $ 4,825 $ 2,235
Investment securities:
Securities available for sale, at fair value
(amortized cost of $54,789, $86,397 and
$17,785 at March 31, 1996 and December 31,
1995 and 1994, respectively) 54,891 86,736 16,929
Securities held to maturity, at amortized cost
(fair value of $55,914, $57,686 and $114,279
at March 31, 1996 and December 31, 1995 and
1994, respectively) 56,936 58,550 120,482
--------- --------- ---------
Total investment securities 111,827 145,286 137,411
Loans receivable, net 346,641 362,189 265,284
Accrued interest receivable 2,801 3,247 2,625
Bank premises and equipment, net 2,008 2,058 2,102
Real estate owned, net 720 736 2,563
Assets held under operating leases 7,626
Purchased mortgage servicing rights 821 972 1,157
Refundable federal income taxes (309) 180 877
Deferred federal income taxes 685 606 1,994
Prepaid expenses and other assets 407 381 861
--------- --------- ---------
Total assets $ 468,373 $ 520,480 $ 424,735
========= ========= =========
</TABLE>
F-32
<PAGE> 130
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ---------------------
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Savings deposits $ 364,707 $ 362,798 $ 317,354
Federal Home Loan Bank (FHLB) advances 52,300 105,500 65,100
Other borrowed money 13,740 14,435 9,729
Accrued interest payable 635 585 487
Advance payments by borrowers for taxes and
insurance 1,169 1,773 1,305
Accounts payable and accrued liabilities 1,389 1,437 1,014
--------- --------- ---------
Total liabilities 433,940 486,528 394,989
--------- --------- ---------
Commitments and contingencies
Shareholder's equity:
Capital stock, $100 par value; authorized 20,000
shares, issued and outstanding 6,000 shares 600 600 600
Retained earnings, substantially restricted 33,822 33,187 29,775
Unrealized market adjustment on available for sale
securities 11 165 (629)
--------- --------- ---------
Total shareholder's equity 34,433 33,952 29,746
--------- --------- ---------
Total liabilities and shareholder's equity $ 468,373 $ 520,480 $ 424,735
========= ========= =========
</TABLE>
F-33
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 131
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
for the three months ended March 31, 1996 and 1995 (unaudited) and the years
ended December 31,1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $ 7,057 $ 5,453 $25,013 $19,164 $22,222
Commercial, home improvement and other
loans 458 465 1,927 1,903 1,957
Investment securities and
interest-bearing securities 1,435 1,600 6,446 5,117 1,849
Mortgage-backed securities 554 803 3,158 3,228 2,333
Dividends on FHLB stock 92 74 309 295 148
------- ------- ------- ------- -------
9,596 8,395 36,853 29,707 28,509
------- ------- ------- ------- -------
Interest expense:
Deposits 4,772 3,765 17,190 13,595 13,440
FHLB advances 1,074 1,034 4,701 4,246 2,347
Other borrowed money 204 306 1,555 300 2,503
------- ------- ------- ------- -------
6,050 5,105 23,446 18,141 18,290
------- ------- ------- ------- -------
Net interest income 3,546 3,290 13,407 11,566 10,219
Provision for losses on loans 125 93 250 500 326
------- ------- ------- ------- -------
Net interest income after provision
for losses on loans 3,421 3,197 13,157 11,066 9,893
------- ------- ------- ------- -------
Other income:
Investment (losses) gains 233 41 162 (321) 1,664
Fee income 142 168 588 1,004 651
Gain on sale of real estate owned 43 333 346 74
Gain on sale of loans 34 11 122 311 967
Other 63 119 465 825 1,339
------- ------- ------- ------- -------
515 339 1,670 2,165 4,695
------- ------- ------- ------- -------
Other expenses:
Compensation 1,343 1,282 5,456 5,460 5,098
Occupancy expense 273 287 1,080 1,256 1,356
Federal insurance premium 219 231 885 1,011 999
</TABLE>
F-34
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 132
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Provision for losses on real estate
owned 518
Other 625 593 2,410 2,671 3,308
-------- -------- -------- -------- --------
2,460 2,393 9,831 10,398 11,279
-------- -------- -------- -------- --------
Income before federal income taxes $ 1,476 $ 1,143 $ 4,996 $ 2,833 $ 3,309
Federal income taxes (expense) benefit (491) (258) (984) 791 (288)
-------- -------- -------- -------- --------
Net income 985 885 4,012 3,624 3,021
Retained earnings, beginning of period 33,187 29,775 29,775 26,979 23,983
Dividends paid ($58.33, $100.00,
$137.97 and $4.17 per share for the three
months ended March 31, 1996 and the
years ended December 31, 1995, 1994
and 1993, respectively) (350) (600) (828) (25)
-------- -------- -------- -------- --------
Retained earnings, end of period $ 33,822 $ 30,660 $ 33,187 $ 29,775 $ 26,979
======== ======== ======== ======== ========
</TABLE>
F-35
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 133
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995 (unaudited) and the years
ended December 31,1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 985 $ 885 $ 4,012 $ 3,624 $ 3,021
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 67 109 304 710 705
Amortization of premiums, net 146 40 333 570 557
Amortization of deferred loan fees (17) (106) (373) (610) (733)
Amortization of and allowance related to
servicing rights 151 42 184 223 240
Amortization of deferred swap gain (4) (42) (37) (96) (119)
Provision for loan losses 125 93 250 500 326
Provision for loss on real estate owned 518
Investment (gains) losses (233) (41) (162) 321 (1,665)
Loss from extinguishment of debt 327
Gains on sale of real estate owned (43) (333) (346)
Gains from sales of loans receivable (34) (11) (121) (311)
Deferred federal income taxes 979 (497) 270
FHLB stock dividends (92) (74) (309) (295) (148)
Loans originated for sale (10,151) (1,088) (19,916) (17,670) (62,638)
Sale of loans originated for sale 7,556 1,254 19,658 17,820 63,605
Increase (decrease) in cash from changes
in assets and liabilities:
Accrued interest receivable 446 (32) (622) 250 (102)
Accrued interest payable 50 6 98 (222) 144
Federal income taxes (receivable)
payable 489 (319) 697 (877) 989
Other, net (31) (624) 904 268 (880)
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities (590) 92 5,546 3,362 4,417
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of real estate owned 56 8,045 10,294 5,753 12,717
Purchases of available for sale securities (5,654) (27,697) (71,046) (40,172)
Purchases of held to maturity securities (18,196) (62,666) (115,492)
Proceeds from sales of available for sale
securities 30,205 22,910 57,360 37,221
Proceeds from sales of held for investment
securities 49,681
</TABLE>
F-36
<PAGE> 134
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Proceeds from maturities of available for
sale securities $ 7,331 $ 2,629 $ 11,503 $ 1,797
Proceeds from maturities of held to maturity
securities 1,523 2,313 13,846 29,078 $ 25,141
Net proceeds from short-term investments 3,131 805
Proceeds from sales of loans receivable 9,641
Purchases of loans receivable (3,600) (88,649)
Decrease (increase) in loans receivable 18,034 (14,008) (8,118) (10,867) 18,290
Additions to bank premises and equipment (17) (37) (225) (527) (248)
Other, net (1) (50) (142) (879) 262
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities 51,477 (9,495) (93,373) (28,490) (8,844)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase (decrease) in savings deposits 1,909 4,559 45,444 (13,541) 29,235
Proceeds from long-term FHLB advances 10,000 55,000 40,000 40,000
Repayment of long-term FHLB advances (10,000) (55,000) (40,000)
Net increase (decrease) in short-term FHLB
advances (53,200) 12,100 40,400 (14,900) 25,000
Increase (decrease) in other borrowings (695) (6,725) 4,706 9,729
Repayment of bonds payable (47,218)
Dividends paid (350) (600) (828) (25)
Increase (decrease) in advance payments by
borrowers for taxes and insurance (604) (173) 467 150 601
-------- -------- -------- -------- --------
Net cash (used in) provided by financing (52,940) 9,761 90,417 20,610 7,593
activities
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents (2,053) 358 2,590 (4,518) 3,166
Cash and cash equivalents, beginning of period 4,825 2,235 2,235 6,753 3,587
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period $ 2,772 $ 2,593 $ 4,825 $ 2,235 $ 6,753
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 6,000 $ 5,099 $ 23,348 $ 18,363 $ 17,963
======== ======== ======== ======== ========
Income taxes refunded $ 697 $ 994
======== ========
</TABLE>
F-37
<PAGE> 135
COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
Supplemental schedule of noncash investing activities:
Additions to real estate owned through $478 $4,376
settlements or transfers of loans ==== ======
receivable $ 868 $2,463
======= ======
Redesignation of securities to available for
sale $68,165
=======
Transfer of real estate owned from bank
premises and equipment $ (693)
======
</TABLE>
F-38
<PAGE> 136
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Information at March 31, 1996 and 1995 is unaudited
(Dollar amounts in thousands)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. ORGANIZATION: County Savings Bank (the Bank) is a wholly-owned
subsidiary of First Financial Group, Inc. (FFG). The Bank is a
savings and loan association incorporated under the laws of
the state of Ohio. The Bank is subject to regulation by the
State of Ohio's Department of Commerce, Office of Thrift
Supervision (OTS), which is an office of the Department of the
Treasury and, for insurance purposes, the Federal Deposit
Insurance Corporation (FDIC).
b. PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of the Bank and its
wholly-owned subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation.
c. FEDERAL HOME LOAN BANK SYSTEM: As a member of the Federal Home
Loan Bank System, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank
of Cincinnati in an amount equal to the greater of one percent
of its mortgage loans and contracts secured by residential
property, or five percent of its outstanding advances from the
Federal Home Loan Bank.
To comply with OTS regulations, the Bank must maintain liquid
assets at an average of at least five percent of savings
accounts and borrowings due within one year. Such liquid
assets are invested primarily in cash and cash equivalents and
certain investment securities which are readily convertible
into cash.
The Bank maintains insurance on savings accounts with the
Savings Association Insurance Fund (SAIF) of the FDIC, which
requires quarterly payments of deposit insurance premiums.
d. INVESTMENT AND MORTGAGE-BACKED SECURITIES: During 1994, the
Bank adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. As a result, all
securities have been classified as available for sale or held
to maturity. The Bank holds no securities that are classified
as trading.
The effect of this change in accounting principle resulted in
an unrealized holding loss, net of tax effect, of $484 at
January 1, 1994, for securities classified as available for
sale and was reflected as a separate component of
stockholder's equity. During 1994, this unrealized holding
loss increased by $145 due to the depreciation in market value
of investments. At December 31, 1995, this account reflected
an unrealized holding gain due to the appreciation in market
value of investments and redesignation of securities to
available for sale, causing a favorable change of $794 ($444
from appreciation of investments and $350 from redesignation
of securities) from the prior year. During the three months
ended March 31, 1996 this account decreased $154 as a result
of the realization of net gains on the sale of available for
sale securities.
F-39
<PAGE> 137
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
Investment and mortgage-backed securities for which the Bank
has the positive intent and ability to hold to maturity are
reported at cost, adjusted for premiums and discounts that are
recognized in interest income using methods approximating the
interest method over the period to maturity.
Available for sale securities are recorded at fair value.
Unrealized holding gains and losses, net of tax, on available
for sale securities are reported as a net amount in a separate
component of shareholder's equity until realized. Gains and
losses on the sale of available for sale securities are
determined using the specific-identification method. Premiums
and discounts are recognized in interest income using methods
approximating the interest method over the period to maturity.
e. LOANS RECEIVABLE: Loans receivable which management has no
present intent to sell are stated at their unpaid principal
balances, as adjusted for deferred loan fees. All loans held
for sale are valued at the lower of cost or market. Interest
on loans is accrued as earned. A reserve for uncollected
interest is established on loans for which three or more
monthly payments are past due.
f. MORTGAGE SERVICING: The Bank sells loans or participating
interests in loans which it continues to service for a fee.
Gains or losses on such sales are recognized at the time of
sale and are determined by the difference between the net
sales proceeds and the book value of the loans or interests
sold. When the rights to service the underlying loans are
retained, the gain or loss is adjusted based on the net
present value of the expected amounts to be received or paid.
The Bank calculates these amounts by comparing the contractual
interest rates to be paid by the borrowers and the interest
rates to be paid to the buyers, less an amount equal to the
present value of a normal servicing fee.
The costs to acquire the right to service mortgage loans are
capitalized and amortized over the estimated remaining
servicing lives of the underlying loan pool. The amortization
is calculated using the interest method, considering various
factors including prepayment experience and market rates. The
carrying value of the servicing portfolio is periodically
evaluated by management in relation to future net servicing
revenues.
In May 1995, the Financial Accounting Standards Board (FASB)
issued No. 122, Accounting for Mortgage Servicing Rights,
which requires financial institutions to recognize rights to
service mortgage loans for others, regardless of how those
servicing rights are acquired, as separate assets. This
statement also requires that a financial institution assess
its capitalized mortgage servicing rights for impairment based
on the fair value of those rights. This statement was adopted
as of January 1, 1996. As a result, the Bank recorded an
allowance of $100 for the excess of amortized cost over the
estimated fair value of capitalized purchased mortgage
servicing rights.
g. LOAN FEES: The Bank charges fees for originating loans. The
Bank accounts for such fees as prescribed in SFAS No. 91,
Accounting for Nonrefundable Fees and Costs Associated With
Originating or Acquiring Loans and Initial Direct Costs of
Leases. Loan origination fees, net of direct costs of
underwriting the loans, have been deferred and are being
amortized to interest income using the interest method.
Unamortized fees on loans sold or paid in full are recognized
as income.
h. ALLOWANCES FOR LOAN LOSSES: The Bank charges current earnings
with a provision for estimated losses on loans receivable. The
provision for losses on loans receivable takes into account
both
F-40
<PAGE> 138
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
specifically identified problem loans and risks not
specifically identified in the loan portfolio. In addition,
the provision takes into account the financial condition of
the borrowers, the fair market value of the collateral,
recourse to guarantors, and other factors.
Actual losses are charged to the allowance when an account is
deemed to be uncollectible. Recoveries from loans previously
charged to the allowance as uncollectible are credited to the
allowance for losses.
The Bank adopted SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, on January 1, 1995. Under the new
standard, a loan is considered impaired, based on current
information and events, if it is probable that the Bank will
be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the
loan agreement. The measurement of impaired loans is generally
based on the present value of expected future cash flows
discounted at the historical effective interest rate, except
that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. The
adoption of SFAS No. 114 had no impact on the Bank's allowance
for loan losses determined at January 1, 1995.
i. INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS: Loans,
including impaired loans, are generally classified as
nonaccrual if they are past due as to payment of principal or
interest for a period of more than 90 days, unless such loans
are well-secured and in the process of collection. Loans that
are on a current payment status or past due less than 90 days
may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are
reasonably assured of repayment within an acceptable period of
time, and there is a sustained period of repayment performance
by the borrower, in accordance with the contractual terms of
interest and principal.
While a loan is classified as nonaccrual, interest income is
generally recognized on a cash basis.
j. REAL ESTATE OWNED: Real estate properties acquired through, or
in lieu of, loan foreclosure are initially recorded at fair
value at the date of foreclosure establishing a new cost
basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the
lower of (1) cost, or (2) fair value minus estimated costs to
sell. Any reduction to fair value from the new cost basis
recorded at the time of acquisition is accounted for as a
valuation reserve.
Costs relating to the improvement of real estate owned are
capitalized. Costs of holding such real estate are expensed as
incurred, while net operating income generated from these
properties is reflected as a reduction of the assets' carrying
values. Such reductions of real estate owned amounted to
approximately $112 and $418 for 1994 and 1993, respectively.
Properties generating net operating income were disposed of
during 1995.
k. BANK PREMISES AND EQUIPMENT: Bank premises and equipment are
stated at cost less accumulated depreciation and amortization.
Major renewals or improvements are capitalized and depreciated
over their estimated useful lives, while repairs and
maintenance are charged to expense in the year incurred.
F-41
<PAGE> 139
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
When property and equipment are retired or sold, the cost and
related accumulated depreciation or amortization are removed
from the accounts, with any gain or loss recognized.
Depreciation and amortization are computed principally on the
straight-line basis over the estimated useful lives of the
various classes of assets.
l. INTEREST RATE SWAP CONTRACTS: The Bank has entered into
certain interest rate swap contracts as part of its
asset-liability management program to assist in managing the
Bank's interest rate risk and not for speculative purposes.
The notional principal amounts of these instruments reflect
the Bank's extent of involvement in this type of financial
instrument and do not represent the Bank's risk of loss due to
counterparty nonperformance or due to declines in the market
values of these swap contracts from changing interest rates.
Such swap contracts are accounted for as hedges on a
historical cost basis, with the related swap income or expense
recognized currently. Fees received, if any, are deferred and
recognized as income over the applicable term of the
contracts. Gains or losses on the sale of swap contracts
entered into as hedges are deferred and recognized through
operations over the remaining term of the related hedged
assets or liabilities. The Bank had offsetting swaps
outstanding with notional amounts totaling $10,000 and $20,000
at December 31, 1995 and 1994, respectively. No such
transactions were outstanding at March 31, 1996.
m. FEDERAL INCOME TAXES: The Bank and its subsidiaries file a
consolidated federal income tax return with FFG. Income taxes
are computed on the separate results of the Bank and its
subsidiaries based on a tax-sharing arrangement with FFG.
Deferred federal income taxes are recognized on temporary
differences between financial statement and income tax bases
of assets and liabilities.
n. USE OF ESTIMATES IN FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Changes in the interest rate environment and the
strength of the local economy may affect the Bank's net
interest income and the value of its recorded assets and
liabilities. Actual results could differ from those estimates.
o. STATEMENT OF CASH FLOWS: For purposes of reporting cash flows,
the Bank considers interest-bearing deposits with a maturity
of less than three months to be cash equivalents.
p. RECLASSIFICATIONS: Certain 1994 and 1993 amounts have been
reclassified to conform with the 1995 presentation.
q. INTERIM FINANCIAL STATEMENTS: The consolidated financial
statements as of and for the periods ended March 31, 1996 and
1995 are unaudited and are presented pursuant to the rules and
regulations of the Securities and Exchange Commission. In
the opinion of management, the accompanying consolidated
financial statements reflect all adjustments (which are of a
normal recurring nature) necessary to present fairly the
financial position and results of operations and cash flows
for the interim periods, but are not necessarily indicative
of the results of operations for a full year.
F-42
<PAGE> 140
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES:
Information relating to investment and mortgage-backed securities is summarized
as follows:
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
United States government and agency obligations $ 1,000 $ (16) $ 984
Collateralized mortgage obligations and real estate
mortgage investment conduits 42,175 $ 203 (34) 42,344
Mortgage-backed securities 590 (12) 578
Mutual funds 5,655 (39) 5,616
FHLB stock 5,369 5,369
------- ------- ------- -------
Total $54,789 $ 203 $ (101) $54,891
======= ======= ======= =======
SECURITIES HELD TO MATURITY:
Collateralized mortgage obligations and real estate
mortgage investment conduits $26,073 $ 34 $ (709) $25,398
Mortgage-backed securities 28,952 46 (395) 28,603
Industrial development bond 1,857 1,857
Bonds and other 54 2 56
------- ------- ------- -------
Total $56,936 $ 82 $(1,104) $55,914
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
United States government and agency obligations $ 1,000 $ (21) $ 979
Collateralized mortgage obligations and real estate
mortgage investment conduits 65,529 $ 382 (43) 65,868
Mortgage-backed securities 14,591 75 (54) 14,612
FHLB stock 5,277 5,277
------- ------- ------- -------
Total $86,397 $ 457 $ (118) $86,736
======= ======= ======= =======
SECURITIES HELD TO MATURITY:
Collateralized mortgage obligations and real estate
mortgage investment conduits $26,325 $ 36 $ (711) $25,650
Mortgage-backed securities 30,297 24 (215) 30,106
Industrial development bond 1,874 1,874
Bonds and other 54 2 56
------- ------- ------- -------
Total $58,550 $ 62 $ (926) $57,686
======= ======= ======= =======
</TABLE>
F-43
<PAGE> 141
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
United States government and agency obligations $ 3,993 $ (440) $ 3,553
Collateralized mortgage obligations and real estate
mortgage investment conduits 2,882 (27) 2,855
Mortgage-backed securities 7,572 (389) 7,183
FHLB stock 3,338 3,338
-------- -------- --------
Total $ 17,785 $ (856) $ 16,929
======== ======== ========
SECURITIES HELD TO MATURITY:
United States government and agency obligations $ 1,997 $ (119) $ 1,878
Collateralized mortgage obligations and real estate
mortgage investment conduits 73,615 $ 8 (2,909) 70,714
Mortgage-backed securities 42,855 5 (3,188) 39,672
Industrial development bond 1,961 1,961
Bonds and other 54 54
-------- -------- -------- --------
Total $120,482 $ 13 $ (6,216) $114,279
======== ======== ======== ========
</TABLE>
The mortgage-backed securities held by the Bank consist of Government National
Mortgage Association, Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Association (FNMA) pass-through securities.
F-44
<PAGE> 142
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
At December 31, 1995, the Bank had pledged approximately $1,178 of these
mortgage-backed securities as collateral for interest rate swap contracts. No
securities were pledged for interest rate swap contracts at March 31, 1996.
The amortized cost and market values of held to maturity and available for sale
securities at March 31, 1996 and December 31, 1995, by contractual maturity, are
shown below.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------------
HELD TO MATURITY SECURITIES AVAILABLE FOR SALE SECURITIES
--------------------------- -----------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Due after one through five years $ 50 $ 50
Due after five years through ten years 1,857 1,857 $ 1,000 $ 984
------- ------- ------- -------
1,907 1,907 1,000 984
------- ------- ------- -------
Collateralized mortgage obligations and real estate
investment conduits 26,073 25,398 42,175 42,344
Mortgage-backed securities 28,952 28,603 590 578
FHLB stock and other 4 6 11,024 10,985
------- ------- ------- -------
Total $56,936 $55,914 $54,789 $54,891
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------
HELD TO MATURITY SECURITIES AVAILABLE FOR SALE SECURITIES
--------------------------- -----------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Due after one through five years $ 50 $ 50
Due after five years through ten years 1,874 1,874 $ 1,000 $ 979
------- ------- ------- -------
1,924 1,924 1,000 979
------- ------- ------- -------
Collateralized mortgage obligations and real estate
investment conduits 26,325 25,650 65,529 65,868
Mortgage-backed securities 30,297 30,106 14,591 14,612
FHLB stock and other 4 6 5,277 5,277
------- ------- ------- -------
Total $58,550 $57,686 $86,397 $86,736
======= ======= ======= =======
</TABLE>
Collateralized mortgage obligations, real estate investment conduits and
mortgage-backed securities pay monthly principal and interest to the holder.
These securities have stated final maturities ranging from 23 to 351 months and
estimated weighted average lives ranging from 1 month to 25 years. Expected
maturities will differ from contractual maturities because borrowers have the
right to call or prepay the underlying obligations with or without penalties. Of
the $55,025 and $56,622, respectively, of such securities that have been
classified as held to maturity
F-45
<PAGE> 143
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
at March 31, 1996 and December 31, 1995, $22,763 and $23,011, respectively,
reprice monthly, semiannually or annually based on changes in LIBOR or various
treasury indices.
The Bank considers all investments in collateralized mortgage obligations and
real estate mortgage investment conduits to be nonhigh risk securities, as that
term is defined by the Federal Financial Institutions Examination Council.
Proceeds from sales of investment and mortgage-backed securities during the
three months ended March 31, 1996 and 1995 and the years ended December 31,
1995, 1994 and 1993 were $30,204, $22,910, $57,360, $37,221 and $49,681,
respectively. Gross gains of $285, $46, $250, $140 and $552 and gross losses of
$52, $5, $88, $1,202 and $11 were realized on these sales in 1996, 1995 and
1994, respectively. All sales in 1996, 1995 and 1994 involved available for sale
securities.
On November 15, 1995, the FASB released a special report entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities". This report provided for a one-time opportunity to
reclassify securities between held to maturity and available for sale. As a
result, on December 29, 1995, the Bank redesignated held to maturity securities
with a carrying value of $68,165 and market value of $68,516 as available for
sale.
On January 2, 1996, the Bank sold available for sale securities with an
amortized cost of $30,004 for a net gain of $233.
3. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- -----------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
First mortgage loans (including purchased loans
serviced by others of $66,103, $69,970 and
$1,090 in 1996, 1995 and 1994, respectively) $ 547,680 $ 570,165 $ 497,940
Loans and participation interests sold (213,273) (219,584) (245,737)
Loans in process (4,478) (5,728) (3,445)
--------- --------- ---------
First mortgage loans - net 329,929 344,853 248,758
Commercial, consumer and other loans 17,609 18,011 18,533
Deposit loans 1,789 1,885 1,881
Deferred gain from termination of interest rate
swaps (301) (335) (372)
Deferred loan fees (1,048) (1,059) (1,400)
Premiums on purchased loans 756 856 210
Allowance for losses on loans (2,093) (2,022) (2,326)
--------- --------- ---------
Total loans receivable $ 346,641 $ 362,189 $ 265,284
========= ========= =========
</TABLE>
F-46
<PAGE> 144
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
First mortgage loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Residential mortgage $261,591 $265,038 $162,824
Nonresidential 68,338 79,815 85,934
-------- -------- --------
Total first mortgage loans $329,929 $344,853 $248,758
======== ======== ========
</TABLE>
Residential mortgage loans are for properties located primarily in Ohio (mainly
Franklin and Licking counties) and other midwestern states. Nonresidential
mortgage loans are collateralized by commercial real estate properties also
located primarily in Ohio. Repayment of these loans is in part dependent on the
economic conditions in the respective areas where the properties are located.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. In
connection with these evaluations, management must make various estimates and
assumptions relative to the borrower's financial condition and the underlying
collateral property's operating performance.
The Bank sold approximately $7,522, $19,587, $26,012 and $62,800 of residential
mortgage loans during 1996, 1995, 1994 and 1993, respectively, to FHLMC, FNMA
and private investors, recording gains of approximately $34, $122, $311 and 967,
respectively. At March 31, 1996 and December 31, 1995 and 1994, the Bank had
$4,539, $2,232 and $823, respectively, of outstanding commitments to sell loans.
The Bank had loan commitments outstanding of approximately $8,227, $6,361 and
$17,142 at March 31, 1996 and December 31, 1995 and 1994, respectively, in
addition to the undisbursed portion of loans in process. Undisbursed lines of
credit available to the Bank's borrowers totaled approximately $9,287, $8,647
and $8,439 at March 31, 1996 and December 31, 1995 and 1994, respectively. In
addition, the Bank had letters of credit outstanding of approximately $287 at
March 31, 1996 and $307 at December 31, 1995 and 1994. Since many of the loan
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral held primarily
includes real estate properties. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan commitments to
customers, which could represent the contractual amount of these financial
instruments.
In the ordinary course of business, the Bank extends loans to directors and
officers. At March 31, 1996 and December 31, 1995 and 1994, such loans amounted
to approximately $20.
F-47
<PAGE> 145
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
4. ALLOWANCE FOR LOSSES ON LOANS:
Changes in the allowance for losses on loans are shown below:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 2,022 $ 2,326 $ 2,326 $ 3,007 $ 3,997
Provision charged to expense 125 93 250 500 326
Charge-offs and other, net (93) (2) (87) (1,172) (1,087)
Transfers from (to) real estate owned 39 (126) (467) (197) (229)
Transfer from assets held under operating lease 188
------- ------- ------- ------- -------
Balance, end of period $ 2,093 $ 2,291 $ 2,022 $ 2,326 $ 3,007
======= ======= ======= ======= =======
</TABLE>
Nonaccrual loans amounted to approximately $223, $90 and $888 at March 31, 1996
and December 31, 1995 and 1994, respectively. Accrued interest that would have
been recorded under the original terms for such loans amounted to approximately
$9, $5 and $75 through March 31, 1996 and December 31, 1995 and 1994,
respectively.
5. LOAN SERVICING:
Mortgage loans serviced for others are not included in the accompanying
consolidated statement of financial condition. The unpaid principal balances of
these loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Mortgage loan portfolios serviced for:
FHLMC $ 60,422 $ 63,539 $ 75,097
FNMA 142,434 146,914 157,757
Financial institutions 10,417 9,131 12,883
-------- -------- --------
Total mortgage loan portfolio
serviced for others $213,273 $219,584 $245,737
======== ======== ========
</TABLE>
Custodial cash balances maintained in connection with the foregoing loan
servicing were approximately $4,207, $4,776 and $4,031 at March 31, 1996 and
December 31, 1995 and 1994, respectively, and are maintained in deposit
accounts. All mortgage loans serviced for others are without recourse to the
Bank.
F-48
<PAGE> 146
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
6. ACCRUED INTEREST RECEIVABLE:
Accrued interest receivable is summarized as follows and is reflected net of an
allowance for uncollectible interest:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Investment securities $ 308 $ 445 $ 424
Mortgage-backed securities 205 325 332
Loans receivable 2,288 2,477 1,869
------ ------ ------
Total accrued interest receivable $2,801 $3,247 $2,625
====== ====== ======
</TABLE>
7. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------- -------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Land $ 699 $ 699 $ 699
Buildings and improvements 1,748 1,748 1,748
Leasehold improvements 519 519 395
Furniture, fixtures and equipment 2,188 2,171 2,079
------- ------- -------
5,154 5,137 4,921
------- ------- -------
Less accumulated depreciation and amortization (3,146) (3,079) (2,819)
======= ======= =======
Total bank premises and equipment $ 2,008 $ 2,058 $ 2,102
======= ======= =======
</TABLE>
Depreciation and amortization expense was $67, $75, $269, $297 and $292 in the
three months ended March 31, 1996 and 1995 and the years ended December 31,
1995, 1994 and 1993, respectively.
The Bank leases corporate and branch offices under various operating lease
agreements. The office leases contain various renewal option periods extending
through July 2019. In addition, the Bank has one land lease which expires in
2073. The following is a summary of future minimum lease payments under these
operating leases:
For the Year Ending December 31,
<TABLE>
<S> <C>
1996 $ 238
1997 198
1998 198
1999 122
2000 16
Thereafter 421
------------
Total minimum lease payments $ 1,193
------------
</TABLE>
F-49
<PAGE> 147
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
Rental expense under operating leases was $67, $71, $267, $374 and $461 in the
three months ended March 31, 1996 and 1995 and years ended December 31, 1995,
1994 and 1993, respectively.
8. REAL ESTATE OWNED:
Real estate owned consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- -------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Real estate acquired through foreclosure $ 959 $ 1,025 $ 2,688
Less allowance for estimated losses (239) (289) (125)
------- ------- -------
Total real estate owned $ 720 $ 736 $ 2,563
======= ======= =======
</TABLE>
Changes in the allowance for estimated losses are shown below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 289 $ 125 $ 125 $ 72 $ 22
Provision charged to expense 518
Charge-offs and other, net (11) (303) (144) (480)
Transfers from (to) allowance for losses on (39) 126 467 197 230
loans
Transfers to allowance for loss on assets
held under operating leases (218)
----- ----- ----- ----- -----
Balance, end of period $ 239 $ 251 $ 289 $ 125 $ 72
===== ===== ===== ===== =====
</TABLE>
9. ASSETS HELD UNDER OPERATING LEASES:
During 1994 and January 1995, the Bank leased two hotels in New Jersey to Motel
6 Operating L.P. (lessee) which commenced in January 1992. Terms of the
transaction required annual rentals of $725 paid in advance each year over a
lease term of five years. The lease agreements provided for a purchase option by
the lessee initially at $7,100 after January 1994, and ratably increasing to
$7,250 at the end of the lease term. In addition, the Bank had a put option,
whereby the Bank could unconditionally require the lessee to purchase the hotels
after January 1994 for $5,900. Based upon the terms of this transaction, the
Bank classified the carrying values of the hotels ($6,700 at December 31, 1994)
as assets held under operating leases in the accompanying consolidated statement
of financial condition. The Bank and the lessee negotiated a sale of these two
hotels at a price of $6,950 which closed on January 31, 1995.
In December of 1992, the Bank executed a contract to lease a restaurant in New
Jersey adjacent to the properties leased by the Motel 6 Operating L.P. to a
separate lessee. Under the terms of this lease, the lessee was obligated to
purchase the property for $950 within 60 days after the closing on the sale of
the Motel 6 property. The carrying value of the property ($925 at December 31,
1994) was classified as an asset held under operating lease in the accompanying
consolidated statement of financial condition. The sale of this property closed
in May 1995.
F-50
<PAGE> 148
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
10. SAVINGS DEPOSITS:
The nominal rates at which the Bank paid interest on savings deposits are as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- --------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Certificate accounts:
2.72% - 4.00% $ 160 $ 162 $ 9,371
4.00% - 5.00% 33,816 14,436 65,539
5.00% - 6.00% 172,550 183,438 110,992
6.00% - 7.00% 40,322 44,442 36,928
7.00% - 8.00% 45,459 45,281 715
8.00% - 9.00% 210 206 387
9.00% - 10.00% 1,988 2,103 2,412
Greater than 10.00% 39
-------- -------- --------
Total certificate accounts 294,505 290,068 226,383
-------- -------- --------
NOW accounts (1.13%, 1.16% and 1.13% in 1996, 1995
and 1994, respectively) 22,597 22,127 21,037
Money market demand deposits (2.69%, 2.67% and
2.77% in 1996, 1995 and 1994, respectively) 14,023 14,779 21,034
Passbook accounts (2.64% in 1996 and 3.05% in 1995
and 1994) 33,582 35,824 48,900
-------- -------- --------
Total savings deposits $364,707 $362,798 $317,354
======== ======== ========
</TABLE>
At March 31, 1996 and December 31, 1995, the scheduled maturity amounts of the
certificate accounts are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NOMINAL NOMINAL
MATURES WITHIN BALANCE RATE BALANCE RATE
- ------------------------------------- -------- -------- --------
<C> <C> <C> <C> <C>
1 Year $248,212 5.752% $189,297 5.578%
1 to 2 years 37,344 6.127 89,350 6.606
2 to 3 years 1,719 5.582 4,614 5.914
3 to 4 years 3,984 7.384 4,129 7.225
4 to 5 years 2,326 5.835 1,772 5.983
Thereafter 920 6.219 906 6.207
-------- --------
Total maturities $294,505 $290,068
======== ========
</TABLE>
F-51
<PAGE> 149
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
11. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank (FHLB) advances at March 31, 1996 and December 31, 1995
and 1994, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
MARCH 31, 1996 1995 1994
------------------ ------------------ ------------------
MATURITY RATE AMOUNT RATE AMOUNT RATE AMOUNT
- ------------- ---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
January 1996 5.98% $ 24,000
March 1996 5.70 21,400 5.74% 5,000
April 1996 5.33% 37,200 5.67 15,000 5.74 15,000
May 1996 5.81 10,000
June 1996 5.10 15,100 5.68 15,100 5.99 15,100
July 1997 5.90 20,000
August 1999 5.99 10,000
November 1999 5.99 20,000
-------- -------- --------
Total $ 52,300 $105,500 $ 65,100
======== ======== ========
</TABLE>
Interest rates on advances outstanding at December 31, 1995 that mature in
January and March 1996 are fixed rates until maturity. The remaining advances
adjust every one or three months based on LIBOR.
Pursuant to collateral agreements with the FHLB, advances are secured by all
stock in the FHLB and qualifying first mortgage loans. In addition, at March 31,
1996 and December 31, 1995, the Bank has pledged approximately $12,717 and
$28,037 of mortgage-backed securities and $14,034 and $25,128 of REMICS,
respectively. Excess collateral pledged may be used to collateralize additional
advances.
12. ACCRUED INTEREST PAYABLE:
Accrued interest payable is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Savings deposits $ 252 $ 185 $ 119
FHLB advances 140 424 481
Interest rate swaps (64) (122)
Other borrowings 241 39 8
Escrow 2 1 1
----- ----- -----
Total accrued interest payable $ 635 $ 585 $ 487
===== ===== =====
</TABLE>
F-52
<PAGE> 150
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
13. OTHER BORROWINGS:
Other borrowings at March 31, 1996 and December 31, 1995 and 1994 represent
mortgage-backed or REMIC securities sold under reverse-repurchase agreements.
The underlying securities at March 31, 1996 and December 31, 1995 had a carrying
value of $14,901 and $15,478, respectively, and were delivered to the
broker-dealer who arranged the transaction. Information concerning securities
sold under reverse-repurchase agreements during 1996, 1995, 1994 and 1993 is
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- -----------------------------------
1996 1995 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average balance during the period $14,112 $25,701 $ 5,825 $ 276
Average interest rate during the period 5.729% 6.034% 5.072% 3.581%
Maximum month-end balance during the period $14,177 $35,815 $19,001 0
</TABLE>
14. FEDERAL INCOME TAXES:
The components of the federal income tax (benefit) provision are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Current $ 491 $ 258 $ 5 $(294) $ 18
Deferred 979 (497) 270
----- ----- ----- ----- -----
Total federal income tax (benefit) provision $ 491 $ 258 $ 984 $(791) $ 288
===== ===== ===== ===== =====
</TABLE>
A reconciliation of the statutory federal income tax rate to the Bank's
effective tax rate is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Federal income tax rate 34.0% 34.0% 34.0% 34.0% 34.0%
Conversion of and/or increase in utilization of
capital loss carryforwards (35.0) (20.6)
Bad debt deduction (10.6) (13.0) (6.5) (4.2)
Loss carryback to years having higher effective
tax rates (6.4)
Adjustment to previous liabilities (13.3)
Tax-exempt interest and other (.7) (.8) (1.3) (.7) (.5)
----- ----- ----- ----- -----
Effective tax rate 33.3% 22.6% 19.7% (27.9)% 8.7%
===== ===== ===== ===== =====
</TABLE>
The Bank qualifies under provisions of the Internal Revenue Code which permit
deductions for bad debts based on a percentage of taxable income before such
deductions (8% in 1995 and 1994) or based on specified experience
F-53
<PAGE> 151
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
formulas. Retained earnings at March 31, 1996 and December 31, 1995 include
approximately $8,636 of accumulated bad debt deductions for which no federal
income taxes have been provided. If these earnings are subsequently used by the
Bank for any purpose other than to absorb loan losses, including distributions
in liquidation, a tax liability will be imposed on the Bank at the then
prevailing federal income tax rate. Legislation has been introduced that would
provide for a forgiveness of the tax on pre-1988 loan loss reserves. All of the
Bank's tax loan loss reserves at December 31, 1995 were pre-1988 loan loss
reserves. If this legislation is enacted into law, the Bank would no longer be
allowed to use the reserve method for tax loan loss provisions, but would be
required to change to the charge-off method for tax purposes. No certainty
exists that the pending legislation will be enacted into law.
During 1994, the Bank's 1990 federal income tax return was examined. As a result
of this exam, approximately $4,000 of capital loss carryforwards were converted
to ordinary losses which were carried back to recover taxes paid in previous
years. Accordingly, an established valuation allowance of approximately $991 for
capital loss carryforwards that were not previously anticipated to be realized
was eliminated in 1994.
At March 31, 1996 and December 31, 1995 and 1994, the components of the net
deferred tax asset were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets arising from:
Loan loss reserve $ 947 $ 947 $ 986
Real estate owned tax basis greater than book 730
Losses on sales of investment securities 24 24 380
Deferred swap gains and other income 176 176 126
Unrealized losses on available for sale securities 324
Capital loss carryforwards net of valuation
allowance 24
Other expenses accrued for book not for tax 470 470 449
------ ------ ------
Total deferred tax assets 1,617 1,617 3,019
------ ------ ------
Deferred tax liabilities arising from:
Deferred loan fees and costs 879 879 929
Unrealized gains on available for sale
securities 6 85
Deferred tax income from REO properties 14
Other 47 47 82
------ ------ ------
Total deferred tax liabilities 932 1,011 1,025
------ ------ ------
Net deferred tax asset $ 685 $ 606 $1,994
====== ====== ======
</TABLE>
F-54
<PAGE> 152
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
15. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
a. CASH AND CASH EQUIVALENTS: The carrying amounts reported in
the consolidated statement of financial condition for cash and
short-term investments approximate those assets' fair values.
b. INVESTMENT SECURITIES: Fair values for investment securities
are based upon quoted market prices, where available. If
quoted market prices are not available, fair values are based
upon quoted market prices of comparable instruments.
c. LOANS RECEIVABLE: For variable-rate loans that reprice
frequently and with no significant change in credit risk, fair
values are based on carrying values. The fair values for
certain mortgage loans (e.g., one-to-four family residential)
are based upon quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for
differences in loan characteristics. The fair values for other
loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
d. DEPOSIT LIABILITIES: The fair values disclosed for demand
deposits (e.g., interest and non-interest-bearing checking,
passbook savings, and money market accounts) are, by
definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for
fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
e. OTHER BORROWINGS: Fair values for the Bank's borrowings are
estimated using discounted cash flow analysis using interest
rates currently offered for similar instruments.
f. OFF-BALANCE-SHEET INSTRUMENTS: Carrying values for the Bank's
interest rate swaps represent the net accrued interest
receivable or payable arising from these financial
instruments. Fair values are based upon quoted market prices.
The carrying amounts of the Bank's loan commitments and
standby letters of credit are reasonable estimates of the fair
values of these financial instruments. Carrying amounts, which
are based upon the fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the counter parties' credit standing, are
immaterial.
F-55
<PAGE> 153
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1994
---------------------- ---------------------- ----------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 2,772 $ 2,772 $ 4,825 $ 4,825 $ 2,235 $ 2,235
Investment securities 111,827 110,805 145,286 144,422 137,411 131,208
Loans, net 346,641 350,051 362,189 365,731 265,284 258,227
FINANCIAL LIABILITIES:
Deposits 364,707 365,455 362,798 364,524 317,354 315,797
FHLB advances 52,300 52,288 105,500 105,491 65,100 65,026
Other borrowings 13,740 13,742 14,435 14,435 9,729 9,729
OFF-BALANCE-SHEET INSTRUMENTS
- ASSETS 64 68 123 141
</TABLE>
16. EMPLOYEE BENEFITS:
The Bank has a Salary Deferral Plan (the Plan) which covers all full-time
employees of the Bank. The Bank may, at its discretion, determine the annual
contribution which, in addition to employee deferrals, cannot exceed the lesser
of $30 per employee or 25% of the annual compensation paid to each individual
employee. The Bank's contributions to the Plan were $179, $178 and $150 for
1995, 1994 and 1993, respectively.
The Bank also provides certain health care benefits for all eligible employees
and retirees. Prior to 1995, the cost of these benefits was recognized as
expense as incurred. These costs in 1994 and 1993 and for retirees approximated
$21 and $20, respectively.
Effective January 1, 1995, the Bank adopted SFAS No. 106, Employers Accounting
for Postretirement Benefits Other Than Pensions, which requires the accrual of
the expected costs of providing postretirement benefits during the period of the
covered employee's service. The transition obligation of $857 is being amortized
to expense over 20 years. The net postretirement benefit expense was $30 and
$127 in 1996 and 1995, respectively. At March 31, 1996 and December 31, 1995,
the recorded liability for postretirement benefits was $133 and $103,
respectively.
17. CONTINGENCIES:
The Bank is a party to various legal actions and complaints arising in the
ordinary course of business. It is the opinion of management that such matters
will not materially affect the Bank's financial condition or its results of
operations.
During 1995, the stockholders of FFG entered into a debt agreement with a
third-party financial institution which requires the Bank to maintain certain
financial ratios and operate under certain
F-56
<PAGE> 154
COUNTY SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollar amounts in thousands)
limitations. Noncompliance with these ratios would be an event of default for
the shareholders of FFG. At March 31, 1996 and December 31, 1995, the ratios and
limitations were satisfactorily met.
In September 1995, Congress began consideration of a recapitalization plan for
SAIF. Congress' plan, as proposed, provides for a special assessment of .85% to
.90% of deposits to be imposed on all SAIF-insured institutions to enable the
SAIF to achieve its required reserve level. Such assessment would be recorded as
a charge to expense. Future deposit insurance premiums are expected to decrease
to .04% from the .23% of deposits currently paid by the Bank.
18. REGULATORY CAPITAL REQUIREMENTS:
Under the provisions of Financial Institutions Reform, Recovery, and Enforcement
Act of 1989, minimum federal regulatory capital requirements for savings and
loan associations, which became effective December 7, 1989, require: i) tangible
capital at least equal to 1.5% of adjusted total assets, ii) core capital at
least equal to 3.0% of adjusted total assets, and iii) total capital equal to
8.0% of risk-weighted assets. At March 31, 1996 and December 31, 1995 and 1994,
the Bank had the following capital ratios:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ---------------
1996 1995 1994
<S> <C> <C> <C>
Tangible capital to adjusted total assets 7.3% 6.4% 7.1%
Core capital to adjusted total assets 7.3 6.4 7.1
Risk-based capital to risk-weighted assets 12.5 11.6 12.1
</TABLE>
19. PENDING SALE:
On March 27, 1996, FFG entered into a Stock Purchase Agreement with BancFirst
Ohio Corp. (BancFirst), whereby BankFirst will acquire all of the outstanding
capital stock of the Bank for approximately $44,775 in cash, subject to
adjustment. The acquisition has been approved by the shareholders of FFG, but
is subject to regulatory approval and other conditions.
As a result of this change in control, certain compensation contracts the Bank
has entered into will become payable upon the closing of the acquisition. These
payments, which result in an after tax cost of approximately $1,300, will be
expensed by the Bank upon the receipt of regulatory approvals of the acquisition
transaction. Additionally, the Bank will receive a capital contribution from FFG
equal to the amount of the expense.
F-57
<PAGE> 155
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THIS
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
-----------------
TABLE OF CONTENTS
Prospectus Summary ....................................................... 3
Summary Condensed Consolidated Historical
Financial And Operating Data Of The Company .............................. 6
Summary Condensed Consolidated Historical Financial And .................. 8
Operating Data Of County ................................................. 8
Summary Unaudited Pro Forma Condensed
Consolidated Financial And Operating Data Of The
Company .................................................................. 10
Risk Factors ............................................................. 12
Use Of Proceeds .......................................................... 15
Capitalization ........................................................... 16
Price Range Of The Company's Common Stock And Dividends .................. 17
Pending Acquisition ...................................................... 18
Selected Consolidated Financial Data Of The Company ...................... 20
Business Of The Company .................................................. 40
Selected Consolidated Financial Data Of County ........................... 48
Business Of County ....................................................... 65
Supervision And Regulation ............................................... 74
Management Of The Company ................................................ 81
Certain Relationships And Related Transactions ........................... 83
Security Ownership Of Certain Beneficial Owners And Management ........... 84
Description Of The Company's Capital Stock ............................... 85
Underwriting ............................................................. 86
Legal Matters ............................................................ 87
Experts .................................................................. 87
Available Information .................................................... 87
Incorporation Of Certain Documents By Reference .......................... 88
Index To Company Consolidated Financial Statements ....................... F-1
Index To County Consolidated Financial Information ....................... F-30
================================================================================
900,000 Shares
BANCFIRST OHIO CORP.
COMMON STOCK
-------
PROSPECTUS
-------
McDonald & Company
Securities, Inc.
____, 1996
================================================================================
<PAGE> 156
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered (other than underwriting
discounts) are estimated as follows:
<TABLE>
<S> <C>
SEC filing fee....................................... $ 10,886
NASD filing fee...................................... 3,657
Printing and engraving............................... 75,000
Accounting fees and expenses......................... 75,000
Legal fees and expenses.............................. 110,000
Blue Sky filing fees and expenses.................... 5,000
Miscellaneous........................................ 20,457
-------
Total....................................... $300,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1701.13(E) of the General Corporation Law of the State of Ohio
sets forth the conditions and limitations governing the indemnification of
officers, directors and other parties.
Article SEVENTH of the Registrant's Articles of Incorporation provides
the following with respect to indemnification of the Registrant's directors,
officers, employees and agents.
(1) Actions by third parties. The Company shall indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
Company, by reason of the fact that he is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
trustee, officer, employee, or agent of another corporation (including a
subsidiary of this Company), domestic or foreign, nonprofit or for profit,
partnership, join venture, trust, or other enterprise, including service with
respect to employee benefit plans, against all expenses, liability and loss
including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement actually and reasonably incurred by him
in connection with such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company and with respect to
any criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
II-1
<PAGE> 157
(2) Actions by or in the right of the Company. The Company shall
indemnify any person who was or is a party, or is a party, or is threatened to
be made a party to any threatened, pending, or completed action or suit by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he is or was a director, or officer of the Company, or is or was
serving at the request of the Company as a director, trustee, officer, employee,
or agent of another corporation (including a subsidiary of this Company),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement in a
manner he reasonably believed to be in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, except
that no indemnification shall be made in respect of any claim, issue, or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company unless and only to the
extent that the court of common pleas, or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court of
common pleas or such other court shall deem proper.
(3) Indemnification upon successful defense of proceeding. To the
extent that a current or former director, trustee or officer, has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in sections (1) and (2) of this article, or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Predicates for indemnification in other cases. Any indemnification
under section (1) and (2) of this article, unless ordered by a court, shall be
made by the Company only as authorized in the specific case upon a determination
that indemnification of the current or former director, trustee or officer, is
proper in the circumstances because he has met the applicable standard of
conduct set forth in sections (1) and (2) of this article. Such determination
shall be made (a) by a majority vote of a quorum consisting of directors of the
Company who were not and are not parties to or threatened with any such action,
suit, or proceeding, or (b) if such quorum is not obtainable or if a majority
vote of a quorum of disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the Company, or any person to be indemnified within the past five years, or (c)
by the shareholders, or (d) by the court of common pleas or the court in which
such action, suit, or proceeding was brought. Any determination made by the
disinterested directors under section (4)(a) or by independent legal counsel
under section (4)(b) of this article shall be promptly communicated to the
person who threatened or brought the action of suit by or in the right of the
Company under section (2) of this article and within ten days after receipt of
such notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(5) Advancement of expenses. Expenses, including attorneys' fees,
incurred in defending any action, suit, or proceeding referred to in section (1)
and (2) of this article, shall be paid by the Company in advance of the final
disposition of such action, suit, or proceeding.
(6) Right of claimant to bring suit. If a claim under paragraph 1, 2,
or 3 is not paid in full by the Company within thirty days after a written claim
therefor has been received by the Company, the claimant may any time thereafter
bring suit against the Company to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. Except in the case of claims made under
paragraph (3) of this article, it shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending
action, suit or any proceeding in advance of its final disposition where the
required undertaking has been tendered to the Company) that the claimant has not
met the standards of conduct which make it permissible under the applicable law
for the Company to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Company.
II-2
<PAGE> 158
Neither the failure of the Company (including its board of directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct, nor an actual determination by the Company (including its board of
directors, independent legal counsel, or its shareholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(7) Contractual Rights. The right to be indemnified or to the
reimbursement or advancement of expenses pursuant thereto (i) is a contract
right based upon good and valuable consideration, pursuant to which the person
entitled thereto may bring suit as if the provisions hereof were set forth in a
separate written contract between the Company and the director, or officer, (ii)
is intended to be retroactive and shall be available with respect to events
occurring prior to the adoption hereof and (iii) shall continue to exist after
the recision or restrictive modification hereof with the respect to events
occurring prior thereto.
(8) Requested service. Any director or officer of the Company serving,
in any capacity, (i) another company of which a majority of the shares entitled
to vote in the election of its directors is held by the Company, or (ii) any
employee benefit plan of the Company or of any company referred to in clause
(i), or (iii) any non-for-profit organization designated for such service by a
person who is an "executive officer" of the Company's principal banking
Subsidiary, within the meaning of Regulation O, 12 C.F.R. Section 215, or (iv)
any trust officer who serves as a director of a corporation a significant
portion of whose stock is owned in trust by the Company, shall be deemed to be
doing so at the request of the Company.
(9) Non-exclusivity of rights. The rights conferred on any person by
paragraphs (1), (2) and (3) shall not be exclusive of or are in addition to any
other right which such person may have or may hereafter acquire under any
statute, provision, of the Articles of Incorporation, Code of Regulations or
bylaws, agreement, vote of shareholders or disinterested directors or otherwise.
(10) Insurance and other security for benefits. The Company may
purchase and maintain insurance or furnish similar protection, including but not
limited to trust funds, letters of credit or self-insurance, at its expense, to
protect itself and any director or officer of the Company or another
corporation, partnership, joint venture, trust or other enterprise against
expenses, liabilities or losses, whether or not the Company would have the power
to indemnify such person against such expense, liability of loss under the Ohio
general corporation law.
(11) Interpretation. As used in this article, references to "the
Company" include all constituent corporations in a consolidation or merger and
the new or surviving corporation, so that any person who is or was a director of
officer of such a constituent corporation, or is or was serving at the request
of such constituent corporation as a director, trustee or officer of another
corporation (including a subsidiary of this Company), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise
shall stand in the same position under this article with respect to the new or
surviving corporation as he would if he had served the new or surviving
corporation in the same capacity.
(12) Prohibition of indemnification in certain cases. Notwithstanding
the foregoing, the Company shall not indemnify any officer, director, or
employee of the Company against expenses, penalties, or other payments incurred
in an administrative proceeding or action instituted by an appropriate bank
regulatory agency which proceeding or action results in a final order assessing
civil money penalties or requiring affirmative action by an individual or
individuals in the form of payments to the Company or in any other case where
indemnification is prohibited by federal statute.
ITEM 16. EXHIBITS
*1.1 Form of Underwriting Agreement
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<PAGE> 159
2.1 Stock Purchase Agreement by and between BancFirst Ohio Corp.
and First Financial Group, Inc. dated March 27, 1996
incorporated by reference to Exhibit 2.1 to Form 8-k dated
March 28, 1996.
**4.1 Form of Common Stock Certificate.
*5.1 Form of Opinion of Emens, Kegler, Brown, Hill & Ritter Co.,
L.P.A.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Coopers & Lybrand L.L.P.
*23.3 Consent of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
*24.1 Power of Attorney (Included on Signature Page).
*24.2 Power of Attorney of the Company.
- ------------------
* Filed herewith.
** To be filed by amendment.
ITEM 17. UNDERTAKING
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(c) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 160
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF ZANESVILLE, STATE OF OHIO, ON THE 20TH DAY OF
JUNE, 1996.
BANCFIRST OHIO CORP.
By: /s/ Gary N. Fields
-------------------------
Gary N. Fields, President
Each person whose signature appears below appoints Gary N. Fields,
James H. Nicholson, John R. Thomas and Amy M. Shepherd and all four of them, any
of whom may act without the joinder of the others as his true and lawful
attorney-in-fact and agent, will full power of substitution and resubstitution
for him, and in his stead, in all capacities to sign any and all amendments,
including post-effective amendments to this Registration Statement, and to file
the same with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON JUNE 20, 1996 BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED.
/s/ Gary N. Fields President and Chief Executive Officer
- --------------------------------
Gary N. Fields
/s/ James H. Nicholson Treasurer and Principal Financial Officer
- -------------------------------
James H. Nicholson
/s/ Philip E. Burke Director
- -------------------------------
Philip E. Burke
/s/ Frank J. Dosch Director
- -------------------------------
Frank J. Dosch
/s/ Richard O. Johnson Director
- -------------------------------
Richard O. Johnson
/s/ Milman H. Linn, III Director
- -------------------------------
Milman H. Linn, III
/s/ William F. Randles Director
- -------------------------------
William F. Randles
/s/ Karl C. Saunders Director
- -------------------------------
Karl C. Saunders
/s/ William T. Stewart Director
- -------------------------------
William T. Stewart
/s/ John W. Straker, Jr Director
- -------------------------------
John W. Straker, Jr.
/s/ Lynn H. Willett Director
- -------------------------------
Lynn H. Willett
II-5
<PAGE> 1
BANCFIRST OHIO CORP.
_________COMMON SHARES(1)
UNDERWRITING AGREEMENT
_______, 1996
McDONALD & COMPANY SECURITIES, INC.
as Representative of the Several Underwriters
Suite 2100
800 Superior Avenue
Cleveland, Ohio 44114-2603
Ladies and Gentlemen:
BancFirst Ohio Corp. (the "Company"), an Ohio corporation, hereby
confirms its agreement with you as follows:
1. Underwriters and Representative. The term "Underwriters," as used
herein, will mean and refer collectively to you and the other Underwriters named
in Schedule A annexed hereto, and the term "Representative" will refer to you in
your capacity as the representative of the Underwriters for the offering of the
common shares referred to herein. Except as may be expressly set forth below,
any reference to you in this Agreement shall be solely in your capacity as the
Representative.
2. Shares Offered. The Company proposes to issue and sell to the
Underwriters an aggregate of ____________ shares of its authorized and unissued
common shares, $10.00 par value per share (the "Firm Shares"). In addition, the
Company proposes to grant to the Underwriters an Option (as hereinafter defined)
to purchase up to an additional ________ shares (the "Option Shares") of its
authorized and unissued common shares on the terms and for the purposes set
forth in Section 4(b) hereof. The Firm Shares and the Option Shares are
hereinafter
- -----------------------------------
1 Includes an option to purchase from the Company up to __________
additional shares, solely to cover over-allotments.
<PAGE> 2
sometimes together called the "Shares," and the Shares are more
fully described in the Registration Statement and Prospectus (as hereinafter
defined).
3. Representations and Warranties of the Company. The Company
represents and warrants to the Underwriters that:
(a) The Company has prepared a Registration Statement on Form
S-3 (File No. 33-_______) relating to the Shares, including a
Preliminary Prospectus (as hereinafter defined), in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules, regulations and instructions (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder
and has filed such Registration Statement with the Commission. The
Company complies with the conditions for the use of Form S-3. One or
more amendments to such Registration Statement, including, in each
case, a revised Preliminary Prospectus, have been so prepared and
filed. If such Registration Statement has not become effective as of
the execution and delivery of this Agreement, and the filing of a
further amendment (the "Final Amendment") to such Registration
Statement is necessary to permit such Registration Statement to become
effective, such amendment will be filed promptly by the Company with
the Commission. If such Registration Statement has become effective and
any post-effective amendment has been filed with the Commission prior
to the execution and delivery of this Agreement, the most recent
post-effective amendment has been declared effective by the Commission.
If such Registration Statement has become effective and the Prospectus
included as part of the Registration Statement at the time it became
effective omitted information permitted to be omitted by Rule 430A of
the Rules and Regulations ("Rule 430A Information"), a final Prospectus
(the "Rule 430A Prospectus") containing all required Rule 430A
Information will promptly be filed by the Company pursuant to Rule
424(b) of the Rules and Regulations.
The term "Preliminary Prospectus" as used herein means any
form of prospectus (as referred to in Rule 430 of the Rules and
Regulations) with respect to the Shares included, at any time, as part
of such Registration Statement or filed with the Commission, pursuant
to Rule 424(a) of the Rules and Regulations, prior to such Registration
Statement being declared effective. The Registration Statement referred
to in this Section 3(a), as amended at the time that it becomes or
became effective, or, if applicable, as amended at the time the most
recent post-effective amendment to such Registration Statement filed
with the Commission prior to the execution and delivery of this
Agreement became effective, including financial statements and all
exhibits and other information (whether filed or incorporated by
reference) deemed to be part thereof at such time pursuant to Rule 430A
of the Rules and Regulations is herein called the "Registration
Statement." The final Prospectus relating to the Shares in the form
first filed with the Commission pursuant to Rule 424(b)(1) or (4) of
the Rules and Regulations or, if no such filing is required, the form
of final prospectus included in the Registration Statement at the
Effective Date (as hereafter defined) is herein called the
"Prospectus." The date on which the Registration Statement becomes
effective is hereinafter called the "Effective Date." As
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<PAGE> 3
used herein, the terms "Registration Statement", "Prospectus" and
"Preliminary Prospectus" shall include in each case the documents, if
any, incorporated by reference therein.
(b)When the Registration Statement becomes effective, and at
all subsequent times to and including the Closing Time (as hereinafter
defined) and at the Option Exercise Time (as hereinafter defined), or
for such longer period as the Prospectus may be required by the Act or
the Rules and Regulations or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the rules and regulations promulgated
thereunder to be delivered in connection with sales of the Shares by
the Underwriters or a dealer, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment thereof or supplement thereto;
provided, however, that no amendment or supplement to the Registration
Statement or the Prospectus shall be made without prior consultation
with you) will comply with the requirements of the Act and the Rules
and Regulations, will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations, will
not contain an untrue statement of a material fact and will not omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this subsection (b) do not apply to
statements or omissions in the Registration Statement or the Prospectus
based upon and made in conformity with written information furnished to
the Company through or on behalf of the Underwriters specifically for
inclusion therein.
(c)Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied,
or will comply when so filed, in all material respects with the
Exchange Act and the applicable rules and regulations thereunder; and
none of such documents contained or will contain an untrue statement of
a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(d) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus with respect to the
Shares and has not instituted or, to the Company's knowledge,
threatened to institute any proceedings with respect to such an order.
Each Preliminary Prospectus, when filed with the Commission, conformed
in all material respects with the requirements of the Act and the Rules
and Regulations and, as of its date, did not include any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this sentence do not apply to
statements or omissions in each such Preliminary Prospectus based upon
and made in conformity with written information furnished to the
Company through or on behalf of the Underwriter specifically for
inclusion therein.
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<PAGE> 4
(e) The Company is, and at the Closing Time and at the Option
Exercise Time will be, a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio. The Company
has, and at the Closing Time and at the Option Exercise Time will have,
the power and authority (corporate, governmental, regulatory and
otherwise) and has or will have all necessary approvals, orders,
licenses, certificates, permits and other governmental authorizations
(collectively the "Authorizations") to own or lease all of the assets
owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus, except where the failure to
have any Authorization would not have a material adverse effect on the
condition (financial or otherwise), assets, business, properties,
prospects or results of operations of the Company and the Subsidiaries
(as hereinafter defined), taken as a whole (a "Material Adverse
Effect"). The Company is, and at the Closing Time and at the Option
Exercise Time will be, duly licensed or qualified to do business and in
good standing as a foreign corporation in all jurisdictions (i) in
which the nature of the activities conducted by the Company requires
such qualification and (ii) in which the Company owns or leases real
property, except where the failure to be so licensed or qualified would
not have a Material Adverse Effect. The Articles of Incorporation and
Code of Regulations of the Company comply in all material respects with
applicable law. A complete and correct copy of each of the Articles of
Incorporation and the Code of Regulations of the Company, in each case
as amended and as currently in effect, has been delivered or made
available to you or your counsel and no changes therein will be made
subsequent to the date hereof and prior to the expiration of the
Option.
(f) The First National Bank of Zanesville ("FNB") and
Bellbrook Community Bank ("Bellbrook") are the only subsidiaries of the
Company. Except as disclosed in the Prospectus, the Company does not
own, of record or beneficially, any equity securities of or any equity
interest in any equity or business enterprise, other than FNB and
Bellbrook (collectively, the "Subsidiaries").
(g) FNB is, and at the Closing Time and at the Option Exercise
Time will be, a bank duly organized, validly existing and in good
standing under the laws of the United States. The deposit accounts of
FNB are insured up to applicable limits by the Federal Deposit
Insurance Corporation (the "FDIC"), and no proceedings for the
termination or revocation of such insurance are pending or threatened.
FNB has, and at the Closing Time and at the Option Exercise Time will
have, the power and authority (corporate, governmental, regulatory and
otherwise) and has or will have all necessary Authorizations to own or
lease all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus,
except where the failure to have any Authorization would not have a
Material Adverse Effect. FNB is, and at the Closing Time and at the
Option Exercise Time will be, duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions (i)
in which the nature of the activities conducted by FNB requires such
qualification and (ii) in which FNB owns or leases real property,
except where the failure to be so licensed or qualified would not have
a Material Adverse Effect. The Articles of Association and the Bylaws
of FNB comply in all material respects with applicable laws. A complete
and correct copy of
-4-
<PAGE> 5
the Articles of Association and the Bylaws of FNB, in each case as
amended and as currently in effect, have been delivered or made
available to you or your counsel, and no changes therein will be made
subsequent to the date hereof and prior to the expiration of the
Option.
(h) Bellbrook is, and at the Closing Time and at the Option
Exercise Time will be, a bank duly organized, validly existing and in
good standing under the laws of the State of Ohio. The deposit accounts
of Bellbrook are insured up to applicable limits by the FDIC, and no
proceedings for the termination or revocation of such insurance are
pending or threatened. Bellbrook has, and at the Closing Time and at
the Option Exercise Time will have, the power and authority (corporate,
governmental, regulatory and otherwise) and has or will have all
necessary Authorizations to own or lease all of the assets owned or
leased by it and to conduct its business as described in the
Registration Statement and the Prospectus, except where the failure to
have any Authorization would not have a Material Adverse Effect.
Bellbrook is, and at the Closing Time and at the Option Exercise Time
will be, duly licensed or qualified to do business and in good standing
as a foreign corporation in all jurisdictions (i) in which the nature
of the activities conducted by Bellbrook requires such qualification
and (ii) in which Bellbrook owns or leases real property, except where
the failure to be so licensed or qualified would not have a Material
Adverse Effect. The Articles of Incorporation and Code of Regulations
of Bellbrook comply in all material respects with applicable laws. A
complete and correct copy of the Articles of Incorporation and Code of
Regulations of Bellbrook, in each case as amended and as currently in
effect, have been delivered or made available to you or your counsel,
and no changes therein will be made subsequent to the date hereof and
prior to the expiration of the Option.
(i) This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Company and constitutes a valid
and binding obligation of the Company enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles, except as rights to indemnity and contribution hereunder
may be limited by applicable law. The execution, delivery and
fulfillment of the terms of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate or
conflict with the respective Articles of Incorporation, Articles of
Association, Code of Regulations or Bylaws of the Company or any of the
Subsidiaries (ii) violate, conflict with or constitute a breach of, or
default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, any agreement, indenture or other
instrument to which the Company or any of the Subsidiaries is a party,
(iii) result in a breach or violation of any of the terms and
provisions of, or constitute a default (or give rise to a state of
facts which, with notice or lapse of time, or both, would constitute a
default) under or result in the creation or imposition of any lien,
charge or encumbrance upon the assets or properties of the Company or
any of the Subsidiaries pursuant to any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, letter of credit
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or
-5-
<PAGE> 6
instrument to which the Company or any of the Subsidiaries is a party
or by which the Company or any of their respective properties are
bound, or (iv) violate or conflict with any governmental license or
permit or any law, administrative regulation or authorization,
approval, court decree, injunction or order; except such breaches,
violations or defaults as would not have a Material Adverse Effect.
This Agreement and the resolutions of the Board of Directors
authorizing the same will be maintained continuously as an official
record of the Company consistent with the provisions of 12 U.S.C.
Section 1823(e).
(j) At the Closing Time and at the Option Exercise Time, the
Company will be authorized to issue only 7,500,000 common shares,
$10.00 par value per share (the "Common Shares"), and at the Closing
Time and the Option Exercise Time will have outstanding, fully paid and
nonassessable, [3,033,919]Common Shares without giving effect to the
issuance of Shares by the Company pursuant to this Agreement. At the
Closing Time and at the Option Exercise Time, the Company will have no
shares authorized or reserved for issuance pursuant to the exercise of
options or warrants. Subsequent to the date hereof and prior to the
Closing Time and the Option Exercise Time, the Company will not issue
any securities. Except as contemplated by this Agreement and as set
forth in the Registration Statement and the Prospectus, the Company
does not have outstanding, and at the Closing Time and at the Option
Exercise Time the Company will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any securities
or obligations convertible into, or any contracts or commitments to
issue or sell shares of capital stock or any warrants, convertible
securities or obligations.
(k) The consolidated financial statements of the Company and
the Subsidiaries (including the notes thereto) filed with and as part
of the Registration Statement and the Prospectus, or incorporated by
reference therein, fairly present the consolidated financial position
of the Company and the Subsidiaries as of the respective dates thereof
and the consolidated results of operations, cash flows and
shareholders' equity of the Company and the Subsidiaries for the
respective periods indicated, have been prepared in conformity with
generally accepted accounting principles applied on a basis consistent
with prior periods (except as otherwise described in the notes
thereto), and comply as to form in all material respects with any
applicable accounting requirements of the Commission and the FDIC.
Coopers & Lybrand L.L.P. (the "Company's Accountants"), who have
audited and reported on certain of such consolidated financial
statements, is a firm of independent certified public accountants
within the meaning of the Code of Professional Conduct of the American
Institute of Certified Public Accountants, as required by the Act and
the Rules and Regulations. The financial information and data set forth
in the Prospectus are fairly presented and were prepared on a basis
consistent with such financial statements or the books and records of
the Company, as the case may be. No financial statements or schedules
are required to be included in the Registration Statement or the
Prospectus which are not included therein.
(l) The Company has a duly authorized equity capitalization as
set forth in the Prospectus under the caption "CAPITALIZATION". Based
on the assumptions set forth
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<PAGE> 7
in the Prospectus, including but not limited to the consummation of the
Acquisition (as hereinafter defined), the Company will have the
adjusted capitalization set forth in the column captioned "March 31,
1996 - Pro Forma" under "CAPITALIZATION" at the Closing Time. The
financial and statistical information and data set forth in the
Prospectus under the captions "PROSPECTUS SUMMARY," "RISK FACTORS,"
"USE OF PROCEEDS," "PRICE RANGE OF THE COMPANY'S COMMON STOCK AND
DIVIDENDS," "CAPITALIZATION," "SELECTED CONSOLIDATED FINANCIAL DATA OF
THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY," "BUSINESS OF THE
COMPANY," "MANAGEMENT OF THE COMPANY," and "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK" are true and correct in all material respects
and, as to the financial information, are prepared on a basis
consistent with the audited financial statements of the Company.
(m) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and at all
times prior to the expiration of the Option, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i) the
Company has and will have conducted its business in substantially the
same manner as on December 31, 1995, (ii) the Company has not incurred
and will not have incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions not in
the ordinary course of business; (iii) the Company has not paid or
declared and will not pay or declare any dividends or other
distributions on its capital stock; and (iv) there has not been and
will not have been any change in the capitalization of the Company or
any other change which would have a Material Adverse Effect.
(n) There are no actions, suits or proceedings at law or in
equity pending or, to the knowledge of the Company, threatened against
the Company or the Subsidiaries or any of their respective assets or
any of their respective officers or directors before or by any federal,
state, county or local court, commission, regulatory body, arbitration
panel, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding could have
a Material Adverse Effect. Neither the Company nor any of the
Subsidiaries is involved in any labor dispute nor, to the Company's
knowledge, is any such dispute threatened, which dispute could have a
Material Adverse Effect.
(o) Neither the Company nor any of the Subsidiaries is in
violation of any rule or regulation of the Commission, the Board of
Governors of the Federal Reserve System (the "Federal Reserve"), the
Ohio Department of Commerce, Division of Financial Institutions (the
"Division"), the Office of the Comptroller of the Currency (the "OCC")
or the FDIC, which could have a Material Adverse Effect. Neither the
Company nor any of the Subsidiaries is subject to any directive from
the Federal Reserve, the Division, the OCC or the FDIC to make any
change in the method of conducting its business or affairs, and the
Company and the Subsidiaries have conducted their business in
compliance with all applicable statutes and regulations (including,
without limitation, all regulations, decisions,
-7-
<PAGE> 8
directives and orders of the Federal Reserve, the Division, the OCC and
the FDIC), except where the failure to so comply would not have a
Material Adverse Effect. Except as set forth in the Prospectus, there
is not pending or, to the knowledge of the Company, threatened any
litigation, charge, investigation, action, suit or proceeding before or
by any court, regulatory authority or governmental agency or body
which, individually or in the aggregate, would affect the performance
of the terms and conditions of this Agreement or the consummation of
the transactions contemplated hereby or which, individually or in the
aggregate, would have a Material Adverse Effect.
(p) There has been no material adverse change in the condition
(financial or otherwise), assets, business, properties, prospects or
results of operations of the Company and the Subsidiaries taken as a
whole, since the latest date as of which such condition is set forth in
the Prospectus, except as referred to therein. The capitalization,
assets, properties and business of the Company and the Subsidiaries
conform in all material respects to the descriptions thereof contained
in the Prospectus as of the date specified. Subsequent to the
respective dates as of which information is given in the Prospectus,
except as otherwise may be indicated therein, neither the Company nor
any of the Subsidiaries has incurred any liability or obligation,
direct or contingent, for borrowed money, except borrowings in the
ordinary course of business, or entered into any other transaction not
in the ordinary course of business, which is material in light of the
businesses and properties of the Company and the Subsidiaries, taken as
a whole. Neither the Company nor any of the Subsidiaries have any
material contingent liabilities of any kind, except as set forth in the
Prospectus.
(q) Except as set forth in the Prospectus, no material default
(or event which, with notice or lapse of time, or both, would
constitute a material default) exists on the part of the Company or any
of the Subsidiaries or, to the knowledge of the Company, on the part of
any other party, in the due performance and observance of any term,
covenant or condition of any agreement to which the Company or any of
the Subsidiaries is a party and which is material to the condition
(financial or otherwise) of the Company and the Subsidiaries, taken as
a whole. Such agreements are in full force and effect, and no other
party to any such agreement has instituted or, to the knowledge of the
Company, threatened any action or proceeding wherein the Company or any
of the Subsidiaries is or would be alleged to be in default thereunder,
under circumstances where such action or proceeding, if determined
adversely to the Company or any of the Subsidiaries would have a
Material Adverse Effect.
(r) Neither the Company nor any of the Subsidiaries is in
violation of its respective Articles of Incorporation, Articles of
Association, Code of Regulations or Bylaws, in each case as amended as
of the date hereof, or is in default, in any material respect, in the
performance of any material obligations, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness by which it is bound.
(s) The Company and the Subsidiaries have, and at the Closing
Time and at the Option Exercise Time will have, complied in all
material respects, except as described in
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<PAGE> 9
the Prospectus, with all laws, regulations, ordinances and orders
relating to public health, safety or the environment (including without
limitation all laws, regulations, ordinances and orders relating to
releases, discharges, emissions or disposals to air, water, land or
groundwater, to the withdrawal or use of groundwater, to the use,
handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of
hazardous substances, pollutants or contaminants, or to exposure to
toxic, hazardous or other controlled, prohibited or regulated
substances), the violation of which would or might have a Material
Adverse Effect on the consummation of the transactions contemplated by
this Agreement. In addition, and irrespective of such compliance, the
Company and the Subsidiaries are not subject to any liabilities for
environmental remediation or clean-up, including any liability or class
of liability of the lessee under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or the
Resource Conservation and Recovery Act of 1976, as amended, which
liability would or might have a Material Adverse Effect on the
consummation of the transactions contemplated by this Agreement.
(t) The Company and the Subsidiaries (i) keep books, records
and accounts that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company and the
Subsidiaries and (ii) maintain systems of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with
management's general or specific authorization and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences. Neither the Company nor any of the Subsidiaries has
made any payment to any state, federal or foreign governmental officer
or official or other person charged with similar public or quasi-public
duties (other than payments required or permitted by the laws of the
United States or any jurisdiction thereof.)
(u) The outstanding Common Shares have been and, upon issuance
and payment therefor, all of the Shares to be sold by the Company will
be, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. The holders of Common Shares will not
be subject to personal liability for the obligations of the Company
solely by reason of being such holders. The Common Shares and the
Shares conform, and when the Registration Statement becomes effective,
at the Closing Time and at the Option Exercise Time, will conform, to
all statements with regard thereto contained in the Registration
Statement and the Prospectus, and the issuance and sale of the Shares
to be issued and sold by the Company have been duly and validly
authorized by all necessary corporate action on the part of the
Company. The certificates evidencing the Shares will conform with the
requirements of applicable laws and regulations.
(v) All of the issued and outstanding shares of capital stock
of the Subsidiaries have been duly authorized and validly issued, are
fully paid and non-assessable and are
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<PAGE> 10
owned by the Company, free and clear of any liens, charges,
encumbrances or restrictions, except as set forth in the Prospectus.
(w) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement, except such
as may be required under the Act, the Exchange Act or under state
securities or Blue Sky laws or except such as have been obtained.
(x) The Company and the Subsidiaries have good and marketable
title to all properties and assets described in the Prospectus as owned
by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in or referred to in the
Prospectus or such as would not have a Material Adverse Effect. The
Company and the Subsidiaries have valid, subsisting and enforceable
leases for the properties reflected in the Prospectus as leased by
them, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, moratorium, reorganization or other
laws affecting creditors' rights generally.
(y) There is no document or contract of a character required
to be described in the Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed as required. No
statement, representation, warranty or covenant made by the Company in
this Agreement or in any certificate or document required by this
Agreement to be delivered to you is, was when made or, as of the
Closing Time and the Option Exercise Time, will be, inaccurate, untrue
or incorrect. No transaction has occurred between or among the Company
and the Subsidiaries and any of their respective officers, directors or
shareholders or any affiliate of any such officer, director or
shareholder that is required by the Act or the Rules and Regulations to
be described in, and is not described in, the Registration Statement
and the Prospectus.
(z) The Company and the Subsidiaries own or possess all
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets, applications and other unpatented or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
"Proprietary Rights") used in or necessary for the conduct of the
business of the Company as now conducted and as proposed to be
conducted as described in the Prospectus. The Company and the
Subsidiaries have the right to use all Proprietary Rights used in or
necessary for the conduct of their respective businesses without
infringing the rights of any person or violating the terms of any
licensing or other agreement to which the Company or any of the
Subsidiaries is a party and, to the Company's knowledge, no person is
infringing upon any of the Proprietary Rights, except where the
infringement of or lack of a right to use such Proprietary Rights would
not have a Material Adverse Effect. Except as disclosed in the
Prospectus, no charges, claims or litigation have been asserted or, to
the Company's knowledge, threatened against the Company or any of the
Subsidiaries contesting the right of the Company or any of the
Subsidiaries to use, or the validity of, any of the Proprietary Rights
or challenging or questioning the validity or effectiveness of
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<PAGE> 11
any license or agreement pertaining thereto or asserting the misuse
thereof, and, to the Company's knowledge, no valid basis exists for the
assertion of any such charge, claim or litigation. All licenses and
other agreements to which the Company or any of the Subsidiaries is a
party relating to Proprietary Rights are in full force and effect and
constitute valid, binding and enforceable obligations of the Company
and the Subsidiaries and, to the Company's knowledge, the other parties
thereto, subject in each case to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles, as the case may be, and there have not been and
there currently are not any defaults (or any events which, with notice
or lapse of time, or both, would constitute a default) by the Company
or any of the Subsidiaries under any license or other agreement
affecting Proprietary Rights used in or necessary for the conduct of
the business of the Company or any of the Subsidiaries except for
defaults, if any, which would not have a Material Adverse Effect. The
validity, continuation and effectiveness of all licenses and other
agreements relating to the Proprietary Rights and the current terms
thereof will not be affected by the transactions contemplated by this
Agreement.
(aa) The Company intends to apply its proceeds from the sale
of the Shares for the purposes set forth in the Prospectus under the
caption "USE OF PROCEEDS."
(bb) Neither the Company nor any of the Subsidiaries conducts
or intends to conduct its business in a manner in which it would become
an "investment company" as defined in Section 3(a) of the Investment
Company Act of 1940, as amended.
(cc) All issuances and sales by the Company of its securities
prior to the date hereof were either (i) registered under the Act, or
(ii) exempt from registration under the Act, and all such issuances and
sales complied in all respects with the provisions of all applicable
federal and state securities laws. Except as set forth in or
contemplated by the Prospectus, no holder of any securities of the
Company has the right to require registration of any Common Shares or
other securities of the Company because of the filing or effectiveness
of the Registration Statement.
(dd) Neither the Company nor any of its officers or directors
or affiliates (as defined in the Rules and Regulations) has taken or
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any security of the Company or any action which
has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the Shares.
(ee) The Company and the Subsidiaries have not, and at the
Closing Time and at the Option Exercise Time will not have, incurred
any liability for financial advisory, finder's or brokerage fees or
agent's commissions in connection with the offer and sale of the
Shares, this Agreement or the transactions hereby contemplated, except
for the Underwriters' discounts and commissions provided for in this
Agreement.
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<PAGE> 12
(ff)Company and the Subsidiaries have timely filed all
federal, state, local and foreign income, employment, withholding
franchise and other tax returns required to be filed through the date
hereof and have paid all taxes shown as due thereon or made adequate
reserves for similar future tax liabilities. Except as disclosed in the
Prospectus, no tax deficiency has been, nor does the Company have any
knowledge of any tax deficiency which might be, asserted against the
Company or any of the Subsidiaries by any taxing authorities, which
would have a Material Adverse Effect.
(gg) The Company has not relied upon the Underwriters or their
legal counsel or other advisors for any legal, tax or accounting advice
in connection with the transactions contemplated by this Agreement.
(hh) The Stock Purchase Agreement by and between the Company
and First Financial Group, Inc. ("FFG") dated March 27, 1996, (the
"Acquisition Agreement"), pursuant to which the Company will acquire
all of the issued and outstanding shares of County Savings Bank
("County") in consideration and exchange for $44,775,000 (the
"Acquisition"), has been duly and validly authorized, executed and
delivered on behalf of the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(ii) At March 27, 1996, and the date hereof, the Company had
and has the corporate power and authority to enter into the Acquisition
Agreement, to purchase all of the common shares of County and to
consummate any other transactions contemplated by the Acquisition
Agreement.
(jj) The execution and delivery of the Acquisition Agreement
and the consummation of the transactions therein contemplated did not
and will not violate or conflict with the Articles of Incorporation,
the Articles of Association, the Code of Regulations or the Bylaws of
the Company, FNB or Bellbrook, (B) violate, conflict with or constitute
a breach of, or a default (or an event which, with notice or lapse of
time or both, would constitute a default) under any agreement,
indenture, or other instrument to which the Company, FNB or Bellbrook
is a party, (C) result in a breach or violation of the terms and
provisions of, or constitute a default (or give rise to a state of
facts which, with notice or lapse of time or both, would constitute a
default) under or result in the creation or imposition of any lien,
charge or encumbrance upon the assets or properties of the Company, FNB
or Bellbrook, pursuant to any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, letter of credit agreement, or
other agreement or instrument to which the Company, FNB or Bellbrook is
a party or by which the Company, FNB or Bellbrook or any of their
respective properties are bound, or (D) violate or conflict with any
government license or permit or any law, administrative regulation or
authorization, approval, court decree, injunction or order; except such
breaches, violations or defaults as would not have a Material Adverse
Effect.
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<PAGE> 13
(kk) The consolidated financial statements of County included
in the Registration Statement and the Prospectus comply in all material
respects with the Act and present fairly the consolidated financial
position of County as of the dates indicated, and the consolidated
results of operations, cash flows and changes in financial position of
County for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the entire period involved
except to the extent disclosed therein.
The pro forma financial statements and other pro forma information
included in the Prospectus present fairly the information shown
therein, have been prepared in accordance with generally accepted
accounting principles and the Commission's rules and guidelines with
respect to pro forma financial statements and other pro forma
information, have been properly compiled on the pro forma basis
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate under the circumstances.
(ll) There are no actions, suits or proceedings at law or in
equity pending, or to the knowledge of the Company, threatened, against
the Company, FFG or County or any of their respective assets or
respective subsidiaries that challenges, or may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any
of the transactions contemplated by the Acquisition Agreement.
(mm) Neither the Company nor FFG has, and at the Closing Time
or the Option Exercise Time will have, committed an act which
constitutes a breach of, or default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, any
provision of the Acquisition Agreement, which has not been remedied by
the breaching or defaulting party. The Company has not received a
supplement to FFG's disclosure letter delivered pursuant to the
Acquisition Agreement (the "Disclosure Letter") which discloses a
ground for termination of the Acquisition Agreement.
(nn) Since December 31, 1995 to the date hereof, the Company
has not experienced or suffered a material adverse change to its
business condition or entered into any contract, agreement or
understanding which would adversely affect its ability to perform its
obligations under the Acquisition Agreement.
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<PAGE> 14
4. Purchase, Sale and Delivery of the Shares; Closing; Distribution.
(a) (i) On the basis of the representations and warranties set
forth in this Agreement and subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters the Firm
Shares and the Underwriters agree to purchase such Firm Shares from the
Company, at and for a price of $_____ per Share (the "Purchase Price"),
only in those jurisdictions and in such amounts where due qualification
and/or registration has been effected or an exemption from such
qualification and/or registration is available under the applicable
securities or Blue Sky laws of such jurisdiction. This agreement to
purchase Shares only covers the initial sale of the Shares by the
Underwriters and not any subsequent sale of such Shares in any trading
market which may develop after the public offering.
(ii) Delivery of the Firm Shares shall be made to you, for the
accounts of the respective Underwriters, at the offices of McDonald &
Company Securities, Inc. ("McDonald & Company"), at Suite 2100, 800
Superior Avenue, Cleveland, Ohio 44114-2603, or such other location as
you and the Company shall agree, against payment by you, on behalf of
the several Underwriters, of the purchase price therefor by delivery of
certified or bank cashier's checks payable in next day funds to the
order of the Company for the shares sold at 10:00 a.m., Cleveland time,
on ____________, 1996, or on such other business day (Saturdays,
Sundays and legal holidays in the City of Cleveland not being
considered business days for the purposes of this Agreement) not later
than the ______ calendar day (or the business day next following such
______ calendar day if such ______ calendar day shall not be a business
day) following the date of this Agreement as you shall determine and
advise the Company by at least two full business days' notice in
writing, which time and date are herein called the "Closing Time."
Delivery of the Firm Shares shall be made in registered form in such
name or names and in such denominations as you shall request by at
least two full business days' notice in writing. The cost of original
issue tax stamps and transfer stamps, if any, in connection with the
issuance and delivery or sale of the Firm Shares by the Company to the
Underwriters shall be borne by the Company. The Company will pay and
save harmless each the Underwriter or its nominees, and any subsequent
holder of the Firm Shares from any and all liabilities with respect to
or resulting from any failure or delay in paying federal or state stamp
and other transfer taxes, if any, which may be payable or determined to
be payable in connection with the sale by the Company to such
Underwriter of the Firm Shares or any portion thereof.
(iii) The Company will make the certificates for the Firm
Shares available to you for examination at such offices as you shall
designate, not later than 2:00 p.m., on the business day preceding the
Closing Time.
(iv) The obligations of the several Underwriters to purchase
and pay for the Firm Shares shall be subject to compliance as of such
date with all the conditions specified in Section 8 hereof and to the
absence of any termination of this Agreement pursuant to Section 10.
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<PAGE> 15
(b)(i) The Company hereby grants to the Underwriters an option
(the "Option") to purchase from the Company up to _________ Option
Shares, at and for a price for each Option Share equal to the Purchase
Price; provided, however, that the Option may be exercised only for the
purpose of covering any over-allotments which may be made by you in
connection with the distribution and sale of the Firm Shares.
(ii) The Option is exercisable by you in whole or in part at
any time on or before 12:00 noon, Cleveland time, on the day prior to
the Closing Time, and at any time thereafter during the period ending
30 days after the date of the Prospectus, by giving notice to the
Company in the manner provided in Section 11 hereof, setting forth the
number of Option Shares as to which the Option is being exercised, the
name or names in which the certificates for such Option Shares are to
be registered, the denominations of such certificates and the date of
delivery of such Option Shares, which date, if not the Closing Time,
shall not be less than two nor more than _____ business days after such
notice.
(iii) Upon the exercise of the Option, the Company shall sell
to the Underwriters the number of Option Shares specified in the notice
exercising the Option, and the Underwriters, on the basis of the
representations and warranties of the Company contained herein and in
each certificate and document contemplated under this Agreement to be
delivered to you, but subject to the terms and conditions of this
Agreement, shall purchase from the Company the number of Option Shares
specified in such notice.
(iv) Delivery of the Option Shares with respect to which the
Option shall have been exercised shall be made to you for the account
of the several Underwriters, at the offices of McDonald & Company at
Suite 2100, 800 Superior Avenue, Cleveland, Ohio 44114-2603 or such
other location as you and the Company shall agree, against payment by
you, on behalf of the respective Underwriters, of the aggregate
Purchase Price therefor to the Company by certified or bank cashier's
check or checks payable in next-day funds to the order of the Company
in the amount to which the Company is entitled, at 10:00 a.m.,
Cleveland time, on the date and in the place designated in the notice
given by you as above provided for, unless some other place, time and
date is mutually agreed upon (such time and date being herein called
the "Option Exercise Time"). The cost of original issue tax stamps or
transfer stamps, if any, in connection with each issuance and delivery
of the Option Shares by the Company to the Underwriters shall be borne
by the Company. The Company will pay and save harmless each Underwriter
or its nominees, and any subsequent holder of Option Shares from any
and all liabilities with respect to or resulting from any failure or
delay in paying federal and state stamp taxes, if any, which may be
payable or determined to be payable as a result of the sale by the
Company to the Underwriters of the Option Shares or any portion
thereof.
(v) The Company will make the certificates for the Option
Shares to be purchased at the Option Exercise Time available to you for
examination at such offices as you shall
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<PAGE> 16
designate, not later than 2:00 p.m., on the business day next preceding
such Option Exercise Time.
(vi) The obligation of the several Underwriters to purchase
and pay for the Option Shares at the Option Exercise Time shall be
subject to compliance as of such date with all the conditions specified
in Section 8 hereof and to the absence of any termination of this
Agreement pursuant to Section 10 hereof.
(c) Subject to the terms and conditions hereof, the several
Underwriters agree that (i) they will offer the Shares to the public as
set forth in the Prospectus as soon after the Registration Statement
becomes effective as may be practicable, (ii) they will offer and sell
the Shares to the public only in those jurisdictions and in such
amounts where due qualification and/or registration has been effected
or an exemption from such qualification and/or registration is
available under the applicable securities or blue sky laws of such
jurisdiction, and (iii) the Shares will be offered and sold only in
those jurisdictions where broker/dealer licensing has been obtained or
where there is an exemption from such licensing. This agreement to
offer Shares to the public only covers the initial sale of the Shares
by the Underwriters and not any subsequent sale of such Shares in any
trading market which may develop after the public offering.
5. Registration Statement and Prospectus.
(a) The Company will deliver to each of the Underwriters,
without charge, two fully signed copies of the Registration Statement
and of each amendment thereto (including all financial statements,
exhibits and documents incorporated by reference) and the number of
conformed copies of the Registration Statement and of each amendment
thereto (including all financial statements and documents incorporated
by reference, but excluding exhibits) as you may reasonably request.
(b) The Company has delivered to each Underwriter and to each
of the dealers selected by you in connection with the distribution of
the Shares (a "Selected Dealer" and, collectively, "Selected Dealers"),
without charge, as many copies as you have requested of each
Preliminary Prospectus heretofore filed with the Commission and will
deliver to each Underwriter and to any Selected Dealer, without charge,
on the Effective Date, and thereafter from time to time during the
period in which the Prospectus is required by law to be delivered in
connection with sales of Shares by an Underwriter or a dealer, as many
copies of the Prospectus and any documents incorporated by reference
(and, in the event of any amendment of or supplement to the Prospectus,
of such amended or supplemented Prospectus) as you may reasonably
request.
(c) The Company has authorized the Underwriters to use and to
make available for use by prospective dealers the Preliminary
Prospectuses and authorizes each Underwriter, all Selected Dealers and
all dealers to whom any of such Shares may be sold by the Underwriters
or by any Selected Dealer to use the Prospectus, as from time to time
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<PAGE> 17
amended or supplemented, in connection with the sale of the Shares in
accordance with the applicable provisions of the Act, the applicable
Rules and Regulations and applicable state law until completion of the
public offering of the Shares and for such longer period as you may
request if the Prospectus is required to be delivered in connection
with sales of the Shares by an Underwriter or a dealer.
6. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) After the execution and delivery of this Agreement, the
Company will not at any time, whether before or after the Effective
Date, file any amendment of or supplement to the Registration Statement
or the Prospectus of which you shall not previously have been advised
and furnished with a copy, or which you or Vorys, Sater, Seymour and
Pease ("Counsel for the Underwriters") shall not have approved (which
approval shall not be unreasonably withheld or delayed) or which is not
in compliance with the Act or the Rules and Regulations.
(b) If the Registration Statement has not become effective,
the Company will promptly file the Final Amendment with the Commission and will
use its best efforts to cause the Registration Statement to become effective. If
the Registration Statement has become effective, the Company will file the Rule
430A Prospectus or other Prospectus with the Commission as promptly as
practicable, but in no event later than is permitted by Rule 424(b). The Company
will promptly advise you (i) when the Registration Statement or any
post-effective amendment thereto shall hereafter become effective, or any
amendments or supplements to the Prospectus or any document which shall be
incorporated by reference into the Prospectus shall have been filed with the
Commission; (ii) of the nature and substance of any request of the Commission or
any state or other regulatory body for any amendment or supplement of the
Registration Statement or the Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus or prohibiting the offer or sale of any of the Shares
or of the initiation of any proceedings for such purpose; (iv) of any receipt by
the Company of any notification with respect to the suspension of qualification
of the Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and (v) of the happening of any event during
the periods in which the Prospectus is to be used in conjunction with the offer
or sale of Shares which makes any statement made in the Registration Statement
or the Prospectus untrue in any material respect or which requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein not misleading. The Company will use its best efforts to
prevent the issuance of any stop order or any order preventing or suspending the
use of the Registration Statement or Prospectus and, if such order is issued, to
obtain the lifting thereof as promptly as possible.
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<PAGE> 18
(c) The Company will prepare and file with the Commission,
upon your request, any such amendments of or supplements to the
Registration Statement or the Prospectus, in form satisfactory to
Emens, Kegler, Brown, Hill & Ritter ("Counsel for the Company"), as, in
the opinion of Counsel for the Underwriters, may be necessary or
advisable in connection with the distribution of the Shares or any
change in the price at which, or the terms upon which, the Shares may
be offered by you and will use its best efforts to cause the same to
become effective as promptly as possible.
(d) The Company will comply with the Act, the Rules and
Regulations and the Exchange Act, and the rules and regulations
thereunder, so as to permit the continuance of sales of and dealings in
the Shares under the Act and the Exchange Act. If at any time when a
prospectus is required to be delivered under the Act an event shall
have occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein not
untrue or not misleading in any material respect or to make the
Prospectus comply with the Act and the Rules and Regulations, the
Company will notify you promptly thereof and will, subject to the
provisions of Section 6 (a) hereof, file with the Commission an
amendment or supplement which will correct such statement in accordance
with the requirements of Section 10 of the Act and shall furnish to the
Underwriter a reasonable number of copies of an amendment or amendments
or of a supplement or supplements to the Prospectus (in form and
substance reasonably satisfactory to Counsel for the Company and
Counsel for the Underwriters) which shall amend or supplement the
Prospectus so that, as amended or supplemented, the Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances existing at the time the Prospectus is
delivered to a purchaser of the Shares, not misleading. The Company
will not file or use any amendment or supplement to the Registration
Statement or the Prospectus of which the Underwriters have not first
been furnished a copy or as to which the Underwriters shall reasonably
object after having been furnished such copy.
(e) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(f) The Company will take all reasonable actions to furnish to
whomever you direct, when and as requested by you, all necessary
documents, exhibits, information, applications, instruments and papers
as may be required or, in the opinion of Counsel for the Underwriters,
desirable in order to permit or facilitate the sale of the Shares. The
Company will use its best efforts to qualify or register the Shares for
sale under the so-called "blue sky" laws of such jurisdictions as you
shall request, to make such applications, file such documents and
furnish such information as may be required for such purpose and to
comply with such laws so as to continue such qualification in effect so
long as required for the purposes of the distribution of the Shares;
provided, however, that the Company shall not be required to qualify as
a foreign corporation in any jurisdiction, and provided further that
the Company shall not be required to file a consent to service of
process in any jurisdiction in any action other than one arising out of
the offering or sale of the Shares.
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<PAGE> 19
(g) During the period of two years commencing on the Effective
Date, the Company will furnish to each Underwriter, in such quantity as
the Underwriter may reasonably request, (i) within 90 days after the
end of each fiscal year of the Company, either (A) a consolidated
balance sheet of the Company and its then consolidated subsidiaries,
and a separate balance sheet of each subsidiary of the Company, the
accounts of which are not included in such consolidated balance sheet,
as of the end of such fiscal year, and consolidated statements of
operations, cash flows and changes in shareholders' equity of the
Company and its then consolidated subsidiaries, and separate statements
of operations, cash flows and changes in shareholders' equity of each
of the subsidiaries of the Company, the accounts of which are not
included in such consolidated statements, for the fiscal year then
ended, all in reasonable detail, prepared in accordance with generally
accepted accounting principles, consistently applied, and all certified
by independent accountants (within the meaning of the Act and the Rules
and Regulations), or (B) the Company's Form 10-K (or Form 10-KSB) for
such fiscal year as filed with the Commission in accordance with the
Exchange Act; (ii) within 45 days after the end of each of the first
three fiscal quarters of each fiscal year, either (A) similar balance
sheets as of the end of such fiscal quarter and similar statements of
operations, cash flows and changes in shareholders' equity for the
fiscal quarter then ended, all in reasonable detail, and all certified
by the Company's principal financial officer or the Company's principal
accounting officer as having been prepared in accordance with generally
accepted accounting principles, consistently applied, or (B) the
Company's Form 10-Q (or Form 10-QSB) for such fiscal quarter as filed
with the Commission in accordance with the Exchange Act; (iii) as soon
as available, each report and each proxy or information statement
furnished to or filed with the Commission, any securities exchange or
the National Association of Securities Dealers, Inc. (the "NASD") and
each report and financial statement furnished to the Company's
shareholders generally; and (iv) any material reports filed by the
Company in connection with the quotation of its Common Shares on The
Nasdaq Stock Market or any listing on any stock exchange.
(h) Counsel for the Company, the Company's Accountants and the
officers of the Company will respectively furnish the opinions, the
letters, the certificates and the agreements referred to in subsections
(e), (f), (g), (h), (i) and (j) of Section 8 hereof, and, in the event
that the Company shall file any amendment to the Registration Statement
relating to the offering of the Shares or any amendment or supplement
to the Prospectus relating to the offering of the Shares subsequent to
the Effective Date, whether pursuant to subsection (c) of this Section
6 or otherwise, such counsel, such accountants, and such officers will,
at the time of such filing or at such subsequent time as you shall
specify, respectively furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature
as the opinions, letters, certificates and the agreements referred to
in subsections (e), (f), (g), (h), (i) and (j) of Section 8 hereof, as
you may reasonably request.
(i) Prior to the expiration of the Option, the Company will
not issue, directly or indirectly, without first consulting with you
and Counsel for the Underwriters, any press
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<PAGE> 20
release or other communication or hold any press conference with
respect to the Company or its activities or the offering contemplated
hereby.
(j) Except as described in the Prospectus or as contemplated
by this Agreement, the Company, its directors and officers and each
beneficial owner of more than 5% of the Common Shares shall not,
without your prior written consent, sell, contract to sell or otherwise
dispose of any Common Shares, or any securities convertible into Common
Shares, for a period of 180 days after the Effective Date. In
connection with the execution of this Agreement, the Company shall
deliver to you the written agreement of each of the directors and
executive officers of the Company and each beneficial owner of more
than 5% of the Common Shares to the effect that such person shall not,
without your prior written consent, for a period of 180 days after the
Effective Date, offer, sell, contract to sell, or grant any option to
purchase or otherwise dispose of any Common Shares or any securities
convertible into or exchangeable for Common Shares.
(k) The Company will not at any time, directly or indirectly,
take any action designed to, which will constitute or which might
reasonably be expected to cause or result in the stabilization of the
price of the Shares to facilitate the sale or resale of the Shares.
(l) The Company will apply the net proceeds from the sale of
the Shares in the manner set forth under the caption "USE OF PROCEEDS"
in the Prospectus.
(m) The Company will file with the NASD all documents and
notices required of companies that have issued securities that are
traded in the over-the-counter market and quotations for which are
reported on the Nasdaq National Market.
(n) After the Closing Time and the Option Exercise Time, the
Company and the Subsidiaries will be and remain in compliance with the
financial record-keeping requirements and internal accounting control
requirements of Section 13(b)(2) of the Exchange Act.
(o) The Company and the Subsidiaries will take such actions
and furnish such information as reasonably requested by the Underwriter
in order for the Underwriter to ensure compliance with the NASD's
"Interpretation Relating to Free-Riding and Withholding."
(p) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the
Effective Date, the Company will make generally available to its
securities holders and deliver to you an earnings statement (which need
not be audited) covering a period of at least 12 months beginning not
earlier than the Effective Date, which shall satisfy the provisions of
Section 11(a) of the Act and/or Rule 158 promulgated under the Act.
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<PAGE> 21
(q) If a breach of, or default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, any
provision of the Acquisition Agreement occurs, or the Company receives
any supplement to the Disclosure Letter which discloses a possible
ground for the Company not to consummate the transactions contemplated
by the Acquisition Agreement, the Company shall promptly notify you by
telephone on the day the Company first has knowledge of the breach or
default or supplement.
(r) The Company shall use its best efforts to (A) perform and
fulfill all conditions and obligations to be performed or fulfilled by
it under the Acquisition Agreement, (B) cure promptly any breach of its
obligations under the Acquisition Agreement, (C) effect the purchase of
the common shares of County in accordance with the terms and conditions
of the Acquisition Agreement, (D) promptly notify you of its inability
to satisfy any condition or perform any obligation under the
Acquisition Agreement, and the reasons for such inability, and (E)
promptly notify you of FFG's inability to satisfy any condition or
perform any obligation under the Acquisition Agreement, and the reasons
for such inability.
(s) The Company shall deliver to you copies of (A) all filing
made by the Company, FFG and County pursuant to any federal, state,
local, municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, principle of common
law, regulation, statutes or treaty, including all filings under
applicable banking and thrift law, in connection with the transactions
contemplated by the Acquisition Agreement, and (B) any regulatory,
supervisory or other public authority approval letters received by the
Company, FFG or County in connection with the transactions contemplated
by the Acquisition Agreement.
(t) The Company shall promptly forward to you any statement
from FFG describing any outstanding basis for its refusal to close the
transactions contemplated by the Acquisition Agreement, on the same day
that such statement is received by the Company, and the Company shall
inform you of its intent to submit a statement to FFG describing any
outstanding basis for its refusal to close the transactions
contemplated by the Acquisition Agreement, prior to its forwarding of
such statement to FFG.
7. Expenses. The Company will pay and bear all costs, fees, taxes and
expenses incident to the performance of the obligations of the Company under
this Agreement including, but not limited to: (a) the costs incident to the
issuance, sale and delivery to the Underwriters of the Shares; (b) the costs
incident to the preparation, printing and filing under the Act of each
Preliminary Prospectus, the Prospectus, the Registration Statement and any
amendments thereto, supplements thereof and exhibits thereto; (c) the costs of
printing and distributing to each Underwriter and any Selected Dealers copies of
any Preliminary Prospectus, the Prospectus, the Registration Statement and any
amendment thereto or supplement thereof required by this Agreement or the Act;
(d) the costs of preparing, printing, mailing, delivering, filing and
distributing preliminary and final blue sky memoranda, Underwriter's
Questionnaires and Powers of Attorney, letters to prospective Underwriters, the
Agreement among Underwriters, the Selected Dealer Agreement, this Agreement and
all documents related thereto; (e) the filing fees
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<PAGE> 22
of the Commission; (f) the costs of qualification or registration of the Shares
in the jurisdictions referred to in Section 6(f) hereof, including the legal
fees and expenses of Counsel for the Underwriters in connection therewith and
all filing fees in connection therewith; (g) the cost of preparation of all
filings with the NASD and all filing fees in connection therewith; (h) fees and
expenses of Counsel for the Company, the Company's Accountants and the Company's
consultants; and (i) all costs and expenses incurred or to be incurred by the
Company in connection with the transactions contemplated by this Agreement. If
the Firm Shares are not sold to the Underwriters by reason of any failure,
refusal or inability on the part of the Company to perform any agreement on its
part to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if you shall terminate this Agreement pursuant to
Section 10(a) hereof, the Company shall promptly reimburse you for all
reasonable expenses actually incurred by you in contemplation of the performance
by it of its obligations hereunder, including but not limited to the fees and
disbursements of Counsel for the Underwriters, the Underwriters' reasonable
printing and traveling expenses and postage, telegraph and telephone charges
relating directly to the offering contemplated by the Prospectus, and also
including reasonable advertising expenses of the Underwriter incurred after the
Effective Date, up to a maximum of $___________________.
8. Conditions of the Underwriter's Obligations. The Underwriters'
obligations hereunder to purchase and pay for the Shares are subject (as of the
date hereof, the Closing Time and the Option Exercise Time) to the accuracy of
and compliance with the representations and warranties of the Company herein and
in each certificate and document contemplated under this Agreement to be
delivered, to the performance by the Company of its covenants and agreements
hereunder and under each such certificate and document, and to the following
additional conditions:
(a) (i) The Registration Statement shall have become effective
not later than 5:00 p.m., Cleveland time, on the date of this
Agreement, or at such later time or on such later date as you may agree
to in writing; (ii) if required, the Prospectus shall have been filed
with the Commission pursuant to Rule 424(b)(1) or (4) of the Rules and
Regulations within the applicable time period prescribed for such
filing thereunder and in accordance with the provisions of Section 6(b)
hereof; (iii) at or prior to the Closing Time or the Option Exercise
Time, as the case may be, no stop order suspending the effectiveness of
the Registration Statement or the qualification or registration of the
Shares under the blue sky laws of any jurisdiction shall have been
issued and no proceeding for that purpose shall have been initiated or
shall be threatened or contemplated by the Commission or the
authorities of any such jurisdiction; (iv) any request for additional
information on the part of the Commission or any such authorities shall
have been complied with to the satisfaction of the Commission or such
authorities and to the reasonable satisfaction of Counsel for the
Underwriters; (v) the NASD, upon review of the terms of the public
offering of Shares, shall not have objected to such offering, such
terms, or the Underwriter's participation in the same; and (vi) after
the date hereof, no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed without your prior
consent.
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<PAGE> 23
(b) You shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto, in your reasonable judgment after conferring with
Counsel for the Underwriters, contains an untrue statement of a fact
which is material or omits to state a fact which is material and is
required to be stated therein or is necessary to make the statements
therein, in light of the circumstances, under which they were made, not
misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Time or the Option Exercise Time, as the case
may be, there shall be no litigation instituted against the Company,
the Subsidiaries or any of their officers or directors, and between
such dates there shall be no proceeding instituted or threatened
against the Company, the Subsidiaries or any of their officers or
directors, before or by any federal, state, county or local commission,
regulatory body, administrative agency or other governmental body,
domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding would, in the judgment of the Underwriter,
have a Material Adverse Effect or would materially and adversely affect
the ability of the Company to perform its obligations under this
Agreement.
(d) Each of the representations and warranties of the Company
contained herein and in each certificate and document contemplated
under this Agreement to be delivered shall be true and correct at the
Closing Time and the Option Exercise Time as if made at the Closing
Time or the Option Exercise Time, as the case may be, and all covenants
and agreements contained herein, and in each such certificate and
document, to be performed on the part of the Company and all conditions
contained herein and in each such certificate and document to be
fulfilled or complied with by the Company at or prior to the Closing
Time or the Option Exercise Time, as the case may be, shall have been
duly performed, fulfilled or complied with.
(e) At the Closing Time and the Option Exercise Time, Counsel
for the Company shall furnish to you an opinion, in form and substance
reasonably satisfactory to you and Counsel for the Underwriters, dated
as of the date of its delivery, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Ohio. The Company has the power and authority
(corporate, governmental, regulatory and otherwise) and has or
will have all necessary Authorizations to own or lease all of
the assets owned or leased by it and to conduct its business
as described in the Registration Statement and the Prospectus,
except where the failure to have any Authorization would not
have a Material Adverse Effect. The Company is duly licensed
or qualified to do business and in good standing as a foreign
corporation in all jurisdictions (A) in which the nature of
the activities conducted by the Company requires such
qualification and (B) in which the Company owns or leases real
property, except where the failure to be so licensed or
qualified would not have a Material Adverse Effect.
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<PAGE> 24
(ii) FNB is a bank duly authorized, validly existing and in
good standing under the laws of the United States. The deposit accounts
of FNB are insured up to applicable limits by the FDIC and no
proceedings for the termination or revocation of such insurance are
pending or, to the knowledge of Counsel for the Company, threatened.
FNB has the power and authority (corporate, governmental, regulatory
and otherwise) and has or will have all necessary Authorizations to own
or lease all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus,
except where the failure to have any Authorization would not have a
Material Adverse Effect. FNB is duly authorized or qualified to do
business and in good standing as a foreign corporation in all
jurisdictions (A) in which the nature of the activities conducted by
FNB requires such qualification and (B) in which FNB owns or leases
real property, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect.
(iii) Bellbrook is a bank duly organized, validly existing and
in good standing under the laws of the State of Ohio. The deposit
accounts of Bellbrook are insured up to applicable limits by the FDIC
and no proceedings for the termination or revocation of such insurance
are pending or, to the knowledge of Counsel for the Company,
threatened. Bellbrook has the power and authority (corporate,
governmental, regulatory and otherwise) and has or will have all
necessary Authorizations to own or lease all of the assets owned or
leased by it and to conduct its business as described in the
Registration Statement and the Prospectus, except where the failure to
have any Authorization would not have a Material Adverse Effect.
Bellbrook is duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions (A) in which the
nature of the activities conducted by Bellbrook requires such
qualification and (B) in which Bellbrook owns or leases real property,
except where the failure to be so licensed or qualified would not have
a Material Adverse Effect.
(iv) The Company has the corporate power and authority to
enter into this Agreement, to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder, and to
consummate any other transaction contemplated by this Agreement,
including, but not limited to, the acquisition.
(v) This Agreement and the issuance of the Shares pursuant
hereto have been duly authorized by all necessary corporate action on
the part of the Company. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles, except as rights to indemnity
and contribution hereunder may be limited by applicable law.
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<PAGE> 25
(vi) To the knowledge of Counsel for the Company and except as
disclosed in the Prospectus, neither the Company nor any of the
Subsidiaries is in material violation of any rule or regulation of the
Federal Reserve, the Division, the OCC or the FDIC which might have a
Material Adverse Effect. To the knowledge of Counsel for the Company,
neither the Company nor any of the Subsidiaries is subject to any
written directive from the Federal Reserve, the Division, the OCC or
the FDIC to make any material change in the method of conducting its
business or affairs. Except as set forth in the Prospectus, there is
not pending or, to the knowledge of Counsel for the Company, threatened
any litigation, charge, investigation, action, suit or other proceeding
before or by any court, regulatory authority or governmental agency or
body which would affect the performance of the terms and conditions of
this Agreement or the consummation of the transactions contemplated
hereby or which would have a Material Adverse Effect.
(vii) The authorized capital stock of the Company is as set
forth in the Prospectus. The issued and outstanding Common Shares have
been duly authorized and validly issued, are fully paid and
nonassessable, and have not been issued in violation of any preemptive
right.
(viii) The issued and outstanding shares of capital stock of
the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned by the Company free and
clear of any liens, charges, encumbrances or restrictions, except as
set forth in the Prospectus.
(ix) No holders of Common Shares or other securities of the
Company have registration rights with respect to securities of the
Company because of the filing or effectiveness of the Registration
Statement.
(x) The terms and provisions of the Common Share and the
Shares conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus, and the
forms of certificates evidencing the Common Shares and the Shares
comply with the Ohio General Corporation Law.
(xi) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated did not and will
not (A) violate or conflict with the respective Articles of
Incorporation, Articles of Association, Code of Regulations or Bylaws
of the Company or any of the Subsidiaries (B) violate, conflict with or
constitute a breach of, or a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under any
agreement, indenture or other instrument to which the Company or any of
the Subsidiaries is a party, (C) result in a breach or violation of any
of the terms and provisions of, or constitute a default (or give rise
to a state of facts which, with notice or lapse of time, or both, would
constitute a default) under or result in the creation or
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<PAGE> 26
imposition of any lien, charge or encumbrance upon the assets or
properties of the Company or any of the Subsidiaries pursuant to any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, letter of credit agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, contract or other agreement
or instrument to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries or any of
their respective properties are bound, or (D) violate or conflict with
any governmental license or permit or any law, administrative
regulation or authorization, approval, court decree, injunction or
order; except such breaches, violations or defaults as would not have a
Material Adverse Effect; provided, however, that no opinion need be
rendered concerning state securities or blue sky laws.
(xii) The Registration Statement has become effective under
the Act and (A) no stop order suspending the effectiveness of the
Registration Statement has been issued, (B) no proceedings for that
purpose have been instituted or are pending or, to the knowledge of
Counsel for the Company, threatened under the Act, and (C) all filings
required by Rule 424 and, if applicable, Rule 430A, of the Rules and
Regulations have been made.
(xiii) Each of the Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included in such
Registration Statement or Prospectus, as to which Counsel for the
Company need express no opinion), as of the effective date of the
Registration Statement, complied as to form with the requirements of
the Act and the applicable Rules and Regulations, and all written
decisions and orders of the Commission, as the case may be (except as
to information with respect to the Underwriter and except as to
financial statements, notes to financial statements, financial tables
and other financial and statistical data included therein, as to which
Counsel for the Company need express no opinion). The Company complies
with the conditions permitting its use of Form S-3.
(xiv) Each document filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus, when so filed, complied as
to form, in all material respects, with the Exchange Act and the
applicable rules and regulations thereunder.
(xv) The description of contracts or other documents in the
Registration Statement and the Prospectus are accurate in all material
respects and fairly present the information required by the Act or the
Rules and Regulations to be presented. To the knowledge of Counsel for
the Company, there are no contracts or other documents of a character
required to be described or referred to in the Registration Statement
or Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or referred to therein and filed as
required.
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<PAGE> 27
(xvi) Upon the issuance of the Shares, the authorized, issued
and outstanding equity capital of the Company shall be as set forth in
the Prospectus under the caption "CAPITALIZATION," adjusted to give
effect to the actual sale of the Shares and the consummation of the
Acquisition. The offer, sale and issuance of the Shares have been duly
and validly authorized by all necessary action of the Company. The
Shares to be issued by the Company pursuant to the terms of this
Agreement will be, upon issuance and delivery against payment therefor
in accordance with the terms hereof, duly and validly issued, fully
paid and nonassessable and not issued in violation of any preemptive
right. The purchasers of the Shares will acquire good title thereto,
free and clear of any material lien, claim, security interest or other
encumbrance or other defect in title (except restrictions on transfer
under applicable law and except such claims as may be asserted against
the purchasers thereof by third party claimants). Except as otherwise
set forth in Ohio or federal law or the Articles of Incorporation or
Code of Regulations of the Company, there will be no restrictions upon
the voting of the Shares.
(xvii) The terms and provisions of the Shares conform in all
material respects with the description thereof contained in the
Registration Statement and the Prospectus, and the certificates
evidencing the Shares conform in all material respects with the
requirements of applicable laws and regulations.
(xviii) No authorization, approval or consent of any
governmental, regulatory, supervisory or other public authority is
required in connection with the execution and delivery of this
Agreement or the issuance and sale of the Shares, except such as have
been obtained under the Act, the Exchange Act or other applicable laws,
in such as may be required under state or other securities or blue sky
laws.
(xix) Neither the Company nor any of the Subsidiaries is an
"investment company" as defined in Section 3(a) of the Investment
Company Act and, if the Company or the Subsidiaries conduct their
respective businesses as set forth in the Registration Statement and
the Prospectus, none will become an "investment company" or be required
to register under the Investment Company Act.
(xx) All issuances and sales by the Company of its securities
during the past three years were either (A) registered under the Act or
(B) exempt from registration under the Act and, to the knowledge of
Counsel for the Company, otherwise complied in all respects with the
provisions of all applicable federal and state securities laws.
(xxi) At March 27, 1996, and the date hereof, the Company had
and has the corporate power and authority to enter into the Acquisition
Agreement, to purchase all of the common shares of County and to
consummate any other transactions contemplated by the Acquisition
Agreement.
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<PAGE> 28
(xxii) The Acquisition Agreement and the purchase of the
common shares of County have been duly authorized by all necessary
corporate action on the part of the Company. The Acquisition Agreement
has been duly executed and delivered by the Company and is a valid and
binding agreement of the Company, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(xxiii) The execution and delivery of the Acquisition
Agreement and the consummation of the transactions therein contemplated
did not and will not violate or conflict with the Articles of
Incorporation, Articles of Association, Code of Regulations or Bylaws
of the Company, FNB or Bellbrook, (B) violate, conflict with or
constitute a breach of, or a default (or an event which, with notice or
lapse of time or both, would constitute a default) under any agreement,
indenture, or other instrument to which the Company, FNB or Bellbrook
is a party, (C) result in a breach or violation of the terms and
provisions of, or constitute a default (or give rise to a state of
facts which, with notice or lapse of time or both, would constitute a
default) under or result in the creation or imposition of any lien,
charge or encumbrance upon the assets or properties of the Company, FNB
or Bellbrook, pursuant to any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, letter of credit agreement, or
other agreement or instrument to which the Company, FNB or Bellbrook is
a party or by which the Company, FNB or Bellbrook or any of their
respective properties are bound, or (D) violate or conflict with any
government license or permit or any law, administrative regulation or
authorization, approval, court decree, injunction or order; except such
breaches, violations or defaults as would not have a Material Adverse
Effect.
(xxiv) There is not pending, nor, to the knowledge of Counsel
for the Company , threatened, any litigation, charge, investigation,
action, suit or other proceeding before or by any court regulatory
authority or governmental agency or body which would affect the
performance of the terms and conditions of the Acquisition Agreement or
the consummation of the transactions contemplated thereby.
(xxv) All necessary regulatory approvals that are required to
have been obtained by the Company, FFG and County have been obtained in
connection with the transactions contemplated by the Acquisition
Agreement and (A) no orders suspending such approvals have been issued,
and (B) no proceedings for that purpose have been instituted or are
pending, or, to the knowledge of Counsel for the Company, are
threatened.
In addition, Counsel for the Company shall confirm that
although they have not verified the accuracy or completeness of the
statements contained in the Registration
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<PAGE> 29
Statement or the Prospectus or the documents incorporated by reference
therein, based upon their participation in the preparation of the
Registration Statement and the Prospectus and any amendments or
supplements thereto and upon their discussions with officers and
representatives of and the independent public accountants for the
Company, nothing has come to the attention of Counsel for the Company
which caused them to believe that, at the time the Registration
Statement became effective, the Registration Statement (except as to
financial statements, the financial data and supporting schedules
contained in such Registration Statement and Prospectus, as to which
such counsel need express no belief) contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or the Prospectus or any document filed pursuant to the
Exchange Act and incorporated by reference therein (except as
aforesaid), as of date of the Prospectus and as of the Closing Time or
the Option Exercise Time, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
In rendering the opinions and confirmations set forth above, Counsel
for the Company may rely (as to matters of fact) upon certificates of
responsible officers of the Company and the Subsidiaries and of the
transfer agent and certificates of public officials, provided copies of
such certificates are delivered to the Underwriters.
(f) Concurrently with the execution and delivery of this
Agreement and at the Closing Time and at the Option Exercise Time, the
Company's accountants shall have furnished to you a letter, dated as of
the date of its delivery, addressed to you and in form and substance
reasonably satisfactory to you, to the effect that:
(i) Such accountants are independent certified public
accountants with respect to the Company as required by the Act
and the Rules and Regulations, and the answer to Item 10 of
the Registration Statement is correct insofar as it relates to
them.
(ii) In their opinion, the financial statements and
schedules and notes examined by them and included in the
Registration Statement and the Prospectus comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations with
respect to registration statements on Form S-3.
(iii) On the basis of inquiries and procedures
conducted by them, including a reading of the latest available
unaudited interim financial statements of the Company,
inquiries of officials of the Company and the Subsidiaries
responsible for operational, financial and accounting matters,
a reading of the minute books of the Company and the
Subsidiaries, a reading of the latest available interim
unaudited consolidated financial statements of the Company and
the Subsidiaries (with an indication of the date thereof) and
other specified procedures and
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<PAGE> 30
inquiries, nothing has come to their attention that caused them to
believe that (A) the historical amounts in "SUMMARY CONDENSED
CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA OF THE COMPANY,"
"SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND
OPERATING DATA OF THE COMPANY," "SELECTED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY" AND "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS" included in the Registration Statement do not agree with or
are not derivable from corresponding amounts in the consolidated
financial statements from which such amounts were derived; (B) the
unaudited financial statements of the Company set forth in the
Registration Statement and the Prospectus or incorporated by reference
therein do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the audited financial statements; and (C) during the period April 1,
1996, to a specified date no more than five days prior to the date
thereof, in the case of the first letter, and not more than two
business days prior to the date thereof, in the case of any subsequent
letters, there was any change in the capital stock or debt (other than
normal payments) of the Company and the Subsidiaries on a consolidated
basis, or any decrease in the shareholders' equity of the Company and
the Subsidiaries on a consolidated basis, each as compared with the
amounts shown in the balance sheet as of March 31, 1996, included in
the Registration Statement or incorporated by reference therein or any
decrease from March 31, 1996, to the specified date, on a proportional
basis with the corresponding period for the preceding year, in
revenues, net income and net income per share of the Company and the
Subsidiaries on a consolidated basis, except in all instances for
changes, decreases or increases which the Registration Statement and
the Prospectus disclose have occurred or may occur and except for such
other changes, decreases or increases which you shall in your sole
discretion accept.
(iv) In addition to their examination referred to in
their reports included in the Registration Statement and the
Prospectus and the inquiries and limited procedures referred
to in clause (iii) above, they have performed other
procedures, not constituting an audit, with respect to certain
numerical data and financial information appearing in the
Registration Statement and the Prospectus, requested by you
and specified in such letter and have compared such data and
information with the accounting records of the Company and
found them to be in agreement.
(g) Concurrently with the execution and delivery of this
Agreement and at the Closing Time and at the Option Exercise Time,
County's accountants shall have furnished to you a letter, dated as of
the date of its delivery, addressed to you and in form and substance
reasonably satisfactory to you, to the effect that:
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(i) Such accountants are independent certified public
accountants with respect to County as required by the Act and
the Rules and Regulations, and the answer to Item 10 of the
Registration Statement is correct insofar as it relates to
them.
(ii) In their opinion, the financial statements and
schedules and notes examined by them and included in the
Registration Statement and the Prospectus comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations with
respect to registration statements on Form S-3.
(iii) On the basis of inquiries and procedures
conducted by them, including a reading of the latest available
unaudited interim financial statements of County, inquiries of
officials of County responsible for operational, financial and
accounting matters, a reading of the minute books of County, a
reading of the latest available interim unaudited consolidated
financial statements of County (with an indication of the date
thereof) and other specified procedures and inquiries, nothing
has come to their attention that caused them to believe that
(A) the historical amounts in "SUMMARY CONDENSED CONSOLIDATED
HISTORICAL FINANCIAL AND OPERATING DATA OF COUNTY," "SUMMARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND
OPERATING DATA OF COUNTY," "SELECTED CONSOLIDATED FINANCIAL
DATA OF COUNTY" AND "UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS" included in the Registration Statement
do not agree with or are not derivable from corresponding
amounts in the consolidated financial statements from which
such amounts were derived; (B) the unaudited financial
statements of County set forth in the Registration Statement
and the Prospectus or incorporated by reference therein do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
consistent with that of the audited financial statements; and
(C) during the period April 1, 1996, to a specified date no
more than five days prior to the date thereof, in the case of
the first letter, and not more than two business days prior to
the date thereof, in the case of any subsequent letters, there
was any change in the capital stock or debt (other than normal
payments) of County and the Subsidiaries on a consolidated
basis, or any decrease in the shareholders' equity of County
on a consolidated basis, each as compared with the amounts
shown in the balance sheet as of March 31, 1996, included in
the Registration Statement or incorporated by reference
therein or any decrease from March 31, 1996, to the specified
date, on a proportional basis with the corresponding period
for the preceding year, in revenues, net income and net income
per share of County on a consolidated basis, except in all
instances for changes, decreases or increases which the
Registration Statement and the Prospectus disclose have
occurred or may occur and except for such other changes,
decreases or increases which you shall in your sole discretion
accept.
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(iv) In addition to their examination referred to in
their reports included in the Registration Statement and the
Prospectus and the inquiries and limited procedures referred
to in clause (iii) above, they have performed other
procedures, not constituting an audit, with respect to certain
numerical data and financial information appearing in the
Registration Statement and the Prospectus, requested by you
and specified in such letter and have compared such data and
information with the accounting records of the County and
found them to be in agreement.
(h) At the Closing Time and at the Option Exercise Time, there
shall be furnished to you, on behalf of the Company, a certificate,
dated the date of its delivery, signed by both the chief executive
officer and the chief financial officer of the Company, in form and
substance reasonably satisfactory to you, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and the
documents incorporated by reference therein and (A) to his
knowledge, as of the date of such certificate and as of the
Effective Date, the statements in the Registration Statement
and the Prospectus and the documents incorporated by reference
therein are and were true and correct in all material
respects, and neither the Registration Statement nor the
Prospectus nor such document incorporated by reference omits
to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(B) since the Effective Date, no event has occurred of which
he has knowledge and which was required by the Act or the
Rules and Regulations to be set forth in a supplement to or
amendment of the Prospectus but which has not been so set
forth; and (C) since the dates as of which and the periods for
which information is given in the Registration Statement and
the Prospectus, there has not been to his knowledge any change
which would have a Material Adverse Effect, other than changes
which the Registration Statement and the Prospectus
specifically disclose have occurred or may occur subsequent to
the Effective Date.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for such purpose have been commenced or are, to the knowledge
of each signer of such certificate, threatened or contemplated
by the Commission.
(iii) The Company has not received notice that any
stop order suspending the qualification by registration of any
of the Shares under the blue sky laws of any jurisdiction has
been issued, or that any proceedings for such purpose have
been commenced, and, to the knowledge of each signer of such
certificate, no such proceedings are threatened or
contemplated by any jurisdiction.
(iv) Each of the representations and warranties of
the Company contained in this Agreement and in each
certificate and document contemplated under this
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Agreement to be delivered to you was, when originally made and
is, at the time such certificate is dated, true and correct.
(v) Each of the covenants required herein to be
performed by the Company on or prior to the date of such
certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company
on or prior to the date of such certificate has been duly,
timely and fully complied with by the Company.
(i) [Reserved]
(j) At the Closing Time and at the Option Exercise Time, there
shall be furnished to you, on behalf of the Company, a certificate,
dated the date of its delivery, signed by both the chief executive
officer and the chief financial officer of County, in form and
substance reasonably satisfactory to you, to the effect that each
signer of such certificate has carefully examined the Registration
Statement and the Prospectus and the documents incorporated by
reference therein and (A) to his knowledge, as of the date of such
certificate and as of the Effective Date, the statements in the
Registration Statement and the Prospectus and the documents
incorporated by reference therein are and were true and correct in all
material respects, and neither the Registration Statement nor the
Prospectus nor such document incorporated by reference omits to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; (B) since the Effective Date, no event
has occurred of which he has knowledge and which was required by the
Act or the Rules and Regulations to be set forth in a supplement to or
amendment of the Prospectus but which has not been so set forth; and
(C) since the dates as of which and the periods for which information
is given in the Registration Statement and the Prospectus, there has
not been to his knowledge any change which would have a Material
Adverse Effect, other than changes which the Registration Statement and
the Prospectus specifically disclose have occurred or may occur
subsequent to the Effective Date.
(k) The Company shall have furnished to you such certificates,
in addition to those specifically mentioned herein, as you may have
reasonably requested in a timely manner as to (i) the accuracy and
completeness, at the Closing Time and the Option Exercise Time, of any
statement in the Registration Statement or the Prospectus, (ii) the
accuracy, at the Closing Time and the Option Exercise Time, of the
representations and warranties of the Company herein and in each
certificate and document contemplated under this Agreement to be
delivered to you, (iii) the performance by the Company of its
obligations hereunder and under each such certificate and document, and
(iv) the fulfillment of the conditions concurrent and precedent to your
obligations hereunder.
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<PAGE> 34
(l) The executive officers and directors of the Company shall
have entered into agreements with the Underwriters and the Company to
the effect that they will not sell, contract to sell or otherwise
dispose of any Common Shares or any securities convertible into Common
Shares for a period of 180 days after the Effective Date, except Common
Shares held in trust by the Company's trust department, without the
prior written consent of the Company and the Underwriters.
(m) Except as contemplated by the Registration Statement and
the Prospectus, since the date hereof there shall not have been any
change in the capitalization of the Company or any change which would
have a Material Adverse Effect, arising for any reason whatsoever.
(n) All corporate proceedings and other legal matters relating
to the sale and transfer of the Shares, this Agreement, the
Registration Statement, the Prospectus and other related matters shall
be reasonably satisfactory in all material respects to Counsel for the
Underwriters, who shall have furnished to you, at the Closing Time and
Option Exercise Time, such opinion, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of the
aforementioned corporate proceedings and other legal matters as you may
reasonably require.
(o) Counsel for the Underwriters shall have been furnished
such documents as they reasonably may require for the purpose of
enabling them to review or pass upon the matters required by the
Underwriters and for the purpose of evidencing the accuracy,
completeness or satisfaction of any of the representations, warranties
or conditions herein contained, including, but not limited to,
resolutions of the Board of Directors of the Company regarding the
authorization of this Agreement and the transactions contemplated
hereby.
(p) Prior to and at the Closing Time and the Option Exercise
Time, in the reasonable opinion of the Underwriters: (i) there shall
have been no material adverse change in the financial or other
condition of the Company and the Subsidiaries, taken as a whole, from
that as of the latest date as of which such condition is set forth in
the Prospectus; (ii) there shall have been no material transaction
entered into by the Company or the Subsidiaries from the latest date as
of which the financial condition of the Company or the Subsidiaries is
set forth in the Prospectus, other than transactions referred to or
contemplated therein and transactions in the ordinary course of
business; (iii) neither the Company nor any of the Subsidiaries shall
have received from the Federal Reserve, the Division, the OCC or the
FDIC any direction (oral or written) to make any material change in the
method of conducting their respective businesses which would have a
Material Adverse Effect; (iv) no action, suit or other proceeding, at
law or in equity, or before or by any federal or state commission,
board or other administrative agency, or before any arbitrator or
arbitrators, shall be pending or threatened against the Company or the
Subsidiaries or affecting any of their respective assets wherein an
unfavorable decision, ruling or finding would have a Material Adverse
Effect (provided that for this Section 8(p), the Underwriters shall not
regard any proceeding to be "threatened" unless a
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<PAGE> 35
potential party has manifested to the management of the Company or the
Subsidiaries or to Counsel for the Company a present intention to
initiate a proceeding); and (v) the Shares shall have been qualified or
registered for offering and sale (or exempt from such requirements) by
the Company under the securities or blue sky laws of each jurisdiction
upon which the Underwriters and the Company shall have agreed.
(q) As of the date hereof, the Closing Time and the Option
Exercise Time, the Acquisition Agreement will be in full force and
effect; neither the Company nor FFG will have committed an act which
constitutes a breach of, or default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, any
provision of the Acquisition Agreement, which has not been remedied by
the breaching party; and the Company will not have received a
supplement to the Disclosure Letter which discloses a ground for
termination of the Acquisition Agreement.
(r) The Company, FFG and County shall have received all
necessary approvals from all applicable regulatory and supervisory
bodies, to consummate the transactions contemplated by the Acquisition
Agreement; at, or prior to the Closing Time or the Option Exercise
Time, as the case may be, no order suspending the approvals of the
transactions contemplated by the Acquisition Agreement, which have not
been satisfied, shall have been received by the Company, FFG or County.
All of the opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to Counsel for the Underwriters. You reserve the right to waive any condition
hereinabove set forth. If any condition of the Underwriter's obligations
hereunder to be satisfied prior to the Closing Time or the Option Exercise Time
is not so satisfied, this Agreement may be terminated by you prior to the
Closing Time or the Option Exercise Time, as applicable, by notice in writing or
by telegram confirmed in writing to the Company.
9. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, liabilities or
actions, joint or several (including any investigation, legal or other
expense reasonably incurred in connection with, and any amount paid in
settlement of, any commenced or threatened action, suit or proceeding
or any claim asserted), to which an Underwriter or such controlling
person may become subject under the Act, the Exchange Act or otherwise,
but only insofar as such losses, claims, damages, liabilities or
actions arise out of, or are based upon:
(i) any misrepresentation by the Company in this
Agreement, including, but not limited to, the breach of, or
any inaccuracy in, the representations and warranties of the
Company contained in this Agreement or any certificate or
other
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<PAGE> 36
document contemplated by this Agreement or any failure of the
Company to perform its obligations and covenants under this
Agreement; or
(ii) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, any document
incorporated by reference therein or any amendment thereof or
supplement thereto or in any application or other document
executed by the Company based upon written information
furnished by or on behalf of the Company and filed in any
jurisdiction in order to register or qualify the Shares under
the securities laws thereof or filed with the Commission, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that
the indemnity agreement contained in this Section 9(a) shall
not extend to an Underwriter in respect of any such losses,
claims, damages, liabilities or actions arising out of, or
based upon, any such untrue statement or alleged untrue
statement or any such omission or alleged omission, if such
statement or omission was made in reliance upon information
furnished in writing to the Company through you or on behalf
of you specifically for use in connection with the preparation
of the Registration Statement, any Preliminary Prospectus or
the Prospectus or any amendment thereof or supplement thereto
and, provided further, that the indemnity agreement provided
in this Section 9(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of an Underwriter
from whom the person asserting any losses, claims, damages,
liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged
omission was corrected has not been sent or given to such
person within the time required by the Act and the Rules and
Regulations thereunder, unless such failure is the result of
noncompliance by the Company with Section 5(a) hereof. The
Company agrees to pay any legal and other expenses for which
it is liable under this subsection (a) from time to time (but
not more frequently than monthly) within 30 days after its
receipt of a bill therefor.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, its directors, its officers
who shall have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act (i) to the same extent as the
foregoing indemnity from the Company to such Underwriter, but in each
case to the extent, and only to the extent, that any statement in or
omission from or alleged omission from the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto was made in reliance upon information furnished in writing to
the Company by such Underwriter specifically for use in connection with
the preparation of the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto,
and (ii) to the extent any such loss, claim,
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damage, liability or action arises out of, or is based upon, a failure
or alleged failure of the Underwriter to deliver the Prospectus as
required by applicable laws. Each Underwriter agrees to pay any legal
and other expenses for which it is liable under this subsection (c)
from time to time (but not more frequently than monthly) within 30 days
after receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsection (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought
against a person granting indemnification (an "indemnifying party")
pursuant to such subsections, such indemnified party shall promptly
notify such indemnifying party in writing of the commencement thereof;
provided, however, that the omission so to notify the indemnifying
party of any such action shall not release the indemnifying party from
any liability it may have to such indemnified party otherwise than on
account of the indemnity agreement contained in subsection (a) or (b)
of this Section 9. In case any such action is brought against an
indemnified party and the indemnified party notifies an indemnifying
party of the commencement thereof, the indemnifying party against which
a claim is to be made will be entitled to participate therein at its
own expense and, to the extent that it may wish, to assume at its own
expense the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that (i) if the defendants
in any such action include both the indemnified party, and the
indemnifying party and the indemnified party shall have reasonably
concluded based upon the written advice of counsel that there may be
legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying
party, the indemnified party shall have the right to select separate
counsel reasonably satisfactory to the indemnifying party to assume
such legal defenses and otherwise to participate in the defense of such
action on behalf of such indemnified party or parties; and (ii) in any
event, the indemnified party shall be entitled to have counsel chosen
by such indemnified party participate in, but not conduct, the defense.
Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 9 for
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (A) the indemnified
party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel); (B) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement
of the action; or (C) the indemnifying party has authorized in writing
the employment of counsel for the indemnified party at the expense of
the indemnifying party. An indemnifying party shall not be liable for
any settlement of any action or proceeding effected without its written
consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in
subsection (a) or (b) of this Section 9 is
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unavailable in accordance with its terms, the Company and, subject to
the limitations set forth below, the Underwriters shall contribute to
the aggregate losses, claims, damages and liabilities, of the nature
contemplated by said indemnity agreement (including any investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered any contribution received by such
party from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the
meaning of the Act, officers of the Company who signed the Registration
Statement and directors of the Company incurred by the Company and the
Underwriters) in such proportions as are applicable to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriter, on the other hand, from the offering of Shares; provided,
however, that if such allocation is not permitted by applicable law or
if the indemnified party failed to give the notice required under
subsection (c) of this Section 9, then the relative fault of the
Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such
losses, claims, damages and liabilities and other relevant equitable
considerations will be considered together with such relative benefits.
The relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, shall be deemed to be in such
proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears to the total
underwriting discount received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus and in the notes
thereto. The relative fault of the Company, on the one hand, and of the
Underwriters, on the other, shall be determined by reference to, among
other things, whether in the case of an untrue statement or alleged
untrue statement of a material fact or the omission or alleged omission
to state a material fact, such statement or omission relates to
information supplied by the Company, or by the Underwriter, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were
determined by pro-rate allocation or by any other method of allocation
that does not take account of the equitable considerations referred to
in this subsection (d). The amount paid or payable by the indemnified
party as a result of the losses, claims, damages or liabilities
referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending against or appearing as a
third party witness in any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required
to contribute any amount in excess of the amount by which the total
price at which the Shares purchased by it were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and (ii) no person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Act shall be entitled to contribution from any person who is not guilty
of such fraudulent misrepresentation. For purposes of this subsection
(d), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to
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contribution as the Underwriter. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action,
suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this
Section 9(d), notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall
not relieve the party or parties from whom contribution may be sought
or they may have under this Section 9(d) or otherwise. No party shall
be liable for contribution for any settlement of any action or claim
effected without its written consent.
(e) The respective indemnity and contribution agreements by
the Underwriters and the Company contained in subsections (a), (b), (c)
and (d) of this Section 9, and the respective covenants,
representations and warranties of the Company in Sections 3, 4, 5, 6,
and 7 hereof shall remain operative and in full force and effect
regardless of (i) any investigation made by the Underwriters, on its
behalf or by or on behalf of any person who controls the Underwriters,
of the Company or any controlling person of the Company or any director
or officer of the Company, (ii) acceptance of any of the Shares and
payment therefor, or (iii) (with respect to Section 7 and this Section
9 only) any termination of this Agreement, and shall survive the
delivery of the Shares, and any successor of the Underwriters or the
Company, or of any person who controls the Underwriters or the Company,
as the case may be, shall be entitled to the benefit of such respective
indemnity and contribution agreements. The respective indemnity and
contribution agreements by the Underwriters and the Company contained
in subsections (a), (b) and (c) of this Section 9 shall be in addition
to any liability which the Underwriters and the Company may otherwise
have to the other.
10. Termination. This Agreement (except for the provisions of Sections
7 and 9 hereof) may be terminated by you, by notice to the Company on or after
the Effective Date and prior to the Closing Time or the Option Exercise Time, if
at any time during that period any of the following has occurred:
(a) Any of the conditions specified in Section 8 hereof shall
not have been fulfilled when and as required by this Agreement to be
fulfilled or any of the covenants, representations or warranties
contained herein or in any certificate or document contemplated under
this Agreement to be delivered to you shall not have been satisfied or
fulfilled within the respective times herein provided for, unless
compliance therewith or performance or satisfaction thereof shall have
been expressly waived by you in writing;
(b) Except as disclosed in or contemplated by the Prospectus,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change
or any development involving a prospective material adverse change in
or affecting the condition (financial or otherwise) assets, business,
properties, prospects or results of operations of the Company and the
Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business;
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<PAGE> 40
(c) Any outbreak of hostilities or escalation in existing
hostilities anywhere in the world or other national or international
calamity or crisis or change in economic or political conditions, if
the effect of such outbreak, escalation, calamity, crisis or change on
the financial markets in the United States would, in your reasonable
judgment, make it impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Shares agreed
to be purchased hereunder;
(d) Any general suspension of trading in securities on the New
York Stock Exchange or the American Stock Exchange or The Nasdaq Stock
Market or any general limitation on prices for such trading or any
general restrictions on the distribution of securities, all to such a
degree as would, in your reasonable judgment, materially adversely
affect the market for the Shares, or
(e) A banking moratorium shall have been declared by federal,
Ohio or New York State authorities.
In addition you may terminate this Agreement by giving notice of a material
breach by the Company of this Agreement at any time after this Agreement becomes
effective. This Agreement may also be terminated as provided in Section 8,
however, certain terminations of this Agreement require payments by the Company
to the Underwriters as provided in Section 7.
11. Notice. Except as otherwise expressly provided in this Agreement,
(a) whenever advice or a notice, objection, designation, request or report is
given or is required by the provisions of this Agreement to be given to the
Company, such advice, notice, objection, designation, request or report shall be
in writing or by telegraph confirmed in writing, addressed to the Company and
delivered to BancFirst Ohio Corp., 422 Main Street, Zanesville, Ohio 43701-3515,
Attention: Gary N. Fields, with a copy to Emens, Kegler, Brown, Hill & Ritter,
Capitol Square, Suite 1800, 65 East State Street, Columbus, Ohio 43215-4294,
Attention: John R. Thomas; and (b) whenever advice or a notice, objection,
designation, request or report is given or is required by the provisions of this
Agreement to be given to you, such advice, notice, objection, designation,
request or report shall be in writing, addressed to McDonald & Company
Securities, Inc., Suite 2100, 800 Superior Avenue, Cleveland, Ohio 44114-2603,
Attention: Charles R. Crowley, with a copy to Vorys, Sater, Seymour and Pease,
Suite 2100, Atrium Two, 221 East Fourth Street, Cincinnati, Ohio 45202,
Attention: Terri Reyering Abare, Esq., or at such other address as a party
hereto may give notice in accordance herewith.
12. Survival of Agreements, Representations and Indemnities. The
respective indemnities and contribution agreements of the Company and the
Underwriters, the representation and warranties of the Company and the
agreements in Sections 7, 9 and 10 set forth in or made pursuant to this
Agreement shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement or any investigation made by or on behalf of
the Underwriters or the Company or any controlling person or indemnified party
referred to in Section 9 of this
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<PAGE> 41
Agreement, and shall survive any termination of this Agreement and/or the
delivery of and payment for the Shares.
13. Miscellaneous.
(a) This Agreement is made solely for the benefit of the
Underwriters, the Company, the Company's directors, the Company's
officers who shall have signed the Registration Statement and any
controlling person referred to in Section 9 hereof, and their
respective successors and assigns, and no other person, partnership,
association or corporation shall acquire or have any right under or by
virtue of this Agreement. The term "successor" or the term "successors
and assigns" as used in this Agreement shall not include any buyer, as
such, of any of the Shares from the Underwriters. All of the
obligations of the Underwriters hereunder are several and not joint.
(b) The information in the Prospectus under the caption
"UNDERWRITING" shall constitute the only information furnished in
writing by or on behalf of the Underwriters for use in connection with
the preparation of the Registration Statement as originally filed or in
any amendment thereto, any Preliminary Prospectus or the Prospectus as
the case may be.
(c) This Agreement shall supersede any agreement or
understanding, oral or in writing, express or implied, between the
Company and you relating to the sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this
Agreement or any term, provision or condition contained herein, shall
be valid or of any effect unless in writing and signed by the party
against whom such is asserted.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio applicable to contracts
made and to be performed therein without giving effect to the
principles of conflicts of law thereof.
(f) This Agreement may be signed in two or more counterparts
with the same effect as if the signatures to each counterpart were upon
a single instrument, and all such counterparts together shall be deemed
an original of this Agreement.
(g) In the event that any term, provision or covenant of this
Agreement or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder
hereof and the application of such term, provision or covenant to any
other circumstance or situation shall not be affected thereby, and each
term, provision or covenant of this Agreement shall be valid and
enforceable to the full extent permitted by law.
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<PAGE> 42
(h) This Agreement will inure solely to the benefit of and be
binding upon the parties hereto and the officers and directors and
controlling persons referred to in Section 9 hereof and their
respective successors, assigns, heirs, executors and administrators,
and no other persons will have any right or obligation hereunder.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed copies hereof, whereupon it
will be a binding agreement by and between the Company and you in accordance
with its term.
Very truly yours,
BANCFIRST OHIO CORP.
By: ___________________________
Gary N. Fields, President
Accepted as of the date
first above written:
McDONALD & COMPANY SECURITIES, INC.
By:______________________________________
Charles R. Crowley, Managing Director
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<PAGE> 1
EXHIBIT 5.1
FORM OF OPINION
___________, 1996
BancFirst Ohio Corp.
422 Main St.
Zanesville, OH 43701
Gentlemen:
We have acted as counsel for BancFirst Ohio Corp. (the "Company") in
connection with the registration under the Securities Act of 1933, as amended,
of up to 1,035,000 shares of common stock, par value $10.00. In this connection,
we have examined the Articles of Incorporation, the Code of Regulations and
amendments thereto, the directors' and shareholders' minutes and the
Registration Statement filed with the Securities and Exchange Commission,
exhibits thereto, and such other documents as we have deemed necessary to the
opinion hereinafter expressed.
We are of the opinion that the Shares are validly authorized and, upon
their sale as contemplated by the Registration Statement, will be legally
issued, fully paid, and non-assessable.
Very truly yours,
EMENS, KEGLER, BROWN, HILL & RITTER CO., L.P.A.
By:____________________________________________
John R. Thomas, Vice President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 (File
No. xxx-xxxx) of our report dated January 24, 1996, except for Note 20 as to
which date is March 27, 1996, on our audits of the consolidated financial
statements of BancFirst Ohio Corp. as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995. We also consent
to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 20, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 (File
No. xxx-xxxx) of our report dated January 26, 1996, on our audits of the
consolidated financial statements of County Savings Bank (a wholly-owned
subsidiary of First Financial Group, Inc.) as of December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995. We also
consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 20, 1996
<PAGE> 1
EXHIBIT 23.3
June 24, 1996
BancFirst Ohio Corp.
422 Main St.
Zanesville, OH 43701
Gentlemen:
We hereby consent to the reference to us appearing under the heading
"Legal Matters" in the Form S-3 Registration Statement and any amendments
thereto, and the Prospectus of BancFirst Ohio Corp. relating to its public
offering of common stock.
Very truly yours,
EMENS, KEGLER, BROWN, HILL, & RITTER CO., L.P.A.
By: /s/ John R. Thomas
-----------------------------------
John R. Thomas, Vice President
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
BANCFIRST OHIO CORP.
The Company appoints Gary N. Fields, James H. Nicholson, John R. Thomas
and Amy M. Shepherd and all four of them, any of whom may act without the
joinder of the others as its true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for it, and in its stead, in all
capacities to sign any and all amendments, including post-effective amendments
to this Registration Statement, and to file the same with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as it might or could
do in person, hereby ratifying and confirming that all said attorney-in-fact
and agent or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
BANCFIRST OHIO CORP.
Dated: June 18, 1996 By: /s/ Gary N. Fields
---------------------------------
Gary N. Fields, President
